These are definitely not the best of times to be a state governor, assuming your real intention of becoming a governor is to drive real development across the state.
Financially, perhaps only Lagos state is in a position to pay salaries and still have some money left over to invest in capital infrastructure. One of the stories BusinessDay did last week, based on an info graphic from BudgetIT, was to compare what most states have received so far this year from the federation account and match it against their current liabilities, in this case, mainly salaries and overhead costs.
The shocking discovery was that states can only cover 41% of their costs with the N1.08 trillion they got from the federation account between January and October 2016. This implies that they have to source for the remaining 59% shortfall in revenues from internally generated revenues. States that have poor internally generated revenues may be stuck in a permanent state of under development.
Not all states are the same in terms of their precarious financial situation. There is Lagos state, which has become the shining example of what states should be like in Nigeria in terms of boosting IGR. Years of working to improve IGR have ensured that the state is currently in position to significantly cover the shortfall from the federation account. For example, of the state’s N642 billion it expects to fund its N813 billion 2017 budget, N478 billion, representing 74% of the revenues will be coming from IGR with only 26% expected from federation revenues. This basically means Lagos is being run with marginal support from the federation, a position many Nigerian states should aim to attain.
But Lagos state’s strategic location as the commercial capital of the country, enhanced by its generous coastline, better infrastructure and easy access to West African markets, has also made it is easier for it to have a high concentration of commercially viable and taxable businesses. Lagos state’s commercial viability is seen in the fact that all of Nigeria’s commercial banks, except Unity Bank and all the major oil companies have their head offices located in the state, boosting its ability to earn significant revenues from income taxes.
Data from the National Bureau of statistics actually show that Lagos accounts for the highest consumption of PMS and Diesel in Nigeria, consuming more of the products than any of Nigeria’s six regions. This basically shows that the Lagos state economy is bigger than any of the six political regions in the country. Thus Lagos state’s commercial viability may explain its capacity to boost its IGR, tapping fully into the concentration of commercially viable businesses in the state.
Ogun and Oyo have also largely benefited from their proximity to Lagos state, though both states have not been able to boost their IGRs anywhere near the level of Lagos. My take is that both states have not really been innovative in tapping into the advantage of being close to Lagos state to develop their own states. Ogun State, for instance, has done very little in developing the Ofada/Mowe axis. The communities are so close to Lagos that they could offer almost every advantage Lagos could offer less the “hustle”, if only the state could put infrastructure into that axis. Sadly development around that axis is almost left with little government direction or input despite the fact that the axis could easily compete with Lagos.
But many other states do not have the advantages of Lagos, Ogun and Oyo. In fact many states outside Lagos are referred to as “civil servant” states, wholly dependent on revenues from the federation account to support their existence. Hence the current struggle to pay salaries. Years of depending solely on the crude oil fed federation accounts to support their civil servant states has sucked the creative juice out of many states. They have failed to develop and nurture the non-public side of their states and now that the public side is failing, they have nothing to stand on.
Many state governments, even now that their finances are in tatters have still not seen the need to put in place a deliberate strategy built around making their states commercially viable. Many governors are still exercising the faint hope that crude oil price will rebound, and they could easily go back to the days of sharing revenues from the federation account and flying around in private jets. Few of them realizes that the crude oil hey days are gone, perhaps forever, because there is a general agreement that the days of high crude oil prices may never come this way again.
So now governance has moved from sharing wealth to creating wealth and until state governors and even electorates realizes this shift in governance, the politicians will continue to make empty promises while the electorate will not ask the right questions that will produce the right candidates that can actually create wealth instead of share and deplete existing wealth.
Governance should now be about creating real jobs and not job for the boys. Basically, for governors, and even for Nigeria as a country, the main challenge is how to improve tax revenues. Nigeria’s tax to GDP ratios is one of the lowest globally. VAT in Nigeria is 5% compared to an average of 15% for most African countries.
But for tax revenues to improve, the government must first of all have businesses that they can tax, and for them to have businesses that they can tax, they have to create the right environment for the businesses to thrive, especially where there is absence of natural endowments that would make a businesses want to locate in a particular environment or state.
The truth is that a tax-focused governor or government would think twice about demolishing a market without ensuring that there is a viable alternative location for traders or create bureaucracy around land registration or business permits. A tax focused governor would realize that his first duty is to create jobs because jobs bring in taxes. The governor would also realize the importance of a strong educational system to develop quality manpower, a strong healthcare system to drive productivity, and improve power supply and technology to facilitate production.
It works the other way round also as a tax paying citizen would demand for accountability and also knows he has to be careful with his or her vote to ensure he or she votes in the man or woman that can protect his or her job or create jobs.
Anthony Osae-Brown
