Sustainability of Nigerian States
Brilliant Citizen: My Economist, it has been long I have seen you. How are you doing?
Economist: Hello Brilliant Citizen, I have been quite busy with many other projects.
Brilliant Citizen: Oh, I thought you had left Lagos for me. I am thinking of leaving Lagos, the cost of living is rising every day. I am not sure which State to move to!
Economist: It is true the cost of living is rising; this is mainly across the country as inflation continues to rise. Remember our discussion on inflation https://esthermoyin.medium.com/inflation-issues-74c673f5da85 Now Nigeria’s inflation is over 18%.
Brilliant Citizen: I remember, so you mean even other states have similar challenges. Maybe, it is to move out of the country…
Economist: Yes, cost of living is rising across most states. Many of the states struggle to pay salaries and fund projects. Let us look at the sustainability of these states.
Brilliant Citizen: Sustainability of States, my Economist, please which one is that again?
Sustainability in this context, means the capacity of the states to survive based on the revenue they generate. Every state generates money called Internally Generated Revenue (IGR). To be sustainable, IGR needs to be able to cover its recurrent expenditure — expenses on salary and other fees exclusive of capital projects.
Brilliant Citizen: Ha, you and I know that most of the states cannot survive without funds from the Federal government. I hear that every month, they carry big “Ghana must go bags” to Abuja to collect money for their states.
Economist: It is true, the Federal Government (FG) funds the states monthly. Let us look at the data:
Source: BudgIT, State of States 2019, Lagos State Budget Performance
Brilliant Citizen: You see I am very correct! Even the big states cannot sustain themselves without money from the FG. This our country! Only Lagos and Rivers can fund their recurrent expenditure.
Economist: Yes, you are correct. This data is for 2019, though, we do not expect 2020 data to be better with the impact of the pandemic on their finances.
Brilliant Citizen: Please let us not blame any pandemic. Many of these states are too lazy to generate any funds.
Economist: They need to generate more income as the FG’s main revenue source has been dwindling — oil revenue.
Brilliant Citizen: That is good, let the FG’s funds dry and let every state live in poverty. Hopefully, they will learn. After all, we say “No food for lazy man”
Economist: Not all the states are lazy. Some are making efforts to generate more revenue.
Brilliant Citizen: If you say so, then why are we not seeing any results?
Economist: Remember I always say some results are gotten over time. Let us discuss the actions they need to increase their revenue.
Brilliant Citizen: You discuss o, even me I am looking ways to increase my revenue. If they like let them not think and act …
Economist: States generate income from tax. So, one of the things
Brilliant Citizen: (cuts in) Ha, you want to them to tax us more?
Economist: No, I am not saying that. This is certainly not the time to increase tax rates as many individuals are suffering. However, this is the time to broaden the tax net (increase the number of people that pay taxes)
Brilliant Citizen: Ok, I agree as so many people that should be paying are not paying tax.
Economist: Also, it is the time to check leakages within the tax system.
Brilliant Citizen: You mean ensure it is the right amount of money that is collected and is accounted by the government? With corruption, that one will be hard o.
Economist: It is not so hard if you put the right system in place. Utilise technology, reduce the face-to-face interaction in tax collection and if necessary, use external consultants to check and manage the system.
Brilliant Citizen: Okay, please be telling them.
Economist: Lastly, states need to be more innovative and attract local and foreign investments to their states.
Brilliant Citizen: Hmm, some can focus on tourism, others can focus on agriculture processing and other areas… Is that what you mean?
Economist: Yes, most states have natural and human resources to create a niche. They certainly need to provide the right amenities, then they can attract investment which over time will generate income. Although, this period, many of them are dealing with insecurity challenges.
Brilliant Citizen: You are correct, hopefully these insecurities are sorted soon. But what if these states do not still generate more revenue continue to depend on the FG. What will happen?
Economist: We hope they do. Otherwise, many will wallow in debts and poverty will continue to be evident in these states.
Brilliant Citizen: Me, I do not trust them to act. I better think of other ways to generate my own income and not depend on any state government to support me. Perhaps, I too can develop a niche business that will attract money (continues to think aloud) …
Economist: That’s good thinking. I will allow you process your thoughts. See you later.
Special thanks to Wale Olusi & Abraham Afariogun for their contribution to this article.
BudgIT 2019 State of States