The Vice President, Prof. Yemi Osinbajo, actually stated the obvious with his recent disclosure that without the monthly allocations by the Federal Accounts Allocation Committee (FAAC), it would be extremely difficult for most states in the country to survive. The Vice President expressed this in Abuja while declaring open the 20th Annual Tax Conference of the Chartered Institute of Taxation of Nigeria last month. We think that his concern is valid and merits a careful reflection.
How far the states can stay afloat with overdependence on the monthly ‘handouts’ from the Federal Government should be a matter of great concern to all Nigerians. Official figures from the National Bureau of Statistics (NBS) in 2017 revealed that the 36 states of the federation realised a total of N931.23bn as internally generated revenue (IGR). Though this is an increase of N100bn over the N831.19bn recorded in 2016, it is still grossly inadequate to meet the financial obligations of the states.
According to the NBS, state governments generate only 15 per cent of their revenues and look up to FAAC every month for 85 percent of their financial requirements, including payment of workers’ salaries and pensioners’ entitlements. With the exception of Lagos State and perhaps a few others, most of the states are practically living on bailouts and loans to meet their financial obligations to workers. The Lagos’ huge IGR is simply due to the large concentration of industries and huge population through which the state generates a lot of taxes.
With a recent FAAC report, which showed a sharp decline in states’ allocations, it has become expedient for the states to look towards diversification of their revenue bases. A quarterly review of the revenues received by the states compiled by the Nigeria Extractive Industries Transparency Initiative (NEITI) shows that in one year, allocations to the states have declined by almost 50 per cent between April 2017 and April 2018.
Even though the states have a right to the monthly allocations, in accordance with Section 162 (1) (2) (3) (4) of the 1999 Constitution (as amended), their survival will be more on their own efforts than having to run to Abuja every month for subventions. As Osinbajo rightly observed, since the discovery of oil and the revenues accruing from it, the states have become somewhat parasitic on the federation account for their operations. Regrettably, this was not the case before the discovery of oil when the different regions in the country generated sufficient revenues through taxes from agricultural produce such as palm oil, cocoa, groundnuts and rubber and yet contributed money to run the central government.
That era may have gone, but the Federal and State governments need to revive the spirit and visions of that halcyon ‘beautiful old days’, especially the practical lessons of fiscal independence of the states and the diversification of our economy away from oil revenues. Currently, about 80 per cent of government’s total revenue receipts come from oil.
Going forward, a few issues need to be addressed urgently. The restructuring of the country has become more expedient now than ever before. Sadly, the Federal Government has been foot-dragging on this matter in spite of recommendations of the 2014 National Conference and the recent All Progressives Congress (APC) Nasir el-Rufai’s committee on restructuring. The two reports provide the way forward for the country and how to improve the economies of the states and make them less dependent on the centre.
As long as the present federal structure and allocations remain skewed in favour of the federal government, so long will the federating units (the states) continue to depend almost entirely on the federal allocations for survival. The current federal structure does not bode well for the country. The earlier the states do something to remedy the situation, the better. As a wasting asset, oil money will not be here forever.
For the umpteenth time, the state governments need being reminded that they can exploit some of the solid minerals in their domains now that the Federal Government has shown its willingness to remove the legal bottlenecks in our extant laws that hitherto vested the sole approving authority of mining licences and their regulation on the Federal Government. Let states explore opportunities that can give them financial independence instead of depending on federal allocations.