With the continued United States sanction on Iran and Venezuela, and the OPEC cut which has mopped up excess supply of crude oil, sending prices above Nigeria’s budget benchmark of $60 per barrel so far in 2019, many of the states in the country have managed to stay afloat.
The story would, however, be different if the prices of crude oil, Nigeria’s major revenue earner, were to plunge today, as happened in 2014.
About two-thirds of Nigerian states are still very much dependent on Federal Government’s lifeline – Federal Accounts Allocation Committee (FAAC) disbursement – to make ends meet. This underscores the need for states to devise strategies to expand revenue streams.
A state is considered to be economically resilient if its Internally Generated Revenue-Total Revenue ratio exceeds 25 percent, according to Lagos-based advisory firm, Financial Derivatives Company Limited. In other words, if three-quarters of a state’s aggregate revenue comes from FAAC, it depicts a case of heavy reliance.
Analysis of IGR-total revenue ratio revealed that 21 Nigerian states are below the 25 percent mark, with Yobe, Kebbi, and Taraba as the most-dependent states on Federal Government’s support in 2018.
Like the Federal Government, states have their independent budget which shows their fiscal plan for a year – what they plan to earn and what they outline to spend. Revenue for states typically comes from the various taxes levied on economic agents in their jurisdiction.
In Nigeria, however, the Federal Government distributes proceeds from petroleum products among its 36 states, 774 local governments, Federal Capital Territory, and extra rewards given to oil-producing states.
FAAC disbursement and oil prices tend to swing in a similar direction, and the fact that nearly 67 percent of Nigeria’s sub-nationals are heavily reliant on FAAC funds confirms the position that the broader economy is still oil-driven.
The high-dependence rate requires states to devise other means for raising income other than petrodollars, as a precautionary measure should oil prices drop tangibly.
In 2018, Nigeria’s sixth-largest state by land area, Yobe, had a total revenue figure of N57.3 billion. 92 percent of this figure came from FAAC, implying that the state could not even raise 10 percent alone.
Kogi generated 8 percent of its N64.7 billion total revenue internally, with 92 percent or N53.4 billion coming from FAAC.
Other states with low IGR-total revenue ratio include Kastina (10 percent), Adamawa (11 percent), Akwa-Ibom (11 percent), Taraba (11 percent), and Jigawa (12 percent).
Two south-western states, Lagos and Ogun, showed most resilience with 76 percent and 68 percent IGR figure, respectively, with Rivers (40 percent) coming a distant third.
The analysis further revealed that most oil-producing states showed little capacity to generate funds internally, with Bayelsa recording 8 percent IGR, Delta 21 percent, Abia 21 percent, and Cross River 32 percent.
ISRAEL ODUBOLA & SEGUN ADAMS
