The entrepreneurial city: Revisiting local government in Lagos

Lagos has a strong entrepreneurial past and the entrepreneurial pulse beats strongly in the city’s present. From the 17^th century, the city developed from a slave trading post to become a coastal hub for international trade. Today, the city’s commitment to enterprise on a global scale reflects the aspirations we associate with cities. Cities are places of rebirth and progress; they are the places where people can exchange and share information, culture and goods in high concentration. Today, we need to strengthen the local government system in Lagos to drive people-centred entrepreneurial growth. A functional local government system provides the foundation to address the city’s challenges around inadequate infrastructure, traffic jams and deepening poverty. More than half of her residents survive below the poverty line of $1.25 per day, and almost 75% of the working population is involved in the informal economy.

 Why has Lagos localities failed to spur entrepreneurial growth?

The answer to this question is that there are legal complications surrounding the role of the 20 local governments in Lagos State combined with a culture of patronage politics. Together, these limit prospects for people-centred entrepreneurial development.  Let me explain. The 1999 Constitution makes the provision of basic services the responsibility of both local and state governments, with no clear legal delineation between the relative roles of these two sub-national tiers of government. State governments exert fiscal and budgetary control, leaving most local governments to function as mere administrative extensions of the state. In Lagos State, most public services are provided through a highly centralised administrative structure, with State Government exerting its influence over the construction of feeder roads, business signage, and waste management among other areas- traditionally within the jurisdiction of local governments.

These functional overlaps would have been excusable, if local governments were partnering with state authorities in providing the necessary data, as well as regulating urban planning processes around housing, land use, waste management, transport etc. Partnerships with empowered local governments are the foundations of social development and the ease of doing business. The state government’s current vision of creating jobs through the Lagos State Employment Trust Fund should engage the institutional commitment of local governments. If there are job centres and cluster development hubs, would they not be anchored in local government? The recently inaugurated Lagos State Local Government reform committee must consider how state laws empower localities to develop an entrepreneurial city that supports local residents and businesses with basic services.

A second dimension of local government’s inability to drive entrepreneurial growth and human development is that revenue sources of localities are severely limited. Nigerian local governments are authorised by law to collect large number of taxes, fees and charges. However, it is the legal prerogative of the National Assembly to impose the taxes, fees, and charges local governments can collect. Thus, local governments are limited in their control over their sources of revenue. In addition, the amounts realised from many of the taxes/fees are hardly worth the investment in collecting them and are regressive in terms of the undue burden they impose on the poor. In addition, national and state governments monopolise the more productive tax heads such as companies tax, motor vehicle fees etc.

While internally generated revenue (IGT) ranks very low in the hierarchy of municipal revenue sources, intergovernmental transfers dominate the municipal revenue structure. Federal and state governments largely determine the expenditure needs of local governments and allocate resources to them to meet such needs. The revenues directed to municipalities are typically extractions from natural resources, oil money, which are pooled at the center before allocation to localities under a constitutionally sanctioned arrangement. Such allocations are based on bargaining and discretionary mechanisms. After “sharing the national cake,” very little is often invested in building a modern and functioning local government system.

This structure undermines any incentive in local governments to develop alternative sources of revenue or invest in the local infrastructure, which communities and businesses desperately need.  In addition, the capture of local government office and accompanying financial resources is a zero-sum contest. Successful contestants to municipal office view local government as a means to personal wealth. This politics of clientelism that has historically shaped Nigerian local governments has produced undemocratic and unaccountable institutions, which attach a low priority to providing basic public services. Having lost all fiscal control, local governments justify their existence through expenditure programs of ad hoc, small-scale, and populist orientation. While such initiatives maximise local government chairs’ electoral prospects and nurture patronage links, they do not provide inclusive solutions to public service problems.

 A time for change

With the volatility of oil markets on which Nigeria’s entire intergovernmental revenue structure depends, local government receipts are dwindling. Also, state government financial support through the state allocation remains slow and irregular. In this context, we must strengthen local governments to bolster human and enterprise development through legal-political reforms enabling sustainable sources of local government revenue and reasonable budgetary control. The financial dependence of Nigerian local governments on intergovernmental transfers contrasts with the largely self-funded position of municipalities in the United States and progressive emerging economies, where local governments may receive some grants-in aid from national and state governments but rely on own-source revenues to mobilise local revenue. While municipalities in the United States rely heavily on user fees to fund services such as waste collection, utilities, and recreation, Nigerian local governments have yet to establish a functioning legal bureaucratic system to harvest tax/fee revenues or mobilise own-source revenues from local economic enterprise. Evolving a revenue base for local government means not only law reform to enable localities capture value, but policies which take account of widespread poverty and the needs of small informal businesses. This also entails a participatory style of governance involving local governments with residents and community groups to develop economic solutions that fit local context. Interesting experiments are happening in Lagos local in this direction. For example, consider the ongoing community-based regeneration efforts along the Iwaya/Makoko Waterfront.

 One-stop shop not ‘lock your shops’!

How can localities support enterprise development? Local governments should look into the creation of an enabling environment for small and medium scale enterprises (SMEs). Business licensing and payment of fees/taxes in Nigeria is currently a tedious process, riddled with corruption and uncertainties, which work against the economic interest of business owners. Similarly, the plethora of revenue instruments targeted at local business – tenement rates, signboard and advertisement fees, shop/market/kiosk rates, parking charges – and coercive methods of collection produces distortions in resource allocation and produce a chilling effect on SMEs. We need to streamline local taxes on business and create a unified “one-stop-shop” business-licensing framework operated by local governments, such as the Single Business Permit (SBP) in Kenya. A new look at local government is critical, if the Lagos State and national government’s drive to create jobs for the teeming unemployed through new enterprise is to see the light of day.

 

Ijeoma Nwagwu

Dr. Ijeoma Nwagwu is a graduate of Harvard Law School and manages Lagos Business School’s First Bank Sustainability Centre.