States’ Budgets: Wrong Priorities, Pathetic Outcomes By Nasir ElRufai

Our aim today is to draw
some stylized conclusions
from our analysis of the
budgets of ten state
governments. The states
covered are representative of
the six geo-political zones;
Bauchi and Gombe in the
North East, Lagos (South
West), Benue and Nasarawa
(North Central), Edo and
Akwa-Ibom (South-South),
Kaduna and Zamfara (North
West) and Anambra (South
East). These states are
governed by five political
parties, PDP (Akwa-Ibom,
Bauchi, Benue, Gombe, and
Kaduna), ANPP (Zamfara),
ACN (Edo and Lagos), APGA
(Anambra) and CPC
(Nasarawa). Thus to a degree,
not only are the ten states
representative of the six geo-
political zones but also their
budgets present the
ideological outlook of the
leading political parties in the
country. Our analysis
therefore provides a basis to
make some generalizations
about the budgets of the 36
states of the federation.
The objective of analyzing the
states’ budgets is because a
considerable proportion of
our national revenue is
allocated to the states and
the local governments they
control. Based on the existing
revenue allocation formula,
nearly half of federation
revenues go to 36 states and
the FCT, and the 774 local
governments and 6 area
councils. When the
derivation, other federal
transfers and related
revenues are added, this
proportion is well in excess of
65% of total revenues that
accrue to the federation,
being spent directly or
indirectly by the State
Governors. It is therefore
important to focus on this
tier of government which
controls and spends nearly
two-thirds of the nation’s
resources to assess their
performance.
The 1999 Constitution assigns
important roles to the state
governments in promoting
social and economic
development of the country
and in improving the welfare
of our people. It is important
not only to focus on how the
states are spending their
accrued revenues, but also to
ask to what extent, through
their respective budgets, they
are fulfilling their
constitutional obligations. We
hoped that the analyses will
not only generate national
debate on quality of spending
and accountability but will
lead to better state budgets
in the future.
Consequently, rather than
offer opinions, we adopted a
facts-based approach to the
analysis of the ten states
budgets. We relied on
publicly available and official
data. For ease of Doing
Business in Nigeria, we relied
on the most recent World
Bank survey, the National
Bureau of Statistics (NBS) for
the Poverty Profiles and
Unemployment, and
Universal Basic Education
Commission (UBEC) for
school enrolment, and JAMB
for tertiary admission.
A major challenge that we
faced in the exercise was the
difficulty in accessing the
budgets. Most of the states
do not have websites with
uploaded budgets. Even
states that have functional
websites have very little
information on their annual
budgets. Only Lagos and
Gombe have detailed budgets
online. Nasarawa has nicely-
printed copies of the budget
distributed widely and easily
accessible in the state. This
unusual scarcity and secrecy
around state budgets create
conditions of poor
accountability and lack of
transparency in governance.
Invariably, our governance is
weakened by the refusal and
inability of state governors
and assemblies to make their
budget readily available to
ordinary Nigerians. How can
citizens hold governors
accountable if they do not
know what is planned,
budgeted and implemented?
One noticeable trend in the
budgets is the inability of
state governments to collect
taxes and thereby generate
internal revenue. Only Lagos
was the exception with IGR
constituting 73% of total
revenue in 2012. Only
Kaduna State raises enough
IGR to pay the salaries of its
three arms of government
without monthly FAAC
handouts. Most states have
high personnel costs,
attributable to the
appointment of unreasonably
large numbers of political
appointees. As an example,
until recently the governor of
Bauchi states had over 900
assistants. This is in contrast
to Gauteng Province in South
Africa which includes in its
boundaries the cities of
Johannesburg and Pretoria,
with a GDP that is more than
twenty times that of Bauchi
State, whose premier has a
maximum of five special
assistants. What makes the
case tragic in our context is
that most of the ‘assistants’
make no meaningful
contribution to the
development of the states.
We can illustrate above point
further by the fact that the
civil servants and political
appointees do not generate
enough revenue to even
cover their salaries. Of the
state budgets analyzed, only
Lagos and Kaduna have IGRs
that could cover their
personnel cost.
The others like most states in
the federation have been
unable to device strategies to
raise enough for their
personnel costs. Edo’s IGR
will fund 83% of its
personnel cost, Anambra’s
would fund 74%, Akwa Ibom
65%, Nasarawa 53%, Gombe
30%, Bauchi 26% and the
worst case scenario is
Zamfara whose IGR would
fund only 19% of its
personnel costs – less than
one out of its five employees.
Virtually all the 36 states of
the federation are dependent
on federal allocation for their
overhead and capital project
requirements. In 2012, even
the best state Lagos has a
recurrent budget which is
80% of its IGR. The IGR of
the nine other states, like
most other states in the
federation, will not even
cover their recurrent budget.
Akwa Ibom’s IGR covers only
6.3% of its recurrent budget;
Zamfara’s can only cover 7%,
Bauchi’s 11%, Gombe’s
11.9%, and Anambra’s 18%.
The better performing states
are Benue whose IGR will pay
26% of its recurrent budget,
Nasarawa’s which cover 31%,
Edo’s 37% and Kaduna that
internally-generates 52% of
its recurrent expenditure.
One other trend emerging
from the foregoing is that
most of the states are also
spending more on running
their governments than on
improving the welfare of
their people and investments
that will enhance their
productive capacity. These
are governments of the
people but not for the people
– but to serve the political
elite.
With the exception of Akwa
Ibom state that earmarked
83% of its 2012 budget for
capital expenditure, which is
more than the 70% required
for developing countries to
ensure sustainable
development, most state
governments’ spend nearly
half of their revenues on
recurrent expenditure, with
Nasarawa (60% on capital)
and Zamfara (63%) being the
notable exceptions.. The
states are therefore not
allocating sufficient amounts
to the development of both
social and economic
infrastructure, nor are they
saving for future generations.
Given the infrastructural
deficits in the country, one
expected that states’
governments would expend
bulk of their resources not
only building physical
infrastructure but improving
the living standards of
citizens through provision of
better schools, hospitals and
security of life and property.
Sadly, not enough of this is
being done. If this pattern
continues, it will perpetuate
not only the
underdevelopment of the
federating units in particular
but the country in general.
States develop and prosper
when those in charge of
governance recognize both
the challenges they face and
the endowments available
take advantage of. Generally
speaking, the endowments in
most states range from
agricultural resources, to
minerals, tourism and human
capital. Lagos has no minerals
or agricultural land but has
leveraged on its locational
and commercial advantages.
For many of the other states,
it is either these natural
resources or human capital.
The paltry amounts allocated
to agriculture exemplified the
misplaced priorities of most
of the states’ budgets. Rural
Anambra budgeted less than
2% for agriculture, Bauchi
with 80% of its population
engaged in farming allocated
only 5.5% of its budget to
agriculture, Edo allocated
only 1%, and Gombe with its
arable land and 80% of its
population engaged in
agriculture allocated only 5%
to agriculture. These poor
allocations are in contexts of
high levels of poverty and
unemployment. In Kaduna
and Gombe the rate of
unemployment is respectively
25.7% and 29%, which are
above the national average of
21.1%. For states like these,
attracting businesses and
encouraging SMEs should be
the front-burning issue.
Increasing the budgets of
agriculture, mining and
tourism to address
constraints in the value
chains should be the
governors’ priorities.
The budgets’ analysis
therefore showed that most
states in the country are not
viable economic entities, and
the so-called ‘rich, oil-
producing states’ are far
more dependent on the
federation than the rest in
proportionate terms!
Standing alone, virtually all
states will be unable to
perform their basic functions
like providing education and
healthcare to citizens. Most
states in the country will be
illiquid in months without
federal allocations, which in
turn are largely derived from
oil and gas revenues. The six
Northern states in our
sample are engaged in
significant borrowing to
sustain their operations. An
example of this is Bauchi
where 40% of its 2012
budget is funded by loans.
In conclusion, the budgets’
analysis has exposed the
administrative and political
incompetence of many state
governments. We therefore
need to rethink the role and
size of states as constituted,
as units of governance and
economic development.
There is therefore an urgent
need for a constitutional
review that will among other
restructure the federating
units to give way to a smaller
number of states, regions
and regional governments as
political and economic
management units. This calls
to question the current and
senseless clamour for
creation of more states which
would be even more
unviable!.
To develop their states and
meet the needs of the
people, governors will have
to change their strategic
focus in a manner that will
enable them to increase their
IGR and reduce dependence
on federal allocation. Among
others, these will require
increased capital investment
in social and physical
infrastructure and to create
conditions to diversify their
economies, including
promoting manufacturing-
based industrialization.
Each state needs to develop a
blueprint for a post-oil
economy and identify and
promote investments in
sectors that will generate
jobs. Finally, as we can see
from states like Lagos,
developmentally-oriented
leaders are required to pilot
the affairs of the regional
governments that will emerge
from such political
rearrangement. With these
steps, may be our children
will have a nation that has
truly attained its potential.

#CONSENSUS 2015