Lagos infrastructure spending fails to reach the poorest – AFDB

The African Development Bank (AfDB) has said Lagos State’s infrastructure spending does not always benefit the state’s poorest.

AfDB said in its ‘From Millions to Billions: Financing the Development of African Cities’ report that the Lagos State budget does not always lead to basic infrastructure and services for the poorest in the city.

“The relatively high capital component of Lagos State’s budget (58%) does not always translate into implementing basic infrastructure and services for the city’s poorest people,” AfDB said.

However, it stated that Lagos is deliberately trying to attract multinational companies and foreign investment.

“Lagos State has deliberately sought private-sector partners for capital investment with the federal government offering tax incentives (20% of the cost of providing basic infrastructure is tax deductible) to private sector investors financing road, water, and electricity infrastructure.

“Infrastructure planning has been criticised as top-down and unable to generate the economic multipliers and poverty alleviation impacts that might be hoped for from infrastructure investments,” it said.

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AfDB stated that development has relied on public-private partnerships with federal government tax breaks for private-sector property developers. “The same partnerships have been less effective in ensuring universal access to basic services; 65 percent of Lagosians do not have access to electricity, and 85 percent rely on informal sanitation.”

Lagos City has a sophisticated banking sector and the Lagos State Development Plan 2022-2052 emphasises the intent to borrow more locally, reducing dependence on foreign financiers, the AfDB report stated.

It stated that Lagos state has an approved budget of $2.1 billion for 2023/24, with $1.3 billion (58% of the entire budget) targeted at capital projects.

“Lagos State’s approved budget for 2023/24 (the ‘Budget of Continuity’) totaled $2.31 billion or $144 per capita, of which $1.33 billion (58%) is for capital projects and 27 percent specifically for new infrastructure.

“The balance (42%) is spent on personnel and debt servicing. This equates to a $48.22 capital budget per capita,” it said, adding that own-source revenue in 2023/24 was estimated at $1.83 billion, with the 25-30 percent shortfall filled by borrowing (20%) and transfers from the federal government (10%).

AfDB stated that an estimated five million people (31% of the population) pay some form of tax or revenue to Lagos State, but only 400,000 entities are registered for PAYE.

“Non-compliance with tax obligations is a critical issue. Efforts are underway to change this, and an 18 percent growth in local revenue was recorded in 2022.”

Currently, Lagos generates 70 percent of its revenue from its sources, most of which comes from PAYE (45% of revenue) and property taxes, AfDB stated, while adding that other sources of revenue are more volatile and include sales proceeds, rents, land-use charges, fees, and fines.

“At the end of 2022, Lagos State had $1.7 billion in debt, with the cost of servicing this debt expected to deteriorate in 2023 as the currency depreciated. The state remained in good standing with local bond markets that comprised 20 percent of the end-2022 debt,” it said.

“The federal government does not require states to operate ‘balanced budgets’, but states are required to maintain their deficits to within 3 percent of national GDP.”