Lagos State Government during the week announced its 2016 Budget proposing a sum of N663 billion Naira only. Edo State, Anambra, Cross River and 8 other states have also announced their proposed 2016 Budgets.
A look at their respective budgets (see chart below) reveals how much Nigerian states depend on handouts from the center to run their states.
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For the 13 states that we looked at, total IGR in 2014 was N440 billion which is about 16% of the combined proposed Budget of N2.69 trillion. The percentage drops to about 8% when you back out Lagos State from the data. So basically states are budgeting on an average 12 times their 2014 IGR for 2016 if you exclude Lagos and 6x if you include Lagos State. In fact for states like Cross River, Jigawa and Kano State it is 22x, 21x and 20x respectively.
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This however does not come as a surprise to us especially if you look at the past. According to Data from the CBN (see chart above) state governments between 2010 and 2012 earned a collective revenue of N9.9 trillion out of which N1.8 trillion (18%) was IGR only. That is also about 5.5x their IGR for the period.
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The proposed 2016 Federal Budget based on the MTEF 2016-2018 already provisioned N3.2 trillion as their expected share of revenue from the Federation accounts. With 2016 predicted to be a worse year economically for Nigeria compared to 2015, it is very unlikely that states will surpass the N592 billion in IGR recorded in 2014. It is expected that the drop in IGR which began in 2014 (2013: N777b) will continue into 2015 and well into 2016. States are therefore primed for a very rough ride next year.
It is sad to note that after 16 years of democracy Nigerian state governments are still not self sufficient in funding their budgetary expenditure. Year after year they fail to take on initiatives that should diversify their economy and boost their internally generated revenues. Economist believe this is perhaps one of the major factors leading to rural urban migration and some of the violence recorded in the Northern and other parts of the country. With widening poverty inherent in most of these states, pockets of dissidence’s is likely to continue as more groups agitate for a larger share of the so called national cake.
What can they do differently?
The states need to first of all adopt a model that can help them earn extra income from personal income taxes. They should also cut down on their recurrent expenditure by diverting some of that revenue into viable capital projects that can help boost their GDP. States should also create incentives for large scale companies to locate their factories and industries within their states which will help create thousands if not millions of jobs. They should also diversify into tourism, invest in vocational education and assist their people in farming to boost local exports.
Naysayers who have given up on state governors will laugh at some of these initiatives because they have lost hope in the ability of the governors to turn things around. Most of them are rent seeking and will rather continue to squander the potential of the state if any of these initiatives does not lead to personal gain. A case in point is the story of Dominion farms in Taraba where an investor had engaged with the state government to bring in large scale farming into the state only to be faced with all sorts of blackmail, bribery, corruption issues.
We expect more states to announce their budgets before the end of the year.
