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Yes, Oyo state’s own funds grew as governor claimed – here’s why this matters for Nigeria

Responding to a political rival, governor Seyi Makinde claimed his administration increased the state’s purse by billions in internally generated revenue. This is largely correct, but it’s not the full story.

This article is more than 2 years old

  • The numbers from NBS largely back up the governor’s claim, though since he was sworn in, in 2019, a quarter-to-quarter comparison shows growth of closer to N11.7 billion.

  • The state’s internally generated revenue has been growing since 2015, four years before he took office, with the biggest growth between 2019 and 2020, for which the governor can take credit.

  • While this is a positive development, Oyo state is still heavily indebted and in 2019 two-thirds of its revenue was from the federal government.

The governor of Oyo state in southwestern Nigeria recently defended his revenue record after a rival took aim at it. 

In June 2021, Bayo Adelabu, a former top central-bank official, said the state’s internal finances had increased by only N300 million (about US$730,000) since governor Seyi Makinde took office. 

Makinde responded that it was far more than that.

“Within the first two years, we increased internally generated revenue by close to N15 billion,” his office said in a statement posted on Facebook. This works out to N625 million monthly, or twice as much as Adelabu’s figure.

Makinde defeated Adelabu in a March 2019 election to become Oyo governor. 

Nigeria’s low revenue collection is of public concern, but is the governor bucking the trend?

Pillar of revenue within state control

This claim was flagged by Africa Check’s artificial intelligence tool, which identifies claims of public interest for fact-checking.

Internally generated revenue is defined as what states earn, independent of the funds they receive from the federal government.

“Internally generated revenue is one of the three major pillars of revenue that state governments rest on in Nigeria,” Johnson Chukwu, the managing director of Cowry Asset Management, a Lagos-based investment banking firm, told Africa Check.

The other pillars are federal allocation and grants from either multilateral or bilateral agencies. 

“While the state governments cannot influence what they get as federal allocation, they can influence what they earn internally and that is why this revenue is important because it is within their control,” Chukwu said.

What do the numbers show?

States generate their own revenue in a number of ways, according to the National Bureau of Statistics (NBS). These include money that comes in through their ministries, departments and agencies, as well as pay-as-you-earn and road taxes.

Other sources are levies, such as on market traders and land, lottery and gaming fees.

NBS data shows Oyo’s internally generated revenue in 2020 was N38 billion ($92.7 million), the seventh-highest of the country’s 36 states and the federal capital, Abuja.

This grew from N26.8 billion ($65.1 million) in 2019, and from N24.6 billion ($60 million) in 2018.

The governor’s “close to 15 billion” claim appears to be the difference – N13.4 billion – between revenue in 2020 and 2018. 

The Oyo state board of internal revenue told Africa Check that figures for 2021 are not yet public. The NBS is scheduled to release internally generated revenue data for the first half of the year in November.

Quarter-on-quarter comparison since Makinde took office less charitable

Makinde took office in May 2019, a month before the end of the year’s second quarter. The ex-central bank governor’s claim was made in June 2021. 

A quarter-on-quarter comparison of NBS data shows the governor’s administration grew internally generated income by N11.7 billion, at least N3 billion short of the claim.

Independent data shows the state’s growth of internally generated revenue began in 2015, when it was at N15 billion. But the biggest annual growth jump since, of 42%, came in 2020, compared to 8.6% the year before.

Isaac Nwaogwugwu is a senior lecturer at the University of Lagos and a public sector economist. He told Africa Check the governor’s growth of internal revenue could be calculated on either an annual or a quarterly basis. 

But this was “mere statistics”, the economist said. “It conveys little or no concrete information. It's simply mechanical.” 

As it was “obvious” from the numbers that the governor was growing this pie, the focus should be on what the governor had done differently to get these results, Nwaogwugwu said.

“Has he increased the tax base? Has he brought some people within the tax net? Could it be just a more aggressive approach?“

More people taxed, claims governor’s office

In its statement, the governor’s office said it had grown internal revenue by bringing more people into the tax net rather than by raising taxes.

Vahyala Kwaga is a policy analyst with BudgIT Foundation, a Lagos-based civic organisation that works to simplify the budget and matters of public spending for citizens. 

He told Africa Check that increase in a state’s internal funds could mean it is efficient at collecting them or in creating a business environment that allows for more revenue generation. It could also mean that its residents are more productive and are earning more.

“However, internally generated revenue growth must be placed in the proper perspective: it ought to accompany a simultaneous reduction in overreliance on federal allocations as a major portion of its revenue,” said Kwaga.

The bigger picture is, however, markedly different

Johnson Chukwu, the managing director of Cowry Asset Management, a Lagos-based investment banking firm, told Africa Check a state could only be considered economically viable if it were able to operate independent of allocations from the federal government.

Vahyala Kwaga is a policy analyst with BudgIT Foundation, a Lagos-based civic organisation that works to simplify the budget and public spending for citizens.

He told Africa Check an improved internally generated revenue base provides stability and certainty to states, adding that states competing to grow this revenue was ideal as the financial health benefits went beyond just the state.

BudgIT publishes an annual index of the fiscal health of states in Nigeria. It measures indicators such as a state’s ability to meet recurrent expenditure like salary payments, without resorting to borrowing. 

Its 2020 report, the most recent, found Oyo state’s finances to be “grossly inadequate” to meet its needs. For example, in 2019, two-thirds of the state’s revenue was from the federal government, while the state was the country’s 17th most indebted. Further, in that year 80% of earnings went to recurring bills.

“Despite its performance in growing its internally generated revenue, Oyo state is certainly not doing as well as it could in relation to that growth alongside its recurrent expenditure,” said Kwaga.

The organisation’s next report, which it expects to release later in September 2021, should provide more clarity about the state.

Conclusion: Oyo state has grown its own funds but it still struggles fiscally

Seyi Makinde, the governor of Nigeria’s Oyo state, said the state’s internally generated revenues had grown by close to N15 billion since he assumed office in May 2019.

Data shows that while this revenue has been growing since 2015, four years before he took office, the fastest increase came under his administration in 2020. 

We therefore rate his claim as mostly correct.

But experts say this is not a cause for celebration as the state still struggles to meet its obligations independent of allocation from the federal government.

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