LETTER TO DELTANS 1: THE INCREASING DEBT BURDEN OF DELTA STATE WITH LITTLE OR NOTHING TO SHOW FOR IT
My dear fellow Deltans,
PROLOGUE
Our attention has been drawn to the latest Domestic Debt Data of the 36 States of the Federation and the FCT as of 31st March 2023, released by the Debt Management Office and once again, Delta State has shamefully come out as the most indebted state in the South-South Region and the second most indebted state in the Federation with Domestic Debt of =N=421,776,084,974.72.
It is mind boggling enough that a state that is reputed to be the highest revenue earner in terms of allocation from the Federation Account can be so indebted to this point. However, the figure referred to, excludes external debt of US$59,871,451.27 (as of December 2022) which if added, will bring Total Debt as of 31st March 2023 to approximately =N=469,673,245,990.72 (at =N=800:US1$).
While we could jump on this information to disparage the outgone government and also the current government (which has promised us M.O.R.E of what we have had for the last 8 years and indeed the last 24 years); without proffering any solutions, just to score cheap political points, we would rather provide an analysis of the State’s debt profile, in relation to its revenue and expenditure in the last 8 years and in comparison with our peers in the South-South Geo Political Zone, to show what could have been done differently to improve the lot of our people. This is in deference to our vision for a Better Delta where righteousness, harmony, and prosperity reigns and in the hope that the current government will learn some lessons and make the required changes to better the lives of our people before we inevitably redeem the state from them.
DEBT STOCK ANALYSIS
Chart 1 shows the trend of Total Debt of Delta State for the last 8 years from Dec-15 to Dec-22 in relation to Mar-23 and as can be seen, Total Debt dropped from =N=338 billion in 2015 to =N=180 billion in 2021 before rising to =N=331 billion in 2022 and =N=470 billion in Mar-23. Given the timing of the debt spike, the reason for this is obvious.
REVENUE ANALYSIS
Chart 2 shows the breakdown of the revenue received by the state over the 8 years between 2015 and 2021 and as can be seen, total revenue increase by approximately =N=203 billion between Dec. 2020 and Dec 2022 while Debt Stock increased by approximately =N=58 billion in the same period.
Chart 3 on the other hand shows the components of the total revenue received in the period and as can be seen the total revenue received in the 8-year period between 2015 and 2022 was =N=2,126 trillion composed of 23% IGR and 77% FAAC allocations. If we assume an average for Q1 2023 and extrapolate to March 2023 total revenue would be approximately =N=2,242 trillion available to the government before increasing debt by a net =N=132 billion in the same period. Consequently, the government had available approximately =N=2,374 trillion to spend during the period.
It may be pertinent at this point to clarify if the arrears of derivation funds that the outgone Governor of Rivers State came out to say was paid to the oil producing states in 2022 is part of this analysis.
From the information available, the sum of =N=240 billion is what accrues to Delta State from the funds which are meant to be refunded over 60 months (5 years), in quarterly instalments. As of Nov 2022, the Delta State Government confirmed that they had received a total of =N=12 billion in 3 quarterly instalments of =N=4 billion each, so apparently, the instalments paid so far (estimated at between =N=12 billion and =N=16 billion) are reflected in this analysis.
EXPENDITURE ANALYSIS
Chart 4 shows the components of recurrent expenditure by the state over the 8 years between 2015 and 2021 and we can clearly see the relationship between personnel costs and overheads.
Chart 5 shows the spending priorities of the state government, which as can be seen, prioritizes overheads over personnel costs, and overall recurrent expenditure over capital expenditure.
PEER COMPARISON
In this section, we compare the financial performance of Delta State in key areas to that of the other 5 states in the South-South Geopolitical Zone using the latest available Budget State of the States Report for the year ended 31st December 2021.
It is vital to note that the 2021 snapshot represents Delta State’s finest financial performance in the last eight years, at a period when overall debt was at an all-time low, as seen in chart 1. Based on current data, with debt at an all-time high, the state is likely to fare considerably worse.
1. Internally Generated Revenue (IGR)
As can be seen from Chart 6, while Delta State is 2nd in IGR in terms of absolute figures, they are 4th in terms of coverage of Recurrent expenditure with less endowed Cross River and Edo States faring better. This is because of the huge level of overheads.
2. Recurrent Expenditure
Chart 7A shows that compared with our South-South counterparts, Delta State’s financial commitments indicate a strong focus on recurrent expenditure and personnel costs. Accounting for approximately 69% of the total revenue, Delta State ranks second worst in recurrent expenditure priority, being surpassed only Akwa Ibom State (82%). In contrast, our neighbors, Rivers spend 38% of total revenue on recurrent expenditure.
In Chart 7B, we see that when it comes to average annual personnel cost, Delta State incurs one of the highest expenses, with a figure of =N=1.9 million per staff, surpassed only by Bayelsa State at =N=2.08 million.
Together, these figures highlight the misplaced priorities of Delta State in its financial planning, laying emphasis on recurrent costs and workforce remuneration rather than developing the state.
3. Capital Expenditure (Capex)
In terms of capital expenditure (CAPEX), Chart 8A shows that Delta ranks third among states in the South-South zone. The state’s CAPEX was =N=128 billion, ranking 3rd behind Rivers State (=N=413 billion) despite roughly equal revenue statistics and Akwa Ibom (=N=154 billion) despite Delta earning nearly =N=136 billion more (chart 6).
When we look at CAPEX as a % of total revenue (Chart 8B), we see a quite different picture. Delta State was 5th, with 39% of total revenue devoted to CAPEX, bettering only Bayelsa (37%). Delta lagged far behind the leading Rivers State, which devoted an incredible 132% of its total revenue to CAPEX, and even trails the next closest states, Cross River (84%) and Akwa Ibom (81%) despite significantly more earnings.
4. Burden
Simply put, the burden is made up of operating expenses and loan repayments which become a compulsory charge on revenue.
As can be seen from Chart 9A, in terms of debt stock, Delta State took a more moderate approach than its South-South counterparts as the state’s loan stock was =N=180 billion as of review date, which was tied for the lowest with Bayelsa and far less than Rivers State, which has a debt stock of N287 billion. As shown earlier, (chart 1) less than 2 years later, Delta’s debt is over 2.5x more at =N=470 billion
However, in Chart 9B, when we evaluate the burden as a percentage of overall revenue, the picture changes because of very exorbitant operating expenses, Delta State’s burden is quite high at 78%, only topped by Akwa Ibom (104%).
5. Rankings
Chart 10A shows that Delta State ranked 12th in terms of fiscal performance, trailing counterparts such as Rivers (1st), Cross River (4th), and Edo (9th).
Chart 10B also shows that Delta State ranked 34th out of 36 states in terms of ease of doing business. Today, the ease of doing business ranking has only worsened with Delta dropping one place to 35th. The low ranking suggest that the business environment is challenging due to factors such as regulatory hurdles, infrastructural deficits, lack of business-friendly policies etc. which all serve as a repellent for investment.
WHAT COULD HAVE BEEN DONE AND SHOULD NOW BE DONE DIFFERENTLY?
We believe that at this point, we can all easily answer this question after the foregoing analysis. However, to make it clearer, we shall, in making the recommendations, support them by drilling down further into what Rivers State (ranked 1st in the Fiscal Performance Ranking, not just in the South-South but amongst the 36 States), did in the period.
1. Develop fiscal discipline and cut down on overheads/ recurrent expenditure to release funds for development
Chart 11 shows the trend of the components of recurrent expenditure of Delta State in relation to total revenue, and as can be seen, overheads mirror total revenue in that, when total revenue drops overheads drop and conversely, when total revenue rises, overheads rise. This buttresses our repeated assertions during the campaigns that the financial problems of Delta State have been brought on by poor management.
On the other hand, as can be seen from Chart 12, Rivers State has developed the fiscal discipline to bring down overheads to the point that despite an increase in personnel costs, the drop in overheads is mirrored in the drop in recurrent expenditure. Consequently, more resources are freed up for development.
2. Prioritize development
Freeing up resources from overheads, will enable the state prioritize development. As can be seen from Chart 13, in the 4 years between 2018 when Rivers State controlled and dropped overheads, (which were never anywhere as high as Delta State levels), they have been able to prioritize development with 67% of their revenues going into Capex while for Delta State, it is the other way round. Clearly, if Delta State can bring overheads to the levels of Rivers, we would free up approximately =N=100 billion annually for development.
3. Borrow for development not consumption.
The picture is a lot clearer with Chart 14 which compares the trend of Capex versus Total Revenues in Delta and Rivers States. You can clearly see the gap between Total Revenues and Capex in the case of Delta, caused by misplaced priorities.
One area that also becomes apparent, is Rivers State borrowing to fund Capex from 2021. This explains the infrastructure revolution in Rivers State in the last few years and has turned out to be a wise decision, considering what those developments will cost now, with the recent increases in exchange rate and other inflationary pressures.
4. Reduce personnel costs and improve efficiencies
Another look at Charts 11 and 12, shows that the trajectory of personnel costs in Delta State versus Rivers State is the same. However, we will recall from Chart 7B that Delta State spends approximately =N=0.49 million annually more per employee than Rivers State, our Delta State staff cost more by approximately =N=27.87 billion annually. Furthermore, if we use a measure of IGR per employee to measure efficiency, we shall find as shown in Chart 14, that Rivers State generate approximately =N=0.7 million IGR more per employee than Delta State. Once again, if we can bring staff costs and efficiencies in Delta State to a parity with Rivers State, we would save another =N=27.87 billion for development.
EPILOGUE
Fellow Deltans,
In the light of news of Delta State’s increasing debt stock, we have taken the opportunity to analyze the State’s fiscal performance in comparison to other states in the South-South geopolitical zone and recommend what could have been done differently and should be done better going forward in the hope that, as we previously stated, the current government will learn some lessons and make the necessary changes to improve the lives of our people.
In doing so, we have used language and visualizations that would make it easy for the common man to understand as we strive to build a better Delta of transparency where our people can begin to hold our government accountable as they should.
In summary, the last eight years have been characterized by a growing debt burden, misplaced priorities, fiscal irresponsibility and an all-round lack of vision and adequate planning for the future. During our analysis and comparison of South-South States in the year end 2021, we have identified roughly =N=120 billion in waste annually that could have been better spent developing the State.
Throughout our campaign, we proposed several initiatives to grow the State’s economy. With annual savings like this, programs like our proposed Delta Social Investment Scheme (DSIS) would be fully funded with just =N=30 billion per annum.
Under the DSIS, we aim to jumpstart the economy of the State from the local government by transparently giving =N=1 million each (interest free loans, payable over 4 years) to 100 people in each of the 25 local governments every month. That would amount to =N= 100 million invested into each local government every month across 25 LGAs. The impact of such programs will be clear, it will allow small and medium sized businesses the opportunity to grow and flourish breathing life into our economy.
There are many other areas like unemployment, multi-dimensional poverty, Local Government administration, DESOPADEC administration etc., that we will address in subsequent letters. In the meantime, we trust that this contribution will have the desired effect of catalyzing increased development in our state for the betterment of our people.
Sincerely yours,
K. Ken Pela
24th July 2023
A better Delta is PO-ssible
