•Lagos, Imo, Ogun, Bauchi, Oyo, Adamawa most affected
•How NGF has been assisting states to boost their IGR — DG
•Says it helped states grow revenue from N707.9 bn in 2014 to N1.1 trn in 2018
•How we can make states viable —Stakeholders, experts
•EK Clark, Oke, Ekpo, Onyekpere,
Adenikinju, others speak
LAGOS — AFTER the euphoria of their swearing-in, state governors, especially 12 of them, who are first timers will face major hurdles that may hurt their ambitious plans for their states.
One of the hurdles is huge debts. Another is low internally generated revenue. Combined, the two hurdles have rendered most of the states non-viable.
2019 Elections: Police report vindicates Akwa Ibom people – AILM(Opens in a new browser tab)
Currently, most of the states depend precariously on federal allocation for survival, a reason some experts and stakeholders are calling for fiscal federalism and devolution of power to the federating units to make the states economically viable.Highly indebted states
States’ IGR hits N324.59bn in Q4, 2018 – NBS(Opens in a new browser tab)
According to domestic debt data for the 36 states and the Federal Capital Territory, FCT, Abuja as of December 31, 2018, the states are indebted to the tune of N3.853 trillion. The debt stock figure for Katsina State was N30.853bn as of December 31, 2017.
The N3.853 trillion debt excludes bonds raised by the states and foreign states.
Among the new governors, Babajide Sanwo-Olu of Lagos is shouldering the biggest debt burden. Lagos is owing N530.244 billion, which is higher than the N309.920 billion debt stock of the five states of the South-East; N403.028 billion of the North-East; and N433.682 billion of the North-West (see table).
Following Sanwo-Olu, is Governor Emeka Ihedioha of Imo State, who has a debt of N98.782 billion to pay. Others include Dapo Abiodun of Ogun (N98.717 billion), Bala Mohammed of Bauchi (N92.367 billion), Seyi Makinde of Oyo (N91.516 billion), and Umaru Fintiri of Adamawa (N89.659 billion). Gboyega Oyetola of Osun had earlier inherited a debt of N148.101 billion like his Ekiti State counterpart, Dr Kayode Fayemi, who inherited N118.011 billion debt.
Among the states, the least indebted are Anambra (N33.491 billion), Jigawa (N35.163 billion), Katsina (N30.853 billion as of 2017), Sokoto (N38.605 billion), and Niger (N41.832 billion).
Conversely, the most indebted are Lagos (N530.244 billion), Delta (N228.806 billion), Rivers (N225.593 billion), Akwa Ibom (N198.633 billion), Cross River (N167.956 billion), Osun (N148.101 billion), Bayelsa (N130.044 billion), Ekiti (N118.011 billion), Kano (N117.082 billion), and Plateau (N100.367 billion).
Among the six geo-political zones, the South-East is the least indebted with N309.920 billion. It is followed by North-East (N403.028 billion) and North-West (N433.682 billion).
The most indebted zones are South-South (N1,037.882 trillion), South-West (N1,035.713 trillion) and North-Central (N633.213 billion).
Poor IGR, non-viable states
The yoke the governors will bear is made heavier by the miserly funds most of the states generate as revenue. Going by their revenues generation profile according to Economic Confidential Annual State Viability Index, ASVI, 2018, only FCT, Abuja, Lagos and Ogun are viable. The FCT generated N65.520 billion or 224.86 per cent of the N29.138 billion it received as federal allocation. While Lagos generated 146.61 per cent of what it received as allocation, Ogun State generated 90.65 per cent. Rivers State generated 47.51 per cent of what it received as allocation.
None of the remaining states generated up to 30 per cent of their federal allocation. States that did up to 20 per cent are Delta, Kaduna, Ondo, Enugu, Kano, Edo and Kwara. The average revenue generation for all the states is 25.08 per cent.
On zonal basis, the South-West (49.53 per cent) is the best revenue generator, followed by North-Central (43.65 per cent), and South-South (21.4 per cent).
Lagos State’s N382.182 billion IGR is higher than N303.570 billion generated by the three zones of the North. Also, Lagos and Ogun N466.736 billion IGR is higher than the N447.572 billion the South-East zone got as federal allocation in 2018.
The least revenue generating zones are North-East (6.9 per cent), North-West (13 per cent) and South-East (16 per cent). Without Lagos, the South-West did 30.11 per cent just as without FCT, the North-Central did 13.44 per cent.
In terms of federal allocation, the South-East is the least with N447.572 billion followed by the North-East (588.468 billion).
Conversely, the South-South had the highest allocation with N1,191.287 trillion. It is followed by North-West (N865.131 billion), South-West (N774.916 billion), North-Central (N620.737 billion) and North-East (N588.468 billion).
How lawmakers can boost state’s IGR – Oke
Piqued by the pittance most states are generating as revenue, Hon Wole Oke, a lawyer, a member of the House of Representatives on the platform of Peoples democratic Party, PDP, from Osun state, said with good legislation governors would up their game.
Asked his view on comments that state governors are only out to collect money at the centre without thinking of how to generate revenue, he said: ‘’We are a federalist state that has three levels of government- we have the local, state and federal governments. Our constitution also prescribes the percentage and ratio for sharing revenue that has accrued to the nation. After the sharing, the constitution is also very clear under Section 4 on the roles of the National Assembly. There are three levels of the legislature- the local government council, the state assembly and the National Assembly. ‘’Under both the exclusive and current lists you have limitation, you have areas the National Assembly can make legislation that are applicable to the nation, and there are areas where they are limited. For example, in the area of budgeting, and appropriation, it is only where there is a state of emergency declared in a state that the National Assembly can assume the position of the state assembly and begin to make laws for them. Other than that, it is the state assembly that needs to be worked on to perform their duties seriously, do oversight and ask questions on funds received from the federation account and IGR. It is the duty of the state assembly.
‘’The funds and management are the duty of the state assembly. So, that is why we should improve our electoral system. A situation where you have one party dominating a state assembly and you know they are afraid of their state governors and they cannot really ask questions because without the governor you cannot even be in the state assembly, is the problem. The moment you begin to have a proactive state assembly doing their jobs without fear or favour we will get it right.’’
States should get more allocation – Adenikinju
Prof Adeola Adenikinju, Director, Centre for Petroleum, Energy Economics and Law, University of Ibadan, and a member of CBN Monetary Policy Committee, attributed the non-viability of the states to faulty federalism.
To make the states economically viable, he proffered: ‘’First, it is important to take another look at the constitution to increase the share of federally collectable revenue going to the states. Currently, the proportion of total revenue pool going to the federal government is felt to be too high.
‘’Second, states should be induced to be more aggressive in their IGR drive. The current revenue formula should include incentives that reward states efforts in boosting revenue.
‘’Third, incentives to encourage contiguous states to share common infrastructure to benefit from economies of scale or own joint facilities might assist states budgetary positions.
‘’Finally, the federal government exercises too much power over various aspects of the economy leaving the states helpless in taking control over activities that can promote their own economic development. Federal government control over a lot of social and economic infrastructure like railway, electricity, etc hinders efficiency of states in boosting their own productivity.’’
States created to reduce ethnic tension not for viability – Ekpo
To Professor Akpan Ekpo, an economist, former Director General of the West African Institute for Financial and Economic Management (WAIFEM), former Vice-Chancellor of the University of Uyo, Akwa Ibom State, and former Director at the Central Bank of Nigeria, said the states are poor because His words: ‘’In the USA, all the states were originally independent on their own before they decided to come together. But in our own case, states were not created for economic viability, they were created to reduce ethnic tension. That is why almost all the states in Nigeria, except Lagos and Kano cannot survive without federal government allocation, according to a UNDP study.
‘’In most cases, the IGR does not cover the recurrent expenditures of these states. So, since the states are already created, we cannot scrap them. There is no state in Nigeria that does not have a resource, I mean human beings. Once, you have human beings, who can innovate, you have a resource. For me, we need a weak centre, let us go back to where we were in 1963, where the states can survive on their own with what they have, be innovative and create wealth and pay money to the centre to take care of defence, foreign and monetary policies.
‘’Once, we do that, the states will not only increase revenue for themselves but also more wealth for the nation. Since we had regions before, we can allow the existing six geo-political zones to exist and make them legal and within each zone, we have about six states and then we now have a confederation.
Once, we have that, there will be competition among the zones. When you compete, each person will bring out his best.
‘’Right now, everybody wants federal government’s allocation because it controls the resources which is very unreliable and volatile because oil revenue is diminishing.
‘’We should go back to where we were, where we had a weak centre. With this, we can have competitive federalism. What that means is that, if a state has a mineral resource, that mineral resource belongs to the state. They will exploit it and pay royalty to the federal government.
‘’If we now go to zones, the states will control resources and the zones will have a share of the states’ revenue. Now, if a state wants to do certain things, it has to first of all go to Abuja which stiffles development. Let us return back to where states become economic independent and tap their resources. Japan does not have natural resource but it has human resource.’’
How to save the states – Adedipe
Dr Biodun Adedipe, an economist and consultant, said unless our political leaders come to a common understanding to address the high cost of governance it will continue to adversely affect development.
He said: ‘’Most states today are not fiscally viable, based on the present fiscal structure of revenue from Federal Allocation vis-à-vis Internally Generated Revenue. If you take out FAAC, only Lagos and Ogun show prospects of self-sufficiency as IGR represents 76.25% and 68.08% of their respective total revenue. The rest have IGR below 40%, with the bottom-three being Kebbi (8.21%), Bayelsa (8.18%) and Yobe (7.65%). There seems a relationship somewhat between IGR and state of socio-economic infrastructure, meaning that IGR grows with more economic activities and transactions that are amenable to taxes and levies.
‘’The debt profile of some of the states are however, quick frightening. Cross River State has the highest ratio of Total External Debt to Total Revenue at 124.68%, followed by Osun State with 107.38%, Lagos 102.46% and Edo 101.9%. This means that if all of the revenue (FAAC + IGR) were devoted to repayment of external debt, these four states will have nothing left to run with! The picture is worse when you place domestic debt against the total revenue of the States. 17 States have domestic debt stock that exceeds their 2018 total revenue, the highest being Osun (445.83%) followed by Cross River (308.14%).
‘’These ratios may be misleading though, as debts are not paid all at once. The real issue is how the obligations on the debts procured by the States compare to their revenue profile. The longer the tenor of he loans and the cheaper they are, the more viable those debts will be. That can only be done on State-by-State basis. This in any case, gives a pointer to what the State Governments should be working on. Some of them might consider refinancing (i.e. raising cheaper, longer tenor loans to pay off more expensive, short tenor loans). Some might have to shift the direction of borrowing by pursuing infrastructure grants and long-term loans.
‘’If we set the revenue (IGR and total revenue) against the domestic, external and total debt to determine how long it will take to pay them off, the outcomes are really worrisome. Ekiti and Adamawa States each need 6 years to pay their external debt from their IGR (if these State Governments do nothing else with IGR)! Nasarawa needs over 18 years to pay off domestic debt with its IGR, and Adamawa also needs 15 years to extinguish its domestic debt with its IGR. Ekiti and Adamawa again need over 20 years each to devote their entire revenue to debt repayment without any other spend. Again, it is theoretical in the assumption that the Governments will not spend on anything else and the outstanding loans are called now (very, very unlikely in finance), there are 12 States that will take over 10 years to pay off what they owe today.
‘’These are however, pointers to the poor state of public finance in most states of the federation. They all need fiscal re-engineering, but should also be seen as a national problem. Today’s position is a reflection of the poor decisions and actions of past leaders in most of our States.
There are clear opportunities for fiscal restructuring at the National and sub-National levels:
* Clearance requests for new loans by States should be given only when the loan is to refinance an existing loan OR it is strictly for infrastructure.
* No new State requests should be entertained, no matter how politically correct it appears, except there is a clear roadmap (called business case in the private sector) of how the proposed State will be fiscally independent (at least 75% of its proposed expenditure to be funded by IGR).
* Explore Geo-Economic Zones in place of Geopolitical zones as means of shifting attention from the regional politics to regional economies.
* (More radical) Consider collapsing States into Economic Regions, with a future view of evolution from States back to Regions as existed before 1967.
Transparency, accountability ‘ll save the states – Onyekpere
Also, Eze Onyekpere, Lead Director of Centre for Social Justice, CSJ, said ‘’states can be viable and improve their IGR the moment they open up governance through increased transparency and accountability and popular participation in governance.’’
Using the South-East as an example, he said: “The IGR of the states published by the NBS is laughable. It shows that these states are using and tapping less than 10% of their human and natural capacities because of poor governance systems. In these states, over 75% of the water, electricity, school and hospital projects are community driven projects. Of late, communities have even driven road projects. These community projects are paid for by sons and daughters of the community through voluntary contributions and levies which are paid and managed at the community level to achieve stated goals and objectives. The Imo State Airport is the best example of communities coming together under state leadership to build a massive infrastructure hence it was originally named “Igwebuike Airport” meaning that there is strength in numbers. The people of the South East are already attuned to paying to build facilities of their own. How come such a people will refuse to pay tax if not for the obnoxious way and manner the governors manage public resources? This is replicable across the federation with proper organisation and management.
‘’In other federations, federating units came together to federate and unite. But in Nigeria, the federal government arbitrarily created federating units. That is the first major difference. The confiscation of the natural resources of the federating units by the federal government was not the practice at independence. It was forced down our throats by military dictatorship and the events pre and post the Nigerian Civil War. Since then, the dominant wing of the Nigerian ruling elite have found it comfortable to pretend that federalism is all about cake sharing instead of cake baking.
‘’We can go back to the 1960 and 1963 constitutional provisions which allowed federating units to control and manage their resources while paying 50% of the proceeds to the federal government for the maintenance of common services. This can be done through a constitutional amendment. This will liberate the resourcefulness and entrepreneurship spirit of the federating units. As such, more economic activities will be done to generate jobs, wealth and revenue for everyone.
How NGF has been assisting governors to boost IGR – DG
Speaking on the issue, the Nigeria Governors’ Forum, NGF, the umbrella body of the 36 state governors, said it has been assisting state governors to up their IGR.
NGF Director- General, Asishana Okauru, told Vanguard that with a new agenda set up by the NGF, it has contributed to an organised approach for revenue mobilisation, with major successes which have seen total IGR from the 36 States grow by an average of 17 per cent in the last three years from just 5.8 per cent in the previous three-year period. The IGR of states grew from N707.9 billion in 2014 to over N1.1 trillion in 2018.
The DG who spoke to Vanguard through the Forum’s Senior Economist, David Nabena said: “The Nigeria Governors’ Forum provides a platform for collaboration among State Governors on matters of governance and public policy, by sharing good practices and enhancing cooperation at state level and with other arms of government.
“The Forum’s role in supporting State governments to improve their fiscal sustainability became more prominent in the aftermath of the mid-2014 oil slump, when federation revenues to States declined from N3.1 trillion in 2013 to N1.6 trillion by the end of 2016.
“During the period, at least 27 states were unable to pay the salaries of their workers, with many States recording huge fiscal deficits. The fiscal situation prompted the release of bailout packages from the federal government to help achieve fiscal stability in the country. The challenge also prompted a number of States to implement measures of fiscal consolidation, including payroll audits, the treasury single account (TSA) and the establishment of efficiency units, but the reforms were unable to provide medium-term fiscal sustainability.
“State governments also implemented reforms to raise their internally generated revenues (IGR) by adopting technology solutions and reinforcing stronger partnerships with local governments, trade unions/cooperatives and other collection agents to streamline tax collection. These tax reforms led to significant growth in the revenue of States especially as federation revenues were low, but the downside was that the growth was concentrated in only a few States, and for many, the catch-up was slow and unstable. This is where the NGF came in to play a catalytic role, by building consensus and maintaining strong political momentum for domestic revenue generation.
“The NGF Secretariat maintains a recurring agenda for IGR issues during monthly NGF meetings to secure high-level support from Governors. It also maintains active engagement with the heads of the Internal Revenue Service of States through the Joint Tax Board. This new agenda has contributed to an organised approach for revenue mobilisation, with major successes which have seen total IGR from the 36 States grow by an average of 17% in the last three years from just 5.8% in the previous 3-year period. The IGR of States grew from N707.9 billion in 2014 to over N1.1 trillion in 2018.
“To sustain these reforms, in May 2019, the NGF in partnership with the JTB developed a State Action Plan on Revenue Generation. The plan highlights 12 actions aimed at ending double/multiple taxation, professionalising the Internal Revenue Service of States, improving taxpayer compliance, blocking revenue leakages and improving revenue budgeting and reporting.
“The Forum’s support to help raise domestic revenues across States is driven by two programmes. In February 2017, NGF developed an IGR Dashboard to track the tax reform environment of States. The idea is to distill practical reforms that have worked in some States, and to support other States to implement these initiatives. A HelpDesk was also set up to provide demand-based technical assistance to States, including training their workforce with the knowledge and expertise required to address tax issues. In the last 2 years, the HelpDesk has played an active role in the deployment of technical workshops, capacity building trainings and the development of tax knowledge guides to facilitate self-domestication by States.
“The NGF estimates that State governments can raise between N50 billion and N240 billion annually (including VAT) by raising their tax to GDP ratio from the current average of 1.4% to 5%.”
With true federalism, states will be viable – Clark
Former Federal Commissioner for Information and South-South leader, Chief Edwin Clark, said that once there is true federalism, states will be viable and look after themselves.
The elder statesman said in the First Republic when there was true federalism, the regions performed very well and were developed.
His words: “Economic viability of states is part of true federalism, it does not exist alone. This will explain how the money will be shared among states, that is each state will develop its own resources and contribute to the centre that is fiscal federalism.
“ In the First Republic, there were various parties in the four regions that is the East, the West, the North and the Mid-West 50% of the revenue are going to you in your own region and the other 50% to the other four regions including the Federal government.
“I think the Federal government used to take about 30 to 25% and the other shared among them. Even when the 12 states were created because of the war, the amount of money that was derived was now used for the prosecution of the war but we never returned to true federalism again. So the idea of fiscal federalism disappeared. This country must return to true federalism.
“I was surprised the other day that the National conference recommended that there should be a special account between the state and the local government that whatever is meant for the local governments should go directly to them. But in true federalism, it is the state that takes care of the local government not the federal government.
“When you say the state government and the local governments should no longer be joint account that was what the National Conference recommended that they should be separated, but today they are going behind the door to implement some of the things recommended by the national conference. So we must implement the report of the National Conference, if this country will exist as a country that is united under one presidency.
“During the National conference, we recommended that more states should be created to balance the whole system. For instance, there is no reason Kaduna State cannot be split into two, no reason Borno state cannot be split into two, no reason Delta State cannot be split into two. For the East, which has only five states, we recommended that four states should be created in the East.
“We also recommended that two states should be created in all the other zones except North-West which has seven states, two should be created there.
“When you talk about viability of states, there is no state that is viable, it is the Federal Government that is dishing out money to them every month, but when you have true federalism, these states will look after themselves, they will look for internal revenue which some of them are not doing now because they know where to get money from every month. The Governors are becoming lazy, they don’t look for internal revenue. So as far as I am concerned, once we create these states and there is true federalism, they will be viable.’’