Lagos’ high capital spending doesn’t always benefit city’s poorest – AfDB

The African Development Bank (AfDB) has said that high capital spending in Lagos does not always benefit the city’s poorest people.

This was contained in a report by the bank titled, ‘From Millions to Billions: Financing the Development of African Cities,’ which was obtained by Nairametrics.

According to the report, Lagos state has an approved budget of $2.1 billion for 2023/24, with $1.3 billion (58% of the entire budget) targeted at capital projects.

It, however, lamented that Lagos’s budget does not always lead to basic infrastructure and services for the poorest in the city.

The report read: “The relatively high capital component of Lagos State’s budget (58%) does not always translate into implementation of basic infrastructure and services for the city’s poorest people, but Lagos is deliberate in trying to attract multinational companies and foreign investment.”

On the budget breakdown and the source of revenue for the state, the report added: “Lagos State’s approved budget for 2023/24 (the ‘Budget of Continuity’) totalled $2.31 billion or $144 per capita, of which $1.33 billion (58%) is for capital projects and 27% specifically for new infrastructure. The balance (42%) is spent on personnel and debt servicing. This equates to a $48.22 capital budget per capita.

“Own-source revenue in 2023/24 was estimated at $1.83 billion, with the 25-30% shortfall filled by borrowing (20%) and transfers from the federal government (10%). An estimated five million people (31% of the population) pay some form of tax or revenue to Lagos State, but only 400,000 entities are registered for PAYE. Non-compliance with tax obligations is a critical issue. Efforts are underway to change this, and an 18% growth in local revenue was recorded in 2022.

“Currently, Lagos generates 70% of its revenue from its sources, most of which comes from PAYE (45% of revenue) and property taxes. Other sources of revenue are more volatile and include sales proceeds, rents, land-use charges, fees, and fines.”

Lagos’ PPP for the rich more than the poor

The report also noted that development in the state has been driven through public-private partnerships (PPP) with federal government tax breaks for private-sector property developers.

However, such partnerships were described as “less effective in ensuring universal access to basic services; 65% of Lagosians do not have access to electricity and 85% rely on informal sanitation.”

It also added that infrastructure spending is targeted more at those in the upper class, resulting in zero impacts on economic multiples and poverty reduction.

The report noted: “Lagos State has been deliberate in seeking private sector partners for capital investment with the federal government offering tax incentives (20% of the cost of providing basic infrastructure is tax deductible) to private sector investors financing road, water, and electricity infrastructure.

“Infrastructure planning has been criticized as top-down and unable to generate the economic multipliers and poverty alleviation impacts that might be hoped for from infrastructure investments.”

On Lagos’s debt

The AfDB in its report stated that by the end of 2022, Lagos State owed $1.7 billion, and with the currency depreciating in 2023, the expense of servicing this debt was only going to increase. The state’s standing with domestic bond markets, which accounted for 20% of its debt in 2022, remained unchanged.

Although ‘balanced budgets’ are not mandated at the federal level, states must keep their deficits below 3% of GDP. Since 2016, the state of Lagos has had access to a $653 million bond, note, and other securities facility (in Nigerian Naira). As of December 2022, bonds formed 20% of Lagos State’s debt.

While Lagos currently has the most domestic revenue and foreign debt of any state in the country, it also has the highest internal revenue.

The state owes N812.4 billion to domestic creditors and another $1.3 billion to foreign creditors, according to figure provided by the Debt Management Office (DMO).

More Insight

Some major expenditures in the Lagos State Government (LASG) 2023 budget were recently made public thanks to the efforts of Funso Doherty, a professional accountant and politician residing in Lagos.

It has been disclosed by the Action Democratic Congress (ADC) gubernatorial candidate Doherty that the budget allocates massive sums of money on things like charter planes, SUVs, diffusers, and significant infrastructure.

In an open letter to Governor Babajide Sanwo-Olu, Doherty listed certain allocations that, in his opinion, merit closer examination, including calling attention to a register of public procurement awards by LASG for the second and third quarters of 2023.

The replacement of liquid fragrance at the Governor’s office cost N7,475,000, while the purchase of brand-new Lexus LX 600 bulletproof sport utility vehicles cost the Chief of Staff’s office N440 million. Not only that, but the state government set aside a hefty sum of money (about N400,000,000) to cover any unexpected charter jet costs.

Doherty also voiced doubts about the N69.9 billion budgeted to rebuild and enhance a stretch of the Eti Osa/Lekki Motorway, calling the sum an excessive expenditure for road maintenance. He expressed his displeasure with wasteful expenditures and investments in infrastructure and called for greater openness and responsibility from those in charge of the country’s coffers.

The news caused a major reaction on Twitter, Facebook, and other social media sites, with many Nigerians expressing their dismay and fury at what they see as wasteful spending on the part of the Lagos State Government.

Labour Party candidate for governor of Lagos state Gbadebo Rhodes-Vivour voiced his dismay at the “irresponsible squandering of our commonwealth in such difficult times.” He criticized the misalignment between government goals and the pressing needs of the people, stating that these funds could have been used to create jobs and provide a social safety net for Lagosians.