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Fitch predicts N400bn revenue for Lagos by 2016

By BusinessNews Staff on September 23, 2014

Global rating agency, Fitch Ratings, has upgraded Lagos State’s national long-term rating to ‘AA+(nga)’ from ‘AA(nga)’.

It also said it expected the state’s internally generated revenue to grow above N400bn by 2016, representing an 80 per cent increase over its total revenue of N266bn in 2013.

According to Fitch, the state’s revenue structure is highly diversified compared with the national average.

This, it said, was amid continued efforts by the state to expand its revenue sources through oil-related projects.

Fitch, however, said it expected Lagos’ revenue to remain driven by services and the tertiary sectors.

The agency also affirmed the state’s long-term foreign and local currency Issuer Default Ratings at ‘BB-’ with stable outlooks and its short-term foreign currency IDR at ‘B’.

“Its N275bn MTN programme, together with its N57.5bn and N80bn bonds, which mature in 2017 and 2019, respectively, have been affirmed at ‘BB-’ and upgraded to ‘AA+(nga)’ from ‘AA(nga)’,” it said in a statement released on Friday.

“The upgrade reflects Fitch’s expectations of the state’s continued solid operating performance, improved transparency and efforts towards an increasingly sophisticated and transparent administration, which is conducive to growing private sector investments,” it said.

The agency said it expected capital spending to remain at N250bn in 2014 as Lagos continues to invest in transport (including a light metro transit and a motorway under construction), water, health, education (child-care centres) and social protection.

“We expect spending to eventually decline in 2015-2016 as a new planning period is phased in after the state elections. This should lead to narrower deficits at Lagos before achieving a balanced budget in 2015, from a peak deficit of 25 per cent of revenues in 2010.”

Fitch believes that Lagos management is becoming increasingly more sophisticated, the statement said, adding that “With the aim to progressively improve transparency and accountability to international standards, the state is improving its governance and disclosure, with budgets and quarterly performance being published on the official website.”

Fitch also noted that debt management had also improved, with longer bond tenures and more loans from development banks while ministerial departments continue to bolster collections of local taxes.

“With a local Gross Domestic Product accounting for 20-25 per cent of the national GDP, Lagos is a key driver of Nigeria’s economy despite being the smallest state by territory. 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,” the agency said.

Fitch believes that Lagos’ socio-economic indicators will further improve as local GDP growth is expected to outperform the estimated national GDP growth of seven to eight per cent in 2014, according to the statement.

It said after recording a strong 57 per cent growth in 2013, it expected Lagos to see its operating margin stabilise at around 50 per cent in the medium term, supported by growing local taxes, and by the administration’s commitment to keep cost growth in line with inflation (expected at eight to 10 per cent over the medium term).

The agency said given Lagos’ policy of attracting private sector investments to complement capex funding, it believes this would limit the state’s recourse to debt, which should remain at around two to three years of the current balance.

Fitch further said that Lagos’s debt would be at N450bn in 2014-2016, with bonds representing about 50 per cent of total debt (down to about 40 per cent when net of repayment provisions made to the sinking fund), in line with 2013 and up from about 30 per cent in 2009, and long-term debt stabilising at about 80 per cent of total debt.

[Punch]

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