Why are more than half of Nigeria’s states reportedly unable to pay the wages and allowances of civil servants and pensioners? Are Nigeria’s states intrinsically unviable? Is the current state-of-affairs inexplicable and unexpected, an act of God? Were the states mismanaged and is their apparent insolvency due to errors of omission or commission by their leaders and managers?
I suspect there are elements of all these factors, and more in the embarrassing situation. First, I doubt that those persons responsible for managing the public finances of most states (finance commissioners, commissioners for budget and planning, special advisers on economic matters, the bureaucrats in various economic ministries, and even the concerned state governors) would earn strong points for the requisite competences and capacity. This is not a reference to the certificates they hold, but based on observable outcomes! Eighty-five percent of revenues accruing to Nigeria’s Federation Account are derived from export of crude oil and gas. Everyone knows or ought to know that crude oil prices, like those of other commodities, fluctuate based on global economic or commodity market conditions. Recent Nigerian political-economy makes this stark as we suffered a steep oil price decline in 2008-2009 during the global financial crisis, and indeed Nigeria’s economic history after oil is characterized by cycles of boom and bust.
Given this background, it is remarkable that our governors resisted Obasanjo and Ngozi Okonjo-Iweala’s operation of an oil price benchmark and “Excess Crude Account” (ECA) (joined by the National Assembly which always raised the executive’s lower oil price budget benchmarks in favour of higher thresholds), thus reducing the probability of saving for a rainy day. If the governors opposed ECA because of its perceived illegality, it was inexplicable that they also resisted the Jonathan administration’s institution of a Sovereign Wealth Fund, the Nigerian Sovereign Investment Authority (NSIA) through legislative mechanisms. While I understand that Ngozi Okonjo-Iweala probably weakened the case for NSIA by a parochial constitution of the agency’s leadership, the imperative of sovereign savings in a country so overwhelmingly dependent on commodity prices for its national income should have been obvious to all! NSIA’s institutional structure – a fund each for infrastructure, future generations and stabilization (such as is required now!) – would have prevented the current problems, if it was allowed to work.
I suspect that states’ financial problems may also have something to do with the political calendar! Perhaps it is not pure coincidence that states are broke after very competitive and expensive elections! It also appears that some states curiously prioritized contract payments over employee salaries, indicative probably of perverse incentives. So it is not far-fetched to suggest that corruption is also a factor in the states’ poor financial condition.
Policy failures were another probable cause. Ask yourself what proportion of the finances of many states in Northern Nigeria are devoted to non-regenerative religious activities such as pilgrimages, fasting season feeding, Hisbah police vis-a-vis spending on education, skills acquisition or trade and investment. How will such states generate capital and skills required to develop their economies? Or consider those South-West States such as Osun and Ogun which refuse to return schools to original voluntary agency owners, in spite of evident incapacity to properly manage them, and despite outstanding outcomes from Anambra State which adopted the opposite policy. So the states suffer a “double whammy” – expending scarce resources on a failing policy approach while suffering declining educational performance relative to a more sensible policy alternative! Or consider, on the lighter side, a governor who takes a bride from Cape Verde instead of marrying a local bride which may have “empowered” one family in Edo State!
Which brings me more seriously to perhaps the most debilitating factor responsible for the economic weakness of most states, with the exception of large metropolitan centres like Lagos, Rivers, Kano and the Federal Capital Territory; and recipients of oil derivation payments like Bayelsa and Akwa Ibom (this latter category will also be less viable if oil-related payments were to cease). Most states do not retain capital, except salaries earned and invested or spent by civil servants, and therefore cannot grow their local economies. Any notion of growing Internally-Generated Revenue (IGR) in such states is fanciful and nonsensical as long as they do not retain and regenerate capital for development. Their indigenes earn and retain wealth in Lagos, Abuja, Kano, Kaduna and Port-Harcourt; they do not repatriate or invest capital in their home states; their governors and commissioners export their “gains” to Lagos, Abuja, Dubai, South Africa and London; contracts awarded are predominantly to businesses and individuals domiciled outside the states…the result being states starved of capital and resources for development.
To be fair, there are also constitutional impediments to states’ viability. Nigeria’s federal government expropriated states’ resources and rights – over petroleum, solid minerals, sales taxes, airports and seaports, policing and even inland waterways; as well as appropriating fifty-two percent of federation revenue…then turns round to accuse states of unviability! Constitutional reforms including adjustment of revenue allocation in favour of states and local governments, devolution of powers and increased fiscal federalism will be critical elements of needed reforms.
A final consideration will have to be institutionalizing economic clusters in all of the geo-political zones to provide better scale for planning and policy coordination. Even if we are unable to recreate the old regions, the six geo-political zones are a better unit of economic planning and investment than the micro states.
Opeyemi Agbaje
