The continuing reliefs and bailouts given to states by the Federal Government reveal the dangerous financial situations of various sub-national governments in Nigeria.
They show that most states are not viable and may need to merge to consistently meet their social and economic obligations to their citizens.
As at the fourth quarter of 2015, the debt owed by Nigerian state governments to deposit money banks (DMBs) was in excess of N600bn.
In addition to N338 billion injected by the Central Bank of Nigeria (CBN) as bailout, the total credit to some 27 financially distressed states was in the neighbourhood of N1 trillion, an amount analysts say is quite significant.
The Federal Government is again offering a relief, which has led to the suspension of further deductions from their monthly allocations from the Federation Account for an unspecified period.
“There is no doubt that these states will not survive a day if there is no money coming from Abuja. How sustainable are these Federal Government bailouts? Is there any hope that the states will become viable tomorrow? Do they now have new investors, or do they have plans to survive without Abuja? These are questions we keep shying away from,” said Matthew Ibeabuchi, CEO of Abuja-based MD Services Limited.
Adamawa, Borno State, Ebonyi, Edo, Ekiti, Gombe, Imo, Kebbi, Kogi, Kwara, Niger, Nasarawa, Ondo, Osun, Oyo, Plateau, Taraba and Zamfara could be classified as vulnerable, as their IGRs are low and there is little hope of improving soon on that score. These states depend largely on the Federal Government allocations and might not survive for six months without handouts from Abuja.
The vulnerable and fair states include Delta, Benue, Kano, Katsina, Enugu, Kaduna, Rivers, and Sokoto.
States that are better include Lagos, Akwa Ibom, Ogun, Anambra which have found some innovative ways of increasing their revenues. Lagos State with its vantage position as the economic hub of the country ,leveraging taxes, raking an average of N23 to N24 billion IGR monthly.
“We enjoy the incentives given to us by Ogun,” Frank Udemba Jacobs, president of the Manufacturers Association of Nigeria (MAN told BusinessDay.
Developmental projects are suffering serious setbacks in many states, while contractors are owed huge amounts of money.
Nigerian states failed to plan during the oil windfall, as corruption and bad leadership stunted planning.
Analysts trace the precarious finances of nearly all the 36 states to lopsided Federal structure, absence of fiscal federalism, a sharing formula which gives the Federal Government undue financial advantage over the federating units, as well as failure of the states to look inward and tap into available resources to shore up their IGR and become less dependent on the centre.
According to a publication by the Central Bank of Nigeria (CBN) in 2000, “the nature of the fiscal federalism and revenue allocation places the Federal Government at a vantage position to control the economy. The economic role of the public sector in a federal polity is the joint responsibility of all tiers of government. But in the case of Nigeria, the joint responsibility of these tiers of government in carrying out the functions of socio-political, administrative and economic management introduces complications in the nation’s fiscal system.”
Nigerian states have enormous mineral resources that are yet untapped. The Nigerian Investment Promotion Council (NIPC) says the country has over 40 million tonnes deposits of talc in Niger, Osun, Kogi, Ogun and Kaduna states. Incidentally, the Raw Materials Research and Development Council (RMRDC)’s 3,000 tonnes per annum catalytic plant is the only talc plant in the country. With the right environment and laws, pharmaceuticals and cosmetic firms can exploit talc, which is an essential input.
There are over three billion metric tonnes of iron ore deposits in Kogi, Enugu, Niger States and the Federal Capital Territory. But closure of Aladja and Ajaokuta Steel complexes has made it difficult for this resource to be fully exploited.
Uburu and Okposi in Ebonyi State have large deposits of salt that are yet to be fully developed. Rock salt is also available in Benue State. Despite these deposits, the National Salt Company of Nigeria and Royal Salt are the only salt makers in the country.
Kaolin, used in making ceramics and chalk, is found in Edo, Plateau, Ogun and Nasarawa, among other states. Feldspar, silica and quartz, which are also used in ceramics production, are found in more than 20 states in Nigeria, according to Patrick Oaikhinan, CEO, Epina Technologies Limited and professor of ceramics engineering.
Other minerals found in almost all parts of the country are gemstones, coal (over 600 million tonnes), bitumen (over 42 billion tonnes) and lead/zinc (over 10 million tonnes), NIPC said.
Seun Olatunji, president, Association of Metal Exporters of Nigeria, suggested that for the states to free themselves of the financial difficulty, they would need to partner the private sectors in their domains to harness solid minerals within their domains.
Also, Muda Yusuf, director-general Lagos Chamber of Commerce and Industry, told BusinessDay that there must be amendment of laws to put the mining sector in the hands of states.
Benjamin Osisioma, professor of accounting at Nnamdi Azikiwe University Awka, attributed the current situation to Nigeria’s warped federal structure.
“What we are reaping now is the result of our warped federal structure. Many years ago, when Chukwuemeka Ezeife was governor of Anambra State, I was part of a committee called the Financial and Economic Advisory Council. We were given a mandate to move round the state and see how we would identify resources that would generate enough money and enable it stand on its own.
“We found out that each of the local governments had two natural resources that would be the goldmine. Some local governments in Anambra had clay, which is suitable for ceramics making. So also did other local governments have peculiar natural resources that could be exploited for industrialisation. The point is that our states have failed to exploit agriculture and manufacturing,” Osisioma said.
At the moment, up to 27 states are finding it difficult to pay workers and are mired in debt. In 2015, 18 of the 36 states were declared technically broke. Almost all the states applied for the bailout from the Federal Government to offset backlogs of deficits.
According to experts, states have not done enough to create enabling environments for investors who can set up plants, create jobs and then pay taxes into their coffers.
Paul Collier, professor of economics and public policy, recently told the Nigerian government that one way of cushioning the effect of oil sector woes is to form businesses into clusters, provide them with the needed infrastructure, and then ask for taxes.
Analysts also worry that multiple taxation, insecurity and other issues have failed to convince investors to come to many states, adding that many governors have also not done enough to sell their states to investors. They add that the country lacks appropriate strategies with which to attract solid minerals explorators.
“The raw materials for most of the industries are here. But there is no appropriate strategy in place for the development of many industries. In the ceramics industry, an estimated 1.2 million direct and indirect jobs can be created but the problem is still lack of strategy. This is why we keep importing ceramics products of over $400 million from China and Europe every year,” Oaikhinan said.
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