The financial position of more than 97% of Nigeria’s 36 states is precarious. Recent developments go to underscore how poorly efforts at diversifying their source of revenue have failed since 1999.
Nigerian states traditionally have four sources of income: Internally Generated Revenues (IGR), federal allocation and debt or grants. In the past two year, their major sources of revenues, IGR and federal allocation, have continued to yield less, even though the states continue to face increasing pressure from rising infrastructure deficit and increasing wage bill.
In 2015, states’ IGR was N682.67 billion as against N707.857 billion in 2014 (a N25.19 billion decline). But that is not the greatest decline in IGR the states have experienced in the last five years. Between 2014 and 2013, their IGR dropped by N102.25billion. (There is a likelihood that less IGR will be collected in the 2016 financial year compared to what was collected in 2015).
Federal allocation to the states has also dropped markedly. Traditionally, states collect 26.72% of federal earning; local governments receive 20.60% while that federal government gets 52.68%. In April, states will shared N55 billion as federal allocation, which is far less than the average amount that local governments shared in 2013. In 2013, states shared an average of N116.19 billion while local governments got an average of N80.34 billion in allocation monthly.
When the federal government announced that it has given reprieve to states which had loan obligations recently, it did so because of the low amount which was available for states to share in April; an amount which was the lowest for any month in the past half decade.
As for debt finance, at no time in their history have states incurred more debt. According to data provided by the Debt Management Office, as at December 2015, Nigeria had debt amounting to $10.7 billion, of which the states held $3.67 billion. The burden of debt has made states defer on contractual payments and stalled lots of projects. To assist the states, the federal government helped states waive N10.9 billion ($XXbillion) of loan repayments for March. As of now, “further deferrals [of loan payment obligation] will be subject to the agreement of a fiscal restructuring plan to be prepared by each state with clear measurable objectives,” the federal government says.
States budgets vs. IGR
In the 2016 financial year, states plan to spend N5.94trilion as against N6.16 trillion which they spent in 2015, a 5% decline year-on-year. (In the past five years, states budget growth has gyrated between -5% and 13%). 2016 has seen the second highest cut in spending in the past five years.
The states cannot sustain themselves by relying on IGR. For instance, in the 2015 financial year, states’ combined budget stood at N6.16 trillion while their IGR stood at a paltry N682.67billion (A mere 11% of states budgets in 2015). IGR, which is the most reliable source of income for states, covered just 12% of their budgets in the 2011-2015.
The letter sent by Bayelsa state Governor, Seriake Dickson, to the President, Muhammadu Buhari, recently compelling him to put pressure on oil companies in Bayelsa to pay local taxes goes to underscore the extent to which states are pressed. And the most visible evidence of the pressure is the number of states that cannot pay their workers.
Who is moving up the IGR ladder?
NBS data shows that some states are on the upper rung in terms of IGR collection. States like Lagos, Rivers, Delta, Ogun and Edo are among this pack with Lagos leading it.
Though Lagos’ IGR has dropped consistently in the last two years, the state still commands the highest IGR figure in the country (In 2015, IGR made up 40% of the states’ total expenditure, which is a departure from the norm among the states). Lagos collected N268.22billion in IGR in 2015, while its IGR stood at N276.16billion in 2014, (a N7.94billion drop). Between 2013-2014, Lagos’ IGR dropped by N108.095billion.
Traditionally, the market size of Lagos and its relatively more efficient tax collection mechanism have help Lagos boost IGR. The state is in the forefront of pushing its IGR potential further. Just two weeks ago, it brought together 1,200 tax personnel in a training programme geared at further improving its tax collection drive.
But only Ogun and Edo pushed their tax collection drive impressively last year. The data on Ogun paints an epic picture of a state that has beat the streets. In Ogun State, IGR grew by 98% between 2014 and 2015, the highest leap in IGR collection in the last half decade for any state in Nigeria. Ogun success can be attributed to the manufacturing concerns which are relocating to the state as well as a more aggressive drive at collecting states revenues.
On the flip side, some states have remained at the bottom of the ladder. And most of them have remained so for over a decade. The list includes, embattled Borno and Yobe. Other states in this category include Zamfara, Ekiti, Taraba, Kebbi, Nassarawa, Bauchi, Adamawa and Gombe States.
Apart from Borno and Yobe which are obviously reeling from the activities of islamist militants, population from other states which are at the bottom of the pyramid shows that there is a weak correlation between IGR figures and the population of the states. Some of the densely populated states have embarrassing IGR number, overall the correlation between IGR and population size stands at 0.568 while the correlation between the IGR and level of industralisation of a state is much higher.
Options before the states
There is no guarantee that the IGR equation for states will change in the near future. As long as decisions that will engender more viable local businesses, jobs and production in states are not taken, the states will maintain their current positions in terms of IGR.
States have to compete in making their domains the most conducive for businesses and therefore attract investment just as Ogun has done in many areas. Apart from this, the states have to invest more in agriculture as well as make the marketing of the output of locals a priority. Already a number of states are at the fore front of selling their states’ output in Europe and the Americas.
Apart from this, those opportunities which are available to states which have been neglected have to be considered. As short while ago, the Minister of Solid Minerals Development hinted about the possibility of states reaping the benefits of solid mineral located in their domains.
