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ANALYSIS: The challenging issue of funding Edo programmes

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  • faced with the constraint of a heinous debt burden and fiscal consolidation

With special thanks to Oluseun Onigbinde, CEO of Budgit and his team of researchers led by Gabriel Okeowo and to Bill and Melinda Gate foundation’s support for Budgit innovative deep-dive research into issues of fiscal sustainability of Nigerian states since 2015.

For the type of sub-optimal federalism system that Nigeria practices, funding and capacity issues continue to be a going concern for states. According to the 2019 report, only three states are able to meet their recurrent expenditure from all sources of income. The important public policy challenges posed by these developments are varyingly encumbered in different shades of distortion as you take a virtual tour across states.

Edo State
Edo State

This means the constitution must be amended to remap the exclusive and concurrent lists. In practice, however, this rather depends on the purpose of, and intended outcome for, the exercise, if and when the country can find the consensus and the political will to do so. Beyond these general challenges to fiscal decentralization, much of the effort specifically on subnational development finance has been relatively disjointed. Rather than looking at development finance in the context of fiscal decentralization overall and the broader economic, institutional, and political context, various analysts and frameworks have tended to focus on (and try to promote) specific individual reform elements. For the immediate and near terms, states MUST look inward while looking forward to institutional and structural reforms to redraw fiscal federalism to give states more power and easier access to tap and leverage their potentials.

Given the informal trade and skeletal industrial output of most states, with exception of Lagos, Rivers, Delta, Ogun and Akwa Ibom State, others are completely powerless in the effort to generate more revenue internally. In this year’s annual sustainability index, Budgit has placed Edo in the 14th position using a combination of the ability to meet recurrent expenditure and the burden of its debt portfolio. Edo is the second indebted state on subnational debt in Nigeria on external burrowing with $276.2 million total external debt stock and the seventeenth-largest indebted on the domestic debt of 86.8 billion (Naira) as at December 2018. That’s a combined total debt of 171.1 billion (Naira) at the current exchange rate translating to 21,387.5 Naira per head.

Of particular mention is the debt profile which has increased from 78.7 billion in 2015 to 139.3 billion in 2017 and now 171.1 billion in 2018. But on the lighter side, IGR (internally Generated Revenue) has also increased from 19.1 billion in 2015 to 28.4 billion in 2018. In addition, Edo maternal mortality of 32 deaths in 100,000 is well below the national average of 233 deaths in 100,000 and far better than SDG target of 70 deaths in 100,000. Also, Edo’s doctor density of 7.1 doctors per 10,000 is well above the national average of 2 doctors per 10,000 but falls short of the world’s average of 15 doctors per 10,000. Opportunity for improvement to Edo health program in addition to what Governor Obaseki is already doing through his Edo Healthcare Improvement Programme (Edo-HIP) and the Edo planned State Health Insurance Scheme (SHIS). Edo has increased nominal budgetary allocation to health from N9.1bn in 2018 to N10.8bn in 2019.

Edo is one example of a state with the potential to do more given the right amount of resources. In 2018, Edo’s total revenue of IGR + FAAC allocation was N75.9bn against its recurrent expenditure of N74.7bn leaving an excess of just 1.2 billion for the whole year. Its capital expenditure for the year was N38.4bn leaving it with no option but to burrow to finance its projects. This fiscal model is not sustainable. It is either they find a way to increase the IGR or drastically reduce its recurrent expenditure. If you look at the expected projected population growth rate, especially among prime working age (15 – 59), given the right form of investments, the state can become a high wealth creating rather than a wealth receiving one. In the near term, the state can maximise its potentials if they can adopt one or more of the following progressive policy direction.

Invest heavily in the development of human capital infrastructure. Governor Obaseki is already doing great things with programs like Edojobs, Invest Edo, Benin City innovation and industrial hubs, EdoBest, etc.

He will need to step up as the number 1 salesman of the state by actively going all out to meet potential investors to take advantage of the areas where the state has a comparative advantage. For example, the state is number one in Oil Palm production and the number one incubator of top sportsmen and women in Africa. The differentiator in modern economics of building a subnational municipal state, bottom-up, is the ability to build the ecosystem and the right environment that can attract a firm with an annual local turnover of $500mn (USD) or above. Large companies hardly exist in Edo State. You do need them. These companies not only contribute considerably to GDP growth, they are also a catalyst for CHANGE. They bring productivity benefits by investing in assets, R&D, and job training at a higher rate than small and midsize enterprises (SMEs)—and they tend to pay higher wages, upward of 75 percent more. Along with these direct effects, large companies indirectly stimulate the creation, growth, and productivity of SMEs in their supply chains—and in turn, depend on these SMEs to provide intermediate input for their ecosystem. Governor Obaseki should partner with the private sector, as a foremost businessman himself, to bring one or two of this type to Edo in the next eighteen months.

Investment in healthcare has stagnated around 6 per cent of the budget over the last few years. Governor Obaseki will need to bring this nearer the 10 percentage mark to further strengthen his Edo Healthcare Improvement Programme (Edo-HIP). Doctor’s density of 7.1 to 10,000 can benefit from such investment to bring it nearer to the world’s average of 15 to 10,000. Governor Obaseki resolve to strengthen primary health care through improvement in service delivery and access is the right way to go. Primary health care starts with good hygiene and modern sanitation facilities. More than 90 per cent of the state has no access to good water and a modern sewage system. That is an area for improvement.

Electricity and power generation is the catalyst of growth to any modern economy. Now that it is clear that power is not in the exclusive list, the state can embrace the compartmental model and target critical and very important public facilities like hospitals, schools, malls, airports, etc by investing in power generation in smaller pockets for these facilities. Less than 100 megawatts of electricity can power the whole of Benin City with uninterrupted 24-hour of electricity.

The security architecture of the state is still opaque and largely reliant on legacy infrastructure. The key to modern community policing is technology and data-driven approach to strategy, planning and management. Overall, when the economy improves, you see a corresponding increase in living standard and crime will be on the wane.

The governor will need to replicate Dr Joan Oviawe’s blueprint on basic education in other secondary and tertiary sectors. I love the interactive classroom concept. This should be rolled out throughout the length and breadth of the state.

Revenue generation in Nigeria today can happen in several different contexts. For example, burrowing is the preferred source for those states that have the creditworthiness to do so. There has also been considerable interest in using public-private partnerships (PPPs). A good PPP must be managed under strong regulatory frameworks. Not all PPP turns out to be a good investment on the long term but with due diligence, Governor Obaseki can follow the models already implemented by states like Kwara and Lagos to attract investment into the agro and retail sectors.

PPP success rate in these areas, because of the relative attractiveness to generate quick cash flows, is high. Benin City mall is long overdue and is one investment that can do with a PPP investment. The design of the mall should be such that the government can earn substantial revenue in recreational activities, municipal trans-link, and parking facilities. A two-floor underground parking facility at the mall at 50 per cent capacity can easily earn N380mn annually. A modern shopping mall in Benin City, if well managed, can add 2 per cent to the annual GDP growth rate of the state, will increase revenue by more than 20 billion Naira of VAT collection per annum and can spark a self-directed regeneration of the entire city. It can also help to improve regional coefficient and wage rate.

Subregional governments around the world are floating diaspora and green bonds to raise capital. Why can’t we do the same? According to IDEA, Edo diaspora remits about $1bn annually. A $1bn Edo diaspora bond will be oversubscribed. Edo GDP of $11.89bn (6th in Nigeria) means Governor Obaseki can raise up to $1bn (about N200bn) in local taxes in property tax, business rates, vehicle tax, etc without the burden of layering double tax regime.

The incentives to make the state operations, processes and financial mechanisms work, are contingent on sufficiently empowered and mobilised the workforce. Late General Ogbemudia flooded his civil service with diaspora expertise and work ethics with hundreds of recruits to help pilot and run government agencies. People like Dr Ehigiamusoe was recruited to start the Bendel Livestock Ltd and later seconded to head Bendel Pharmaceuticals Ltd. What is Governor Obaseki waiting for?

Paul Nosa Ogiehor is a development consultant, Principal partner & CEO: The STRAITSUP Ltd, he writes from the United Kingdom

Note – Mr Ogiehor can be reached by contacting NAIJA CENTER news room news@naijacenter.com

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