Economic Confidential, May 2007

National News

OverN8 trillion Spent between 1999 and 2006

- NEIC Quarterly Report

The Federal Government has expended N8.707 trillion on recurrent and capital items between 1999 and 2006, while capital releases worth N640.601 billion were made for 2006. This was disclosed by the Chairman of the National Economic Intelligence Com-mittee (NEIC), Professor Ibrahim Ayagi, while presenting the fourth quarter report for 2006 to President Olusegun Obasanjo. He added that N405.436 billion was accessed by ministries, departments and agencies.

Professor Ayagi said real Gross Domestic Product (GDP) grew to 5.63 per cent in 2006, with agriculture contributing 7.17 per cent to real GDP and manufacturing contributed 9.71 per cent. Adding that telecommunications contributed 32 per cent to the GDP, while wholesale and retail contributed 13.73 per cent, leading to a 24 per cent jump in non-oil export in 2006.

On the overall assessment of the performance of the Nigerian economy between 1999 and 2006, the NEIC Chairman said it showed that the “reforms are taking Nigeria into a new era of desirable legacies of rapid economic growth and transparency, accountability, enhanced service delivery, civilised values, patriotic leadership, comprehensive development planning at the three tiers of government, citizenship rights and nation-building.”

            While commending the achievement of 8.5 per cent inflation rate, as well as the merger of official and parallel exchange rates and maximum lending rate of between 17.5 per cent and 22.5 per cent, the NEIC chairman observed that plant capacity utilisation had remained low, employment was low, while the small and medium enterprise sector had experienced slow growth.

Speaking on the performance of the 774 Local Government Areas, he said NEIC saw many completed projects during their monitoring of 600 LGAs and was convinced of the importance of the third-tier in the national scheme of things. He however said their commitment to agriculture was “depressingly low,” with an average expenditure of less than 5 per cent of total revenue going to the sector.

According to the report, the NEIC also assessed the MDG projects in the Federal Ministry of Education and reported that “the MDG projects monitored by NEIC were generally on course and the quality of work commendable”, but spoke about the need for the Ministry to “address the difficulty of accessing released funds”.

FG, States, LGs Share N330.97 in April

A total of N330.979 billion was shared from the Federation Account and Excess Crude Proceeds Account among the three tiers of government at the April meeting of the Federation Account Allocation Committee (FAAC). The revenue comprises statutory allocation of N249.727 billion, Value Added Tax of N19.337 billion and excess crude of N61.915 billion.

The Federation Accounts Allocation Committee chaired by the Minister of State for Finance, Engr. Elias Mbam, supervised the distribution of the allocations from the Federation Account at the committee’s meeting along with the Accountant General of the Federation, Alhaji Ibrahim Dankwambo.

The FAAC was attended by the commissioners of finance and accountants-general of the 36 states, and representatives of the Revenue Mobilisation Allocation and Fiscal Commission, Central Bank of Nigeria, Federal Inland Revenue Service, Nigerian National Petroleum Corporation, Nigeria Customs Service and Department of Petroleum Resources.

Mbam and Dankwambo, who briefed newsmen at the end of the closed-door meeting, said the continued drop in crude oil production necessitated the sharing of excess crude of N61.915 billion. He explained that the country was producing 2.1 million barrels per day of crude oil as against the budgeted 2.5 million barrels per day.

He said, “You know we budgeted 2.5 million barrels per day at $40 per barrel, but there is a shortfall on the budgeted quantity. We have agreed that every month we have to make up for the shortfall in crude oil production.”

The sum of N205.234 billion was shared between January and March 2007 as a result of the shortfall in crude oil production arising from the Niger Delta crisis. While N156.131 billion was shared among the three tiers of government for the shortfall in crude oil production between January and February, N49.103 billion was shared in March.

Dankwambo confirmed the issuance of mandates to the Central Bank of Nigeria to pay the share of the Federation Account’s allocations to the Federal, State and Local Governments. “We have issued mandates to the CBN to pay the allocations to the three tiers.” he stated.

On the oil marketers, the AGF said the Budget Office of the Federation would audit the claims and invoices of the marketers before FAAC approved payments for the importation of fuel in the first quarter of 2007.

A statement issued by the AGF on the meeting showed that the total funds available for sharing for April was N157.815 billion or 32.29 per cent lower than the N488.794 billion shared by the three tiers in the preceding months. Of the N249.727 statutory allocation, the Federal Government was allocated N116.753 billion (about 52.68 per cent) while the states and local governments are to receive N59.218 billion (26.72 per cent) and N45.655 billion (about 20.60 per cent), respectively. The 13 per cent derivation accounts for the balance of N28.101 billion and is to be distributed among the nine oil producing states of the federation including Delta, Rivers, Bayelsa, Akwa Ibom, Edo and Ondo.

Of the N19.337 billion VAT, the FAAC approved N2.90 billion (about 15 per cent) to the Federal Government, N9.668 billion (50 per cent) to the State Governments and N6.768 billion (about 35 per cent) to Local Governments.

The statement further stated that the sum of N70.631 billion was transferred to the Excess Crude Proceeds Account, compared to the previous month’s figure of N73.927 billion. Both the Federal Inland Revenue Service and Nigeria Customs Service were paid N829.05 million and N1.029 billion, being cost of collection for the revenue generated by the two organizations.

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SEC blacklists indicted executives of quoted companies

Govt Approves 40% Reduction In Capital Market Fees

The Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) are poised to stop directors of quoted companies who have been indicted for fraudulent practices from occupying board positions in other quoted companies. The action is reference to the expulsion for financial impropriety of the former Managing Director and Finance Director of Cadbury Nigeria Plc, Mr Bunmi Oni, and Mr Ayo Akadiri respectively.

Director General of the SEC, Mr. Musa Al-faki vowed, at a workshop on “Corporate Governance” in Lagos that anyone found culpable in the cooking of accounts of Cadbury Nigeria Plc would be sanctioned accordingly and brought to book. According to him, “the case of misappropriation of Cadbury’s financial accounts is being investigated by the commission and we will definitely bring to book those found guilty.”

Mr. Al-faki stated that all companies should adhere to corporate governance and code of conduct if they must operate within the system that is governed by ethical standards. He said the SEC and NSE have agreed to bar directors who have been indicted on account of fraud from being placed on the board of other quoted companies.

Meanwhile in another development the Securities and Exchange Commission (SEC) has received approval from the government for reduction in transaction cost in the Nigerian capital market. About 40 percent reduction in all capital market fees for both primary and secondary market transactions has been approved.

Other approvals include a new capital base for capital market operators in Nigeria, 80 percent mandatory underwriting for Public Offers and a Code of Conduct for Shareholders’ Associations in Nigeria. The cost reduction is the culmination of industry-wide efforts at ensuring that the domestic capital market is made more competitive to attract both local and foreign investments into the country.

Earlier, a Committee was set up to review transaction costs in the nation's capital market, based on the observation that the country has one of the highest fee structures in the world.

By this approval, average equities transaction cost in the primary market, which currently stands at 6.92 percent has been reduced to 4.32 percent, while transaction cost on bonds has been reduced from 7.03 percent to 4.79 percent.

            For the secondary market, total transaction costs on equities have also been reduced. Specifically, equities transaction cost on the buy side has been reduced from 4.07 percent to 2.36 percent, while the sell side is now 2.65 percent from the earlier cost of 4.12 percent. The new fee regime is effective April 24, 2007.

In addition, underwriting of all offers has now been made mandatory. All offers must henceforth be 80 percent underwritten. This is with a view to reducing incidence of undersubscription and ensuring that the issuing houses and stockbrokers have higher stakes in the issues they bring to the market. This measure, will stem the recently observed trend of price manipulation just before public offers are made.

A new minimum capital requirement for all market operators in Nigeria has also been approved. This would strengthen and reposition the operators to cope with expected challenges and global competition, in line with the objectives of the Federal Government’s economic reform program. Besides, this will encourage possible mergers among firms/companies that cannot meet the new requirements. Under the new capital market structure, which takes immediate effect, the minimum paid-up capital for Issuing Houses has been increased from N150 million to N2 billion; Broker Dealers from N70 million to N1 billion; Clearing and Settlement Agency from N500 million to N1 billion; Registrar from N50 million to N500 million.

Underwriters, who before now had a minimum capital base of N100 million, are now required to have N2 billion; Fund/Portfolio Manager from N20 million to N500 million, while Corporate Sub-brokers’ with a current capital base of N5 million is now N50 million. However, one major development is the introduction of Market Makers, whose minimum capital base is fixed at N2 billion.

Operators not affected by the upward review include Stock/Commodities Exchanges, Capital Trade Points, Commodities Brokers, Venture Capital Managers and Investment Advisers (Individual and Corporate). Others are Consultants (Individual and Corporate), Rating Agencies and Trustees. This is to encourage a smooth take off of these relatively new areas of capital market operations in Nigeria.

Following these approvals, the Commission has given existing operators up to December 31, 2008 to comply with the new capital requirements either through capital increase or mergers/acquisitions. No extension of date will be granted.

Furthermore, a Code of Conduct has been approved for Shareholders Associations in the country. The introduction of the code was informed by the observed unacceptable practices by some members of Shareholders’ Associations especially at companies Annual General Meetings, and the attendant negative impact on the market. This prompted the Commission to consult widely with the leadership of the Associations, a process which culminated in the drafting of the code and its endorsement by the shareholders.

FG Releases N222 Billion Capital Warrants to Ministries

…Closes Account Books Against frivolous Contracts

The Federal Government through the Federal Ministry of Finance has released capital warrants totaling N222 billion into its Central Capital Account in the Central Bank of Nigeria for ministries, departments and agencies (MDAs). The money is the capital vote for the second quarter for implementation of capital projects by the MDAs.

A total of N2.3 trillion was appropriated by the National Assembly for 2007, out of which N830 billion was appropriated for capital expenditure, representing about 36.1 per cent of the total federal government expenditure for the 2007 fiscal year.

The Accountant General of the Federation, Alhaji Ibrahim Dankwambo, who confirmed this, explained that the government’s target was to ensure that 50 per cent of the total capital expenditure for 2007 had been cash-backed by June.

He said, “The system is a little bit different now from what it used to be. The cash-backing is now done in full. Before when a warrant comes, the AGF can pick which items he will cash-back and which item he will leave.

“That creates a lot of corruption. Now, as soon as the warrant is released and the warrant is for lets say, for example, N10 million, I will cash-back all the N10 million into the Central Capital Account. It remains there until the capital account is closed.”

Giving details of the capital vote utilization by MDAs, the AGF said the ministries, departments and agencies accessed about N550.6 billion (about 87.2 per cent) of the total capital expenditure of N648 billion for 2006. For the first three months of 2007, Dankwambo disclosed that the MDAs have accessed N102 billion of the N235.7 billion capital vote released in the first quarter of this year.

The release of N222 billion is expected to bring the capitalization by MDAs for 2007 to 40 per cent. This is still 10 per cent lower than the 50 per cent target President Olusegun Obasanjo gave his ministries to achieve before the handover date of May 29, 2007 .

He refuted the claims of the Revenue Mobilisation Allocation and Fiscal Commission that an illegal revenue formula was being used for the sharing of the Federation Account. “What happened was that there was a reviewed revenue formula. The revenue formula review is the responsibility of the RMAFC that is passed through the executive to the National Assembly for approval. I am not sure that the RMAFC is saying that the formula is illegal.

“May be, what the commission is saying is that it is outdated. It cannot be illegal until the commission brings a new one that is approved by the National Assembly. As I am talking to you, everyday we receive amendments to the formula on derivation allocation because of adjustment of oil wells,” he stated.

Meanwhile the FG has closed all account books for capital projects of ministries and pararstatals for 2007. The closure of the accounts is part of measure to forestall unnecessary withdrawals by the MDAs ahead of the handover date.

Besides, it was learnt that the early closure would enable the new government to have some capital votes appropriated for this year to work with. The president had through intelligence reports uncovered plans by some ministers to award frivolous contracts at the tail end of the administration in order to justify planned withdrawals of capital votes their accounts.

“The president, on getting wind of some ministers’ plans, has instructed the Finance minister through a memo to close all account books for capital projects of ministries and parastatals for 2007 not later than Tuesday, April 10.” a source stated.

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Withheld Lagos LGs’ Allocations Now Down To N10.8 Billion --- AGF

Up to N10.8 billion is outstanding in the escrow account where the withheld allocations belonging to the 20 Local Governments of Lagos State are kept in the Central Bank of Nigeria, the Accountant General of the Federation, Alhaji Ibrahim Dankwambo, has revealed.

The seized Lagos LGs’ funds comprise of share of statutory allocations, Value Added Tax allocation and excess crude shared among the three tiers of government.

Dankwambo, who confirmed this in an exclusive interview with our correspondent at the weekend, said 50 per cent of the withheld funds had been released to the Lagos State local government councils, leaving the balance of N10.8 billion in the account.

The outstanding funds of the local government, according to him, will be released when the state government fully complied with the agreement reached with the Federal Government and reverts to its original 20 local governments and not 57 local governments.

President Olusegun Obasanjo had in a letter in April 2005 to the then Finance Minister, Ngozi Okonjo-Iweala, ordered the suspension of the monthly allocation to local governments in Lagos State following the creation of 37 local governments in the state bringing the total to 57.

At a point in time the seized LGs’ funds built up to over N15 billion as at December 2005 and over N22 billion in the first quarter of 2006, as the Federal Government and Lagos State Government battled at the Supreme Court over the right to withhold the state’s LGs funds.

The Supreme Court had on December 10, 2005 ruled that the Federal Government had no constitutional power to withhold funds for local councils or tamper with the Federation Account.

Dankwambo explained that the withheld funds had to do with legal issue regarding the creation of new local governments, and the use of allocations of meant for 20 local governments to fund 57 local governments.

His words: “Lagos State Government based on the advice of some of the agencies of government that were in charge of the distribution of federally collected revenue had its allocations withheld. It is a legal thing that has to do with distributing money to non existing local government councils.

“At a point in time, a certain degree of agreement was reached but 50 per cent of the money was not released to the local governments, pending the time when the state will tidy up some outstanding things. I am not sure if the state had complied with the mutual agreement.

“Up till today, there is money that has been escrowed. The Lagos State’s allocations are kept in an escrow account in the CBN. The amount of the Lagos State’s escrowed allocations is N10.8 billion. The president used all the parameters at his disposal to take that decision, which he passed to the Finance Minister to implement.”

On whether the seized funds would be paid with accrued interests whenever released, the AGF explained that as a policy the CBN does not pay interest on all government’s monies.

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