THE non-viability of the country’s financing mechanisms is becoming more flagrant every day. For the 36 states in particular, their finances are precarious. The Nigerian National Petroleum Company underscored the situation when it withheld N671.88 billion from the Federation account on April 2022 oil revenues. Already broke, in debt and short of internally generated revenue, most of the States face a difficult and uncertain future.
Reality is beckoning, and unless states shed their overreliance on central pool allocations and transform themselves into productive, self-sustaining economic units, the country is doomed to perpetual economic adversity and mass poverty.
As a result of oil revenue shortfalls and a massive gasoline subsidy budget, NNPC’s remittances to the Federation account will fall by a gigantic N4 trillion to cover the subsidy, Federal, state and local governments will jointly suffer N671.88 billion less in the funds to be shared for May 2022.
The latest data from NNPC shows that the subsidy paid for gasoline increased between January and March 2022 and that the N671.88 billion represented a loss of revenue incurred by NNPC, which remains the sole importer of gasoline in the country. Nigeria.
Unabashedly, state governors vehemently opposed the grant deductions and subsequent reduction of NNPC payments to the Federation account. It’s simply because it robs them of income they never worked for, mainly oil and gas revenue and taxes. Unsustainably, with the exception of a few, it is allocations from the Federation account that allow the three levels of government to maintain their respective manpower and fund their overburdened budgets and bureaucracies.
This bizarre situation largely exposes everything that is wrong with Nigeria’s unitary style federalism. It also demonstrates the governors’ lazy and visionless approach to governance and their irritating reliance on monthly handouts. Revenues generated internally by states remain pitiful. A report, ‘States of States in 2019,’ by Budget, a civic tech advocacy group, found that of the country’s 36 states, only three – Lagos, Rivers and Akwa Ibom – could fund their recurrent spending independently without relying on federal allocations. In 2019, the National Bureau of Statistics said, Lagos State’s IGR of 398.7 billion naira eclipsed the combined 375.2 billion naira of 26 other states. The annual incomes of many could barely cover a month’s payroll.
Although they struggle to pay salaries and other necessities, they still refuse to cut unnecessary expenses; they keep armies of named people, embark on debauched journeys and spend money on white elephants that have no positive impact on the population. They give public funds to frivolous causes without parliamentary approval and live in obscene luxury. They specialize in minor legacy projects and disdain. The majority of them cannot pay the national minimum wage of N30,000 but endorse generous pension schemes for themselves.
Overdependence on oil has reached an alarming rate. This undermines development and retards income diversification in most states. As such, governors need to start thinking outside the box and developing their states’ non-oil economy to attract non-oil revenue revenue. Governors should each explore their states’ comparative advantage to turn around their fortunes.
The Nigerian “baby bottle” model of federalism must be quickly abandoned; it failed and produced poverty. Nigeria is a federation and should function as such in order to survive. States must intentionally wean themselves off the allowances of crude oil money because it is no longer sustainable.
In other federations, the federating units manage on their own. Between 1992 and 2010, only 18% of total state revenues in the United States came from the federal government; 82% was generated internally by states and LGs, according to data from the US Census Bureau/Rockefeller Institute of Government. A report by the Tax Policy Centre, a joint program of the Brookings Institution and the Urban Institute, indicates that only 33.3% of the revenue of India’s 28 states comes from intergovernmental transfers (the federal pool) and the rest from IGR . States/provinces or regions of other federations operate autonomous and productive economies and compete for investment, markets and human capital.
Nigerian states should therefore also put in place independent economic programs to complement federal initiatives. Every Nigerian state is well endowed with agricultural, mining and human potential. They should exploit them even under the current restrictive Basic Law. They should spend more to provide basic rural infrastructure, education, health, transport and sanitation. Liberalizing their environment through creative and sincere use of land use law, taxes, fees and charges, they should make states attractive to domestic and foreign investors. New initiatives such as the creation of local security agencies to complement federal policing should be prioritized to make states and regions safe for economic and social activity.
States need visionaries. Kogi State Governor Yahaya Bello has admitted to borrowing 10 billion naira to settle four months of salary arrears in 2017: for a state rich in diverse mineral deposits and located at the confluence of two of the main rivers of in West Africa, Niger and Bénoué, which provide enormous potential in fishing, electricity production and tourism. In addition to vast gold deposits, Zamfara has nine other minerals in commercial quantity, but is home to the largest number of poor and vulnerable people in the country with 3.83 million people living in abject poverty.
Nigeria should function as a true federation. In exercising their autonomy, 26 of the 50 U.S. states have announced plans to end pandemic-era federal benefits in May 2021 to persuade unemployed residents to find jobs. Governments everywhere, central and sub-national, measure success by the amount of investment, jobs and revenue they generate. Nigerian governors absurdly tout borrowing to pay salaries as a feat! It is a model of poverty. They compound all this with unbridled corruption.
The World Data Lab’s Poverty Clock estimates that around 90 million people in Nigeria live in extreme poverty. This indicates that states are unproductive. To place states on a foundation of robust productivity, governors must undertake bold reforms, dramatically reduce the cost of governance, and expand economic opportunity.
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