Deeper than ever, many Nigerian states are on tenterhooks, relying more on vain optimism than proved scientific keystones to escape the social tension and economic doom. Their incapacitation accurately reflects in a new report on their internally generated revenue. According to the Annual States Viability Index 2019 just presented to the Revenue Mobilisation Allocation and Fiscal Commission, at least five of the 36 states are insolvent mainly because of their meagre internal receipts. In this category are Bayelsa, Borno, Katsina, Kebbi and Taraba. Other states and the Federal Government are not faring any better.
But the Bayelsa Governor, Douye Diri, was right when he said that Bayelsa, as an oil and gas-producing state, could not be declared insolvent in isolation of Nigeria which had also been rendered bankrupt by the existing abnormalities in the country. According to him, the time had come to change the revenue formula to reflect the principles of “true federalism which promotes equity and justice.” Frankly, apart from the constraining effects of Nigeria’s dysfunctional federalism, many states lack effective leadership. The warped electoral system regurgitates incompetent, often corrupt, helmsmen from one election cycle to another, creating a tradition of mediocrity in governance. In a globally competitive era, this places these states at a grave disadvantage. By relying mainly on the monthly federal allocations that are subject to the vagaries of the international crude oil market, they are left reeling from pitiable finances.
The ASVI 2019 states that the five states’ IGR was “far below 10 per cent of their receipts from the Federation Account.” By inference, if the monthly federal allocation dried up, these states will not survive the damage. Combined, the IGR of the 36 states in 2019 was N1.33 trillion or about half of their federal allocations. After struggling to meet overheads, there is very little left for infrastructure development or social services. Having received N117.9 billion as federal allocation and generated N398.7 billion as its IGR, Lagos stood out among the lot. The Federal Capital Territory and Ogun generated N70.9 billion and N74.6 billion internally and received N38.7 billion and N71.9 billion respectively. The report reaffirmed Rivers and Delta as making extra income from IGR. Kaduna, Kano, Akwa Ibom, Enugu, and Kwara trail in that order.
Among those five states, Bayelsa’s case is typical. Although like other oil-bearing states, it is being unjustly denied the full benefits of its oil resources, its IGR is extremely low and its tax base miserable because its economy is monolithic.
The National Bureau of Statistics reported that in 2019, 14 states earned only between N1 billion and N4 billion as tax revenue. Nevertheless, every other state is challenged.
A Lagos Chamber of Commerce and Industry report traced the poor state of infrastructure in the country to the downturn in economic activities in the states. The states lack effective economic policies, run cumbersome, unproductive bureaucracies, officials live in luxury and waste is institutionalised. Many have been described as “civil service states” where the public sector is the main employer of labour.
A dysfunctional political and bureaucratic structure like Nigeria’s, said a former Central Bank of Nigeria governor, Lamido Sanusi, “is set up to be bankrupt” and demands radical restructuring. In 2019, the states’ share from federal allocations amounted to N2.5 trillion. Compared to their needs to pay workers the N30,000 minimum wage-based, provide education and health services, service debts, and pay gratuities and pensions, this amount is grossly inadequate. Instead of the current lopsided system in which the Federal Government warehouses all centrally collected revenues, taking 52.68 per cent and the 36 states 26.72 per cent, fiscal federalism is the natural and sensible solution. Governors will remain unchallenged to engage in critical thinking until the states are weaned from the debilitating “feeding bottle federalism.”
In the leading federal democracies like the United States, Australia and Canada, fiscal federalism is jealously guarded. Their constitutions allow the states/provinces to retain substantial parts of their revenues while the centre depends mainly on royalties and taxes. This enables competitive federalism, boosts good governance and reduces political and social frictions. The states/provinces are able to compete on many fronts ranging from investment, employment, business environment and growth.
America’s economic power lies in the overall economic strengths of its constituent units. This model enables California’s $2.97 trillion economy by 2019, the largest in the US and the fifth largest economy in the world if it were an independent nation. The state’s GDP equals that of France and is comparable to Britain’s, whose GDP came in at $2.81 trillion. Indeed, many US states are as economically powerful as some foreign countries.
By concentrating on the gambling industry to mitigate its desert nature, Nevada recorded a GDP of $180.4 billion in 2019, according to the US Bureau of Economic Analysis. A 2019 State of the States report placed Victoria, Australia, as making the best strides that year “with large scale infrastructure projects securing jobs and pumping cash into the economy,” boosting its growth by 2.18 per cent. The reverse of all this is the case in Nigeria.
What then, might we learn from the choices that other federal countries, especially the US, have made? The states should campaign jointly for fiscal federalism, empower private investment, run a lean, digitalised public service and act like true economic centres independent of the central government.
Until these are done, the states will remain mere cost centres and the federal an imperious rent seeker.
