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How overdependence on federal allocation rendered states financially handicapped

By Onyedika Agbedo
22 May 2021   |   3:00 am
Last Monday, hell was literally let loose in Kaduna State, as the Nigeria Labour Congress (NLC) made good its threat to embark on a five-day warning strike to protest alleged anti-labour practices


Last Monday, hell was literally let loose in Kaduna State, as the Nigeria Labour Congress (NLC) made good its threat to embark on a five-day warning strike to protest alleged anti-labour practices by the Kaduna State Government, including the mass sacking of workers and underpayment of salaries, among other infractions. Virtually all affiliate unions of the Congress joining the industrial action, with schools, hospitals, petrol stations, banks and major institutions in the state shut, including the Kaduna International Airport and Kaduna Electricity Distribution Company (KEDC), which shut down all its transmission lines.

The state was in total darkness and on a standstill, engulfed by an atmosphere of uncertainty and gloom. Before the end of the day, residents had begun to lament and called for a truce between Labour and the government. But both sides stuck to their guns.

The following day, Governor Nasir el-Rufai was so angered by the development that he declared the NLC President, Ayuba Wabba, wanted, accusing him of economic sabotage.

He also ordered the sack of some category of workers that joined the strike. There were also reports of thugs attacking the peaceful protesters and a counter-protest in support of the state government by its apologists. State chapters of the NLC threatened to join the action in sympathy with their Kaduna counterpart.

When the face-off entered the third day, the Federal Government, sensing that things were getting out of hand, waded in by inviting both parties to the negotiation table in Abuja. This led to the suspension of the strike last Wednesday.

So far, there is no truce yet between the warring parties but negotiation is said to be in progress.

Following dwindling federal allocations arising from a drop in oil revenue and sustenance of petroleum subsidy by the Federal Government, many state governments, not only Kaduna, are finding it increasingly difficult to meet their obligations to workers and other residents.

In January this year, the Kano State Government, one of the first states to commence implementation of the new minimum wage last year, halted it and reverted to the former wage of N18, 000 for its workers, insisting: “What we are getting now as a government has reduced and we can’t afford to pay the N30, 000 minimum wage.”

Irked by the development, the state workers had issued an indefinite strike notice but later jettisoned the move after the government pledged to refund the deductions from April salaries in the May salaries, depending on the increase of federal allocation accruable to the state, among other resolutions.

Last Monday, the organised Labour in Ekiti State, after a closed-door meeting with Governor Kayode Fayemi, rejected plans by the state government to withdraw payment of the new minimum wage and consequential adjustment by the state government.

In a statement signed by NLC state Chairman, Kolapo Olatunde; Trade Union Congress (TUC) Chairman, Sola Adigun and Joint Negotiating Committee (JNC) Chairman, Kayode Fatomiluyi, after the meeting, the unions said: “The workers of Ekiti reject any withdrawal of minimum wage and consequential adjustment payment by the state, which is a product of a process that has been signed into law by President Muhammadu Buhari.

“In the same vein, the labour movement rejects any stoppage of subvention to all educational institutions in Ekiti, as proposed. We viewed any attempt under any guise to further impoverish the living standard of workers and all vulnerable groups in Ekiti State as inhuman and unacceptable.”

These few instances clearly indicate that the federating states in Nigeria have become financially handicapped. In fact, Bayelsa State Governor, Douye Diri, stated this much during last Wednesday’s meeting of the Nigeria Governors’ Forum (NGF), when he warned his colleagues that what El-Rufai was dealing with would soon catch up with other states if the situation was not properly managed. So, the states are in dire need of a lifeline.

Unfortunately, the Federal Government, which had in the past extended a helping hand to them, albeit in the form of a loan or bailout, is also limping financially at the moment.

The big question is: Where do the states turn to now? How can they shore up their earnings to be able to meet their responsibilities to Nigerians?

The following reports substantially represent what currently obtains in the states captured and how various stakeholders think they can wriggle out of this difficult time.

‘States Should Harness Sectors Where They Have Comparative Advantage’
From Danjuma Michael, Katsina

LIKE many states in the county, Katsina is heavily dependent on the monthly federal allocation to pay salaries and carry out other developmental projects. The Internally Generated Revenue (IGR) of the state is said to be so minute that it is of little significance to meeting the development needs of the people. The situation in the state is such that if for some reasons federal allocation is delayed, payment of salaries, pensions and other government activities are often consequently affected. 

However, the Governor Aminu Masari administration has been prompt in the payment of salaries and pensions of workers and had since commenced the payment of the N30,000 minimum wage.  

Nevertheless, the state is currently making efforts to improve its IGR amid dwindling federal allocation. One of such efforts was the recent appointment of a financial expert to head its Revenue Board.

To a lecturer at the Department of Economics, Umaru Musa Yar’Adua University (UMYU), Katsina, Dr. Abdulsalam Abubakar, Katsina and other states in the country needed to critically look at ways they could improve their IGR and block leakages in order to survive the current cash crunch in the country.

Abubakar, who is a Senior Research Fellow at the Research Directorate, National Institute for Policy and Strategic Studies, Kuru, Plateau State, also urged the states to reduce the cost of governance, especially monies expended on political appointees, which, according to him, gulps a huge chunk of resources available to the states.

He said: “Government can increase its IGR by reducing the high cost of governance, especially money used in maintaining political appointees. The money that is leaking around that circle is much more than the one leaking around civil servants. We need to drastically decide on the cost of governance so that we can save a lot and reduce leakages along that line.”

He added that like individuals facing financial challenges, states should prioritise their needs and wants, noting that they could do so by cutting off or reducing unnecessary travels, appointments, purchase of vehicles and so on.  

Abubakar noted that doing so would enable the state governments to channel these resources towards improving the lives of the people.

He also stated that states could consider taking loans, but warned that the facilities must be channeled into proper use.

“If necessary, the government can take a loan but should ensure that the facility is used appropriately. Doing so would lead to regenerating the economy, accumulating human capital or accumulating physical capital that would serve as the basis for economic production. That would allow state governments to collect more taxes and then exit the current problem facing them.”

Abubakar also urged the states to support small and medium enterprises and encourage them to register with relevant government agencies, thereby formalising them and encouraging them to pay taxes.

He explained: “For states to improve their IGR, they should be able to improve the economic activities in their states by supporting small and medium enterprises. They can achieve this by creating an enabling environment for the enterprises to thrive, supporting them and also making them formal. The problem in Nigeria is that small enterprise is largely informal. They don’t keep records, so they do business and make a profit but don’t pay taxes.

“In addition to supporting them, they need to be encouraged to register with appropriate government agencies so that government can have their record and track them, and encourage them to be paying taxes.

“This is a sure way of government getting tax. These small businesses will pay profit taxes, their employers will pay income taxes and much other income would accrue to the government.”

The economist also said that states needed to automate their tax collection process, modernise sectors generating operating surpluses and harness sectors where they have a comparative advantage.

Abubakar added: “There are public enterprises that are operating and supposed to be generating what is called operating surpluses, for instance, the water board. You will find that in many states, water boards will be waiting for the government to give them money to run when it is already into selling goods and services. 

“Such public enterprises are supposed to be modernised and professionalised so that they would be able to generate money to operate and even generate surplus money for the government.

“The process of tax collection needs to be automated. If it is manual, leakages would be there. If you ask somebody to go around shops and be collecting liquid cash, there is a tendency he will siphon some. But if you automate, people can from their handsets pay taxes. While in their shops or places of business, they can easily pay taxes so there is no tendency for leakages.

“Like nations, every state is peculiar and has a comparative advantage. Katsina State is endued with agricultural lands and strategic crops like soya beans, cotton, groundnut and so on. These are cash crops that are being processed within and outside Nigeria to create many consumer goods, which are in constant demand.

“The issue in Katsina State is that we produce and sell these crops in their primary form. You see trailers carrying away such crops and even whole cattle. So, we need to concentrate on this value addition, the value chain of such products. If we can maximise it so that such products are processed in Katsina, we would create employment for the youths and also generate income for the government, because whoever is employing will pay you taxes, and the companies that are processing them will generate profit and pay taxes.”

‘Kebbi Needs A Committee On IGR’
From Ahmadu Baba Idris, Birnin Kebbi

THE Chairman of the Nigeria Labour Congress (NLC) in Kebbi State, Comrade Halidu Alhassan, has urged the state government to initiate ways to block leakages from its Internally Generated Revenue (IGR) as part of measures to stay afloat amid the current cash crunch.

Alhassan, who spoke with The Guardian in Birnin Kebbi, lamented that there were lots of leakages from the state’s IGR, especially at the local council level.

He alleged that some of the revenues collected by the local councils were not remitted to the state government.

He expressed shock over the recent shortage in the federal allocation to the states, noting that they needed to improve their IGR in order to meet up the demands of the people.

Alhassan commended the state Governor, Abubakar Bagudu, for prompt payment of workers’ salaries, but urged the government to set up a committee that would explore avenues to improve the state’s IGR and boost its economy.

Also speaking, a former Auditor General of the state, Alhaji Ahmed Jega, commended the government for so far meeting workers’ needs despite the current economic challenges.

He, however, concurred that there was the need for the state to set up a committee that would develop a workable template for improving its IGR. Jega further urged the state to harness its economic potentials by investing in agriculture and the manufacturing sector.

Reduce Number Of Appointees, Abia Stakeholders Advise
From Gordi Udeajah, Umuahia

FOLLOWING the drastic drop in federal allocation and poor accruals from Internally Generated Revenue (IGR), the salaries of some workers in Abia State have not been paid for several months. This is as pensioners are also being owed several months arrears of their pensions. Also, the extant minimum wage of N30,000 is yet to be extended to all workers in the state.

Findings showed that civil servants working in the Ministries, Departments and Agencies (MDAs) are not owed salaries and are being paid the current minimum wage. But those working in tertiary institutions and primary and secondary school management boards are owed many months of salaries, likewise their retirees.

The Commissioner for Information, Chief John Okiyi Kalu, admitted that the government indeed pays the salaries of the workers in the MDAs, explaining that the management of the parastatals pay their workers from the revenues they generate because by their creation, they are revenue-generating agencies.

Speaking with The Guardian, NLC Chairman in the state, Comrade Uchenna Obigwe, said the workers had an understanding with the state government over unpaid salaries, noting that the COVID-19 outbreak universally affected both governments and businesses.

“If the state government can get it right by putting the parastatals at par with the MDAs with respect to paying salaries and pensions, there would be no problem. Labour has even suggested to the government to embark on fewer projects so as to have funds to pay salaries and pensions,” Obigwe said.

A public affairs analyst, Dr. Kachi Ogbuagu, advised the state governments to reduce the size of their workforce optimally totally with their real needs and resources.

He specifically faulted governors who appoint a horde of assistants as a means of compensating them for assisting them to win the election, noting that it was wrong to channel a large portion of government resources to pay salaries of workers who constitute less than 10 per cent of the population.

To another labour activist, Comrade Ken Madu, the government should apply what it generates wisely.

“They should embark on less propaganda, buy fewer vehicles for public office holders, reduce the number advisers/assistants, stop duplication of Boards and appropriately channel generated revenue,” he advised.

Audit Your Workforce, Residents Urge Plateau Government
From Isa Abdulsalami Ahovi, Jos

PLATEAU State currently needs over N15 billion to pay arrears of gratuities to its retired workers from 2005 to date. Local council workers are owed salaries ranging from three months and above.

Few days ago, the state government and organised labour struck a deal, where the government agreed to pay the arrears of the N30,000 minimum wage it owed the workers.

A public affairs analyst based in Jos, Mr. Okura Ibrahim, explained that the problem of the state started when it massively recruited people into the civil service between 2003 and 2006.

“Since then, there have been retirement, resignation, termination of appointment, transfers and deaths. Yet the wage bill of the state still remains over N2 billion monthly for payment of salaries without gratuities.

“The state’s allocation from the federation account is very low due to deductions from source. The only option to augment is through Internally Generated Revenue (IGR),” Ibrahim explained.

According to him, the state government should be transparent enough to categorically declare the true number of workers on its payroll.

He recalled that in 2015, the administration of Governor Jonah Jang conducted a biometric capture of public servants, which revealed the state’s true workforce and saved it close to N500 million monthly that was going to ghost workers.

He urged the government to revisit the exercise and also work towards revving up its revenues from taxes, mining, commercial activities, land and so on.

“These are where the government gets its revenues, which are collected by the Board of Internal Revenue. But companies such as NASCO, Steel Rolling Mills, Vita Foam, Makere Smelting Company, Standard Biscuits, Jos International Breweries, Pioneer Milling Company, BACC Farms, Limca, e.t.c, that are supposed to generate huge revenue for the state are now moribund,” he lamented.

He advised the government to organise illegal motor parks operating in the state so as to be able to collect revenue from them.

“There are over 2,000 commercial motorcyclists (okada) and tricycle riders in the state capital that are not registered. So, they are operating without paying any revenue to the state government. Again, revenue can be derived from illegal mining,” he added.
Osun Should Invest In Gold Mining, Says Expert
By Timothy Agbor, Osogbo

SINCE the inception of the administration of Governor Gboyega Oyetola of Osun State, workers have not been owed their salaries. The state government has also implemented the payment of the N30,000 minimum wage.

Aside from the inability of the government to service the huge debts it inherited from its predecessor, other financial challenges facing it include how to pay up workers who earned half salaries during the immediate past administration for almost three years, and its inability to fully pay pensioners under the contributory pension scheme their entitlements.

The last time the state government approved money for the settlement of pension arrears was in February this year when it released the sum of N708,000,000. 

Governor Oyetola had then called on the state’s workers to reciprocate the gestures of his administration towards their welfare by ensuring increased productivity and efficient service delivery, noting that when they do so, more revenues could be generated to make the state financially sufficient.

Speaking on how the state can improve its revenue, a financial expert, Dr. Tunji Ogunyemi, advised the government to harness its natural resources by setting up industries, especially in the area of gold mining.

He also noted that the state could improve its IGR through an effective collection of taxes, adding that the government should also look into forestry and land use charge.

He noted: “There are significant opportunities to grow by deliberately setting up factories or industries to harness its natural resources in Ife/Ijesa corridor. My problem with Osun is that in spite of the fact that it has a licence to directly exploit gold, it is issuing licences to non-indigenes and marauders who are creating insecurity in the Ilesa-Ife corridor to do it.

“The problem with Nigeria’s federalism is that the latitude that the states have to increase taxes is so minimal that they lack the capacity to use tax regime to shore up their income. So, what the state can do really is to look for property tax and the use of land because Osun has land and people are using its land. It can do something in that area. Land use charge. It can also look at its forestry and do something about the plantation in terms of tree felling.”

An economist, Mrs. Ewaoluwa Samro, advised the government to form a think-tank that would assist it in re-engineering the economy of the state with a view to boosting its revenue.

She also tasked the government to woo investors to the state by capitalising on the fact that the electricity supply in the state is stable.

Samro also noted that government could make a lot of money through the acquisition of Certificates of Occupancy by residents.

“As it is now, there is no market in Osogbo. So, the government should be innovative in thinking. This it can do by looking into recycling and Tyre production. They should look for investors the way Dubai did. Government should subsidise land for investors to encourage them and empower farmers for full-scale agriculture,” she added. 

‘States Should Obey The Fiscal Responsibility Act’
From Lawrence Njoku, Enugu

IT is not yet uhuru for pensioners in Enugu State. But their situation is better at present than what it was when the Ifeanyi Ugwuanyi administration took off in 2015.

Investigation by The Guardian revealed that the state owed pensioners arrears of over three years when the present government took off in 2015. Currently, despite dwindling resources, the government has cleared the backlog and owes pensioners only one month arrears.

The state government has also continued to implement the new minimum wage of N30,000. Only teachers in primary schools are yet to receive the new wage in the state. The matter has been contentious with the state government insisting that it was the responsibility of local councils because they draw from federal allocation.

This notwithstanding, there has been a harmonious relationship between labour and the state government. In fact, during this year’s Workers’ Day celebration, both the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC) in the state had noted that Enugu has “a labour-friendly governor”, stressing that they had not gone on strike since the administration came into being.

They had, however, remarked that issues of promotion allowances, annual leave allowances and gratuity had been irregular.

Government, however, told the workers that it would do more if revenues improve, stressing that the economic downturn was seriously hampering its operations.

An Economist and former Director at the Central Bank of Nigeria (CBN), Dr. Stan Ukeje, while appraising the effects of the current economic crunch on the activities of state governments, especially on its obligations to the citizenry, stated that the present time was not one for government to increase revenue through taxation.

He said: “Nigeria has depended on oil revenue to fund public sector expenditure since the 1970s and since 1973, oil price and quantity demanded has been highly volatile. The result has been episodes of sharp movements in public sector revenue, which impact public welfare adversely.

“In 2004, economic and fiscal policy reform required that governments follow prudential guidelines in budgeting, embodied in the Fiscal Responsibility Act. Most states ignore the requirements. Rather than being prudent, many of the states are exuberant. Revenue projections are overly optimistic every budget year, in order to justify needlessly large expenditure budgets.”

Ukeje noted that concentration of power in the Office of the Governor would make it difficult to increase revenue collection, adding that the situation has been compounded by the fact that many of the states and local councils engage in tax farming by contracting revenue generation to political associates.

“So, the concentration of power in the offices of the governors and chairmen of local councils means that the planning machinery, in particular, the Research and Statistics Unit of government, is disabled. The implication is that entities missing on the tax list cannot be identified. The data is not there. So, state governments cannot increase the personal income tax rate and are unable to expand the tax net because they are not transparent,” he added.

‘States Can Borrow But Only For Capital Expenditure’
From Charles Ogugbuaja, Owerri

AS Imo State faces cash crunch following dwindling federal allocation, the government has not been able to pay scores of workers and retirees their salaries and pensions since March last year. But the state government had severally explained that the affected workers did not scale the hurdle during the automation of the state’s payroll system. The workers and retirees, however, insist that they had presented all the required documents, regretting that they were yet to receive their due salaries and pensions.

Several workers who spoke with The Guardian accused the state government of making selective payments under the guise that it had issues with their employment status.

Nevertheless, Governor Hope Uzodimma seems undeterred. Recently, he announced that his administration had started paying the N30,000 minimum wage, a claim many workers in the state faulted, questioning the structure the government used in computing it. Even at that, it has become obvious that the state was finding it extremely difficult to meet its obligations to residents as it has turned to borrow and intensive revenue drive.

Rising from the weekly State Executive Council meeting presided over by the governor at the Government House, Owerri, a fortnight ago, the Commissioner for Information and Strategy, Declan Emelumba, told journalists that the Council resolved to borrow the sum of N10 billion to fund two critical road projects (Owerri to Orlu and Owerri to Okigwe).

According to him, the state government would repay the loans, which the state House of Assembly speedily approved, in the next year.

Meanwhile, the governor has reinvigorated the Imo Internal Revenue Service (IIRS), following which he appointed a new Board for the agency headed by Chief Emeka Udegbulem as the chairman.

Speaking on the government’s decision to borrow and the efforts to increase the revenue base of the state, an economist, Dr. Desmond Echeta, noted that those were the options available to the government at the moment. He, however, cautioned against borrowing for consumption purposes.

“There is nothing wrong in borrowing, but there is something wrong in borrowing for payment of salaries or consumption. It is better to borrow and invest,” he noted.

From Agosi Todo, Calabar
CROSS RIVER State government is among states in Nigeria that have not started paying the new minimum wage of N30,000. Although the state is the least revenue-earning state from federal allocation, it has over 5,000 civil servants in its employ and more than 6,000 political appointees. To worsen matters, the government recently engaged about 20,000 workers at the local council level.

Findings showed that the state government now relies heavily on Internally Generated Revenue (IGR) to meet its financial obligations especially the payment of salaries. Governor Ben Ayade, who was popularly called “Pay Master” by the state workers following the prompt payment of salaries in the first three years of his administration, has since stopped early payment of salaries due to the drastic fall in the state’s revenue earnings. Recently, the government stopped the salaries of revenue-generating Ministries, Departments and Agencies (MDAs) that failed to meet their revenue targets.

The Guardian gathered that another cause of cash crunch in the state was revenue leakage, which is mainly perpetrated by touts and some politicians who see some sources of government’s revenue as their personal revenue points.

Top sources in government revealed that most of the MDAs operate with double receipts, one for government and a fake one for themselves, adding that in some cases, receipts are not even issued at all. The sources said the government must devise ways of blocking the revenue leakages as a means of shoring up its earnings.

In a telephone interview with The Guardian in Calabar, a lawyer and development expert, Sir Leonard Anyogo, said states could substantially improve their IGR and boost their economies if they cut down the cost of governance.

“So many appointments that are basically not necessary are deliberately costing expenses across the states. A state government shouldn’t have 30 to 40 commissioners; that is my opinion. A state can have seven or eight commissioners, few political appointees that have the capacity and content because most times, we have seen where each state government spends so much money on political appointees and that accounts for almost 80 per cent to 90 per cent of recurring expenditure. And then very little money is assigned for capital expenditure.

“The situation is so bad that there is no local council administration in the country. I believe strongly that if the local council administration were working, rural feeder roads can pop up and there will be economic stimulus because I don’t believe in these palliatives we are talking about.

“For instance, if there is electricity and other basic infrastructure, small scale businesses will come up. These are all means of generating revenue. The idea of going to share N10,000 is not the best,” he said.

Anyogo also said he believes that states should have a sizeable number of civil servants and public servants, noting: “But not the way the Kaduna State governor is going about it. This thing has to be done in a systematic way. You don’t just sack people because labour laws bind them. But I also believe that going forward, we should have a manageable size of civil servants that are more productive than having so many of them and you are spending so much. These are all ways of cutting down cost. Until we get to a point where we can spend at least 60 to 70 per cent of our budget on capital expenditure and 30 per cent on recurrent expenditure, I am afraid the country will not develop substantially,” he noted.             
Only Level One To Six Workers Earn N30,000 Minimum Wage In Kwara

From Odun Edward, Ilorin
IN Kwara, the state government has been implementing the payment of the new minimum wage to its workers haphazardly.

According to the chairman of the Nigeria Labour Congress (NLC) in the state, Mr. Issa Ore, the government has been paying the N30,000 minimum wage to workers between Grade Levels 1 to 6 only, “without reaching an agreement with the labour.”

Ore, who spoke with The Guardian in an interview, said the state could not afford to ignore the Act of National Assembly that put the minimum wage at N30,000, adding that the state was making a proposition of the payment of a fixed sum of N2,000 for workers from Levels 7 to 14 as the implementation of the minimum wage.

Ore said the NLC under his leadership was yet to see the state government complying with the implementation of any minimum wage in the state, citing the absence of any agreement between organised labour and the state to that effect.

He, therefore, urged the government to call the committee back to the negotiation table towards working out an amicable formula for the implementation of the minimum wage in the state.

The Chief Press Secretary to the Governor, Rafiu Ajakaye, said the state remained one of the few that would always respect its workforce, adding that the state pays its workers as at when due and would always seek for the well-being of the workforce based on the available resources to the state.