Earlier this year, the Lagos State Government launched the long-awaited Blue Line rail, connecting thousands of people between Marina and Mile 2. The project was announced with much fanfare and the state government implemented a 50 percent discount on all fares.
“The Blue Line Rail is one of the rail projects designed to make Lagos a fully interconnected city and it will transform our city’s transport system,” Governor Babajide Sanwo-Olu said at the time. The Red Line rail, a 37km route from Agbado to Marina, is expected to be launched next, as early as next year.
The rail projects are only a subset of the projects embarked upon by the Sanwo-Olu administration. The state has collaborated with the private sector to launch the Lekki Deep Sea Port. It has proposed and initiated plans to construct the Fourth Mainland Bridge. Work has progressed on the Opebi-Mende-Ojota link bridge. In some ways, Lagos is a construction yard.
But all these projects cost money. According to the nonprofit BudgIT, Lagos witnessed a capital expenditure growth of 53.16 percent between 2021 and 2022. In 2022, the state government budgeted N449.36 billion for capital expenditure. In 2023, that figure rose to N482.86 billion. The trend is expected to continue in 2024.
While this may be commendable, the state’s debt is also ballooning.
As of December 2022, BudgIT notes, Lagos was the state with the highest debt stock across the Nigerian federation with a total debt of N1.37 trillion. Of this amount, N807.21 billion was domestic debt while foreign debt was $1.25 billion (or N560 billion, if an exchange rate of N448 to $1 is adopted). Of course, based only on exchange rate depreciation, Lagos’ foreign debt has almost doubled. “The floating of the naira has placed Lagos . . . in a very precarious fiscal position,” the analysts at BudgIT write.
Although they note that Lagos has better debt sustainability than some other states in Nigeria, “its debt-to-revenue ratio is creeping to unsafe territory, at 146.89 percent (the limit is 200 percent).”
In November 2022, the American credit rating agency, Fitch, downgraded Lagos’ Long-Term Foreign-and Local-Currency Issuer Default Ratings (IDRs) to ‘B-‘ from ‘B’, following a similar downgrade for the entire country. But no one seemed to be paying attention to Fitch’s rationale for the downgrade, which includes a risk that the state, in the next few years, could return “lower-than-expected revenues, higher-than-expected expenditure or an unexpected rise in liabilities or debt-service requirements.”
In fact, the state government appears to have continued to operate business-as-usual. In May 2023, the Sanwo-Olu administration said it had raised N134.8 billion in long-tenure bonds to boost key infrastructure projects across the state. The bond is part of a N1 trillion debt and hybrid issuance programme, according to a government statement.
One of the few voices that challenged the borrowing programme was Mr Funso Doherty, the gubernatorial candidate of the Action Democratic Congress (ADC) in the 2023 general election. Mr Doherty noted that the state continues to borrow heavily despite significant growth in tax revenues. More importantly, Mr Doherty argued, increased borrowing has not translated into “substantial overall advancement in human development indices and living standards of the people.” Mr Doherty stressed that Lagos has consistently ranked low in global ‘quality of life’ rankings. For example, in the 2023 Global Liveability Index report by the Economist Intelligence United (EIU), Lagos was ranked 170 out of 173 global cities. And that’s even an improvement. Between 2019 and 2021, Lagos had ranked 172, just behind war-torn Damascus, Syria.
“In my opinion, the government of Lagos State must transition from its existing, extractive model of governance,” Mr Doherty said. “This means dealing decisively with its self-serving hegemony which some call ‘godfatherism’, the activities of corrupt elements in public office and the civil service, pervasive conflicts of interests and dominant vested interests, all of which have created a wide gulf, over the last quarter century, between government’s use of the people’s resources and what the people of Lagos really need.
“If we fail to do this, it is certain that our resources will continue to be misdirected, diverted and misused; our future will be mortgaged through ever-expanding Government borrowing, our development over the next generation will remain tragically stunted and poverty will be widespread.”
The poverty is already palpable. Ahead of the yuletide, prices of food in Lagos markets are soaring at a rate many cannot afford. One mother of five said her family has dumped chicken and turkey for ponmo, shawa and kote fish. But Lagos government officials have not announced any reduction in spending.
To be sure, borrowing for capital spending is not the problem, but how judiciously the money is spent. For example, Governor Sanwo-Olu has said the rail projects will cost well over N100 billion but no one really knows how much the project has gulped since its initiation at the start of this century. Capital expenditure can have a positive impact on the economy both in the short and long term, but Lagosians must keep this government accountable or the debt will choke citizens to death while the politicians and their cronies fatten up.