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BusinessDay
Nigeria's leading finance and market intelligence news report.

Nigerian states face low infrastructure spend on weak revenues

Nigerian states risk spending less on critical infrastructure as they attempt to balance low revenue generation with prioritising capital and recurrent expenditure, experts believe.

Data from the National Bureau of Statistics show that states’ Internally Generated Revenues (IGR) declined in 2020 due to the impact of the coronavirus pandemic, thereby pushing revenues generated in some states below their cost of governance.

This year, the states find themselves in a desperate race to substantially boost IGR from last year’s low or cut down once again on capital spending in order to pay workers’ salaries and meet overhead costs.

Gabriel Okeowo, principal lead at BudgIT told BusinessDay that there is an urgent need for governments to address the issue of poor revenue generation in the states.

According to him, many state governments have taken their eyes off the potentials and resources that could be leveraged to create wealth at the state level.

“Low revenue generation needs to be urgently addressed in states and that cuts across all the states, including Lagos. Lagos can do more in terms of fostering industrialisation instead of relying on tax,” Okeowo said.

“State governments need to come up with initiatives, especially on job creation, promotion of manufacturing, and industrialisation to boost revenue,” Okeowo added.

BusinessDay’s findings show that states, including Taraba, Zamfara, Benue, and Oyo, barely have anything left after fulfilling their debt repayment obligations coupled with actual operating expenses for the 2020 fiscal year.

This trend, according to economic experts, poses a huge threat to the government’s ability to deliver on capital projects in states and developmental goals which Nigerian citizens yearn for.

According to the BudgIT 2021 state of States Report, the total IGR of Nigeria’s 36 states stood at N1.21 trillion in 2020, representing a 3.43 percent decline from N1.26 trillion recorded in 2019.

Read Also: 19 Nigerian states rank low in transparency, accountability – Audit Report

States like Lagos, Rivers, Delta, Kaduna, and Ogun were able to shore up gaps in the total state internal incomes, recording highest revenue with N418,988,587,897, N117,189,729,245, N59,732,882,663, N50,768,523,407, and N50,749,595,850 respectively.

Their total IGR represents 57.45 percent of total revenue for the year, while states with least IGR were Yobe (N7,779,631,176), Taraba (N8,114,973,143), Adamawa (N8,329,870,707), Gombe (N8, 537,983,927), Jigawa (N8,667,720,608).

But available data showed that Oyo State, with a total revenue of N114.58 billion (comprising IGR valued at N38 billion and gross FAAC at N65.89 billion), spent N102.03 billion on operating expenses and N9.8 billion on loan repayment, totaling N111.94 billion which represents 98 percent of total revenue. The state is left with 2 percent to be spent on capital expenditure.

Zamfara State recorded a total revenue of N70.69 billion (N18.50 billion IGR, and N52.31 billion gross FAAC) in the period, but spent N47.84 billion on operating expenses and N19.72 billion on loan repayment, totaling N67.56 billion. This represents 96 percent of the total revenue for the period.

Similarly, Taraba State had total revenue of N65.94 billion with an operating expense of N56.02 billion and loan repayments of N9.74 billion, which summed up to N65.76 billion. It was the same for Benue State with total revenue of N78.04 billion, (IGR of N10.46 billion and gross FAAC of N58.60 billion) and total expenses at N78.04 billion.

According to the BudgIT report, Oyo State grows a diverse number of foods and cash crops, including cassava, rice, oil palm, cashew nut, plantain, cocoa and yam, which if properly managed and given adequate value addition, can put the state on a path to sustainable prosperity.

“The Lagos-Ibadan highway and railway connect Oyo to the commercial capital of Nigeria and to the trans-national highway to the Republic of Benin and the West African sub-region and as such, there exists transportation channels to viable markets both domestically and regionally for the agricultural products produced in Oyo which the state can leverage on.

“Oyo can significantly grow its revenue base from its solid minerals sector by attracting investments to establish the needed technology and infrastructure to reduce waste and improve productivity in the mining and processing of minerals.

“All of the efforts aimed at improving the revenue-generating capacity of Oyo will be rendered futile if the state is unable to implement the right reforms to plug revenue leakages,” it stated.

Speaking further, Okeowo explained that monies spent on capital projects are often the remains of government revenue after deducting recurrent expenditure and debt servicing.

He explained that some states have nothing left after these deductions and the implication is that they will have nothing to spend on capital projects, adding that such states may need to more rapidly adopt Public-Private Partnership (PPP) models in delivering public goods due to their constrained revenue.

“Expenses over revenue have plunged most states to debt, and also make them depend on federal allocation which is mainly driven by revenue derived from oil and gas sales; so if the oil price goes down, it will affect the amount of money that can be distributed, and that also affects the ability of state government,” he said.

Speaking on debt as an option for raising needed funds by state governments, he said, “It is a bad business decision for state governments to borrow money and spend it on recurrent expenditure.

“Loans should be spent on infrastructural projects that can generate jobs and further wealth for the people and state at large, but what we see in Nigeria is that loans are taken but they cannot be traced to any project.”

The former director-gneral of the Abuja Chamber of Commerce and Industry, Chijioke Ekechukwu in a chat with BusinessDay said that the different state governments have the potential to be self-reliant and independent if only they consider themselves to be strategic business units.

According to him, all states have several revenue enablers and drivers, but have chosen to depend on FAAC for their revenue allocation.

“This is very unfortunate, and this is a major reason why they cannot meet up with the provision of needed infrastructure in their state.

“Different state governments have potential to be self-reliant and independent if only they will do business like the private sector,” he said.

He further stressed the need for change of legislative provisions, relating to economic relationships between the federal and state governments.

“If the country must grow in terms of revenue, we need to change the legislative provisions, as they relate to economic relationships between the federal and state governments,” he said.

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