Osun 2022 elections: the next governor’s challenge

The election season in Nigeria is gradually rolling in. 

In barely three days, another governorship seat up for grabs will be filled, making it the third this year.
 

Earlier in the year, in March, to be precise, the people of Anambra chose Charles Soludo, the former deputy governor of the Central bank of Nigeria (CBN), as their governor. Last month, Abiodun Oyebanji, Ekiti’s incumbent governor’s handpicked candidate, became the state’s governor-elect. And so, in the past month, Stears has been dishing out stories that help readers think analytically about these candidates throwing their hats in the ring.

This time, the people of Osun have to decide between their current governor and 14 other candidates to lead the state, popularly known as Ile Omoluabi (the land of the virtuous). The Yoruba's, a prominent tribe in Nigeria, refer to the state as where humanity started.

Osun is undeniably a state with a proud heritage—for humankind and the Yoruba clan especially. In addition, the state is blessed with enviable resources. For instance, Osun has gold—the world’s 7th most traded product—in commercial quantities. An investor, Thor Explorations, announced that it produced over 7,000 ounces of gold from Osun in February of this year. The state is also littered with monuments, sites, and several priceless artefacts that speak of its rich history. To date, an 18-feet staff carried by Oranmiyan, the grandson of Odùduwà, rests in the state.

Despite these remarkable attributes, Osun's financial base is low compared to other states.
 

So, while the state’s gubernatorial candidates have promised everything from more farms to a tech hub, it beats everyone’s imagination how they plan to achieve all they’ve promised with Osun’s little money. 

Based on this, it’s important to assess the level of income Osun has in the first place. Afterwards, we will look at sectors of the state’s economy that the winning candidate can realistically improve, if any. 

How little is little?

As explained, it’s imperative to understand the state of Osun’s finances. 

Nigerian states typically earn revenue from three primary sources: federal allocations (FAAC), internally generated revenue (IGR) and capital imports (FDI, FPI and loans). However, we will focus on FAAC and IGR. Almost all states in the country earn at least half of their total revenues from FAAC, aka handouts from the federal government, including Osun state. For instance, in 2020, 61% of Osun’s revenue was from FAAC.

But when we look at the absolute amount and compare it with other states, we see a problem. In 2020, Osun’s allotted funds from FAAC amounted to ₦31 billion which was the lowest across all 36 states and the FCT. In 2019, FAAC to Osun was ₦24 billion, also the lowest, so depending on FAAC for a large part (over 60%) of total income is worrisome.

That’s why at Stears, we believe states must reduce their dependence on this particular source—FAAC—because of oil revenue. The reduced income from oil which majorly funds FAAC, has motivated our stance.

Still, Osun can potentially improve its allocations from the federal government.

You see, there are reasons why FAAC for some states is higher than others. States like Delta, Rivers, Akwa Ibom and Bayelsa, are top on the list of highest FAAC allocations yearly. This position is based on Nigeria’s derivation principle, which allows the return of 13% of any revenue from natural resources to the original state of those resources. 

So, the same principle applies to states like Osun with mineral deposits such as gold. Gold, like crude oil, is a mineral on the federal government’s exclusive legislative list. This means that only the Federal Government of Nigeria can legislate on these items based on laws written in the 1999 Constitution of the Federal Republic of Nigeria. Practically, the federal government is the major recipient of income from any economic activities concerning gold exploration or mining. For instance, the federal government issues licences for gold mining.

With its vast amounts of gold, Osun can thus improve its FAAC allocations. But, exploration is still in small amounts. And so, unlike Uganda which has increased its share of gold exports to 44%  as of December 2020, thanks to refining gold mostly smuggled from neighbouring cities, not much progress has been made in terms of commercial activities concerning gold in Nigeria.

According to the Observatory of Economic Complexity (OEC), Nigeria exported $218 million in gold, making it the world's 77th largest gold exporter in 2020. The same year, gold was Nigeria's 9th most exported product. But this is tiny compared to the $39 billion Nigeria has gotten on average in the last five years from oil exports.

So one area the state’s winning candidate can double down on could be to make gold from Osun a bigger export commodity in Nigeria. That way, a bigger slice of what Osun generates from gold exports will come back. However, Osun’s governor must cautiously approach this strategy due to the volatile and problematic nature of exploratory activities.

Similar to oil, digging up the earth for gold has repercussions. Already, several rivers are being polluted due to mining activity in the state. It has reduced sources of income from fishing and farming and soiled the state’s rivers which many people drink due to the rivers' fertility and other perceived miraculous powers. Artisanal and illegal mining activities have continuously degraded the environment despite the Presidential artisanal gold mining development initiative launched in 2019.

So, another point to note for whoever the people of Osun vote for is this: when you compare the level of employment and income from mining to the jobs lost, environmental disasters, and humanitarian crises explorations bring will it be roses and cauliflower?

History shows us that the result of this approach doesn’t smell too nice. Nigeria's oil sector provides evidence to make some conclusions. States like Akwa Ibom, Rivers and Bayelsa, earlier cited as states with top FAAC allocations due to the oil derived from their states, are also the states with significant pollution, including high unemployment and underemployment rates in the country.

However, people blessed with mineral resources don't always end up in a resource curse. The government just needs to be better at management.

Botswana is a good example of this. Unlike Nigeria, which doesn’t have a strong track record in saving oil revenue, Botswana saved from diamond mining. It set up a fund which provided the government with diamond revenue over time instead of all at once.

With all these in practice, Osun can improve its FAAC on terms that benefit its people. But at the end of the day, if Osun’s income from FAAC rises—be it from gold or any other mineral resource—the FAAC system means Abuja still decides what portion Osun gets eventually, making it an unstable revenue source. This is another reason behind our stance against states relying on FAAC, bringing us to IGR, which falls under the full control of the state governments. 

How good is Osun with IGR?
 

2021’s half-year reports from the National Bureau of Statistics (NBS) show the state’s ₦14 billion IGR was the 16th largest in the country but below the ₦23 billion average recorded for the period.

Nevertheless, the state’s IGR has recorded an increase in recent years. 

The state’s internal revenue service claims to have increased the number of individual taxpayers from 62,000 in 2010 to 609,000 as of December 2017, while the number of corporate taxpayers improved from 12,000 to 27,000 in the same period. This is a reasonable explanation for its IGR growth, and data shows that improving its tax net has paid off as income from PAYE contributors is a significant part of Osun’s IGR.

Still, the pace of growth is slow. Oyo's IGR recorded more than 100% growth between 2016 and 2020, and as shown earlier, the state needs higher contributions from IGR to improve its total revenue.

This can be tricky considering that the state has a combined underemployment and unemployment rate that leaves 37.3% of the state's residents with nothing meaningful to do and limited people to tax. For instance, the government, which owes workers salaries from past administrations, employs most of the state’s formally employed residents while others are artisans, transporters, and traders with little income to sustain them.

Considering that Agriculture is the state’s primary economic activity providing over 70% of direct and indirect employment, it’s a relief to see the state focus its energy on bringing more informal sector workers into the net of taxpayers in the state.

Adegbite Ademikanran, the Osun Internal Revenue Service chairman, said the state hopes to double the current tax net to 1.2 million and arrested state officials who had been cloning tax receipts and issuing same to unsuspecting members of the public. These are welcome developments. However, implementing an electronic tax-payer scheme similar to Oyo state can also help plug revenue leakages.

While a wider tax net is a step in the right direction, Osun needs to get out of the vicious cycle of earning low income due to taxing low-income earners by attracting bigger businesses that can solve unemployment and inject wealth into more of its residents. 

But as we always argue, these businesses will only come if the state has created an enabling enough environment by spending money wisely. At the end of the day, taxes are one key source of government revenue, but for that to be meaningful, the government must also tax properly.

Whoever takes the reins of leadership in the state has their work cut out for them—chief of which is income. While several of the candidates' manifestos show that they plan to build schools, employ more hands, and import standard medical equipment, many ignored the elephant in the room—you can’t do all this without or with little income. 

Like several other Nigerian states, there is little money to solve Osun state’s problems. And going by the campaign promises and declarations of the gubernatorial candidates, there is an urgent need to ramp up revenue if they intend to fulfill their promises sustainably.

The problem is Osun residents only have three days to fish out the candidate that has shown he can create more value for the state’s little funds. We hope they already know this candidate and vote for him. If not, another one thousand four hundred and sixty days of carrying last in revenue position.