Akwa Ibom’s gamble in Lagos puts pressure on state’s financial health

Governor Umo Eno’s decision to commence construction of an 18-storey building in Lagos has sparked heated debate.

In a recent statement by Ekerete Udoh, the governor’s spokesperson, the building in Lagos, dubbed “Ibom Towers,” is expected to generate significant revenue for the state. The tower will house residential and commercial spaces, targeting high-income earners.

In addition to the Lagos project, the governor has also announced plans to construct a three-star hotel in Abuja. These initiatives, according to the state government, are aimed at capitalizing on the lucrative real estate markets in both cities.

Udoh stressed that the projects are part of a bold plan to transform obsolete state-owned enterprises into profitable businesses.

“We will undertake the construction of Ibom Towers, an 18-storey commercial building at Aboyade Cole, Victoria Island, Lagos. This will serve as a revenue generator for the state, in the commercial capital of the country. We will also construct a medium density housing estate at Ewet Housing and sell the houses to high income earners. A three star hotel will also be constructed in Abuja, where our current liaison office is located,” Udoh quoted the governor as saying in his first anniversary speech.

While the state government justifies the project as a strategic move to increase internally generated revenue (IGR), a closer look at the state’s financial health raises serious questions about the wisdom of this investment.

Akwa Ibom, like many Nigerian states, is heavily dependent on federal allocations, particularly oil revenues. According to data from the Nigeria Bureau of Statistics (NBS), the oil-rich state received ₦380.1 billion from the federal account in 2023, behind Delta (₦483.57 billion) and Rivers (₦426.84 billion).

While there is a commendable drive to diversify revenue sources, the state’s investment arm, Akwa Ibom Investment Corporation (AKICORP), has a checkered financial history.

Despite managing the state’s investments, AKICORP reported losses in 2021 and 2022, with a meagre profit of ₦110 million in the last year.

A broader analysis of the state’s revenue profile reveals a disturbing picture. While total investment income for 2022 was recorded at ₦308 million, this pales in comparison to the ₦28 billion generated from taxes.

Furthermore, a whopping 76.7% of these tax revenues come from Pay-As-You-Earn (PAYE), mainly from the oil and gas sector.

Given these figures, the question arises: is investing in high-rise buildings in Lagos the most effective way to increase IGR in Akwa Ibom?

Critics have argued that the state’s economic base is fragile and that a significant portion of tax revenues come from a relatively small group of formal sector workers. They have stressed that diversifying the economy and expanding the tax base should be the primary focus.

“PAYE is the biggest driver of IGR revenues and government should try to improve PAYE revenues by attracting more formal jobs to the state,” Ikpeme Neto, a medical doctor and entrepreneur from the oil-rich state, told BusinessDay.

“Using precious state funds to invest in the Lagos real estate market with uncertain returns will not create the multiplier effect in Akwa Ibom that helping to create local jobs would have,” he added.

Neto, who runs a global venture-backed health technology company with an office in the state, urged the Akwa Ibom government to increase investment in agriculture to create employment opportunities, noting that “cassava, cocoa and oil palm are our natural strengths.”

To increase the state’s IGR, the entrepreneur also urged the government to help small businesses flourish, attract high-quality work and workers to the state, and invest in knowledge, research and development.

Regarding the dying state assets in Lagos and other locations, Neto urged partnership with the private sector.

“I think the state should work with developers who can finance a business case, while the state takes its own equity position with a minimal capital injection.

“Akwa Ibom’s current problem is not more money; it has had budget surpluses for the last two years at least. The state’s problem is to find ways to invest within the state to create jobs,” he said.