Rebuilding ruins of violence amid low revenues
Charts showing poor finances of states vis-à-vis their soaring debts (N, billlion)
The spate of vandalism, violence and looting, hopefully, has ended. But it leaves in its wake heaps of ruins at major streets, bus terminals, markets and commercial hubs. Certainly, the state governors will resume this morning with the headaches of how they will clean up the mess.
From the presidency to the state houses, there is a consensus that the rebuilding work, like the protests themselves, will come in both hard and soft formats. While the approaches to achieving the two may be different, they both have a shared element that may send the state economies spiralling in the next few months or years: both of them will require money to execute.
The scale and scope of the urgent need for rebuilding will surely increase the financial obligation of the states, whose economies were already in tatters even before the coming of the Coronavirus pandemic. The damage caused by the vandalism that resulted from the Lekki shootings, as many individuals have argued, has only plunged states deeper into the mire. And it now requires more ingenious public finance management to navigate.
Lagos State Governor, Babajide Sanwo-Olu, could not be more apt at the weekend when he admitted that he did not know where the money needed for rebuilding would “come from”. He had spent hours inspecting wrecks of decades of labour and debts, much of which is yet to be paid.
A disheartened Sanwo-Olu confessed that none of his 14 predecessors had witnessed anything near the level of destruction he had experienced in less than a week. As daunting as the challenge is, the governor re-echoed the promise every other public official has made – the rebuilding would be “total”.
The concern of the state government is symbolic in many ways. It is the most financially-viable state in Nigeria. The state raised 33.4 per cent of the N612.9 billion internally-generated revenues (IGRs) realised by the 36 states and the Federal Capital Territory (FCT) in the first half (H1) of the year.
Amidst the many shortcomings of its public finance management, some still believe the state is among the most-responsive. So, if Sanwo-Olu would admit his fear about fulfilling the financial responsibility imposed by the recent destruction of public facilities, it falls short of a question on how other states intend to survive in the coming months.
Already, the administrative groundwork of the additional spending has begun in earnest. Following the ederal government’s directive, many states have set up judicial panels of inquiry to investigate cases of human rights violations reported against the police in the past.
Whereas. the process is still cloudy, the catchword is “compensation.”The civil society organisations (CSOs) as well as the international community have demanded adequate compensation for victims of police brutality as a necessary component of the healing process. The Federal Government has also accepted this and pledged its commitment to reconciliation and compensation of all victims.
If the Federal Government, which controls the police, accepts to take full responsibility for the compensation, the states’ roles may be limited to administrative costs of the panels of inquiry, some of which have started sitting.
Otherwise, the compensation would widen the holes in states’ finances. A generous Federal Government in the wake of the reconciliation process could also mean pulling the rug from other areas. This will further expose the sordid underbellies of the states’ finances.
Only a few states can meet their regular recurrent expenditures from their IGRs. While many of the states have a few or no thriving industries to raise revenues, others have handed over their collection machinery to political warlords who do not give a hoot about their survival. This leads to increasingly economically fragile states.
Thus, most states have had to rely on the Federal Account Allocation Committee (FAAC) to pay salaries and meet other basic needs. For instance, in the H1 2020, only Lagos, Ogun and FCT were able to realise over 50 percent of their total revenues from IGRs. Lagos IGR constituted 80.3 per cent of the total revenue of the state; the IGR of Ogun and FCT contributed 57.8 per cent and 51.6 percent to their respective incomes for the period.
Over 85 per cent of the total revenues of about one-third of the states were allocations from the centre. Also, the total six-month IGR earnings of Borno, Ekiti, Gombe, Katsina, Kebbi, Nasarawa, Taraba and Yobe were less than N5 billion each, implying that their monthly self-earned incomes were less than N1 billion each. Two states – Gombe and Yobe – mobilised a little above N2 billion each in the entire six-month period.
Indeed, the 2020 IGR performances of the states were impacted by the Covid-19 outbreak. From April to June, businesses were shut as part of the measures to contain the spread of the virus. This had attendant effects on the economic activities in the states; operations of the state-owned enterprises were also completely grounded, leading to revenue losses.
On average, about two-thirds of the total revenues available to the states for spending in that period were sourced from FAAC allocations. In absolute terms, the share of FAAC in the total state revenues was N1.12 trillion as against the N612.9 billion the states earned internally.
There is more to the problem of poor revenue regenerating capacity of the states. Only three states – Lagos, Rivers and Delta – and FCT generated 54.7 per cent of the N612.9 billion realised, according to the National Bureau of Statistics (NBS). This underscores the spread of the deficiency of the states.
The poor revenue profile of the states may have been exacerbated by Covid-19. Yet, it is an endemic issue with a long complicated history.
Last year, the total IGRs of the 36 states and FCT was N1.33 trillion, just a little above twice what they generated in H1 2020. The percentage share of the IGRs in the total revenues of the states was 35.04 per cent – 0.30 per cent point below that of 2020 half-year.
Like 2020, like last year. Only two states – Lagos and Ogun – and FCT generated enough to meet, at least, 50 per cent of their total incomes in 2019. The 12-month IGRs of nine out of the 36 states were less than N10 billion each.
The ratio of IGRs to FAAC allocation was even more in 2018, when all the states except FCT generated 1.1 trillion as against N2.5 trillion they got from the federation account. Lagos, again, stood out, contributing almost 35 per cent to the entire states’ IGRs while Rivers, Ogun and Delta followed with disproportionate shares. The laggards, as usual, were led by Yobe, Kebbi and Taraba.
The states, traditionally classified as unviable, have had to look up to the centre for survival. So, with Lagos government fidgeting over its ability to meet growing financial responsibility, such states may be facing severe financial crises soon.
Already, almost all the states are sinking into the morass of unsustainable debts. As of the end of the second quarter, the 36 states and FCT were indebted to the tune of N4.2 trillion. While the debt table appears as if state viability is only a ticket to acquire more loans, the debts of some low-revenue profile states are also growing at alarming rates.
For one, Taraba, whose IGR for the entire 2019 was N6.5 billion, has a debt overhang of N122.8 billion. Gombe, with its poor credentials in internal revenue mobilisation, had a debt stock of N90.5 billion as of June 2020.
The debt burden of Lagos is tending towards N.5 trillion, possibly, a reason Sanwo-Olu is worried about the state’s ability to fund the rebuilding programme occasioned by the three-day vandalism.
If the states are fidgeting, the Federal Government, perhaps, should be sobbing. It sits on 86 per cent of the national debt estimated at N31.8 trillion at the end of June 2020. Part of the loan was sourced from the external market, which is subjected to foreign exchange volatility risk.
The 2021 appropriation, which the leadership of the House of Representatives threatened to stop if it fails to make a provision for compensation of victims of police brutality, is already stuffed with a deficit of 40 per cent to be funded mainly with “fresh borrowings”.
The dreadful debt-servicing burden is even growing at a frightening rate. The government will spend 24 per cent (N3.124 trillion) of the entire next year’s budget to service debts. With the call of the #EndSARS protesters about to be factored into the budget, the government is faced with the option of expanding the deficit component.
Unfortunately, the centre is running dry in the face of mounting responsibilities. The threat of another wave of Covid-19 has sent the hydrocarbon economy spiralling. Prices, experts have suggested, might not rebound anytime soon. Oil prices is still around $40, and continued price volatility will put enormous pressure on the 1.86 million barrel per day production target of the government as captured in the 2021 budget.
The rising unemployment is another falling knife on both federal and state governments, who raised 39 percent of the H1 2020 IGRs from pay-as-you-earn (PAYE). A tattered economy resulting from the ruins of Covid-19 also implies that all tiers of government have plummeting incomes to tax.
Without any doubt, a dwindling federation account and frayed state IGRs are double blows any other time. That the states are now burdened with the exigency of #EndSARS vandalism is not short of a disaster.