State Governments & Internally Generated Revenue

Mar 09, 2017|Chukwuka Ezeh

Nigerian – and African – culture is littered with standards for giving, receiving and sharing. If you grew up in a family with elder siblings, they passed down their clothes to you; as the younger sibling, you eagerly anticipated – or not – these 'heirlooms'. Similarly, if you choose to give an item with your left hand, you can expect a sharp verbal reprimand from your elderly 'uncle' or a cautionary tale about 'young people today'. After all, that is a taboo. 

As with most norms, we unconsciously take them wherever we go. And probably, norms around generous “giving and receiving” have slipped into the very fabric of the typical Nigerian, and more worryingly, the Nigerian government.


The Situation on Ground Zero

Nigeria operates what it calls a federal system of government, in spite of the gap between name and substance. Under this system, states and local governments have struggled and become handicapped by their over-reliance on the Federal Government. The political rationale for this system is historical. Beginning with the Gowon administration and the backdrop of the Civil War, power was aggressively centralised and decentralised at the same time. On the one hand, the foundation of regional governments was replaced with a domineering central government, partly to weaken secessionist tendencies. On the other hand, more states were created as a political strategy to satisfy marginalisation claims and ensure the component units did not quickly rise up against the federal state. Such was the case of Rivers State in 1967.

Today, the thirty-six states have two broad ways of generating revenue; internally, through taxes and state bodies' revenues – the fabled Internally Generated Revenue (IGR); and federally, through statutory allocations. The FG is constitutionally responsible for this statutory allocation. 

Upon receipt of earnings from oil proceeds, company taxes, import duties, etc., the FG distributes a portion of this to the states. States, in turn, are expected to share this among local governments within their boundaries. The process repeats itself through every administration and is one of the reasons why the passage of the budget is very important for the political elite.

However, ever so often, as with the 2015 state bailout package, this sharing of the national cake cracks to reveal the weakness of the system. Today, with Federal Government revenues depressed by relatively low oil prices, many states find themselves in precarious economic positions. For example, the combined IGR of the thirty-six states was ₦683 billion in 2015, down from ₦708 billion in 2014.


Switching It Up

Has this feeding bottle federalism made states lazy? IGR, arguably, reflects the capacity of Governors to harness what is within their control. Naturally, the onus is on state and local governments to ensure their 'area of command' is not over-reliant on the monthly federal allocation. But that is not the case. State governors are too busy using funds to build political networks or preparing for life in the Senate, while local governments, to the extent they exist independently of state governor control, are hubs of community leadership tussles and leakages.

Nevertheless, a turn-around of the system could be the panacea. Rather than receive a statutory allocation, state governments should be granted more control over their revenue management and instead made to 'pledge' an amount back to the FG as a monthly contribution. The States would be the core revenue collectors and contribute towards the federal pot rather than the other way around.

In theory, such a levy would incentivise state governments to be more fiscally responsible. This collected amount could serve as a buffer for the concurrent list or go to a special rainy-day account to settle future obligations. Whatever the final destination or application of this levy, the intention is to make the states more competitive and responsible for their survival.

Though no such system exists in the present day, the potential benefits are glaring. It will redefine what Internally Generated Revenue means. It would also be a call to action for every governor or local government chairperson. As most Nigerians who fend for their survival are aware, money earned is spent differently from money gifted. Hard work breeds financial prudence.


Between the Drawbacks and Side-Goals

However, one must take into account the possible pitfalls and drawbacks of this approach. The lack of any "economic foundation" in most states today and the inevitable political opposition from those benefitting from the current system will be serious obstacles. 

On the political front, it is difficult to see how non-viable states – of which we have many – will support such a model. Arguments about even growth across states will be bandied around by those who feel marginalised. The FG itself is unlikely to support a system that forces it to devolve powers to component units. The current system benefits those in control. 

That being said, a side-goal of this model is the possibility of ending debate over resource control and steering the state and federal governments into developing the resources of each state. It also poses an opportunity for inter-state agreements and for exploiting comparative advantages in land, labour and capital.  

It is about time fixing the economy shifts from the responsibility of President Buhari to that of each state governor and local government chairperson. It is high time we move from sharing and receiving to creating. It is time we move from sharing the national cake to baking the national cake.  


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