On Lagos’ fitch ratings
A global leader in credit ratings and research, Fitch Ratings, recently upgraded Lagos State’s national long-term rating from AA+ (nga) to AAA (nga) for its good standing in terms of its debt sustainability, and resilience, thus giving the state a stable outlook. The feat was published in Fitch’s 2020/2021 rating report.
The rating action reflects the following rating drivers and their relative weights: High: Management and Administration: Fitch believes that Lagos management is becoming progressively more sophisticated. It equally rates the state high on debt management, which has improved with longer bond tenures and more loans from development banks.
The upgrade of the National Long-Term rating reflects the state’s strength, compared with national peers as well as its resilient operating performance in the thick of COVIS-19.
Lagos, Fitch disclosed, benefits from a solid revenue structure driven by IGR, which represents 70% of its N620B operating revenue at the end of 2020.
Fitch further revealed that Lagos has embarked on a number of finance cost savings initiatives over the years, through restructuring of local borrowings to reduce overall debt service obligations.
According to the globally renowned firm, in November 2020, Lagos fully retired its N87.5Bn Bond and also conducted an early redemption of its Programme 3 Series II (tranches I &III) as well as series 1 Bond in February 2021 and June 2021 respectively.
Recall that Lagos opted to recall the Bonds in order to take advantage of low yield environment (general low-interest rate) in the Money and Debt market, while making significant savings in the overall cost of debt service.
The state is on the verge of securing a new Bond Issuance at a lower coupon to replace the recalled Bond and it is poised to effectively increase its financial performance each year.
The significance of the Fitch rating is that the state’s reputation as a responsible Issuer and player in the Nigerian Capital Market is not in doubt.
This is further underscored by the fact that Lagos has successfully restructured all existing loan facilities and brought about a reduction in interest rates from an average of 18% to 12% and delivered huge savings on its debt servicing cost, thereby easing cash flow.
The N100Bn Bond that was issued in January, 2020 was listed early this year on the FMDQ Exchange, NG Exchange. This has also given greater visibility to the state, ensured transparency as well as increased the Bond Holders’ confidence.
The latest Fitch’s upgrade validates the state’s continued firm operating performance, enhanced transparency and renewed efforts towards an increasingly urbane and transparent administration, which is favorable to increasing private sector investments.
With a local GDP accounting for 20%-30% of the national GDP, Lagos is a critical driver of Nigeria’s economy. Domestic production is fuelled by its diversified economy as a commercial hub in the country, with service, construction, transport and industry making up 80% of the local economy.
In reality, the Lagos’ Fitch ratings do not come as a surprise. Today, Lagos remains a benchmark for budget implementation and performance in the country. The Sanwo-Olu administration’s first two budgets were particularly indicative of the government’s plan to address infrastructure deficit in the state.
A review of the government’s 2021 plan showed a mixture of audacity, brilliance, and a dash of hubris. The broad sweep of the budget points to capital expenditure aimed at improving the quality of citizen’s lives with a capital to recurrent expenditure ratio of 60% to 40%.
Lagos remains the most commercially vibrant and economically sustainable state in the federation. It generates the country’s largest value-added tax (VAT) revenue with a total revenue of N96.26bn between January and October 2020.
Available data shows that Lagos depends more on its internal revenue sources than its federal allocations, which points to strong internal fiscal stability and higher thresholds for fiscal shocks.
In terms of commitment to budget performance, the government has also recorded high successes that reflect not less than 70 percent annual budget performance.
The idea of quarterly budget assessment speaks volume of the pro-activeness of the government as it affords a scientific basis of measuring performance in a consistent manner, while putting pressure on the government’s departments and agencies to meet budgetary targets.
Infrastructure development is critical to achieving human capital development in any society. The economic impact that infrastructure improvement has on nation building cannot be over-emphasised.
Considering the statistics that about 85 percent of the people in the world reside in the developing world and transition economies, and with 67 percent of that population below age 35, the need for infrastructure development to support enduring development remains a matter of major concern for all nations of the world.
Without doubt, Lagos leads in terms of putting in place a concise and precise infrastructure development vision and programme in the country. It has demonstrated sincere resolve to tackle the power situation in the state through the delivery of embedded power and energy solutions that has led to the completion of not a few power plants across the state.
Similarly, the state is presently implementing a concrete intermodal transport viz-a-viz the promotion of all the three available modes of transportation. In terms of housing provision, in the last two years, the state has delivered 14 Housing Schemes, while four major ones are also ready for commissioning.
Also, in the last two years, the Sanwo-Olu administration has delivered four Mother and Child Centers (MCCs). The Centers are located in Eti-Osa, Igando, Badagry and Epe. The commissioning of the four MCCs amply demonstrates the Sanwo-Olu administration’s resolve to enhance residents’ access to healthcare.
Each of the centers has five clinics for mothers, babies and children, neonatal unit for premature babies, labor ward with delivery room, emergency clinic and a theatre for Cesarean sections in complicated deliveries among others.
In Agriculture, the state has multiplied increments in Agricultural outputs in the area of poultry, fishing, vegetable, and Agro-processing such as rice and cassava milling and transportation among others. The Sanwo-Olu administration is actually deploying agriculture as a vehicle not only to enhance food security in the State, but also to empower Lagosians for sustainable economic opportunities.
Without a doubt, Lagos is moving along the path of many countries of the world that had recognized that reliance on sustainable IGR was the first step to prosperity.
The beauty of democracy is in the opportunities it creates for people to have access to sustainable wealth. In Lagos State, in the last two years, we have witnessed governance with a strong passion for the empowerment of the people. And there is no other place to set the pace for others to follow than the ‘Centre of Excellence’.
Ogunbiyi is Deputy Director, Public Affairs, Lagos State Ministry of Information and strategy, Alausa, Ikeja.