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Where Has All the Money Gone? 

-The Need to Better Monitor the Fiscal Conduct of State Governments-

By

Kasirim Nwuke

tchandu@yahoo.com

" We have institutions to check how it is spent; we have internal auditors of each institution, Auditor-General of the Federation and the Due Process. The states should activate same. The governors have limited autonomy to run their states within the law and within the constitution. …."If a governor can go to South Africa to spend public money under any guise, he has citizens of the state to call him to order. If they don't, you wonder what sort of State House of Assembly they have, the sort of leaders you have in the state. Where the Federal Government will come in we will come in."

--- President Obasanjo  (The Guardian 23 August 23, 2004)

In these first few years of post-military Nigeria, ethnic, political and economic crises have kept the Nigerian people from paying due attention to fiscal developments at the State and local government levels and how these affect their lives, hopes and expectations of the future. Policy attention and anxiety have focused on the Federal government; this is understandable.  After all, the Federal Government makes the big decisions, sets the pace, and receives the lion’s share of revenues from the Federation Account and its fiscal problems are more pressing.  In addition, it has to lead the fight against galloping inflation, crime, and cultism.  For some strange reason, even though our interface with the Federal government is very limited, most of us hold the view that we are affected more by decisions made in Abuja than decisions made in the 36 State capitals of our Federation. 

But we ignore the fiscal conduct of our sub-national governments at our peril.  According to our Constitution – flawed we accept it is - State and Local governments are important actors in the provision of services to the Nigerian people. The services that the Constitution mandates States to provide are not unfunded mandates; the Constitution provides funding for them.  Each month, revenue accruing to the Federation Account is shared among the three tiers of government according to a formula.  No matter how much we may quarrel over the revenue sharing formula, no formula is perfect, evidence shows that the 36 states have, since 1999, received considerable amounts of resources from the Federation Account to enable them provide essential services – health care, public health and sanitation, education – to improve the material conditions of our people.

Since 1999, the sum of N2346.317 bln has been disbursed to the States as can be see from the table below, compiled from data made available by the Federal Ministry of Finance (www.fmf.gov.ng). Many of our governors control sums far in excess of what the Chief Executives of some of our nation’s most successful companies control.  Consider for purposes of illustration, the following states: Lagos, Delta, Rivers, and Bayelsa.  Since 1999, Lagos state has received N93 billion and Delta State the sum N195 billion naira while Rivers and Bayelsa received N156 billion and N133 billion respectively.  (Delta, Rivers, and Bayelsa are admittedly outliers because of the 13% derivation but the average of N65 billion received by the states is an enormous amount of money, probably beyond the dreams of a number of African countries.)

Table 1: Federal Allocation to States, (including 13% Derivation) May 1999 – May 2004, N bln.

In spite of receiving these substantial amounts from the Federation Account, our subnational governments are unable or perhaps incapable of improving service provision.  Where service is provided, it is often of depressingly poor quality.  Typhoid has become a major killer because of the poor state of public health. Our health care systems remain poorly equipped and public hospitals remain mere “dispensing clinics” and state response to the threat of HIV/AIDS remains tepid at best.  No official figures of deaths and births are kept so we do not know how many of us are dying from vaccine preventable diseases Primary and secondary schools are in disrepair and.  Poverty is rife.  More than 65% of us according to the Federal Office of Statistics survive on less than $1 per day.  For those with jobs, real income is declining at an increasing rate because of the galloping rate of inflation.  These days in many homes in our country, the birth of a new baby probably provokes fear instead of joy and the death of a loved one probably elicits secret celebration because as there is now one mouth less to feed.

Where then has all the money gone?  We do not know for sure but what we do know for sure is that the degree of fiscal misconduct at the subnational level is very high.   We know for sure that the budget preparation process and that there is no expenditure management system in most states.  We also know that most states and local government councils do not have competitive tendering for public procurement and that their accounts have not been audited for years (as President Obasanjo rightly pointed out).  There is no full budget disclosure just as there are no efforts to rationalize expenditures on public administration, manage debt, and reform local taxation and capital budgeting.  We also know that most states have huge portfolios of off-budget activities.  State and local government administration is as disorganized as Oshodi Bus-stop.

We also know that rather than improve service delivery to the people, the chief executive officers of our subnational units have – for the most part - co-opted or privatized pieces of the state and public funds for their own purpose. In their thinking, their preferences best summarize our preferences.  There is no public debate over public policy and none is invited.  Dare raise your voice and you are branded a member of the opposition.  Among them are many who could not afford, prior to their election “victory”, regular visits to physicians in Nigeria who now jet overseas every year for “annual medical checkup” while many of the people who elected them into office have no real access to health care because the hospitals and clinics in their domain are without funds or the resources to function effectively.  Without compunction, they donate public money at functions and events as if the money belonged to them.  A good example is the donation of N50 million by the Governor of Rivers State, Dr. Peter Odili, to a secondary school in Anambra State while many schools in his state are nothing but ramshackle shanties.   The Rivers State, that once ultra peaceful state is now ravaged by banditry and gang wars largely as a consequence of government inattention to the needs of the people.

As a result of the fiscal recklessness of the governors, many state governments owe billions of naira in unpaid salaries and pensions and account for a substantial proportion of Nigeria’s foreign debt.  Admittedly, part of the debt of states owes to the subsidies that state governments provide for education and health.  But a state that manages its fiscal affairs well would know that unaffordable and poorly targeted subsidies reduce resources available for growth-promoting and poverty-reducing public spending on infrastructure and public goods and promote rent seeking behaviour among the polity.

The inability of State governments to deliver the minimum of what they are constitutionally mandated to deliver is resulting in a nationwide loss of social capital and collapse in social cohesion. Governments’ inability to create opportunities for all, especially the young, and the crass pursuit of material wealth as the ultimate measure of success led to a persistent erosion of the moral and ethical anchors of our communities.  Our society no longer engenders trust.  There is very little community, not even in our villages.  Informal trust-based networks have all but broken down.  Crime, banditry, prostitution, rape, sexual and child trafficking, and money laundering now characterize our national life.  Economic deprivation is driving young men and women, including our scientists, out of our country.  Each year millions enter the US Diversity Immigrant lottery in the hope of getting a Green Card and waving good-bye to a country that has circumscribed their future.  And each year an uncountable number die trying to sneak into Europe; they do care that their sense of social worth in the countries to which they seek to escape, will be eroded by the color of their skin, the thickness of their accent and their difficult-to-pronounce names.

Fiscal misconduct by our subnational governments contributes to the widespread mistrust of government by the Nigerian people.  Logic would dictate that our people would march in the streets to protest. Instead of protest, people are opting out; erecting huge fences around their properties, entering into membership of questionable religious movements, engaging in risky behaviour, - all indicators of a society that has lost its glue. And having lost hope in our governments and trust in the trustworthiness of our fellow citizens, we have become extremely cynical about government actions.  We have surrendered.  Yet it is our responsibility, the responsibility of each one of us, to check the incompetence and venality of our public officials, not just at the federal level but also at the sub-national levels.  We cannot continue to be cynical because no successful country was built by cynics.

There has generally been a lack of debate in our country about the fiscal policies of state government. The shareholders of a firm as big as any of our state governments will demand regular financial audit of the firm and will be very diligent in the choice of the Chief Executive; they will also care who the Chief Financial Officer is. But we do not care.  We do not question their spending priorities neither do we ask for an account of how they spent our money. It is this lack of interest that has made it possible for state chief executives to act and behave like “Lords of the Manor”. Efforts by the President and his Finance Ministers to encourage Nigerians to begin to interrogate the fiscal conduct of their subnational governments has not yet gained traction.  The decision of the FMoF to publish each month revenues received by the constituent subunits of our federation and to introduce the Fiscal Responsibility Bill have instead drawn flack from Commissioners of Finance of the States. 

The rot and misconduct continue.  Nigeria’s political heavyweights see State and local government politics as reserved for small fries, yet what the states do are likely to be more consequential for their daily lives than what Abuja does.  It is easier to question the much more distant Federal government.  It is more difficult to question state governments – it is too close.  And in the Niger Delta region, where a consciousness forged and nurtured during the Abacha dictatorship has given people a sense of victimhood and where many of are determined to win their fair share of the national cake, many are probably reluctant to question their governments’ use of revenues from the Federation Account for fear that this might erode the region’s exceptional claim of victimhood.

In most states, governors move about with a swagger that US President George Bush would envy, perhaps gloriously unaware that their actions are implicated in and instigate the increase in moral and social vices.  They govern over elaborate conditions that enrich a few, dehumanize the majority, our culture, promote injustice as well as undermine the very foundations of our value system.  They spend the people’s money as if it is theirs. Some among them act as though they are the direct representatives of God on earth: Others, actually think of themselves as gods, infallible and all-knowing who must be worshipped and obeyed.  The political elite coast along, engaged in a game of obsequious deference and shameless obeisance to “leadership”, with the hope and expectation that someday, of some form of reward.

To the extent that state and local government finances are discussed at all in Nigeria it is within the context of reforming the fiscal relationship between the Federal government and state and between the states and local government councils and the system of transfers between the state and federal governments.  And even as the Federal government has embarked on a series of economic and administrative reforms, state governments are yet to rise the challenge.  As a result, there now exist a clear imbalance between fiscal reform efforts at the federal and subnational levels.  The reasons for this are many. States are fettered by capacity problems and there is little if any incentive for our subnational governments to push important fiscal reforms.  Existing incentives do not encourage tax allocation and efficient allocation of public resources. Each month, they are guaranteed at least N1 billion naira from the federation account.

The Federal government should indeed be concerned.  Fiscal misconduct by State governments and Local Government councils are likely to have macro consequences.  The injection of the enormous sums of money into the national economy have potential consequences for efforts to control inflation, bring down interest rates and in general promote macroeconomic stability and growth.  The sustainability of the fragile beginnings of economic recovery that many observers of Nigerian economy have noted thus depends crucially on the fiscal behaviour of our subnational governments. Lack of fiscal prudence at the state and local government distorts incentives, creating a new ethos of anything-goes government.  The efforts of the Independent Corrupt Practices Commission (ICPC) the EFCC, and the Nigerian Image Project are unlikely to succeed if our nation does not tackle fiscal misconduct at the sub-national level.  When people see others benefiting from corruption and lack of accountability, a new norm and ethos of greed and corruption emerges.  Penalties and sanctions must therefore be implemented in order to prevent this.

The federal government must lead the fight against fiscal misconduct in our subnational governments within the limits allowed by our Constitution.  Frequent appeals to the fact that ours is a federation as an excuse for inaction is no longer tenable.  The imposition of a state of emergency reminds us all of the reach of federal power.  Until subnational governments have the proper incentives to introduce expenditure rationalization and budget savings, they are unlikely to promote structural reforms that are complementary to the reforms now being introduced by the Federal government.  The Federal government should pass new legislations and issue new regulations – within the constraints imposed by our constitution - to govern the conduct of state and local government chief executives.  It can also use positive incentives in the form of matching grants and access to international loans to elicit the kind of behaviour it wants from sub-national governments.

Reform of the sub-national governments’ finances and control of fiscal misconduct by their chief executives are jobs that must be done.  Reform of the finances is vital for achieving macro-economic stability, improving the efficiency and accountability of government and enhancing incentives for subnational governments to vigorously promote economic growth.  States and local government councils can be important engines for growth, if properly harnessed.  At the moment they remain arenas for the contest and distribution of rents and the spoils of office.  Control of fiscal misconduct is imperative for recapturing the moral essence of our people.

State legislatures, indigenous institutions, religious groups, the intelligentsia, the media, the political elite, all of us citizens must become actively engaged in a crusade to stem fiscal misconduct at our sub-national levels.  We must demand good governance because if we don’t, our human condition and the human condition of those yet to be born is unlikely to improve.  And we, all of us, and our great country, will remain the butt of jokes across the world.  We must demand change.  Unless we have no shame and no sense of self-worth.

The writer has a PhD in Economics and has been a long time campaigner for progressive change in Nigeria.  He was the initiator of The Clemency Campaign – a US-based group that campaigned against the conviction of those alleged to have been involved in a coup to overthrow the Abacha junta; He was also the initiator of the Nigeria Meningitis Appeal Fund, (NMAF, Inc). a US-based non-profit that mobilized funds to assist Nigerian children in response to the cholera and meningitis outbreak of 1996.  He led a Nigerian delegation to the US Congress (met with Congressman Dennis Kucinich) to protest the activities of US oil companies – notably Chevron - operating in Nigeria’s Niger Delta. He also led the Etche America Foundation’s campaign against Shell BP’s proposed toxic waste facility in Umuakuru, Igbo, Etche.  He can be reached by email at Tchandu@yahoo.com

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