Kano State Budget of Economic Restoration and Development 2012 Kano State Government Budget 2012 Budget of Economic

Restoration and Development

Background- The Kano economy: Nigerias second largest non-oil sub-national economy has suffered de-industrialization and steady decline with loss of competitiveness within the national economy. Industrial production and sustained private sector growth have been constrained by high production costs, cumbersome regulatory environment, general insecurity and occasional communal strife. Today, approximately 70% of the States medium and large-scale manufacturing establishments are non-operational, while the rest operate at less than 40% capacity1. This has resulted in high rates of unemployment, depressed incomes and low rates of economic growth. The unemployment rate, at nearly 26%2, is significantly above the national average. Youth unemployment [estimated at 67%!]3 is endemic- leading to youth restiveness and negative social attitudes and practices, such as indolence, street begging and indiscipline. Access to basic services-education, health and water supply-is severely constrained and the poverty situation is particularly worrisome with nearly 8 of the States 12 million people living below the poverty line.4 It is the view of many analysts that Kano has fallen from grace to grass. Determined to pursue policies and programmes that will transform our State economically, socially and politically5, HE the Governor presented the 2012 Budget of Economic Restoration and Development to the Kano State House of Assembly for appropriation. Budget 2012 is intended to lay a solid, credible foundation for the sustainable economic growth and development of Kano State and ultimately, RESTORING the leadership position of the state in all sectors particularly COMMERCE, INDUSTRY, EDUCATION, AGRICULTURE AND INFRASTRUCTURE6. It is as much about the future as it is about the past: implicitly, the budget is viewed by the administration as one of continuity and consolidation and is intended to build on the projects, programmes and achievements of his administration from 1999-20037.
1 2 3 4 5 6

Unpublished report of the Manufacturers Association of Nigeria, Sharada and Bompai Branches

NBS: Manpower Stock and Employment Survey 2010

Daily Trust Newspaper Tuesday 7 2012 quoting the CBN Governor

Poverty Incidence was approx 61 [2004]. New figures are: Relative 72.5, $ per day 66 and Absolute 65.6. See NBS Nigeria Poverty Profile

Budget Speech by the Governor Budget speech by the governor 7 The Governor devoted the first part of the budget presentation to the SHoA to review of the activities of his administration in 1999-2003.

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012

In terms of its theme, budget 2012 is hardly distinguishable from the budgets of previous years: the 2007 Budget of Consolidation focused on consolidating the gains of previous years .and strengthening the framework for ongoing reforms8. The 2008, 2009 and 2010 budgets were respectively Budgets of Sustainable Economic Growth and Development while budget 2011 was Budget of Continuity, intended to serve as base for any incoming administration to pursue our development objectives..9 Unlike others however, budget2012 is a standalone budget-with no link to a clearly defined State vision or long term development plan. The 2011 budget was derived from our outlook for Kano State over the next decade as contained in Kano State Road Map for Development [KSRD] our States long-term plan and contribution to Nigeria Vision 20:202010. The plan identified four high level goals: sustainable economic growth, quality public service, economic sustainability and value driven governance. The KSRD has since been jettisoned on the grounds that its goals do not reflect the philosophy of this administration. Earlier, the 2009 budget was linked to the States Economic Development Roadmap and a 4-year Rolling Plan both of which were launched in 2008. The Roadmap focused on five core areas: optimizing IGR, investing in quality education, integrated agriculture and enabling environment for manufacturing, commerce, independent power plant and ICT and Creating jobs for women and youths.11

The Budget The 2012 Budget proposes an aggregate expenditure of N221, 619,331,115, with a real value, allowing for inflation rate of 12.5%, of N196, 994,960,977. It is by far the most ambitious budget in recent times, exceeding the 2011 revised estimates by nearly N100 billion or 79%. It also exceeds the actual budget spending of 2003, 2004, 2005, 2006 and 2007 combined [approximately N160.4 b] by N61.2b or 38.2%.

8 9

Ministry of Budget and Planning: Kano State Government 2007 Annual Budget-p15 Ministry of Budget and Planning: Kano State Government Budgets 2008, 2009, 2010 and 2011 10 Ministry of Budget and Planning: Kano State Government Budget 2011 11 There are limited copies of the KSRD in circulation. The 2008 Roadmap is unpublished.

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012

Table 1.0 Summary of 2012 Budget

Item Budget recurrent capital 2012 appropriation 221.6 72.15 149.47 2011 appropriation 124.4 [revised] 66.85 [actual] 58.9 65.5 Variance 78% 23% 127.9%

The budget is composed of a recurrent expenditure of N72.15 billion and capital expenditure of N149.47 billion representing, respectively 33% and 67% of total estimates. It is thus overwhelmingly developmental with an attractive capital-budget ratio of 2:1-which, in the words of the Governor, underscores [our] desire to emphasize capital development with a view to restore our lost economic glory and to put Kano back on the path to prosperity.. The capital budget exceeds the 2011 estimates of capital expenditure by N84 billion or 127.9% It is similarly in excess of the combined capital spending in 7 budget years- 2003-2009 [approx N129 b] by N20.b or 115.5%! The major beneficiaries are Land and Physical Planning [45.2%], Works and Housing [11.0%], Education [8.8%], Budget and Planning [6.3%] and Agriculture [5.9%]. [see fig 2]

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012 In contrast, the increase in recurrent expenditure and its components is modest: Recurrent expenditure exceeds 2011 estimates by N13.6b or 23%, overhead costs are only N5b or 26% more while the wage bill is increased by N6.7b or 18%. With close to 50,000 employees in the service of the State, personnel costs remain a key issue, consuming 20% of total budget and nearly 60% of recurrent expenditure. In this fiscal year, it is estimated that the State requires N3.6b monthly to pay its workers-although IGR is less than N1.5 billion per month.

The main recurrent cost centers are the Govt. house/Deputy Govs office, office of SSG, OHoS, SHoA which together are responsible for 23% of total recurrent expenditure and 41% of total overhead costs! Others are Education 30.8%, Health 15% and Finance 6.2%.

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012

To finance these, the State Government forecasts total revenue [including grants and loans] of approximately N221.6-matching therefore planned expenditure. Significant contributions are expected from the Federation Account-including VAT [N72.44 billion 6 Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012 and IGR [N46.4 b or approximately 21%]. The bulk [approx 62%] of the budget will be financed with recurrent revenues which are projected to increase by nearly N33 billion or 31% over 2011. IGR is a key component of recurrent revenues and is envisaged to increase by 164% relative to 2011.

Table 2: Kano State Government: Sources of Funding Budget 2012 Item A Revenue Sources Federation Account Plus VAT Internally Generated Revenue Other Receipts Total Recurrent Revenue Treasury Opening Balance Loans and Grants Miscellaneous Total capital Receipts Total Revenue mount Amount N72,438,611,427 N46,360,422,861 N19,698,000,000 N138,497,034,288 N20,500,000,000 N57,766,715,827 N5,355,581,000 N83,622,296,827 N221,619,331,115

% of revenue % share in total revenue 32.7% 20.9% 8.9% 62.5% 9.2% 26.1% 2.2% 37.5% 100%

The state makes one other generous assumption with regards to revenue: Capital receipts [made up of largely of grants and loans will go up by N65b [or 360%!] from N18b in 2011 to approximately N84b in 2012. Specifically, it is envisaged that grants-to the tune of N50 billion-will be the third largest contributor [22.5%] to budget finance-after the Federation Account and IGR. It is similarly envisaged that Loans to the tune of N8 billion or approx 4% of revenue will be accessed this fiscal year. It is unclear why the two revenue sources suddenly assume prominence this fiscal year or where the grants and loans are coming from. The States aversion to external loan is well known: indeed, while signing the budget bill, the governor did emphasize that government will not borrow a Kobo to implement its budget! 7 Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012

One highly impressive feature of budget 2012 is that 9% of total revenue [N20.5b] are savings from 2011 recurrent expenditure cuts- on account of which the governor was voted as the most prudent by the Revenue Mobilization and Fiscal Commission.

Identifying Budget Priorities: The stated objective of budget 2012 is to restore the leadership position of ALL sectors-but especially Commerce, Industry, Education, Agriculture and Infrastructure. The goals and strategies which are the critical vehicle to drive the budget 2012 were identified as follows: 8 Revenue Generation Infrastructure Human Capital Development Civil service reforms Urban beautification Enhancement of welfare of teachers Development of community based technical and vocational education Food security Water provision

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012 health care

It appears that budget allocations are made in line with these strategic goals: the major beneficiaries of the budget-with combined budgetary allocations of approximately N194 billion or 87%- are shown in table 3 and fig 7 below: Table 3: budget 2012 top ten sectors
MDA/Sector Land and Physical Planning Education Works and Housing Health Agriculture General Admin Rural and Community Dev Environment Water Resources Allocation [Naira, billion] 69 b 35.5 b 17.9 b 17.8b 11.3b 7.5b 6.98 b 3,74b 3.11b Share in budget 31% 15.9% 8% 8% 5% 3.4% 3.1% 1.7% 1.4%

Based on this, government priorities appear to be:

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012 Infrastructure development [land &physical planning and works &housing]-with total provision of N86.88 billion or 39% of budget. Human Capital Development [education and health] with provision of N53.7b or 24% of budget Real Sector Development [Agriculture & rural development and Commerce]: provision of N19.6 b or 8.8% a distant third

Are these new priorities of a new regime? On balance it appears that Government priorities have not changed radically over the years. Budget 2012 however makes provision of infrastructure more visible. This can be seen from the following: o In 2o11, the 5 top priority sectors, based on actual budget spending [or budget releases]were: education, health, rural development, budget &planning and infrastructure o With the exception of the rural development sector, all of these remain among the top 5 priority sectors in 2012. o However: In 2011 infrastructure with only 5.5% of the budget lagged behind education which had 29%, health 15% and rural development 11% 10 Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012 In 2012 although education and health receive more in absolute terms, their share in total budget drops to approximately 16% [from 29% in 2011] and 8% [from 15% in 2011] respectively. On the other hand, the share of infrastructure in total budget shoots up to 39.3% from 5.5% Similarly the education sectors capital estimates in 2012 [8.8% of total] fall short of its capital spending [13.2% of total] in 2011. Table 4a: priority sectors 2011 [based on budget estimates]
Sector education Health Rural Dev. Budget and Planning Infrastructure Budget estimates [N % of state budget billion] 19.87 29.7 9.90 14.8 7.35 10.99 4.16 6.2 3.65 5.5 Rank 1 2 3 4 5

Rural and community development received the highest capital spending [33.33%] in 2011. In 2012 the sector seems to have fallen out of favor: its capital allocation of N6.98b is less than 5% of capital budget Agricultural sector does not feature among the top five priority sectors in 2011 or 2012-although it continues to retain handsome allocation and share of the budget Table 4b Priority sectors 2011 [based on capital expenditure releases]
Sector Rural and Comm. Dev Budget and Planning Education Gen Admin Works /infrastructure Capital allocation [N, billion] 7.10 3.76 2.81 1.75 1.73 % share in total capital budget 33.33 17.60 13.19 8.2 8.11 Rank 1 2 3 4 5

Table 5: priority sectors budget 2012

Sector Infrastructure Education Health General admin Budget and planning Budget [N billion] 87.0 35.5 17.9 13.4 11.7 % of state budget 39.3 15.9 8.1 6.1 5.2 Rank 1 2 3 4 5

11

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012 For the period 2008-2011 the top priority sectors based on budget releases were education, agriculture, infrastructure, health and rural development. [table 6]. Of these five, three-infrastructure, education and health- remain top priorities in 2012 Table 6: priority sectors 2008-2011 Priority sectors: 2008- Allocation [Naira billion] 2011 Education 50.16 Agriculture 38.60 Infrastructure 36.40 Health 26.70 Rural Development 26.70

Share in budget 20% 15.76% 14.88% 10.9% 10.9%

The Social Development Sector: Education, Health and Water Resources Kano State does not appear to have any coherent and clearly spelt out social policy. The combined allocations to the social development sectors are by no means generous and do not appear to be well targeted at specific problems. Education, Health and Water Resources have a total of N57.9 billion or 26% of total budget of which approximately 60% is recurrent. The three sectors contribute nearly 48% of state-wide recurrent costs and only 17% of the capital budget. Table 7: allocation to social development sectors

sector

All sectors Education Basic and post basic Tertiary Health

12

Recurr Cap State Shar ent exp exp budg e in et budg et 72.15 149. 221.6 6 0 22.20 13. 35.3 15.9 1 % 14.90 9. 24.1 10.9 7.30 2 11.2 % 3.9 5.1% 0 10.60 9. 17.80 8.0

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012

Water resources Three sectors

1.69 34.49

2 3.11 4.8 25. 41 57.9

% 2.2 % 26.1 %

Education: education has been a most favored sector over the years: from 20082011 the sector received approximately N50b or 20% of all expenditure- putting it ahead of all other sectors. As fig 9 shows, budget estimates and actual spending show upward trends since 2008-with only a dip in actual spending in 2009.

The sectors current provision of N35.5 billion [nearly 16% of total budget] exceeds 2011 estimates by approximately N8 b or 28%, 2010 estimates by N16b or 76% and the estimates for the period 2003-2007 by approx N4 b or 13%. The basic and post-basic education sub-sector receives N24 b or 68% while higher education gets N11.2 b representing 32% of the education sector budget. Governments stated objective is to address the apparent collapse of the education sector but the budget contains no specific details of the numerous 13 Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012 challenges and constrains it seeks to address. Nor does the budget provide details of its strategy.or specific measurable targets and milestones. Governments focus seems to be on the rehabilitation of dilapidated physical structures and the building of new institutions. Its star programmes remain the provision of uniforms to and feeding of primary school pupils.

Table 8: education sector major projects 2012 Programme Allocation Rehabilitation of existing N2,000,000,000 structures, purchase of furniture and instruction materials
Establishment of additional tertiary institutions-including the NW University and Public Health University Establishment of new secondary schools Construction of new houses for teachers Establishment of new community primary and secondary schools Provisions of uniforms to and feeding of primary school pupils N1,500,000,000

Remarks 6% of sector budget /15% of capital budget

17.6% of capital budget

N900,000,000 N700,000,000 N500,000,000 Not indicated

6.9% of Capital Budget 5.3% of Capital Budget 3.8% of Capital Budget ..

Although education is a top priority, the shortcomings of the education sector budget are numerous and include: o The 2012 sector share in total budget [15.9%] is lower than that of 2011[22.21%], that of 2009 [19.6%] and 2010 [17.8%].

o Education sector share in budgets-except for 2011- has been consistently below 20% since 2003. It thus falls short of the recommended 26% needed to tackle the myriad of challenges facing the sector o Education sector budgets have traditionally been overwhelmingly recurrent. Investment in education is very low and insufficient to tackle the challenges of the sector. For example 63% of the 2012 sectors budget is recurrent expenditure and 37% capital. Also while the sector contributes up to 31% of the 14 Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012 total recurrent costs, only 9% of the capital expenditure goes to education. Similarly: Of the N50.16 b spent on education [2008-2011], N42.95 b equivalent to 86% was recurrent expenditure and only N7.203 b or 14% was investment in education. That means for every naira spent on education only 14 kobo represents capital investment

Capital investment of N7 billion over a 4-year period, amounts to an average of less than N2 billion per annum and represents an Investment per head of N583-assuming a population of 12 million In the tertiary education sector, the sum of N15 billion has been expended since 2008. Of this only approximately N900 m or 6% was invested. Thus

15

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012 for every Naira spend on higher education in the state only 6K was invested.

o Budget performance has been generally poor: although overall performance [2008-2011] was above average [58.9%] it conceals huge performance gaps especially in capital budget spending. The budget performance index for selected higher education institutions is shown in Table 9 below: MDA Education [basic] Higher Education Agency for Mass Ed UBEC Snr. Sec Sch. Board 16 2009 4.9% 6.8% 0% 11% 0% 2010 20% 5.3% 0% 2.4% 0% 2011 43% 6.6% 30% 0%

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012 Sc. And Tech Sch. 0% 0% 68.7% University of Tech 1.4% Kano Polytechnic 0% College of Educ. 26% Aminu Kano 0% College Thus budget performance index varies from 0% to approximately 69%. In the majority of cases, the index is abysmally low. Health: Like education, the health sector in Kano is bedeviled by a myriad of challenges and constraints: Inadequate coverage-[estimated at significantly less than 60% for both urban and rural communities and perhaps less than 40% for rural communities and urban poor]; dysfunctional, unreliable and inadequate equipment and materials, shortages of health care administrators including doctors, nurses and midwives; inappropriate orientation towards curative rather than preventive sources of diseases etc. Here too, the budget sets no targets or milestones and seems to focus on infrastructure rehabilitation and in addressing the problem of shortage of critical equipment in hospitals and other health facilities 12

The sector is allocated approximately N18 b, of which N11b or 60% is recurrent, and N7b or 40% capital. The sector allocation represents 8% of total estimates, about 15% of state-wide recurrent and 5% capital expenditure. As previously indicated, the health sector is, in terms of funds allocated, to be considered a priority sector. Table 10: health sector key programmes budget 2012 Programme Allocation General Rehab of selected N300,000,000 hospitals Procurement of hospital N500,000,000 equipment Establishment of three N500,000,000 new schools of Nursing Construction of ICU at N250,000,000 Nassarawa Hosp Renovation of AEU at N50,000,000 Murtala Hosp

% of capital expenditure 4.3% 7.1% 7.1% 3.6% 0.7%

12

Budget speech of the Governor

17

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012 Other general features of the budget can be summarized as follows: o Current estimates exceed 2011 by N6.6b or 59% and exceed 2010 by N6.7b or nearly 60%. However, 2012 sector share in budget at 8% falls below 2011 and 2010 shares at 14.8% and 14.9% respectively o Budget estimates and releases show generally an upward trend-with a dip in actual spending in 2009

o Health sector share in total budget similarly shows upward trend since 2008: 6.2% [2008], 9.7% [2009], 14.9% [2010] and 14.8% [2011]

o Budget performance has been has been very encouraging over the years. The best performance recorded was in 2008 with a performance index of 93% , and the worst performance was in 2009 with an index of 48.6%

18

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012 o Investment in health sector is low: from 2008-2011 only N4.43 was invested. This was equivalent to 16% of actual budget spending and represented an investment per head of less than N400 Water Resources: The water project is said to be the most expensive single undertaking ever embarked upon by successive regimes in the State. Water sector share in state-wide capital expenditure has varied from 2.4% in 2010 to 10.6%% in 2009. From 2008-2011 capital investment in the water sector was approximately N7b or 6% of state-wide capital investment. [This was equivalent to the capital spending on education and higher than the investment in the health sector over the same period]. Government had committed several billions of Naira-which do not seem to be reflected in the budgets- for the rehabilitation of the Tamburawa Water Works and for the construction of another water treatment plant at Watari, in Bagwai Local Government area. Yet, today, the fastest growing industry in Kano is water vending: either in sachets as pure water or in 10/25 liter cans. In the metropolis 75% of households are served with borehole water by water vendors in 25 liter cans. So are schools and hospitals. It is estimated that up to 40.7% of households rely on unprotected well as main source of drinking water, and up to 5.1% on unprotected spring. 22.8% of households rely on tube well/borehole and 4.1% on protected well as main source of water. Only approximately 12.8% of households have access to improved sources of water piped in to their house (2.8%) or in to their yard (1.5%) or from a nearby public tap(8.5%)13.

Table 11: the water sector budget estimates and releases 2008-2011 item 2008 2009 2010 Rec. Exp [N b] 1.52 1.47 1.40 Cap. Exp [N b] 2.40 6.09 1.51 Budget Estimates [N b] 3.92 7.56 2.91 Actual spending [N b] 4.01 0.337 1.16 Of which: Cap expenditure 2.82 1.89 0.639 Budget performance % 1.02% 4.5% 40%

2011 1.98 2.81 4.79 2.13 1.22 44.50%

total 6.37 12.81 19.18 7.64 6.57 39.8%

1 13

NBS: survey of socio-economic conditions

19

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012

In Budget 2012, the water resources sector was allocated 2.2% of total estimates- of which nearly 65% is for capital projects. In absolute terms the sector is neither worse nor better-off than it was in 2011- but its share in State budget drops to a little over 2% this year from nearly 4% in the previous year Budget performance is poor [table 11 above]: the water sector budget is not implemented as intended. From 2008-2011 budget estimates amounted to a little over N19 billion of which approximately N8 billion was released. Budget Performance Index was thus below 40%. The best performance was in 2008 [102%] and the worst in 2009 [4.5%]. Index was below average in 2010 [39.8%] and 2011 [ 44.5%]

20

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012

State Economic Empowerment Programmes: The State does not have a well articulated and coherent economic empowerment strategy. Current programmes are spread across at least 10 MDAs and appear ad hoc and haphazardly implemented. The Ministry of Agriculture leads the pack with at least 5 empowerment programmes with a budget of slightly more than N4 billion. The star empowerment programme in the agriculture sector is the commercial agricultural project for which N3.4 b is set aside. Other key programmes that could impact on incomes and employment are: o Establishment of 6 agric-related training institutes, envisaged to train an unspecified number of women and youth in agric-related business activities. [N1 billion or 8.8% of agric budget] o Special focus on agro-processing and value-addition programmes to create synergy between agriculture and small-scale industry-budgetary provisions not stated

Under the Kwankwasiya Empowerment Programme [being coordinated from the office of the Secretary to State Government] the budget sets aside N2.44 billion for the execution of various women and youth empowerment programmes. This represents approximately 1% of State budget. It is not clear how citizens can access the funds set aside. The Budget and Planning Ministry controls a chunk of the empowerment budget, to the tune of N2.4 billion. This is set aside for and as MDG Conditional Grant Scheme and is not expected to be disbursed to beneficiaries but for the rehabilitation and equipping of Primary Health Centers, provision of solar boreholes and construction of small town water supply as well as other related projects

[see tables A1-A3 in the Appendix for a list of State Empowerment Programmes and funds allocated to each]

21

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012

Budget Implementation: The Revenue Connection Will the 2012 budget be successfully implemented by the Administration? Will the State reap the full benefits of the budget? Is the budget workable? Let it be said that even at the best of times, Federal and State annual budgets hardly pass the simple tests of credibility and efficiency in implementation or monitoring etc. At the end of the fiscal year, there is almost always a huge performance gap, that is, between actual and approved estimates. Resource availability will undoubtedly determine the success or otherwise of budget 2012. First, to finance the budget, the state depends almost entirely on the Federation Account-itself dependent on proceeds from the export of one primary commodity with a highly volatile international price. Oil and gas contribute about 99% of Nigerias exports and provide about 85% of government revenues that go into the distributable pool-the Federation Account. Thus any sudden, negative shocks which often characterize the international oil market will increase the risks of non-implementation. Perhaps it was in realization of this that the state moderated its expectations of revenue from the Federation account by assuming that funds due to the state from Statutory allocation will decline by 7.2 billion or 11.4% over 2011. However while its expectations are moderate here, the state made several wild and not so easily tenable assumptions about other sources of revenue.

Table 12: IGR-total revenue relationship 2008-2011 T Rr Year 2008 2009* Rev 70.7 b 43.7 b IGR (actual) N8.3 b 5.7 b IGR (estimates) 18.8b 31.24b IGR 4.4% 18.3% (performance) IGR/Rev 11.7% 13.0% %

2010 59.8 b 9.99 b 27.28b 36% 16.7%

2011 72.58b 9.85b 26.08 37.8% 13.6%

In particular, government identified IGR as one of the critical vehicle to drive the budget 2012. According to the Gov: .we are guided by the belief in the centrality of our human resources and a passionate desire to develop our state and make it selfreliant especially in the area of Internally Generated Revenue [IGR]14. Accordingly the state is expected to generate, internally, approximately N4b monthly and a total of
14

2012 budget speech by the governor

22

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012 N46b or 21% of revenue estimates. This requires that IGR increase by 164% over 2011! This is undoubtedly a tall order given the following: o Historically IGR have constituted only 11.7%-16.7% of total revenue- and had an average growth rate of less than 20% per annum over the period 20032009. o There is a huge gap between actual and estimates of IGR: IGR collected has been between 4.4% and 37.8% of estimates. In 2011 actual IGR was less than 40% of estimates and contributed less than 14% of total revenue

o The bulk of IGR up to 51% - is collected by the Board of Internal Revenue [BIR] an inefficient and ineffectually managed government institution. Although it occasionally exceeds its self-set [usually under-stated] revenue target [such as in 2008 when performance was 108%] or does well [ as in 2010 when it achieved 71% of target], the BIR is at best an average performer [53.7% in 2009 and 53.9% in 2011] o Admittedly, the Boards current efforts have been encouraging as monthly collections have gone up from approx N500m in June 2011 to N1.2 billion in early 2012. However the revenue collections mid-way into the fiscal year is a far cry from the N4 billion monthly target. Other significant hurdles remain: The BIR is not out of the woods yet in spite of the presence of a new and determined executive chair: The Agency remains within the civil service structure and no new structural changes have been introduced in the Board; There is yet no evidence to show a change in tax-payer voluntary compliance rates: [currently 0-5%!] and the recent increase in revenue is mainly from tax areas

Table 13: BIR performance 2008-2011 23 Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012 Year 2008 2009 2010 2011 Actual N4.27b N3.49b N6.4b N4.35b Estimates N3.95 N6.5b N9.0b N8.07b Perf. 108% 53.7% 71.% 53.9%

o Budget also expects substantial revenue [N15.5b] from the Ministry of Lands and Physical Planning and from other MDAs which, historically, have had poor outing in revenue generationThe performance of the MDAs in revenue generation ranges from 4% (Ministry of Education) to 21.5% (Ministry of Works and Housing). For example in 2011, [table 14 below], the Ministry of Lands was only able to collect approximately 8% of its revenue estimates-and the performance of the education ministry was even worse. That certainly is not promising! Table 14: revenue performance of selected MDAs MDA Actual Revenue Estimates Land and Physical Planning N186m N2,337m agriculture N35.8m N1,852m commerce N18.1m N347.7m Works and Housing N665m N3,088 Education [basic] N67m N1,527 m

Performance 7.95% 1.9% 19.6% 21.5% 4%

o Finally Government envisages a 360% increase in capital receipts: namely loans and grants. It is unclear where these are coming from: the easy sources are the domestic commercial banks. However, a commercial loan will be expensive and therefore counter-productive. Credit facilities from development finance institutions will perhaps be more attractive but slow in coming given the stringent conditions-as specified by the Fiscal Responsibility Commission and the DMO. o Two other factors are likely to affect the resource projections: The current security challenges in and around the state have adversely affected business activities and by extension, revenue collections: There are reported cases of factory layoffs and a significant reduction in 24 Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012 capacity utilization. Trading activities have similarly been adversely affected with a noticeable reduction in human and vehicular traffic in and around the major markets in the metropolis. The new Fed Govt. policy on personal income tax is expected to lead to a significant drop in revenue from PAYE tax. Kano expects a 40% drop in revenue from that source.

Conclusions

1. The key attraction of the 2012 budget is its emphasis on investment. Capital expenditure takes a lion share of the budget-and this is necessary for sustainable growth and economic development. Of course, recurrent expenditures are inevitable, but universally acknowledged is their limited capacity to promote growth, even when they are judiciously and responsibly incurred. 2. The flip side however is that bulk of the nearly N150 billion capital vote is being applied in the execution of economic infrastructure projects- especially roads and urban beautification projects. In contrast, only 14% of the capital vote is being spent on social infrastructure-education and health. The point should not be missed that there is as much crises in the health and education sectors as in the economic front. Public schools lack basic infrastructure like chairs and desks, laboratory equipment, water and sanitary facilities etc. Class rooms are congested and a significant number of teachers are unqualified to teach. In a 2010-2011 schools survey, a Pupil-Class room ratio of 246 in primary schools, 126 in JSS and 132 in SSS was recorded in a number of local government areas including Kunci, Kumbotso and Dala. The study shows that up to 62% of primary schools in the State lack toilet facilities and where available these facilities are grossly inadequate: pupil-toilet ratio ranges from 68.5 in JSS to 85.6 in SSS and 200 in primary schools. Less than 40% of primary school teachers are qualified to teach and the pupil-qualified teacher ratio could be as high as 570 in primary schools, 74 in JSS and 73 in SSS15. The health sector challenges are no less daunting: system coverage is low, facilities are decayed or unavailable and there are severe shortages of health care administrators-including doctors, nurses and midwives- Kano has only
15

Annual School census is carried out by ESSPIN in collaboration with Senior Secondary Schools Board. See also the Federal Ministry of Education Digest of Education Statistics published in 2011

25

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012 approximately 8.4 doctors per 100,000 population and 18 nurses per 100,000 population. Human capital development holds the key to long-term development of the state and Government must invest more to upgrade its social infrastructure.

3. Resource availability is the key to good budget performance: current resource position remains precarious and many of the resource projections are at best wild and untenable. Government has not presented any convincing case that it can balance a N221 billion budget. The focus on IGR is sensible: Kano with a population of nearly 12 million people and a strong commercial base has the potential to generate more revenue internally for economic development. To succeed, government must [1] reform the tax collection machinery and more importantly [2] improve the delivery of basic services to the citizens and demonstrate that tax revenues are being spent judiciously. The BIR remains in the mainstream civil service- a factor seen by many as a primary impediment to efficiency. Many see it as a failed, ineffectually managed institution, barely able to deliver on its basic functions. It needs to be reformed and strengthened to make it more innovative and efficient in service delivery. BIR should be a professionalized and mechanized organization that is firm, but civil, accountable and transparent. There shouldnt be any more delays in the implementation of the 2010 Revenue Law which gives the Board some measure of autonomy. 4. Spending efficiency must be maintained. Governments bold initiative in this regard led to a saving of nearly N20 billion between May 2011 to January 2012. It was indeed a commendable effort but government needs to be a bit more scientific in determining the level of recurrent expenditure: current allocations are arbitrarily determined-using a 2003 benchmark! Withholding such expenditures could harm some MDA operations 5. Government must explore other funding options to finance its budgets. Increased IGR and expenditure controls will conserve revenues and narrow the budget gaps. However, given the daunting development challenges, government will still be unable to provide socio economic services on the required scale. The state must therefore broaden its resource horizon by exploring other sources of 26 Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012 finance such as the domestic capital market and the international development finance institutions-the ECOWAS FUND, AfDB, IDB, and WB. One option is for the state to utilize the opportunities in the domestic capital market by issuing a bond to finance its hugely capital intensive projects- basic infrastructure like roads, dams, water, electricity, industrial & housing estates, markets, commercial office blocks and several other services-oriented, income-yielding projects which can pay for themselves. Such projects can be undertaken in partnership with the private sector-under PPP arrangements.

6. Government must design an empowerment strategy to lift the youth and women out of poverty by providing them with opportunities to earn a living in productive jobs. Studies have shown that growth performance of economies is not sustainable without a conscious, determined effort to distribute gains from growth and fight poverty. The States poverty index [72.5] and unemployment rate are above the national averages. It is imperative to have a coherent, clearly stated poverty alleviation agenda and strategy. The rural populace is particularly vulnerable and Kano must therefore invest to provide support for the people to engage in off-farm economic activities: the cottage industry and empowerment scheme and the rural industrialization scheme should both be reinvigorated by providing sufficient funds for on-lending. In the urban sector, government should provide more support for the informal sector of the economy, build more skill acquisition centers to mobilize the youth and enable them take initiatives and exploit market opportunities as they present themselves. 7. Government should expedite the completion of the new Kano State Development Plan and put an end to stand-alone budgets. Next and subsequent years budgets should be linked to a defined vision for the State. In particular, sectoral budget allocations should be made after a proper evaluation of opportunities and must be linked to identified challenges and to overall state vision. 8. Government must pay particular attention to budget performance. The budget performance index for capital expenditure from 2008-2011 averages 45%. The index was less than 30% in 2009 and only slightly above that in 2011. Government should ensure realistic revenue and expenditure estimates as well as timely releases of funds to MDAs

Table 15: budget performance [capital expenditure 2008-2011]

Year Estimates Actual [N,billion] Variance Index

27

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012

[N,billion] 65.22 72.07 56.19 65.59 259.08 [N, billion] 13.36 54.27 30.14 44.28 142.06

2008 2009 2010 2011 2008-2011

51.86 17.80 26.05 21.31 117.02

79.5% 24.7 46 32.5 5.6%

9. Improve the budget process by ensuring the full participation of relevant stakeholders: Nigerian budget process is mostly viewed as an executivelegislative affair. The general public lacks understanding of the process and hardly gets the opportunity to make contributions in project selection, implementation or monitoring. The government has found the Community Reorientation Committees [CRC] useful in implementing a number of its programmes especially at the grassroots level-and there are no reasons why the Committees should not be similarly employed in budget formulation, sensitization and monitoring [for example use CRC to ensure that communities participate in the selection of projects to be included in budgets.

Table A1: State Economic Empowerment Programmes

Ministry

Programme

2012 vote

Informatio Youth Empowerment N50m n, Youth Programme and Culture Women Affairs and Social
28

Women Empowerment Programme

N250m N20m N20m

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012

Developm ent

N10m People with Special Needs Empowerment Orphans and Vulnerable Children Programme (OVC) Vocational Training, Rehabilitation and Reintegration of Trafficked Children MDG Conditional Grant Scheme N2.4 b

Planning and Budget

Rural and Local Craft Communit Development y Dev. Ministry Programme environme Waste to Wealth nt Project Health Lafiya Jari Participatory Learning and Action for

N10m

2012 vote N15m N50m N50m

29

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012

Community Ownership Commerce and Industry N100m Rural Industrialization Scheme Small Scale Industry Credit Scheme Kwankwasiya Empowerment Programme N2.44b

Office of SSG

Table A3: State Economic Empowerment Programmes

Ministry Programme of Agricultu

30

2012 Vote

Budget Analysis commissioned by CDD. July 2012

Kano State Budget of Economic Restoration and Development 2012

re Development of N100m micro-finance facility for processing clusters Commercial Agric Dev Project N3.4 b

N178m National Programme for Food Security Alliance for Green Revolution in Africa AGRA Animal Traction/Farm Mechanization Institute N32.7m

N400m

31

Budget Analysis commissioned by CDD. July 2012