Economy
Behind the Collapse of Russia-EU Partnership
By Kestér Kenn Klomegâh
With the current geopolitical developments and the new re-configuration processes seriously affecting the landscape of economic cooperation, the basic question many researchers and observers are monitoring is to understand why Russia, after the Soviet collapse, aspired to transform into a European country.
These three decades, it was, in practical terms, the dream. Russia wanted to develop and extend Europe down to the Pacific. In official speeches, phrases appeared in the direction, such as “developing solid economic cooperation from Lisbon to Vladivostok” and transforming the entire vast region into European.
On different occasions, Kremlin has held several exclusive interactive meetings with European corporate business people. Those meetings raised various issues of fundamental importance for broadening economic cooperation. From 2000 to 2010, at one point, Russian and EU businesspeople called on the Russian and EU authorities to resolve the issue of Russia’s accession to the World Trade Organisation (WTO) and began work on that basic new agreement. President of the European Commission, Jose Manuel Barroso, participated in the discussions.
Interesting and worthy to note that during his presidency, Dmitry Medvedev sent his greetings to the participants in the second European-Russian Forum held on December 8, 2008.
The message read in part: “This big event has an important role in resolving issues concerning Russia and Europe. I am sure that this forum will help to bring Russia and Europe closer together and create opportunities for promising new business and humanitarian projects.”
The forum participants, which took place in Brussels, included associations of Russians living abroad, Russian public organisations, and representatives of the European Parliament, the European Commission and the European Council.
The forum’s theme was ‘The European Union and Russia: New Challenges’, underlining Russia’s European dream.
As far back on November 24, 2006, President Vladimir Putin and the European Union leadership held an extensive meeting with the participation of members of the Russia-EU Business Cooperation Council. Taking part in the meeting with Russian and EU business community leaders were Finnish Prime Minister Matti Vanhanen, President of the European Commission Jose Manuel Barroso, and Javier Solana, secretary general of the EU Council and EU high representative for the common foreign and security policy.
The meeting between Putin, the European Union leadership and the business leaders took place behind closed doors just before the start of the Russia-European Union summit. The Russia-EU Business Cooperation Council was created in October 2005 and brought together the Russian and EU business leaders most interested in developing economic relations between Russia and the EU.
The Business Cooperation Council acts as a coordinator for practical action to develop new forms and vectors for cooperation between Russian and European businesspeople. The Council sets the objective of ensuring that the business community plays an active part in the work to draft new agreements between Russia and the European Union to replace the old partnership and cooperation agreement that expired in 2007.
The Council is responsible for coordinating work by industry and business associations to implement the project for creating a common economic space between Russia and the EU and advancing major forward-looking projects that can have a considerable impact on the structure and level of economic relations between Russia and the European Union.
Projects of this kind include cooperation in the energy sector, a joint operation of satellite communications and navigation systems and the formation of mechanisms for cooperating in sectors such as aviation, car making, metals production, energy and machine building.
The Business Cooperation Council is considered a ‘union of equals’ and has no strong link to any organisation. The principles on which the Council is formed enable it to expand and involve interested parties in its work. At that time, the Council was co-chaired by Anatoly Chubais, chairman of the board of RAO Unified Energy Systems for Russia, and by Jukka Harmala, head of Finnish company Stora Enso, for Finland.
There have been high-level meetings upon meetings – all directed at developing the Russia-EU relationship. The focus was simply on Europe, to be irreversibly part of the Global North. In 2015, Vladimir Putin took part in the plenary session of the Delovaya Rossiya celebrating the 10th year of Russian Entrepreneurs’ Day and praised the skylined level European business presence in the Russian Federation.
Precisely that same year, on May 26, Putin said, “Entrepreneurship has come to be considered one of the most important factors of Russia’s confident development. We clearly need to ensure the influx of the largest possible number of self-motivated business-minded people to production companies ready to take on responsibility for both the work of their companies and their employees. Society and the state are interested in the appearance of a large number of successful, promising foreign companies. Their creation will become a worthy response to the challenges currently facing the Russian economy.”
Nevertheless, it would be important to note that during these years, both Medvedev and Putin spoke at the plenary session of the Saint Petersburg International Economic Forum (SPIEF). On this platform, Medvedev and Putin have seriously paid special focus on European businesses compared to their Asian counterparts. Within the context of foreign economic cooperation, Africa was completely not known during those earliest formative years of SPIEF.
Not long ago, on June 17, 2016, Putin, at the plenary session of the 20th St Petersburg International Economic Forum, emphasized that the platform served as a venue for discussing strategic issues. In his views on Russia in the changing world, he explained the systemic problems besetting the global economy and practically all countries.
According to him, the world’s leading economies are looking for sources of growth, and they are looking to capitalise on the enormous existing and growing potential of digital and industrial technologies, robotics, energy, biotechnology, medicine and other fields. Discoveries in these areas can lead to true technological revolutions and explosive growth of labour productivity. This is already happening and will happen inevitably; there is an impending restructuring of entire industries and the devaluation of many facilities and assets. This will alter the demand for skills and competencies, and competition will escalate in traditional and emerging markets.
Putin underlined the fact that it was necessary to proceed from a network of bilateral and multilateral trade agreements that envisage a varying pace, extent and level of interaction and the extent of market openness, depending on specific national economies’ readiness for teamwork, with an understanding on joint research, educational and high-tech projects. All these agreements should be future-oriented and provide the basis for harmonious joint development resting on equal and effective cooperation.
“As early as June, we, along with our Chinese colleagues, are planning to start official talks on the formation of comprehensive trade and economic partnership in Eurasia with the participation of the European Union states and China. I expect that this will become one of the first steps toward the formation of a major Eurasian partnership. We will certainly resume the discussion of this major project at the Eastern Economic Forum in Vladivostok in early September. Colleagues, I would like to take this opportunity to invite all of you to take part in it,” he said at the forum.
The “Greater Eurasia” project – is, of course, open for Europe, and such cooperation is mutually beneficial. Despite all of the well-known problems in the relations, the European Union remains Russia’s key trade and economic partner, Putin said and added: “It (EU) is our next-door neighbour, and we are not indifferent to what is happening in the lives of our neighbours, European countries and the European economy.”
The challenge of the technological revolution and structural changes are no less urgent for the EU than for Russia. I also understand our European partners when they talk about the complicated decisions for Europe that were made at the talks on the formation of the Trans-Atlantic partnership. Obviously, Europe has vast potential, and a stake in just one regional association clearly narrows its opportunities. Under the circumstances, it is difficult for Europe to maintain balance and preserve space for a gainful manoeuvre.
As the recent meetings with representatives of the German and French business circles have shown, European business is willing and ready to cooperate with this country. Politicians should meet businesses halfway by displaying wisdom and a far-sighted and flexible approach. It is necessary to return trust to Russian-European relations and restore the level of cooperation.
He, however, acknowledged there were some pitfalls. Russia did not initiate the current breakdown, disruption, problems and sanctions. “All our actions have been exclusively reciprocal. But we don’t hold a grudge, as they say, and are ready to meet our European partners halfway. In this context, let me repeat that we are interested in Europeans joining the project for a major Eurasian partnership. This can, by no means, be a one-way street,” Putin added in his speech.
In closing, the plenary session moderator, CNN host Fareed Zakaria, offered Putin his last remarks.
Putin said: “We agree on some points and disagree on others, but there are still more things that unite us – this is absolutely clear. After all, Europe is Europe. The foundations of its economy don’t give us reason to believe that Europe will come to an end at any point, no matter what internal processes are playing out. It is our leading trade and economic partner. We have here the leader of a European country – Italy, and the leader of Kazakhstan – our closest partner and ally with which we are building an integration association. Today, we have gathered everyone together.”
Quite recently, Putin rained praises on French businesses in the Russian Federation. It was precisely on April 29, 2021, Putin held a videoconference with leaders of several French companies – members of the Franco-Russian Chamber of Commerce and Industry (CCI France-Russia) to discuss some aspects of Russian-French trade, economic and investment cooperation, including the implementation of large joint projects as well as the prospects for collaborative work.
From the historical records, France has been and remains a key economic partner for Russia, holding the 6th place among EU members in the amount of accumulated investment in the Russian economy and 5th place in the volume of trade. Despite a certain decline in mutual trade in 2020 (it went down by 14 per cent compared to 2019), the ultimate figure is quite acceptable, at $13 billion. French investment in Russia was hovering around $17 billion, while Russian investment in France was meagre at $3 billion.
Over 500 companies with French capital were operating in various sectors of the Russian economy. French business features especially prominently in the Russian fuel and energy complex, automobile manufacturing and, of course, the food industry. “It could have been more if the French regulatory and state authorities treated Russian businesses as Russia is treating French businesses. We appreciate that in a difficult economic environment, French companies operating in Russia have not reduced their activity,” Putin pointed out in the speech, addressing them.
“We are interested in involving foreign companies that want to invest in Russia and projects we consider high priority. In order to do this, we will continue to use preferential investment regimes and execute special investment contracts, as you know. A lot of French companies successfully use these tools in the Russian market. For example, more than one-third of 45 special investment contracts have been signed with European, including French, partners,” he explained during the meeting.
He further mentioned continuous efforts to attract foreign companies to localise their production to state purchases and to implement the National Development Projects, as well as existing opportunities for French businesses in special economic zones. Today, there are 38 such zones created throughout the Russian Federation.
Russia pays particular attention to attracting high-quality foreign specialists. Their employment is being fast-tracked, and their families can now obtain indefinite residence permits, with plans to launch a special programme of ‘golden visas’ whereby to issue a residence permit in exchange for investment in the real economy, a practice that is used in many other countries.
Taking his turn, Co-Chair of the CCI France-Russian Economic Council, Gennady Timchenko, noted that the pandemic had changed the world, people and business and that French companies in Russia are responsible employers and socially responsible members of Russian society.
Despite the crisis and the geopolitical situation, a number of French companies launched production in 2020–2021. Despite the current geopolitical conditions and information field, there are important signals for French business and the Russian side to strengthen economic cooperation, attract investment, and create partnerships on a new mutually beneficial basis.
Co-Chair of the CCI France-Russian Economic Council, Patrick Pouyanne, noted that the meeting had become an excellent tradition; the presence of 17 CEOs and deputy CEOs of French companies showed the importance of these joint meetings further reflected the deep interest of French business in Russia.
In addition to the above, Foreign Minister Sergey Lavrov has several times held meetings with European Union members. With the same perception, despite the challenges today, that diplomacy has to continue playing an important role in settling differences and that businesses could convincingly create bridges to strengthen investment and economic cooperation between Russia and the European Union.
Lavrov has often reiterated Russia’s recognition of the enormous significance and invaluable contributions of European businesses. The stark reality is that Russians simply adore European brands at the expense of their local brands. That makes European businesses, their products and services sold in the Russian Federation. European enterprises have prominently made their presence always at the St Petersburg International Economic Forum. As an association, it adheres to the principle of cooperation. It marked 25 years in 2020 in Russia.
Over the years, the Association of European Business has held corporate meetings with the participation of top Russian politicians and business stalwarts. In St. Petersburg, Foreign Minister Sergey Lavrov has always been the guest speaker during special panel sessions, with the participation of the Association of European Business, highlighting with an appreciation their various efforts in promoting economic, investment and trade ties, laying the solid foundation for building good relations between Europe and Russia.
The last time Lavrov addressed the gathering, he stressed the fact there were alarming geopolitical trends that have also affected Russia-EU relations. “We regret that trade and economic cooperation is becoming increasingly politicized. Trade and economy have been viewed as a safety net in relations among nations. Nowadays, though, things seem to have shifted into a somewhat different phase,” Lavrov told the business gathering.
“Politicized energy cooperation is yet another blow at the foundations of what we call European security. Energy is an area of cooperation dating back over 50 years. Protectionism and other barriers and restrictions will only aggravate the economic situation, which is already complicated. By the way, we noted that the Confederation of European Business published recommendations to protect European businesses amidst sanctions-related restrictions,” he added.
Nevertheless, Lavrov suggested the discussions become a global economic driver, firmly believing that it is in common interests to prevent the appearance of undesirable dividing lines in the new economic spheres created by the new technological paradigm. It is a strong conviction that this calls for combining efforts rather than trying to play zero-sum games again, as was the case in the past. Russia is ready for cooperation on the broadest possible basis.
Obviously, the future Russia and European business relations can still be consolidated despite the current political differences, Lavrov said with high optimism. Russia is ready to build its relations with the European Union along with some principles. The European Union remains its important trade partner. As before, there is optimism that both are open to cooperation; European partners are keen on building businesses in the economic space from Lisbon to Vladivostok, this vast country and in the Eurasian region.
The interest in strengthening and diversifying trade and economic ties has grown since the Soviet collapse. According to statistics, Russia’s trade with the European Union reached almost $300 billion in 2019. The Association of European Business, which unites European companies, believes that both business circles and business diplomacy can and should make a useful contribution to restoring mutual trust and confidence in the business sphere. Under its aegis, European businesses show readiness to expand cooperation and implement mutually beneficial joint projects across Russia.
Here is a bit of an interesting point about Russia’s demography. Records show that European Russia accounts for about 75% of Russia’s population. But the documents further indicate that 1.8 million Russians live in the European Union (the majority in Britain, Germany and France). But then, the rhetorical questions are: Can Russia lead the emerging global economic order? Is Moscow a financial hub and host to international organizations’ offices as in New York and Washington, and in Europe? Is this the end of Russia’s European dream?
During the past several years, Putin’s meetings with EU members included those such as Germany, Italy, France, Spain, et cetera. In addition to Putin’s meetings, Foreign Minister Sergey Lavrov and the Economic and Development Minister held a series of high-level meetings, and both the Federation Council and the State Duma consistently discussed multiple issues relating to the cooperation between Russia and European Union. With the global changes and the war on Ukraine that necessitated the imposition of stringent sanctions, Russia has gunned down its post-Soviet dream of becoming purely European. In this emerging new world, despite the sharp differences among the former Soviet republics, Russia might only and eventually remain part of Greater EurAsian instead of European Union.
Finance may be the single most essential element when it comes to the progress and sustainability of businesses in Nigeria. The level of funding available to businesses, small and big, determines their ability to function, grow, and compete. The Nigerian business environment, due to the interplay between the local economy, financial institutions, government, and private investors, offers multiple financing opportunities. The dynamics of these financing opportunities helps business owners and managers make the right decisions that best respond to their objectives and the level of risk they are willing to take.
Start your Livescorebet registration and discover more as this article analyzes the different sources of business finance in Nigeria in a systematic and detailed manner. It defines and explains internal and external financing options and the criteria relevant businesses may use in their search for the best financing instrument.
Understanding Sources of Business Finance
Before one can delve into the different options of business financing available, it is important to define business finances and categorize it. The objective of this is to establish a foundation for understanding the extent to which some options may be more appropriate for different businesses than others.
What Are Sources of Finance?
Sources of finance are how a business acquires funds to begin activities, settle daily operations, or pay for additional business activities like acquisitions, expansions, and long-term projects. Businesses may need to finance the purchase of new equipment, hire and pay additional staff, manage business cash flow, develop new products, or finance the expenses required to enter or compete in new markets.
In Nigeria, the Sources of finance are determined by interest rates, availability of bank services, regulations, and the growth stage of capital markets, among other things. A business may use its own cash resources, borrow from a financial institution, receive funds from an investor, or receive a government grant or other government-funded assistance program. Each of these also offers different-related costs, obligations, and levels of control.
Types of Finance: Major Categories
Business finance is typically subdivided into two larger subsets: internal finance, and external finance. Internal finance is from the business and its resources; external finance is from third parties.
The classification of finance by time is also an option. Short-term finance is used for the working capital needs like inventory and operational expenses. Medium-term finance is used for the purchase of an asset like a machine. Long-term finance is used for significant investments like expansion or infrastructure. These classifications often overlap with internal and external sources and help a business structure their financing efficiently.
Key Principles and Examples
Cost is the most influential principle when it comes to the choice and method of utilizing finance. Aspects like interest and dividends affect profitability. Additionally, other opportunity costs must also be focused on. Another principle is risk. Increased borrowing equates to an increase in financial obligations. Control and flexibility are also essential, especially in terms of the original decision makers.
For instance, a small retail shop could potentially rely on the profits previously obtained to purchase stock and restock their shelf. On the other hand, a manufacturing business may need to obtain a bank loan in addition to leasing an arrangement in order to get the needed equipment. These principles must be understood so that finance can be used to support the objectives of the company.
Internal Sources of Business Finance
Internal sources of finance are the finance obtained within a business without the need of external lenders or investors. These sources are often preferred as with them, the business relies a minimal amount on external parties to minimize financial risk.
Retained Earnings
Profits that a company reinvests rather than giving out to owners or stockholders is called retained earnings. Within Nigeria, retained earnings is a common type of financing for SMEs that do not have access to external funding.
This type of financing is cost effective as it does not incur interest or have repayment schedules. Retained earnings financing ensures owners have complete operational control. However, retained earnings depend on profitability, meaning they can be limited or unavailable for new businesses or those that are struggling. Overreliance on retained earnings can also slow expansion if significant capital is needed for growth.
Ordinary (Equity) Shares
For incorporated businesses, it is understood that issuing ordinary shares is considered an internal source if funding is collected from existing owners/shareholders. When an owner nets additional funding, they are strengthening the business’ finances without taking on additional debt.
Equity shares do not have to be paid back, relieving some pressure from cash outflows. This does mean that ownership and profit rights, in the form of dividends, will be repealed. Equity financing in Nigeria is more prevalent in larger businesses and startups with growth potential, especially those that are preparing for future investment rounds or new public listings.
Other Internal Sources
The other internal sources include the streamlining of cash flows, the sale of unused assets, and the reduction of working capital. For instance, a business might dispose of old vehicles or equipment to obtain cash for more productive investments. Likewise, enhanced control of inventories and the speedy collection of receivables can liberate cash for other operational uses.
The techniques described here are often undervalued, especially since they provide short-term relief without incurring external liabilities. Nevertheless, the main limitation of these techniques is scale. They are unlikely to provide the necessary funds to sustain larger projects.
External Sources of Business Finance
External sources imply sourcing funds from outside the business. These sources are particularly necessary for new ventures and rapidly expanding businesses as well as for capital intensive industries.
Bank Lending
Bank lending is, and continues to be, a major source of business finance in Nigeria. Commercial banks, microfinance banks, and development finance institutions all grant businesses loans, overdrafts, and other credit facilities.
Bank loans are easier to obtain and can provide in a short time big amounts of money, making them more attractive for funding major business expansions and for acquisition of new assets. However, such loans are usually associated with a range of challenges such as high-interest rates and demands for strict repayment periods and collateral. Many Nigerian SMEs do not easily gain access to such bank credit due to their limited credit history and insufficient collateral.
Loan Stock
Loan stock is a long-term debt financial instrument provided by companies to obtain funding from customers and pays a fixed interest and is repaid after a determined time. In Nigeria debt stock is more prevalent with large established companies.
A loan stock has the benefit of providing long-term financing without losing partial company control. But the financial risk of the company rising during poor economic times increases, as loan interest rates must always be paid.
Venture Capital
Venture capital, funds provided by the investors of a business with the potential of high growth, is in exchange for equity. Venture capital in Nigeria is more common in technology, fintech, and agri-business.
Venture capitalists do not just provide funding; they also provide their experience in the field, their connections, as well as their planning and do-adding-knowledge, making it highly beneficial for new companies. However, these investors more often than not expect the high amounts of profit; therefore, a greater stake of their ownership of the valuable business is lost.
Leasing and Hire Purchase
Hire purchase and leasing, in asset financing, provide the means for firms to use equipment without the need to make the full payment for the equipment up front. Leasing allows the renting of a fixed-term asset, while hire purchase enables the attainment of the full ownership of the asset after making a series of payment installments.
These techniques are common in Nigeria for acquiring college textbooks, vehicles, office technology, etc. These techniques allow one to maintain positive cash flow, while avoiding large capital expenses. The main disadvantage is the total expenditure is higher than buying the item outright.
Government Assistance and Grants
The government of Nigeria, through its various agencies, has a wide range of funding programs aimed at supporting businesses, particularly for Small and Medium Enterprises (SMEs) and start-ups, which come in the form of grants, subsidised loans, and intervention funds.
When it comes to government assistance, there are lower interest rates for longer periods of time, more flexibility for the beneficiary. However, the availability of such assistance is often restricted, which is often accompanied by complex application procedures and lengthy delays. At the end of the day, although there is a lack of availability, government funding is still a major contributor to the country’s entrepreneurship base development and the economy’s overall growth.
Franchising
From a financing standpoint, franchising is a business model where an entrepreneur receives the right to operate a business under a specified brand for a fee or royalty. While it is not a direct cash resource, the model helps startup a business with lower risk and reduces the financing needed as it comes with brand recognition and an established business system.
In Nigeria, franchising is an approach that is widely adopted, particularly in the food services and hospitality industries. It is especially helpful to startups, as they do not need to build a business model from scratch, and if they need it, the franchising becomes a solid base for acquiring additional funds.
How to Choose the Right Source of Finance
How to choose the right Source of Finance will need balancing what the business needs, how much money is available, and the other goals they want to accomplish over time, since finance refers to how a business entity plans to raise funds from various sources of finance to support business operations and long-term business development.
Step-by-Step Approach to Choosing a Source of Finance
The first thing to do is say what the finance will go towards. Will it be designed to go towards working capital, purchasing raw materials, buying new assets like a new factory, or is it going to be used for expanding into new markets and securing capital for growth? After that, the company decides how much money it will need and how long it will need it for. This helps clarify whether the required sources of funds fall under short-term sources, often needed within one year, or long-term sources used to finance strategic investments.
The 3rd thing to do is to look at the advantages and disadvantages of each funding option, including risks and costs. Some of these will be interest payments, specific repayment terms, and whether financing involves debt or equity financing, which may dilute ownership or preserve the owner’s control. The business must assess if it will rely on borrowed funds, a secured loan, or equity capital, and whether it can manage repayment with interest, including principal and interest, without risking default or bankruptcy. In the end, the business should look at what it will be able to do and whether it should mix together a few main sources from various sources of finance to meet different business needs.
Factors Affecting the Need for Finance
There is a range of different reasons, that can affect the decisions that are made. Things like how big the business and what point in its lifecycle it’s at, which sector it’s in, and how stable its cash flow is. A new business is likely to need finance in the form of equity and government programs while an older company will likely go for a bank loan or use the money that is already in the company.
The economic climate will also have an influence on the cost and availability of finance in a certain country. Things like inflation and interest rates can make it more difficult to get finance in a certain country. Also the absence of certain regulations and the rules that have to be followed will affect what kind of external finance can be used or what type of external finance will be available.
Comparing Major Sources at a Glance
Internal sources lack scale but are less risky and cheaper. External sources are costly and more risky but can provide larger amounts. Equity financing is less risky in terms of repayments but ownership is diluted, while in debt financing, control is maintained but the risk is higher. Businesses need to understand these trade-offs to incorporate financing into their business strategy.
Conclusion
There are several sources of business finance in Nigeria, and these continue diversifying with the progress of the economy and the financial sector. Each of these sources, from internal such as retained earnings, to external like bank lending, government programs, and venture capital, are tailored to address specific business requirements.
This understanding enables entrepreneurs, managers to make accurate and timely decisions, mitigate risks, and facilitate growth. The optimal level of financing is more than a simple matter of availability as is often the case with entrepreneurs, but ensuring the financial architecture of the business is coherent with its objectives in the long term.
FAQs
What is the difference between internal and external sources of finance?
Internal sources are from the business itself like retained earnings and selling of assets, while external sources are from outside the business like banks, investors and government programs. Internal finance poses less risk, but external finance allows access to much larger funds.
How can startups access venture capital in Nigeria?
Accessing venture capital entails constructing sound business models, designing robust business plans, and then forming relationships with investors through incubators, accelerators, and other platforms. A clear organizational structure and the ability to catalyze substantial interest are invaluable.
What are the advantages of retained earnings as a source of finance?
The cost of retained earnings as a source of finance is low, as money does not need to be repaid. Furthermore, the business owner does not need to share control over the company. Retained earnings are also complementary to the financial position of the business. On the downside, retained earnings can only be used if a business is profitable, and may restrict growth if insufficient profits are generated.
How does leasing differ from hire purchase?
When leasing, a company can use an asset for a specified period of time, but ownership stays with the original owner. In hire purchase agreements, a business can use an asset for a specified time but takes ownership after making the required payment. A leasing agreement is flexible but hire purchase agreements are better for a purchase where an ownership is intended.
What government programs are available for business funding in Nigeria?
The Nigerian government, through its development finance institutions and government agencies, provides a wide range of activities, including lending to small and medium enterprises, offering intervention funds, as well as providing grants. These activities aim to support entrepreneurial activities, stimulate job creation, and develop specific sectors.
By Adedapo Adesanya
The Lagos Chamber of Commerce and Industry (LCCI) has noted that the N15.52 trillion allocation to debt servicing in the 2026 budget remains a significant fiscal burden.
LCCI Director-General, Mrs Chinyere Almona, said this on Tuesday in Lagos via a statement in reaction to the nation’s 2026 budget of N58.18 trillion, hinging the success of the 2026 budget on execution discipline, capital efficiency, and sustained support for productive sectors.
She noted that the budget was a timely shift from macroeconomic stabilisation to growth acceleration, reflecting growing confidence in the economy.
She lauded its emphasis on production-oriented spending, with capital expenditure of N26.08 trillion, representing 45 per cent of total outlays, and significantly outweighing non-debt recurrent expenditure of N15.25 trillion.
According to Mrs Almona, this composition supports infrastructure development, industrial expansion, and productivity growth.
However, she explained that the N15.52 trillion allocation to debt servicing underscored the need for stricter borrowing discipline, enhanced revenue efficiency, and expanded public-private partnerships to safeguard investments that promote growth.
She added that a further review of the 2026 budget revealed relatively optimistic macroeconomic assumptions that may pose fiscal risks.
“The oil price benchmark of $64.85 per barrel, although lower than the $75.00 benchmark in the 2025 budget, appears optimistic when compared with the 2025 average price of about $69.60 per barrel and current prices around $60 per barrel.
“This raises downside risks to oil revenue, especially since 35.6 per cent of the total projected revenue is expected to come from oil receipts.
“Similarly, the oil production benchmark of 1.84 million barrels per day is significantly higher than the current level of approximately 1.49 million barrels per day.
“Achieving this may be challenging without substantial improvements in security, infrastructure integrity, and sector investment,” she said.
Mrs Almona said the exchange rate assumption of N1,512 to the Dollar, compared with N1,500 in the 2025 budget and about N1,446 per Dollar at the end of November, suggests expectations of a mild depreciation.
She said while this may support Naira-denominated revenue, it also increases the cost of imports, debt servicing, and inflation management, with broader macroeconomic implications.
The LCCI DG added that the inflation projection of 16.5 per cent in 2026, up from 15.8 per cent in the 2025 budget and a current rate of about 14.45 per cent, appeared optimistic, particularly in a pre-election year.
She also expressed concern about Nigeria’s historically weak budget implementation capacity, likely to be further strained by the combined operation of multiple budget cycles within a single year.
Looking ahead, Mrs Almona identified agriculture and agro-processing, manufacturing, infrastructure, energy, and human capital development as key drivers of growth in 2026.
She said that unlocking these sectors would require decisive execution—scaling irrigation and agro-value chains, reducing power and logistics costs for manufacturers, and aligning education and skills development with private-sector needs.
The LCCI head stressed the need to resolve issues surrounding the Naira for crude, increase the supply of oil to local refineries to boost local refining capacity and conserve the substantial foreign exchange used for fuel imports.
“Overall, the 2026 Budget presents a credible opportunity for Nigeria to transition from recovery to expansion.
“Its success will depend less on the size of allocations and more on execution discipline, capital efficiency, and sustained support for productive sectors.
By Dipo Olowookere
The Nigerian Exchange (NGX) Limited witnessed Santa Claus rally on Wednesday after it closed higher by 0.12 per cent.
Strong demand for Nigerian stocks lifted the All-Share Index (ASI) by 185.70 points during the pre-Christmas trading session to 153,539.83 points from 153,354.13 points.
In the same vein, the market capitalisation expanded at midweek by N118 billion to N97.890 trillion from the preceding day’s N97.772 trillion.
Investor sentiment on Customs Street remained bullish after closing with 36 appreciating equities and 22 depreciating equities, indicating a positive market breadth index.
Guinness Nigeria chalked up 9.98 per cent to trade at N318.60, Austin Laz improved by 9.97 per cent to N3.20, International Breweries expanded by 9.85 per cent to N14.50, Transcorp Hotels rose by 9.83 per cent to N170.90, and Aluminium Extrusion grew by 9.73 per cent to N16.35.
On the flip side, Legend Internet lost 9.26 per cent to close at N4.90, AXA Mansard shrank by 7.14 per cent to N13.00, Jaiz Bank declined by 5.45 per cent to N4.51, MTN Nigeria weakened by 5.21 per cent to N504.00, and NEM Insurance crashed by 4.74 per cent to N24.10.
Yesterday, a total of 1.8 billion shares valued at N30.1 billion exchanged hands in 19,372 deals versus the 677.4 billion shares worth N20.8 billion traded in 27,589 deals in the previous session, implying a slump in the number of deals by 29.78 per cent, and a surge in the trading volume and value by 165.72 per cent and 44.71 per cent apiece.
Abbey Mortgage Bank was the most active equity for the day after it sold 1.1 billion units worth N7.1 billion, Sterling Holdings traded 127.1 million units valued at N895.9 million, Custodian Investment exchanged 115.0 million units for N4.5 billion, First Holdco transacted 40.9 million units valued at N2.2 billion, and Access Holdings traded 38.2 million units worth N783.3 million.
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