How many bailouts will it take to save the states?

On 26 April, BudgIT released a report showing that the country’s 36 states have received bailouts totalling N1.75 trillion between 2015 and 2016. The first bail out was in the early days of the current administration when state’s got N338 billion in 2015 after the federal government realized many states were struggling with payment of salaries. Since then the states have continued to receive bailouts in various forms as they continue to struggle to pay salaries. But despite the frequency of bailouts, the evidence on ground is that many states continue to owe salaries even as their domestic debts continue to rise.

Figures released by the Debt Management Office on 27 April put the total domestic debts of all the states at N2.96 trillion as at December 2016. This represents an increase on N456 billion on state’s debt position of N2.50 trillion as at December 2015. The most indebted states on the list are surprisingly the states that have the most potential for internally generated revenues.  Lagos state with total domestic debts of N311 billion has the highest domestic debts. But the state is also known to have the highest internally generated revenue capacity. The high domestic debt for the state can also be explained by the fact that Lagos state is known to have invested heavily in infrastructure in the last few years.

Besides, even while the debt looks huge nominally, the state’s high capacity to generate revenues internally means that it can easily pay off its debts. Lagos state’s internally generated revenue in 2016 was estimated at N301 billion according to a report by the Nigeria Extractive Industries Transparency Initiative (NEITI). The state’s cumulative revenue from both internal and external revenue sources represented 61 percent of 2016 budget according to the NEITI report. And that was the highest among all states.

Lagos state could be said to be lucky because it has significant capacity to generate revenues internally. Most states have not displayed similar capacity to generate revenues internally, which is a huge challenge as data from the NEITI report shows that allocations from the federation to states have consistently been declining in the last four years. Disbursements from the federation account to states has declined from N3.10 trillion in 2013 to N1.64 trillion in 2016. This basically means a shortfall in disbursements to states of N1.5 trillion over the period. The only way states could have compensated for this significant shortfall in revenues would have been to boost internally generated revenues or significantly cut down on the cost of governance.

The evidence shows that the only state that has been able to boost internally generated revenues over this period is Lagos. Most states have largely remained stagnant in generating revenues internally. NEITI data shows that the internally generated revenues of 33 states, excluding Delta, Ogun and Rivers state was a total of N299 billion in 2016, which is almost two  billion less than the N301 generated by Lagos state alone. The argument made by most states for their inability to boost revenues from internal sources is that they are mainly “civil servant” states. While it is true that most states outside Lagos, Rivers, Delta, and Ogun are mainly dominated by the public sector, the truth also is that most state governments have, for many years, enjoyed the privilege of collecting money from the centre and just sharing it. There has not been enough diligent effort on the part of these state governments to promote the business environment within their states to encourage the private sector to grow.

While many states are constrained by the fact that they are not economically allowed to exploit the natural resources in their states, it is also true that they can build a more sustainable state by just improving the ease of doing business in their states and encouraging small businesses to thrive. Kebbi state is increasingly carving a niche in becoming the rice basket of the country because the state government has deliberately focused on rice farming. Kano state has its strong leather industry that can be turned into an international centre for leather goods. The Niger Delta has an alternative to crude oil in palm oil and related products but this industry has largely been neglected because of crude oil. Yet Malaysia makes billions of dollars selling palm oil products even to Nigeria’s neighbours in West Africa.

The truth is that no number of bailouts can save the states unless the governors wake up to the fact that they have to make their states viable for business which will increase their capacity to generate revenues internally. Also it is important to note that the biggest challenge to most states is the fact that they continue to carry a large number of workforce that they can hardly afford to pay. For obvious political reasons, many states are unwilling to shed weight in the area of labour. The result is that the states revenues continue to be swallowed by a tiny segment of the population working in the civil service while investments in education, infrastructure and health suffer. Until states take a critical look at the cost of governance, the federal government will continue to dish out bailouts that will not result in any positive outcomes. The bailouts will just be swallowed by the huge bureaucracy that is burdening the finances of the state.

 

Anthony Osae-Brown