April 25, 2021

CASH CRISIS: Tough survival choices confront states —Experts


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    …Govs should explore AfCFTA platform, SMEs, rationalise cost, prune workforce’

By Peter Egwuatu, Assistant Business Editor, Nkiru Nnorom, Tunde Oso & Nnamdi Ojiego

Following the financial crisis across the 36 states of the federation, economic experts have suggested measures to be taken for the sub-national governments to survive.

As of press time, many states of the federation appear cash-strapped following the fall in revenue accruable to the federation account.

This has resulted in the drop in the monthly allocation to states from the Federal Account Allocation Committee, FAAC.

According to the National Bureau of Statistics, NBS, the Internally Generated Revenue at state Level Q4 of 2020 including the Federal Capital Territory, FCT, decreased from N3.8 trillion in 2019 to N3.599 trillion in 2020.

To compound the woes of the states, the Central Bank of Nigeria, CBN, has requested a refund of the repayment of the N2.1bn Budget Support Loans granted to them by the Federal Government.

The money was an intervention package approved in 2015 to assist states in the payment of salaries.

As a result of these, state governments are troubled over how to meet up with their financial obligations. Many are already contemplating tough measures aimed at managing the lean resources accruable to them.

However, experts told Sunday Vanguard that instead of reducing wages of workers and retrenchment of workforce as being contemplated by some states, they should be prudent in spending, trim the size of government, especially number of Ministries, Departments and Agencies, MDAs, reduce the number of political appointees and deploy technology to widen the base of revenue collection among others.

The experts, drawn from different sectors of the economy including academia, warned that measures other than those suggested would not engender growth.

Block leakages, deploy technology —Prof Uwaleke

A former Commissioner for Finance in Imo State, Prof Uche Uwaleke, said: “The first step is to plug leakages including through the effective operation of the Treasury Single Account, cleaning up the payroll through biometrics and deploying technology to eliminate as much as possible the handling of cash in government transactions.

“It is equally important to enthrone accountability and transparency in public finances through the adoption of international public sector accounting standards. This also includes proper recording and management of state debt to ensure it is sustainable. These are crucial to attracting grants from international donors such as the World Bank.”

He further warned state governments not to reduce the wages.

“The high poverty and unemployment rates across the states do not support the reduction in wages or increasing taxes. Instead, sub-national governments should be prudent in spending, trim the size of government, especially the number of ministries and political appointees and deploy technology to widen the base of revenue collection.”

States should develop local resources – Former NACCIMA boss

On his part, ex-Director-General of National Association of Chamber of Commerce, Industry, Mines and Agriculture, NACCIMA, Dr. John Isemede, called on state governments to look inward for products and commodities with huge export potential.

“The states are in a financial crisis because they rely on the federal allocation. The way the country operated before 1963, no state was coming to the central government to share money. They paid royalty to the federal government. Nigeria should go back to the 1963 constitution where states were allowed to develop their resources and pay royalties to the central government,” he noted.


He further warned: “State governments should never think of reducing wages given the high inflationary rate in the country. Our union would resist it and ground the economy by going on strike.”

Isemede said: “My advice to state governments is to identify local natural resources in their states and create strategies to develop and market them through the African Continental Free Trade Agreement, AfCFTA, platform.

“They should also focus on Small and Medium Enterprises ,SMEs, with export potentials because they remain the drivers of economic growth. Export incentives for the manufacturing sector should be targeted at SMEs to boost the contribution of the manufacturing sector to Nigeria’s Gross Domestic Product, GDP.

“Multinationals are not interested in export. Most of them still have the Berlin Conference mentality. They came into this country to take advantage of the over 200 million consumers

“The hope is on the SMEs. If we are serious about this matter, we should avoid going the way of the Africa Growth Opportunity Act, AGOA, and other trade agreements in the past. There should be a proper alignment of trade agreements signed by the federal government, as well as a synergy between MDAs for proper coordination and communication.”

Govs should enhance capacity for wealth creation—Adonri

Economist and Vice Executive Chairman, HIGH CAP Securities Limited, David Adonri, said: “The Nigerian economy is fragile and prone to crisis due to fiscal weaknesses, low production base and dangerous trading practice.

“Federal Government has more to do in correcting these weaknesses. However, states can also contribute to laying a solid foundation for the economy. With the enhancement in the capacity for wealth creation, revenue to government will readily take care of expenditure. The perennial shortage of revenue amidst escalating needs for public services leads government to over trade. All tiers of government are currently bedeviled by this malaise. To survive, state governments need to rationalise costs and boost revenue.

“All options to ensure fiscal consolidation should cover all areas of leakages and overburden and finally at this critical time of suppressed revenue generation, expenditures should be tailored to areas of greatest need.”

Financial crisis getting worse daily —Analyst

Also, Head of Investment and Research at Fidelity Securities Limited, Victor Chiazor, said: “Going by the year 2020 report for internally generated revenue by the states and FCT released by the National Bureau of Statistics, NBS, we can see clearly that the financial crisis across the states seems to be getting worse by the day.

READ ALSO: Nigeria’s economy at critical juncture — World Bank

“Having reported that just three states have above five percent Internally Generated Revenue, IGR, contribution to revenue while 14 states have below one percent IGR contribution to revenue, it is clear that almost all the states are being run by federal government. They will run into a deep crisis if those allocations stop or are reduced by government.”

Structures and policies

Consequently, Chiazor said: “As a matter of urgency, many states will have to reduce the cost of governance to enable them to release capital for other viable projects. Structures and policies that would expand its tax net as well as capture most of its informal sector would need to be implemented while leakages need to be closed.

“States would also need to create incentives to attract investors as most investors may not be open to investing in most of these states except these incentives are strong enough to move them. The option of wage reduction may not be widely accepted but may be necessary if the revenue profile of the states fails to improve. But that will also hurt the populace as more people are likely to fall further below the poverty line.”

Reduce unnecessary expenditure  —Kurfi

Managing Director, APT Securities Limited, Mallam Garba Kurfi, said: “There is a need for state governments to reduce unnecessary expenditure, take value for money spend and increase sources of revenue. There is a need for them to reduce costs of running government.”

“There is also the need to address inflation, especially now that it is more than 18 percent before reducing wages.”

Workforce must be reduced — Obiaraeri

An investment banker and forensic auditor, Dr. Nnaemeka Obiaraeri, suggested the overhauling of the country’s fiscal, governance, political and constitutional architecture as a solution to the financial crisis facing the federal and state governments.

He told Sunday Vanguard that for states to survive, the public workforce must be pruned down to such a level that their overall costs would not be more than 20 percent of total revenue.

The forensic auditor said: “Nigeria may end up netting in about N6.79trillion from crude oil sales in 2021. However, just like in 2019 and 2020, what may end up getting into the federation account to be shared by the three tiers of government may not be more than N2.5trillion. The extra N4.2trillion will, as usual, be frittered away.

“We can only end the madness by totally deregulating the downstream oil and gas sector.

“To worsen Nigeria’s current decayed fiscal condition, those in power – the President, 36 governors and members of the national and state assemblies have refused to restructure Nigeria. They refuse to move 63 out of the 68 items in the Exclusive List of the 1999 constitution to the Residual List. Such would have allowed devolution of power and resource control to engender production and healthy competitions amongst the constituent units that make up Nigeria.


“With the extreme poverty in the country, heightened insecurity/breakdown of law and order in the land and monstrous corruption at all levels of government, the only thing that can save Nigeria from being formally stamped into the league of failed and disintegrated states, is for us to overhaul the fiscal, governance, political and constitutional architecture of the country.

“Doing this will help us to have a lean public sector workforce, part-time public office holders, and lean government overhead. This will allow us to unlock long-term private sector and global investments in the country.

“Anything short of the above recommendations will only spell doom for the continued existence of Nigeria as one country. Nigeria is comatose. No life support machine can save her except we go back to the 1960 constitutional and fiscal framework.’’

Vanguard News Nigeria