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Ogun State: Working Past Economic Headwinds

State and Local Govts	3840 VIEWS
State and Local Govts
3840 VIEWS

Monday, November 04, 2019 /08.30PM / Teslim Shitta-Bey, Managing Editor/ Header Image Credit: Ecographics

In a Technical Review of Ogun State's Financial Status in April 2019, Proshare noted that the State would need to revise its fiscal strategy to enable it leverage its advantage of location, education and arable landmass. The report noted that with the state's close proximity to Lagos State and its relatively large physical size (80% of the Lagos-Ibadan Expressway passes through the State) and its status as home to the largest number of tertiary institutions in the country, the favourable alchemy of factors working to support the State's aspiration of being Lagos 2.0 should increase its revenue capacity.

In a recent strategic paper analyzing the collaboration between Lagos and Ogun States in respect of a Joint Development Commission, Chairman Proshare Nigeria, Mr. Olufemi Awoyemi, noted that, "The focus on and around trade, investments and industry is guided by three anchors: trade facilitation and agreements, ease of doing business; and the economic growth and well-being of citizens.

The engagement, in fulfilling its natural intent, looked at sovereign governance and productivity around these anchors for these contiguous states. This is a very good prism with which a fit-for-purpose conversation around sub-national productivity and economic well-being can be approached."

Indeed, Ogun States natural inclination would be towards working on the contiguous areas around Lagos State and building integrated urban industrial/housing development frameworks that allows the State jumpstart its Internally Generated Revenue (IGR).

The Lagos 2.0 Initiative

In the report written in April this year titled, "Ogun State; The Debt Trap, Leaning Against The Wind", a number of facts became evident;

The State Government had IGR that was low relative to its potential size, its VAT collections in particular were far below its most efficient possibilities

Table 1 Ogun State Annual IGR 2013-2018 (N'bn)

The States tax collection was relatively low because economic activity was not energized to leverage activities along the contiguous economic zones with Lagos, in places such as Ifo, Shagamu, Agbara, and Otta.
Another challenge the report pointed out was the high cost of governance the State's recurrent spending relative to revenue was inhibiting its release of resource for capital development this was made worse by a high debt to revenue ratio
The structural support facility obtained from the Federal Government to relieve immediate pressure of paying workers salary in 2015/2016 created a huge first line charge on the State's federation account allocation resulting in leaner non-IGR revenue, which in return limited the governments capacity to meet capital project expenditure thereby slowing down critical infrastructural development

Table 2 Ogun State FAAC Allocation 2013 -2018 (N'bn)

The report noted that Ogun State's most viable option for sustained growth was to adopt a Lagos 2.0 economic model that took advantage of the Lagos commercial and Sea Port activities to grow contiguous communities that would generate the revenues needed to expand economic activities in new cities created to service the needs of an increasingly densely populated Lagos State. The model would see massive increase in Ogun States IGR and its VAT collections.
The State's domestic debt profile has escalated since 2013 requiring the government to increase IGR to reduce the fiscal burden while engaging in capital raise to expand infrastructure within the state and improve forward-looking revenues

Table 3 Ogun State Domestic Debt Profile 2013-2018 (N'bn)

A Feel For The Numbers

A few other statistics create some clarity over the state of the Ogun fiscal finances in the last six years, a set of numbers and tables appear below:

Average monthly FAAC Allocation declined steadily over 2013-2018

Table 4 Ogun State Average Monthly FAAC Allocation 2013-2018

Ogun State Debt profile ballooned between 2015 and 2016 as a result of the fiscal bailout it received from the federal government (FGN)

Table 5 Ogun State Debt Profile 2015 and 2016 (N')

A look at Ogun States Expenditure for 2017 exposes the recurrent expenditure challenges the government faces and its prospective annual budget performance

Table 6 Expenditure Review -January-September 2017

Strategic Fiscal Realities

Ogun State is Nigeria's Industrial hub and potentially fastest growing sub-regional economy and largest IGR-generating economic jurisdiction, but as General Gordon R, Sullivan (Retired) of the United States Army noted, "hope is not a method". It does not matter how much potential an economy poses if latent possibilities are not translated into realities through discipled policy execution and governance, it remains pie in the sky. The Ogun State leadership will need to do a number of the following:

Cut down the domestic fiscal debt;
Refinance short-term foreign debt with lower rate foreign instruments (global recession has forced rates down);
Intensify Private Public Partnerships along contiguous economic corridors with Lagos State;
Bring down recurrent expenditure as a proportion of its IGR;
Increase IGR by promoting larger investment activities and building low and medium cost housing estates in partnership with private entities along the contiguous economies with Lagos State;
Optimize the States balance sheet by releasing liquidity where possible and improving results per naira spent on projects and programmes and
Reduce commercial financial exposure of the State's treasury.

The process of bringing about the next phase of a technology-driven, efficient and effective Ogun State government will take time and effort, but the consequences (intended and unintended) in the next decade will redefine the age of fiscal enlightenment and economic wellbeing in the centre piece of Nigeria's industrial heartland.