MOST of Nigeria’s 36 atomised states are living on the edge of financial disaster. Proof of this is provided in a new economic outlook released by the National Bureau of Statistics, showing that 27 of the sub-national entities attracted zero Foreign Direct Investment throughout 2022. With high inflation making nonsense of the monthly income sharing from the centre to the states, the spending on the 2023 polls, their debt overhang and their equally fiscally prostrate local governments, poverty and social malaise are set to deteriorate nationwide.
Among others, the United States Department of Commerce says FDI creates new jobs, boosts wages, increases productivity and exports, and brings in new research, technology, and skills. Additionally, UNCTAD said global FDI receipts recovered to the pre-pandemic levels of $1.58 trillion in 2021, up 64 per cent.
But bereft of pragmatic economic initiatives and under no pressure from citizens, states like Rivers, Kano, Ogun, Kaduna, Edo, Delta, Cross River, and Imo did not receive any of the $972 billion of global FDI flows in the first half of 2022. Capital importation accruing to the states also slumped by 20.47 percent in 2022. Similarly, Abia, Adamawa, Bauchi, Bayelsa, Benue, Borno, Ebonyi, Enugu, Gombe, Jigawa, Kebbi, Kwara, Nasarawa, Niger, Osun, Sokoto, Taraba, Yobe and Zamfara states attracted zero FDI last year.
Only the Federal Capital Territory, and Lagos, Ondo, Kogi, Akwa Ibom, Ekiti, Katsina, Anambra, Oyo and Plateau were states that received FDI. Significantly, even in Lagos, Nigeria’s commercial capital, capital importation slumped by 37.94 percent in 2022. With population and joblessness growing, the omens look woeful.
Several factors contribute to the deplorable economic condition of the states. Instead of operating as independent, self-reliant economic units leveraging their comparative advantages, they depend mainly on the pittance shared monthly from the Federation Account. Consequently, they owe salaries, and cannot adequately fund infrastructure, education and other social services.
Capital funding is thus insignificant, compounding their huge infrastructure deficit. The Infrastructure Concession Regulatory Commission says a sizeable portion of the 31,000 kilometres of road infrastructure belonging to the states are decrepit. Additionally, the World Bank lamented that 87 per cent of the 130,000km rural roads network is deplorable. This is inexcusable because good roads are critical to economic development. In Lagos, urban roads are permanently under repairs, triggering unending gridlock and driving away investors.Across the states, new roads are rare.
Conversely, a tripartite action plan between India’s central government, its 28 states and the World Bank labelled the National Rural Roads Programme, achieved 109km of rural road construction daily from 2014 to 2021. Nigeria’s self-indulgent states should imbibe this ideal.
Most states in Nigeria rely on two main revenue sources – monthly federal allocations, and internally generated revenue. But persistently, IGR is low. Combined, the 36 states and FCT earned N1.89 trillion IGR in 2021, up 22 per cent from the N1.56 trillion collected in 2020, per NBS data. Lagos alone accounted for 40 per cent of this sum. Katsina had the lowest IGR with N12 billion, Gombe N10.6 billion, Taraba N9.6 billion, and Yobe N8.5 billion.
In the meantime, federal allocations to the states in 2022 jumped by 30.5 per cent to N3.16 trillion in 2022. With states (and the FCT) struggling to meet their obligations, and a combined debt profile of N5.33 trillion in December (per Debt Management Office), fiscal distress is inevitable.
The challenges are mostly self-inflicted. Beyond undertaking the basic tasks of government like repairing roads and running bureaucracies, most states lack economic plans with investment, job-creating and production targets; they engage in white elephants, lack electricity to power SMEs and industry, while officials bask in undeserved luxury. Instead of competing economically, states vie to erect redundant airports, hire battalions of aides, and acquire large vehicle convoys and private jets.
This is unlike the First Republic when Nigeria’s federalism enabled the four defunct regions to exploit their comparative advantages – the North generated wealth from groundnut, hides and skins, the East and Midwest from palm oil, and the West from cocoa and other cash crops.
The solution lies mainly in returning to that model that was overthrown by the military since 1966. In that era, the regions operated integrated economic plans and retained 50 per cent of federally collectible income generated in their respective domains. This should be implemented so that states will compete favourably as stand-alone economic units. In the United States, the central government does not share money. Concentrating on agriculture, industry, and technology, California was the fifth largest economy in the world in 2022 with a GDP of $3.59 trillion, and is projected by Bloomberg to become the fourth soon.
There is no more time to waste. States should employ well-laid out plans and take advantage of their resources, develop their electricity sector, which has just been deregulated via a constitution amendment, and stop depending solely on federal allocations. All 36 states have mineral types: Zamfara, Osun, Kogi, Edo, Nasarawa, and Enugu have significant mineral resources wasting away. In Ondo, Edo, Ogun and Lagos, Nigeria has 42 billion tonnes of bitumen deposits, adjudged as the second largest globally. There is something wrong when these states abandon these veritable revenue sources.
Meanwhile, insecurity has laid waste to several states in the past decade. Islamic terrorism, banditry, militancy, separatist attacks and kidnapping keep investors away. Nigeria’s warped single police structure is a major, but not the only, problem; states have a responsibility to secure their territories in novel ways. They should rid their roads of violent transport union operators and deploy technology to modernise their operations. They should invest sustainably in rural infrastructure.
Ultimately, the sub-national governments should agitate for the enthronement of a restructured Nigeria (true federalism). This is the only viable political arrangement that can accommodate the disparate ethnic, religious, and economic interests of the 250 ethnic nationalities mischievously cobbled together by the British colonialists. Without this, the future of the states is imperilled.