States' Budgets: Wrong Priorities, Pathetic Outcomes

States Budgets: Wrong Priorities, Pathetic Outcomes

Our aim today is to draw some stylized conclusions from our analysis of the budgets of ten state governments. The states covered are representative of the six geo-political zones; Bauchi and Gombe in the North East, Lagos (South West), Benue and Nasarawa (North Central), Edo and Akwa-Ibom (South-South), Kaduna and Zamfara (North West) and Anambra (South East). These states are governed by five political parties, PDP (Akwa-Ibom, Bauchi, Benue, Gombe, and Kaduna), ANPP (Zamfara), ACN (Edo and Lagos), APGA (Anambra) and CPC (Nasarawa). Thus to a degree, not only are the ten states representative of the six geo-political zones but also their budgets present the ideological outlook of the leading political parties in the country. Our analysis therefore provides a basis to make some generalizations about the budgets of the 36 states of the federation. alt

The objective of analyzing the states’ budgets is because a considerable proportion of our national revenue is allocated to the states and the local governments they control. Based on the existing revenue allocation formula, nearly half of federation revenues go to 36 states and the FCT, and the 774 local governments and 6 area councils. When the derivation, other federal transfers and related revenues are added, this proportion is well in excess of 65% of total revenues that accrue to the federation, being spent directly or indirectly by the State Governors. It is therefore important to focus on this tier of government which controls and spends nearly two-thirds of the nation’s resources to assess their performance.

The 1999 Constitution assigns important roles to the state governments in promoting social and economic development of the country and in improving the welfare of our people. It is important not only to focus on how the states are spending their accrued revenues, but also to ask to what extent, through their respective budgets, they are fulfilling their constitutional obligations. We hoped that the analyses will not only generate national debate on quality of spending and accountability but will lead to better state budgets in the future.

Consequently, rather than offer opinions, we adopted a facts-based approach to the analysis of the ten states budgets. We relied on publicly available and official data. For ease of Doing Business in Nigeria, we relied on the most recent World Bank survey, the National Bureau of Statistics (NBS) for the Poverty Profiles and Unemployment, and Universal Basic Education Commission (UBEC) for school enrolment, and JAMB for tertiary admission.

A major challenge that we faced in the exercise was the difficulty in accessing the budgets. Most of the states do not have websites with uploaded budgets. Even states that have functional websites have very little information on their annual budgets. Only Lagos and Gombe have detailed budgets online. Nasarawa has nicely-printed copies of the budget distributed widely and easily accessible in the state. This unusual scarcity and secrecy around state budgets create conditions of poor accountability and lack of transparency in governance. Invariably, our governance is weakened by the refusal and inability of state governors and assemblies to make their budget readily available to ordinary Nigerians. How can citizens hold governors accountable if they do not know what is planned, budgeted and implemented?

One noticeable trend in the budgets is the inability of state governments to collect taxes and thereby generate internal revenue. Only Lagos was the exception with IGR constituting 73% of total revenue in 2012. Only Kaduna State raises enough IGR to pay the salaries of its three arms of government without monthly FAAC handouts. Most states have high personnel costs, attributable to the appointment of unreasonably large numbers of political appointees. As an example, until recently the governor of Bauchi states had over 900 assistants. This is in contrast to Gauteng Province in South Africa which includes in its boundaries the cities of Johannesburg and Pretoria, with a GDP that is more than twenty times that of Bauchi State, whose premier has a maximum of five special assistants. What makes the case tragic in our context is that most of the ‘assistants’ make no meaningful contribution to the development of the states.

We can illustrate above point further by the fact that the civil servants and political appointees do not generate enough revenue to even cover their salaries. Of the state budgets analyzed, only Lagos and Kaduna have IGRs that could cover their personnel cost. The others like most states in the federation have been unable to device strategies to raise enough for their personnel costs. Edo’s IGR will fund 83% of its personnel cost, Anambra’s would fund 74%, Akwa Ibom 65%, Nasarawa 53%, Gombe 30%, Bauchi 26% and the worst case scenario is Zamfara whose IGR would fund only 19% of its personnel costs – less than one out of its five employees.

Virtually all the 36 states of the federation are dependent on federal allocation for their overhead and capital project requirements. In 2012, even the best state Lagos has a recurrent budget which is 80% of its IGR. The IGR of the nine other states, like most other states in the federation, will not even cover their recurrent budget. Akwa Ibom’s IGR covers only 6.3% of its recurrent budget; Zamfara’s can only cover 7%, Bauchi’s 11%, Gombe’s 11.9%, and Anambra’s 18%. The better performing states are Benue whose IGR will pay 26% of its recurrent budget, Nasarawa’s which cover 31%, Edo’s 37% and Kaduna that internally-generates 52% of its recurrent expenditure.

One other trend emerging from the foregoing is that most of the states are also spending more on running their governments than on improving the welfare of their people and investments that will enhance their productive capacity. These are governments of the people but not for the people – but to serve the political elite.

With the exception of Akwa Ibom state that earmarked 83% of its 2012 budget for capital expenditure, which is more than the 70% required for developing countries to ensure sustainable development, most state governments’ spend nearly half of their revenues on recurrent expenditure, with Nasarawa (60% on capital) and Zamfara (63%) being the notable exceptions.. The states are therefore not allocating sufficient amounts to the development of both social and economic infrastructure, nor are they saving for future generations.

Given the infrastructural deficits in the country, one expected that states’ governments would expend bulk of their resources not only building physical infrastructure but improving the living standards of citizens through provision of better schools, hospitals and security of life and property. Sadly, not enough of this is being done. If this pattern continues, it will perpetuate not only the underdevelopment of the federating units in particular but the country in general.

States develop and prosper when those in charge of governance recognize both the challenges they face and the endowments available take advantage of. Generally speaking, the endowments in most states range from agricultural resources, to minerals, tourism and human capital. Lagos has no minerals or agricultural land but has leveraged on its locational and commercial advantages. For many of the other states, it is either these natural resources or human capital.

The paltry amounts allocated to agriculture exemplified the misplaced priorities of most of the states’ budgets. Rural Anambra budgeted less than 2% for agriculture, Bauchi with 80% of its population engaged in farming allocated only 5.5% of its budget to agriculture, Edo allocated only 1%, and Gombe with its arable land and 80% of its population engaged in agriculture allocated only 5% to agriculture. These poor allocations are in contexts of high levels of poverty and unemployment. In Kaduna and Gombe the rate of unemployment is respectively 25.7% and 29%, which are above the national average of 21.1%. For states like these, attracting businesses and encouraging SMEs should be the front-burning issue. Increasing the budgets of agriculture, mining and tourism to address constraints in the value chains should be the governors’ priorities.

The budgets’ analysis therefore showed that most states in the country are not viable economic entities, and the so-called ‘rich, oil-producing states’ are far more dependent on the federation than the rest in proportionate terms! Standing alone, virtually all states will be unable to perform their basic functions like providing education and healthcare to citizens. Most states in the country will be illiquid in months without federal allocations, which in turn are largely derived from oil and gas revenues. The six Northern states in our sample are engaged in significant borrowing to sustain their operations. An example of this is Bauchi where 40% of its 2012 budget is funded by loans.

In conclusion, the budgets’ analysis has exposed the administrative and political incompetence of many state governments. We therefore need to rethink the role and size of states as constituted, as units of governance and economic development. There is therefore an urgent need for a constitutional review that will among other restructure the federating units to give way to a smaller number of states, regions and regional governments as political and economic management units. This calls to question the current and senseless clamour for creation of more states which would be even more unviable!.

To develop their states and meet the needs of the people, governors will have to change their strategic focus in a manner that will enable them to increase their IGR and reduce dependence on federal allocation. Among others, these will require increased capital investment in social and physical infrastructure and to create conditions to diversify their economies, including promoting manufacturing-based industrialization. Each state needs to develop a blueprint for a post-oil economy and identify and promote investments in sectors that will generate jobs. Finally, as we can see from states like Lagos, developmentally-oriented leaders are required to pilot the affairs of the regional governments that will emerge from such political rearrangement. With these steps, may be our children will have a nation that has truly attained its potential.