lagos state, nigeria: pim investment in infrastucture for a ......page 2 country case study: lagos,...

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Transforming Resources into Assets for Growth

C O U N T R Y C A S E S T U D Y

Volker Treichel and Olubgenga Ebenerze Oyewole

THE POWER OF PUBLIC INVESTMENT MANAGEMENT'

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Lagos State, Nigeria: PIM Investment inInfrastucture for a Modern Megacity

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C O U N T R Y C A S E S T U D Y : L A G O S , N I G E R I A

PIM Investment in Infrastructure for a Modern Megacity

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T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T!

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Volker Treichel Program Leader (Cote d’Ivoire, Benin, Burkina Faso, Guinea, Togo)

Olubgenga Ebenerze Oyewole

PFM Consultant, Lagos, Nigeria

THE AUTHORS

This case study is one of a number of country cases in the Public Investment Management Series. The country case studies accompany the

volume, “The Power of Public Investment Management: Transforming Resources into Assets for Growth”, World Bank (2014), and apply a

common methodology to assess PIM systems globally.

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!

Lagos!State!is!one!of!the!fastest!growing!metropolises!in!the!world.!Under!the!Governor’s!TenPPoint!

Agenda!(TPA),!Lagos!State!has!made!substantial!progress!in!creating!the!basis!for!sustained!growth!

by! improving! infrastructure! and! strengthening! the! business! environment.! Improved! public!

investment! management! (PIM)! has! been! at! crucial! element! of! these! reform! efforts.! This! paper!

reviews! the! reform! efforts! of! the! Lagos! State! Government! in! strengthening! the! planning! and!

execution!of!expenditures,!and!rates! the!quality!of!PIM.!The!study!make! the!case! that! the!overall!

practices! in! PIM! in! Lagos! State! are! still! weak,! but! have! made! encouraging! leaps! toward!

improvement,! including! passage! by! the! legislature! of! several! important! bills,! such! as! the! Lagos!

State! Procurement! Bill! 2009,! Lagos! State! Tenancy! Bill! 2009,! Lagos! State! Public! Finance!

Management!Bill!2010,!and!the!Criminal!Law!of!Lagos!State!Bill!2010.!However,!a!major!issue!that!

will!continue!to!impose!hurdles!and!pressure!on!the!ability!of!the!State!Government!to!effectively!

plan,!implement,!and!monitor!public!investment!in!a!systematic!and!comprehensive!manner!is!the!

huge!relative!size!of!the!Lagos!State!economy!and!the!everPincreasing!population!of!the!State,!which!

threatens!to!outpace!progress!in!developing!relevant!institutional!capacity.!!

LAGOS, NIGERIA

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Lagos!State,!essentially!comprising!the!city!of!Lagos,!Nigeria,!is!one!of!the!fastest!growing!

metropolises!in!the!world.!With!the!economy!growing!annually!at!8!percent,!the!population!grew!

from!an!estimated!5.8!million!in!1985!to!10.28!million!in!1995,!and!20.19!million!in!2010.!Still!

growing,!the!megacity!is!projected!to!reach!24.6!million!in!2015!(UNPHABITAT!2008).!The!engine!of!

growth!is!the!Nigerian!nonPoil!sector,!contributing!about!12!percent!of!the!country’s!GDP.!After!a!

long!period!of!military!rule!characterized!by!economic!mismanagement,!pillage,!and!lack!of!longP

term!planning!of!public!investment,!culminating!in!infrastructural!decay,!Lagos!and!all!other!

Nigeria!states!came!under!the!first!period!of!continuous!democratic!governance!in!1999.!

The!State!is!organized!into!two!tiers,!State!and!local!governments.!Local!governments!are!

divided!into!20!local!governments!and!36!Local!Council!Development!Authorities!for!constitutional!

and!administrative!convenience.!Since!2007!this!arrangement—together!with!the!determination!

and!doggedness!of!State!leadership!in!implementing!existing!and!new!public!expenditures!and!

financial!accountability!reforms—has!started!to!yield!significant!results!in!public!investment!

directed!toward!infrastructural!and!other!challenges,!aimed!at!addressing!the!development!needs!

of!the!people!of!Lagos.!

Lagos!GDP!grew!annually!at!doublePdigit!rates!from!2001!to!2009,!faster!than!the!national!

growth!rate!(figure!X.1).!The!services!sector,!which!accounts!for!about!75!percent!of!Lagos’s!overall!

GDP!growth,!is!the!major!economic!driver,!with!wholesale!and!retail!trade!accounting!for!more!

than!50!percent!of!the!sector’s!growth.!During!the!same!period,!the!manufacturing!sector!

contributed!a!substantial!23!percent!to!the!state’s!GDP,!while!primary!activities!such!as!farming,!

fishing,!and!mining!contributed!only!2!percent!(figure!X.2).!The!major!source!of!income!for!the!

larger!segment!of!the!state’s!households!was!the!informal!sector!from!which!45!percent!of!the!state!

economy,!in!terms!of!output,!derives.!

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Figure+X.1++Lagos+GDP+and+National+GDP+Growth,+2001–09++

+Source:!IMF!World!Economic!Outlook!Database!and!Lagos!State!Bureau!of!Statistics.+

Figure+X.2++++Lagos+GDP+Breakdown+by+Economic+Sector,+2001–09+(%+of+GSDP)+

!Source:+Lagos!Bureau!of!Statistics!

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15!

20!

25!

30!

35!

40!

2001! 2002! 2003! 2004! 2005! 2006! 2007! 2008! 2009!

Na.onal!GDP!

LGS!GDP!

2%!

73%!

25%!

Lagos&GDP&Breakdown&(200152009)&

Agriculture!

Services!

Industry!

Lagos!GDP!

%!of!a

nnua

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!growth!

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Lagos! State! has! been! ruled! by! the! Action! Congress! of! Nigeria! (ACN)! since! 1999,! a!minority!

party! that! has! been! in! firm! control! of! the! executive! and! legislative! arms! of! the! two! tiers! of!

government.!The!first!of!two!governors!had!two!fourPyear!terms!and!the!second!completed!a!first!

term!and!secured!a!landslide!mandate!for!a!second!term,!with!all!40!members!of!the!State!House!of!

Assembly! from! the! same! party,! as! against! 37! out! of! 40!members! during! the! first! term.! This! has!

allowed!for!some!continuity!and!consistency!in!government!policy!and!development!priorities!over!

the! last! 10! years.! The! Government! established! its! credentials! by! promoting! consultative! and!

participatory!policyPmaking! inventiveness,! including! the! introduction!of! a! forum! (Ehingbeti)! that!

involves! the! active! participation! of! private! and! civil! society! in! the! planning! process.! Lagos! State!

Government! development! priorities! and! initiatives,! as! encapsulated! in! the! Governor’s! TenPPoint!

Agenda!(TPA),!have!been!vigorously!debated!with!input!from!all!stakeholders!in!Lagos!State.!!

TenNPoint+Agenda+Sets+PIM+Framework+

The!TPA,!initiated!in!2003,!forms!the!basis!for!the!State!Government’s!strategic!framework!

and!includes!the!following!10!focus!areas:!

• Roads.+The! objective! is! to! rehabilitate! roads! in! all! local! government! areas! and! construct!new!roads!and!bridges.!

• Transportation.! The! objective,! articulated! in! a! transport! master! plan,! is! to! create! an!integrated!mass!transit!program!with!emphasis!on!road,!rail,!and!water!transport!services!

through! the! Lagos!Metropolitan! Area! Transport! Authority! (LAMATA).! The! State! is! set! to!

implement! this!master! plan! through! publicPprivate! partnership! initiatives,! setting! up! the!

first! statePrun! rail! services,! stimulating! privatePsector! investment! in! ferry! services,! and!

strengthening!traffic!management!mechanisms.!!

• Power+and+water+supply.!The!objective!is!to!increase!the!power!supply!through!the!Lagos!Independent! Power! Project! (IPP)! program! and! to! improve! the! financial! viability! of! the!

water!company.!

• Environment+and+physical+planning.!The!objective!is!to!make!Lagos!a!model!cityPstate!by!introducing!a!communityPbased!waste!management!system,!enforcing!the! implementation!

of! emission! control! standards,! pursuing! systematic! physical! planning! for! sustainable!

development,!and!establishing!a!disaster!management!agency.!

• Shelter.! The! objective! is! to! ensure! provision! of! affordable! mass! housing! schemes! by!developing! a! more! effective! and! responsive! mortgage! market! and! building! new! satellite!

towns.!

• Health.! Improvement! of! the! reach! of! health! services! through! expansion! of! neighborhood!clinics,! pursuit! of! a! secondary! health! program,! expansion! of! the! existing! blindness!

prevention!program,!control!of!malaria!with!a!focus!on!mothers!and!infants,!strengthening!

marine!ambulance/emergency!medical!services,!and!enhancing!medical!personnel!welfare.!

• Education.+The!main!thrust!is!on!building!new!schools!with!better!structures!and!facilities,!tagged! Centers! of! Excellence! (Millennium)! schools! in! all! local! Government! areas,!

reengineering!and!refurbishing!primary!schools,!providing!rehabilitation!and!maintenance!

of!existing!schools!and!libraries,!and!making!provisions!for!school!furniture!and!equipment.!

Reviewing! the! curriculum,including! entrepreneurial! training,! enhancing! teachers’!welfare!

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and! improving! communityPbased! vocational! education! are! all! key! elements! of! the! State’s!

education! program.! Another! area! of! focus! in! education! is! enhancement! of! the! State’s!

capacity! to! supervise! privatePsector! education! providers,! as! a! large! percentage! of! the!

population!receives!education!services!from!the!private!sector.!

• Food+security.!Priorities!include!facilitation!of!sustainable!food!production!and!processing,!empowerment! of! farmer! and! fishermen! cooperatives! societies,! and! support! for! strategic!

preservation!and!farm!settlements!development.!

• Employment.! Create! more! jobs! by! introducing! a! graduate! empowerment! program! and!executing!infrastructure!projects!generating!new!job!opportunities.!

• Revenue+enhancement.!The!objective!is!to!diversify!revenue!sources,!widen!the!tax!base,!set!up!effective!revenue!collection!mechanisms,!and!develop!a!database!of!taxpayers.!

These!goals!make!it!clear!that!rehabilitation!and!investment!in!new!infrastructure!has!been!a!

major!thrust!of!Lagos!State!Government’s!strategic!vision!for!the!whole!of!Lagos.!Consequently!the!

State’s!fiscal!deficit!has!widened!since!2004.!The!Government!has!sought!to!manage!the!envisaged!

upsurge! in! public! expenditure! by! embarking! on! a!wide! range! of! fiscal! reforms,! especially! in! tax!

administration,! aimed! at! encouraging! and! enforcing! payment! of! taxes! and! consumer! charges! in!

2002.! These! reforms,! especially! in! Land! Use! charges! and! the! integration! of! Small! and! Medium!

Enterprises! (SMEs)! into! the! taxpayer! arena,! resulted! in! a! significant! increase! in! internally!

generated!revenue!(IGR)!from!a!meager!₦600!million!per!month!in!2000!to!!₦15!billion!per!month!

in!2010.!As!shown!in!table!X.1,!total!revenue!accruing!to!the!State!increased!from!₦83.65!billion!in!

2005!to!₦279.067!billion!in!2010;!IGR!accounted!for!₦42.281!billion!in!2005!and!₦144.19!billion!in!

2010,!representing!over!50!percent!of!the!total!revenue!for!each!year.1!!

This! buoyancy! has! emboldened! the! State! to! increase! capital! spending! substantially! from!

₦15.96! billion! in! 2005! to! ₦173.11! billion! in! 2010,! while! recurrent! expenditure! increased! from!

₦67.69!billion!to!₦156.15!billion!during!the!same!period!(Lagos!2010c).!Significant!portions!of!the!

increase! in! capital! expenditure! in! all! the! sectors! were! committed! to! new,! large,! and! sometimes!

complex!projects,!rather!than!completion!or!maintenance!of!existing!projects!(examples!discussed!

in! the!next!section).!With!an!actual!budgetary!expenditure!of!₦37.74!billion! in!2007!and!₦123.96!

billion!in!2010!in!the!economic!sector,!some!complex!projects!(as!shown!in!figure!X.3)!were!either!

initiated!and!completed!or!were!ongoing.!!!

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Figure+X.3+++Old+and+New+Modes+of+Transportation+in+Lagos++

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(

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Source:!International!Press!Briefing!on!“Achievements!of!Y2007–Y2010!Budgets!and!Analysis!of!Y2011!Budget”!by!Ben!

Akabueze,!Honorable!Commissioner,!Lagos!State!Ministry!of!Economic!Planning!and!Budget!

As!a!reflection!of!the!State!Government’s!commitment!to!infrastructure!development,!there!is!a!plan!to!increase!the!portion!of!overall!expenditure!devoted!to!the!capital!budget!to!60!percent,!having!

attained!54!percent!in!2009!and!58!percent!in!2010!budget!implementations!(Lagos!2010c).

Old+Transportation+System+

Model+of+New+Lagos–Badagry+Expressway+

BRT–New+Transportation+Order+

OkotaNItire+Overhead+Link+Bridge+—Phase+II+

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Table&X.1:&Lagos&State&Finances,&2005–10,&₦’million&

!

!Source:!Lagos!2010a.!!

Budget Actual Budget Actual Budget Actual Budget Actual Budget Actual Budget ActualRevenue 99501 83650 179450 110830 222080 168993 261999 227998 335787 243753 350354 291152IGR 60201 42281 103034 60310 141687 86957 156996 134092 231963 168763 234027 183795Federal:Transfer 37000 39490 50000 49810 60295 58493 80436 81941 57000 74990 88000 95270Capital:Receipts 2300 1879 26416 710 20098 23543 24567 11965 46824 26207 28327 12087

Expenditure 112730 83650 224232 132160 274762 199137 403401 286595 405000 294710 411581 329257Recurrent:Expenditure 65503 67690 115748 82080 145367 114277 159627 125574 159464 116296 178015 156148Capital:Expenditure 47227 15960 108484 50080 129395 84860 243774 161021 245536 178414 233566 173109

:Fiscal:Balance (13,229):::::::::: G::::::::::::::::: (44,782)::::::::: (21,330)::::::::: (52,682)::::::::: (30,144)::::::::: (141,402)::::::: (58,597)::::::::: (73,835)::::::::: (14,851)::::::: (61,227)::::::::: (38,105):::::::

: : : :Financing 13,229::::::::::: G::::::::::::::::: 44,782:::::::::: 21,810:::::::::: 52,682:::::::::: 31,468:::::::::: 97,112:::::::::: 56,500:::::::::: 127,017:::::::: 98,823:::::::: 61,227:::::::::: 38,105::::::::Domestic 13,229::::::::::: 13,229:::::::::: 44,782:::::::::: 21,810:::::::::: 42,795:::::::::: 31,468:::::::::: 87,000:::::::::: 56,500:::::::::: 115,385:::::::: 90,000:::::::: 102,607:::::::: 51,636:::::::::::::Bond G:::::::::::::::::: G::::::::::::::::: G::::::::::::::::: G::::::::::::::::: G::::::::::::::::: 75,000:::::::::: 22,500:::::::::: 100,000:::::::: 75,000:::::::: 60,000:::::::::: 32,500:::::::::::::Commercial:Banks 13,229::::::::::: 13,229:::::::::: 44,782:::::::::: 21,810:::::::::: 42,795:::::::::: 31,468:::::::::: 12,000:::::::::: 34,000:::::::::: 15,385:::::::::: 15,000:::::::: 42,607:::::::::: 19,136::::::::External:Loan G:::::::::::::::::: G::::::::::::::::: G::::::::::::::::: G::::::::::::::::: 9,887::::::::::::: G::::::::::::::::: 10,112:::::::::: G::::::::::::::::: 11,632:::::::::: 8,823:::::::::: 48,508:::::::::: 11,389::::::::Repayments (53,182)::::::::: (83,972)::::::: (114,531)::::::: (73,347):::::::Defict/Surplus:on:Financing 480:::::::::::::::: G::::::::::::::::: 1,324::::::::::::: (44,290)::::::::: (2,097)::::::::::: 53,182:::::::::: 83,972:::::::: G::::::::::::::::: G::::::::::::::

2005 2006 2007 2008 2009 2010

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Figure'X.4''''Lagos'State'Trends'Nigeria'First'Lagos'State'Development'Policy'Credit'(P117237)'in''Expenditures'and'Revenues,''2005–09,'₦’'billions''

'

Source:((Economic!Intelligence!Unit,!Lagos!State!Ministry!of!Economic!Planning!and!Budget!(MEBP)'

Notwithstanding! the! upsurge! in! revenues,! principally! from! the! IGR,! the! amount! of!infrastructure!development!envisaged! is!well! in!excess!of! the!amount!available! from!government!resources.! This!means! that! the! State! has! to! resort! to! deficit! financing! from! internal! and! external!sources!to!plug!the!resource!gap.!The!fact!that!the!public! investment!requirement!far!exceeds!the!fiscal! revenues!of!Lagos!State!will! continue! to!pose!a!very!serious!challenge! to!maintaining! fiscal!stability!and!sustainability.!Thus!the!core!of!the!Government’s!fiscal!adjustment!program!is!to!tow!a!sustainable! fiscal! path,! with! programs! aimed! at! broadening! and! deepening! expenditure! reforms!(such!as!MTEF,!improvements!in!expenditure!management,!and!improvement!and!transparency!in!revenue!collection!administration)!which!the!State!has!already!introduced!under!its!Public!Finance!Management! (PFM)! programs.! Among! other! things,! these! programs! are! expected! to! achieve! the!following!results:!

• stabilization! of! the! key! debt! ratios,! such! as! debtPtoPGSDP! (Gross! State!Domestic! Product)!and! debtPservicePtoPrevenue,! which! would! require! maintaining! the! fiscal! deficit! at! a!constant!level;!!

• change! in! the! composition! of! expenditure! toward! growthPenhancing! expenditure! and!improve!its!management;!and!!

• strengthening! of! revenue! mobilization! by! broadening! the! tax! base,! administrative!improvements,!and!stronger!efforts!at!reducing!collection!costs.!

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100!

150!

200!

250!

300!

350!

2005! 2006! 2007! 2008! 2009! 2010!

Recurrent!Expenditure!

Capital!Expenditure!

Total!Expenditure!

Total!Revenue!

IGR!

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An!evaluation!of!some!key!elements!of!Lagos!State’s!mediumPterm!fiscal!program!is!contained!

in!a!World!Bank!document!(Report!No.!54333PNG!of!February!18,!2011;!page!25),!and!states!that!

“to! support! the!government! to!build! systems!and! institutions! to! improve! the!quality!of! spending!

and! to! strengthen! the! investment! climate,! while! maintaining! fiscal! sustainability.“! With! a! 2009!

baseline!deficit!of!0.7!percent!and!a!2013!end!projection!of!2.0!percent,!the!State’s!budget!deficit!as!

a!percentage!share!of!GDP!stood!at!1.8!percent!in!May!2011.!The!real!growth!rate!of!IGR!had!a!2009!

baseline!of!5!percent!and!was!in!line!with!the!December!2013!endPtarget!of!6!percent!in!May!2011.!

The! capital! budget! execution! 2009! baseline! rate! of! 70! percent! was! maintained! with! a! move! to!

achieving!the!December!2013!endPtarget!rate!of!80!percent.!!

With! the! impact! of! various! reforms! and! the! need! to! limit! the! effect! of! the! budget! on!much!

needed! largePscale! infrastructural! projects,! the! future! of! public! investment! in! Lagos! is! to! move!

toward! placing! large! projects! as! “offPbudget! entities“(OBEs)! through! the! creation! of! “special!

purpose! vehicles”! (SPVs)! and! publicPprivate! partnerships! (PPPs),! which! the! Government! has!

embraced!in!the!last!four!years.!

Recent'Trends'in'Public'Investment'For!some!time,!maintaining!fiscal!stability!and!debt!sustainability!in!Lagos!State!was!a!growing!

challenge! in! the!development!process,!with! the! State’s! fiscal! balance!deteriorating!over! the! eight!

years.!In!2004!the!State’s!fiscal!balance!as!a!percentage!of!gross!GSDP!was!a!surplus!of!0.1!percent,!

deteriorating! to! a! deficit! of! 1.5! percent! in! 2008,! which! resulted! in! accelerated! accumulation! of!

public! debt.! Although! it! appears! the! State! can! do!with!more! borrowing! considering! its! revenueP

generating!capacity,!total!debt!stock!as!a!percentage!of!total!revenue!rose!from!27!percent!in!2006!

to! 68! percent! in! 2009,! above! the! Nigerian! Investment! and! Securities! Act! statutory! limit! of! 50!

percent.!In!view!of!recent!fiscal!reform!and!policy!changes!to!the!fiscal!adjustment!program,!Lagos’s!

fiscal!situation!is!generally!sustainable.!The!foundation!for!this!fiscal!adjustment!program!is!rooted!

in! the! State’s! current! elaboration! of! a! Medium! Term! Fiscal! Strategy! as! part! of! its! move! toward!

mediumPterm!budgeting!in!the!form!of!a!Medium!Term!Expenditure!Framework!(MTEF).!However,!

given!Lagos!State!Government’s! ambitious! capital! investment! in! infrastructural!development,! the!

State! needs! to! be! vigilant! in! controlling! current! expenditure! and! must! continue! to! mobilize!

internally!generated!revenue!to!maintain!fiscal!sustainability.!!

An! International!Development!Association! “program!document! for! a! credit! in! the!amount!of!

SDR!128.1!million!(US$!200!million!equivalent)!to!the!Federal!Republic!of!Nigeria!for!a!first!Lagos!

State! Development! Policy! Operation”! (Table! 5:! Key! Fiscal! Indicators! in! the! Baseline! Scenario)!

indicated! that! baseline! projections! for! the! period! 2009–18! portray! a! favorable! evolution! of! the!

main! fiscal! indicators,! with! debt! levels! forecast! to! stabilize! at! 3! percent! of! GSDP! while! annual!

budget! deficits! declined.! It! is! projected! that! debts! servicing! pressure!will! begin! to! ease! in! 2011!

because! of! the! substitution! of! commercial! credits! due! in! the! next! few! years! with! concessional!

World!Bank!and!development!assistance!loans.!Furthermore,!inherent!risks!to!stability!of!the!fiscal!

outlook!remain!high,!given!alternative!scenarios!that!show!that!fiscal!indicators!are!highly!sensitive!

to! a! more! rapid! increase! in! expenditure! and! lower! revenue! growth! than! under! the! baseline!

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scenario.! On! balance! it! seems! as! if! the! fiscal! framework! of! Lagos! State! can! be! sustained! in! the!mediumPterm!if!policies!of!strict!fiscal!discipline!and!debt!responsibility,!as!outlined!in!the!various!Lagos! State! Public! Financial! management! programs! and! the! provisions! of! the! Public! Financial!Management!Act,!are!enforced.!

Over!the!last!few!years,!the!fiscal!performance!of!Lagos!State!has!been!marked!by!rapid!growth!of!both!revenue!and!expenditure.!Total!revenue!grew!by!an!average!real!rate!of!21!percent,!partly!as!a!result!of!high!oil!prices!leading!to!increased!federal!allocations.!However,!of!great!importance,!as! mentioned! earlier,! is! the! substantial! increase! in! the! State’s! IGR! collections,! which!more! than!doubled!in!real!terms!between!2003!and!2009,!growing!from!2.40!percent!to!4.05!percent!of!GSDP!during! the! period.! In! the! same! vein,! there! has! been! an! appreciable! increase! in! investment!expenditure!from!₦9!billion!in!2003!to!about!₦178!billion!in!2009,!representing!0.8!percent!and!4.3!percent!of!GSDP!in!the!respective!years.!Total!Government!expenditure!rose!from!₦51.36!billion!in!2003! to! about! ₦295! billion! in! 2009,! which! represents! 4.4! percent! and! 7.1! percent! of! GSDP,!respectively.!

From!a!surplus!position!of!0.4!percent!of!GSDP!in!2003,!Lagos!State’s!fiscal!position!ebbed!to!a!deficit!of!0.36!percent!of!GSDP!in!2009.'This!significant!increase!in!the!fiscal!deficit!was!financed!by!both! domestic! and! external! borrowing,! with! debt! levels! rising! sharply! between! 2007! and! 2008!after! a!2006!decline!as! a! result!of! the!debt! reduction!deal! arrangement!of!Nigeria!with! the!Paris!club!in!the!fourth!quarter!of!2005.!At!the!end!of!2009!Lagos!State!had!an!outstanding!debt!record!of!₦98.83! billion,! about! 2.4! percent! of! GSDP,! compared! to!₦13.2! billion! in! 2005,! representing! 0.7!percent!of!GSDP.!Domestic!debt!has!always!constituted!a!significant!proportion!of!total!debt,!rising!from! 38! percent! in! 2005! to! about! 92! percent! in! 2009.! It! is! noteworthy! that! since! 2008! the!government! significantly! substituted! commercial! lending! for! bond! issuance,! a! cheaper! source! of!borrowing!in!the!long!run.!!

Given! the! commitment! of! Lagos! State! Government! to! its! fiscal! and! other! complementary!reforms,!its!goals!of!readjusting!major!public!investments!in!support!of!economic!growth,!thereby!maximizing!revenue!potential!and!increasing!the!State’s!ability!to!service!debt,!the!existing!gap!of!the! debtPrevenue! threshold! should! not! pose! a! threat! to! the! State’s! longPrun! fiscal! sustainability.!With!the!existing!lowPcost!IDA!credit,!put!at!about!US$434!million!in!outstanding!commitments!as!of! August! 2009,! and! the! large! proportion! of! bonds! in! the! domestic! debt,! the! State’s! debt! service!obligations! remain!below!10!percent!of! annual! revenue.! In!addition,! since!2004,! the!Government!significantly!kept!its!current!revenue!well!above!net!current!expenditures,2!and!with!the!deepening!of!tax!reforms,!the!State!sustained!the!rapid!growth!in!all!revenues.!These!improvements!enabled!the! Government! to! channel! new! debt! proceeds! to! financing! capital! expenditure,! as! opposed! to!consumption,!thereby!boosting!the!productive!capacity!of!the!State!economy.!!

In!addition!to!borrowing,!Lagos!State!Government!has!also!amassed!some!contingent!liabilities!to! finance! the! gap!of! the! revenuePexpenditure! threshold! in! three!main! forms.! First,! several! large!state!investment!projects—such!as!the!Lekki!toll!road,!provision!of!electricity!to!Lagos!State!Water!Corporation!at!Akute,!and!power!supply!to!the!Government!Secretarial!complex—were!undertaken!

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under! PPP! agreements,! with! the! Government! developing! an! appropriate! institutional! and!organizational!framework.!Second!is!the!creation!of!several!OBEs,!such!as!Lagos!Heli!Ltd.,!Ehingbeti!Real! Estate! Services! Ltd.,! Lagos! Electric! Ltd.,! Lagos! Fashion!Week! International! Ventures,! Legal!Support!Services!Ltd.,! and!CG!Eko!LLP.3!Third,!unfunded!pension!benefits,!with!average!actuarial!estimate!of!₦3!billion!yearly,!are!projected!to!reach!a!level!of!about!₦14!billion!in!2015.!

The!Federal!Government!of!Nigeria,! through!the!Federal!Ministry!of!Finance!and!the!Federal!Debt! Management! Office,! is! actively! involved! in! oversight! of! subnational! fiscal! and! borrowing!decisions!through!a!combination!of!rulesPbased!controls!and!direct!administrative!controls.!These!controls! require! federal! level! approval! of! State! borrowing! operations! and! prohibit! State!governments! from! directly! accessing! external! borrowing.! All! external! borrowing! is! under! the!control! of! the! Federal!Ministry! of! Finance! (FMF),! which! has! the! overriding! authority! to! provide!explicit! federal! guarantees! on! States’! external! borrowings! and! directly! participates! in! the!negotiation! of! such! credits.! At! the! same! time,! the! Federal! Debt! Management! Office! (DMO)! is!empowered!to!monitor!the!overall!debt!profile!of!individual!States!and!takes!responsibility!for!all!ongoing!debt!service!obligations,!which!are!recovered!later!through!automatic!deductions!from!the!monthly!Federation!Account!transfers!to!States.!The!Federal!Investments!and!Securities!Act!has!a!provision!limiting!annual!debt!service!payment!by!a!subPnational!government!to!40!percent!of!the!state’s!statutory!allocations!from!the!Federation!Account!and!the!state’s!total!debt!outstanding,!plus!proposed!new!borrowing! should!not! exceed!50!per! cent! of! the! state’s! revenues! in! the!preceding!year.! In! addition,! a! subPnational! government’s! borrowings!must! be! linked! to! specific! investment!projects!whose!feasibility!studies!are!approved!by!the!National!Planning!Commission.!!

On!the!revenue!side,!the!existing!monthly!system!of!sharing!oil!revenues!from!the!Federation!Account,! using! oilPpricePbased! rule! for! budgeting! revenues! to! the! three! tiers! of! government!(Federal,!State,!and!Local!Governments),!based!on!a!stable!formula4,!serves!as!a!major!stabilizer!of!State!finances.!Thus!States!are!able!to!predict!expected!inflows!from!the!Federation!Account!with!reasonable!accuracy.!

Lagos'State'PIM'Organization'

Lagos!State! is!organized! into! two! tiers,!State!and! local!governments.!As!mentioned,! the! local!governments!are!divided!into!20!local!governments!and!36!Local!Council!Development!Authorities!for! constitutional! and! administrative! convenience.! The! State! Government! implements! public!investment!through!the!State!annual!budget,!which!is!derived!from!the!Medium!Term!(three!years)!Expenditure!Framework!(MTEF).!Often!the!Government,!in!addition!to!direct!investment!in!public!infrastructure,! uses! such! vehicles! as! SPVs! and! PPPs! that!may! create! contingent! liabilities,! while!local!governments!implement!public!investment!through!their!annual!budgets.!!

In!preparing!for!capital!expenditure,!the!following!specific!guidelines!are!to!be!observed!by!all!MDAs!(ministries,!departments,!and!agencies)!(Lagos!2010):!!

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Adequate! justifications! and! explanations,! with! emphasis! on! activities! to! be! undertaken! and!targets! to! be! met! rather! than! the! objectives! of! expenditure,! must! be! prepared! for! all! major!proposals.!

1. Flagship!projects!(that!is,!projects!of!national!importance),!as!well!as!grantPassisted!projects!with! or! without! counterpart! support! from! the! Government,! and! projects! financed! by!committed!loans,!shall!be!given!higher!priority.!

2. Activities! or! projects! that! address! specific! commitments! of! the! Government! under! any!international,!bilateral,!or!domestic!forum!must!be!identified!prominently.!

3. New,!externally!assisted!activities!or!projects!shall!be!included!in!the!proposals!only!if!they!are! in! an! advanced! stage! of! negotiation! and! are! expected! to! start! within! a! period! of! six!months!into!the!new!fiscal!year.!

4. Preliminary!estimates!shall!be!used!as!supporting!documentation!for!the!writePup!on!new!constructions,! special! repairs,! or! renovations! of! existing! infrastructure.! In! the! case! of!activities!that!are!planned!to!be!carried!out!over!a!period!of!more!than!one!year,!the!writePup!shall!indicate!the!full!scope,!the!total!financial!implication,!and!the!planned!execution!of!the!work!in!phases!by!year.!

5. Proposals/estimates!for!any!activity!or!project!the!execution!of!which!extends!beyond!the!budget!(fiscal)!year!shall!be!limited!to!the!amount!to!be!expended!within!the!fiscal!year.!The!amount! required! in! subsequent! fiscal! years! shall! be! projected! in! the! annual! budget!proposals! of! such! years.! The! preparation! of! forward! estimates! under! the! rolling! budget!mechanism!is!expected!to!facilitate!such!multiPyear!budgetary!estimations.!

6. MDAs! are! expected! to! identify! and! apply! the! lowest! possible! cost! and! the!most! effective!methods!in!estimating!the!costs!of!activities!and!projects!proposed.!

7. The!recurrent!implications!of!capital!projects!are!to!be!estimated.!In!addition,!the!recurrent!costs!of!capital!projects!completed!in!the!last!year!are!taken!into!account!when!estimating!the!recurrent!costs!for!the!next!financial!year.!

8. Projects!proposed!are! to!be! in! line!with! the!State!Government!Ten!Point!Agenda!and!any!strategic!plans!for!the!ministry,!department,!or!agency!that!have!been!agreed!upon!with!the!Executive!Council!of!the!State.!

Lagos'Becomes'a'MegaSCity'

At!the!onset!of!the!present!administration!in!2007,!the!State!Government!initiated!the!Lagos!MegaPCity!Project! to!demonstrate! its! resolve! to! transform! the!State! to!meet! its! status!as!a!model!megaPcity.! The! project,! estimated! to! cost! $50! million,! was! expected! to! be! mainly! financed! via!various! PPP! models.! This! culminated! in! the! enactment! of! the! Lagos! State! Roads,! Bridges! and!Highway! Infrastructure! (Private! Sector!Participation)!Development!Board!Law! to!provide! a! legal!framework!for!privatePsector!financing!of!infrastructure!such!as!roads,!bridges,!and!highways.!This!law!was!the!first!of!its!kind!by!any!government!in!Nigeria.!The!State!Government!also!established!a!PublicPPrivate! Partnership!Office! to! provide! assistance! and! guidance! to!MDAs! considering! a! PPP!

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procurement! option,! especially! in! the! following! areas! requiring! huge! capital! investment:! waste!management,! pipePborne! water,! roads,! rail,! ferry! services,! tourism,! real! estate,! and!communications.!The!State!has!seven!major!PPP!projects.!Four!(Akute!Power!Project,!the!Bus!Rapid!Transit! (BRT)! Scheme,!Health! facilities,! and!Waste! to!Wealth! Project)! are! fully! in! operation;! one!(LekkiPEpe! Expressway)! is! partly! operational;! and! two! (Lagos! Rail! Mass! Transit! and! Odomola!Water!Scheme)!are!under!construction.!Details!of!some!of!these!definite!PPP!strides!the!State!has!taken!are:!

• The' Bus' Rapid' Transit' Scheme' (BRT).! This! project,! estimated! to! cost! $100! million,! is!geared!toward!easing!heavy!traffic!congestion!in!the!state.!The!project!is!a!partnership!with!the! National! Union! of! Road! Transport!Workers! (NURTW)! and! is! regulated! by! the! Lagos!Metropolitan!Area!Transport!Authority!(LAMATA).!!

• Waste' to'Wealth' Project.! With! Lagos! State! generating! about! 3.3! million!metric! tons! of!waste! per! annum,! while! only! 1.25!mmt! is! being! collected! annually,! this! project! involves!Public! Sector!Partnership! (PSP)!operators! in! the! removal,!disposal,! and!conversion!of! the!deficit!domestic!and!Industrial!Wastes!in!Lagos!State.!

• BOT' (Build,'Operate' and'Transfer).! This! is! an! arrangement! of! the!US$450m!LekkiPEpe!Expressway,!which!is!a!partnership!between!the!Lekki!Concession!Company!(LCC),!a!special!purpose!vehicle!and!a!subsidiary!of!Toll!Systems!Company!Ltd!(TSC),!and!the!Lagos!State!Government.!Section!1!was!commissioned!in!July!2010.!

• Independent'Power'Project' (IPP).! The!12.15!MW! IPP!plant!was!built! at! a! cost!of! $25.5!million!by!the!State!Government!in!conjunction!with!Akute!Power!Limited,!a!subsidiary!of!Oando!Plc.!The!project!was!commissioned!in!March!2010!to!provide!uninterrupted!power!supply!to!the!Lagos!State!Water!Works!in!Adiyan–Iju!and!has!reportedly!helped!the!State!to!save!the!sum!of!₦600!million!per!annum.!

However,!MDAs!are!mandated!to!carefully!consider!the!increased!risks!arising!from!the!PPP!model!approach,! especially! as! a! result! of! the! reduced! availability! of! funding! for! privatePsector! projects!from!banks!because!of!the!global!credit!crunch.!

With!a!performance!target!of!dedicating!60!percent!of!its!annual!budget!to!development!projects!in!an! environment!where! experience! shows! that! procurement,! especially! for! capital! projects,! has! a!high!risk! in! terms!of! leakages!of!public! funds,! the!Lagos!State!Government!decided!to!give!a!high!level! of! importance! to! monitoring! and! evaluation! of! capital! projects.! Monitoring! and! Evaluation!(M&E)! is! primarily! undertaken! by! the! Monitoring! and! Evaluation! Directorate! in! the! Ministry! of!Economic!Planning!and!Budget.!The!efforts!of!the!Directorate!are!complemented!by!the!following!bodies:!

• Project!Implementation!Monitoring!Unit!(PIMU)!in!the!Governor’s!Office,!

• Project!Monitoring!Committee!of!EXCO,!and!

• Independent!Consultants!Monitoring!Team.!

The!State’s!Monitoring!and!Evaluation!system!is!designed!to:!!

1. provide!constant!feedback!on!the!extent!to!which!the!projects!are!achieving!their!set!goals;!

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2. identify!potential!problems!at!every!stage!to!keep!track!of!progress!and!review!operations!accordingly;!

3. monitor! the! efficiency! with! which! the! different! components! of! the! projects! are! being!implemented!and!suggest!improvements;!

4. assist!in!the!planning!of!future!projects;!

5. influence! sector! assistance! strategy,! that! is,! relevant! analysis! from! project! and! policy!evaluation! can! highlight! the! outcomes! of! previous! interventions,! and! the! strengths! and!weaknesses!of!their!implementation;!

6. incorporate!views!of!stakeholders:!participation!by!project!beneficiaries!or!users!in!design!and! implementation! brings! greater! “ownership”! of! project! objectives! and! encourages! the!sustainability!of!project!benefits;!

7. provide!a!source!of!information!for!budget!evaluation!works;!

8. enhance!the!confidence!of!the!citizens!in!the!activities!of!the!State!Government;!and!

9. ensure!transparency!and!accountability.!

In! a! bid! to! plug! the! capacity! gap! identified! in! the! State’s! Monitoring! and! Evaluation! process,! a!personal!assistant!to!the!governor!in!this!area!was!engaged!on!a!fullPtime!basis,!and!the!office!has!been!collaborating!with!the!World!Bank!mission!in!Nigeria!to!build!the!capacity!of!the!Monitoring!and!Evaluation!department!of!MEPB!and!the!Project!Implementation!Monitoring!Unit!(PIMU)!in!the!Governor’s!Office.!This!has! resulted! in!better!performance!of! the!units! that!prepare! the! required!quarterly! M&E,! with! reports! rendered! as! required.! Yet,! capacity! constraints! still! remain! an!important!problem!affecting!the!quality!of!reports.!!

PIM'Institutional'Setting'

In!the!course!of!this!review!of!PIM!in!Lagos!State,!information!was!obtained!from!relevant!authorities! in! MDAs! whose! responsibilities! are! in! some! way! related! to! PIM.! Among! these!stakeholders! are:! Ministry! of! Economic! Planning! and! Budget,! Ministry! of! Finance,! Ministry! of!Justice,! Ministry! of! Works! and! Infrastructure,! Ministry! of! Physical! Planning! and! Urban!Development,! Ministry! of! Transport,! Lagos! Metropolitan! Area! Transport! Authority,! and! Lagos!Metropolitan!Development!and!Governance!Project!(LMDGP).!

Before! this!period!of! sustained!democratic!governance,! the!Lagos!State!public! investment!cycle,! like! those! of! other! States! of! the! Federation,! was! linked! to! the! whims! and! caprices! of!frequently! changing!military! governments.! Public! investment!was! expected! to!be! routed! through!annual!budgets,!but!more!often! than!not,!budgets!were!as!good!as! the!paper!on!which! they!were!prepared.! Since! the! inception! of! democratic! governance! in! 1999,! the! public! investment! cycle! in!Lagos!State!has!been!better!linked!to!the!budget!cycle,!which!was!annual!until!2008!when!the!State!Government!started!a!multiPyear!budget!system!through!the!elaboration!of!MTEF.!The!MTEF!topPdown!and!bottomPup!budget!process!has!been!the!recognized!institutional!framework!for!planning!Government! expenditure! for! threePyear! periods.! The! budget! of! each! year! of! the! MTEF! cycle! is!analyzed!and!approved!by!the!State!House!of!Assembly,!the!legislative!arm!of!government,!no!later!

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than!the!first!day!of!November!and!assented!to!by!the!Governor!not!later!than!the!fifteenth!day!of!December!of!the!preceding!year.!This!makes!it!legally!binding!on!subsequently!elected!government.!!

In! line! with! international! best! practice,! Lagos’s! MTEF! involves! a! topPdown! estimate! of!aggregate!resources!available!for!public!spending!in!the!form!of!a!Medium!Term!Fiscal!Framework!(MTFF)! and! bottomPup! sector! programs,! with! appropriate! costing! by! way! of! the! Medium! Term!Sector! Strategy! (MTSS).! This! is! to! ensure! reconciliation! of! needs! with! resource! constraints! for!sectoral! resource! allocation! and! to! ensure! that! budget! execution! reflects! agreed! upon! plans!consistent!with!the!policy!focus!of!Government!over!the!budget!cycle.!!

The! State! is! divided! into! nine! subnational! Classification! of! Functions! of! Government!(COFOG)! sectors,! with! each! sector! (with! full! participation! of! all! MDAs! in! the! sector)! taking!responsibility!for!the!preparation!of!its!related!MTSS,!with!the!Ministry!of!Economic!Planning!and!Budget! (MEPB)! supporting!and!coordinating! the!process.!MEPB! is! responsible! for! issuing!budget!circulars! to! kickPstart! the! budget! cycle,! scrutiny! of! recurrent! revenue! estimates,! and! overall!coordination!of!the!budget!preparation!and!approval;! in!addition,! it!scrutinizes!the!capital!budget!and!coordinates!technical!aid!and!grant!aided!programs.!The!Ministry!of!Finance!is!in!charge!of!the!State’s!debt!profile,!with!responsibility!for!managing!debt!and!debt!charge!estimates!and,!through!the!State!Treasury!Office!(STO)!and!Internal!Revenue!Service!(IRS),!it!makes!statutory!revenue!and!tax! revenue! estimates,! respectively.! For! projects! to! be! admitted! into! the! budget,! MEPB! holds!bilateral!discussions!with!each!sector!in!which!all!the!MDAs!in!the!sector!present!projects!to!their!respective!MTSS!for!negotiation!and!agreement.!!

Thus! through! their! respective!sectors,!MDAs!are! responsible! for!proposing!and!preparing!investment!projects,!and,!when!the!projects!are!approved!and!included!in!the!budget,!MDAs!are!in!charge!of! implementing!and!overseeing!them.!In!implementing!public!projects,!each!line!ministry,!department,!or!agency!is!required!to!prepare!a!proposal!to!seek!the!approval!of!the!Commissioner!of! the! MEPB,! who! has! an! approval! limit! of! ₦10! million.! Before! granting! the! approval,! or!recommending! for! approval! where! the! project! cost! is! higher! than! his/her! approval! limit,! the!Honorable! Commissioner! (HC)! of! MEPB! obtains! technical! advice! on! costing! and! valuation! from!Ministry!of!Works!and!Infrastructure!if!the!project!is!related!to!physical!structure;!if!it!is!science!or!technology!related,!the!HC!MEPB!refers!it!to!the!Ministry!of!Science!and!Technology,!before!sending!it!to!the!Ministry!of!Works!and!Infrastructure!for!final!advice!on!costing!and!valuation.!On!approval!or!recommendation!for!approval!by!HC!MEPB,!the!documents!are!forwarded!to!the!HC!Ministry!of!Finance!(MoF)! for! the!attention!of!State!Treasury!Office!(STO)! to!process!release!of! funds! for! the!project.!!

Evidence!shows!that!this!process!prescribed!by!the!Nigerian!budget!standard!is!adhered!to;!however,! there! is! still!evidence!of! some!MDAs! lobbying,!using!personal!and!political! influence,! to!shortPcircuit!the!requirements!of!control!of!capital!projects.!For!example,!capital!projects!with!costs!above! the! individual/entity! authority! limit! are! sometimes! broken! down! in! unusual! ways! to!accommodate!the!approval!limits!of!approving!authorities.!

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Performance'of'the'PIM'System'Investment'Guidance'and'Preliminary'Screening'

As!earlier! indicated,!Lagos!adopted!a!medium!term!(three!years)!budget!planning!process!that! clearly! defines! the! Government’s! overall! policy! thrust! and! programs! and! actions! to! be!implemented! during! the! threePyear! period.! From! 1999! to! 2007,! the! State! Government’s! policy!thrust! was! encapsulated! in! the! Lagos! State! Economic! Empowerment! and! Development! Strategy!(LASEEDS),!in!tune!with!the!National!Economic!Empowerment!and!Development!Strategy!(NEEDS).!NEEDS!was!a!Federal!Government!initiative!launched!in!2004!that!sets!out!national!priorities!in!a!number!of!areas,!such!as:!

• Empowering! people! (health,! education,! environment,! housing,! employment! &! youth!development,!etc);!

• Promoting! private! enterprise! (security! and! the! rule! of! law,! infrastructure,! finance,!privatisation!and!liberalisation,!regional!integration);!and!

• Changing! the! way! government! does! its! work! (public! sector! reforms,! governance,!transparency!and!antiPcorruption,!service!delivery,!budget!and!expenditure!reforms).!!

In! 2007! Lagos! State’s! policy! thrust! was! further! expanded! to! include! the! new! State!Government’s! Ten! Point! Agenda! (TPA),! and! from!2009! it!was! tailored! to! fit! into! the!Millennium!Development!Goals!(MDGs)!and!the!Federal!Government’s!Vision!20:2020!to!a!large!extent.!Lagos!State! has! been! implementing! the! strategic! content! of! its! plan! since! the! 1999! democratic!dispensation.!The!budget!process!has!been!adhered!to!with!the!assistance!and!support!of!the!World!Bank,!UK!Department!for!International!Development!(DFID),!and!other!development!partners!that!are! generally!happy!with! the! level! of! seriousness!of! the!Government.!The!aforementioned!World!Bank! Report! (World! Bank! 2011)! rated! progress! toward! achieving! overall! Development! Policy!Objectives! (DPO)! as! “Satisfactory,”! and! Overall! implementation! progress! as! “Moderately!Satisfactory.”!The!World!Bank!study!observed!an! improvement! in! the!State’s!MTEF!system!in! the!following!areas:!

• With! the! assistance! of! the!World! Bank’s!MTEF! team,! the! Executive! Council! approved! the!adoption! of! a! MediumPTerm! Fiscal! Strategy! that! is! supportive! of! longPterm! debt!sustainability!for!the!2010!budget.!

• The!Ministry! of! Economic! Planning! and! Budget! adopted! a!macroeconomic! framework! to!determine! sectorPspecific! budgetary! resource! ceilings! and! envelopes! to! prepare! the! 2010!budget.!

• In!addition! to! the! initial! three!ministries! (Health,!Education,!and!Environment),! the!MTSS!was!prepared!and!published!for!seven!ministries!(Women’s!Affairs!and!Poverty!Elevation,!Justice,! Physical! Planning! and! Urban! Development,! Transportation,! Works! and!Infrastructure,!Housing,!and!Youth,!Sports!and!Social!Development).!

• The!2010!State!Budget!included!capital!projects!that!meet!readiness!requirements!set!out!in!the!expenditure!request!checklist!of!the!Ministry!of!Economic!Planning!and!Budget.!

!!

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Lagos'Sets'PIM'Example'Lagos!State!has!established!a!process!of!screening!projects!through!the!MTSS5!which!is!now!

carried!out! for! the!nine!COFOG!Sectors! (Education,!Health,!Environment,!General!Public!Services,!

Public! Order! and! Safety,! Economic! Affairs,! Housing,! Recreation,! Culture! and! Religion,! Social!

Protection)! of! the! economy.! Bilateral! discussions! between! MEPB! and! the! sectors,! with! the!

involvement!of!all!MDAs! in! the!sectors,!have!consistently! taken!place! to!screen!and!select!agreed!

upon!projects!to!be!included!in!the!budget,!taking!into!consideration!available!resources!and!in!line!

with! the! Government’s! strategic! focus.!With! strict! adherence! to! the! topPdown,! bottomPup!MTEF!

budget!process,!sectors!are!guided!by!available!resources!and!the!strategic!focus!of!government!to!

prepare! sector! strategies,! hence! there! is! little! or! no! room! for! including! projects! that! have! been!

screened!and!rejected!in!the!budget.!Each!sector’s!MTSS!document!is!expected!to!clearly!spell!out!

the!strategic!goals!of!the!sector,!which!must!be!in!line!with!the!State’s!strategic!goals!as!well!as!with!

specific!objectives!and!must!contain!fully!costed!initiatives!geared!towards!achieving!the!goals!and!

objectives!to!provide!a!basis!for!budgeting.!

The! few!officers!of! the!Budget!Directorate! and!Economic! Intelligence!Unit! (EIU)!of!MEPB!

that!have!garnered!reasonable!technical!knowledge!of!MTSS!are!inadequate!to!ensure!an!effective!

elaboration!and!synchronization!of!sector!plans!and!resource!needs! into!the!MTEF.!Seminars!and!

workshops! have! been! conducted! in! conjunction! with! UK! Department! for! International!

Development! (DfID)! and! some! independent! consultants! to! train! relevant! officers! in! the! MEPB!

Ministry! of! Economic! Planning! and! Budget! (MEPB)! and! the! other! MDAs;! Planning! Units! were!

created!in!all!MDAs!manned!by!Planning!Officers!deployed!from!MEPB!to!assist!MDAs!in!preparing!

their!MTSS! documents.! However,!many! remaining! technical! gaps! have! prevented! the! State! from!

fully! achieving! the! goal! of! devolving! the! task! of! preparing! MTSS! to! the! MDAs,! with! attendant!

problems!of!harmonizing!the!required!topPdown!and!bottomPup!MTEF!process.!!

The! civil! society! and! the! private! sector,! including! those! outside! Lagos! State,! have! been!

generally! appreciative! of! the! performance! of! the! State! Government! in! the! area! of! physical! and!

infrastructural! development,! compared!with! past! governments! and! governments! of! other! states.!

This! is! evidenced! by! the! noticeable! and! uncharacteristic! increase! in! the! number! of! voluntary!

taxpayers! and! the! landslide! victory! of! the! party! at! the! last! election.! In! addition,! civil! societies! in!

other!states!have!frequently!called!on!their!state!governments!to!replicate!the!Lagos!model.!!

Formal'Project'Appraisal'of'Investment'Projects''

Since! 1999,! the! beginning! of! the! current! democratic! dispensation,! Lagos! State! has!

significantly! developed! and! embedded! formal! program! and! project! appraisal! processes! for! all!

projects,! irrespective!of!value.!All!project!appraisals!are!expected!to! include!cost,! timing,!benefits,!

and! a! financial! plan,! as!well! as! challenges! of! implementation.! Documentation! for! public! projects!

appraisals!must!include!the!following:'

1. Evidence!of!site!acquisition!with!a!view!to!ensuring!that!the!project!fits!into!the!Master!Plan!for!the!area;!

!!

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2. SignPoff! by! the!Ministry!of!Physical!Planning!and!Urban!Development,! evidencing! the! site!acquisition,!as!well!as!approval!of!a!Specific!building!plan;!

3. Proof! of! established! rightPofPway! in! the! case! of! road! construction,! accompanied! by!preliminary! designs! showing! concrete! drains,! utilities! duct,! walkways,! bicycle! lanes,! and!street!lights,!as!well!as!the!program!for!demolitions!where!applicable;!

4. Bill!of!quantities;!

5. Any! other! document! necessary! to! prove! the! preparedness! of! the! agency! to! execute! the!proposed!project;!and!

6. Documentation!that!the!prospects!of!using!capital!contributions!or!grants!from!multilateral!agencies!and!counterpart! funds!by! the!State!Government! to!match!such!grants!have!been!explored.!

The!above!checklists!are!intended!to!help!meet!international!standards!and!the!professional!focus!of! the!government!of! the!day.!However!due! to! the!absence!of!an! independent!Procurement!Agency,! capacity! limitations! in! understanding! and! implementing! some! of! the! listed! technical!requirements,! the! cumbersome! bureaucratic! procedures! of! the! civil! service,! and! personal! and!political!considerations,!there!is!no!strong!evidence!that!the!procurement!of!capital!investments!in!Lagos!State!meets!these!documentation!requirements.!

Project! appraisals! must! include! information! covering! project! contextual! particulars,!detailed! technical! analysis,! financial! analysis,! environmental! impact! analysis,! and! socioeconomic!analysis,!with!emphasis!on!the!activities!to!be!carried!out!and!targets!to!be!met,!rather!than!on!the!objectives! of! expenditure.! For! projects! planned! to! be! executed! over! a! period! of! more! than! one!budget! year,! the! appraisal! must! include! the! full! scope,! the! total! financial! implication,! and! the!planned!execution!of!the!project!in!yearPbyPyear!phases.!!

The!Ministry!of!Physical!Planning!and!Urban!Development!has!developed!Master!Plans!for!different!areas!of!the!State!and!approves!specific!project!plans!to!ensure!that!projects!fit!the!master!plan!of!each!area.!These!have!as!much!as!possible!guided!MDAs!to!meet!the!set!requirements!in!the!project! preparation! process;! however,! the! limited! number! of! professionals! in! the! Ministry! and!MDAs! has! prevented! the! system! from! becoming! fully! effective.! This! shortage! has! led! to! the!engagement! of! external! consultants! whose! appointment! may! be! influenced! by! political!considerations! and! who! therefore! are! not! fully! autonomous! in! their! judgment.! Evidence! still!abounds!of!public!projects!budgeted!without!environmental!impact!or!socioeconomic!analysis!and!where!they!are!attached!to!projects!that!lack!technically!adequate!analysis.!!

Independent'Review'of'Investment'Appraisals'

Officially!Lagos!State!has!put! in!place! formal!project!appraisal!processes.!These!processes!are! being! complemented! by! reviews! undertaken! by! professionals! in! the! Ministry! of! Works! and!Infrastructure!who!carry!out!costing!and!valuation!of!all!projects!proposed!by!all!MDAs.!In!addition!to! this! arrangement,! the! Lagos! State! Consultancy! Board! is! in! charge! of! registering! external!consultants!who!are!engaged!to!carry!out!appraisal!of!projects.!Registered!consultants!are!expected!to!bid!and!tender!competitively!for!project!appraisals!as!they!come!up.!!

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For! conditional! grant! projects,! the! State! and! the! Federal! Government,! or! the! coPfunding!party,!will!usually!engage!consultants!for!independent!review!of!the!project!appraisal!under!a!joint!arrangement.! Although! consultants! are! engaged! to! undertake! independent! reviews,! the!independence! of! such! reviews! may! be! compromised! owing! to! political! factors! affecting! their!recruitment.!!

Project'Selection'and'Budgeting'

The!Lagos! State!budget! cycle,!which!was! transformed! from!a! yearly! cycle! to! a!multiPyear!(three!years)!cycle!in!2008,!is!primarily!guided!by!the!MTEF!mechanism!of!a!topPdown!estimate!of!aggregate! resources! available! for! public! expenditure! consistent! with! fiscal! stability;! bottomPup!estimates!of!the!cost!of!carrying!out!policies,!both!existing!and!new;!and!a!tool!for!reconciling!these!costs!with!aggregate!resources.!Projects!are!selected!and!budgeted!with!due!consultation!among!all!stake!holders!subject! to!aggregate!available!resources!and! in!agreement!with! the!policy! thrust!of!the!State!Government.!!

MEPB!plays!a!central!role!in!the!Lagos!State’s!budget!cycle!by!coordinating!the!preparation!of!the!budget!as!well!as!serving!as!a!clearing!house!for!the!project!implementation!process.!Among!other!functions,!MEPB!undertakes!the!following!analyses:!

• Review!each!budget!proposal! to!ensure! compliance!with! the!guidelines! in! the!budget! call!circular.!

• Check! that! the! proposals! are! within! the! approved! limit! subject! to! sectoral! resource!envelopes.!

• Verify!that!the!strategy,!projects,!and!programs!are!consistent!with!State!budget!policy!and!relevant!sector!strategies!and!objectives.!

• Review! and! judge! the! reasonableness! of! the! project! and! program! costing! mechanism! in!each!proposal.!!

• Review! the! performance! of! every! MDA! over! the! previous! budget! year! and! the! first! six!months!of!the!current!budget!year!using!various!performance!indicators.!!

Upon! completion! of! bilateral! discussions,! MEPB! collates! the! agreed! upon! budgetary!proposals! that!are! then!presented! to! the!Governor! for!discussion!at! the!Executive!Council!by! the!State!Treasury!Board,!the!finance!committee!of!the!executive!arm,!after!which!they!are!presented!to!the!House!of!Assembly!by!the!Governor!as!an!Appropriation!Bill.!For!the!Appropriation!Bill! to!be!considered! as! complete! and! to! meet! international! best! practice,! it! contains! the! following!information,!among!others,!in!addition!to!necessary!information!on!revenue!and!expenditure:!

• MacroPeconomic! indicators! and! assumptions,! actual! and! estimates,! such! as! aggregate!growth!rate,!inflation!and!exchange!rate,!

• Fiscal!deficit!as!defined!in!line!with!international!standard,!

• Funding!gap!with!anticipated!composition,!

• Debt!stock,!

!!

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!

Table!X.2:!Lagos!State!Sectoral!Allocation/Performance,!2007–10!

!

Source:!Ministry!of!Economic!Planning!and!Budget;!MDAs.!Note:!! ͣ.!%!perf!means!the!percentage!of!actual!figures!to!budget!estimates.

2007$

$2008$

$2009$

$2010$

$ Budget!(₦b)!

Actual!(₦b)! %!Perf! ͣ!

!Budget!(₦b)!

!%!Perf!

!Budget!(₦b)!

Actual!(₦b)! %!Perf!

!Budget!(₦b)!

Actual!(₦b)! %!Perf!

! !(₦b)!

! Public!Sector!Services!

!114.37! 98.727! 86!

!110.028! 97.566! 89!

!106.428! 75.131! 71!

!111.93! 91.398! 82!

!!!!!Capital!Expenditure!!

36.6! 31.59! !!!

41.81! 37.08! !!!

42.571! 30.052!!

47.01! 38.39! !!

!!!!!Recurrent!Expenditure!!

77.77! 67.13! !!!

68.22! 60.49! !!!

63.857! 45.079!!

64.92! 53.01! !!

Public!Order!and!Safety!!

5.623! 4.042! 72!!

11.888! 5.274! 44!!

11.017! 6.267! 57!!

12.489! 8.411! 67!


1.687! 1.213! !!!

3.804! 1.688! !!!

3.856! 2.193!!

4.746! 3.196! !!


3.936! 2.829! !!!

8.084! 3.586! !!!

7.161! 4.074!!

7.743! 5.215! !!

Economic!Affairs!!

49.634! 38.153! 77!!

112.673! 70.183! 62!!

105.961! 74.197! 70!!

130.65! 125.8! 96!

!!!!Capital!Expenditure!!

28.688! 22.052! !!!

81.913! 51.023! !!!

78.411! 54.906!!

96.681! 93.092! !!

!!!!Recurrent!Expenditure!!

20.946! 16.101! !!!

30.76! 19.16! !!!

27.550! 19.291!!

33.97! 32.71! !!

Environmental!Protection!!

23.886! 10.719! 45!!

44.367! 32.825! 74!!

39.805! 34.007! 85!!

27.727! 23.352! 84!


13.997! 6.281! !!!

31.66! 23.424! !!!

28.660! 24.485!!

19.963! 16.813!!


9.889! 4.438! !!!

12.707! 9.401! !!!

11.145! 9.522!!

7.764! 6.539! !!

Housing!&!Community!Amenities!!

30.978! 4.732! 15!!

34.852! 31.472! 90!!

53.954! 53.371! 99!!

37.153! 21.17! 57!


19.206! 2.934!!

22.096! 19.953!!

36.149! 35.759!!

26.527! 15.115!!


11.772! 1.798! !!!

12.756! 11.519! !!!

17.805! 17.612!!

10.626! 6.055! !!

Health!!

15.739! 12.509! 79!!

29.516! 17.377! 59!!

24.643! 18.452! 75!!

26.277! 21.782! 83!


7.87! 6.255!!

18.123! 11.816!!

16.264! 12.178!!

18.394! 15.247!!


7.87! 6.255!!

11.393! 5.561! !!!

8.379! 6.274!!

7.883! 6.535! !!

Recreation,!Culture!&!Religion!!

4.891! 2.866! 59!!

9.817! 4.984! 51!!

8.438! 5.744! 68!!

8.243! 4.209! 51!


2.005! 1.175!!

4.084! 2.073!!

3.713! 2.527!!

3.709! 1.894!!


2.886! 1.691! !!!

5.733! 2.911! !!!

4.725! 3.217!!

4.534! 2.315! !!

Education!!!

27.251! 19.289! 71!!

48.586! 25.288! 52!!

51.577! 25.719! 50!!

54.588! 31.335! 57!


12.535! 8.873!!

20.892! 10.874!!

23.210! 11.574!!

26.748! 15.354!!


14.716! 10.416! !!!

27.694! 14.414! !!!

28.367! 14.145!!

27.84! 15.981! !!

Social!Protection!!

2.393! 1.129! 47!!

1.673! 1.158! 69!!

3.177! 1.822! 50!!

2.508! 1.889! 75!


0.718! 0.339!!

0.586! 0.405!!

1.112! 0.638!!

0.888! 0.669!!


1.675! 0.79! !!!

1.087! 0.753! !!!

2.065! 1.184!!

1.62! 1.22! !!

!!

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!

Figure'X.5'''Lagos'State'Budgetary'Allocation/Performance,'2007–10,'₦ billions'

!

Source:!“International!Press!Briefing!on!Achievements!of!Y2007!–!Y2010!Budgets!and!Analysis!of!Y2011!Budget”!by!Ben!Akabueze,!Honorable!Commissioner,!Lagos!State!Ministry!of!Economic!Planning!and!Budget!

Public! projects! are! usually! implemented! according! to! set! rules! involving! necessary!approvals! from!Ministerial! Tenders!Board! (MTB)! or! State!Tenders!Board! (STB)! according! to! the!approval! limit! for! each! project.! Public! projects! below! ₦10! million! are! implemented! at! the! line!ministries,!with!approvals!granted!by!the!MTB.!Projects!valued!at!₦10!million!and!above!have!to!be!approved!by!STB!to!be!implemented.!In!addition!to!the!Tender!Boards,!the!Lagos!State!Ministry!of!Justice! also! has! a! critical! role! in! the! project! implementation! process! through! its! participation! in!drafting!bid!documents,! tendering!processes,!and!eventually!drafting!and!ensuring!execution!and!safekeeping!of! contract!agreements!with!successful! contractors! to!ensure! that! the!contract! terms!are!adhered!to!and!protecting!the!interest!of!the!State!Government.!!

0!

20!

40!

60!

80!

100!

120!

140!

N'billion(

COFOG(Sectors(

Budgetary(Alloca:on/Performance((2007C2010)(

2007!Budget! 2007!Actual! 2008!%!Perf! 2008!Budget! 2009!Actual!2009!%!Perf! 2010!Budget! 2010!Actual! !!%!Perf!

!

25!

!!

! PAGE 9



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Public!projects!are!officially!subjected!to!competitive!bidding!in!which!prospective!contractors!

through!public!advertisement!have!access!to!bid!documents!and!are!required!to!provide!bid!bonds!

to!be!eligible!for!bidding.!Successful!contractors!are!then!selected!to!participate!in!the!competitive!

tendering!process!and!the!contracts!are!awarded.!Apart!from!these!competitive!bidding!and!

tendering!processes,!the!Government!uses!selective!tendering,!although!sparingly,!for!some!

projects!awarded!at!the!discretion!of!Government,!usually!for!political!patronage!or!other!

extraneous!considerations.!However,!with!the!recent!practice!of!publishing!contracts!above!certain!

thresholds!on!the!State!website,!journals,!and!national!daily!newspapers,!it!is!expected!that!the!

procurement!strategy!would!move!toward!a!competitive!bidding!method.!!

There!is!commendable!evidence!of!implemented!projects!in!the!State!where!the!bid!process!

and!approval!procedures!have!been!followed!to!a!large!extent.!However,!there!is!still!evidence!of!

selective!tendering,!as!against!competitive!bids,!and!some!underhanded!dealing,!even!for!

competitive!bids.!Approval!limits!are!at!times!circumvented!through!the!breakdown!of!projects!into!

separate!parts.!The!lack!of!a!complementary!Public!Procurement!Act,!until!the!recent!enactment!by!

the!legislature,!and!attendant!enforcement!institutions!have!not!helped!in!vouching!for!

transparency!and!accountability.!'

Project'Adjustment'

Given! the! possibility! of! externalities! and! unavoidable! errors! in! project! appraisal! and! in!

some! cases! implementation,! Lagos! State! Government! carries! out! periodic! sectoral! summits! to!

consider! the! continued! relevance! of! ongoing! or! proposed! projects.! During! these! debates! and!

discussions! few!projects!have!been!amended!or!outright!cancelled.!A! typical!example!of!a!project!

that! was! cancelled! is! a! recreation! center! being! constructed! by! the! Ministry! of! Works! and!

Environment!at!Ayobo,!a!suburb! in! the!Agege!area!of!Lagos,!valued!at!₦300!million,!out!of!which!

₦100!million! had! been! expended.! During! a! monitoring! and! evaluation! exercise! by! MEPB! it! was!

discovered! that,! contrary! to! extant! laws,! the! center! was! being! constructed! under! high! tension!

electric! cables.! Another! example! of! adjustment! to! projects! is! the! temporary! suspension! of! toll!

collection!on! the!Lekki–Epe!Expressway,! constructed!by!Lagos!Concession!Company!under!a!PPP!

arrangement,! in! response! to! political! pressure! from! road!users.!While! the! latter!must! have! been!

due!to!very!poor!project!appraisal,!the!former!was!a!result!of!inadequate!consultation!and!inability!

of!the!Government!to!secure!the!necessary!buy[in!of!all!stakeholders!to!the!project.!

The! Monitoring! and! Evaluation! Department! (MED)! of! MEPB! and! the! Project!

Implementation!and!Monitoring!Unit!(PIMU)!of!the!Governor’s!Office!carry!out!periodic!monitoring!

of! projects! to! ensure! they! are! being! implemented! according! to! plan! and! where! necessary!

recommend! appropriate! adjustments.! The! Impact! Assessment! Unit! of! MEPB! prepares! quarterly!

reports! on! costs! and! benefits! from! key! performance! indicators! that! are! designed! for! MDAs!

implementing!public!projects.!

Budgetary!allocations!are!made!for!projects!on!a!cash!basis,!with!the!likely!effect!of!inflation!

considered!for!each!detailed!head!of!expenditure!expressed!at!the!prices!which!will!actually!have!to!

be!paid.! In!order! to!hedge!against! the!possibility!of! serious!errors! in!estimating! inflation,! central!

26!

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contingency!provisions!are!made!in!the!budget.!This!practice!has!resulted!in!switching!expenditure!from!one!budget!head!to!another,!with!the!potential!for!some!level!of!abuse.!

Facility'Operation'

In!the!last!five!years!Lagos!State!has!taken!steps!to!improve!the!system!of!asset!registration!and!valuation.!All!offices!now!have!an!Asset!Inventory!Card!where!office!equipment!and!furniture!are! recorded! under! the! supervision! of! resident! office! managers! and! auditors.! The! State! has! a!geographic! information! system! (GIS)! to! take! inventory!of! its!massive!portfolio! of! buildings,! land,!and!other!immovable!property.!!

The!State!has!an!Oracle!Financial!System,!upgraded!to!the!latest!version!in!2011,!that!can!be!used! to! fully! implement! an! Integrated! Financial! Management! Information! System! (IFMIS).!However,!the!State!has!been!unable!to!optimize!the!potential!benefits!of!the!system!as!it!has!only!fully! used! the!Human!Resources,! General! Ledger,! Accounts! Payable,! Public! Sector!Budgeting! and!Fixed!Assets!modules,!which!represent!about!40!percent!of!the!system’s!capacity.!This!situation!has!not!only!prevented!the!upgrade!of!the!cash!management!and!capital!plan!systems!of!the!State,!but!has! also! resulted! in! reconciliation! problems! between! budget! execution! reports! and! financial!statements.!!

Ex'Post'Evaluation'

On! completion! of! projects,! the! Governor,! or! a! designated! state! official,! commissions! the!project!and!the!project!is!handed!over!appropriately.!If!it!is!a!community!project,!it!is!handed!over!to!a!Community!Development!Association!(CDA)! for!post!completion!maintenance!and!operation,!and! if! it! is! for!a! line!ministry,! it! is!handed!over! to! the!ministry.!MDAs,!such!as!LAMATA,!Hospital!Management! Board,! Public! Works! Bureau,! Health! Facility! and! Monitoring! Agency,! Lagos! State!Environmental! Protection! Agency! (LASEPA),! and! Staff! Housing! Board,! are! given! budgetary!allocations!for!running!and!maintaining!public!projects!in!their!care.!!

Conclusions''The! findings! of! this! study! reasonably! make! the! case! that! the! overall! practices! in! public!

investment!management! in! Lagos! State! are! still! weak,! but! have!made! encouraging! steps! toward!improvement.!The!strategic!TPA!the!Government!is!committed!to,!plus!the!adoption!of!a!MTEF!and!complementary!reforms,!put!the!State!in!a!good!position!to!reform!the!PIM!system.!For!continuity!and! consistency,! and! a! good! basis! for! optimism,! Lagos! State! has! benefited! from! the! democratic!governance!of!a!political!party!that!has!the!overwhelming!support!of!the!electorate!and!successive!governors!who!have!taken!planning!seriously!and!provided!clear!strategic!focus.!

Encouraging! improvements! include! complementary!bills! passed!by! the! legislature! to! give!legal! backing! to! public! procurement! and! investment! initiatives.! These! bills! are:! the! Lagos! State!Procurement!Bill!2009,!Lagos!State!Tenancy!Bill!2009,!Lagos!State!Public!Finance!Management!Bill!2010,!and!the!Criminal!Law!of!Lagos!State!Bill!2010.!!

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However,!as!discussed!herein!and!as!outlined!in!the!Annex,!many!weaknesses!and!potential!sources! of! problems! were! identified! in! each! of! the! eight! basic! features! of! a! public! investment!management! system.! The! roles! of! MEPB! and! other! supporting! MDAs! in! providing! technical!guidance—from! project! appraisal! and! independent! review! through! to! selection! and! budgeting,!implementation,! and! monitoring! and! evaluation—are! still! to! a! large! extent! limited! by! capacity!problems!for!which!the!State!is!receiving!some!assistance!from!development!partners.!!

It!is!noteworthy!that!a!major!issue!that!will!continue!to!impose!hurdles!and!pressure!on!the!ability!of!the!State!Government!to!effectively!plan,!implement,!and!monitor!public!investment!in!a!systematic!and!comprehensive!manner!is!the!huge!relative!size!of!the!Lagos!State!economy!and!the!ever[increasing!population!of!the!State,!which!threatens!to!outpace!progress!in!developing!relevant!institutional!capacity.!!!

Table'x.3(((Summary'of'Preliminary'Core'PIM'Indicators'for'Lagos'State'

Stage( Indicators(and(Dimensions(

Findings( Rating(

!!1.!Guidance!and!preliminary!screening!

TPA;!MDGs;!LASEEDS;!Vision!20:2020;!sectoral!strategies.!

The!main!planning!instrument!is!the!State!Government’s!TPA!which!are!derived!from!LASEEDS!and!MDGs.!!

B!

First!level!screening!to!ensure!strategic!alignment.!!

This!can!be!achieved!through!elaboration!of!MTEF!using!MTFF!and!MTSS.!However!being!a!relatively!new!program,!there!are!capacity!issues!to!be!resolved!to!make!the!system!effective.!

C!

!!!!!!!2.!Formal!project!appraisal!

Clarity!of!roles!in!planning!process!

Planning!process!is!very!clear,!with!MEPB!taking!a!leading!role.!!

B!

Formal!technical!guidance! MEPB!is!implementing!M&E!through!the!Monitoring!and!Evaluation!Department!and!a!Senior!Special!Assistant!to!the!Governor!on!Monitoring!and!Evaluation.!Significant!technical!assistance!has!been!offered!by!the!World!Bank!and!DFID.!However,!there!is!inadequate!capacity!to!undertake!M&E!effectively.!

D!

Sound!project!appraisal! The!official!planning!process!provides!for!technical!appraisal!of!projects.!However!in!practice!there!are!cases!of!technical!lapses!in!appraisal!as!well!as!political!interference.!!

D!

Proportionality!of!appraisal!

All!projects!are!officially!subjected!to!technical!appraisal!by!professionals!in!the!Ministry!of!Works!and!Environment!plus!independent!consultants!in!cases!of!huge!projects.!However!

D!

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there!are!unsubstantiated!reports!of!political!influence!and!collusion!that!undermine!the!independence!of!the!professionals.!

Effective!coordination!and!scrutiny!of!donorYfunded!projects!

DonorYfunded!projects!are!well!coordinated!from!MEPB!by!its!Development!Partners!Department.!!

C!

Capacity!in!central!agencies!and!line!ministries!!

Although!there!are!skilled!professionals!in!line!ministries,!there!are!human!capital!challenges!in!the!planning!process!and!project!implementation.!However!the!State!is!receiving!significant!capacity!building!assistance!from!the!World!Bank!and!DFID.!!

D!

!3.!IndepenYdent!review!of!appraisal!

Independent!reality!and!quality!checks!of!subjective,!selfYseeking!bias!in!the!evaluation.!

There!are!officially!documented!project!planning,!implementation,!and!M&E!processes!to!check!subjective,!selfYseeking!bias.!However,!given!the!fact!that!corruption!is!still!rife!in!Nigeria,!such!selfYseeking!bias!still!finds!its!way!into!the!system!unnoticed.!

D!

!!!!!!!!!!!!!!!!!!4.!Project!selection!and!budgeting!

Fixed!budget!calendar!with!sufficient!time!for!MDAs!to!prepare!capital!budgets!

The!MTEF!budget!calendar!has!been!broadly!adhered!to.!The!calendar,!which!was!part!of!the!deliverables!of!a!World!Bank!funded!MTEF!project,!allows!MDAs!sufficient!time!to!prepare!their!capital!budgets!through!MTSS.!However,!due!to!capacity!issues,!there!are!still!some!delays.!

C!

Comprehensive!guidance!and!capital!spending!ceilings!

Comprehensive!guidance!and!capital!spending!ceilings!are!the!pillars!of!the!MTEF.!MEPB!is!expected!to!provide!guidance!and!to!ensure!that!these!ceilings!are!upheld.!However!the!bureaucratic!burden!that!this!process!has!imposed!on!the!budget!division!of!MEPB!gives!room!for!lapses.!The!situation!can!only!improve!when!the!Bureau!of!Public!Procurement!is!established.!!

D!

Projects!developed!before!submission!to!MEPB!in!budget.!

MDAs!develop!their!individual!projects,!and!all!projects!are!subjected!to!negotiation!with!MEPB!during!bilateral!discussions!before!they!are!admitted!into!the!budget.!!

C!

Integration!of!capital!and!current!spending!

Capital!and!current!budgets!are!incorporated.!For!projects!or!programs!the!execution!of!which!extends!beyond!a!fiscal!year,!the!annual!budget!shall!recognize!the!amount!to!be!expended!within!the!year.!The!amount!required!in!

B!

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succeeding!budget!years!shall!be!projected!in!the!annual!budget!proposals!of!such!years.!

WellYstructured!budget!preparation!to!consider!the!multiyear!nature!of!infrastructure!projects.!

MDAs!include!programs!and!projects!that!are!expected!to!run!into!subsequent!budget!years!as!spillover!items,!and!adequate!provisions!are!made!in!the!budget!proposals!of!the!subsequent!years.!!

B!

MEPB!checking!of!projects.!Transparent!criteria!for!selecting!projects!with!reference!to!policy!objectives.!

Officially!all!projects!should!be!subjected!to!qualitative!monitoring!and!evaluation!analysis!by!Monitoring!and!Evaluation!Department!of!MEPB!and!at!the!discretion!of!the!Governor!by!PIMU!in!the!Governor’s!Office.!However!the!level!of!transparency!is!generally!low.!

D!

Legislature!has!sufficient!time!to!consider!projects.!

Although!the!MTEF!budget!calendar!provides!sufficient!time!for!the!Legislature!to!consider!projects,!experience!shows!that!there!is!a!serious!human!capacity!gap!in!the!Legislative!arm.!No!wonder!UNDP!commissioned!a!capacityYbuilding!project!for!the!legislatures!with!respect!to!MTEF.!Accountability!and!governance!issues!have!also!affected!the!Legislature!in!adequately!considering!projects.!!

D!

Legislature!passes!budget!in!timely!manner!

Yes,!except!the!delay!experienced!in!passing!year!2009!budget!which!was!attributable!to!some!political!problems!between!the!Executive!and!the!Legislature.!!

B!

Ensuring!adequate!financing!for!selected!projects,!including!recurrent!needs!on!completion.!

Despite!the!high!number!of!projects!being!executed,!MTEF!as!being!elaborated!in!Lagos!State!should!reduce!budget!fragmentation!and!incidence!of!abandoned!or!unfinished!programs.!

B!

Detailed!implementation!plan!with!clear!accountabilities!

Yes.!The!erstwhile!large!adjustments!in!budget!are!being!reversed.!There!are!still!incidences!of!supplementary!budget.!

C!

Open!competition!for!procurement!

Although!procurement!rules!are!established!by!law,!there!are!huge!gaps!in!adhering!to!the!rules!as!a!result!of!political!interference!and!corruption.!!

D!

Effective!procurement!complaints!mechanism!

Although!the!law!stipulates!litigation,!the!clumsy!and!unnecessarily!lengthy!litigation!process!discourages!procurement!complainants!

D!

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from!taking!action.!!

Commitment!controls! MDAs!are!expected!to!provide!quarterly!

information!and!data!on!project!

implementation.!MEPB!uses!such!information!in!

controlling!project!commitments!releases!and!

monitoring.!!

C!

Predictability!of!funding! Since!2001,!when!Lagos!State!was!able!to!

institute!fiscal!reforms,!especially!in!tax!

administration,!funding!has!been!predictable!to!

a!large!extent.!!

B!

Timely!implementation!in!

line!with!guidelines!

Projects!are!generally!being!implemented!in!a!

timely!manner!in!line!with!stipulated!guidelines.!!

C!

Regular!progress!

reporting!

MDAs!and!MEPB!prepare!regular!reports.!

However!the!quality!of!the!reports!is!hampered!

by!capacity!issues!and!the!lethargic!attitude!of!

civil!servants.!

D!

Active!monitoring!of!

progress!

The!Monitoring!and!Evaluation!Department!of!

MEPB!and!PIMU!of!the!Governor’s!Office!

undertake!regular!monitoring!activities.!

Capacity!issues!are!of!great!concern.!

C!

Sound!internal!control!

and!internal!audit!

The!internal!control!and!internal!audit!system!in!

place!seems!adequate,!but!human!capital!and!

accountability!issues!need!to!be!better!

addressed.!

D!

Formal!project!completion! This!is!done!with!official!commissioning!by!the!

Governor!or!designated!official.!

B!

!

6.!Adjustment!

for!changes!in!

project!

circumstances!

Constant!projects!

adjustment!

Project!planning!and!design!are!generally!

adequate!to!prevent!adjustments!especially!in!

terms!of!cost!overrun.!However!contractors!

sometimes!hide!under!the!vagaries!of!weather,!

especially!the!effects!of!heavy!rain!on!road!

construction!to!delay!implementation!and!

therefore!demand!for!cost!variation.!The!

Government!has!tried!to!guide!against!this!as!

much!as!possible!through!legal!agreements!that!

bind!contractors!to!completion!obligations.!

D!

Explanation!required!for!

variances!from!budget!

and!plan!

Explanations!are!required!for!variances!from!

budget!through!commitment!control!put!in!

place.!!

C!

Periodic!review!of!costs!

compared!to!benefits!for!

major!projects!

Review!of!project!costs!and!benefits!are!done!

quarterly!through!reports!produced!by!

implementing!MDAs!and!monitoring!and!

D!

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evaluation!reports!prepared!by!MEPB.!These!reviews!are!not!as!detailed!as!expected!because!of!inadequate!technical!skills.!

Mechanism!to!stop!project!

Where!MEPB!or!PIMU!discovers!severe!irregularities,!projects!are!stopped!and!penal!measures!are!recommended!for!officers!responsible!for!such!irregularities.!The!system!generally!gives!room!for!compromising!the!monitoring!team!in!discovering!irregularities.!Recommended!penal!measures!are!rarely!implemented.!

D!

7.!Facility!operation!

Effective!handover!of!assets!

Assets!are!successfully!handed!over!to!MDAs!or!communities!responsible!for!such!projects!upon!official!commissioning!by!the!Governor!of!designated!official.!

B!

Assets!fit!for!purpose! With!the!current!selection!process,!assets!are!generally!fit!for!the!purpose!for!which!they!were!implemented.!!

C!

Asset!registers! The!State’s!asset!registration!process,!like!many!processes!of!government,!is!computerized,!making!it!effective.!However!more!needs!to!be!done.!!

C!

8.!Ex!post!assessment!(evaluation)!

Basic!comparison!of!project!costs,!timelines,!and!deliverables!against!budgets!and!plans!

Although!there!are!mechanisms!to!carryYout!ex!post!assessment,!there!is!not!much!evidence!on!the!ground!that!this!is!effectively!carried!out.!

D!

Formal!arrangements!for!project!evaluation!against!plan!and!appraisal!

MEPB!is!trying!to!put!in!place!a!formal!arrangement!through!the!Impact!Assessment!Unit;!however,!human!capacity!issues!have!hindered!its!effectiveness.!MEPB!is!receiving!some!assistance!from!DFID!in!this!area.!!

D!

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Notes'1. This!further!confirms!the!relative!economic!strength!of!Lagos!State!in!Nigeria!plus!the!fact!

that!the!State!receives!the!least!from!Federal!Allocations!on!a!per[capital!basis.!

2. Personnel!costs!(basic,!allowances!and!consolidated),!pension!and!gratuities,!subsidies,!

transfers,!and!operation!and!maintenance.!

3. Lagos!State!Government!calls!them!“Special!Purpose!Vehicles”!(SPV)—however!they!do!not!

have!such!characteristics.!

4. The!existing!revenue!sharing!formula!as!revised!in!2002!allocates!56%!to!Federal!

Government,!24%!to!be!shared!by!the!States!and!Federal!Capital!Territory,!and!20%!for!all!

Local!Governments.!! !

5. MTSS!was!carried!out!for!three!Pilot!Sectors!(Health,!Education,!and!Environment)!in!2008!

with!the!support!of!DFID,!while!the!other!Sectors!were!covered!in!2009.!Capacity[building!

seminars!and!workshops!were!organized!to!enable!the!sectors!to!use!MTSS!in!the!2010–13!

MTEF!cycle.!!

6. Lagos!Ministry!of!Economic!Planning!and!Budget!forms.!

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References'IDA!!(International!Development!Association).!2011.!“Program!Document!for!a!Credit!in!the!

Amount!of!SDR!128.1!million!(US$!200!million!equivalent)!to!the!Federal!Republic!of!Nigeria!for!a!First!Lagos!State!Development!Policy!Operation.”!February!18,!2011.!IDA,!World!Bank,!Washington,!DC.'

Lagos!(State!of!Lagos!Government).!2010a.!“Abridged!Annual!Budget!Brochure.”!Ministry!of!Economic!Planning!and!Budget,!State!of!Lagos!Government,!Lagos,!Nigeria.!

———.!2010b.! !“Lagos!State!Budget!Manual.”!First!Edition.!Ministry!of!Economic!Planning!and!Budget,!State!of!Lagos!Government,!Lagos,!Nigeria.!

———.! 2010c.! ”Lagos! State! MEPB,! Year! 2010! Budget! Appraisal.”! Ministry! of! Economic!Planning!and!Budget,!State!of!Lagos!Government,!Lagos,!Nigeria.!

!UN[HABITAT.! 2008.! “The! State! of! African! Cities! 2008:! A! Framework! for! Addressing! Urban!Challenges!in!Africa,”!United!Nations!Human!Settlements!Programme,!Nairobi.!!

World! Bank.! 2011.! “Implementation! Status! and! Results:! Nigeria! First! Lagos! State!Development!Policy!Credit!(P117237).”!Report!ISR4859,!World!Bank,!Washington,!DC.!

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• Financial!assets,!

• Prior!year!budget!outrun,!and!

• The!implications!of!new!policy!initiatives!stressing!the!budgetary!impact!of!major!revenue!policy!changes!and!changes!to!expenditure!programs.!

MEPB!has!benefited!from!technical!assistance!from!development!partners,!which!improved!the!capacity!of!the!Ministry’s!officials,!including!helping!MDA’s!use!MTSS!as!a!basis!for!their!budget.!The! fact! that! the!MEPB! is! the! custodian! of! the!MTFF—which!determines! the! available! resources!upon!which!the!MTEF!is!founded—has!also!assisted!it! in!maintaining!MEPB’s!de!facto!grip!on!the!budget!process.!!

On! the! approval! and! passage! of! the! Appropriation! Bill! by! the! House! of! Assembly,! it! is!presented!to!the!Governor!for!assent.!If!the!Governor!gives!assent!within!30!thirty!days,!the!bill!is!signed!into! law!as!the!Appropriation!Act;!however! if! the!Governor’s!assent! is!not!given!within!30!days,! the! bill! returns! to! the! House! of! Assembly! and! can! be! passed! into! law! with! a! twoPthirds!majority!of!the!House!of!Assembly.!Since!1999!the!passage!of!appropriation!bills!into!appropriation!acts!has!been!smooth,!with!the!House!of!Assembly!making!minor!amendments,!usually!in!the!form!of!budgetary!increases,!and!the!bills!being!forwarded!in!a!timely!manner!for!the!Governor’s!assent.!However,!due!to!some!political!problems!in!the!State,!the!erstwhile!smooth!process!was!disrupted!during! the! 2009! budget! process! when! the! House! of! Assembly! uncharacteristically! reduced! the!budget!size!and!delayed!the!bill!passage!for!Governor’s!assent!until!the!end!of!the!first!quarter!of!2010.!!

The! following! forms,! Request! Checklist! and! Checklist! of! Admission! of! Projects! into! the!Budget,6!are!used!for!projects!included!in!the!budget.!

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LAGOS'STATE'GOVERNMENT'MINISTRY'OF'ECONOMIC'PLANNING'AND'BUDGET'EXPENDITURE'REQUEST'CHECKLIST'PROJECT/PROGRAMMES:!AGENCY:!

S/N' ITEMS' YES' NO' NOT'APPLICABLE'

1! MDA’s'Political'Head’s'Endorsement' ' ' '

2! PROJECTS'/'PROGRAMMES' ! ! !

! –Vetted!Bill!of!Quantities!! ! ! !

! –Quotations!from!reputable!firms! ! ! !

! –ProPforma!Invoice!(Where!Applicable!(W/A)! ! ! !

! –Appraisal! by! Consultant! (Ministry! of! Works! &!Infrastructure,! Ministry! of! Science! &! Tech.,! Ministry! of!Housing,!etc.)!

! ! !

! –Adequate!Budgetary!Provision! ! ! !

! –Justification!of!Request!(Deliverables)! ! ! !

! –Account!Segment!Combination!of!Expenditure!(27!digits)! ! ! !

! –Description!of!Vote!of!Charge!(voc)! ! ! !

! –Balance!in!Budgetary!Provision! ! ! !

3! Training,'Conferences'&'Seminars' ! ! !

! –Input!of!Ministry!of!Establishment!and!Training!(W/A)! ! ! !

! –Membership!Certificate!(W/A)! ! ! !

! –Conference!Fee!(Demand!Notice)! ! ! !

4! Refurbishment'of'Vehicles' ! ! !

! –Quotations!from!Auto!Mechanic!! ! ! !

! –Year!of!Purchase! ! ! !

! –Agency’s!Appraisal!of!Quotations! ! ! !

5! ICT'Related'Expenditures' ! ! !

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! –Agencies! are! to! SignPOff! from! Ministry! of! Science! &!Technology!

! ! !

6! Purchase'of'Vehicles'(Brand'New'Vehicles'Only)' ! ! !

! –Request!through!COS!&!HOS! ! ! !

! –Pro!forma!Invoice!from!reputable!Vehicle!Dealers! ! ! !

7! Brief'Description'of'the'Project/Programme' ! ! !

8! For'Payment' ! ! !

! –Letter!of!Award! ! ! !

! –Prepayment!Inspection!Certificates!(W/A)! ! ! !

! –Advance!Payment!Guarantee/Bond!(W/A)! ! ! !

! –His!Excellency’s!Approval/EXCO!Conclusion!(W/A)' ! ! !

!!!!!!

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LAGOS'STATE'GOVERNMENT'MINISTRY'OF'ECONOMIC'PLANNING'AND'BUDGET'CHECKLIST'ADMISSION'OF'PROJECTS'AND'PROGRAMMES'INTO'THE'BUDGET'!PROJECT/PROGRAMMES!AGENCY:!S/N' ITEMS' YES' NO' NOT'APPLICABLE' COMMENT'

1.' Conformity' with' Development'policy'Document'

! ! ! !

1a' –MTEF/MTSS' ! ! ! !

1b! –V20:20,! TPA,! MDGs,! Ehingbeti!Resolutions!etc.!

! ! ! !

2.! Project'Feasibility'Study'Including' ! ! ! !

2a' PProject!goals,!Input!and!Output! ! ! ! !

2b! –Financial!Feasibility! ! ! ! !

2c! –Cost/Benefit!Analysis! ! ! ! !

3.! Project'Plan/Design' ! ! ! !

4.' Vetted'Bill'of'Quantities'(BOQ)' ! ! ! !

5.!! Site'Approval' ! ! ! !

6.! Soil'Test' ! ! ! !

7.! Work'Plan' ! ! ! !

8.! Appraisal'by'Consultants:' ! ! ! !

8a! –Ministry!of!Works!&!Infrastructure! ! ! ! !

8b! –Ministry!of!Housing! ! ! ! !

8c! –Ministry!of!Physical!Planning! ! ! ! !

8d! –Ministry!of!the!Environment! ! ! ! !

8e! –Lagos! State! Environmental!Protection!Agency!(for!Environmental!Impact!Assessment!

! ! ! !

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9.! –Baseline'Studies' ! ! ! !

10! Identified' Milestones' and' Key'Performance'Indicators'(KPI)'

! ! ! !

11.! Traffic' Impact' Assessment' (where'applicable)'

! ! ! !

Source:!Budget!Department,!Ministry!of!Economic!Planning!and!Budget,!The!Secretariat,!Ikeja!!Project'Implementation'

Budget!execution!(as!depicted!in!table!X.2!and!figure!X.5)!in!Lagos!State,!especially!from!the!inception!of!democratic!governance!in!1999!and!particularly!since!the!adoption!of!MTEF!in!2008,!has!been!encouragingly! impressive,! largely!due!to!articulated!project!planning!(identification!and!elaboration)! with! guided! implementation! processes.! The! State! has! embarked! on! rigorous! fiscal!adjustments,! notably! in! the! realm! of! tax! laws! and! administration,! as! aforementioned! in! page! 3,!which!have!enhanced!budgetary!allocations!for!public!investments!in!key!sectors!of!the!economy.!

!

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