Are States Really on the Verge of Bankruptcy

PeeCeeJay

Are States Really on the Verge of Bankruptcy?

Jideofor Adibe

That most of the States in the country depend on the monthly allocations from the Federation Account for even their recurrent expenditures is an old story. This dependence sharpened as the number of states ballooned from 19 in 1976 to 21 states in 1987; 30 in 1991 and 36 in 1996. It therefore did not come as a surprise when Senator Olubunmi Adetunmbi, in a motion entitled ‘Looming danger of bankruptcy in states: the need for fiscal evaluation’, declared that most of the 36 states in the federation are in dire financial straits. The Senator said he based his conclusions on the Nigerian Governors’ Forum’s (NGF) Labour Policy Report 2011 which found that only Abia, Akwa Ibom, Anambra and Jigawa are in good financial health. The Report further categorised Kano, Sokoto, Niger, Zamfara and Osun as being in distress while Ekiti, Plateau, Benue, Edo, Borno, Adamawa, Cross Rivers, Enugu, Taraba, Ogun, Kogi, Yobe, Ebonyi, Ondo and Kaduna are classified as being in a critical state; Oyo, Bauchi, Bayelsa, Nasarawa, Gombe and Rivers are categorised as unhealthy while Kwara, Lagos, Imo, Kebbi and Delta are said to be in ‘tolerable’ state.

Several issues are raised by Senator Adetunmbi’s motion:

One, while I have always believed that the current revenue allocation formula is unfair to the States, I feel that Senator Adetunmbi’s motion smacks of PR work for the Governors who have always been agitating for more money from the Federation Account using every available opportunity such as the newly introduced Minimum Wage. There is of course nothing wrong in this. In fact in the definition of politics as the ‘authoritative allocation of values’, you do as much as you can to bring the most you can to your constituency. In this sense the Governors will be failing in part of their duties if they fail to fight to get the most for their States using every available argument.

The flipside to fighting to get as much as you can for your State however is that it opens you up for scrutiny on how you have managed the resources received. Here most of the Governors will fail the public perception test. In fact, going by Senator Adetunmbi’s figures and the data from the Ministry of Finance on the net amount accruing to the States from the Federation Account in September 2011 (and shared in October 2011), the problem of the Governors does not appear to be money. For instance Rivers State which has the second largest receipt from the Federation Account after Akwa Ibom at N16,523,005,723.01 and Bayelsa which received a whopping N11,372,846,367.92 were among the States classified as unhealthy. On the other hand the four States said to be healthy - Abia, Akwa Ibom, Anambra and Jigawa, had net receipts of N2,874,893,833.59, N16,970,763,778.24, N3,594,187,407.11 and N3,858,431,759.41 respectively. Similarly Delta which received N15, 800,700,940.40 and Lagos which by virtue of its location has a huge income from Internally Generated Revenues were classified as being in ‘tolerable’ financial state. Ironically of the ‘rich oil States’, only Akwa Ibom is certified to be in good health, while Jigawa which received about one-eighth of what Rivers and Delta received, made the list of States certified to be in good health. The conclusion from this therefore is that there is no correlation between the amount of money available to a State and its financial health. This therefore defeats the argument that increasing the allocation to the States will save them from the alleged threat of bankruptcy.

Two, the notion that the States are on the brink of ‘bankruptcy’ is a misnomer. ‘Bankruptcy’ simply denotes the legal status of a person or organisation which cannot repay the debts owed to its creditors. In most jurisdictions it is imposed by a court order, often initiated by the debtor. Nigerian States as units of the Nigerian federation are not bankrupt and cannot, technically speaking, be bankrupt since it is impossible to liquidate them or put them under administration as one can do with a company or an organisation. In fact their external debts are guaranteed by the federal government. The cash flows to the States are also guaranteed for as long as the Constitutional provision that empowers them to partake in the monthly sharing from the Federation Account subsists.

Three, a major argument against the current 36-state system is not over fear of bankruptcy but over their viability. Ideally States should be able to meet their recurrent expenditures from internally generated revenues while allocations from the Federation Account should be invested in capital projects. If this parameter is used to determine the viability of States, even the States said to be in good financial health by Senator Adetunmbi will fail the test because with the possible exception of two or three States, virtually all the other States use more than 70 percent of their total revenue (including the allocations from the Federation Account) for recurrent expenditures, leaving very little, if any, for investment in development projects. To put it in perspective, if we had just 18 States in the country, of the N177,666,426,671.65 shared to the 36 states and the FCT in September, at least half of this huge sum would be available for investment in development projects. And this huge sum is just for one month! Add to this what would be additionally saved from the reduction in the number of Senators, Members of House of Representatives and Ministers – because our Constitution demands that each state will have three Senators, a certain number of Members of the HOR and at least a Minister. Increasing allocations to the States will therefore, at best, be a palliative measure. A fundamental question remains on whether we really need 36 States. India with a population of about 1.21 billion people has only 28 States.

Between Arik Air and British Airways

The recent spat between Arik Air and British Airways over landing slots, has dominated the headlines. According to the story – mostly the Arik version of it - under the Bilateral Air Services Agreement (BASA) between Nigeria and UK, each country was given 21 frequencies or landing slots a week. British Airways and Virgin Atlantic utilise the British slots, (British Airways uses seven slots each on both the Abuja and the Lagos routes) while Arik was allotted seven slots on the Lagos to London Heathrow route and five on the Abuja –London Heathrow route by the Nigerian authorities.

Arik claims that while the British Authorities allocated seven slots to it in the Lagos-London Heathrow route, it refused to issue slots in the Abuja-London Heathrow routes on the grounds that there were no more slots available. Arik further claims that it complained to the then Minister of Aviation Babatunde Omotoba on May 19 2009 who assured them that the issue would be resolved within six months and advised the company to lease slots temporarily from BMI, a subsidiary of Lufthansa, which it did at the cost of £60,000 per month. Arik Air claims that after the six months’ lease, it again approached UK authorities for the allocation of slots but was told there were no more slots available. Meanwhile BMI from where it bought slots for six months increased the price of the slots from £60,000 to £90,000 a month before finally telling them that the slots were no longer available and that its current lease would cease to be effective from October 27, 2011, meaning that from that date it would no longer be able to fly from Abuja to London Heathrow.

Following the complaints from Arik, which suspected connivance between UK authorities and rival British Airways, the federal government reduced the number of slots to British Airways on that route from seven to three. The Senate has since backed the decision. Nigeria and the UK have reportedly begun talks on how to resolve the impasse.

The government must be commended for patriotically and promptly coming out on the side of a local company. True, most of our airlines, including Arik Air, are hamstrung by debts, poor funding and relatively poor services. But these cannot obviate the fact that it is the duty of the government to help its companies involved in trans-border transactions to overcome barriers to entry into foreign markets – just as many Western governments use non-tariff barriers to shield their local companies from foreign competition. If our companies are helped to overcome the barriers to entering a foreign market, they will make more money, which will help them to improve both their competitiveness and the quality of services they provide – not to talk of the jobs they will create in the process.

Corrigenda

In my last week’s piece, ‘That Peace May reign in Jos’ I erroneously stated that the Kaduna crisis took place in 1998 rather than 2000. I also wrongly referred to former Governor Makarfi as a sitting Senator. The errors are regretted.