Today we turn our attention to a discussion on sub-national competitiveness which took place as a side event at this year’s Nigerian Economic Summit in Abuja. Most state governments have come to rely heavily on the monthly payout from the Federation Allocation Account Committee (FAAC) as their major source of revenue. We understand that 19 states are unable to meet their recurrent obligations in full just as the FGN has reportedly agreed to a new national minimum wage of N30,000 per month. This leaves little or no room to initiate any developmental projects.
- Based on the most recent data from the CBN, total internally generated revenue (IGR) accounted for 26% of states’ total revenue in 2017. Meanwhile, total gross statutory allocations from FAAC provided 49% of the total in the same period.
- There are a few states that have successfully identified their competitive advantage. However, we doubt that they have fully tapped into the maximum potential.
- Kano, Plateau and Cross River fall into this category, with cotton, cereals and rice the agricultural products they leverage upon to generate internal revenue. Nonetheless, these states were unable to achieve an IGR/total revenue ratio above 50%.
- Lagos has maintained its position as the leading revenue generator. Financial services are its competitive advantage. It has succeeded in boosting its VAT collection to 17% of total VAT collection last year.
- The poor attitude towards tax payment in other states could be charitably linked to a lack of structure as most businesses are not captured in the formal economy. Additionally, the lack of knowledge of tax payment mechanisms is to blame as the literacy level is lower in many other states when compared to Lagos.
- The FGN’s primary objective should be to create a conducive business environment as IGR sustainability is a by-product of an enabling environment.
- The sub-national ease of doing business in Nigeria has four indicators according to the World Bank. They are the procedures for starting a business, the regulations for registering a property, the ease of SMEs’ obtaining approvals for construction permits and the procedures for enforcing contracts.
- We understand that over the past four years (2014-2018) 29 states have implemented a total of 43 reforms across the four areas benchmarked. Kaduna, Enugu, Abia, Lagos and Anambra have made the most steps toward the Banks’s global good practice frontier.
- One recommendation from the discussion is that each state, based on its comparative advantage, should build economic clusters or form a regional cluster. This should enhance productivity, attract investments and thereby boost IGR.
