Only one of Nigeria’s 36 states was represented at the 2023 Africa Investment Forum in Marrakech, Morocco. No prizes for guessing the state whose governor was at the event courting private capital for mega projects from a Hollywood-type film city to an ambitious airport that will serve the entire West Africa.
That only Lagos State, the richest of the lot and least dependent on federal handouts, was the only one that had projects that needed financing from the thousands of global investors that converged at Africa’s premier investment platform is rather shameful.
No less than 18 Nigerian states are in dire financial straits, with internally generated revenue at a record low. But they’ll rather take the easier route of going cap in hand to the federal government for bailout funds to invest in critical infrastructure than design bankable projects that will appeal to investors, quicken the pace of development in their states and create badly-needed jobs for their people.
Perhaps, the governors of these states who live lavish lifestyles are not in need of private capital to quicken the pace of development in their states but the millions of Nigerians whom they represent must feel let down. Their absence at the AIF is no one-off, but the latest of a long list of instances where they are failing to seize opportunities to tap private capital.
To be fair, some state governors had other engagements while the AIF was ongoing. Governor Bala Mohammed of Bauchi State; Governor Dikko Radda of Katsina State and Governor Umar Bago of Niger State were among the Nigerian delegation present with President Bola Tinubu at a meeting in Saudi Arabia.
It’s however unclear if these governors, all of whom are from the northern part of Nigeria, simply took an opportunity to be at the cradle of Islam in Mecca or were there seeking investments in their respective states.
Other governors may have had engagements preventing them from attending the AIF but one of the multitude of investors at the forum said if the governors did have projects that needed private capital they would have sent representatives.
“It’s either they have no projects to pitch or they don’t see the need to be here at all, which would be a great surprise,” the investor who said his firm had invested over $1 billion across Africa since 2018 said.
Since its first edition, the AIF has had a reputation for mobilizing vast sums of capital for big infrastructure projects across the continent.
The $24 bn Liquified Natural Gas Project of Mozambique, the $15.6 bn Lagos-Abidjan Highway, or the $2.6bn Ai SkyTrain in Accra, are all deals that came out of the ‘invitation-only’ boardrooms settled alongside the event.
Four years ago, the AIF helped secure 52 deals worth $40bn in investment. Since then, Dr Adesina and his colleagues – Africa50, Afreximbank, African Finance Corporation, European Investment Bank, Islamic Development Bank, Trade and Development Bank, and the Development Bank of Southern Africa – are on a mission to market the continent’s untapped financial potential to African and international investors.
Nigeria, the most populous country in Africa, boasts a federal system of government with 36 states and the Federal Capital Territory.
However, beneath the surface of this decentralized structure lies a financial quagmire, as many Nigerian states grapple with weak financial health.
A primary contributor to the financial woes of Nigerian states is the persistently low levels of internally generated revenues.
IGR constitutes funds generated by states from taxes, fees, and other revenue sources within their jurisdiction. Unfortunately, many states have struggled to implement effective revenue-generating mechanisms, resulting in a disproportionate dependence on federal allocations.
Several factors contribute to the challenges in boosting IGR. A lack of diversified economic activities, informal economies, and high levels of unemployment hinder the potential for states to generate substantial revenue internally. Additionally, issues such as corruption, inadequate tax administration, and a dearth of investment-friendly policies further compound the problem.
The lack of sufficient IGR means the states are heavily dependent on federal allocations, a trend that has exacerbated their financial fragility.
These allocations, which come from the Federation Account, consist of revenues generated from oil and non-oil sources at the national level. The volatility of oil prices, a key driver of Nigeria’s revenue, leaves states vulnerable to economic shocks.
As seen in the past, fluctuations in oil prices can significantly impact the amount of revenue disbursed to states. During periods of low oil prices, federal allocations decrease, leaving states struggling to meet their financial obligations, including the payment of salaries and the execution of critical developmental projects.
The repercussions of the states’ weak financial health are manifold. They find it challenging to invest in critical sectors such as healthcare, education, and infrastructure, hindering the overall socio-economic development of the regions. Moreover, the inability to pay workers’ salaries and pensions contributes to a cycle of economic downturn, as citizens face financial instability, reducing their purchasing power and affecting local businesses.
“The high level of insecurity in the states also contributes to their unattractiveness to investors,” another investor at the AIF said.
Five charts showing the poor financial health of several states