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States, financial crunch and diversification of economy


Economy-spectacles-1The shocking news that heralded the current Buhari administration was that many states were broke and could not pay salaries and emoluments of workers. At the last count, as many as 27 states out of thirty-six, were in serious financial crisis capable of causing social unrest. A few months back, the governors were swimming in money, especially, in the run-up to the 2015 General Elections. How the billions developed wings and evaporated into thin air leaving the states with empty treasuries is part of the Nigerian conundrum. The issue is how to get the states out of the mess.

The state governors had declared that the only way out of their financial predicament was bailout from the federal government. After much debates and acrimony, Buhari agreed to bail the states out to enable them pay backlog of workers’ salaries. The federal government, through the Central Bank of Nigeria (CBN), set out to disburse the “special intervention fund” totalling about N338 billion to 27 states. The money was given at an interest rate of nine per cent and payable over a period of 20 years.

The states include Abia (N14.152bn), Adamawa (N2.378bn), Bauchi (N8.60bn), Bayelsa (N12.85bn), Benue (N28.013bn), Borno (N7.680bn), Cross River (N7.856bn), Delta (N10.036bn), Ebonyi (N4.063bn), Edo (N3.167bn), Ekiti (N9.604bn), Enugu (N4.207bn), Gombe (N16.459bn) and Imo (N26.806bn).

Others are Katsina (N3.304bn), Kebbi (N0.690bn), Kogi (N50.842bn), Kwara (N4.320bn), Nasarawa (N8.317bn), Niger (N4.306bn), Ogun (N20.00bn), Ondo (N14.686bn), Osun (N34.988bn), Oyo (N26.606bn), Plateau (N5.357bn), Sokoto (N10.093) and Zamfara (N10.02bn). Though, these funds were granted on very soft terms, they constitute internal debt the states must pay in future. It was not clear to what extent the bailout funds would go to alleviate the financial crunch facing the states.

With the bailout funds, the governors began to pay the arrears of salaries and allowances owed workers. Reports indicated that the money was merely a drop in the ocean. Many states owed workers huge salaries, allowances and other emoluments. While some governors managed to offload part of the salaries, others are unable. The worst hit was retirees, whose pension and gratuity could not be paid. Some state governors declared that the bailout fund was not for pension and gratuity. That has left many retiree old civil servants in abject misery.

While that was going on, the governors were lamenting, once again that the bailout fund was half measure, as they are still broke. This time around, they are saying that they could no longer pay the minimum wage of N18, 000 to workers. Nigerians are scandalised as to how governors, with their lavish lifestyle, cannot pay N18, 000 minimum wage, which at today’s exchange rate of N251/dollar, amounts to N72 per month!  While some governors are threatening to downsize their work force, others are threatening to cut salaries. As a result, the governors are scheming for another bailout from the federal government. The question is for how long will the governors and their states depend on bailout funds for survival, especially, now that Nigeria’s oil revenue has tumbled.

Over the weekend, the price of crude oil crashed to all time low of $39.43 per barrel, as the Organisation of Petroleum Exporting Countries (OPEC), failed to agree on production cuts. Besides, there are unconfirmed reports that a certain western power broker working in concert with the International Monetary Fund (IMF) is rallying western countries to stop buying Nigeria’s oil for refusing to devalue the naira. This morning, the naira crashed to N251/dollar at the parallel market. It is very easy to suffocate Nigeria for depending solely on oil.

All that is required is to shut the oil pipes from flowing to the buyers and the country would grind to a halt! Nigeria is not thinking strategically? OPEC sources indicate a protracted low energy prices, of which, Nigeria would be among the worst hit; at a time when the states are broke and the federal government might not be able to bail any state out.

The other day, President Buhari declared that Nigeria was broke, which attracted much condemnation and opprobrium. But the President was being frank. For me, there is nothing wrong in telling Nigerians the truth. Nigeria is a country that lives on denials. Given the ugly scenario in the world crude oil market, does one need to be told that the country is heading to the doldrums? How many states would be able to function if the emerging scenario continues?

That brings me to the issue of diversification of the economy. It is sad and dangerous that virtually all the money used in Nigeria comes from only one source – oil. If anything happens to the oil, Nigeria grinds to a halt! The Vice President, Professor Yemi Osinbajo, has been hammering that the 2016 national budget would be non-oil based. Good. Also, the government has been preaching diversification of the economy. But how do you diversify the economy, when little or nothing is happening on other economic sectors? For many states, diversification means increased Internally Generated Revenue (IGR) through multiple taxes on the citizenry. But is that what diversification entails?

Diversification requires looking back to the huge resources the country is endowed with and fully exploiting them to the benefit of the people and the economy.  Every individual, village, town, local government and state in Nigeria is supposed to be an active player in the management, exploitation and use of our God-given resources.

Apart from oil and gas, the resources include land resources – coal, tin and columbite, iron ore, uranium, limestone, lead, zinc, ignite, salt, marble, gold, etc; forest resources – wild game animals, palm oil, palm wine, rubber, timber, cocoa, firewood, fruits, a rich agricultural land for cultivation of high yielding cash crops; water resources – fish and a host of aquatic resources.

The first issue has to do with resource ownership. Who owns the resources, or the kind and right of stakeholders, is what determines how the resources are exploited. The laws that bestow virtually all resources on the federal government should be abrogated. That is the only way to diversify the economy. The states are alienated from their resources. Rather than asking for bailout, the governors should ask for unhindered access to the resources of their states for revenue generation.

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