Bayelsa, a thriving state of only 1% of the country’s population, has been said to be highly dependent on Federal Account Allocation Committee (FAAC) allocation revenues. Despite a growth in internally generated revenue in 2023, the report from BudgIT shows that allocations are the primary driver of the state’s economy.
The report revealed that about 14 Nigerian states got 70% of their revenue in 2023 from the committee, opening them up to economic shocks that can affect their fiscal growth.
Background
Budgit, a civic tech organisation with an emphasis on fiscal transparency in the country, has revealed a 2024 States of State report. It highlights the fiscal performance of all 36 states in the country, based on their financial sustainability.
This report revealed the height of Bayelsa’s FAAC Allocation Dependency in order to thrive.
Citing a 92.17 dependency, it highlighted the state’s internally generated revenue increased from N18.39bn in 2022 to N27.20bn in 2023—a 47.87% growth.
However, when the total revenue was calculated, the FAAC revenue of NN374.89bn made up 92.17% of it.
This raises the well-known question: Is Bayelsa’s Economic Dependency on FAAC Allocations a Matter of Federal Policy or Lack of Local Potential?
The Federal Policy Surrounding FAAC Allocations
Bayelsa and other states receive monthly allocations, which fluctuate based on how national revenues are collected. For last month, the government disbursed over 1 trillion naira, with the federal government receiving around 52.68%, the state government 26.72, and the local government 20.6%.
This is the obligatory percentage of shares, according to the committee.
This allocation is designed to make sure funds are distributed fairly amongst all tiers of government.
Typically, all states contribute to the allocation through various revenue-generating means like taxes, oil and gas royalties, etc. While the majority of contributions come from federal revenue, oil states like Bayelsa benefit from royalties tied to their oil and gas contributions.
Now, when a state makes a lot of revenue, contributes it into the pool and gets either more or less of what it contributes, can this align with its dependency on the FAAC?
This is where the possibility arises that, due to the policies of the federal government, Bayelsa contributes a large amount of revenue through oil, but due to the shares, it now has less control over this money, leading to its dependency.
Lack of Local Potential
The dependency on the allocations could also be related to the state’s lack of local potential. The state has a significantly high unemployment rate of 30.34% in 2020. This shows the lack of job opportunities, particularly for the youth, who make up a large part of the city’s population.
The state also relies heavily on oil revenue, leaving it vulnerable to fluctuating global oil prices. Without diversifying to different sectors for income, it faces a lack of economic growth and job creation.
NBS’s National Multidimensional Poverty Index (MPI) report, which was published in the final quarter of 2022, assessed poverty in four areas: work and shocks, living standards, health, and education.
According to this data, 89% of Bayelsa State’s estimated 2.5 population is thought to be living in multidimensional poverty, which is the second-highest percentage among the 36 states in the nation and the Federal Capital Territory.
Governors Response
The state argues that the oil revenues should count as part of its IGR.
Douye Diri, the governor of the state, in an interview on Arise in 2023, denied the dependency claims, highlighting that his state was “expropriated.”.
“They believe Bayelsa is dependent on FAAC allocation; however, we need to ask ourselves where the allocation is coming from. Bayelsa is the goose that lays the golden egg; what belongs to us has been taken away and expropriated; then you say the IGR generated by the state is low. incorporate proper fiscal federalism and see if the IGR is still low.”
The governor argues that the allocation from the federal government doesn’t accurately reflect Bayelsa’s contributions or entitlements, implying that much of the oil revenue is taken away from the state.
The call for “Proper Fiscal Federalism” means the Douye wants a system where states have greater control over their resources and revenue, allowing them to improve their local economy more effectively.
However, given this chance, the question would be whether the state stands a chance in financing the costs of resource management such as drilling, maintenance, etc
Key Takeaways
The economic dependency of the state can be attributed to both federal policy and a lack of potential.
The allocation structure leaving oil-rich states like Bayelsa receiving less than they “actually” contribute shows the injustice in the fiscal framework. This creates a cycle of dependency as the state struggles to retain revenue and relies on federal allocation.
At the same time, the state’s potential is also hindered by challenges like unemployment and reliance on oil revenue.
Breaking this dependency would mean a dual approach: fairer revenue sharing and the empowerment of various sectors in the state. Only by addressing this can the states reliance reduce drastically.