The Nation Newspaper

Tag: insolvent

  • Insolvent states

    Governors who have failed to rise to the demand of raising sufficient revenue internally should be sanctioned by the electorate

    The Bill Clinton Campaign Organisation was, in 1992, credited with the phrase, “the economy, stupid.” Clinton, then governor of the small state, Arkansas, was locked in a grim battle with the incumbent President of the United States of America, George Bush. As a country in the middle of a recession, Americans who had earlier approved the performance of their President swung around and ditched him. Till date, Americans remember the role that phrase played in dethroning the President.

    The situation in America then is comparable to what obtains today in Nigeria. Suddenly, the receipts from crude oil fell, and attacks by militants in the Niger Delta ensured that production too fell. The two factors largely accounted for the recession in the economy. And, being dependent on handouts from the Federation Account, many of the governors caught a sorry picture. Unable to pay salaries, contractors’ bills and service loans,  they could no longer maintain their pride, and the states appeared to be at the verge of collapse or, at least as some suggested, about to be merged to shore up their viability.

    Only recently, revenue due the three tiers of government improved due to increase in the price of crude ; so we are now back to business as usual. Calls over the years that the Federal Government should diversify the economy as well as restructure the country’s political system have been unheeded, thus exposing the country to shocks for as many times as there are shocks in the volatile international oil market.

    Dings on the economic independence of the states as measured by the Annual States Viability Index (ASVI) developed by the influential Economic Confidential magazine that rated the 36 states according to their Internally Generated Revenues in 2017 shows that only Lagos and Ogun states were able to match allocations from the Federation Account to them. While Lagos generated 165 per cent of its allocation, Ogun remarkably raked in 107 per cent from internal sources. Ogun, before the incumbent Governor Ibikunle Amosun appeared to be as helpless as other states, an indication that a lot depends on the resourcefulness of the Chief Executive. Lagos has been consistently improving on the ability to harness the vast economic opportunities in the state.

    Rivers State generated 50 per cent of the allocation from the central purse, while Edo, Kwara, Enugu and Kano generated a little over 30 per cent. Unfortunately, 17 of the states, about half, could not come up with more than 10 per cent of the received revenue, a danger signal to future economic fortunes of the various states, and, consequently, the country.  The 17 states are: Gombe, Zamfara, Bayelsa, Ebonyi, Taraba, Adamawa, Osun, Ekiti, Akwa Ibom, Imo, Jigawa and Niger States. Others are Katsina, Kebbi, Borno, Yobe and Bauchi.

    If Adamawa, Borno and Yobe could be excused because of the insurgency war that has ravaged them, what about Bayelsa, Akwa Ibom and Imo states that are oil producing and thus well endowed to fund additional economic activities? If Edo, Enugu and Kwara states could generate more than 30 per cent of the annual revenues to run the states, why have others failed in this direction?

    In the light of the approaching general elections, we call on the opposition parties and the electorate to be vigilant and call attention to the performance of the governors. If Nigerians are truly desirous of development, the attention paid to the economy in the first term of governors seeking reelection should form the basis of the campaign in the run-up to the polls.

  • Insolvent states: 10 points to ponder

    One of the long-running fallacies of Nigeria’s politics is the statement in some quarters that some of the 36 states of the federation are not viable. Some pundits even dare suggest that states be merged or that we returned to the long-discarded regional arrangement as a cure for all our ills. While a few knowingly make this proposition out of mischief, many have jumped on the merry wagon out of crass ignorance of the dynamics of economic development and nation building.

    But any clear-headed fellow would know that what makes a state or nation viable or flourish into prosperity is never the quantum of natural resources providence endowed it with. It is always the mindset of the critical leadership, the values inculcated in the people and a sustained culture of patriotic ethos and even national pride.

    One finds it preposterous when educated persons declare that a state with a population of a million to two million people and vast arable land mass is not viable. This is one of such misconceptions that have kept many parts of the country underdeveloped and now bankrupt.

    About 50 years ago, Singapore had a worse economic potential than any state in Nigeria today: a low-lying marshland reclaimed from the swamps of the Malay Peninsula. It was an environment tailor-made by nature to exist in desolation and perpetual muck.

    But by the sheer power of one man’s vision and unquenchable tenacity, those miserable pieces of marshy islands is today, the most developed city state on earth. It is the centre of world finance, shipping services, oil refining, chemical and pharmaceutical production. Lee Kuan Yew who built Singapore having won independence for his people could have sat over the lean cow that it was then and milked it to death. The kind of short-sightedness we have seen in our leaders since independence.

    This small mindset in our leaders still persists till this moment. A president or governor claims the mantle of leadership and all he does is to sit down and milk that single cow of state to death instead of nurturing and nourishing it into a large herd, into plenitude for the good of the land.

    Narrow-minded leadership is the fantastic difference we see today between Nigeria and Singapore. It is small-mindedness and folly that makes the difference between a viable place, a wasteland and paradise. Bayelsa State could have been a paradise for instance if it ever had a Yew since its creation.

    Yet, our bad behaviour persists and pervades the vast rich fringes of Nigeria. Some people sit on portions of the land, farting and guffawing over it and they turn around and tell us their portion is not viable and that the state is on the verge of bankruptcy. They sit still, obdurate, unthinking, un-teachable and inured to change.

    In the last two years, a long-foretold crude oil crash came upon us as if by surprise. Two years on, we cannot still see a radical shift in gear from any quarters. Today, about 15 states of Nigeria are said to be hovering at the precipice yet no serious attempt at a radical revamp. Well below are some tips for structured change:

    One: A change of mindset: most governors are still carrying on as if nothing has changed. But they must do a few things in the immediate terms if they don’t want to be booed out of office in the next couple of years.
    They must cut costs drastically and radically. For instance, I would immediately shutdown the Office of the First Lady and mop up the vast expenditure poured there. I would rethink the concept of the security vote. I would review appointees, deputy governor would have to man a ministry; ceremonies and trips would be almost nonexistent, etc.

    Two: Review workforce: Any serious government must know the size of its workforce especially now. Whatever it costs, government must find out the number of civil servants on its payroll before it can quietly manage it according to requirement. The bureaucracy bazaar must stop forthwith. Three: Review projects: major ‘earthshaking’ projects state governments embark upon, like airports, super-highways, etc must be put in abeyance now. Most projects must be revenues-yielding and must be structured under public-private partnership.

    Four: Review tax template: it is the height of low, if we can say that, when a state with a population of over three million declares N2 billion as internally generated revenues for 12 months.  The activities in motor garages, markets, commercial areas, personal income taxes, etc would amount to much if captured accountably.

    Five: Review current revenues centres: some government agencies in states can actually generate enough revenues to run the affairs of the state. Some of these include the transport companies; land registries and other commercial outfits. Such businesses must be run more professionally now and made target driven.

    Six: Create more revenues centres: In the medium term, more commercially driven agencies aimed solely at generating revenues must be created. If necessary, this could be on a PPP basis. For instance, entertainment and recreation centres; hardly any state capital has a standard zoo and family resorts. This is a huge earner if done well.

    Seven: Create agriculture value chains: most countries of the world still depend largely on agriculture for their sustenance. While developed one are at the processing end, less developed ones are at the production rungs of the value chain. Agric remains one of the biggest businesses in the world.

    A state can decide to produce all the poultry products consumed within its borders and beyond; another can focus on milk. These two items for instance are multi-billion dollars businesses and they are still largely imported into the country.

    Poultry products and milk have large and long value chains that would on their own galvanise the economy of states.

    Eight: Expand sports and entertainment bases: Not many state chief executives have been able to discern the huge opportunities inherent in these two aspects of human endeavor as tools for creating youth employment and generating revenues. With a bit of organizational acumen, numerous talents can be harnessed from these areas which translate to wealth.

    Nine: Catalyze establishment of industries: many states cannot boast of even one company that employs at least 5000 staff. And it is not as if there are no such companies across the world seeking virgin outlets but it is for a lack of requisite efforts by the governors.

    Ten: make the local governments work: No matter what a state government might do, it does not get the local council areas working accountably, most of its efforts would ring hollow. Ensuring the bulk of the LGAs federal allocations get to their various destinations will signpost the first important step in developing a state in an integrated manner. Not to get all your LGAs working is to embark on an exercise in futility.

     

    Abia logjam: Orchestrated bad faith

    The logjam and subsequent shutdown of Abia State for over one week (and still counting) is dripping with bad faith that is bound to set our democracy back many years. In the first place, the court in giving the judgment didn’t need to instruct the electoral body to act post haste on it.

    And the Independent National Electoral Commission, INEC, was carrying on as if it was the one to form the new government in Abia. Both the court and INEC knew Governor Okezie Ikpeazu would indeed head for the appellate court. And he did. But INEC in its haste to take over Abia Government House shuffled the court papers.

    But this kind of bad behaviour in the polity would always have the un-salubrious effect of invoking damaging precedence on the polity. And can anyone quantify Abia’s economic losses these few days?

    Finally, this INEC is fast losing the aura and respect conferred on it by the last chairman, Prof. Attahiru Jega. Apart from assaulting our sensibilities, we cannot afford to return to the days of jankara INEC, can we?

  • On more bailout funds for the insolvent states

    The federal government has announced that it is giving the financially insolvent states fresh bailout loans of N90 billion. It will be the third time in less than a year that the Buhari APC federal government has been constrained, against its better judgment, to come to the rescue of these 27 insolvent states with huge bail- out funds. As expected, the two previous financial bailouts did not solve the deep-seated financial problems of the states. The funds were merely used by the insolvent states to clear up part of their outstanding salary arrears. After that, new arrears of salary piled up with the affected states not being able to do anything about it. What they currently receive monthly from the federation accounts is not enough to meet their current basic monthly wage bill. And, predictably, they have not been able to generate new funds internally to fill this gap in their revenue.

    But after receiving billions of naira in previous bailouts, the report of a federal financial investigation team into the disbursement of the federal bailout funds showed that many of the governors of the insolvent states simply diverted the bailout funds to personal and other non productive purposes. The question now arises whether these federal financial bailouts provide a final solution to the worsening financial plight of the insolvent states. In other words should the federal government continue to bail out these insolvent states? Is this financially sustainable?

    I do not think so. Even if these bailouts are sustainable, it is a negation of the federal system of government for the federal government to continue to hand the state governments financial bailouts. It is tantamount to rewarding incompetent and corrupt state governments. Except in emergency situations the federal government is not under any constitutional obligation to give the states financial handouts. It derogates from the financial autonomy of the states which demands that, in a truly federal system of government, the states should generate the financial resources required by them to run their respective governments. If they are not able to do so, then they are obviously not financially viable and should be scrapped. Handing them bailouts, which have to be repaid, is an intolerable financial burden on our country and tax payers.

    These insolvent states were created during the long period of military rule in Nigeria without any thought being given to their financial viability. After independence in 1960, only the then Mid-West region was created constitutionally from the then Western Region during the Balewa civilian federal government. And this was made possible only by the 1962 internal crisis in the AG, the ruling party in the Western Region. The creation later of so many new states was a major political blunder of military rule in our country. It made military rule popular, but it did not fully consider the economic implications involved in the creation of such a large number of new states. The creation of these states was certainly politically motivated. In May, 1967, General Gowon first divided the country into 12 states. This was after Ironsi’s Unification Decree 34 of May 24, 1966, that purportedly dissolved the existing four regions into provincial administrations. The decree was unpopular in the country and led to the military ouster of Ironsi from power.  Gowon’s purpose in creating the 12 new states was to undermine Ojukwu’s bid for the secession of the so-called Biafra from Nigeria, and to legitimise his military government. The decision was popular with the ethnic minorities in the old Eastern Region that had been agitating for years for a separate state of their own; in much the same way as the minorities in the old Western Region had also been demanding the creation of a separate Mid-West state from the old Western Region. Since then, under military rule, the number of new states has increased to 36 now. The surge in oil revenues masked the fact that, without the oil revenues, most of these new states were not financially viable. With so many unviable states the centre became stronger and more financially dominant. What now pass as states were, in fact, administrative provinces inherited during colonial rule. This was why our federal system of government at independence was based on only three regions, not the multiplicity of states that we now have. The departing colonial power had refused to create new states.

    In their defence of financial bail outs, the states argue that it is the fall in their share of revenue from the federation account that is responsible for the financial mess in which they now find themselves. But the source of their financial plight goes beyond that. The truth of the matter is that they have just been as financially profligate and reckless as the federal governments we have had to put up with for a long time. Many of the state governors are under investigation by the EFCC for massive corruption. Examples of these corrupt and convicted state governors include Ibori of Delta and Alam of Bayelsa. If the state governors are thoroughly investigated as they should be, I have absolutely no doubt that the findings of such investigations will be just as shocking as the current revelations regarding the vast scale of corruption under the Jonathan PDP federal government.

    My second reason for objecting to the indefinite bail out of the states is that the federal government itself is, as we have seen, in an equally deplorable and shocking financial situation. It is desperately short of funds too and is having to put on hold many critical infrastructure capital projects. It is currently running a huge deficit budget of roughly 50 per cent and is hoping to borrow half of this year’s budget from external sources. But external lenders generally refrain from lending for budgetary support, as is the case now in our country. So, from where will the federal government get the bailout funds for the financially ailing states? The answer is that it will have to resort to more borrowing from the CBN. In other words, new money will be created to fund these insolvent states. This will have the predictable effect of crowding out borrowing by the private sector, and of undermining stability in our macro economy. Our domestic debt, already bigger than our external debt, will increase further.

    The media reported further that the federal government intends to impose some stringent financial conditions on the states being bailed out. But these conditions will not work and will not deter the governors of the states concerned from continuing with their financial profligacy in the belief that they will be bailed out again by the federal government. At that point it will be difficult for the federal government to cut them off from the bailout funds on which they will have become utterly dependent. One of the arguments advanced by the military in support of the creation of new states was that it would spread economic development in the new states to the grass roots. But that has not proved to be the case. Apart from such symbolic projects as flyovers in the states capitals, new official residence for the governors, new states assemblies, a few model colleges, and sub-standard state universities, the poor in the states cannot be said to have really benefitted from the creation of states, where the political elite continue, with unabated vigour, to cream off revenues accruing to the states. The real beneficiaries of the financial bailouts are the rich, not the poor. In fact, the poor are worse off now than ever before. We are a poor country and we cannot expect to build a prosperous economy on handouts to insurgents and militants, or on subsidies and bailouts to insolvent states. A few years ago hefty financial bailouts were given to the commercial banks. Are they healthier or more efficient now? Many of them are already in distress.

    The long term solution to this lingering financial mess in the states is to device the constitutional means of reducing the number of states to not more than 12. It is even better to collapse them into six regions. This is what the call for the restructuring of Nigeria’s federalism should be about. It is far easier and more economical to manage six or twelve states than the existing 36 with all the paraphernalia of pseudo governments that cannot inherently carry out their basic financial obligations. Obviously, this will be politically difficult. The only alternative is for the federal government’s share of the national revenue to be reduced and distributed among the states. But while the existing 50 per cent share of the federal government in the national revenue is too large, due care should be taken in this regard. We cannot afford to have a weak federal government that is placed in such an invidious financial situation that it cannot carry out its basic responsibilities to the nation in defence, national security, and external affairs, Already the corporate existence of our country is being threatened by several centrifugal forces. We need a strong federal government and institutions to hold our fragile country together.

  • Federal bailout of insolvent states

    Federal bailout of insolvent states

    Last week, President Muhammadu Buhari handed the insolvent state governments a financial bailout of N713.7b. The financial package was reported as consisting of accruals from the LNG (N413.7b), a special CBN intervention fund of between N250b andN300b, and the rescheduling with federal assistance of the states’ outstanding bank loans.

    In addition, the sum of $1.7b from the ECA was shared among the three tiers of government. But it was stated that this was not a part of the bailout package offered the insolvent states by the Federal Government. Some 24 or more state governments owing their workers salary arrears of seven months or more will share this federal largesse. This generous financial bailout is almost unprecedented in the annals of public finance in Nigeria. It should be regarded as exceptional. It would be wrong of the states to draw the conclusion from this bailout that such measures can be repeated in future. Even if this was possible, it negates the constitutional principle of federalism in which all states, including the federal, are coordinates. It reinforces the existing tendency of the states becoming increasingly dependent financially on the centre. This is bad for federalism.

    The financial relief measures provided the insolvent states with an immediate lifeline and temporary relief. They were widely welcomed in informed financial circles all over the country as necessary and timely. The finances of the insolvent states had collapsed once the oil revenue started falling. Even the few relatively solvent states stood in danger of being dragged down by the insolvent states. The package will immediately help the insolvent states to meet their wage and other financial obligations to their workers. The finances of the Federal Government too were so bad that it too needed a bailout. Before leaving office in May, the previous PDP Federal Government had borrowed over N400 billion from the CBN to meet its immediate financial obligations to its workers. This is half of what it needs to borrow from the CBN in this fiscal year. In some cases federal workers and pensioners had not been paid for upwards of four months, leading President Buhari to complain bitterly that his new government met an empty treasury. Certainly, federal finances were just as bad as those of the insolvent state governments. Many vital federal projects have had to be put on hold as a result of the poor state of federal finances.

    Now public finances in Nigeria have generally not been handled with the transparency, prudence and diligence that are needed to ensure financial stability in the country. At all levels, governments have spent public funds recklessly on unproductive ventures. All governments like to spend money, including unearned income. This is what accounts for Nigeria’s woeful record of financial recklessness and corruption. Its record of budget deficits is uninspiring. It is estimated that the debt stock of the state governments is now over N600 billion, while that of the Federal Government is in the trillions of naira. All these domestic as well as external debts, now increasing steadily, will have to be paid off someday.

    Governments may need to borrow occasionally to executive projects that contribute to economic growth. But this is not the case at all in Nigeria. Very often the public sector borrows money for projects that it does not really intend to implement, or that contribute little or nothing to economic growth in the country. For instance, many of the insolvent states are building local air ports, hotels, stadia, and funding other similarly unproductive projects, such as the Tinapa tourist resort that are inherently wasteful. But the banks are only too willing to lend money to the financially imprudent states because they know that, no matter what happens, they will get their money back through federal guarantees and deductions at revenue source. They prefer lending to the state governments to lending to the private sector which is better placed to use borrowed funds more judiciously and create more jobs. Quite often, public sector borrowing crowds out the private sector from access to vital bank loans.

    What is to be done to restore Nigerian public finances to stability? The solution is clear and has been well articulated for years by leading financial experts. First, budgetary deficits have to be drastically reduced to contain inflationary pressures and more public borrowing. The deficits can easily be reduced if identified leakages in revenue collection are plugged. What has been going on in the NNPC where a lot of revenues are not remitted to the Federal Government is simply scandalous and should be brought to an end. In fact, Nigeria will lose nothing financially by scrapping the NNPC totally. It has become a financial drain pipe that the country can no longer afford. Secondly, and in this context, it is time to end the so-called oil subsidy which has become the source of financial scam in the country. It is the oil importers and their agents in the NNPC who benefit from the subsidy, not the poor. The public is tired of the long queues at petrol stations for fuel. Where it is available it is being sold for over N150 per litre. So, where is the subsidy? We should no longer put up with the supply blackmail by the oil importers. Savings from the withdrawal of the oil subsidy can be better utilised by building more oil refineries. Thirdly, all the governments of the federation have to increase their internally generated revenue as Lagos State has succeeded in doing over the years. It is estimated that it generates internally about 70 per cent of its annual budget. Where it has borrowed, it has the capacity to repay the loan without much strain. Fourthly, the Federal Government should be more cautious in offering borrowing states bank guarantees. Such federal guarantees should only be extended to states that have a credible record of financial management, not those who continue to borrow recklessly.

    In all these cases of financial profligacy, it is the people, particularly the poor, who suffer the consequences of this financial recklessness. Salaries are unpaid, families and children suffer and projects that are of direct benefit to the public in the health and education sectors are simply put on hold, as is the case now. Just as there is no free lunch, there are no free funds. All borrowed money has to be paid soon or later. And the burden of repayment is always on the poor. The poor people of Greece are now facing the excessive borrowing of their governments in the past. They now have to bite the financial bullet. Those who took the decision to borrow and spend such borrowed money recklessly hardly ever suffer any consequences, as they would have stashed enough money away to ensure their future comfort and that of their family. Already, several governors are being interrogated and prosecuted by the EFFC for the vast sums of money they have stashed away. It is still possible for them to be let off the hook for lack of diligent prosecution by the EFCC. But who will bailout the poor from this huge financial burden when it is pay back time?