Nigeria's dire finances show it cannot grease the economy with fickle oil alone

2019-08-22 07:16:12


, while spending on capital projects has been frozen, in some cases since last year. In south-western Osun state, the situation is so bad that before the Ramadan month of fasting.

This cash crunch is partly the result of how Africa’s most populous nation functions politically: proceeds from oil, company taxes and import duties are paid into a central pool and every state sends a representative to the capital each month to collect a share.

Because Nigeria’s economy is so dependent on oil, , this method of distributing income means that global oil prices can have dire consequences for Nigerians.

A sharp drop in crude prices since last year has pummelled the economy, and the . Across the country of around 173 million people, .

With oil now , compared to around $115 in June last year, Nigerian states , weighed down by a maze of repayment charges, which will take years to clear.

In May, newly elected was , and state governors hoped the dawn of this new political era might also yield a bailout package for them.

Unfortunately, the federal government had its own challenges: as of May, it had already borrowed .

People queue to buy fuel at a Mobil filling station in Lagos, on 21 May. Long queues formed at petrol stations across Nigeria following a row over subsidy payments to petrol importers. Photograph: Pius Utomi Ekpei/AFP/Getty Images

But, after denouncing the non-payment of state employees as a “disgrace”, Buhari did come up with a $3.4bn , including soft loans from the central bank to enable the payment of salary backlogs, a “sharing” of dividends from the and the restructuring of states’ debts to the tune of $3.3bn.

Laudable as all this is, it looks like a quick fix, rather than a much-needed overhaul of a culture of dependence, waste and secrecy.

Financial transparency is apparently not a priority for state governors whose websites are run more as PR outlets than as platforms to engage citizens on public finance issues. That is why wants information to be put online, so that everyone can access it.

Years of opacity shrouding the finances of state authorities mean that people did not raise the alarm over the parlous financial situation until too late. Institutional secrecy effectively hid the festering sores that are now a gaping wound.

Most of the debts incurred by state governments were tied to populist projects, such as building sports stadia or huge institutions. Years of waste, civil service inefficiency, and debt accumulation have bloated the government’s recurrent expenditures.

With its federal revenues down by about 30% because of the oil price slump, the result is clear; cannot keep running a mono-economy on the finite, fickle commodity that is oil.

Before the discovery of oil, Nigeria’s administrative regions were mainly agrarian; each region specialised in various cash crops. The government in what was once the Western Region (divided now between Lagos and Western State) built stadia, TV stations and scaled up its free education programme using profits from cocoa, as well as taxes.

Today’s state authorities, with their self-limiting fiscal antics, have not attained these heights but it could be possible to bring back the glorious days of fiscal independence.

Buhari’s ruling APC party has pledged 300bn naira ($1.5bn) to create regional hubs; this should push states to proffer ideas that end their dependence on oil revenues. States need to tackle corruption and structural inefficiencies, but also maximise and expand their revenue bases.

A child sits on a barrier on a road to hawk his wares in Akure, Ondo state, on 24 March. Photograph: Pius Utomi Ekpei/AFP/Getty Images

State governments should be able to spend the VAT revenue they generate, with opportunities to exploit ports and natural resources within their borders. They need to find ways to formalise businesses, ensure proper records to allow tax collection, while providing incentives for individuals and organisations to pay taxes.

Buhari’s bailout is many things including, importantly, a lifeline for thousands of civil servants who have been denied their pensions and salaries. But more needs to be done to increase financial transparency and accountability in Nigeria’s 36 states. Part of the solution lies in diversifying revenues away from oil, and this can be challenging for politicians locked into election cycles.

But the state of global oil prices suggests that Nigeria’s political elite will need to face this task and take a long, hard look at restructuring.

  • Oluseun Onigbinde is the lead partner at a civic organisation that works to engage citizens on how public budgets work