Cost of governance refers to any expense, price, or cost associated with running a government. It is the cost incurred by the government in the course of providing goods and services to its citizens. It can also be said to be the money a government spends on administrative processes, referred to as administrative cost, usually categorized into:
- Recurrent Expenditure
- Capital Expenditure
Recurrent Expenditure
These are payments made to maintain the operations of a government or organisation. They are ongoing expenses, made on a regular basis such as weekly, monthly, etc., and are required for the day-to-day operation of the government.
Examples include:
- Personnel Costs: Salaries, wages, allowances, pensions, and other benefits for government employees across various sectors.
- Overheads: Office rent, telephone, electricity, water, etc.
- Debt Servicing: Repayment of loans (principal and accrued interest) borrowed by the government.
- Subsidies and Transfers: Financial supports or assistance such as grants provided by the government to various sectors like agriculture, manufacturing, electricity, transportation, etc.
- Pensions and Gratuities:
- Pension is a regular allowance paid as a benefit to retired employees.
- Gratuity is a lump sum paid to an employee at the end of their service.
- Social Welfare Programs: Expenditures aimed at poverty alleviation, healthcare, education, and other social interventions.
- Security: Costs related to maintaining law and order, funding security agencies, and addressing security challenges.
Capital Expenditures (CapEx)
These are investments in physical assets intended for long-term use. They involve projects that enhance the country’s infrastructure and service delivery.
Examples include:
- Social Infrastructure (Education, Healthcare, Water/Sanitation):
- Construction and renovation of schools, hospitals, maternity homes, etc.
- Projects related to water supply and sanitation.
- Infrastructure Development:
- Roads, highways, bridges
- Railways, metros, ports
- Low-cost housing development
- Urban infrastructure upgrades
- Energy and Power:
- Renewable energy projects (solar, wind, hydro)
- Power grid expansion
- Electrification of rural areas
- Refinery and gas pipeline modernization
- Technology and Innovation:
- Funding research and digital transformation
- Supporting entrepreneurship
- Industrial Development:
- Support for SMEs
- Investments in industrial parks, tech hubs, business incubators
| Item | Amount (₦ Trillions) |
|---|---|
| Revenue | Oil: ₦35.96, Non-oil: ₦6.96 → Total = ₦42.92 |
| Expenditure | Recurrent: ₦20.51, Capital: ₦33.19 → Total = ₦53.70 |
| Fiscal Deficit | ₦10.78 |
Factors Influencing the Cost of Governance in Nigeria
- Government Structure
Nigeria has three tiers—federal, state, and local—each with its own administrative structure, increasing overhead costs. - Size of Government
Numerous MDAs and political appointees with overlapping functions drive up administrative costs. - Salaries and Allowances
High compensation for public officials, including pensions for ex-officeholders, significantly burdens public finances. - Corruption
Mismanagement, bribery, embezzlement, and diversion of funds increase administrative inefficiencies and public sector costs. - Revenue Allocation
Inequitable distribution of funds across tiers of government can lead to overspending, waste, and inefficiency. - Infrastructure Deficit
High costs due to poor regulation, repeated repairs, and substandard projects inflate governance costs. - Debt Servicing
Rising domestic and external debt requires significant allocations for repayment and interest. - Economic Fluctuations
Volatile oil prices, depreciating naira, and inflation increase the cost of goods, services, and borrowing, thereby increasing overall government expenditure.
What Some Countries Did to Reduce Governance Cost
India
- Digitalization of services
- Tax structure simplification
- Reduced bureaucracy and promoted e-governance
- Privatization of certain state-owned enterprises
Rwanda
- Reduction in the number of political appointees
Kenya
- Suspension of non-essential travel for officials
- 6-month suspension of vehicle purchases for government officials
- 50% reduction in government advisers
- Scrapping budget allocations for First Lady and Deputy President’s wife offices
The Impact on Citizens
- Economic Burden / Budgetary Constraints
Less funding for essential sectors like education, healthcare, and infrastructure due to overspending on governance. - Increased Taxation and Public Debt
Higher taxes and government borrowing reduce citizens’ disposable income and increase long-term financial pressure. - Inequality and Poverty
Misallocated resources exacerbate poverty, especially among vulnerable groups. - Corruption and Mismanagement
Public funds are wasted, services suffer, and trust in government diminishes. - Political Instability and Social Unrest
Citizens’ dissatisfaction can lead to protests, strikes, and violence, hampering national development.
The Government Structure in Nigeria
Three Arms of Government
- Executive: President, Vice President, Ministers, Permanent Secretaries, Aides, etc.
- Legislative: National Assembly (469 members)
- Senate: 109 members
- House of Reps: 360 members
- Judiciary: Headed by the Chief Justice of Nigeria
- Supreme Court
- Court of Appeal
- Federal and State High Courts
- Sharia/Customary Courts
- Magistrate Courts
- Election Tribunals
Replicated at State and Local Levels
- States: Governors, Commissioners, State Assembly Members, State Judiciary
- Local Governments: Chairmen, Councillors, Local Government Officials
Recommendations
- Reduce Recurrent Expenditure
The current state of excessive spending is unsustainable. More resources must be redirected to capital projects that foster long-term growth. - Invest in Infrastructure
Good roads, electricity, and functional refineries lower production and transportation costs, facilitating economic activities. - Cut Remuneration and Reduce Government Size
- Reduce salaries and allowances for political officeholders
- Merge MDAs with overlapping roles
- Eliminate wasteful spending and ghost workers
- Sanctions Against Corruption
Enforce laws to punish:- Embezzlement
- Diversion of funds
- Mismanagement of resources
- Adopt International Best Practices
Learn from India, Kenya, Rwanda, and others that implemented bold reforms to cut costs and improve governance efficiency.