Why we cut 25% of Lagos 2020 budget –Egube, Economic Planning Commissioner


Althoughthe Lagos State Commissioner for Economic Planning and Budget , Mr Sam Egube is somewhat in the eye of the storm explaining government’s rationale for cutting off about 25 percent of its 2020 budget in the aftermath of the coronavirus pandemic,

He is indeed upbeat on the government’s resolve to drive its smart-city initiative to deliver quality service and infrastructure to the citizens.

He argues that although the coronavirus pandemic necessitated the cut of the budget from the initial N1.168trillion passed by the state legislature in December 2019, to about N920billion by the Executive now seeking legislative approval to optimise the new allocations, government’s broad objectives remained unchanged on both the revenue and expenditure sides.

According to him, the Babajide Sanwo- Olu administration would be prioritising job creation, food production and infrastructure, among others, while enjoining the citizens not to panic as the Lagos economy would bounce back soon after the COVID -19 setback. He spoke on several other issues at a session with Daily Sun at the weekend.


Reasons we’re reviewing 2020 budget

Generally speaking, our 2020 budget is being reviewed downwards due to external pressures from the coronavirus pandemic but it’s broad objectives have not changed. It’s just that we now have to focus on a number of issues to help keep the state and its economy running as expected.

The review became imperative given that with the coronavirus outbreak, we discovered that factories that produce goods and raw materials have suddenly closed down in China, movement of people on air and on land have slowed down while demand for energy has dropped leading to a glut in oil supplies in the international markets. We also saw China and Russia flexing muscles over crude supplies against the US shale.

The result of all that is that Nigeria’s earnings from oil sales have dropped and for Lagos, a 2.3per cent drop in output means about N2.3trillion in output loss.

In the first quarter of the year for instance, we recorded about N282 billion, which is 6 percent higher than our projected revenue of N267billion, while recurrent was only 80 percent of projection.

But then, the pandemic came and changed a number of things to the effect that we now have a huge unemployment challenge to contend with.

For now, the three key priorities of the Lagos government would be to maintain a strong pandemic response, restarting the Lagos economy and rethink or re-imagine what ways the Lagos economy operates.

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This is because while we had proposed to generate about N1.07trillion, the coronavirus has already caused us to lose about 40 per cent of our internally generated revenue, as we expect capital recipients to fall by 143 percent, while federal transfers will drop by 117 per cent due to falling oil sales.

You would have also noticed for instance that hotels, banks, transportation including aviation, night clubs, manufacturing and commercial activities have all gone down with their attendant consequences on the state’s revenue.Consequently, we will therefore in addition be focusing more on food supplies, social net mechanisms especially  for the vulnerable as well as economic interventions focused on Small and Medium Enterprises.(SMEs).

For instance, in restarting the economy we will be thinking jobs and jobs creation just to stimulate consumption and expenditure in the economy.

For our economic stabilisation initiative , we hope to incentivise investments that create jobs and in the area of fiscal consolidation to cancel non -essential expenses like pilgrimages and sports festivals among others.

Our stabilisation fund is to made up of 1 percent of our IGR which would enable Lagos cope with sudden shocks like the Coronavirus.

We are also going to organise our markets better and make them efficient and cleaner so we can preserve and process our agricultural produce.

Despite the challenges, and the initial setbacks of the coronavirus pandemic, the Lagos government remains firmly committed to implementing its smart city initiative which has been approved with some contracts already signed.

The government expects to use this smart city project to drive tele -education, and telemedicine among others . Already, most of our students have started receiving lectures through our online platforms including the television stations.

The same goes for our commitment to digitisation and digital boardroom which we hope to become more transplant and effective.

Management of funds from IGR and donations for COVID-19

You all work in Lagos and for that I will congratulate all of you because there is no place like Lagos because our State has the capacity and size that many countries cannot boast of. So when you are comparing apple with apple, it makes the discussion more interesting.

So lets talk about your Lagos, because it is not my Lagos, it is your Lagos. In terms of the stabilisation fund, this is a provision that was made in the budget and by the grace of God it will be approved. That money would have been remitted and we would have spent it for roads or any other thing but we are reserving it for shocks. So if you have confidence that we would do what we say we would do, then it is not the one we are saving, because we are depriving ourselves and we are saving. So what I will just like to encourage us, is that trust your government what will happen is that subsequently we shall have a guideline as to what constitute the window around which those funds can be accessed .

I am sure a bill will follow as to how it will be done, what I have just done is to just give a guide as to the provision we intend to make in that direction.

The second thing I would like to say is that this fund is not for the vulnerable but every Lagosian to protect us in times of national or global economic shocks.

I think I will also like to make a correction about the House of Assembly because if you follow the news, the very next day, he said he didn’t say so. Because if you look at it we are talking about money that didn’t even belong to the state. We are talking about money donated by people and then the House of Assembly never approached the executive to disclosed what it got before the executive went to the newspaper stand and published the names of names of donors including somebody who donated N100. So we don’t need the House of Assembly to tell you about accountability before you do it.  They said he never said so, because the money is not state government’s money and therefore there is no point for us to say that the House of Assembly said this and that. It is not the legislators business at all. You don’t audit something that you didn’t give to somebody.

So the stabilisation thing is a provision, it will not just be spent, because we have to do a law and a guideline on how and when it can spent for the good of all. It is not money we want to spend because we want to do an extra road. it is money that has to  be used only when certain conditions happen and it will be guided by law.

But for that to happen we have to start immediately as we have made a provision for it in the budget.  In terms of audit, it is transparent, we have even announced all the people that gave and what they gave. We are writing letters to them in the press, anybody whose name is not there or what he gave is not recorded correctly normally will complain to us so we can make amends.And the account itself is open for audit.

As to how much have we spent? It is an emergency fund and the protocol around it is not the process that shows up in the system. So it has to be accounted for and audited at the appropriate time.

So I don’t have the information here as to what has been spent. But I know there was a publication and the publication continues. Everything we got in kind, everything we got in cash are being audited.

Resolution of Right of Way issues telecom operators

In terms of right of way, it is just the complication but what I can tell you is that the industry is excited about what we are doing. What typically people have challenges with is that you empower one telecom company and you make it more powerful than the rest. What we have done is to tell all of them to step back and tell us where they want their ducts to pass and we are going pass that route with enough Ducts so we can just put their things and they are paying. What I know is that it is cheaper than what they pay currently in Abuja. And in any way they like the cost and they are working very hard with us to get it going.

Is your Budget review involving virement of moving fund from one expenditure line to the other

No, it is just a review and in this circumstance, a combination of things will happen. We will move from some heads to another. We will take some heads down, and take some to nowhere. First of all, about N200 billion or more will be leave, so what it means is that there will be changes. That is why we called it a review, it is also not a reorder, that is why we called it a budget review.

How to meet IGR projection amidst businesses that are challenged by COVID-19

First let us understand that where this economy was going was N1 trillion and we have now said N250 billion may not come, so we have moderated it downwards. But we did not wake up and just moderate it, we did a lot of analysis. We have information coming from the Federal Government regularly as to how things will go. We have access to analysts across the world, telling us where crude is likely to be and ranges of what prices will be. We have expert traders who sit and tell us their forecast for crude. We have estimated where consumption will go to and I will try to explain to you the counter balancing of consumption as it concern exchange rate also.

So the fact that exchange rate is going down means, what one dollar is now more naira. Even though consumption comes down it means VAT should have gone down. But exchange rate went up meaning the naira consumption, will counter balance it. That is why we are seeing only a 5 percent net decline in that area. But there are also declines around your Petroleum Profit taxes and all of those other things. So when we played this into our model and we felt the range of drop on revenue will be between 21 percent and 31percent.

Now we also then went into LRS to see what they have done from January to March and we see that they were not over turned. You can see from our first quarter report that we are ahead of budget as of March. So you take March as a hard place in that, that is what bad, you are only looking at how bad things will be. We then took a U-curve recovery a U-curve recovery is different from a V-curve recovery.  A V-curve says things will go down and then they will recover quickly, but a U-curve recovery says that they will go down and they will stay down for a while and begin to go up. Then you have an L-curve recovery which means it will go down but they will never really come up again.  So, we assumed a U-curve and we assumed certain bench marks. At that time when we were doing this the first quarter had not come out. So we had assumed an average of about 33 for the first quarter , they delivered above that.  Even now, the figures have not been audited but had thought that we can average something about 21, and 22, right now we are doing more than that.  We are not doing as great as we should but we are doing ahead of our U-curve which we prescribed.  We are doing above that U-curve and it is what convinces us that these ones will be good. And now we then compared it with the analysis of our scenarios and found it was consistent. So, we believe that would achieved even though the truth is that N248 billion is a lot, when we look at it, it is just a figure and it there are a lot of things that go up in smoke . But because of our tactical maneuvers, we are just able to still get the budget to perform in terms of projections to cover some of the things that may not make us feel we’ve missed anything.

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In the absence of job cuts what sacrifices are you expecting from staff in line with this review And also what are you investing in research , how much are you injecting to local COVID-19 vaccine research.

When we talk to Lagosians, because our staff are also Lagosians, what we said to them is that Lagos State is as good as everybody doing well.  And so we tell them don’t spend anyhow, make the sacrifice of saving but that sacrifice is not to Lagos. If you see what we have done to the salaries, we have kept it like that. Nevertheless, we still need to make sacrifices, because we are going through a tough time you cant spend as you used to spend before.

Lagos State government has given up N240 billion for the citizens to reorganise their spend, but the question is what will you personally give up? What will our staff give up? What will your staff give up? And someone might say what concerns us about you giving up some things? Because if you do well we will do well. If fail during this stressful period then it will be a challenge to the state.  So we are interested in the sacrifice you make for yourself by ensuring that you save, you don’t go into panic buying, you plan your personal resources well, you ensure you put your money in assets that are safe and are liquid and you are able to take care of your account and your revenue. Just as you will like the state to do because that is good financial practice.

We are not asking them to cut their salaries for the state , we are asking them instead of buying Amala and 5 piece of meat, they should just buy one. They should make that sacrifice for themselves.

On research, research is continuous and you are talking about medical research. I think the commissioner for health just talked about that and also the minister for health nationally is talking about that. Research is not only localised, it is international, so you also must cooperate with research findings and even that cooperation requires an investment.  But the commissioner for health did talk about what we are doing in trado-medical health research and that work is going on. We are also doing different types of research, we are testing other drugs to see how effective they are for the treatment of Coronavirus patients. I think we started testing with hyroxychloroquine, I think England is just also testing hydroxychloroquine. And when we say test kits, test kits, you remember we were asking the commissioner why don’t we do quick test kits? And he said the success rate is not very strong yet at that time. And that answer was not a happy hour answer, that answer was coming as a result of research because as these things are going on we are testing and comparing some of these kits that come with our biological grade testing and seeing whether results are consistently comparable. So those kind of researches are going on. Certainly for the health sector, you saw what we sent around COVID, it is a big additional budget coming around COVID for the health sector. But there are also other kinds of research, we are investing in the Lagos State infectious disease centre, so that is investment also in research.  We are also investing in technology innovations, we are putting seed capital of about N250 million in the technology research institute.  The idea is for people to come together with technological solutions that we can use in the state. And we have challenged them to come out with solutions which we shall patronise.

Our partnership and cooperation with banks during Covid 29 percent and when will your guidelines on MSME borrowing in the short term.

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My short term borrowing plan is what you can see in my deficit. My deficit financing, I have just picked it off from N97 billion to 108 billion. The cooperation with the banking industry is not just for Lagos, the central bank is coordinating it in several fronts. Because we have good standing and good relations with our local banks, we are working with them on a bilateral basis and they are favourably disposed to rescheduling some of the repayment year. And that is why we are able to sustain some of the investment we wanted to have, without which the amount of reduction in capital expenditure will not just be N202billion but much more than that, probably N250 or there about. The banking industry has accommodated us so that we do what we need to do for us all.  And that is the sense in which I said that they have been very cooperative.

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