Ogun State: Working Past Economic Headwinds

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

In aTechnical Review of Ogun State's Financial Status in April 2019, Proshare notedthat the State would need to revise its fiscal strategy to enable it leverageits advantage of location, education and arable landmass. The report noted thatwith the state's close proximity to Lagos State and its relatively largephysical size (80% of the Lagos-Ibadan Expressway passes through the State) andits status as home to the largest number of tertiary institutions in thecountry, the favourable alchemy of factors working to support the State'saspiration of being Lagos 2.0 should increase its revenue capacity.

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

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

Indeed, Ogun States natural inclinationwould be towards working on the contiguous areas around Lagos State andbuilding integrated urban industrial/housing development frameworks that allowsthe 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 AgainstThe Wind", a number of factsbecame evident;

The StateGovernment had IGR that was low relative to its potential size, its VATcollections in particular were far below its most efficient possibilities

Table 1 Ogun State Annual IGR2013-2018 (N'bn)

The States taxcollection was relatively low because economic activity was not energized toleverage activities along the contiguous economic zones with Lagos, in placessuch as Ifo, Shagamu, Agbara, and Otta.
Another challengethe report pointed out was the high cost of governance the State's recurrentspending relative to revenue was inhibiting its release of resource for capitaldevelopment this was made worse by a high debt to revenue ratio
The structuralsupport facility obtained from the Federal Government to relieve immediatepressure of paying workers salary in 2015/2016 created a huge first line chargeon the State's federation account allocation resulting in leaner non-IGRrevenue, which in return limited the governments capacity to meet capital projectexpenditure thereby slowing down critical infrastructural development

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

The report notedthat Ogun State's most viable option for sustained growth was to adopt a Lagos2.0 economic model that took advantage of the Lagos commercial and Sea Portactivities to grow contiguous communities that would generate the revenuesneeded to expand economic activities in new cities created to service the needsof an increasingly densely populated Lagos State. The model would see massiveincrease in Ogun States IGR and its VAT collections.
The State'sdomestic debt profile has escalated since 2013 requiring the government toincrease IGR to reduce the fiscal burden while engaging in capital raise toexpand 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

Afew other statistics create some clarity over the state of the Ogun fiscalfinances in the last six years, a set of numbers and tables appear below:

Average monthlyFAAC Allocation declined steadily over 2013-2018

Table 4 Ogun StateAverage Monthly FAAC Allocation 2013-2018

Ogun State Debtprofile ballooned between 2015 and 2016 as a result of the fiscal bailout itreceived from the federal government (FGN)

Table 5 OgunState Debt Profile 2015 and 2016 (N')

Alook at Ogun States Expenditure for 2017 exposes the recurrent expenditurechallenges the government faces and its prospective annual budget performance

Table 6 Expenditure Review-January-September 2017

Strategic Fiscal Realities

Ogun State isNigeria's Industrial hub and potentially fastest growing sub-regional economyand 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 aneconomy poses if latent possibilities are not translated into realities throughdiscipled policy execution and governance, it remains pie in the sky. The OgunState leadership will need to do a number of the following:

Cut down the domestic fiscal debt;
Refinance short-term foreign debt with lower rateforeign instruments (global recession has forced rates down);
Intensify Private Public Partnerships along contiguouseconomic corridors with Lagos State;
Bring down recurrent expenditure as a proportion ofits IGR;
Increase IGR by promoting larger investment activitiesand building low and medium cost housing estates in partnership with privateentities along the contiguous economies with Lagos State;
Optimize the States balance sheet by releasingliquidity where possible and improving results per naira spent on projects andprogrammes and
Reduce commercial financial exposure of the State'streasury.

The process of bringingabout the next phase of a technology-driven, efficient and effective Ogun Stategovernment will take time and effort, but the consequences (intended andunintended) in the next decade will redefine the age of fiscal enlightenmentand economic wellbeing in the centre piece of Nigeria's industrial heartland.