Elusive Gains of Subsidy Removal in the States

While it is true that the removal of fuel subsidy has led to more revenue for the federal, state, and local governments to share, not only are more Nigerians being driven into poverty, infrastructure still remain deplorable due to the mismanagement of the accrued revenues by the various tiers of government, writes Festus Akanbi

With the removal of petroleum subsidy by President Bola Tinubu in May last year, there were expectations that the Nigerian people would be better for it as the policy would free up financial resources for other sectors of the economy, incentivise domestic refineries to produce more petroleum products and reduce Nigeria’s dependence on imported fuel.

Fuel subsidy removal was also expected to increase employment opportunities, channel funds for the development of critical public infrastructure, reduce the budget deficit, reduce government borrowing, curb corruption associated with fuel subsidy payments, increase competition, reinvigorate domestic refineries and reduce pressure on the exchange rate.

Unfortunately, these expectations appear to have been dashed 11 months after the end of subsidy regime as the exorbitant cost of living brought by the current hike in fuel prices, coupled with the mismanagement of the accrued revenues, has pushed more Nigerians into poverty.

The irony is that the various tiers of government have more to share but the new revenues have regrettably failed to reflect on the people’s quality of life, especially at the states.

Nigerians are worried that the poverty scourge, which took a worsening dimension during President Muhammadu Buhari’s administration is yet to be tamed as the impact of some of the economic policies of the Tinubu’s administration continues to affect Nigerians adversely.

According to PricewaterhouseCoopers, poverty levels are projected to increase to 38.8 per cent in 2024.

At the state level, the degree of inefficiency is greater as conditions of living get worse by the day. Today, only very few states pay the N30,000 minimum wage, while the level of infrastructural developments in many of these states is appalling.

As the unemployment rate rises, so does the crime rate.  Education is at its lowest standard as private schools take shine away from government schools most of which are in a state of disrepair.

With the fuel subsidy removal, the federal government has been able to ensure a drastic increase in the amount of money distributed to all the tiers of government monthly by the Federation Account Allocation Committee (FAAC).

 Residents of the states are however alarmed at the inability of state governments to improve the quality of their deliveries.

For instance, while N860.04 billion was shared among the three tiers of government in March 2023,  the figure rose to N1,123.391 in March 2024.

In April 2023, FAAC disbursed the sum of N872.55 billion to the three tiers, whereas  N786.161 billion was distributed in May of the same year.

However, the three tiers of government began to get bumper packages in June 2023 when the figure rose to N1,134.03 trillion.

According to the Nigeria Extractive Industries Transparency Initiative (NEITI), the removal of subsidy on petrol pushed up the statutory revenue allocations from the Federation Account that were shared by the three tiers of government in 2023 to N10.14 trillion.

Data released by the NEITI on the Federation Account revenue allocations for 2023, showed that the amount shared by the federal, state, and local governments increased by N1.93 trillion last year when compared to what they got in 2022.

In January 2024, the figure was N1.67 trillion, while the amount shared between the three tiers of government almost doubled in February 2024 to N2.07 trillion.

In his comment on the 2023 figures, NEITI’s Executive Secretary, Dr. Ogbonnaya Orji, said a breakdown of the revenue receipts showed that the federal government received N3.99 trillion, representing 39.37 per cent of the total allocation.

The 36 states got N3.585 trillion representing 35.34 per cent, while the 774 local government areas of the federation shared N2.56 trillion equivalent to 25.28 per cent.

The removal of subsidy on petroleum that was expected to take more Nigerians out of poverty and improve infrastructure through higher revenue accrual to both the federal and sub-national governments seems to be ineffective with almost all the states of the federation having very little or nothing to show for the huge revenues that accrued to them since May 29, 2023.

Reports showed that aside from their internally generated revenue that runs into billions of naira, the states received over N5.108 trillion in revenues from FAAC in eight months – from July 2023 (when the proceeds of the subsidy removal started coming in) to February 2024.

The overall revenue of N5.1 trillion received by the states includes the N2.69 trillion that came in directly from the federation account and N1,975,899,000,000 (N1.975 trillion) disbursed to the local governments’ account that is controlled by the state governors and another N441.929 billion as 13 per cent solid minerals derivation revenue shared by some of the states.

While the subsidy removal increased the average monthly disbursement from FAAC to about N1.09 trillion against the previous figure of average of N620 billion, the governors of the states have failed to raise the standard of living and the per capita income of their residents.

At the last count, only about 10 states had started the implementation of the N30,000 labour/government-agreed minimum wage benchmark for public workers. Despite the increase in revenue, most states are yet to implement the old rate even when labour is already demanding an increase of over 200 per cent.

State-by-state share of the allocations showed that Delta State received the largest share of N402.26 billion (gross). The figure is inclusive of the state’s share of oil and gas derivation revenue.

Delta State was followed by Rivers State, which received N398.53 billion. Akwa-Ibom State received the third largest allocation of N293.58 billion. Nasarawa State received the least amount of N73.32 billion, while Ebonyi and Ekiti states received N73.91billion and N74.04billion, respectively.

The first five states that topped the allocation during the period under review are among the major oil-producing states in the country.

On the share of 13 per cent derivation revenue, nine states received the 13 per cent allocated to mineral-producing states from the proceeds from mineral revenue.

The derivation revenue remains a significant portion of revenue for states like Delta, Akwa Ibom, Anambra, and Rivers states. Also, the derivation revenues of states such as Delta, Akwa Ibom, and Bayelsa, which were 161.47 per cent, 141.25 per cent, and 127.89 per cent respectively, eclipsed their statutory revenues.

Rivers State’s derivation revenue was 74.15 per cent during the period. Notably, the other five oil-producing states recorded lesser derivation revenue compared to the four above.

For example, Ondo State had 27.71 per cent, Edo had 30.04 per cent, while Abia, Anambra, and Imo recorded a derivation revenue of about 20 per cent or less.

Despite the improvement in the financial fortunes of most of these state governments, there is almost nothing to show for it, a development largely blamed on the failure of the people to call their governments to order.

It is a sad development that despite the increase in the revenue allocated to the states, the condition of their roads is terrible.

The question is: When will Nigerians begin to make their state governors and local government chairmen accountable?  The truth is as long as Nigerians concentrate on the federal government for their legitimate demands, state governments will continue to mismanage funds and the cycle of underdevelopment will continue.