45557 RESTORING URBAN NIGERIA A STRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA Prepared by the World Bank with Nigerian Collaboration Manufactured in the United States of America First Printing December 1995 The material in this booklet is not copyright. Users may make and distribute copies as they wish. The findings, interpretations, and conclusions expressed in this publication are those of the authors and should not be attributed in any manner to the Federal Government of Nigeria or to the International Bank for Reconstruction and Development/The World Bank, to its affiliated organiza- tions, or to the members of its Board of Executive Directors or the countries they represent. Preparation of this booklet was managed by Alan Carroll of the World Bank's Infrastructure and Urban Development Division, West Central Africa Department. A considerable amount of the mater- ial in this booklet was drawn from background papers prepared by Oluwole Komolafe and David Garnvwa, consultants. Doug Addison, Alan Coulthart, Hazel Denton, Maria Kail, Jonadab Metibaiye, Jose Sokol, and James Wright provided valuable comments. The assistance of the Nigerian Federal Ministry of Works and Housing is gratefully acknowledged. TABLE OF CONTENTS I INTRODUCTION ...... . ........... . ........... . .... . ... .. ........ . . . . . .. . ..... . . . . ... . . . .... .7 SUMMARy ......... . ............. . ........ . . . .. ........ . . . . .. . ... . . ....... . ................ .9 The Urban Crisis . .... . ........ . .... . .. . . . . . .. . . . . . ... . ............. . .... . . . ..... . .. . .... .9 Summary of Strategy ....... . ............. . . . . . . . . .. ................. . .................. . .12 Financing Urban Infrastructure and Services . . . .......... . . . . ... .. . . .. . . . . ..... .. . .... . . . .12 Immediate Priorities ......... . ....... . . ..... . ..... . . ............ . ... . . . ......... 12 Agenda for the Medium Term ...... . .................... . .......... . ... . .... . ..... 13 Institutional Arrangements for Urban Infrastructure and Services .... . ..... . .... . .......... . ..15 Immediate Priorities ... . ..... . ....................... . ..........................15 Agenda for the Medium Term ............. . .. . .. . ... . ... . .... . . . .... . .. . ..........17 THE CRISIS OF URBAN INFRASTRUCTURE AND SERVICES ...... . ... . .... . . . . . .. . . . . . . . . . .. . . . ....19 Urban Population Boom . ..... . ... . ...... . ............ . . . ..... . ...... . ......... . .... .. ..... 19 Power of the Urban Economy .. . ..... . ...... .. .... . . . .. . .. . . ...... . . . ... . . . . . .. . .. . . . .... .. .19 Breakdown of Urban Infrastructure and Services .................. . .... . ......... . ........ . . . ...19 Urban Poverty .. . .. . ........ . ... . . . ........ .. ....... . ...... . ....... . . .. . ... .. ... . . . . . ... .20 Urban Pollution .... . ........ . ... . . . . . . . . . . .. .... . . . ... .. ................ . . . ... . .... .....20 Urban Policies in Disarray .. . .. .. .... . . .. .... . . . . .... ... ... . .. . ... . . ...... . .... . . . ..... . ...21 Institutional Problems .......... . . . .... .. ....... . ..... . . . .... . ... . .. . ... . .. .. ...... . . .....22 FINANCING URBAN INFRASTRUCTURE AND SERVICES . . . . " . .. . ... . ...... . . .... ...... . .........25 Immediate Priorities ... .. ..... .. ..... . . . ..... . ....... . ....... . ....... . ..... . . . . . ... . .. . ...26 Reorientation of Public Expenditure .... .... .... . .... . .. . ... . . . . . .... . .. . ......... . . . . ...26 Targeting the Urban Poor .............. . .............. . .... . . . . ... . . . .. . ... . .. . . .... ..27 Assuring Counterpart Funds from States' Annual Budgets . .... . . . ..... . .. . .. .. . . .............27 State Government Accounts .... . ...... . ...... . ..... . ... . ..... .. ... .. .... . ........... . .28 TABLE OF CONTENTS -0- 3 Agenda for the Medium Term ............... . .... .. . ...... . . . ........ ... .. ... . ... . . .. . .. ...28 Mobilizing State and Local Revenues .. . .. . ... . ... . .... . ...... . ............... . ....... ..28 Property Taxes Have Great Potential . . . . ........ . ...... .. . . . . . ...... ..... .... . ... . ......30 Public Sector Borrowing ............... . .... . . . .... . . . .. .. . . . . . . . .... . ................32 Urban Development Bank of Nigeria .. ........ .. . ........ . ..............................32 Alternative Financing Options ........ . .... . . . ...... . ... .. . . ... . .. . .. . .. ... ...... ......34 Liberating Private Investment ........................ . .. . .... . . . . . .................. . ..35 INSTITUTIONAL ARRANGEMENTS FOR URBAN INFRASTRUCTURE AND SERVICES ... . . . ..............37 Immediate Priorities . . . . . . . . . . . . . . . . . . . . . . . . . ................ . ........ . .. .. .....37 Assuring Effective Project Implementation .... . . . . .. ............ . .. ... ..... . . . . ... . ..... .37 Reducing Turnover in Leadership ........................ . ........ . ...... .. . . ....... ... .38 Improving Project Supervision and Technical Assistance .. . . .. .. ........... . . . . . ... . . . .......39 Capacity-Building .................................... .. . . ... . . . ..... . . . ..... . . . .... 040 Private Sector .......... .... .. . . . . . . . . . .. . .... . . ... . .. . . . . . . .. . . . . . . . ..... .. ... . . ...40 Agenda for the Medium Term .............. . . . ......... . . ... .. . .... . . ... . .......... ... .40 Sorting Out Governmental Responsibilities .. .. ... ... . . .. .. . ...... . . . ...... . ...... ..... . . .40 Autonomy and Accountability ............ . ................. . ... . .. . .. .. . .... . ... ... .. .43 Commercialization and Competition ... . ....... ....... . ................. . .............. .43 MATRIX OF ISSUES AND STRATEGIES . . ...... . ...... . .... . .... ...... . .... .. . . . .... .. .. ...... .. .47 ANNEX 1: List of Participants in Seminars on Urban Infrastructure and Services ...... .... . . ..... . ... . ....52 ANNEX 2: Overview of Existing Institutional Responsibilities for the Construction and Maintenance of Infrastructure and Services in Nigeria ........ . .... . . ... ...... ... ....54 ANNEX 3: Summary of State Government Finances ................ . ..... ....... .. . ..... . . . . . . . . ....55 REFERENCES .. . . . .... . . . . . . . ........ . ........... . .. . .. .. ... . . ................... . . . . . ... . ..56 4 o¢' ASTRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA INTRODUCTION T wo of the most critical urban development issues facing Nigeria are the financing of urban infrastructure and the institutional arrangements for dehvery of urban services. These Issues, among the many m urban devel- opment, are the subjects of this document. They have been selected because the problems of urban infrastructure and services are so severe and have such an immediate impact on economic and social development. This document, which has been prepared primarily for dissemination in Nigeria, is intended to assist Nigerian institutions and the donor community to chart their actions over the next several years. The strategy presented here reflects the concerns and needs of Nigerians who are directly involved in urban development. It is the product of intensive discussions held in Nigeria, which culminated in a series of five seminars conducted in March and May of 1995. They included representatives of the Federal Government, State Governments, the banking sector, private contractors and consultants, and academic, research and professional organizations. In total some 70 leading Nigerian officials, managers, and professionals participated in the process (names and organizations are listed in Annex 1). However, the proposals presented in this document are those of the authors and should not be attributed to these individuals. The major challenges facing Nigeria in the field of urban development are, first, to make cities good places for economic development and, second, to provide basic services for urban dwellers, especially the urban poor. The essential ingredients for achieving these goals are urban infrastructure, a supportive urban policy framework, and institutional capacity. The World Bank has provided assistance for improving urban infrastructure and services in Nigeria through sev- eral projects since 1980. There are presently three Bank-supported urban infrastructure projects under implementa- tion: the Infrastructure Development Fund (IDF) project, the OyojOsun State Urban Project, and the Lagos Drainage and Sanitation Project. The improvement of urban infrastructure and services, an essential element for national eco- nomic development, will continue to be an important part of the World Bank's assistance to Nigeria. INTRODUCTION -0- 7 SUMMARY THE URBAN CRISIS U RBAN POPULATION BOOM: Nigeria is urbanizing at an astonishing pace. The share of Nigeria's urban popula- tion increased from 20% in 1970 to about 38% in 1993. Of the nearly 110 million Nigerians, about 40 mil- lion are now living in cities and towns. The urban population grew at around 5.5% per year from 1980 to 1993 (compared with 2.9% for the national population). This is among the highest urban growth rates in the world, due mainly to migration from rural to urban areas. At current rates the number of urban dwellers will double in only 13 years. This is equivalent to adding a city of three million each year. Such growth is creating an immense and largely unmet demand for urban services such as water, sanitation, roads, public transport, and waste disposal. POWER OF THE U RBAN ECONOMY: Urbanization is a positive force in economic development. Cities and towns are the home of most industry, commerce, and services. These sectors of the economy can be highly productive. Worldwide, higher per capita incomes are closely related to higher levels of urbanization. Urban-based, non-oil industry and services accounted for about half of Nigeria's Cross Domestic Product (CDP) between 1985 and 1994. Thus, average per capita income in urban areas is about one third higher than in rural areas. This is the basic reason that people migrate to cities: they are searching for better economic opportunities. The econorn.ic pressures behind urbanization are very powerful. World-wide experience shows that it is not practical to try to slow down migration to urban areas. Rather, efforts should be focused on reducing population growth nationally. BREAKDOW OF I FRASTRUCTURE AND SERVI ES: The physical condition of Nigeria's urban infrastructure-water sup- ply, sewerage, sanitation, urban roads, electricity, drainage, waste disposal-is generally poor. For example, only about half of the people in Nigeria's urban areas have access to piped water in or around their homes. All types of infrastructure suffer from a massive backlog of neglected rehabilitation and maintenance, not to speak of the invest- ments needed to serve future growth. SUMMARY -0- 9 Periodic and routine maintenance, by far the most U RBAN POVERTY: A large number of people in Nigeria's cost-effective types of infrastructure expenditures, are urban areas do not have enough income to meet their almost nil. Instead, the norm is to wait for an infusion basic needs. About 21 % of the urban population-8.S of capital for rehabilitation. In effect, it has become million people-was estimated to be below the poverty more convenient to replace than to maintain. But line in 1992/93. Of these, about l.1 million were clas- declining financial resources is making this less and sified as severely poor". The vast majority of the /I less feasible. As a result, deterioration is accelerating. urban poor are in cities other than Lagos. Their cash Most manufacturing and commercial establish- income is insufficient to cover minimal standards of ments in Nigeria have their own electricity generators. food, water, fuel, shelter, medical care, and schooling. In the face of chronically unreliable public services, The urban poor live in areas with bad environmental many also have acquired radio equipment for commu- conditions and the highest deficits of basic services. nications, vehicles to transport personnel and freight, They suffer more than other groups from the break- and boreholes to assure their own private water supply. down of urban infrastructure, especially in terms of These extra costs add from 10% to 2S % to the total poor health and accessibility. Income generating activi- machinery and equipment budget of firms. Inadequate ties of the poor are mostly in the informal sector. public services can also raise costs for the urban poor, Unemployment and underemployment are common. who either rely on alternative, costly providers (such The burden of coping with unreliable and inadequate as water venders) or spend large amounts of time (as in household services falls disproportionately on women fetching water from inconvenient sources). and children. U RBAN POLLUTIO : Poor management of municipal wastes-sewage, septage, and refuse-is Nigeria's major urban environmental problem. Improving waste management is more of a policy and management issue than a technical one. Industrial waste is another major urban environmental concern. Textile plants, breweries, slaughterhouses, sugar refineries, pulp and paper plants, and petroleum industries discharge raw, untreated, and often toxic liquid effluents into open RAPID URBAN gutters, streams, drains, channels, and lagoons. This GROWTH IS CREATING has rendered most surface and underground waters AN I MMENSE AND around urban areas unsafe for human, agricultural, or LARGEI.Y UNMET recreational use. All of the urban environment-air, DEMAND FOR URBAN land, and water-is affected by smoke, gases, and dust SERVICES SUCH AS from motor vehicles and factories. WATER. SANITATION. ROADS. PUBI.IC INSTABILITY: In recent years, Nigeria's institutions, TRANSPORT. AND leadership and policies have been subject to sudden, WASTE DISPOSAL. unpredictable change. Uncertainty and the ensuing 10 ./)0 A STRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA lack of confidence are the most serious, immediate THE POOR SUFFER MORE THAN OTHER GROUPS FROM THE constraints on the improvement of urban services. BREAKDOWN OF URBAN INFRASTRUCTURE, ESPECIALLY IN They make it difficult to plan ahead and to maintain TERMS OF HEALTH AND ACCESSIBILITY. implementation schedules. They defeat efforts to build sustainable institutional capacity. deficits fuel increased inflation, which in turn must be URBAN POLICIE IN DI ARRAY: A National Urban arrested through tight fiscal and monetary policies. Development Policy was prepared in 1992 under the The successful implementation of stabilization poli- guidance of the Federal Ministry of Works and cies requires positive real interest rates, which in nom- Housing. It was developed through widespread consul- inal terms are high enough to hamper the financing of tations with governmental and non-governmental urban services. Large subsidies for fertilizer, petrol, and organizations. Though it has yet to be adopted official- loss-making government enterprises drain revenues ly, this policy document provides a good foundation for away from more productive uses. Inadequate controls future action. on public expenditures, large extra-budgetary alloca- In the meantime, other policies are having nega- tions, and a lack of fiscal accountability and trans- tive effects on urban productivity and welfare. Fiscal parency hinder the allocation of resources for badly- SUMMARY -0- 11 needed infrastructure and social services. and maintenance to non-government entities. The development of urban land and housing in EFFECTIVE LOCAL GOVERNMENTS: A critical problem Nigeria is severely constrained by government con- affecting urban development in Nigeria is the non- trols. State ownership keeps large quantities of land off functioning of Local Governments. LGs were led by the market. Parcels of land for development are locally-elected councils and elected chairmen from extremely difficult to acquire from the mostly nation- 1976 to 1993. Today LGs are little more than caretak- alized land stock. A certificate of occupancy for a par- ers, unable to carry out their assigned functions. The cel can take from one to five years to obtain. large number of LGs-585-is a huge administrative Uncertain land titles impede the development of urban and fiscal burden for States and the Federal land for productive purposes and the use of land as col- Government. It also means that the scarce trained lateral for credit. Compliance with planning, subdivi- manpower available in Nigeria must be spread even sion, and building regulations is extremely costly in more thinly across the many LGs. time and money. Liberalization of land markets is needed to expand the supply and lower the cost of land and housing. SUMMARY OF STRATEGY Barriers to participation of the private sector in different aspects of urban infrastructure and services FINANCING URBA INFRASTRUCTURE A ND SERVICES need to be removed. These include prohibitions on the Immediate Priorities private ownership and management of services (such as electricity, water, or telecommunicationslj lack of FEDERAL PUBLIC EXPENDITURE: Reorienting public clear laws allowing lease and concession arrangements expenditures to reduce waste can free resources for for infrastructure servicesj and excessive political high-priority social needs, including urban infrastruc- involvement in management issues, including lack of ture. The Federal and State governments should reduce predictable, transparent mechanisms for tariff-setting. the number and cost of publicly-funded capital pro- jects, keeping only those with the highest social and GOVERNMENT CANNOT DO EVERYTHI G: The widely economic returns. Unaccountable and extra-budgetary held view that government should handle all urban expenditures should be brought under control. The development activities is another big problem. This programme to privatize and commercialize state- idea persists even in the face of the obvious weakness- owned enterprises should be reinvigorated and expand- es of public sector institutions: inadequate budgets, ed. Expenditure priorities should move away from low remuneration of employees, poor management competition with or duplication of the private sector. practices, and political interference, to name a few. Experience shows that competitive markets-mainly T ARGETlNG THE URBAN POOR: Poverty alleviation involving private actors-are both the most efficient should be among the highest priorities of any urban way to supply goods and services and the most development strategy. Modest investments can make a accountable to users' needs. Government's role usually large improvement in the lives of the urban poor. can be limited to policy-making, regulation, owner- Upgrading of basic services such as water, sanitation, ship, or financing, leaving actual investment, operation roads, solid waste, and street lighting in lower-income 12 .:- A STRATEGY FOR RESTO RIN G URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA urban areas have direct impacts on the welfare and productivity of the poor. These types of infrastructure investments should be part of broader programs encompassing employment generation, primary health, and education. GOVERNMENT FuNDING PRIORITIES: Government funds should be used preferentially for infrastructure that is purely public or not usually profitable: roads, drains, water supply, sewers, waste disposal facilities, and the like. Government should rely on the private sector to finance commercially viable ventures such as housing estates or markets. Housing should be provided through the private sector, with government's role restricted to putting in place policies and regulations that promote the supply of affordable financing and the functioning of land markets. DEDUCTION AT SOURCE FOR COUNTERPART FUNDS: The use of the Standing Payment Order (SPO-deduction at source from the federation account) to guarantee the availability of counterpart funds was a successful inno- REORIENTING PUBLIC EXPENDITURES TO REDUCE WASTE vation of the World Bank-assisted Infrastructure CAN FREE RESOURCES FOR HIGH-PRIORITY SOCIAL NEEDS. Development Fund (IDF) project. It has gained general I NCLUDING URBAN INFRASTRUCTURE. acceptance, and it should continue to be used in future projects. A ge nda for the Medium Term STATE GOVERNME T ACCOUNTS: Simple improvements in financial accounting and reporting could be taken to URBAN DEVELOPMENT BANK: To become a viable permit States to make informed decisions about their financial intermediary for federal government invest- indebtedness and counterpart fund commitments. ments in infrastructure, the Urban Development Bank State Ministries of Finance would need to keep better of Nigeria needs to: (a) ensure that operating expenses records of SPOs and loans. The Central Bank of are limited to what can be covered by net income; (b) Nigeria and Federal Ministry of Finance would also establish coherent lending policies, including the use need to establish a coherent data base on SPOs and of market interest rates; Ie) adopt a clear strategy for other deductions from the federation account shares of maintaining the value of its paid-in capital and mobi- each State. Such data would make States more attrac- lizing additional funds; (d) limit its mandate to urban tive to lenders and investors by facilitating creditwor- infrastructure and related technical assistance; (e) thiness appraisals. establish an autonomous, professional Board as free as SUMMARY ~ 13 possible from political interference; and (f) put in place the quality of their services and will lack an incentive a reliable external audit system. to pursue cost recovery diligently. FEES FOR SERVICES: Public utilities are trapped in a STATE AND LOCAL REVENUE MOBILIZATIO : Much cycle of poor performance and low revenues. Obtaining needs to be done to induce the States and LGs to real- more income from user charges is essential for improv- ize the vast untapped potential of the revenue sources ing piped water, sewerage, electricity, and house-to- under their control: the personal income and value house refuse collection. Only those public agencies added taxes of the States and the property tax of the with strong, professionally capable management and LGs. In the long term the Federal Government should political support will be able to produce enough tangi- consider ways of dealing with the disincentive for ble results to justify raising tariffs and intensifying bill State and Local revenue mobilization due to the large collection. State and LG agencies that collect user fees federation account transfers. The options include: for services must be allowed to retain their fee rev- [a) Requiring that transfers be for capital investments enues rather than hand them over to general treasuries. only, so that States and LGs would be obliged to meet Without this, the agencies will be unable to improve recurrent costs by themselves; (b) Converting a part of the transfers to matching grants, which would only be given if the State or LG put up a specified amount. PROPERTY TAXES: Property taxes are by far the largest untapped potential source of revenues for urban infra- structure and services. In the short to medium term, joint efforts by States and concerned Local Governments will be needed. It is essential to devise an agreement that gives both parties adequate incen- tives to deliver results. In principle, property rating and property tax collection should be done by the level of government responsible for the provision of ser- vices. In the present situation, this will be the State. However, it is necessary to obtain support and cooper- ation from the LGs (including middle-level officials), traditional leaders, and community leaders at an early stage. Traditional leaders should receive some incen- tive for cooperation where this is essential for success. The use of contracted professional valuers and com- missioned collectors was successful under the IDF pro- ject and should be expanded. Flaws in previous State edicts regarding property tax collection and powers of enforcement should be corrected. However, care 14 ~ A STRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA THE CREATION OF CAPABLE LOCAL GOVERNMENTS IS ESSENTIAL FOR IMPROVING MOST UR6AN SERVICES. should be taken not to set precedents that will allow States to retain property tax powers in the long run. Where property tax collection remains difficult, "spe- cial assessments" may be tried. These are one-time levies on local residents who benefit from a specific improvement such as a road or a new drain. To suc- ceed, this mechanism is best managed through local leaders or organizations that enjoy public trust. MORE PREDICTABLE REVENUE FLOWS: Infrastructure financing would be helped enormously if the flow of statutory allocations could be made more predictable. This should be part of a rationalization of the budget- ing process. The eventual goal would be a State (and later LG) capital budgeting system in which revenue projections can support an investment program of spe- cific, prioritized projects. E ABU G ENVIRO M£NT FOR DOMESTIC FINANCING: investors, States may also establish sinking fund Annual budget surpluses and federal grants will not be accounts for redemption of debt obligations on maturi- enough to pay for many larger-scale investments in ty. This would help forestall undue financial pressures urban roads, water systems, primary drains, and the on the issuers. The most favoured method of payment like. The only alternative will be debt financing by into such accounts would be through SPO. States and, eventually, Local Governments. A top-pri- ority long-term goal of government policy should be to INSTITUTIONAL ARRANGEMENTS FOR URBAN facilitate the use of the domestic capital market for INFRASTRUCTURE AND SERVICES infrastructure. For this, fiscal and monetary discipline Immediate Priorities are required to bring inflation down and allow market interest rates to settle down to affordable levels. ASSURING EFFECTIVE IMPLEMENTATION: Nigeria's polit- Furthermore, the government needs to come to grips ical situation places severe restrictions on the public with the crisis of the banking sector, restoring a credi- sector's capacity for policy-making and management at ble and effective regulatory system. The Federal all levels. To assure effective implementation of pro- Government should adopt the Securities and Exchange jects, various forms of special Project Implementation Commission's proposals to facilitate easier access of Units (PIUs) will be needed to insulate World Bank and States to the capital market. To promote confidence by other donor-funded projects from political interference SUMMARY -0- 15 and instability, Use of private contractors to staff key with a franchise could be tried, Community-managed positions in PIUs has worked well and should contin- fee collection could be introduced in lower income ue, The use of Project Steering Committees, composed areas, An independent regulatory authority is needed of senior civil servants from key agencies, has been to license refuse collectors, set tariffs (according to helpful in buffering projects from frequent political objective criteria) and establish contract zones, leadership changes and ensuring continuity of imple- LIMITED SCOPE OF PROTECTS: Implementation arrange- mentation, ments for specially-funded projects within any given COMMUNITY PARTICIPATIO : Opportunities should be State need to be kept as simple as possible. Projects sought for community-based organizations to serve as should include only the most essential components, implementing agencies for small, local urban infra- Where two or more agencies must be involved, much structure projects, more careful attention should be paid to ensure that the coordination arrangements are truly workable, It is PARTICIPATION BY BODIES RESPONSmLE FOR O&'M: most efficient for a single Project Implementation Unit Where LGs or other local entities are expected to take to manage all components of a project or program. over O&M of projects executed by higher levels, it is Having various implementing agencies tends to foster essential that such groups participate substantively in delays and obscure accountability for good or bad per- the planning and implementation, Otherwise, they formance, Projects covering many States are difficult will not feel any sense of responsibility for O&M, to supervise and lead to a scattering of small projects, PRIVATE SECTOR: Much can be done in the short term reducing the development impact. For the time being, to extend the participation of the private sector in the World Bank infrastructure projects should be limited to provision of urban infrastructure and services, Among two or three adjacent States. The idea of a national the main measures are: infrastructure "wholesaling mechanism", as originally · Water: Service contracts for billing, tariff collection envisioned in the IDF, can be revived again in the and maintenance can be instituted relatively easily, longer term. Some State Water Boards are good candidates for man- ORGANIZATIO AL ISSUES: Because of the highly cen- agement contracts (contractor bears no commercial tralized financial controls currently used by the States, risk) or lease contracts (contractor bears commercial heads of infrastructure projects and agencies should be risk), If these succeed, private enterprise could assume as close as possible to the highest levels of authority, concessions (where the contractor also makes invest- Ideally, a project or agency director should have a ments), direct reporting relationship to the relevant · Solid Waste: The negative experience with Lagos Commissioner, who in turn reports to the State Administrator. Experience shows that it is best for an Waste Management Authority (described in Section IV) urban infrastructure project or program to be managed shows the need for a private sector alternative, Contracting out vehicle maintenance is one possibility, in the Ministry directly responsible for the sector. This Ways should be sought to contract out refuse collec- ensures that technically qualified staff are available. It tion in a systematic way, If full cost recovery from also reduces problems of inter-agency coordination, user fees is impossible, a hybrid of a service contract Where a project director must coordinate the activities 16 o(io A STRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA of other agencies, mercial principles. The essential requirements are [a) it is crucial that institutional autonomy, (b) professionally qualified he/she have a suf- management, and (c) the power to charge adequate tar- ficiently high rank iffs and control staffing. Tariff-setting needs to be done to do this effec- objectively, based on clearly defined guidelines. tively. When pro- STRENGTHENING LOCAL GOVERNMENTS: Many types of jects or programs urban infrastructure and services are best managed by are started, agree- Local Governments. States are too large and too popu- ments should be lous for State Governments to handle local services put in place to effectively. The creation of capable Local Governments prevent the arbi- should be among Nigeria's highest long-term priorities. trary removal of Several issues need to be addressed in the longer term project directors once conditions permit LGs to assume their constitu- and staff once tional functions. These include: they have demon- · Defining LG responsibilities more clearly, including strated their capa- distinguishing between types of LGs [urban and rural). bilities. · Making revenue transfers to LGs more predictable. TECHNICAL SERVlCES: More use should be made of · Providing incentives-through the transfer system- domestic consultants and non-profit organizations for and technical assistance for LGs to increase their inter- technical services under urban development projects. nal revenues. · Improving the technical and management capacity Agenda for the Medium Term of LGs (including the shedding of functions better per- formed by the private sector). ASSISTING TATES THAT SHOW C OMMITME 1': The · Giving LGs meaningful involvement in planning (of "demand-driven" approach used in the IDF project has investment programs and physical planning). been positive. Funds have been channeled to States that demonstrated the most motivation by promptly PRIVATIZATIO OF HOUSING AND SERVlCED LAND: The submitting acceptable proposals and arranging SPOs to provision of housing and serviced plots should be left set aside counterpart funds. The more committed entirely to the private sector, with government being States tend to be more successful in implementation. responsible for (a) laws and regulations that encourage This approach could be used again when it is feasible the availability of land and financing, and (b) the provi- to re-introduce a "wholesaling" approach to infrastruc- sion of trunk infrastructure. ture financing. 101 T BOARDS FOR LARGER CITIES: LGs that are part of PUBLIC UTILITY REFORM: Public utility agencies that larger cities need to form joint boards to manage ser- provide urban services (such as water or solid waste) vices requiring efficiencies of scale and wide geographi- need to be restructured to operate according to com- cal coverage. LAWMA was an example of this. SUMMARY -Ca 17 THE CRISIS OF URBAN INFRASTRUCTURE AND SERVICES URBAN POPULATION BOOM GRAPH 1 : N igeria is urbanizing at an astonishing pace (see Graphs I and 2). The share of GROWTH I N Nigeria's urban population increased from 20% in 1970 to about 38% NIGER I AN In 1993. URBAN There are about 40 million people now living in Nigeria's cities and towns. While the POPULATION national population grew at an average of 2.9% per year from 1980 to 1993, the urban popu- lation grew at around 5.5% per year in this period. This is among the highest urban growth rates in the world, due mainly to migration from rural to urban areas. At current rates the number of urban dwellers will double in only 13 years. This is equivalent to adding a city of three million each year. POWER OF THE URBAN ECONOMY 1970 T he economic pressures behind urbanization are very powerful. World-wide experience shows that it is not practical to try to slow down migration to urban areas. Rather, efforts should be focused on reducing population growth nationally. Urbanization is a positive force in economic development. Cities and towns are the home of most industry, commerce, and services. These sectors of the economy can be high- ly productive. Worldwide, higher per capita incomes are closely related to higher levels of 1993 urbanization. Urban-based, non-oil industry and services accounted for about half of Nigeria's Gross Domestic Product (GDP) between 1985 and 1994. Thus, average per capita income in urban areas is around one third higher than in rural areas. This is the basic rea- son that people migrate to cities: they are searching for better economic opportunities. BREAKDOWN OF URBAN INFRASTRUCTURE AND SERVICES 2010 T he physical condition of Nigeria's urban infrastructure-water supply, sewerage, sanita- THE CRISIS OF URBAN INFRASTRUCTURE AND SERVICES ~ 19 tion, urban roads, electricity, URBAN POVERTY GRAPH 2: drainage, waste disposal-is gen- A large number of people in Nigeria's urban areas do URBAN erally poor. For example, only POPU L AT I ON not have enough income to meet their basic needs. about half of the people in O F N IG ERIA About 21 % of the urban population-8.S million peo- 1 993 / 201 0 Nigeria's urban areas have access ple-was estimated to be below the poverty line in to piped water in or around their 1992/93. Of these, about l.1 million were classified as homes. All types of infrastruc- 1001\1 "severely poor". The majority of the urban poor are in ture suffer from a massive back- cities other than Lagos. Their cash income is insuffi- log of neglected rehabilitation cient to cover minimal standards of food, water, fuel, and maintenance, not to speak shelter, medical care, and schooling. The urban poor of the investments needed to live in areas with bad environmental conditions and serve future growth. the highest deficits of basic services. They suffer more Periodic and routine mainte- than other groups from the breakdown of urban infra- nance, by far the most cost-effec- structure, especially in terms of ill health and lack of tive types of infrastructure accessibility. Income generating activities of the poor expenditures, are almost nil. are mostly in the informal sector. Unemployment and 1993 2010 Instead, the norm is to wait for underemployment are common. The poor lack access an infusion of capital for rehabil- to productive resources such as credit, equipment, and itation. In effect, it has become more convenient to land. The productivity of the resources that they do replace than to maintain. But declining financial own is low. The burden of coping with unreliable and resources is making this less and less feasible. As a inadequate household services falls disproportionately result, deterioration is accelerating. on women and children. Most manufacturing and commercial establish- ments in Nigeria have their own electricity generators. URBAN POLLUTION In the face of chronically unreliable public services, many also have acquired radio equipment for commu- R apid growth of cities has had a harmful effect on nications, vehicles to transport personnel and freight, surrounding eco-systems. Urban environmental prob- and boreholes to assure their own private water supply. lems fall into two major categories: industrial and For firms with 50 or more employees, these extra costs non-industrial. Poor management of municipal amount to some 10% of the total machinery and wastes-sewage, septage, and refuse-is Nigeria's equipment budget. For small firms the burden is as major urban environmental problem. Improving waste high as 25%. Inadequate public services can also raise management is more of a policy and management costs for the urban poor, who either rely on alterna- problem than a technical one. The issues are discussed tive, costly providers [such as water venders) or spend in Part N of this document. large amounts of time [as in fetching water from Industrial waste is another major urban environ- inconvenient sources). mental concern. Textile plants, breweries, slaughter- houses, sugar refineries, pulp and paper plants, and petroleum industries discharge raw, untreated, and 20 -0- A STRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA often toxic liquid effluents into open gutters, streams, RAPID GROWTH OF CITIES HAS HAD A HARMFUL EFFECT drains, channels, and lagoons. This has rendered most ON SURROUNDING ECO-SYSTEMS. POOR MANAGEMENT surface and underground waters around urban areas OF MUNICIPAL WASTES IS NIGERIA'S MAJOR URBAN ENVI- unsafe for human, agricultural, or recreational use. All RONMENTAL PROBLEM. of the urban environment-air, land, and water-is affected by smoke, gases, and dust from motor vehicles ernmental organizations. Though it has yet to be and factories. The most critical airborne emissions are adopted officially, this policy document provides a sulfur dioxide, carbon monoxide, and nitrogen oxides, good foundation for further action (see Box 1, page 22). which pose serious health hazards in urban areas. In the meantime, other policies are having nega- Industrial and air pollution need to be dealt with by tive effects on urban productivity and welfare. Fiscal enforced regulation coupled with economic incentives deficits fuel increased inflation, which in turn must be to change the behavior of industries and users of motor arrested through tight fiscal and monetary policies. vehicles. The successful implementation of stabilization poli- cies requires positive real interest rates, which in nom- URBAN POLICIES IN DISARRAY inal terms are high enough to hamper the financing of A National Urban Development Policy was prepared urban services. Large subsidies for domestic oil, fertil- in 1992 under the guidance of the Federal Ministry of izer, and loss-making government enterprises drain Works and Housing. It was developed through wide- revenues away from more productive uses. Inadequate spread consultations with governmental and non-gov- controls on public expenditures, large extra-budgetary THE CRISIS OF URBAN INFRASTRUCTURE AND SERVICES -0- 21 allocations, and a lack of fiscal accountability and extremely difficult to acquire from the mostly nation- transparency hinder the allocation of resources for alized land stock. A certificate of occupancy for a par- badly-needed infrastructure and social services. cel can take from one to five years to obtain. The development of urban land and housing in Uncertain land titles impede the development of urban N igeria is severely constrained by government con- land for productive purposes and the use of land as col- trols. State ownership keeps large quantities of land off lateral for credit. Compliance with planning, subdivi- the market. Parcels of land for development are sion, and building regulations is extremely costly in time and money. Liberalization of land markets is needed to expand the supply and lower the cost of land Box 1: NATIONAL URaAN and housing. DEVELOPMENT POLICY Finally, barriers to participation of the private sec- tor in different aspects of urban infrastructure and ser- TheNationalUrban I vices need to be removed. These include: Development Policy was prepared in 1991-92 · Prohibitions on the private ownership and manage- by a committee of 14 dis- ment of services, such as electricity, water, or telecom- tinguished experts. The committee conducted munications. meetings with a wide · Lack of clear laws and regulations enabling lease and range of people and reviewed 70 memoranda from concession arrangements for infrastructure services. governmental and non-governmental sources. Here are a few selected highlights of the NUDP's report: · Excessive political involvement in management · A National Urban and Regional Development issues, including lack of predictable, transparent mech- Commission should be established as the apex urban anisms for tariff-setting. development organization in the government. · States and Local Governments should have Urban INSTITUTIONAL PROBLEMS and Regional Development Boards and Authorities, respectively. P olitical instability is the most serious, immediate constraint on the improvement of urban services. · The Land Use Decree of 1978 should be reviewed Instability makes it difficult to plan ahead and to with a view to making land more easily available and affordable. maintain implementation schedules. It defeats efforts to build sustainable institutional capacity. · The participation of the private sector in the provi- The widely held view that government should sion of in&a8tructure should be encouraged. handle all urban development activities is another big · The Urban Development Bank of Nigeria should be problem. This idea persists even in the face of the supported to become an effective provider of loan obvious weaknesses of public sector institutions. In funds and technical assistance for urban infrastruc- ture. Nigeria it is often said that, if only government agen- cies had more money, they would perform much bet- · Cost recovery mechanisms for urban infrastructure ter. This ignores world-wide lessons about the limita- and services should be established and strengthened. tions of public sector management. Experience shows 22 -0- p.STRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERV I CES IN NIGERIA THE WIDELY HELD VIEW THAT GOVERNMENT SHOULD HANDLE ALL URBAN DEVELOPMENT ACTIVITIES PERSISTS EVEN IN THE FACE OF THE OBVIOUS WEAKNESSES OF PUBLIC SECTOR INSTI- TUTIONS. that competitive markets-mainly involving private LGs were led by locally-elected councils and elected actors-are both the most efficient way to supply chairmen from 1976 to 1993. Today LGs are little goods and services and the most accountable to users' more than caretakers, unable to carry out their needs. Also, the scope of activity in which government assigned functions. The large number of LGs-585-is intervention is required is narrower than previously a huge administrative and fiscal burden for States and believed. Usually it can be limited to policy-making, the Federal Government. It also means that the scarce regulation, ownership, or financing, leaving actual trained manpower available in Nigeria must be spread investment, operation and maintenance to non-govern- even more thinly across the many LGs. It appears that ment entities. State interference in LGs' activities has contributed to It is difficult enough for government agencies to their weakness. Examples include States appropriating perform their policy making and regulatory functions. LG revenue sources, reducing or withdrawing LGs' They do suffer from inadequate resources. Low remu- statutory allocations, and switching functions to or neration, lack of equipment and supplies, and poor from LGs without adjusting their finances. management practices severely depress the perfor- Annex 2 gives an overview of Federal, State and mance of the public sector. Local responsibilities for construction and mainte- A critical problem affecting urban development in nance of infrastructure and services. It highlights the Nigeria is the non-functioning of Local Governments. degree of overlap that exists. THE CRISIS OF URBAN INFRASTRUCTURE ANO SERVICES ~ 23 FINANCING URBAN iNFRASTRUCTURE AND SERVICES S evere under-investment is plainly visible in Nigeria's roads, water systems, drains, and other infrastructure. Because of fragmented accounting, it is difficult to know how much is being spent by the Federal Government, States, and Local Governments on urban infrastructure. Large amounts of urban infrastructure and ser- vices are provided directly by households, private firms and community groups. Estimating Nigeria's future investment requirements for urban infrastructure depends on many uncertain assumptions about economic trends, population growth, prices, and design standards. Undoubtedly, though, the amount of investment needed greatly exceeds what Nigeria, with a GNP per capita of US$280 (1994), will be able to afford in the foreseeable future. It was estimated in 1987, for example, that about US$800 million would be required only to rehabilitate existing urban and semi-urban water supply systems. A limited amount of funding for urban infrastructure is being provided by multilateral agencies such as the World Bank and African Development Bank. The total value of World Bank loan/credit commitments for urban infrastructure projects (including water supply) between 1987 and 1995 was US$878 million. Commitments by the African Development Bank over the same period totaled US$884 million. Multilateral financing flows have been and probably will remain small relative to the nation's needs. Lack of funds is not a root cause of poor infrastructure and services. It is a symptom of more fundamental prob- lems. These include instability, lack of confidence, distorted economic policies, and difficulties of governance. The mobilization of public and private funds for urban infrastructure depends, in the long run, on the alleviation of these problems. Everyone in Nigeria feels the effects of inadequate operation and maintenance of urban services. Road surfaces become covered with potholes. Water pipes break. Drains fill with silt and rubbish. Waste collection trucks cannot run due to lack of fuel and spare parts. Buses break down as they ply their routes. More than 90% of all public sector revenues are collected by the Federal Government. At the same time, States and LGs have the legal responsibility for providing almost all infrastructure and social services (including public health and education). As the allocation of revenue generating powers is unlikely to change in the medium term, FINANCING URBAN INFRASTRUCTURE AND SERVICES <- 25 States and LGs will continue to require large Federal transfers to fulfill their mandated functions. There has been a continuing debate in Nigeria about whether the States and LGs are receiving enough money from the federation account to provide the pub- lic services for which they are responsible. It is argued that the current formula for sharing out the federation account (Federal 48.5%i States 24%i LGs 20%i and special funds 7.5%) guarantees that State and locally provided services will be inadequate. This argument ignores the enormous untapped potential of internal revenue mobilization by States and LGs. Regardless of whether or not it makes sense to change the federation account sharing formula, States and LGs have the obligation to collect more rev- enues from user fees and their own taxes. SCARCE GOVERNMENT RESOURCES SHOULD NOT BE USED IMMEDIATE PRIORITIES TO COMPETE WITH OR DUPLICATE ACTIVITIES BEST DONE BY THE PRIVATE SECTOR. REORJENTATION OF PUBLIC EXPENDITURE T he first place to look for additional funds for invest- ment in urban infrastructure is the existing Federal years. The fertilizer subsidy has been proven ineffec- budget, which accounts for more than 90% of all pub- tive and exceedingly costly. At the same time, lic revenues and consumes close to half of total nation- approved allocations for maintenance of existing capi- al public expenditures. Currently, administrative and tal assets, as a share of GDP, fell 21 % between 1989 security functions claim the highest share of expendi- and 1993. tures from the treasury, the foreign exchange budget, Reduction of wasteful public expenditures is and extra-budget sources such as the stabilization essential to free resources for high-priority social accounts. Economic services (agriculture, industry and needs, including basic infrastructure. Even so, scarce housing), which in Nigeria's case generally compete available resources are not always used for the most with or duplicate the private sector, are also large productive or beneficial projects. The preferred criteria claimants. Over-spending and extra-budgetary spend- for selecting projects include cost-effectivenessi good ing increased rapidly, from near zero in 1986-89 to financial, economic, and social returnsi affordabilitYi 17% of GDP in 1993. A majority of this increase was and actual demand by potential users. spent on a huge portfolio of large, un-economic capital Considerable resources can be made available by projects. There have also been large increases in real reforming public expenditures. Government should terms in the public wage bill and subventions to loss- reduce the number and cost of publicly-funded capital making public enterprises during the past several projects, keeping only those with the highest social 26 -0- A STRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERV I CES IN NIGERIA and economic priority. Unaccountable and extra-bud- in lower-income urban areas have direct impacts on getary expenditures should be brought under control. the welfare and productivity of the poor. These types Government should reinvigorate and expand the pro- of infrastructure investments should be part of broader gram of privatization and commercialization. Budget programs encompassing employment generation, pri- support to public enterprises should be phased out. mary health, and education. Expenditure priorities should not compete with or duplicate activities of the private sector. Instead, the ASSU1UNG COUNTERPART FuNDS FROM STATES' top priorities in public expenditure should be primary ANNUAL BUDGET ' and secondary education, primary health care, and U nder World Bank-supported projects, States are nor- basic infrastructure and serVIces. mally required to contribute a share (from 10% to The States should eliminate low priority, low- 25 %) of total project costs. The current, typical prac- return projects from their investment programmes. tice is to deduct the needed amounts from the States' States' capital budgets should be focused on a few pro- statutory allocations at the Central Bank of Nigeria jects with high economic and social returns, and these (CBN). The deductions are made through Standing should be adequately funded to complete them on Payment Orders (SPOs) authorized by the States. schedule. Efforts are needed to implant and dissemi- In the IDF project it has become customary for nate methods for project appraisal. Their use should States to begin "saving" toward their required counter- make it easier to identify projects for which there is part contributions by starting their SPOs some time high demand by potential users. before the funds are needed. The subprojects under IDF Government's funds should be used preferentially have been modest in size. The main problem has been for infrastructure that is purely public or not usually high inflation, which has dramatically increased pro- profitable: roads, drains, water supply, sewers, waste ject costs compared with design estimates. disposal facilities, and the like. Government should The World Bank-supported Lagos Drainage and rely on the private sector to fmance commercially Sanitation Project requires Lagos State to contribute a viabJe ventures such as housing estates or markets. total of US$20.8 million from its own budget over the Housing for lower-income people should also be pro- 1994-98 period. This large amount is being deducted vided through the private sector, with government's periodically from Lagos State's federation account. role restricted to putting m place policies and regula- Lagos State is unique in that it generates most of its tions that promote the supply of affordable financing budget from internal revenue (71 % in 1993). It collect- and the functioning of land markets. ed N. 1.95 billion from its internal sources in 1993. Although Lagos State has by far the highest revenues TARGETING THE URBAN POOR in absolute terms, its per capita revenues (N. 559 in P overty alleviation should be among the highest pri- 1993) are similar to those of several other higher- orities of any urban development strategy. Modest income States. investments can make large improvements in the lives Budget data show that the States generally have of the urban poor. Upgrading of baSIC services such as not been burdened with excessive contributions to water, sanitation, roads, solid waste, and street lighting externally funded projects. The difficulties that States FINANCING URBAN INFRASTRUCTURE AND SERVICES -eo27 have had in meeting their counterpart funding obliga- tial lenders to forecast the revenues of the States, The tions are due entirely to the attempt by State govern- flow of Federal grant money, which accounts for most ments to cling to a wide portfolio of projects, regard- of the States' revenues, is not predictable, In fact, the less of economic or social priority, and to try to fund amounts of each State's statutory allocations are deter- all of them with inadequate annual allocations, The mined and announced each month, alternative would be to fund only a few, high-priority Under current law Local Governments are not projects adequately and complete them on schedule, allowed to borrow money, This is not an issue for the The use of the SPO to guarantee the availability of present, but it will become one in the longer term, counterpart funds was a successful innovation of the Immediate measures could be taken to permit IDF project, It has gained general acceptance, and it States to take informed decisions about their indebted- should continue to be used in future projects, ness and counterpart fund commitments, This involves relatively simple improvements in financial STATE GOVER MENT ACCOUNTS accounting and reporting, State Ministries of Finance would need to keep better records of SPOs and loans, T he best form of security for loans to States should be The CBN and FMF would also need to establish a the Standing Payment Orders, These take loan repay- coherent data base on SPOs and other deductions from ments directly from the States' allocations of the feder- the federation account shares of each State, These data ation account. However, confidence was shaken by the would be provided to the States regularly, Such mea- Government's decision in 1990 to revoke all SPOs, sures would make States more attractive to lenders Mistrust of the SPO among merchant and commercial and investors by facilitating creditworthiness banks persists despite the short duration of the revoca- appraisals, tion and the fact that it has only happened once, Some of the loans that were not paid as a result of the direc- AGENDA FOR THE MEDIUM TERM tive are still outstanding, The SPO system is attractive as a means of guar- MOBJLIZiNG STATE AND LOCAL REVE UES anteeing loan repayments by States, The problem is that the SPO system operates without adequate record- T he main issue for States and Local Governments, in keeping or financial analysis, The risk exists that a terms of capital financing for urban infrastructure, is State could become financially over-extended without to generate an annual surplus of revenues over recur- any "warning bells" being sounded by the State, the rent expenditures, The surplus normally is devoted to Federal Ministry of France, the Central Bank of capital expenditures, Initially it may finance small pro- Nigeria, or the Accountant GeneraL States commonly jects directly, Later the surplus can be used to repay request the Federal Government to implement an SPO loans for larger projects, without any idea of its impact on their budgets, The States devoted an average of 62% of their bud- Records of past SPOs and borrowings have not been gets to recurrent expenditures between 1990 and 1993 kept properly by the States, Frequent leadership (varying from 56% to 70% over the period), Capital changes have added to the confusion, expenditures of all the States amounted to N, 14,3 bil- On the revenue side, it is very difficult for poten- lion in 1993, This is about N, 152 per capita, The key 28 -0- A STRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA potential: the personal income tax and the value GRAPH 3 added tax at the State level and the property tax at the STATUTORY ALLOCATION FOR Local level. States and LGs have numerous other, A LL 30 STATES AS PERCENTAGE OF TOTAL STATE REVENUES minor revenue sources. In the foreseeable future this assignment of revenue generating powers is likely remain the same, meaning that the Federal Government will continue to collect the bulk of tax revenue. Thus, fiscal transfers will remain the largest source of States' and LGs' income. The challenge for future policy is to make the utilization of revenue transfers more productive for economic and social development. It is unlikely, though, that federal grants to the States will grow significantly in the future. States will be obliged to turn increasingly to their internal rev- enues to help finance infrastructure. Even with recent 1990 1991 1992 1993 improvements, however, internally generated revenues accounted for only about 17% of total State revenues question is, how can this be increased? in 1993. This represents a paltry N. 63 per capita for The large wage bill of the States is a major con- straint. Without a major rationalization of the civil ser- GRAPH 4 vice at the State level, pressures on the wage bill will REVENUE SOURCES OF STATES be increasingly unbearable to many States, unless fur- 1990 - 1993 ther deterioration in wages is tolerated. 30 Some observers of the Nigerian situation have expressed concern that States and LGs are too depen- ... 2S dent on grants from the Federal level. The large size z and unconditional nature of the federal allocation, '" II: 20 II: involving no collection cost, discourages States and ;) u LGs from making efforts to mobilize internal revenues. 15 Budget figures show that States are indeed very depen- '"z 0 dent on federal transfers, but this seems to have been 10 -' decreasing slightly in recent years (see Graph 3). -' III 5 The major sources of public revenue-import z duties, excise duties, mining rents and royalties, petro- 0 leum profits tax, and companies income tax-are 1990 1991 1992 1993 under the jurisdiction of the Federal Government. There are three other taxes with large-scale revenue · States' Internal Revenues · States' Statutory Allocations FINANCING URBAN INFRASTRUCTURE AND SERVICES -(!o 29 a1130 States (N.46 per capita with Lagos left out) in Technical assistance should be provided to States that 1993 values. Clearly the untapped potential of States' show strong commitment to improving revenue mobI- own taxes and fees is huge. lization. Some States are beginning to make greater efforts Infrastructure financing would be helped enor- to generate their own revenues. Statutory allocations mously if the flow of statutory allocations could be grew at an average of 19% per year from 1990 to 1993, made more predictable. This should be part of a ratio- while internal revenues of all the States grew at an nalization of the budgeting process. The eventual goal average of 30% per year during the same period (see would be a State (and later LG) capital budgeting sys- Graph 4, page 29). Other data on State Government tem in which revenue projections can support an finances are presented in Annex 3. investment program of specific, prioritized projects. Local Governments' most important revenue In the long term the Federal Government should sources are property taxes (tenement rates), market and consider ways of dealing with the disincentive for motor park fees, user charges for services, and business State and Local revenue mobilization due to the large and vehicle licenses. Actual collections are minuscule. federation account transfers. The options include: In 1992 the total internal revenues of the LGs was · Requiring that transfers be for capital investments N.327 million, roughly N.3 per capita. Potential rev- only, so that States and LGs would be obliged to meet enues are surely many multiples of current amounts. recurrent costs by themselves. As of 1991, federal statutory allocations made up · Converting a part of the transfers to matching about 85% of LGs' revenues. This has probably grants, which would only be given if the State or LG increased in recent years to nearly 90%. LGs' accounts put up a specified amount. showed that they were allocating roughly 70% of their budgets to recurrent costs and 30% to capital expendi- PROPERTY T AXES HAVE GREAT POTENTIAL tures in the 1980s. This is misleading, however. By far the largest item of capital expenditures in LGs' W hen the IDF project was designed it was expected accounts is education. Most of this is for teachers' that much of the money needed for the recurrent costs salaries, which is actually a recurrent expenditure. The of new infrastructure-especially roads and drains- second largest capital item is roads, but a large share is would come from property taxes. Property rating was maintenance, again a recurrent cost. Thus it appears included as a component of the projects in each State. that, in reality, LGs' capital expenditures have been Property rate collection is constitutionally the respon- very small. sibility of Local Governments. Aware of the LGs' lack Much needs to be done to induce the States and of capacity, the project's designers provided for LGs to realize the vast untapped potential of the rev- Property Rating and Valuation Units to be established enue sources under their control: the personal income at the State level. LGs were asked to provide the State and value added taxes of the States and the property Governments with written mandates to manage prop- tax of the LGs. To encourage States and LGs to gener- erty rating and collection on their behalf. Funds col- ate more internal revenues, the possibility of restrict- lected were to be shared between the State and LGs. ing the use of statutory allocations to capital invest- The State property rating units were staffed by State ment-perhaps partially-could be considered. employees and private contractors. Junior officers of 30 -0- A STRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA · Traditional leaders and other influential people, often owners of substantial property, opposed the measures. · The agreements to pass on most of the revenues lusually 70%-80%) to the LGs provided little incentive to the State Governments. If further efforts are to be made on property taxes, they should be a joint effort of the State and concerned Local Governments. It is essential to devise an agree- ment that gives both parties adequate incentives to deliver results. In principle, property rating and proper- ty tax collection should be done by the level of govern- ment responsible for the provision of services. In the current situation, this will be the State. However, it is FOR LARGE-SCALE INFRASTRUCTURE INVESTMENTS, THERE necessary to obtam support and cooperation from the IS NO ALTERNATIVE TO DEBT FINANCING THROUGH THE LGs lincluding middle-level officials), traditional lead- CAPITAL MARKETS. ers, and community leaders at an early stage. Reliance on LGs for collection of property taxes the LGs received training as Valuation Assistants. has been a failure. Alternatives are needed, including These efforts produced a one-time updating and the use of contractors. Contracted professional valuers revaluation of the property rolls in several States. But performed well under IDF, and this should be expand- actual property tax collections remained very low. In ed. Flaws in previous State edicts regarding property Adamawa, for example, the actual amounts collected tax collection and powers of enforcement should be over the 1991-94 period were only about 12% of corrected. However, care should be taken not to set billings. A close look at the IDF's experiences with the precedents that will allow States to retain property tax property tax shows numerous problems: powers in the long run. · Political support was lacking. Between 1991 and In the short to medium term future, collection of 1993, politicians elected or running for office tended to property taxes will remain very difficult. In the oppose taxation. absence of public confidence, tax evasion is likely to · Collection efforts were weak, and property owners be widespread. The required political support is not resisted making payments. likely to be forthcoming. Other forms of cost recovery · Staff performance was poor due to low salaries and from beneficiaries-tied to immediate, visible insufficient equipment. improvements-should be tried. In other countries · LGs were not active participants in the process, and "special assessments" have had some success. These thus didn't cooperate with the State property rating are one-time levies on local residents who benefit from units. Frequent changes of Commissioners and LG a specific improvement such as a road or a new drain. Chairmen made things worse. To succeed, this mechanism is best managed through FINANCING URBAN INFRASTRU CT URE AND SERVICES .e-31 local leaders or organizations that enjoy public trust. have to do with the breakdown of Nigeria's capital Political support from all interested parties, including market and banks' lack of confidence in lending to the traditional leaders, is essential. public sector. Given lowered inflation and reasonable market PUBLIC SECTOR BORROWING interest rates, commercial and merchant banks could make a major contribution to financing urban infra- T he external debt stock of the States was estimated at structure. However, the current state of Nigeria's about US$l.4 billion at the end of 1991. The States financial market does not allow for medium or long- owed about US$287 million of foreign debt service term investment of loanable funds. At present such payments in 1993. These represented around 20% of funds are limited to volatile, short-term placements the States' share of the federation account. While this and deposits. Infrastructure projects require loan tenors debt service burden is high, it is manageable and of at least three and as many as 20 years. should not justify further accumulation of arrears. The Annual budget surpluses and federal grants will debt owed to the Federal Government by the States not be enough to pay for many larger-scale invest- was about US$1.1 billion at the end of 1993. Actual ments in urban roads, water systems, primary drains, cash payments on total debt obligations do not appear and the like. The only alternative will be debt financ- to have been a large item of expenditures by the States ing by States and, eventually, Local Governments. A in recent years. However, individual States have occa- top-priority long-term goal of government policy sionally experienced large burdens. should be to facilitate the use of the domestic capital It is almost impossible to gather reliable data on market for infrastructure. For this, fiscal and monetary scheduled debt obligations from State government discipline are required to reduce inflation and allow agencies. Effective payments vary widely from year to market interest rates to settle down to affordable lev- year due to ad hoc decision-making. Furthermore, deb- els. Furthermore, the government needs to come to its effected by the Accountant General, the Central grips with the crisis of the banking sector, restoring a Bank, and the Federal Ministry of Finance to the credible and effective regulatory system. States and States' shares of the federation account and stabiliza- LGs remain high-risk borrowers in the view of the tion account are not included in States' financial financial sector. Solving this depends mainly on better accounts. governance. Political stability and responsive leader- The World Bank-supported Infrastructure ship are pre-conditions for government bodies to Development Fund (IDF) project was originally intend- inspire confidence among investors and lenders. ed to help establish an infrastructure financing mecha- nism. Merchant banks were to absorb the credit risk as U RBAN DEVELOPME T BANK OF NIGERIA onlenders of World Bank funds and finance a modest share (10%) of urban infrastructure projects with their T he Urban Development Bank of Nigeria (UDBN) was own funds. In practice the banks did not invest their established in 1992 to provide loans to States, Local funds or assume any credit risks. One reason was the Governments, and private entities for urban infrastruc- large depreciation of the Naira during the three years it ture projects. So far the UDBN has been unable to took to make the IDF project effective. Other reasons implement a financially sustainable corporate strategy. 32 -0- A STRATEGY FOR RESTORING URBAN INFRASTRU CT UR E AND SERVICES IN NIGERIA Part of the problem is a lack of consistent political INFRASTRUCTURE FINANCING WOULD BE HELPED ENOR- support at the highest levels. The UDBN had a Board MOUSLY IF THE FLOW OF STATUTORY ALLOCATIONS COULD of Directors for about one year initially, but it was dis- BE MADE MORE PREDICTABLE. THIS SHOULD BE PART OF A solved and has not been reconstituted. RATIONALIZATION OF THE BUDGETING PROCESS. UDBN received N. 543 million in paid-up capital as of the end of 1994. Its shareholders are the Federal Government, State Governments, Local Governments, rate was 21 % per annum and the tenor between four and the Nigeria Labour Congress. UDBN's operational and five years. Repayments are by deductions from the expenses, loans, and advances are being financed out of federation account. the paid-up capital, most of which has been on short- To fulfill its mandate, UDBN requires the same term deposit with other banks. The UDBN's return on macro-economic improvements as the rest of the capital for the 1993 financial year was below 1%. Of financial sector, namely fiscal and monetary disCipline its gross earnings of N. 75.5 million in 1993, N. 70.5 to lower inflation and make it possible to lend at million was realized through money market transac- affordable interest rates without decapitalization. tions. The UDBN has made only one loan, a 1993 UDBN should be able to secure long-tenored funds at package totaling N. 143 million to 20 States for the reasonable rates so that it can provide long-term loans acquisition of buses for public transport. The interest for infrastructure. UDBN should look for more prof- FINANCING URBAN INFRASTRUCTURE AND SERVICES ~ 33 itable and secure areas of investment other than ulate development loan stocks, however. money market transactions. To become a viable finan- The major problems facing State governments cial intermediary for federal government investments wishing to raise funds through the capital market are: in infrastructure in the near-term, UDBN needs to: [a) · Coupon rates on bonds are usually low relative to ensure that operating expenses are limited to what can other investments available. be covered by net income; [bl establish coherent lend- · Public sector institutions usually do not keep up-to- ing policies, including the use of market interest rates; date, complete financial records in accordance with [cl adopt a clear strategy for maintaining the value of SEC requirements. its paid-in capital and mobilizing additional funds; [d) · Obtaining FMF approval can delay the process. limit its mandate to urban infrastructure and related · Sales of bonds may be highly localized, as interest technical assistance; [e) establish an autonomous, pro- may be restricted to State indigenes. fessional Board as free as possible from political inter- · Investors lack confidence in State governments and ference; and [f) put in place a reliable external audit public sector projects. system. Despite these problems, there have been several ALTERNATIVE FfNA CING O PTIONS successful securities issues [as measured by the level of subscription) by States in recent years. These are a Inmany countries, companies or governments finance loan stock issued by Ogun State in 1986 for the infrastructure by issuing bonds, which are long-term Abeokuta Water Scheme (N.IS million); a loan stock debt instruments. Usually bonds are tied to a specific and a revenue bond issued in 1987 and 1988 by Lagos project. Another long-term debt instrument for infra- State for the Lekki Peninsula Development Scheme structure finance is development loan stocks. In (N.3Dand N.6D million); a revenue bond of Oyo State Nigeria, these are issued by the CBN for onlending to in 1989 for the Adamasingba Shopping Complex and States. New Gbagi Market (N.3D million); and a revenue bond The Nigerian Constitution of 1979 makes the rais- of Kaduna State in 1989 for construction of a ginger ing of public sector loans from the capital market the processing plant (N.3D million). All of these securities exclusive preserve of the Federal Government. In prac- were for commercial projects with high prospects for tice this has meant that States wishing to borrow from direct financial returns. the capital market must obtain approval from the The Federal Government should adopt the SEC's Federal Ministry of Finance. proposals to facilitate easier access of States to the cap- One of the advantages of encouraging public sector ital market. To promote confidence by investors, organizations to finance their projects through capital States may also establish sinking fund accounts for market instruments like bonds is that all fund seekers, redemption of debt obligations on maturity. This public and private alike, must submit themselves to would help forestall undue financial pressures on the the discipline of the market. The Securities and issuers. The most favoured method of payment into Exchange Commission, which regulates the issuance such accounts would be through SPO. of bonds, has an important role to play in ensuring that financial discipline is observed. SEC does not reg- 34 .e- ASTRATEGY FOR RE STO RING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA LmERATI G PRIVATE I. VESTME T T he ability of government to invest in infrastructure will be limited by fiscal constraints and the problems of public sector implementation capacity. Private investment-both domestic and foreign-needs to be harnessed to fill the gap. Private investment in urban infrastructure in Nigeria is probably quite substantial. Private firms have their own power generators, boreholes for water, and buses for transporting workers. Private entrepre- neurs provide solid waste collection services with their own equipment. Some types of urban infrastructure, such as roads and drainage, are public goods for which fees cannot be charged. Other types of urban services can be operated on a commercial basis, however. These include water supply, electricity, refuse collection, markets, and housing estates. The high prices paid for water and power when these are not available from public agen- cies shows that there is a willingness to pay for urban services. For example, in the city of Onitsha house- THE ABILITY OF GOVERNMENT TO INVEST IN INFRASTRUC- holds purchase about three million gallons of water per TURE WILL BE LIMITED BY FISCAL CONSTRAINTS AND day from private vendors. This is about twice the PUBLIC SECTOR IMPLEMENTATION CAPACITY. PRIVATE amount of water supplied by the State water board. INVESTMENT BOTH DOMESTIC AND FOREIGN NEEDS TO Payments by water users to the private vendors BE HARNESSED TO FILL THE GAP. amount to around 12 times the total collected by the State water board. Potential private investors in infrastructure are Lack of credit for domestic investors is another exposed to formidable policy, country, commercial and major obstacle. Nigeria's financial sector is in disarray. currency risks. Policy risks relate to government Numerous merchant and commercial banks are insol- restrictions on private entry, lack of reliable regula- vent or nearly so. The government's difficulty in regu- tions ("rules of the game"), and unpredictable tariff- lating the banks contributes to the lack of public confi- setting criteria. Country risks involve the reliability of dence in the financial sector. High inflation, exchange property rights and dispute resolution mechanisms. rate controls and fluctuations, and lack of fiscal disci- Commercial and currency risks are high in Nigeria's pline make it difficult for even well-managed banks to present unstable macroeconomic environment. survive. FINANCING URBAN INFRASTRUCTURE AND SERVICES ~ 35 INST I TUT I ONAL ARRANGEMENTS FOR URBAN INFRASTRUCTURE AND S E RVICES R aising more money is necessary but not sufficient to improve urban infrastructure and services in Nigeria. A host of institutional problems hinders the productive use of available funds. External assistance agencies, the Federal Government, and State Governments all share responsibility for not paying enough attention to institutional issues. In the World Bank supported Infrastructure Development Fund (lDF) project, for example, it was thought that solid waste collection could be improved by providing new and reha- bilitated trucks and training for the staff. In one of the States, 40% of the trucks provided to the Ministry of Works for solid waste were diverted to road construction. If the institutional aspects of solid waste collection had been taken into account, perhaps the project's original objectives wouldn't have been so easy to subvert. IMMEDIATE PRIORITIES ASSURI G EFFECTIVE PROJECT IMPLEMENTATION N igeria'S current climate of uncertainty places severe restrictions on the public sector's capacity for policy-making and management at all levels. Under these circumstances, assuring effective implementation of projects will have to take precedence over public sector institutional strengthening. This means that various forms of special Project Implementation Units (PIUs) will be needed to insulate World Bank and other donor-funded projects from political interference and instability. Use of private contractors to staff key positions in PIUs has worked well and should continue. The use of Project Steering Committees, composed of senior civil servants from key agencies, has been helpful in buffering projects from frequent leadership changes and ensuring continuity of implementation. Implementation arrangements for specially-funded projects within any given State need to be kept as simple as possible. Projects should include only the most essential components. Where two or more agencies must be involved, much more careful attention should be paid to ensuring that the coordination arrangements are truly workable. It is most efficient for a single Project Implementation Unit to manage all components of a project or pro- INSTITUTIONAL ARRANGEMENTS FOR URBAN INFRASTRUCTURE AND SERVICES rOt 37 gram. Where there are several implementing agencies, REDUCING TURNOVER IN LEADERSlflP and the PIU acts merely as a coordinator, bureaucratic It has not been unusual for appointed officials and top delays can multiply over decisions like contract managers to be changed once a year, or even more fre- awards and payment authorizations. Having various quently. Each such change can set back the implemen- implementing agencies also tends to obscure account- tation of an infrastructure project by many months. ability for good or bad performance. The appointment of new officials typically delays con- Projects covering many States are difficult to tract awards, payments to contractors, and counterpart supervise. Also, having many States tends to produce a funding commitments. In one case, where a new State scattering of small projects, reducing the development was created during implementation of a World Bank impact. For the time being, World Bank infrastructure project, the new State administration rejected the pre- projects should be limited to two or three adjacent viously-selected subprojects. Subsequent disagree- States. The idea of a national infrastructure "wholesal- ments on replacements delayed implementation by ing mechanism", as originally envisioned in the IDF three years. can be revived again in the longer term. ' Frequent changes in leadership make it almost Because of the highly centralized financial controls impossible to maintain a consistent policy or strategy. currently used by the States, heads of infrastructure Benue and the former Gongola (now Adamawa) States projects and agencies should be as close as possible to received assistance in the first phase of the IDF project. the highest levels of authority. Ideally, a project or Between 1987 and 1994 both States had five Chief agency director should have a direct reporting relation- Executives. Over the eight years, the relevant ship to the relevant Commissioner, who in turn Commissioners and Local Government Chairmen reports to the State Administrator. were changed an average of once a year. Benue had four Experience shows that it is best for an urban infra- IDF Project Directors in the same period. structure project or program to be managed in the A by-product of this instability is excessive cen- Ministry directly responsible for the sector. This tralized control. Because of past abuses facilitated by ensures that technically qualified staff are available. It frequent leadership changes, the authority to incur also reduces problems of inter-agency coordination. expenditures at the State level is vested only in State Where a project director must coordinate the activities Administrators. This slows down public administra- of other agencies, it is crucial that he/she have a suffi- tion even more. ciently high rank. When projects or programs are started, agreements The "demand-driven" approach used in the IDF should be put in place to prevent the arbitrary removal project has been positive. Funds have been channeled of project directors and staff once they have demon- to States that demonstrated the most motivation by strated their capabilities. promptly submitting acceptable proposals and arrang- ing Standing Payment Orders (SPOs) to set aside coun- terpart funds. The more committed States tend to be more successful in implementation. This approach could be used again when it is feasible to re-introduce a "wholesaling" approach to infrastructure financing. 38 oQo A STRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA IMPROVING PROJECT SUPERVISION AND TECHNICAL ASSISTA CE T he World Bank-supported Infrastructure Development Fund project originally envisioned that merchan·t and commercial banks (PFIs, or Participating Financial Institutions) would assume credit risks. Thus, it was reasoned, the banks would have a strong incentive to efficiently carry out financial intermedia- tion, subproject appraisal, and project supervision. The banks that were involved in the early stages of the IOF performed supervision reasonably well. They recruited qualified personnel, and they were responsive to the needs of the State governments, the Federal Government and the World Bank. As a result of the liberalization of bank licensing in 1989-91, a large increase occurred Inthe number of merchant and commercial banks. This diluted the stock of experi- MORE USE SHOUI.D BE MADE OF DOMESTIC EXPERTISE- enced bankers, diverted the banks' energies toward AMONG COUNSUI.TANTS AND NON-PROFIT ORGANIZA- money market transactions, and produced high staff TIONS- FOR THE PROVISION OF TECHNICAl. ASSISTANCE. turnover. In addition the banks never gained a finan- cial stake in IDF or took any credit risks. As a result deal with infrastructure projects, and they have little the performance of the PFIs on project appraisal, pro- incentive to hire consultants with these skills. More ject supervision, and the processing of payments has use should be made of domestic consultants and non- been disappointing. profit organizations for technical services. Future con- The PFIs have held the accounts for the States tracts between States and providers of technical assis- under the IDF project. Because holding these accounts tance should be drafted to reward providers for work is highly advantageous, the banks were diligent in per- actually accomplished. The contracts used in the IDF forming tasks related to mobilizing money, such as the project were faulty in that they enti tled the PFIs to processing of disbursement applications. They were receive payments based on events rather than real per- especially effective in pursuing the establishment of formance. the SPOs needed for the depOSit of counterpart funds. Even if the Urban Development Bank of Nigeria This required the banks to expend considerable time (UDBN) cannot act as a development bank, it could and effort. potentially perform the types of technical assistance Some banks may remain interested in providing functions expected of the PFIs under IDF. This is, in technical support services-as opposed to direct fact, a part of UDBN's mandate. It has a number of financing-for infrastructure programs, but most banks staff with technical backgrounds (e.g. urban planning, probably are not. Banks do not have staff qualified to engineering). INSTITUTIONAL ARRANGEMENTS FOR URBAN INFRASTRUCTURE AND SERVICES .). 39 CAPACITY-BUILDING risk) or lease contracts (contractor bears commercial risk). If these succeed, private enterprise could assume T he usual approach to capacity-building for govern- concessions (where the contractor also makes invest- ment agencies is to provide consultants, training, and ments). equipment. This may improve institutional perfor- mance for a short time. However, the effect usually · Solid Waste: The negative experience with the Lagos disappears quickly. Waste Management Authority described further on Consultants, training courses and equipment do shows the need for a private sector alternative. not address the fundamental causes of poor perfor- Contracting out vehicle maintenance is one possibility. mance in government institutions. Low remuneration, Ways should be sought to contract out refuse collec- poor working conditions, bad management, and politi- tion in a systematic way. If full cost recovery from cal interference in technical matters are pervasive in user fees is impossible, a hybrid of a service contract the public sector. Such conditions discourage those with a franchise could be tried. Community-managed civil servants who are skilled and competent. The pro- fee collection could be introduced in lower income liferation of States and LGs in recent years has created areas. An independent regulatory authority is needed thousands of new job openings. Not enough qualified to license refuse collectors, set tariffs [according to people have been available or willing to fill them. objective criteria) and establish contract zones. Many unqualified people have been hired. In such cir- cumstances, training and technical assistance can AGENDA FOR THE MEDIUM TERM make little impact. SORTING OUT GOVERNMENTAL RESPO SIBILITIES This does not mean that technical assistance should be discarded. But it needs to be used more T he three tiers of government- Federal, State, and selectively. Technical assistance should be reserved for Local-are involved in the provision of urban services. those institutions which are likely to internalize it. The Federal Government not only formulates policy The recipient organizations should participate in but also executes infrastructure projects through vari- designing the technical assistance. ous agencies. State governments often implement medium-sized works including roads, drainage and PRIVATE SECTOR water supply. Legally, Local Governments are responsi- ble for almost all types of urban infrastructure and ser- M uch can be done in the short term to extend the vices within their jurisdictions. participation of the private sector in the provision of In practice there are many overlaps as well as gaps urban infrastructure and services. Each situation needs in the system (see Annex 2). Some types of infrastruc- to be handled individually: incrementally in certain ture-those with economies of scale, wider geographi- cases, boldly in others. cal scope, or technical complexity-require State · Water: Service contracts for billing, tariff collection involvement. Urban services that are relatively simple and maintenance can be instituted relatively easily. and can be provided economically in decentralized Some State Water Boards are good candidates for man- units (such as drainage, sanitation and solid waste agement contracts (contractor bears no commercial management) are best handled by Local Governments. 40 -Co A STRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA OVER THE YEARS NEW INSTITUTIONS HAVE BEEN CREATED TO DEAL WITH SPECIFIC PROBLEMS, USUALLY WITHOUT ALTER- ING THE PRE-EXISTING ARRANGEMENTS. As A RESULT, EVERYONE AND NO ONE ARE RESPONSIBLE FOR THE OUTCOME. However, Local Governments have become largely that both everyone and no one are responsible for the non-functional in recent years. State governments have outcome. Box 2 (page 42) gives real examples of this assumed many of the responsibilities that LGs are problem. unable to fulfill. But, it is difficult for State-level water In the absence of capable Local Governments, corporations, urban development boards, and waste State Governments will continue to assume responsi- management authorities to adequately provide services bility for most urban infrastructure and services. The to large State areas containing many cities and mil- medium term strategy should be (a) to improve the lions of people. abilities of State level agencies to provide urban ser- Over the years new institutions-formal and ad vices in the interim and (b) to seek special opportuni- hoc-have been created by the Federal Government ties to build capacity at the LG or even sub-LG levels and by States to cope with specific problems. Usually where there is a chance of improvements being sus- these have been set up without altering the pre-exist- tained. ing arrangements. These improvised, short-term In the long term, many types of urban infrastruc- responses may have helped to address some immediate ture and services are best managed by Local problems. But they have had negative effects. In the Governments. States are too large and too populous for worst cases it is almost impossible to tell who is State Governments to handle local services effectively. accountable for what. There may be so many legal World-wide experience indicates that strengthening ambiguities and so many actors involved in a sector, LGs can: (a) improve the provision of local infrastruc- INSTITUTIONAL ARRANGEMENTS FOR URBAN INFRASTRUCTURE AND SERVICES -0- 41 ture and services, (b) improve revenue mobilization, · Providing incentives- through the transfer system- and (c) improve governance through power-sharing and and technical assistance for LGs to increase their inter- accountability. Thus the creation of capable Local nal revenues. Governments should be among Nigeria's highest long- · Improving the technical and management capacity of term priorities. Several issues need to be addressed in LGs (including the shedding of functions better per- the longer term once conditions permit LGs to assume formed by the private sector). their constitutional functions. These include: · Giving LGs meaningful involvement in planning (of · Defining LG responsibilities more clearly, including investment programs and physical planning). distinguishing between types of LGs (urban and rural). · Making revenue transfers to LGs more predictable. LGs that are part of larger cities need to form joint Box 2: WHO MANAGES SOLID WASTE7 CONFUSION IN GONGOLA AND BENUE I n the former Gongola State during the 1980s, solid waste services were administered by the Gongola State Urban Planning and Development Authority. But GSUPDA was unable to provide staff to cover the 16 local government centers. Its budget, dependent entirely on the State treasury, was meagre. GSUPDA was obliged to turn over the little revenue it collected to the State. Not satisfied with the performance of GSUPDA, the State in 1985 set up a special Task Force on Sanitation. Without amendment of the GSUPDA edict, the staff of the Environmental Health Division of GSUPDA, including their solid waste plants and eqUipment, were trans- ferred to the Task Force_ The chairman of the Task Force was not con- cerned with long-term sustainability of solid waste services. His priority was to make immediate, visible impacts. As a result, no institutional improvements took place. In May, 1994 the new Administrator of Adamawa State (former Gongola) approved the takeover of solid waste management by the new Adamawa State Environmental Protection Agency (ADSEPA). This meant that the staff trained and equipment procured under the World Bank-supported IDF project had to move. Unfortunately, the con- cerned staff were unhappy about the transfer and resisted it. Since then, the quantity of refuse collected has declined by one-half to two thirds. Solid waste vehicles procured under the IDF project were distributed to each of the local governments in Gongola/Adamawa. The LGs each sent several staff to be trained in their operation. In each town, a local Sanitation Committee manages the services. The members of the Committees are drawn from both State and LG agencies. The Committees are ad hoc, and their membership changes frequently. Members owe their primary loyalty to their parent agencies, making it difficult for the Committees to operate cohesively. In Benue State, the Urban Planning and Development Authority has decided to carry out solid waste manage- ment. LGs are not involved. Without direct ties to the local level, the Authority finds it very difficult to collect fees for its services. Its State subvention is small. Consequently, service is poor. 42 ~ A STRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA boards to manage services requiring efficiencies of Box 3 : LAGOS SOLID WASTE PROJECT scale and wide geographical coverage. The Lagos Waste I Management Authority was an example of this. n 1986 Lagos State undertook the Lagos Solid Waste and Storm AUTONOMY A 0 ACCOUNTABILITY Drainage Project with W orld-wide experience has identified several require- financing from the ments for successful performance of public utilities. World Bank. The pro- ject's total cost was One is autonomy: the ability of the provider to operate US$I64 million, of professionally, free from undue political interference. which 68% was for solid ri.~J~!!ff~:1 Second is commercial orientation: the willingness of waste. Responsibility for 1;1 users to pay and the provider to charge for services ren- the solid waste component was given to the Lagos dered. A third is accountability: the ability of the pub- State Waste Disposal Board and its successor organi- zation, the Lagos Waste Management Authority lic and government to sanction the provider if services (LAWMAI. The solid waste improvements had a are inadequate. A final factor is the existence of a sup- noticeable effect during the project's initial years, portive framework of laws and regulations, and the but after 1991 the impact declined as LAWMA's capacity to implement them. facilities and equipment became unserviceable The failure to apply these principles is one of the because of insufficient funding to repair and replace root causes of poor infrastructure and urban services in them. LAWMA earned some income from fees, but contributions from Local Governments and the Nigeria. An illustration of this is the complete break- State fell far short of what was required. The State down of the World Bank-supported Lagos Solid Waste government decided to commercialize LAWMA in Project. This is described in Box 3 (at right). 1991, but this did not improve operations. LAWMA suffered from conflicting policy guidelines under its COMMERCIAUZATION A 0 COMPETITION Board (dominated by its clients, the LGsI and from internal inefficiencies such as management C onsidering all the problems of governmental provi- turnover, low salaries, difficulties in shedding sion of urban infrastructure, it would seem natural for unnecessary staff, and inadequate internal controls Nigeria to turn to the private sector as an alternative. over stores and finances. By July 1993, only 40% of LAWMA's equipment was operational. It was col- Nigeria's 1992 National Urban Development Policy lecting only about one third of the city's waste. calls for greater participation of the private sector in infrastructure and services. However, government deci- sion-makers at all levels have been reluctant to pro- misgUided. It is very inefficient-not to mention mote this idea. In spite of this, the private sector fills unaffordable-for government agencies to keep voids where a demand for services exists. An example large staffs of workers on the payroll and to pur- is described in Box 4 (page 44). chase and maintain fleets of heavy equipment. Many State agencies and Local Governments Civil works should almost always be undertaken still favor doing civil works by direct labor. Public by private contractors. officials often view their main problem as a lack of World Bank-financed urban infrastructure projects vehicles and equipment for construction. This is have so far supported the traditional public agency INSTITUTIONAL ARRANGEMENTS FOR URBAN INFRASTRUCTURE AND SERVICES <-43 model of water supply, solid waste management, and Box 4: INFORMAL AND FORMAL even estate development. Within such projects one WASTE COLLECTION IN LAGOS finds the private sector involved in many things, I notably the construction of civil works and the provi- n the high density resi- sion of equipment. Private contractors also prepare dential and designs, supervise projects, perform accounting and commercial audits, provide technical assistance and training, areas of Lagos, process letters of credit, clear the importation of equip- individuals ment, and carry out property valuations. with pushcarts The difficult challenge ahead is to break the tradi- are hired to collect refuse. tional government monopoly over the provision of They provide urban infrastructure and services. house to house It is now widely recognized that many aspects of collection two to three times per week. Their charges infrastructure and related services can be improved by range from N. 40 to N. 60 per household per month. taking advantage of competition and private initiative. These collectors are neither licensed nor supervised by any government agency. Although they have no It is useful to think of infrastructure as a flow of ser- formal contracts with their clients, they receive pay- vices valued by users, rather than as a stock of fixed ments regularly. They dump the refuse at authorized assets. Viewed in this way, many activities can be transfer stations and informal communal dumps. attractive financially to the private sector. With the Sometimes they dispose their loads improperly. incentive to remain in business and grow, private In newly developed areas of Lagos not served by enterprise can be a provider of high-quality services. public waste collection, residents acting through their own associations hire private refuse collection firms. This removes government from involvement in day to Numerous small firms are engaged in this service. At day delivery. But government needs to remain involved one housing estate in Ikeja, a contractor supplies in regulation to ensure fair competition, to see that the eight large plastic bags to each family per month. poor are not excluded, and to promote environmental Refuse collection is carried out twice a week. Each objectives. family pays N. 150 per month. Private sector participation is not an "all-or-noth- Most commercial and industrial firms use private refuse collectors. Services and payments ing" proposition. There are many intermediate steps tend to be reliable, based on formal contracts. between complete government monopoly and a totally The refuse collection firms tend to be small, with open private market. For example, a public utility can one to three vehicles each manned by three to six contract out selected functions, such as equipment persons. maintenance or billing and collection. Or, private The Lagos Waste Management Authority was supposed to license all refuse collectors. firms may receive franchise or concession contracts to Even before the transfer of responsibility for solid provide services such as water supply or refuse collec- waste to local governments in 1994, most collec- tion in designated areas. The following describes the tors were not licensed. Lacking licenses, they are various types of contracting arrangements between the unable to obtain credit. Being unlicensed also public and private sectors: makes them reluctant to form an association. 44 oQo A STRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA INFRASTRUCTURE CAN BE IMPROVED BY TAKING ADVANTAGE OF COMPETITION AND PRIVATE INITIATIVE. GOVERNMENT MUST ENSURE FAIRNESS. SEE THAT THE POOR ARE NOT EXCLUDED. AND PROMOTE ENVIRONMENTAL OBJECTIVES. · Full government: Ownership and management by · Concession: Government owns fixed assets; private "mainstream" government (Ministry, Department, party finances operations, maintenance, and major cap- etc.') ital investments; private party bears commercial risk; duration 15-50 years. · Service contract: Government owns and finances assets; government operates and maintains system; · Build-Operate-Own/Transfer: Private sector builds, private party performs a specific service; duration 5 operates, owns or transfers to government; high lever- years maximum. age and risk; risk allocated among the various partici- pants; complex web of agreements binding all parties. · Management contract: Government owns and finances assets, investments, and working capital; · Partial/full divestiture: Privatization via private sale private party manages operations and maintenance (tender) or public offering; private sector owns and without assuming any commercial risks; duration manages assets; regulation of private entity. 5 years maximum. · Lease: Government owns assets and finances major capital expenditures; private party finances operations, maintenance, short-lived assets, and working capital; private party bears most/all commercial risks and col- lects fees; duration 5-12 years. INSTITUTIONAL. ARRANGEMENTS FOR URBAN INFRASTRUCTURE AND SERVICES -0- 45 URBAN NFRASTRUCTURE AND SERVICES IN NIGERIA MATRIX OF ISSUES AND STRATEGIES ISSUES PROPOSEO ACTIONS RESPONSIBILITY BENEFITS FINANCING Reform of Federal public Reduce number and cost of Federal Government Make more resources avail- expenditure projects, keeping only those able for high-priority needs. with high economic returns. Use available resources Control unaccountable and more productively. extra-budget expenditures. Revive programme for priva- tization and commercializa- tion of state enterprises. Phase out support to loss- making public enterprises. Avoid competing with or duplicating private sector. Focus expenditures on pri- mary and secondary educa- tion, primary health, and basic infrastructure. Reform of States' Eliminate low-priority, low- State Governments Same as above project portfolios return projects. Concentrate funds on a few projects with high economic returns. Adequately fund these pro- jects. Public vs. private invest- Use government funds for All levels of government Same as above ment priorities public goods (those not 100% commercially viable): roads, Empower private sector to drains, trunk water, sewers, supply more housing. · waste disposal facilities. Eliminate inequitable and Rely on private sector to inefficient subsidies, releas- Private Sector finance commercially viable ing public funds for better ventures including housing uses. estates and markets. Focus government on estab- lishing policies and regula- tions that facilitate availabili- ty of financing and function- ing of land markets. MATRIX OF ISSUES AND STATEGIES ~ 47 ISSUES PROPOSED ACTIONS RESPONSIBILITY BENEFITS FINANCING States' counterpart funds for Continue use of Standing Federal Ministry of Finance Assure and stabilize counter- externally financed projects Payment Order (SPO) to part fund contributions. deduct funds from federation account. Lack of information on Improve record-keeping on State Ministries of Finance Make it easier to assess States' indebtedness and SPOs and loans. soundness of new financing funding commitments. Federal Ministry of Finance schemes. Establish data base on SPOs and Central Bank and other deductions from federation account for each State. Urban Development Bank of Adopt strategy to maintain UDBN Make productive use of Nigeria value of paid in capital. UDBN as a provider of finan- cial intermediation and tech- Ensure operating expenses are nical assistance. covered by income. Establish coherent lending policies. Limit operations to urban infrastructure and related technical assistance. Constitute an independent, professional board. Implement external audits. Urban poverty Give high priority to upgrad- State governments, with sup- Improve welfare and produc- ing of basic services in low- port of Federal authorities tivity of poor. income urban areas. and donor agencies. Fees for urban services Promote the charging of user Public sector at all levels. Better quality and sustain- fees for water, sanitation, ability of services solid waste, etc. Where willingness and ability to pay exist, link improved services to adequate fees. Allow agencies to retain the user fees that they collect. Educate decision-makers and the public about the benefits of cost recovery. 48 -:,. ASTRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA ISSUES PROPOSED ACTIONS RESPONSIBILITY BENEFITS FINANCING State and local tax revenue Obtain support from local State and local governments. Better chances of success in mobilization and traditional authorities for tax collection. increased revenue collection. Use contractors on commis- sion for revenue collection. Unpredictable flow of rev- Make flows more predictable Federal Ministry of Finance Allow States to perform enue transfers through an improved federal longer-term budgeting for budgeting system. infrastructure Vast untapped potential of Increase collections from per- State Governments Mobilize large amounts of State and Local revenues sonal income and value added revenues for both capital taxes. Local Governments investment and recurrent costs of services. Increase collections from Federal Government property taxes. Mandate the use of statutory allocations only for capital investment to induce States and LGs to mobilize revenues for recurrent expenses. Convert part of the transfers to a matching grant given only if the State or LG puts up its contribution. Creating an enabling envi- Fiscal and monetary disci- Federal Ministry of Finance; Mobilize domestic savings for ronment for the domestic pline to reduce inflation and Central Bank infrastructure financing by capital market to finance interest rates. banks. urban infrastructure. Deal firmly with the crisis of Facilitate the issuance of the banking sector by restor- bonds for infrastructure ing an effective regulatory financing. system for banks. Adopt SEC's proposals to make it easier for State gov- ernments to access the capi- tal market. MATRIX OF ISSUES AND STATEGJES ..;. 49 ISSUES PROPOSED ACTIONS RESPONSIBILITY BENEFITS INSTITUTIONAL Assuring effective imple- Establish Implementation Government at all levels Insulate donor-funded pro· mentation of programmes Units and Steering grammes from effects of and projects under condi- Committees. political instability. tions of instability Keep projects and institution- Avoid delays and keep al arrangements as simple as responsible parties account- possible able for performance. Limit the geographic scope of Ensure that projects can be projects to a maximum of supervised adequately. two or three adjacent States. Ensure that project or agency Avoid delays in implementa- heads report directly to high- tion. est authorities. Prevent arbitrary removal of agency or project staff once they have proven their capac· ity. Appropriate role of the pub- Focus government on policy- Government bodies at all More efficient delivery of lic sector making, planning, coordinat- levels. infrastructure and services. ing, regulating, and supervis- ing. Contract direct provision of Private sector infrastructure and services to private sector. Improvement of technical Make greater use of national Institutions at all levels National capacity-building. assistance and services consultants and non-profit organizations. Private sector participation Establish service contracts State and local governments. More efficient provision of in provision of infrastructure with private firms for specific Private firms services. and services. activities le.g. billing, mainte· nance of equipment, refuse collection, etc.). Initiate management con- tracts for selected utilities. Experiment with lease con· Mobilization of private tracting where conditions investment for rehabilitation permit. and upgrading of facilities. 50 -0- A STRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA ISSUES PROPOSED ACTIONS RESPONSIBILITY BENEFITS INSTITUTIONAL Community-level role in Seek opportunities for com- Local Governments; Non- Tap underutihzed community inirastructure and services munity-based organizations governmental organizations capacity. to serve as implementing Improve public coniidence agencies for local infrastruc- through involvement of com- ture and services. munity organizations that are closer to the people. Reform of public utilities Restructure water, sewer, and State governments with Improve the quality and sus- waste management agencies Federal support tainability of services. according to commercial principles: · autonomy · profeSSional management · control tariffs Assisting States that make Establish infrastructure Federal Ministry of Works Encourage initiative by efforts financing programs that and Housing States_ reward States which provide matching funds and prepare Increase likelihood of pro- good proposals. jects' success. Strengthening Local Define LG responsibilities All levels of government Improve provision of local Governments more clearly (urban vs. rural). infrastructure and services. Make revenue transfers to Improve revenue mobiliza- LGs more predictable. tion for urban development. Provide incentives and assis- Improve governance through tance for LGs to increase power-sharing and account- internal revenues. ability Encourage LGs to shed func- tions better performed by pri- vate sector. · Improve the technical and management capacities of LGs. Management of larger cities Establish joint boards com- Local Governments with Efficient management of posed of LGs to manage ser- State government support water, sewer, and waste ser- vices requiring efficiencies of vices. scale and wide geographic coverage. MATRIX OF ISSUES AND STATEGIES -> 51 ANNEX LIST OF PARTICIPANTS IN SEMINARS ON URBAN INFRASTRUCTURE AND SERVICES FEDERAL GOVERNMENT GROUP RESEARCHERS AND ACADEMICS GROUP March 6, 1995 May 11, 1995 Name Organization Name Organization I. M. Alao Federal Ministry of Finance 1. Ben C. Arimah Centre for Urban & Regional (Multilateral Dept. ), Abuja Planning, University of Ibadan 2. E. Mejule Urban Development Bank of 2 J. E. Ogbuozobe Nigerian Institute for Social & Nigeria Economic Research (NISER), 3. M. Zubairu Same Ibadan 4. V. Gallitz Federal Capital Development 3. Arch. K. O. Efobi University of Nigeria Enugu Authority, Abuja Campus 5. A. Kure Same 4. I. B. Bello-Imam NISER, Ibadan 6. J. Okuniulure Federal Ministry of Works and 5 Kunle Adeniji NISER, !badan Housing, Lagos 6. Tunde Agbola Centre for Urban & Regional 7. O.Oyewumi Same Planning, University of Ibadan 8. R. Adebayo Same 7. Remi Makinde Nigerian Institute of Town 9. R. Adediran National Planning Commission, Planners Lagos 8. Idris D. Suleiman Ahmadu Bello University, Zaria 10. S. Ojo Same 9. Dr. G. A. Banjo Dept. of Civil Engineering, University of Lagos BA KING SECTOR GROUP 10. Prof. P. O. Adeniyi Unilag Consult March 7, 1995 11. Prof. Dele Olowu Obafemi Awolowo University, Ile-Ife Name Organization - I. J. Ekundayo Chartered Institute of Bankers of Nigeria .. 2. C. Ogbonna Oceanic Bank of Nigeria Ltd. . 3. W. Adetunji Securities and Exchange ................ Commission -- - 4. I. Ekundayo Same 5. D. Joda International Merchant Bank Pic. 6. A. Abiola Same 7. C. Idusogie Central Bank of Nigeria 8. H.Okonta Same 9. H. Akunne Diamond Bank Ltd. 10. M. Zubairu Urban Development Bank of Nigeria · II. A. Rufai FSB International Bank 12. C. Obute NAL Merchant Bank 13. A. Tayo-Tiwo Nigeria Merchant Bank Pic. 14. O. Olajide Federal Mortgage Bank of Nigeria 15. F. Dauda Same 16. G. Tarfa Meridian Equity Bank of Nigeria 17. B. Onabajo Chartered Bank of Nigeria 52 -:- A STRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA ANNE X (CONTINUED) LIST OF PARTICIPANTS IN SEMINARS ON URBAN INFRASTRUCTURE AND SERVICES STATE GOVERNMENT GROUP CONTRACTORS A D CONSULTANTS GROUP May 12, 1995 May 13, 1995 Name Organization Name Organization 1. Engr. j.R. Olusoga Hon. Commissioner, Ondo State I. Amin Moussalli AIM Consultants Ministry of Works and Housing 2. j. Sadomski AIM Consultants 2. Dare Adebiyi Ondo State IDF Project 3. Dr. O. O. Banjoko Reynolds Construction Company 3. S. A. Adeyemi Ondo State lDF Project 4. T. A. Bielinski Akideinde Allott & Lomax 4. M. O. Ovonlen D.G. (Lands & Surveys)/Chairman, (Nig) Ltd. Edo State IDF Inter-Ministerial 5. Engr. B. O. Adeyemi Konsadem Associates Ltd. Steering Committee 6. Engr. Bola Olowe Konsadem Associates Ltd. 5. N.E. Osayande Project Director, Edo State IDF 7. Dan Wilson OAF Trucks NY. Project 8. M. F. Famuyibo Cotwaste Associates 6. Engr. M. M. Gbayan Project Director, Benue IDF Sub- 9. Dr. P. O. Sonaike Coopers & Lybrand Project 10. Jacob Oladimeji Coopers & Lybrand 7. G. A. Oke Project Director, Oyo State Urban 11. G. Garbi Ortech Construction Engineers Project 12. Dr. Olusegun E. OjoEdward Simpson & Co., Ibadan 8. T. O. Odisi Rivers State Housing & Property 13. Engr. A. M . Kalu DTV & Co. Ltd. Dev. Authority 14. Jonas Hyczy 9. T. T. Macli Adan1awa State IDF Sub-Project Da Costa Sakamori Construction (Nig) Ltd. 10. M. B. Ibrahim Deputy Director (RD), National 15. Engr. Babalola S. Planning Commission Kayode Sakamori Construction (Nig) Ltd. II . j. C. Ndupuechi Director, Anambra IDF Project 12. D. I. Audu Project Accountant, Taraba IDF Project 13. Y. A. Bazing Project Director, Taraba IDF Project 14. Gambo Solomon Ministry of Finance, Taraba State 15. Engr. O. Kamson Director, World Bank Projects, Lagos State 16. Engr. O. R. Ashafa Hon. Commissioner, Ministry of Environment and Physical Planning, Lagos State ANNEX 1: PARTICIPANTS IN SEMINARS -0- 53 ANN E X 2 OVERVIEW OF EXISTING INSTITUTIONAL RESPONSIBILITIES FOR THE CONSTRUCTION AND MAINTENANCE OF INFRASTRUCTURE AND SERVICES IN NIGERIA FEDERAL STATE LOCAL NOTES C M C M C M 1. Electricity Generation x x Transmission X X X X States restricted to areas not covered in the national grid. LGs responsible for extension in rural areas and street Jighting. Distribution X X X X X X Street Lighting X X X X 2. Water Supply Urban X X Rural X X X X X X Federal & State involvement started in 1986 with DFRRI. 3. Sewage X X X X 4. Drainage X X X X 5. Solid Waste Collection X X X X State involvement in large urban centers. 6. Telecommunications X x X X Radio/TV licenses-issuance is a LG responsibility 7. Roads Arterial (Trunk A) X X Secondary (Trunk B) X X X X Some Trunk B roads were taken over in 1978. Tertiary (Local) X X X X X X Federal/State involvement began in J986. 8. Public Transportation X X Federal Government began to provide financing in 1986 9. Public Housing X X X X Local Govt. involvement in public housing indirect. 10. Land Servicing X X X X 11. Commercial Facilities x X X X This is a clear LG responsibility but States in urban areas take it over. 12. Educatiou Adult Education X X X X Primary X X X X Federal Govt. provides a part of financing. Secondary X X X X Higher X X X X 13. Health Facilities Hospitals X X Clinics X X Some states have clinics but these are being transferred to LGs under Primary Health Care - ---- NOTE: C · CONSTRUCTION M · MAINTENANCE Program. LG provides housing. 54 -0- A STRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA ANNEX 3 SUMMARY OF STATE GOVERNMENT FINANCES (N. million) Percentage Change Between 1990 1991 1992 1993 (1&,2) (2&.3) (3&.4) 1 2 3 4 5 6 7 Total Revenue 19,1l6.5 24,1l4.3 31,870.5 35,532.2 26.1 32 11 Ii) Statutory Allocations 15,943.8 19,434.3 23,726.9 26,811.2 21.9 22.1 13.0 (ii) Internal Revenue 2,726.2 3,147.1 5,212.0 5,971.2 15.4 65.6 14.6 (iii) Grants 330.5 1,086.1 957.3 1,094.3 228.6 (11.9) 14.3 (iv) Stabilization Fund Receipts 116.0 446.8 1,974.3 1,655.5 285.2 341.9 (16.1) Recurrent Expenditure 12,749.6 15,405.1 19,883.1 25,237.1 20.8 29.1 26.9 Current Surplus /(DeHcit ) 6,366.9 8,709.2 11,987.4 10,295.1 36.8 37.6 (141) Capita! Expenditure 5,355.9 9,810.5 15,702.9 14,309.5 83.2 60.1 18.9) Total Expenditure 18,105.5 25,215.6 35,586.0 39,546.6 393 41.1 11.1 Overall Surplus/(De£icit ) 1,011.0 (1,101.3) (3,7155) (4,014.4) 1208.9) 237.4 80 Financing (a) Internal Loans 158.0 350.8 986.9 355.7 122.0 181.3 (64.0) (b) External Loans 2,818.3 1,070.0 2,628.9 2,560.3 162.0) 145.7 (2.6) (c) Other Funds 13,987.3) (319.5) 997 1,098.4 (92.0) (131.3) 9950 ·Percentage of Recurrent Exp. to Total Exp: 70% 61% 56% 64% · Percentage of Internal Rev. to Tota! Rev : 14% 13% 16% 17% · Percentage of Statutory AJlocat'n to Tot. Rev: 83% 81% 74% 75% Source. Central Bank of Nigeria Annual Report and Statement of Accounts. ANNEX 3: SUMMARY OF STATE GOVERNMENT FINANCES -0- 55 REFERENCES Asaju, A.S., "Towards a Positive National Urban Policy in World Bank, "Federal Republic of Nigeria Sector Study- Local Nigeria", Obafemi Awolowo University, Ile·Ife, Nigeria; pre- Government Development", Report No. 9844-UNI, Western pared for the National Urban Policy, March 1992. Africa Department, Washington DC, U.S.A, May 28, 1992. Ekundayo, J.O., "Problems and Prospects of Internal and World Bank, "Federal Republic of Nigeria-Strategies for External Funding for Infrastructural Development in Private Provision of Infrastructure and Urban Services", Nigeria", Chartered Institute of Bankers of Nigeria; prepared Report No. 12421-UNI, Western Africa Department, for the Workshop on Financing of Urban Infrastructure, Washington DC, U.S.A., July 28, 1994. Kaduna, National Planning Commission, November 1994. 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Todd, Dave, "Nigeria Poverty Assessment Qualitative Studies Draft Annex", ETC Foundation, Leusden, The Netherlands, September 1994. 56 -> A STRATEGY FOR RESTORING URBAN INFRASTRUCTURE AND SERVICES IN NIGERIA t ALL PHOTOGRAPHS IN THIS BOOK BY CURT CARNEMARK, EXCEPT PAGES11. 13. 42AND43BY DAVID HENLEY BOOK DESIGN BY GALLAGHER WOOD DESIGN, WASHINGTON, DC