Fiscal crisis in Nigerian states

The current financial status of virtually all the states of Nigeria gives serious cause for concern as it has degenerated to a crisis situation where many of the states owe arrears of salaries and allowances of civil servants and sundry workers running into months.

The petro-dollar of the past 10 years, more or less, impacted negatively on the psyche of government functionaries, particularly the governors who, awash with fabulous monthly allocation from the federation account, became tin-gods in their respective states and began to do the unimaginable.

Because it was certain that crude oil must always go to the international market and that allocation was also sure come rain or shine, most of these states became docile, thinking little or nothing about a time like now when the crude pot could break, dry up or lose substantial market value.

Since mid-2014 when crude oil price crashed from $115 to about $50 per barrel as at April this year, the share of federal sharable funds has depleted and some states have literally died, unable to meet basic contractual obligations not to talk of continuing the development of infrastructure projects.

We share the concern of most Nigerians that, increasingly, these states, whose governors only yesterday carried on as though their Eldorado was here through opulent and flamboyant lifestyle and award of bogus contracts for elephant projects, cannot fulfil their obligation to civil servants.

It is better left to the imagination what the workers, some of whom are being owed upwards of eight months’ salaries, are passing through with unpaid school fees, house rents and inability to provide basic household needs, especially feeding.

We are particularly worried that what has become a crisis situation in the states today is self-inflicted and also for the fact that the future outlook for the international oil market is gloomy without any indication that the states’ fiscal situation will improve soon.

By the last count, 18 of the 36 states of the federation owe their workers, with some states having arrears of up to eight months. Lamentably, these states could have avoided their present woes if they had got their priorities right. It is speculated that most of these states got into this situation as a result of their huge expenditure on capital projects, but this immediately raises questions as to the kind of projects some of the states embarked upon.

For us, it is misplacement of priority and bottom-up economics for a state to embark on a project like building an airport, construction of an international stadium, or building bridges on dry land where such projects have no economic value or comparative advantage to the state. It remains to be seen in any of the states, except Lagos, where the government has identified an area that could be developed or improved upon to beef up internally generated revenue (IGR) that could cushion the effect of the oil price fall and the drop in federal allocation.

We salute the ingenuity of the out-gone Babatunde Fashola administration in Lagos State which proactively took a decisive step to encourage investment in real estate by reducing its land tax from 13 percent to 3 percent, thereby encouraging more people to register their property and even go into estate development. Lagos’ share of the 17 million housing deficit in the country is estimated at 5 million with about 60 percent of its estimated 18 million residents living in rented accommodation. The state has identified housing as an area with strong potential to increase its IGR, hence the importance it attaches to land development and administration. This thinking could be replicated in other states.

Much as we believe that it is too late to cry over spilt milk, we nonetheless believe, and strongly too, that it is not too late for the states to begin to look inwards with a view to rediscovering themselves by developing any sector with growth potential and comparative advantage.

Time is now for these states to start development plans that would, in the medium-long term, enable them stay above economic downturns such as we have now. Most of the state governors like self-glorifying quick-wins, which explains the decision of some governors to build airports where only private jets land, build bridges across dry lands simply because they want to be likened to another state where such facility is a must-build for social and economic reasons, and also spend N200 million to advertise N100 million half-done road projects with flashes of their photographs.