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EL-RUFAI ON FRIDAY

Lagos - Sound Government, Sensible Budget

In continuation of our focus on state budgets’ with a view to analyzing their viability, fiscal prudence and accountability to citizens, the spotlight this week is on Lagos. Lagos state is one of the 13 states in the country which have presented a fiscal responsibility bill to the state House of Assembly, but unlike some states which have enacted the law and barely implemented it, Lagos State exhibits a high level of transparency and accountability in its budget presentation which is detailed and available on the Lagos State Government’s website.

Lagos State was created on May 27, 1967 by virtue of State (Creation and Transitional Provisions) Decree No. 14 of 1967, which restructured Nigeria’s Federation into 12 states. Prior to this, Lagos Municipality had been administered by the Federal Government through the Ministry of Lagos Affairs as regional authority, while Lagos City Council (LCC) governed the City of Lagos. The metropolitan areas (Colony Province) of Ikeja, Agege, Mushin, Ikorodu, Epe and Badagry were administered by the old Western Region. The State took off as an administrative entity on April 11, 1968 with Lagos Island serving the dual role of being the State and Federal Capital. However, with the creation of the Federal Capital Territory of Abuja in 1976, Lagos Island ceased to be the capital of the State which was then moved to Ikeja. With the formal relocation of the seat of the Federal Government to Abuja on 12 December 1991, Lagos Island ceased to be Nigeria’s administrative capital.

Mobolaji Johnson was the first Governor of the state; however Alhaji Lateef Jakande was the first elected Governor of the state who served from October 1979 to December 1983 under the Unity Party of Nigeria (UPN). More recent and significant Governors of Lagos are Buba Marwa (1996-1999), Bola Tinubu (1999-2007) and Babatunde Fashola who was elected in 2007.

Babatunde Fashola is a lawyer by profession who excelled in his professional career which spanned over a decade and a half leading to his recognition as a Senior Advocate of Nigeria. In 1999, he joined the public service and served in various capacities with the Lagos State Government until his rise to the position of Chief of Staff to Governor Bola Tinubu. In his first four years in office, marked improvements were noted within the state - the cleanliness of the metropolis which residents and visitors could attest to, improvements in roads and traffic within the state, improved transportation systems with the introduction of BRT and ferry services across the state - Fashola is without doubt, one of the few “performing” governors in the country and it must be credited to Tinubu that politically, his succession strategy has worked.

The ground work for most of what is visible today in Lagos was jointly laid by Tinubu and his team including the current governor Fashola. The result is focus and continuity in governance rather than “witch-hunting” of predecessors which has bedeviled other "anointment arrangements". Fashola's comparatively stellar performance in office makes many wonder if professional politicians are best suited to deliver on the difficult job of good governance!

Lagos is the most populous state in Nigeria with over five per cent of the national population estimate. Ironically, it is the smallest state in terms of land mass; the state has an area of 356,861 hectares of which 75,755 hectares are wetlands. Interestingly, of this population, Metropolitan Lagos, an area covering 37% of the land area of Lagos State is home to over 85% of the State population making it a densely populated state. UN estimates that at its present growth rate, Lagos state will be third largest mega city in the world by 2015 after Tokyo in Japan and Bombay in India, with a population nearing 30 million!

According to the World Bank and DFID, Lagos’ 2009 GDP is estimated at N4.163tn. Lagos which is a mega-city is the largest contributor to the national GDP at 18%. Lagos’ GDP ranks 6th after Cairo ($98 billion); Johannesburg ($79 billion); Cape Town ($75 billion). Its GDP equals that of Kenya ($29.5 billion) which has a higher population (30million) than Lagos. Lagos boasts of a higher GDP than Cameroun ($20.6 billion), Cote d’ Ivoire ($19.6 billion) and Ghana ($15.2 billion) which have populations of 19, 21 and 24 million people respectively.

The South-west zone of Nigeria is the most prosperous part of the country. According to National Bureau of Statistics Poverty Profile 2012 which studied poverty incidences nationwide using 2009 and 2010 data, poverty is classified in four categories; absolute poverty (based on daily food intake), relative poverty (determined by household expenditure) and purchasing power parity (dollar per day). 59.1% of the people in the region live above poverty line which is appreciable given the humongous 77.7% in the North-West region that live well below poverty lines. 50.1% of people in the South-West survive on about a dollar a day while only 25.4% are absolutely (food) poor which is impressive compared to other states in the country. Gini coefficients are used to measure income inequalities and in Lagos, a co-efficient of -26.2% indicates a decrease in income inequalities within Lagos State between 2003 and 2010 - something the governors should be proud of! Lagos has the highest percentage in Nigeria (85.4%) of people who can feed themselves. Statistics also indicate that 40.8% of the population in Lagos live above poverty lines. Though there is room for improvement in the poverty indices, it is much better than states like Bauchi and Sokoto where only 16.3% and 13.6% respectively live above poverty lines!

Lagos state is one of the few in the country which has a well detailed and structured budget made available to the public on the state Government’s website which is fully functional. The budgets are properly explained and broken down by the MDAs with expenditures and revenues properly accounted for. Also, the state posts its budget performance reviews online which indicates transparency and accountability in governance. It is ironic that even with the enactment of freedom of information and fiscal responsibility acts, most State Governments still hide their budgets and breakdowns from the citizens of their states and the general public.

In the 2012 budget, there was an increase from the previous years’ budget of N450.8b to N491.9b (9%). The total revenue for 2012 is estimated at N399.8b and impressively, the ordinary revenue (Lagos IGR, other IGR, dedicated revenue, etc.) of the state is N289.7b which is about 73% of total revenue. This is more than double of the N110.2b that Lagos expects from the federation account in 2012. Lagos is therefore not one of the numerous "parastatal states" that cannot pay salaries unless the FAAC meets in Abuja! Compared to some other states whose budgets have grown astronomically with no commensurate growth in IGR, the budget of Lagos state has steadily increased alongside its IGR as shown by an 8% (N262.6b to N289.7b) increase in ordinary revenues between 2011 and 2012. So while the federal government preaches fiscal consolidation without practicing, it is Lagos State that is practicing it without all the noise!

Comparing both years’ budgets, there is a projected increase in ordinary revenue (IGR inclusive) by about N27b between 2011 and 2012. Taking the case study of Bauchi state whose budget was analyzed last week, it’s projected increase in IGR for this year was just N1b! Unlike the case of Bauchi state where the government spends money on maintaining many commissioners and 924 aides that it's IGR cannot support, Lagos State Government has 23 commissioners and 20 Special Advisers, and yet is performing much better. In fact, looking at the revenue earning capacity of Lagos in comparison to many states of the federation is going from one extreme to another.

Capital expenditure for 2012 is N258.3b (53%) while recurrent expenditure is N233.6b (47%) of the total budget. Although the ratio does not meet the best practice of 70% for capital expenditure, it must be acknowledged that Lagos enjoys the dual advantages of limited geographic spread and legacy of inherited federal infrastructure, and therefore does not need as much greenfield infrastructural investments as other rural states. What it needs though is high levels of spending on maintenance and running costs. These are perhaps reflected in the higher recurrent portions of the budget.

The government, in 2012 increased its recurrent expenditures on education from N28.4b in 2011 to N35.4b and justifiably too as there has been continuous increase in both volumes and pass rates of SSCE candidates from Lagos. The number of candidates who obtained five credits in WASCE including English and Mathematics has improved from a miserable 7.58% in 2007 to an impressive 21.11% in 2010.The 2010 National Literacy Survey also shows that Lagos has the highest literacy rate in any language. Increased allocation of funds to this sector is definitely a commendable step in the right direction.

The environmental sub-sector of Lagos state which receives about 6% of the overall budget allocation, recorded a huge leap from the N335m revenue generated in 2011 to projected N2b in 2012. This is one sector which the residents of Lagos have felt a visible difference. There was a slight increase in health allocation from N32.9b in 2011 to N33.3b in 2012. In spite of the increase, the health sector is expected to double its revenue from N393m to N655m. Works and Infrastructure received 18% (N88.1b) of the budget reflecting investments to address existing infrastructure deficits. The transportation sector however, dropped in projected revenue by about N400m whereas its budgetary allocation increased by about 11% for the same reason.

The personnel cost budget for the entire Lagos State government for 2012 is about N81.6b. This is less than one third of its IGR and less than 5% of the federal governments (N1,600b) staff costs, yet many would say that Lagos runs better than Nigeria these days. Departments such as lands, environmental protection, works and infrastructure, transportation, and even the judiciary earn sufficient revenues to cover their personnel costs. In fact, the lands department earns enough to cover all its recurrent expenditures while the state’s Ordinary Revenue (N289.7b) can cover its total recurrent costs (N233.6b) with a surplus of N56.1b. That is how a federating unit's finances should be!

In year 2011, Lagos State High Courts alone made revenues of about N700m and are expected to earn about N1.2b in 2012 which is higher than the IGR of most states of the federation now depending on the Federal Government for monthly handouts. The lesson and experience of Lagos is this - each MDA is a revenue as well as a cost centre. Each government department that offers services charges some fees to cover all or part of the cost of the service. That is how to run a department, state, or country! My admiration for the business-like way Lagos is run is clear by now.

Lagos is only state in the country which can survive solely on its incomes from taxation. However according to the World Bank Doing Business rankings 2010, the state was ranked 25th out of 37 in Nigeria in terms of ease of doing business. Lagos is not an agrarian state, neither is it endowed with any mineral resources. It is therefore disturbing that despite the huge amount of private sector investment and potential, the business environment is far from friendly. The authorities need to create a thriving environment for businesses in Lagos especially since taxes and land charges are the major source of fiscal sustenance of the state.

All our states should learn lessons from Lagos not only in the areas of budget transparency but fiscal independence from Abuja, delivery of public services, investment in education and even governance succession. With these outlier qualities, it is not surprising that Lagos is run by a party other than the PDP of today!