With money from Nigeria’s oil wells drying up so fast and future monthly handouts from the Federal Government looking highly unlikely, Nigerian states may need to look to the human capital they have neglected to bail them out.
The COVID-19 pandemic has flung every sector into distress, especially the oil and gas sector which contributes about 90 percent of Nigeria’s foreign exchange and close to 60 percent of its revenues.
As of Wednesday, 29 April, Brent crude was available in the global oil market at $22.53, way below what oil-dependent Nigeria projected in its 2020 budget. The country’s excess crude account (ECA), a major buffer, was $71.81 million as of February.
With no oil money coming in, the Federation Accounts Allocation Committee (FAAC) monthly disbursements declined to N716.3 billion in January and N647.4 billion in February 2020. Federal and state governments need monthly average FAAC receipts of at least N650 billion to meet their various obligations.
Data compiled by BusinessDay on full-year 2019 FAAC and internally generated revenues (IGR) for nine months of the year show that state governments on average generate less than 25 percent of their monthly income internally.
However, that could change with renewed attention and investment in human capital. Countries like India, China and Cuba, to mention a few, have earned massive foreign exchange from their investment in human capital.
Since the outbreak of the COVID-19 pandemic, Cuba, for instance, has dispatched 593 medical workers to 14 countries to help them in their battles against the pandemic, according to the country’s Ministry of Public Health. Dozens of other countries across the world have also sent requests for medical help from Cuba, which the health ministry is currently reviewing and will respond to based on its capacities.
The 200 Cuban medical professionals who arrived in Pretoria last Sunday will cost the government of South Africa about $27 million. Cuba currently has about 50,000 doctors operating in 67 countries – many in Latin America and Africa. There are more Cuban doctors working abroad than those from all G7 nations combined, even though the country’s population is only 11.4 million. Doctors are Cuba’s biggest exports. It is more rewarding financially than tourism for the Caribbean island, generating, according to some estimates, about $11 billion a year.
Although the last census in Nigeria was in 2006, Worldometer, the global statistics platform, estimates that the population of Nigeria is 205 million as at April 2020. Cuba, which is nearly half the size of Lagos State, in 2018 grew its human development index by 15 percent to rank 72 out of 189 countries. Nigeria is currently ranked 157 in the world.
The Federal Government played a huge role in Nigeria’s current ranking, but the 36 states including the Federal Capital Territory equally share in the blame as they have not lived up to expectations.
The World Bank describes human capital as the level of education and health in a population and is considered an important determinant of economic growth. Interestingly, both sectors are the most underfunded in nearly all the states.
At the federal level, education funding is abysmal. Less than a tenth of the 2020 budget is allocated to it (it has never crossed 15 percent since 1999). The states could have done better.
The education sector has only lately received allocation above 20 percent in a few states. In 2018, Sokoto and Gombe were the only states in Nigeria to allocate 31 percent and 30 percent of their budgets, respectively, to education. In their 2020 budgets, Kaduna and Ekiti allocated 25 percent and 20 percent of their budgets, respectively, to education.
Nonso Obikili, chief economist at BusinessDay, says it is possible for states to turn their fortunes around despite having neglected investment in this segment in the past. The benefits to the economy are immense.
“For Ekiti to get a billion US dollars’ worth of foreign exchange inflows each year, the state would need to have just 40,000 people working remotely from Ekiti and earning a relatively modest $25,000 a year.
Modest by global standards. Those inflows would also generate twice the tax revenue from PAYE than Ekiti got from the oil-drenched FAAC last year. Is it unimaginable for Ekiti, a state with over 3.5 million residents, to have 40,000 people working remotely for international companies?” Obikili wrote in a recent article.
Before the COVID-19 pandemic forced a lockdown, Lagos State through tech talent grooming firms like Andela, Tek Experts and Decagon has built a sizable pool of techies from which companies abroad recruit Nigerian talents to work full time for them from within the country. Quite a number of them have relocated to the countries where they got employment contributing to Nigeria’s foreign exchange earnings in the form of remittances.
Akin Oyebode, special adviser investment, trade and innovation to Ekiti State governor, in a series of tweets described how the state is putting in place the building blocks of a digital economy.
“This is exactly why we are promoting Ekiti Knowledge Zone (EKZ) as a Special Economic Zone for the digital economy,” Oyebode said. “The first thing to do is improve broadband penetration. The second thing is talent. We have 15,000 graduates coming out of Ekiti annually, plus maybe five times that number from Ondo, Osun and Kwara. That’s the talent pool we want to create jobs for, if we can equip them with the right skills. It helps if you can plan a space around universities for a knowledge zone. We’ve got ~1,700ha reserved, within a quadrangle that has 4 universities and a polytechnic. It means you can plan the zone out, and not have to fit it into a fully built area.”
The deliberate investment in education and health care began in Cuba under Fidel Castro and has been sustained by subsequent administrations.
Additionally, IT companies are relocating their plants to India because of the high population of skilled workers in various parts of the country. The country has also shipped a significant portion of highly technically skilled workforce to different countries.
India received the largest remittances in 2017 globally (the country has the largest number of international migrants, 7 million more than China), with close to $70 billion landing in the country’s banks accounts.
Developing human capital will not only address rising unemployment in states, it will simultaneously drive infrastructural development and improve national productivity.
To enhance the development of human capital and the supporting infrastructure (roads, houses, broadband, electricity etc) required, state governments need to partner with and incentivise the private sector.
“We are enhancing our PPP laws to give investors comfort; developing laws to protect mortgages and drive real estate dev; and the RoW [right of way] fiscal regime to deliver broadband at scale. In case you were wondering, it will cost $30/40 million to land this project,” Oyebode said.
