AfDB Warns: Lagos’ Lavish Capital Spending Fails to Reach Poorest Residents

The African Development Bank (AfDB) has recently highlighted concerns regarding the allocation of high capital spending in Lagos and its impact on the city’s poorest residents. This revelation is part of a comprehensive report titled ‘From Millions to Billions: Financing the Development of African Cities,’ obtained by Infostride News.

In the 2023/24 fiscal year, Lagos State boasts an approved budget of $2.1 billion, with a significant portion of $1.3 billion (58% of the total budget) allocated to capital projects. Despite this substantial capital expenditure, the report expresses dissatisfaction, emphasizing that the funds often fail to translate into fundamental infrastructure and services for the city’s most impoverished individuals.

The report acknowledges Lagos’s deliberate efforts to attract multinational companies and foreign investments, pointing out that the emphasis on capital projects may not effectively address the needs of the city’s vulnerable populations.

Breaking down the budget further, the report reveals that the approved budget for 2023/24, also known as the ‘Budget of Continuity,’ amounts to $2.31 billion or $144 per capita. Of this, 58% is allocated to capital projects, with 27% earmarked specifically for new infrastructure. The remaining 42% is allocated to personnel and debt servicing, resulting in a per capita capital budget of $48.22.

The report sheds light on the sources of revenue for Lagos State in the same fiscal year, with own-source revenue estimated at $1.83 billion. To cover the 25-30% shortfall, the state relies on borrowing (20%) and transfers from the federal government (10%). Approximately five million people (31% of the population) contribute to tax revenue, but only 400,000 entities are registered for PAYE. Non-compliance with tax obligations remains a critical issue, though efforts to address this have resulted in an 18% growth in local revenue in 2022.

Lagos State primarily generates 70% of its revenue from sources such as PAYE (45% of revenue) and property taxes, while other revenue sources, including sales proceeds, rents, land-use charges, fees, and fines, are more volatile.

The report raises concerns about the distribution of benefits from public-private partnerships (PPPs) in the state. While development has been facilitated through PPPs with federal government tax breaks for private-sector property developers, the report suggests that such partnerships are less effective in ensuring universal access to basic services. Notably, 65% of Lagosians lack access to electricity, and 85% rely on informal sanitation.

Furthermore, the report emphasizes that infrastructure spending tends to favor the upper class, resulting in limited impact on economic multipliers and poverty reduction. The top-down nature of infrastructure planning is criticized for its inability to generate the anticipated economic and poverty alleviation impacts.

The report delves into Lagos State’s debt situation, revealing that by the end of 2022, the state owed $1.7 billion. With the depreciation of the currency in 2023, servicing this debt becomes more expensive. While the state’s standing with domestic bond markets, accounting for 20% of its debt in 2022, remains unchanged, its debt composition includes $653 million in bonds as of December 2022.

Lagos State, with the highest internal revenue in the country, owes N812.4 billion to domestic creditors and an additional $1.3 billion to foreign creditors. The report suggests that the state’s access to a $653 million bond facility since 2016 has allowed it to maintain deficits below 3% of GDP.

The report concludes with insights into the major expenditures in the Lagos State Government’s 2023 budget. Notably, concerns are raised about allocations for charter planes, SUVs, diffusers, and significant infrastructure. The report highlights specific allocations, such as N7,475,000 for the replacement of liquid fragrance at the Governor’s office and N440 million for the purchase of brand-new Lexus LX 600 bulletproof sport utility vehicles for the Chief of Staff’s office. Criticism is also directed at the N69.9 billion budgeted for the rebuilding and enhancement of a stretch of the Eti Osa/Lekki Motorway, with calls for greater transparency and responsibility in managing the country’s finances.

The public reaction to these revelations has been significant, with social media platforms buzzing with criticism and calls for accountability. Funso Doherty, an ADC gubernatorial candidate, has played a pivotal role in bringing these expenditures to light, urging Governor Babajide Sanwo-Olu to address concerns and ensure responsible fiscal management.

Gbadebo Rhodes-Vivour, the Labour Party candidate for governor of Lagos state, has expressed dismay at what he calls the “irresponsible squandering of our commonwealth in such difficult times.” He emphasizes the need for alignment between government goals and the pressing needs of the people, suggesting that funds could be better utilized to create jobs and provide a social safety net for Lagosians. The debate surrounding the allocation of funds in Lagos State’s budget is likely to continue as citizens demand transparency, accountability, and a focus on addressing the critical needs of the population.