The past few months have witnessed critical and growing press attention to the crippling insolvency of twenty three of Nigeria’s thirty six state Governments, a situation that became public knowledge after several states had failed to pay workers’ salaries for upwards of six months.
This distress has not discriminated against the States in any discernible pattern- by political party affiliation, geographical location, ethnic composition, etc, the usual culprit factors that political commentators often latch on to. Financial distress as grave as this was last experienced thirty two years ago (in 1983) during the reckless Second Republic government led by President ShehuShagari when most of the then nineteen states of the Nigerian Federation ran their economies aground by depleting the dwindling federal allocations that all had depended on without exception.
The reasons for the 1983 salary crises at the State and Federal levels were: drastic fall in the price of Crude Oil in the international market, profligate spending, and white-elephant projects executed with little attention to financial and schedule discipline, and outright theft of state resources. The states, then as now, were heavily dependent on the tempting but unreliable income from Nigeria’s Oil export, which experiences cyclical glut and price fluctuations with the boom-and-bust cycle of the world economy, a systemic problem only occasionally ameliorated when the shock of war jacks up Oil prices in key oil supply markets.
Ironically, it was MuhammaduBuhari, (President of the APC-led Federal Government), then a serving army General who led the military coup that swept away the foundering democratic regime of President ShehuShagari on the 31st of December, 1983, to the relief of many Nigerians who were tired of the politicians and economic difficulties they plunged the country into. We have returned to that terrible past of insolvency and economic stagnation, with some distinct differences.
The country’s population has more than doubled from 68million people in 1985 to 174million today, while the number of states has also almost doubled as if on a cue. Nigeria is now unique in being perhaps the most over-governed but under-administered territories in the world where most of the wealth is arrested from circulation or cornered by officials past and present, leaving over 50% of the sprawling country’s population illiterate, and over 70% of the population in grinding poverty and governments inefficient and the society in decay. And the country has not managed to construct a viable economic foundation since the 1982/83 crash.
Of the twenty three State governments affected by the salary crisis, Governor Aregbesola’s administration has been singled out for a most severe attention about which Ogbeni (as he is fondly called), has agonised in public and in private. The crisis and its virtual grounding of the State’s economy and the resulting harsh situation have left an overwhelming number of government pay-dependent families without alternative income in serious financial and emotional distress.
The strong feelings brought on by months of waiting for salaries the payment of which government workers had long taken for granted has soured the governor’s once excellent relations with labour in the state; however, the generality of the citizenry has shown understanding for Aregbesola’s predicament and still support him. All that will help now is rescue by every means available.
No argument, no matter how logical, will assuage the strong feelings of workers who find themselves stranded and helpless ‘for no fault of theirs’. The Federal government’s immediate financial rescue can forestallturning workers’ frustration into open antagonism, the possibility ofsuch an outcome is being constantly explored by the OsunPDP‘s warlord politicians who are stoking civil conflict with all manners of provocative publications and discredited allegations.
The situation has created a feasting frenzy for faceless hack writers, paid jobbers and ‘critics’ of Governor Aregbesola who churn out damning commentary based on inaccurate data and ill-educated, and coloured observations about the State government’s policies and thestate of things in OsunAregbesola’s often brilliant and biting insights on the political-economic state of Nigeria and his hard extempore jibes unsettle many without a doubt, and they want a pound of his flesh.
Some of the anti-Aregbe opinionates may benefit from informed responses so that the reading public is not misled by the critics’ biases. We are in a season when contract writers resurrect once dead journals for tempting profits in the spirit of capitalistic amoral adventurism, when the sworn enemies of labour and do-gooders primed in the art of exploitation of the disadvantaged swear by mammon that they love the Osun government workers more than Ogbeni, because of this salary palaver.
One reason that Aregbe has been singled out for this hash treatment is because he is seen as the arrow-head of the ‘APC Change Movement’. I ask the critics to not forget thatthe salary payment default contagion actually involves twenty three state governments or nearly two-thirds of the States, as well as the Federal Government of Nigeria, and more States will likely follow unless some drastic measures are taken now to increase available resources, expand government’s revenue base, cut wages, or lay-off workers, or do all four. I shall argue here for the option of shifting or transfer of labour to sectors where they are most needed.
All of these four actions may in fact be needed to get States out of the logjam. It should be borne in mind that Nigeria is a free enterprise mixed economy, and no question about it, at some point we must take that bitter pill.
The wide-spread nature of the salary default tells us that something fundamental is amiss; it is not enough to make a bogeyman out ofAregbesola, whose strength of character and uncommon political vision and coherent theory of governance are only matched in this dispensation by another Comrade, Adams Oshiomhole, Governor of Edo, with some distinct differences. This is not a coincidence but the result of their backgrounds, deep self-learning and immersion for decades in practical matters of delivering public goods. This is what informs the level of social consciousness and astuteness noticeable in their governance styles and their ability to mobilize public opinion with ease. These are the formidable huddles that desperadoes who want to bring Aregbe down face. It is an aberration to pretend to govern a people without passion or a coherent theory. (I shall come back to this point later).
Causes of the 2015 salary default backlog in Osun
•Drastic drop in funds allocated to States from the FederationAccounts
•Direct impact of the 2011 across-the-board pay rise for Government workers
•Large investments in economic infrastructure and social services
•Effects of the brutal 2014 Osun Governorship electioneering
All of the above factors have combined to create the backlog of unpaid salaries and the general lack of development in most of Nigeria’s states. Aregbesola, easily one of the most communicative State governors in Nigeria, has taken the pain to explain over and over again that the seeds of today’s problem were sown by the astronomic rise in the wage bill due to the compulsory implementation of the new minimum wage set by the federal government in January, 2011, barely two months intohis administration. Osun government employees had insisted at the time on an across-the-board wage increase to reflect the newN18, 000minimum wage, and to drive home their demand theyembarked on a crippling strike action that lasted for several months.
The new government of Aregbesola, compelled to accede to the across-the-board pay rise had lamented that the increase meant that its financial burden rose by three hundred per cent (from N1.4billion toN3.5billion per month!) and that this was unsustainable and would have consequences sometime in the future for the state’s development. But nobody listened or took him seriously.
Late in 2013, there was a sudden drop in funds allocated to the State from Federation Accounts beyond all rational expectationswith the situation becoming worse in 2014.But Nigeria earned $92.752b as excess crude revenue from January to December 2014 (from crude oil sold above the Government’s budget reference price of $65 per barrel),a contradiction of the reason for the drop in allocation.
The cut in allocation made it virtually impossible to fund or sustain government’s commitments. Another factor is the relatively low level of internally generated revenue of the State government, which had actually doubled from N600million in 2011 to N1.2billion per month in 2013. It should be noted that Aregbesola was elected with a mandate to implement major social and infrastructural change in the State as enunciated his green book- “My Pact with the People of Osun” and was duty-bound to fulfill this mandate in best interest of the State.
Aregbesola’s Osun development blueprint and strategy
The Aregbesola administration came in with an Agenda styled the Six-Point Integral Action Plan designed to banish poverty, unemployment and hunger, and restore communal peace and progress and finally to promote functional education as the bases upon which to build a thriving society in Osun.
Bearing in mind that without a strategic initiative to increase its limited IGR,Osun would remain a rural backwater state continuing along the well-worn path of arrested its development, government embarked on a major change project. This involved new infrastructure at various levels, agricultural development and provision of social services and employment generation as the means of building a viable alternative economic base in Osun in place of going cap in hand to Abuja every month.
With the understanding that providing an attractive environment and the right tools for human capacity development will aid productivity improvement, the Aregbesola government pursued key projects and programmeswith three to five-year horizons toward this end.
These have laid astrong foundation for sustainable development in Osun, a notable departurefrom the entrenched preference for short-term goals and high recurrent expenditure of the past.Of course, major infrastructure projects absorb a lot of finance and they do not yield direct revenue to the state’s coffers in the short term, but they impact economic activities far into the future by attracting investors to the state.
A state enjoys a sub-sovereign status as a going concern with longevity, like a nation, and it makes sense to embark on infrastructure development early because inflation is ever on the move, and if one delays, project cost doubles within eight years with inflation at 10% per annum; time makes all the difference.
The quality of infrastructure and efficiency of the services it renders are the keys to economic development and growth, and through their multiplier and knock-on effects businesses will thrive and government’s tax revenue will grow.
The bitterly fought August 9th 2014 Osun governorship elections
Another factor in the financial crisis in the State was the bitterly fought governorship elections and the strains of campaign expenditure in the face of low level state revenue. It was widely reported that PDP in its determination to wrest power by all means from APC in Osun pumped some N15billion into the elections, giving free Kerosene, Rice and cash for votes. Fifteen billion naira is equivalent to five months’ revenue for the State, and this is approximately the amount which had been cut from the state’s federal allocation between January and July in the months preceding the elections! One can imagine the financial demand that a meaningful, if asymmetrical response to this kind of challenge would have imposed on the APC government. The impractical alternative of folding the arms and resigning to fate in the face of the desperate and overawing onslaught by the irresponsible Osun PDP and the PDP Federal Government could not even be contemplated by a seriousAPC government. Ironically, the group of electorates most courted by the PDP during the electioneeringwasgovernment workers and some had gladly lapped up PDP’S inducement largesse – the consequence of which is today’s predicament for all. PDP had believed that it could exploit workers’ grievances to thwartAregbesola’s re-election as was done to Chief BisiAkande’s second-term election bid in 2003. For this reason, the solution to the salary crisis must include a campaign funds reform, eradication of pervasive poverty, abhorring greed and opportunism (andembracing ethical maturity) on the part of the citizenry so as to prevent the corrupt use of money infuture elections.
To survive,the states must face down their wages overburden
Governor Aregbesola had argued strongly back in 2011 that salaries could not be uniform across the country in a Federation, since no two states had the same quantum of resources or cost of living.
He also argued that salaries should not be adjusted across the board in tandem with the new minimum wagesince doing so would increase the gap between the poorest paid and the highest paid, thus eroding the intent of the pay rise and leading the State into insolvency and as well as stalling the its development projects.
During the emotionally-heated debate on the effects of implementing the new minimum wage by the state, Governor Aregbesola in presenting the difficult choices before the new government and people of the state had made it clear to the Unions that if workers’ emoluments outstripped available revenue, government would have no choice than to retrench workers since it could not borrow perpetually just to pay salaries, whilst neglecting the core reason for having a government.
It was noted that State’s revenue could not fully augment the new wage bill if there was a shortfall in federal allocation. Thus, assuaging workers’ demands for across-the-board wage rise by spending all of the state’s earnings on emoluments means leaving nothing for the future, and trusting the future to chance,postponing the evil day.
The governor had also reminded all back then to bear in mind that the Federal allocation to the state was meant for all of the state’s 3.2million residents (now 3.5million), and not the exclusive entitlement of the 40,000 or so State employees and political appointees. This was not a popular position to take at the time, but it was, and still is the plain truth.It was decided instead to work harder to generate more internal revenue for the State, until it could not cope in the months before the August 9th, 2014 governorship elections, and ever since, things have remained difficult.
the euphoria of better pay for as long as it lasted from 2011 to 2013, but it was not long after that the Federation accounts allocation to Osun dropped dramatically from a high of N5billion (Five billion naira) in 2012, to as low as N400m (Four hundred million naira) per month in April 2015. With this, the salary crisis had become an emergency: workers could no longer be paid, and the banks which had been extending credit to government to bridge the ever-widening gap in its obligations stopped extending credit to the State. This effectively brought all activities, including on-going capital projects in the state to a halt. As things stand now, the State’s entire Federal Allocation is exclusively for the benefit of government and its workers;we are operating an unsustainable welfare state that will sooner anger the excluded 98% of the population who fend for themselves. The States and Federal governments owe collectively close to a trillion naira debts for salaries, pensions, bank charges, contractors’ bills, etc without payment of which their economies will remain in a state of paralysis. The injection of cash from the Public Sector through payment of workers’ wages and contractors’ bills provides disposable income that translates intoincome for businesses, traders, transporters, artisans, food vendors, etc, and tax revenue for government. The absence from circulation of this important cash for over six months is deeply felt in the local economy. The cash –flow of a modern State ought not to be so tied to one risky source; this is not good for the future of labour, government or businesses.
UNDERLYING REASON FOR STATES’ LOW IGR AND FEDERAL DEPENDENCY STATUS
The underlying conditions that triggered 2014/2015 salary crisis are a repeat of the conditions leading up to Nigeria’s economic disaster of 1982 because we have not taken to heart the lessons from that era. Like the federal government, most of the States failed to anticipate and prepare themselves to cope with the scale of the financial down-turn again this time because we found ourselves somewhat insulated from the 2008 financial melt-down in the leading industrial economies. Nigeria’s governments after the First Republic have been propped up with Oil income and government organs have been multiplying like mushrooms in theforest and in effect loss-making ventures where budgets reflect neither true costs nor benefits for the citizens.The inability of Nigeria’s dependent States to generate an impactful level of internal revenue is rooted in the absence of a genuine local economy based on industries that are not tied to Government’s Oil revenue and the importation syndrome. Industry is the biggest source of IGR in a normal developing economy.Nigeria’s so-called neo-liberal macro-economic policy centred on importation of foreign goods (in effect exporting Nigerianjobs abroad), and entrenchment of inefficient municipal services, corruption, etc, are all leading to de-industrialization and ever deeperdependency and underdevelopment.This is the result of Nigeria’s so-called development strategy: import substitution turned to import dependency and trickle-down development. If Nigeria’s fortune is to change for the better, this recession gives us the opportunity to confront the realities of our weak and shallow economy. States’ lack of sizeable internal revenue is an indictment of Nigeria’s lopsided federalism whereby the states are mere adjuncts incapable of making any fundamental changes to macro-economic policy, and this makes both State and Federal Governments weak and vulnerable to manipulation by foreign interests. The states are guilty of fickleness, juvenile dependency behaviour and lack of creativity, intuitive initiative and the discipline to follow through good ideas for the longer term benefit of their people because of bad politics- the right things never get done out of fear of losing an election, an all-too-real fear. The great diversity of Nigerian States, cultures and climatic conditions, the bases of complementarity and means of positive competition, two critical ingredients for national economic virility and success have remained unharnessed. This makes Nigeria hostage to a neo-colonial and subordinate mindset of waiting for ‘ideas from abroad’ in a world of developmental competition anchored by a strong sense of national identity, initiative and creativity.
It is time to formulate a thorough-going economic strategy for the country and its component regions with which we can build without further delay a lasting foundation for a vibrant economy and finally change the culture of entitlement and sharing of booty that has become ‘Public Service’ in Nigeria. For example, why should Federal allocation be for payment of government salaries? Federal allocation belongs to the entire population of a state and should be invested primarily in capital formation projects and activities, such as critical infrastructure and direct business opportunities that enhance growth, create jobs and expand revenue), thus enabling the economy of a state to grow. When contractors handling visible construction works that help to create a future for the children of today’s government workers don’t get paid, their workers don’t get paid. Let us treat all workers equally, government and contractors’. A State’s government’s workforce should be paid from the state’s internally generated revenue, and thisshould in turn determine the size of the workforce. No business employs more workers than it can reasonably pay from its earnings, not from donations. We are not in a war-torn zone where disruption of normal life makes charitable donations the only lifeline available. It should be mandatory for government to pay its employees based on performance as it is done in the rest of the economy,rather than continue in the indulgence that is ruining many lives unknown to most of them.
The high cost of generating alternative power with diesel-electric sets has forced many manufacturing companies to move their operations outside of Nigeria while manufactured goods are smuggled in. It is such that even IT and mobile telephone service companies touted as models of growth now prefer to locate their core activities in territories with dependable and cheap power supply. Another serious problem is extortion and collusion by government agents and officials who facilitate the exporting of capital that is badly needed for development at home. The number of manufacturing companies in an economy that is the biggest consumer of imported goods in Africa is not unexpectedly small for all these reasons. Until there is a change from this economic policy and the negative operating environment, Nigerian states will continue to generate very low levels of IGR and attract only a handful of desperate ‘businessmen’, not genuine investors and manufacturers. A trickle-down economy works like the filter blocking the passage of the solidsin a stream (such as targeted investmentsin resource utility maximization and talent development) the building blocks of a production and manufacturing economy; this means thatthe pivot on which our IGR hope hingeswill be built only when we have a different kind of development policy.States’ IGR breakdown shows that they are dictated by Nigeria’s importation-centred economic policy which kills industries and bloats up the bureaucracy- the reasons why the States are unable to grow their IGR substantially. The absence of industries has meant that most of the states depend on Government workers’ PAYE tax for fully 50% of their IGR, a great irony whose meaning is better understood now that government is unable to pay its workers. It is an absurd kind of economy. Other sources such as licensing fees (vehicles, radio, TV, etc), real estate land charges, tenement rates, markets rates and rents, and the least of these, Private Sector small businesses’ taxes, (including PAYE) in a healthy and diverse economy should be contributing at least 60% of the IGR.A few states Lagos, Anambra and Osunhave managed to invest in construction and industrial manufacturing ventures. Anambra has no debts primarily because the state under Governor Peter Obi failed to embark on any long-term vision-driven project, typical of a former banker who fearsto take the pill they shove down the throat of borrowers. But the future will come sooner and Anambra will find itself ill-prepared to deal with its infrastructural bottlenecks.Infrastructure-led development, investing in Agriculture,industrial entrepreneurship and human capital development and tools, not patching up what we have today, are the keys to long-term competitiveness.