Nothing better than paying your own way

Today we return to the financial viability of the state governments with a chart showing the ratio for internally generated revenue/total revenue for four states over three successive years. We have chosen the two highest and two lowest ratios among the 36 states and the federal capital territory, along with the aggregate data. Other than Borno State, the ratio peaked in 2016, reflecting a low payout for the gross statutory allocation: the average oil price and average oil output were US$44/b and 1.82mbpd in 2016, compared with US$54/b and 1.89mbpd the following year.

  • It will not be a huge surprise that Lagos and Rivers states were the best performers over the three years. We may think differently about the placing of an oil-producing state with access to the revenue from the 13% derivation formula at the bottom of the pile.
  • This tells us that a state government may identify taxable revenue within its territory but still has to create the infrastructure to collect it.
  • The ratios for the four states highlighted are broadly stable. This is not the case for all, however: to give two examples selected at random, the ratio for Taraba State declined from 43.2% to 12.5% in 2017 while that for Enugu State plummeted according to the CBN data from 53.1% in 2015 to 29.2% in 2016 and further to 14.9% in 2017.
  • IGR/total revenue (%) for four states

    Sources: CBN; FBNQuest Capital Research
  • The first conclusion to draw is that these state governments depended on one-off inflows rather than stable revenue streams from taxes and levies collected on a regular basis.
  • These shortcomings have been given additional focus now that a rise in the minimum wage from N18,000 to N27,000 per month appears to be coming.

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