Enhancing IGR through capacity building – The Enugu State initiative

By Uche Onwuegbu
If you take a look at the 2016 budgets of state governments across the federation, you cannot but be moved by the bandwagon drive for internally generated revenue (IGR). Revenue allocations from the federation account are projected to drop across the board with the continuing fall in crude oil prices and export revenue this year. Consequently, internally generated revenue budgets look quite ambitious in the 2016 budgets of most state governments.

The increased dependence on IGR against the existing lean capacity for same raises great concerns that a number of state governments are going about it the wrong way. I have been listening to state governors on this matter and I think that so far, the Enugu State governor, Hon Ifeanyi Ugwuanyi, seems to be applying the fundamental strategy for enhancing IGR - which is first building the capacity for it.

Internally generated revenue is a function of internally increased economic activity.

A good part of government earnings during the period of high oil prices was lost to the free for all, wide scale looting of government treasury and neither federal nor state governments did anything visible to increase the internal economic capacity.

Now that crude oil revenue has dropped, federal and state governments are looking up to the internal economy they failed woefully to empower. This is a case of hoping to reap where they have not sown. Can it succeed? The answer is no! Most of the 2016 budgets are not implementable on the basis of the revenue realities on ground.

What the Enugu State government is doing, I think should set the pace for the whole nation in respect of the subject matter. Over the first six months of the new administration in Enugu State, an unexpected level of capital development has taken place. A number of major infrastructure development projects have been flagged off, which are targeted at opening up new areas of economic and social activities in some areas of the state and increasing the level of commercial activities in other areas. There are some infrastructure developments targeted at boosting tourism in the state and new developments programmes are also being implemented in the agricultural sector.

Capital spending is again getting a big share of aggregate spending in Enugu State in the 2016 budget, accounting for about 49% of the spending vote. Internal economic capacity expansion is on target, as government is desirous of completing on-going urban and rural roads to enhance rapid socio-economic transformation of the entire State. The objective of the government is to make every community in Enugu State accessible by road - which represents the fundamental approach to enhancing IGR.

I will also like other state governors to borrow a leave from Ugwuanyi in his emphasis that IGR approach isn't going to follow a do or die pattern – which now seems to be the order of the day in many states of the federation. Nigerians are already under severe economic stress that they cannot bear any further pressure coming from all forms of new taxes and levies being imposed in the name of IGR.

The Enugu State governor appears to appreciate this which is why he has promised repeatedly that 'it will be pursued in such a manner that it will not inflict much hardship on our people'. He is rather focused on plugging all loopholes for revenue leakages in the state. The strategy also involves streamlining of revenue collection machinery in order to avoid the bitter incidents of multiple payments of fees and levies.

It is a fact that internally generated revenue is getting a capacity building attention in Enugu State and other states of the federation need to follow this good example. This is just the point I am driving at – that the capacity for internally generated revenue needs to be created or enhanced first for it not to be exploitative of the masses that are desperately waiting for any form of government assistance for mere day to day survival.

Internal capacity building in the economy is the right strategy to keep the economy shielded from revenue disappointments such as we are facing now. This is particularly true for a large economy with huge internally reinforcing economic capacity as Nigeria's. Sadly, government failed to invest in building the internal economic capacity while crude oil revenue lasted. Had it done so, it would have created a long chain of multiplier effects capable of sustaining the level of aggregate expenditure across the oil market cycle.

Now that crude oil revenue has collapsed and the country is lacking in internal economic capacity, activating economic recovery and growth has become quite difficult. That does not in any way detract from the critical need for government to engage in stimulatory spending to activate the production-consumption chain. The virtual collapse of these key economic activities is clearly evident in the dismal picture of corporate earnings, as stagnant sales volume and falling profits have set the stock market crumbling.

The job of building internal economic capacity and of stimulating aggregate consumption resides with the government. It may not have the funds to accomplish the task but that does not shift the responsibility. It may resort to borrowing, cutting cost to free new funds or recovering and applying looted funds for the purpose, whichever is feasible. This is where ingenuity in governance comes into play.

To rightly govern any economy in the present time demands more of pragmatism than the application of the rule book.

The worst that governments will do at this time is to squeeze the masses in the name of boosting IGR and using same to sustain the bogus administrative machinery we have in place. That, of course cannot be sustained, as the internal economic capacity continues to decline.

Only governments able to increase the internal capacity for IGR may be able to stand when the heat of the simmering revenue crisis soon gets to the flashpoint.

Onwuegbu, a public affairs commentator, writes from Abuja.