ChAPTER ONE

INTRO I) Ii CTION
1.1 Background to the Stud
Local government finance is one of the aspects of public finance. It deals with thc generation of revenue,
expenditure and uti1i;atioii of financial resources in order to bring the impci of overnineni closer to the
people at the grassroots. Put diiThrently. finance is essential at enabling local governments transform the
lives of the rural dwellers through the provision of social services and rural infrastructures like the
construction and maintenance of rural roads. markets. schools, health centers, etc.
Finance is the heart of the major activities of government. Government binits at all leveIs national. State
and Local are daily engaged in the production and distribution of public goods and services in areas such
as agricultural extension, education, healthcare, social ellare, securit\, all ol which involve huge amounLs
ol money. ‘l’he mobilization ol the flnancia resources or revenue to meet the diverse welfare needs of the
people has in effect become an
important responsibility which governmental authbrities have to shoulder. This responsibility not / only
includes the generiti of revenue but also its allocation among competing needs of the
local go ernmcnts. It is within this context that we can appreciate the task of revenue collection at local
government level (Ahubakar, 1999).
(ieral1v speaking, from 1 999 to 2013, local government operations and performance presents au [Link]
iii terms of’ justifying the reason for their creation. ‘l’hc demands and expectations from local
government councils over the years or within the period under review have been on the increase while the
finance required to deliver the dividend of democracy and good .id n i; [Link] at the grassroots
continue to dwindle, inadequate, mismanaged and m isa ppropr ated.
Local government financing in Nigeria ha e been characterized by bazaar inemality, poor L tiz”_ S’fl’ atl )‘Trrt
...‘)

o’ 1 rslt v ‘iu’r.d r nl mm g orr’ i i’ t ( inidequatc linaiice and poor revenue collection, greed. unnecessary
govCrnment interference, lack of direction and corruption. The statutory allocations from the Federation
Account because ol poor management are said to he inadequat to cover the Elnancial obligations of LOcal
government councils in terms staff salaries, social services and serving of debts. Ackno ledging this.
Ahorisade (1981) cited in Onah (2005:131) notes: Finanee is like a thread that runs round the cloth. Ii’ the
thread is pulled ronglv at one end, it will affect the design of the cloth and destroy its beauty. That is
finance. It must he handled with care. It must be disbursed absolutely according to the financial
regulations.
The 1999 (‘onstitulion of the Federal Republic of Nigeria in the spirit of the 1976 Local overnmcnt
Reforms strategically position local governments as third—level of government to pl’o\’ide pLibhic goods
and services whose benefits and impacts are localized in nature (Fg\aikhidc. 2004:2). ‘l’hey by
implications turr local government councils as appendages ol state governments. For instance, Section 7
(1) of the 1999 Constitution of the Federal Republic ui Nir&eria (as amended) provides that: The s stem
of local government h democratically elected Local (iO\ ernmeni is under this constitution guaranteed,
and tccordinglv. the Government of every State shall subject to 8jjfjhiConstitution. ensure their existence
structure. composition, finance and function of such council”. ‘l’hc above provision implies dim the
financial autonomy of local government councils in Nigeria is at the mercy of the ftderal and state
governments. In most cases. State (10’ ernors are known to act as centre relrecs while the state legislators
act as linesmen at the

expanse ol the rural dwellers. They solely depend on federal allocations and State Governors through the
release of funds from State Joint Local Government Accounts (SJlGAs) and grants to satisfy their felt
needs. The resultant effect of this is the inadequate financial base of most local governments in Nigeria.
which makes it practically difficult to carry out their constitutional lunctions effectively (Okoli. 1999).
This raises the need to revisit the issue of local government linanee in Nigeria. as its viability and
sustainability demands a pragmatic approach or what Atukpa, Ocheni and Nwankwo (2012) collectively
captioned options for maximizing local government internally generated revenue in Nigeria”.
linance. ‘a bother from internal or external SOUCCS is important in local government administration.
There is no meaningful project that can be executed without adequate finance. The external revenue
generation is a major source of local government finance. In fact, no local government can survive
without external revenue generation. particularly from the statutory allocations. It is important for local
government to he more active in developing avenues for generating such as investment in capital projects
that arc likely to appreciate and eapacit\ building aimed at generating returns/On investments made. Ihe
idea of 1ouI iovcrnrnents being to tide to monthly statutory allocations should he dropped. Fhey must
explore the innovative approach of generating revenue internally. These sources are mass transit tint
ispoiLitioli thai is well managed. coordinated and accounted for: petrol filling stations:
commercial farms: nursery schools and day—care that has the potential of generating revenue;
establishment of endowment funds, etc. Undue interference in the finances of local government councils
by the federal and state governments should be checked.
1.2 Statement of Problem
Nigeria’s experience in local government administration, whether in military regimes or in
democratic era has clearly shown thai. local governments are faced with daunting challenges in theit
mandate to promote dcvelopmenm and provide essential services to the rural dwellers. Local go’;ern!
nent. \ nich is statuhriiy st .;hed to ho th cloest tier of ernmcnt to the people. not. dojag its biddmg coupled
with the fact that resident population in the local government has no significant access to the benefits of
its existence. In some areas, council officials are he’ or known for the harassment of citizens
than service delivery (Ajibulu. 2011). It is ornmon knowledge that local government has the weakest
capacity to financing and managing rural development programme. Most of the officials are performing
their functions without the rclcvam qualification to perform effectively. AS a result, the available
resources for accelerated and sustainable rural development are inefficiently utilized for the purpose
intended (Ocheni. t aL.20l2:l3lj. I
.

As a result of the above problems the stuth seeks to answer the following questions:
i. To what extent does lack of financial autonomy constitute a challenge to internall generated revenue of
the local governments in Nigeria?
ii. What is the relationship between revenue generation and service delivery of Local Government in
Nigeria?
iii. \\‘hat are the challenges of Revenue Allocation in Local Government in Nigeria?

1.3 Objectives of the Study

l’he main objective of this study is to examine the challenges of financing local government in Nigeria.
The specific objectives of the study are as fullows:
i. lu find out if lack of’ financial autonomy constitutes a challenge to internally generated revenue of the
local government in Nigeria.
ii. To determine the relationship between revenue generation and service delivery of Local Government in
Nigeria.
iii. l’o examine the challenges of Revenue Allocation in Local Government in Nigeria 1.-I Reseirch
1I’pothesis
For the purpose of this research to be achieved, following hypotheses will help in von ft i ng the research
statement.
hypothesis One
Il: [Link] of financial autonomy does not constitute a challenge to internally generated revenue olthe local
governments in Nigeria.
c It: Lack of financial autonomy constitutes a challenge to internally generated revenue of the local
governments in Nigeria.
I hypothesis ‘I’w o
ho: There is flO significant relationship between revenue generation and service delivery of
I ucal (io ernmcnt in Nigeria.
I lvpothesis 1 hrec
1I: ‘l’here is no significant relationship between revenue generation and service delivery of in Nigeria.
-‘

ho: l’here is no significant effect on the challenges of Revenue Allocation in Local Government in
Niieria.
hIs: There is significant effect on the challenges of Revenue Allocation in Local Government in Nigeria.
1 .5 Scope of the Study
‘Ibis research study covers challenges of local Government financing in Nigeria. but due to the large
geographical coverage, the researcher has decided to use Esan West Local Government as case study.
1.6 Significance of the Study
Ibis study is largely signilicant because it sought to find empirical answers to questions on the challenges
of local government financing iii Nigeria. The research work will be of inicrest and useful to the general
public’s, the government as well as the governed and also to future researchers t’kig tand on what is
prevalent in the country. The research will also help other researchers who may wish to carry out research
of similar nature. It vil1 also be beneficial to the grassroots because improved revenue generation means
improved standard of living in form of provision of social amenities such as road, hospital, park.
drinkable water, rural ciectrilication etc
1.7 [imitations of the Study
As with any’ other research, there were constraints that the researcher encountered. ‘l’he limitations of
this siud’ include:

i. Financial constraint: It is an established fact that ever%- research work consumes a lot of money.
Therefore, the financial requirement for gathering data. typing of the project subsequently and other
related expenditure served as a major constraint to this research work.
ii. Responses while gathering data: For some reasons best known to the officials of the Local
Government. the authorities were not willing to release some information which is relevant to this
research project, even after persuasion and being assured that the information sought will univ be used for
academic purposes alone. This refusal to release some vital information by the Local (iuverninenl was as
a major constraint to this research work.
‘L’ime Constraint: The researcher will simultaneously engage in this study with other academic urk. l’his
consequently will cut down on the time devoted for the research work
1. 8 l)EFINITLON OF TERMS:
In other not to conluse readers of this project and for avoidance of doubt it becomes necessary for the
researcher to define some terms that are relevant to the study.
i. Local Covernnient: Local government is the third tier of government. It is that level ol government
which is organized as close as possible to the people at the grassroots and vested with statutory powers to
perform certain functions both inherent and ascribed confining its activities and authority within
particular district or neighbourhood and subject to the control of the central government.
ii. Finance: Finance refers to the raising of funds, controlling and using them in the running of an
organization, be it private, corporation or government.
iii. Accounting: Accounting is defined as “a discipline concerned with the recording. analysis. and
forecasting of income and wealth of business and otherentities.
iv. funds: The Xatioial committee on Government Accounting (USA) defined a fund as mn independent
‘iscaI and accounting e:’titv ith a self-balancing set of accounts recording cash and/or other resources
together with all related iiabilities, obligations, reserves and equities which are segregated for the purpose
of carrying on specilic activities or attaining certain objectives in accordance with special regulations,
restrictions or limitations”.
Revenue: Revenue refers to all those monies. each and otherwise received b way of’ statutorY allocation,
grants. subvention from higher levels of governient. taxes, rates, licenses, fees. royalties. loans and
charges which enable the government to meet its day to day expenses and its capital expenditure
programmes.
vi. Expenditure: Public expenditure refers to the expenses which the government incurs for its
own maintenance, in the interest of the society and the economy in order to help other
countries.
‘ii. (;eneration: This is the process of sourcing revenue for the local government in carryout their aim and
objectives.
viii. Service Delivery: According to this research, service delivery refers to all the goods and services
delivered by’ the local government in responses to the public needs in order to address societal problems.
i. Financial management: is defined as the act of total management function concerned wit-the effective
and efficient raising and use of funds.
x. Statutory Allocation: This consists of financial allocations approved by the constitution, to the
different tiers of government from the federation account and share of the state government revenues that
is allocated to the local governments.

References
Ahuhakar, 11. I. (1999). Local government in development. In 0. Abonsade. & I. 0. Aransi
(Eds.), Stale and Local Government in Nigeria: The Changing Scene. USA: Catawba Publishing
Company. p. 32.
Ajihulu. E. (2011). Local Autonomy: Plausible Panacea to Grassroots Challenges. Accessed at (1’W:
then gcrianvoic’. cvni n’neis 69833 1 &—L!utonomu—)
Atakpa. M., Ocheni, S. &Nwankwo. B.C. (2012). Analysis of Options for Maximizing Local Government
Internally Generated Revenue in Nigeria, International Journal of Learning and Dc vclopmc’nI. 2(5): 94
—1 04
Constitution (1999).Constitution of the federal Republic of Nigeria, Federal Government Press, and
Mobil Road Apapa. Lagos.
I aikhide. F. 0.(2004). “Intergovernmental Fiscal Relations in Nigeria”. In Eg’. aikhide. F. 0.(eds.).
•

Intergovernmental Relations in Nigeria, Ibadan: Programme on Ethnic and Federal Studies. 1-23.
Ocheni. S. (2012). Local Government Finance in Nigeria. JGGSDA. Vol. 12 No.1. ,

Okoli. F.C. (1999): Theory and Practice of Local Government: A Nigerian Perspective Enugu:
John Jacob’s classic Publishers
Onah. R.(’. (2005). Public Administration, Nsukka: Great AP Express Publishers Ltd

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