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Monday, March 4, 2024

2024 Enugu State Budget: Audaciously Ambitious, Undeniably Unrealistic – By Prof. Chiwuike Uba

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The ₦521.6 billion 2024 Enugu Budget, which was recently presented to the State House of Assembly for approval by the Governor, Barr. Peter Mbah, is indeed a commendable initiative that deserves recognition and appreciation from the people of Enugu. This budget not only reflects the government’s genuine commitment to fulfill the promises made during the Governor’s campaign, aptly titled “Tomorrow is Here,” but also signifies a resolute determination to rapidly develop and advance the state’s economy.

At its core, the philosophy behind the 2024 budget is centered on actively involving the private sector in generating disruptive growth through investments in vital infrastructure, amenities, transport services, and the modernization and digitalization of public services and their associated processes. This forward-thinking approach is deserving of praise as it showcases the government’s foresight to leverage the expertise and resources of the private sector to achieve sustainable development and progress for Enugu State.

Furthermore, the government’s unwavering focus on eradicating poverty through the aggressive enhancement of education and public health systems, as well as the ambitious plan to increase the state’s internally generated revenue (IGR), is laudable. By prioritizing these key areas, the government is proactively addressing the social and economic challenges faced by the people of Enugu, aiming to uplift their quality of life and create a more inclusive and prosperous society.

However, while the 2024 budget, aptly named the “Budget of Disruptive Economic Growth,” is characterized by audacious ambition, it is essential to acknowledge the undeniable reality that some of its projections may be deemed unrealistic. There appears to be a certain inconsistency between the revenue and expenditure estimates outlined in the budget and the overall policy direction articulated in the Governor’s Budget Speech. These discrepancies could potentially lead to challenges in implementation and hinder the desired outcomes of the budget.

Additionally, it is crucial to consider the potential implications of the proposed disruptive increase in tax and fees for increased revenue. While these measures may be viewed as necessary to meet the budget’s financial objectives, it is vital to assess their potential impact on the ease of doing business in the state. Such an increase in costs may inadvertently create challenges for entrepreneurs and businesses, ultimately hindering economic growth and exacerbating the existing poverty situation in Enugu, where about 61.3% of the population already struggles with multidimensional poverty.

Therefore, while the 2024 Enugu Budget demonstrates commendable intentions and ambitious goals, it is important for policymakers to carefully evaluate the feasibility and potential economic and social consequences of the proposed measures. By ensuring alignment between revenue projections and policy direction, while also prioritizing the needs and well-being of the people, the Enugu State government can effectively steer the state towards sustainable and inclusive development, ultimately translating the promises of the “Tomorrow is Here” campaign into meaningful and tangible progress.

Currently, Enugu State finds itself languishing at the bottom of the ease of doing business rankings, a dismal position that raises serious concerns about the rationale behind the exorbitant fee rates imposed within its boundaries. In the latest 2023 Nigeria Subnational Ease of Doing Business Report, Enugu State is shamefully placed as the 36th among all states and the Federal Capital Territory, indicating a blatant disregard for fostering a business-friendly environment. Furthermore, the State fares no better in the realm of Economic Opportunities, as it languishes at the 30th spot out of the total 36 states and the FCT. While the improvement of the State’s internally generated revenue (IGR) is undoubtedly crucial, the greater urgency lies in devising astute and collaborative initiatives that incentivize existing businesses and entice new enterprises to grace the State’s doorstep.

Regrettably, businesses in Enugu State must provide for themselves almost all the basic amenities that should rightfully be within the purview of the government, forcing them to shoulder an unfair burden while the government and its agencies opportunistically extract rents from the private sector in a predatory fashion. While we acknowledge the social obligation of citizens to fulfill their tax and other non-tax responsibilities, the government must exercise caution and avoid the perilous path of stifling the very entities responsible for generating the golden eggs.

A meticulous examination of the State’s third-quarter budget implementation report reveals a rather disheartening reality, with the Ministry of Commerce and Industry’s total recurrent expenditure by September 2023 amounting to a mere N124 million naira, including a paltry N1.2 million spent by the SME promotion. However, it is imperative to recognize that the creation of a conducive business environment inherently stimulates the emergence of opportunities, paving the way for the establishment and expansion of enterprises that, in turn, generate employment opportunities. These jobs subsequently become subject to taxation, effectively bolstering government coffers. Unfortunately, the prevailing sentiment among most businesses in the State is that the governmental agencies exhibit a disproportionate enthusiasm for uncovering alleged wrongdoing, even in the absence of any evidence, rather than providing the essential guidance and support needed to ensure regulatory compliance. Consequently, only a scant few businesses feel comfortable reaching out to state agencies for assistance or clarification regarding regulations.

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In light of these critical observations, it becomes abundantly clear that concerted efforts must be made to rectify the current situation. Transforming Enugu State into a hospitable hub for productive economic activities necessitates a paradigm shift in the government’s approach, fostering an atmosphere of collaboration, support, and guidance. By embracing this approach, Enugu State stands poised to attract new investments, propel existing businesses to greater heights, and ultimately fortify its economy to thrive in the competitive landscape of today’s Nigeria.

The 2024 budget, which is the financial blueprint of the State for the upcoming year, seems to have overlooked or rather misjudged the prevailing trend of the State’s cash flow. Despite the scarcity of factors and incentives needed to promote business growth, enhance productivity, and alleviate poverty in the State, the budget fails to adequately address these pressing issues.

To begin with, the estimated Internal Generated Revenue (IGR) of N252bn for the fiscal year appears to be excessively ambitious and lacks realism. This projection reflects a staggering 598% increase from the revised IGR budget of 2023. However, it is quite evident that given the ongoing domestic resource mobilization reforms, the actual increase in IGR will certainly be significant, but it is highly unlikely to reach the lofty N252bn target set for 2024.

Similarly, the inclusion of a proposed aids and grants revenue budget of N27.9bn seems to be grounded in an unrealistic assumption. As of September 2023, the State has only received a meager N1.7bn out of the revised budget of N22.37bn allocated for aids and grants. This amounts to a mere 7.6% budget performance thus far, indicating a significant gap between the proposed budget and the actual funds obtained.

Nevertheless, it is commendable that the 2024 budget maintains a favorable capital expenditure to recurrent expenditure ratio of 79:21. This indicates a focus on investing in long-term development projects rather than just day-to-day operational expenses. However, upon closer scrutiny, it becomes apparent that the composition of the budget primarily serves as a surface-level attempt to create a positive perception of the State’s commitment to capital development.

Firstly, the availability of necessary funding for the proposed capital projects will likely present a considerable challenge for the State. Secondly, the government’s lack of sufficient political will to implement innovative and disruptive programs, as evidenced by the third-quarter budget implementation report of 2023, raises doubts about their ability to effectively execute the proposed capital development initiatives.

Also, despite the commendable capital expenditure to recurrent expenditure ratio in the 2024 budget, it fails to adequately address the State’s cash flow trend and lacks realistic estimations of IGR and aids/grants revenue. Moreover, the composition of the budget raises concerns about funding and the government’s commitment to implementing groundbreaking initiatives. These factors indicate that a more comprehensive and realistic approach is required to address the State’s financial challenges and promote sustainable development.

As of September 2023, the capital expenditure performance in Enugu State stands at a mere 13.3% of the allocated budget. Unfortunately, despite the governor’s emphasis on certain critical sectors that are essential for his ambitious agenda, these sectors have received little to no attention, as evident from the actual expenditure data as of September 2023. The education sector, represented solely by ESUT, only accounts for a meager 0.6% of the total actual capital expenditure, while the health sector component contributes a mere 0.4%. In stark contrast, the Governor’s office and the office of the SSG have received considerable allocations, amounting to 21.8% and 17.7% of the total capital expenditure, respectively. The Ministry of Agriculture, under the Enugu State FGN/IFAD Agency, has spent a paltry sum of 274 million, which equates to only 1.5% of the overall capital expenditure.

While it is commendable to allocate substantial funds to social sectors such as education, health, and water resources, the true test lies in the demonstration of political will through the timely release of funds for implementing the proposed projects. Alas, as of September 2023, only 0.9% and 2.3% of the capital budget allocated for education and health have been effectively utilized. In contrast, more than 55% of the capital budget allocated to the Office of the Governor and the SSG has been executed, raising questions about the prioritization and allocation of resources.

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The proposed plan to incur a new debt of 103.7 billion in 2024 appears increasingly unrealistic, given the likelihood of the state accumulating further debt due to an impending increase in the budget deficit. Such a possibility is based on the questionable nature of the revenue projections outlined in the 2024 budget. Moreover, the State’s total debt has already reached a staggering N207.9 billion Naira as of June 2023, indicating a lack of sufficient fiscal bandwidth to undertake the magnitude of additional debt proposed for 2024. In light of these circumstances, it is imperative to assess whether there exists a concrete strategy or plan to curb borrowing and manage the burden of debt service to prevent the State from facing a looming fiscal sustainability crisis.

Rather than impulsively embarking on a reckless borrowing spree that would burden struggling businesses and citizens with a distressing increase in fees and levies, it is imperative for the government to take a step back and proactively analyze and reevaluate the existing investment climate and ease of doing business in the State. To truly foster private sector participation and instigate substantial growth, a comprehensive array of fiscal and non-fiscal incentives must be implemented. These incentives should be strategically tailored to encourage private sector engagement within the framework of public-private partnerships (PPPs), reinforcing the importance of collaborative efforts between financial institutions and private sector participants.

One impactful avenue to consider is the application of credit guarantees on bank loans by the State government for investors, which would not only promote and facilitate strategic alliances but also alleviate the current challenges faced by the majority of Enugu’s micro, small, and medium enterprises (MSMEs) in accessing much-needed funding from various development finance institutions at the federal level. Additionally, the government should aim to create a conducive environment for small businesses by streamlining MSME access to funding and offering enticing incentives to both the local Enugu population, both domestically and in the diaspora, to actively invest in the State’s overall development.

Expanding on these measures, it becomes evident that the government should also prioritize the formulation of a comprehensive policy on local and social procurement. By mandating the utilization of locally produced vehicles, textiles, and other equipment in all government ministries, departments, and agencies (MDAs), as well as other reference institutions throughout the State, this policy would not only foster local businesses but also present the opportunity to breathe new life into struggling enterprises.

Furthermore, it has been empirically proven that every naira spent on local businesses yields a higher job creation rate compared to investments in external entities. The cascading effect of these initiatives would extend beyond stimulating local entrepreneurship, as the establishment of manufacturing plants by foreign companies within the State would be greatly encouraged. This would subsequently generate long-term demand for a wide array of goods and services, significantly contribute to job creation, bolster national productivity, and ultimately boost incomes and overall economic prosperity. Moreover, to ensure that companies awarded public contracts truly prioritize the well-being of the communities in which they operate, it should be obligatory for them to commit to enhancing the social, environmental, and economic welfare of the respective areas.

Lastly, to uphold the principles of transparency and accountability, the State government should promptly adhere to the established framework by uploading the draft budget estimates for the 2024 Enugu State budget on the official state website for public access. Regrettably, the State has yet to comply with this crucial aspect, impeding a more informed and evidence-based analysis of the proposed budget. Acknowledging that credibility and effective policy communication rely primarily on transparency surrounding government spending and revenues, it is imperative to prioritize public finances that are both trustworthy and visibly aligned with policy priorities. By embracing this holistic approach, the State can cultivate an environment that fosters growth, development, and equitable prosperity for its citizens.

*Prof. Chiwuike Uba, Ph.D, CPA, FCNA*
Development Economist &
Executive Director, ACUF Initiative for Policy and Governance

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