Security is the spirit of the nation’s economy while politics is the soul – Consultant


 

*Says FG, 36 states, FCT can survive on IGR if developed, well harnessed

*10% of Nigerians spends 90% of Nigeria’s revenue

 

 

 

Prof. Muritala Awodun is Professor of Business and Entrepreneurship, and Director, Centre for Enterprise and Human Capital Development, Crown-Hill University, Eiyenkorin, Kwara State, Nigeria. He is the Founder of Fiftyfifty Institute Limited and Chief Revenue Consultant to CSDC Consulting Enterprise Solutions and Tree Four Consult. He exrays Nigeria’s economy and the internally generated revenue (IGR)potential of the Federal Government, 36 states and the Federal Capital Territory, Abuja. Excerpts:

 

 

 

Ayo Ola

 

Talking about the various states of the federation, we have 36 states and the Federal Capital Territory in Nigeria. Out of these 36 states, we can hardly count up to six states that can survive without federal allocation going by the figures of the internally generated revenue of the 36 states of the federation. What does this portend for us?

Danger and I say danger in the sense that it is not that these other states cannot actually generate sufficient IGR but because they are solely dependent on the money that comes from the Federal sources which come with little or no efforts and because it is barely adequate for them to pay salaries and do some other things, they tend to be contented with that status. So, what if that source stops today, how are those other states going to survive? To me, this is the time for these states to begin to look at what they need to do to transform other sources of revenue internally for the sustainability of their states.

Every state in Nigeria has one form of resource or the other that can actually make that state to survive, but we are not looking at such a direction because we have a source of revenue that is like free money. My take is that we should not wait until the situation becomes too late, as the present state of affairs is not sustainable for too long and the warning signals are already out there.

Imagine Lagos State remaining at the level of its IGR some 20 years ago, if nothing had been done to revolutionize the IGR, the potential will still remain there as potential but without anybody driving it to reality. Look at River State some eight years ago, look at their IGR and look at what it has turned out to be now. The states in the top ten bracket of IGR in Nigeria, including Lagos, have not even started, based on the potential internal revenue in these states, talk less of reaching their full potential, but the fact that they have endeavored to do something, even including Kwara State, means they have realized that the revamping of their internally generated revenue is the viable route to sustainability.

Before we embarked on the reform of the revenue process in Kwara State, some six years ago, it was like a mission impossible. Kwara has condemned to less than N700 million IGR monthwy for so long and nobody thought that making an average of N2bn or more could be possible on a monthly basis. The study conducted then in 2014, in Kwara shows that conservatively, without increasing the tax rates but harnessing the existing potentials through process improvements, the monthly IGR of the state can climb to N5 billion monthly over a 10-year period (i.e. by 2024/2025). All these other states have to begin to look inward to develop their IGR collection process. The Federal Allocation the states collect, if adequately applied towards developing infrastructure and providing a conducive business environment that will make the state conducive for productive activities, is capable of translating into IGR in one form or the other subsequently.

Unfortunately, almost all the managers of our states’ resources are not looking in the direction of development because they all prefer easy sources of money than what is considered as sources of revenue that are difficult to harness. IGR is one source of revenue not easy to harness when compared to federal allocation sources and borrowing. Everybody comes to Abuja at the end of the month, share money, and go back to their states to expend these funds on recurrent expenditure while the capital expenditure that could impact the majority of their people is neglected and this is not sustainable.

Do you mean Lagos, Rivers, Kano, and Kwara states have not really reached their full IGR collection potential?

All the 36 states of the Federation including the FCT have not reached their full potential. The six states that are said to be doing well can still do far better based on the revenue potentials of those states. They are being appraised as having done well only compared to where they are coming from. The Federal Government, in terms of revenue generation, can do a lot better than what they are doing now, so can all 36 states. Those that are doing well now should be encouraged in that direction so that they will do better. The states that are not doing well at all should begin to wake up because without them going in the direction of trying to make the business environment in their states conducive enough to generate economic activities, they cannot significantly drive IGR, and this may not augur well for them in the years ahead.

There is no state in Nigeria that cannot survive if left alone. What will happen is that each state will begin to look inward and develop its hidden potentials, and before you know it, there will be an increase in its IGR. The bottom line is, when the chips are down, there is no state that cannot survive on its own, and I stand to be corrected. It is just that they will have to begin to look at things that will make them self-sustaining. There is no state that does not have one form of mineral resource or the other, aside from the massive landmass. Rather than take the money they are collecting from the federal to go and develop those mineral resources and build industries around them so that there can propel good economic activities in the various states, everybody is just collecting the federal allocation money and spending on recurrent expenditure, which practically is consumption-oriented.

If each state decides that for every administration that comes onboard, one particular form of mineral resource of their state will be concentrated upon such that industries will be built around them, or concentrate on one form of their agriculture potential and magnified them on a large scale, such states will not be the same again after that particular administration. The situation is that most states are not making any significant effort to develop in Nigeria, as they always find a ready excuse every now and then to pass the buck.

What are those states that are top on IGR and why is Kano not doing as well as Lagos despite the fact that they are almost on the same threshold population-wise?

Lagos is number one for a long time and we all know why. FCT is coming up as a sub-national on its own, after some battering. After Lagos, it is Rivers and we also know why. We can talk of the likes of Delta, Ogun, and Kaduna. You will ordinarily think that Kano State should be part of the top six but you will be surprised that Kano cannot compete in terms of ‘quality of people’. What I mean by ‘quality of people’ is based on their capacity to pay tax which centers on ability and willingness. Lagos is the hub of commercial, financial, industrial, technology, and even tourism and hospitality activities in Nigeria, so the ‘quality of people you will find in Lagos with the capacity to pay taxes far exceeds what you will find in Kano or any other state in Nigeria. So, while the population is important when it comes to tax potential determination, the quality of the population as described is also a significant factor.

All the corporate head offices of the majority of the multinationals operating in Nigeria are in Lagos, so you get what I mean. For instance, if we agree that Lagos and Kano stand at say about 21 million in population each, and you want to use that to judge by saying Lagos is doing better than Kano, you will be unfair without taking what I have just explained into consideration. Of the population figures, even if the taxable population, say about 10% is still the same for the two states, i.e. about 2.1 million people earning income that are taxable. The questions arising therefrom are; how much income are they earning, and how structured (formal or informal) is their sources of income? While the former addresses the issue of ability, the latter addresses the issue of willingness. For the more people in formal employment, the easier it is to collect taxes from them than for those in the informally unstructured employment. So, if you compare the PAYE generated by Lagos to the PAYE generated by Kano, you will just see the difference.

If you look at the number of people in Lagos that can afford and are willing to buy cars, not cows, Kano perhaps also has those numbers but they either cannot afford to buy cars or can afford but are not willing. So, those who have bought cars will have to pay road taxes and that explains the huge difference in that category of taxes collected as well. Also, when it comes to property tax, the story is not different. So, those are where the differences come from. You can have the population but what kind of population? Are they a population that is able to pay taxes and willing to pay those taxes?

How do you feel about the declining value of the Naira?

I feel very bad because I know that Nigeria deserves better than this. Certainly, we should not be where we are if the economy has been under very good management. But because of poor management of the activities relating to the economy of this country, we are where we are now. When you look at it, there is no justifiable explanation or reason that will be given that will convince people like us that in six years, we all watch helplessly as our economy, in terms of the exchange rate, nosedived from about N160/$1 to about N475/$1. This is three times worse than it was before. For instance, earning a monthly salary of N475,000.00 in 2015 means you are earning about $3,000 monthly, with the same salary six years down the line today, you are earning $1,000. Prices of items you are buying in the market have all gone up more than three times without exception. So, you are worse off than you were six years ago in all ramifications.

That is something that should make anybody worry, even those in charge of the economy. For me as a professional, it is not something that is in the interest of the country that we should be where we are today. Unfortunately, we will always find reasons to explain away any situation that man or a nation finds itself. Even when as an individual, you know you are the one that has failed to do what you are supposed to have done, you will still want to attribute reasons to why you are there, rather than take responsibility for your actions and inactions. If a student failed an examination, for instance, it is not uncommon to hear such a student, rather than taking responsibility for his failure, attributing his failure to his parents who he may accuse of not supporting him enough like other parents, or his teachers who has set very difficult questions, or even his co-students and invigilators for not cooperating in the examination hall.

At the same time, you will see another child whose parent’s situation is worse than the child in question that failed, and that child from the not so good background excelling in his examination despite the harsh condition of life. While one accepts his situation and made up his mind to do something to make it better, the other is busy finding faults and passing blames rather than taking up the challenge and making his situation better. That is exactly the case of Nigeria. If only we can just take responsibility for our actions and inactions rather than look for excuses, just to justify our failure, then our situation might be better. In other words, as a nation, we have failed in the management of the economy of Nigeria. We really have failed. All the excuses of things that have happened or not happened are not enough. They are just like passing the buck. We have failed and we have failed. What should be of consideration to us all is where do we go from here? The earlier we accept that we have failed, and begin to look at what made us fail and begin to address it, the better for us. To answer your question, I feel very bad because I know that it can be better.

So, it appears that you are not comfortable with the current monetary policies of the Central Bank of Nigeria and the Federal Government’s fiscal policies?

When you talk of the economy, it is holistic and cannot be micro-managed. So, we cannot be looking at one sector of the economy without considering what is happening in the other sectors. The whole thing works together. If the CBN is up and doing, that is the monetary side and the fiscal side is failing, the entire economy will fail. Also, if the fiscal side is up and doing and the monetary side is failing, then the entire economy will suffer for it. So, it is not for one sector of the economy to be performing while the other is not. It is a holistic thing when it comes to economy management. You must get the right people into the right positions and they have to work together as a team. We all saw how the economy was managed during the Obasanjo and Yar’Adua regimes. Crack economic team from the CBN, the monetary side, to the Ministry of Finance, the fiscal side, and the Economic Planning, you can see the synergy between and among them. You could see synergy, you could see them working together and managing the economy together. You could see holistic management of the economy but this particular situation that we find ourselves is something that we can say is not the same, because the yardstick of measuring their performances, and what the people will remember them for after they have long gone are, unfortunately, not looking positive, and that is the truth.

It is easy to say ‘there is depression, there is this and there is that. There are solutions and policies appropriate to any situation even in economic theory. As a nation, we have not done enough. Sincerely, it just is not in our interest that the economy is like this. More or less, what we are doing is that we are managing, for now, we are not managing for the future. We are just solving problems of now, for instance, we have a problem of how to get money to spend, then we borrow just to fill that gap. We are digging a hole for tomorrow’s leaders to worry about, just to fill the holes we see today. Those are not lasting solutions and obviously not sustainable. Those are problems for those who are going to manage the economy tomorrow to solve.

How do you then assess the current CBN’s monetary policies and the FG’s fiscal policies?

The economy is a whole unit that we can liken to the human body with many visible and invisible parts determining how well it is with it. There is the body, the spirit, and the soul of the human, the same way it is with the economy. We concentrate so much on the physical with many visible parts while we pay less attention to the invisible spirit and soul. No matter how fine the face of a man may look or physically fit he may look, once the spirit is attacked, that good-looking man lies helpless until it is well with the spirit.

The monetary and fiscal institutions saddled with the affairs of managing the economy and the different sectors of the economy are the physical body of the economy. However, the issue of security can be likened to the spiritual aspect, without which it cannot be well with the economy. The inability of the government to solve the security challenges of the country, all these years, will only continue to make a mess of whatever policy, monetary of fiscal, that these institutions may put in place. For as long as the political forces refuse to tackle head-on the insecurity problems, whatever policies or infrastructure put in place will only be disrupted and destroyed by the realities of insecurity. You build roads and rails, but the people are afraid of plying them because of insecurity. You build schools and hospitals and the people cannot access them because of insecurity. You promote and encourage agriculture by funding it massively but the people cannot access their farms and even when they do their harvests are destroyed because of insecurity. So, when the spirit and the soul of the economy is threatened, can it be well with the economy? While we liken the spirit with insecurity, the soul I will say is political because the moment we hold elections and hand over power to whoever is chosen, that political institution determines what happens to all the others, whether security or economy.

FG has come up with taxation on many areas including carbonated drinks, will this not amount to multiple taxations and additional burden on the people?

When you want to look at taxation from the viewpoint of burden, then you will not even introduce any tax at all because whether you like it or not tax is not something that people embrace willingly, and that it why it is always backed by law. It is an imposition based on the social contract theory. What tax does to any income earner whether the individual or organization is to reduce the available income to the owner. So, whatever will reduce your final income, you will not see positively. The positive side of it, however, is that the purpose of its imposition is to ensure that the government, to whom the taxes are paid, applies it to provide common goods, i.e. infrastructure, etc. that will benefit all citizens irrespective of their tax-paying status.

Specifically, on the issue of new taxes introduced, it is obvious that the government is running behind in terms of income or revenue generation. The expenditure of government, both capital and recurrent are far above the revenue of the government. So, one of the things that the government has chosen to do is to look at possible areas of increasing its revenue that will have minimal direct effects on the people. However, the government has not done well enough in the area of reducing or curtailing expenditure, particularly the recurrent expenditure. That is the bad side of it. Do not forget that I said earlier that the political segment is the soul of the economy, and they determine which direction the economy goes. As it concerns curbing expenditure of governance, all levels of government, whether federal, state or local have really not done well. While they are quick to add to the burden of the people through the introduction of new taxes and levies to raise revenue, they are not as quick in reducing the overhead and recurrent expenditure that consumes the most of the revenue.

So, do you mean the administration of President Muhammadu Buhari is consumption friendly as against being investment friendly?

Government generally, not peculiar to the Buhari administration or the Federal Government. If you look at the various states and local governments and their budgets, their expenditure patterns are the same, what differs is the range. While some are as high as ninety percent recurrent expenditure in their actuals, the majority are between fifty and seventy percent recurrent expenditure as against capital expenditure. Even the 2022 Budgets of the 36 states, for instance, shows that recurrent expenditure of the sub-nationals is an average of fifty-five percent against forty-five percent capital expenditure. However, at the end of every year, they hardly implement the proposed allocation to the capital up to fifty percent of what is budgeted, while the recurrent is almost one hundred percent expended. What this implies is that the capital expenditure that will benefit more than ninety percent of the people is always sacrificed once there is revenue shortage while the recurrent that is for less than ten percent of the people are almost fully expended.

So, our governments are consumption friendly generally and not investment-friendly. This is also a reflection of society generally. At the individual (household) level, we know how to spend money on consumption activities that bring little or no returns than on investment or capital-related activities. Even our children, if you give them money, they want to spend it because of wrong values rather than thinking of how to apply it meaningfully to make it work and multiply. So, we remain perpetually poor as a people and as a nation. We are a consuming nation and not a producing nation, and until that narrative is changed, we will not develop. Our environment and culture had promoted lousiness, luxury living that has increased our expenditure beyond what our income can even carry. If you look at the people that are in government and the quantum of funds that are expended on them. If you look at people that are in one form of power or the other and the quantum of money that is expended on them, then everybody wants to aspire to be there because of the huge expenditure pattern. So, everybody aspires to behave like them because they are the mirror the younger ones can see. Therefore, there is this tendency generally, once money comes you just want to do what other people you see around you are doing. This has developed into a high hunger to consume that has beclouded our capacity to think of how to save, invest and grow wealth as a people. .. Continue reading


joshua

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