Many nongovernmental organisations depend almost entirely on grants and donations for their survival. Some reasons adduced include statutory barriers from generating profits for their benefit and therefore relying on external support to fulfil their missions. Other reasons include their focus on addressing social issues such as poverty alleviation, education, healthcare, human rights, etc., that may not attract significant financial returns or commercial interests. This seeming lack of market viability makes it challenging for them to generate revenue through conventional means and therefore justify reliance on grants and donations to continue their work. There is also the public trust element which compels them to demonstrate transparency and accountability as they rely on public trust and goodwill to secure funding. But it is not only nongovernmental organisations that rely on donations and grants for their survival. Community-based organisations such as grassroots initiatives, neighbourhood associations, social clubs and so on also live on people’s goodwill. Research institutes and think tanks often depend on grants and donations to finance their research projects and policy analysis. Similarly, arts and cultural organisations including museums, galleries and theatres often seek donations and grants to sustain their operations.
Although many of these organisations often register as nongovernmental organisations, up to 60 percent of them make substantial residual income or profit equivalents. The government also shares a good number of the characteristics of non-governmental organisations such as the commonality of mission and purpose revolving around serving the public interest, addressing societal needs, promoting the development and improving the well-being of individuals and communities. Both also exert significant advocacy and policy influence. Perhaps, the point of departure is on the public funding of their activities. While the government relies primarily on taxation and other revenue sources, including grants and donations, NGOs majorly depend on aid, grants, donations and fundraising efforts. The significance of aid, grants and donations in the revenue of the state is easily visualised in their accounts. As of 2021, grants constituted 10 percent of Abia State government’s total revenue receipts. The same year it was two percent for Akwa-Ibom State, six percent for Kwara State and five percent for Bauchi State. Although Enugu State had anticipated a 16 percent contribution of grants and donations in its 2021 budget, it was only able to realise three percent in actual performance. Many state governments also consciously provide for aid and grants in their annual budgets. For instance, Abia State expects that 10 percent of its revenue in 2023 will come from aid, grants and donations. Benue State also estimates that 14 percent of its total revenue for the current year will be from aid, grants and donations. Yobe State also estimated that one-fifth of its revenue for the year will be from grants and donations.
Given this background, the question is whether the government should interpret the revenue generated from grants and donations as part of its internally generated revenue. There are about four reasons why subnational governments’ accounting systems distinguish aid, grants and donations from internally generated revenue. The first is based on the geographical sources of funds. The internally generated revenue is typically financial receipts from the activities of the government within the state. By implication, these activities are internal to the state and comprise sources such as taxes, fees, fines and other charges levied on individuals, businesses and organisations. By this definition, receipts based on activities outside of the state may be considered as not being “internally” generated. The second reason is based on the purpose and the nature of the financial receipts. While internally generated revenue can be variously applied to financing virtually all government operations, most aid, grants and donations are typically provided for specific purposes and projects such as poverty alleviation, healthcare, education, and other development initiatives. The third reason is the voluntary nature of aid, grants and donations by external entities which is diametrically opposite to the mandatory nature of taxation and other levies imposed by the government. Based on these three differing characteristics, the fourth reason is the accounting demand to accurately track and report the sources of the uses of these funds enabling transparency and accountability. Such a “recognition” requirement necessitates that consciously, internally, and mandatorily generated revenue be counted differently from the externally and voluntarily generated revenue.
However, contrary to these justifications for their classification they are veritable constituents of internally generated revenue, based on the following positions. The first is based on the sustainability planning criteria. Aid, grants and donations become a recurring element in the states’ budgets and accounting records because there is an underlying intention to drive their realisation. While aid, grants, and donations come from external sources, they are often obtained based on the subnational government’s efforts, such as grant proposals, fundraising campaigns, or awareness programmes. In this sense, realising target amounts of aid, grants and donations is primarily the result of their internal actions and initiatives, contributing to its financial sustainability. Second, subnational governments actively seek out and compete for such funding opportunities, dedicating resources and efforts to secure them. The third factor is based on the concept of value. Some scholars have argued that states can mobilise independent revenue through taxes and levies because citizens expect and derive value in the sense of the social contract, which the states provide for them. The often erroneous conclusion is that donors do not necessarily demand or obtain any value from the benefiting state government. There could however be several sub-lineal and sometimes long-term focused utilities derivable from such donations and grants giving opportunities by donors. One of the ways to gauge that the donors mostly have derivable value is the way grant-givers require recipients to report on the use of the funds, adhere to specific guidelines on objectives and demonstrate accountability.
From the foregoing, we can easily deduce that there are aid, grants and donations that are classifiable as IGR constituents while there are some that are not. The most easily identifiable non-IGR-type aids, grants and donations are those unsolicited windfalls, whose sustainability can also not be guaranteed. It is usually challenging to drive and sustain such inflows as the decision to receive them in the first instance did not originate from the subnational governments’ efforts. On the other hand, it is logical to recognize as internally generated revenue the receipts that a subnational government consciously targeted, applied, qualified and attracted. For instance, assuming that a state government has a unit responsible for scouting for grant and donation opportunities for some of its projects and programmes. This unit will therefore deliberately search and package its institutions, reconfigure its operations and cultures where applicable, and commit to all the requirements for such funding to satisfy the funder. Again, benefiting from aid and grants based on some strategic economic relationships may also not be considered non-IGR-constituent. For instance, if a state government gives a multinational company a huge opportunity to exploit its natural resources, it may in turn ‘strategically expect’ and work toward receiving a compensating appreciation of the goodwill and also a strengthening of the relationship. The state government might signal with body language showing that it would only be willing to continue granting such opportunities as long as the grants and aid keep coming.
Anyway, subnational governments that place significant hope on aid, grants and donations deploy a variety of strategies to win. While there is no guaranteed winning strategy, there are certain approaches and best practices that can increase their chances of success. It is therefore largely unfair to categorise funds obtained through such rigorous efforts as not internally generated. The first of such strategies is the conduct of research and the identification of potential funders. Thorough research supports the identification of organisations, foundations, government agencies, and individuals who align with the subnational government’s mission, programmes and projects. Second, aid and grant-seeking states and local governments spend quality time and deploy appropriate resources to customise their proposal or requests to match the interests and priorities of each potential funder. This would also require expertly demonstrating a clear understanding of their mission and goals, and explaining how their projects align with their values. Third, is the effort in building solid relationships with potential funders. This may require that the subnational government’s workforce attend networking events, conferences, and workshops to connect with funders in person and engage with them through social media and other online platforms. Fourthly is writing a compelling proposal that is concise and persuasive enough to attract the required funds. Fifth, is the demonstration of sustainability. The state or local government needs to show funders that their project or organisation has a sustainable plan for the future. Sixth is establishing clear systems for reporting and evaluation. Providing regular updates to funders on the progress and outcomes of your project. Demonstrating accountability and transparency will build trust with funders. And so on.
Finally, while the extant convention excludes aid, grants and donations as constituents of internally generated revenue, there are many reasons to argue that classifying them otherwise would be more beneficial for subnational governments’ revenue growth. Treating aid, grants and donations as internally generated revenue will require subnational governments to set more appropriate targets for realisable revenue from the item. There are several donation, aid and grant opportunities all over the world that subnational governments in Nigeria gloss over or are completely ignorant of. A reclassification in favour of internally generated revenue will raise awareness and may require an appropriate structure and building requisites workforce or manpower to adequately exploit them. It also means that subnational governments can create their structures operating almost in the mould of nongovernmental institutions to attract requisite funding for their developmental activities. All things being equal, the setting of revenue targets on aid, grants and donations will also substantially upgrade the creativity of subnational governments in raising funds predicated on voluntary giving and outside the compulsion of the law.