By Daniel Kanu
Former Central Bank of Nigeria (CBN) Governor, Professor Chukwuma Soludo, and former Commonwealth Secretary General, Chief Emeka Anyaoku, Wednesday, dissected the state of the nation and returned a grim verdict: Nigeria will implode and become a failed state without restructuring.
To avert the looming disaster, they urged Nigerians to make restructuring the basis for electing any party or candidate in the 2019 general election.
This is even as Soludo urged the President Muhammadu Buhari-led government to immediately implement the restructuring template advocated by his party, the All Progressives Congress (APC), solutions which he called low hanging fruit.
“As a first step to restructure the country, let us start with a low hanging fruit — the APC ‘s minimum template.
“The APC committee on restructuring has many interesting recommendations, but three stand out.
“It is our opinion that this will be a significant step forward,” he said.
Soludo and Anyaoku spoke at the Nigerian Institute of International Affairs (NIIA), Lagos, at the maiden lecture of Ndigbo Lagos Foundation, to mark the end of the six-year tenure of Professor Anya O. Anya as president of the foundation, and reflect on what should be the role of the Igbo voter in the 2019 election.
According to them, the current structure of the country, which depends mainly on petroleum resources, and Constitution which has perverse incentives for a productive economy, and diversification, if not restructured urgently will spell doom for the country.
This is as Chairman of the South-East Governors Forum, Governor Dave Umahi, who was also at the lecture, said the five governors of the South-East are for restructuring of the country and have adopted the Igbo position, which was canvassed at a summit in Awka, two months ago.
Chief Anyaoku, who chaired the lecture titled: ”The Political Economy of Restructuring The Nigerian Federation,” faulted the view expressed by some people that restructuring Nigeria ”is a veiled campaign to dismember or weaken the Nigerian federation.”
To survive, he said Nigeria should copy the kind of federalism practiced by India and Switzerland, which have similar pluralistic ethnic nationalities.
His words: ”Since my return to Nigeria in 2000, I have been saying that, informed by my long association with governance in over 50 member countries of the Commonwealth, it is only through restructuring its governance architecture that Nigeria can achieve the national unity with political stability and economic progress that its citizens profoundly desire.
”Indeed, I do not see how the country can arrest its current drift towards becoming a failed state without restructuring to a true federation of fewer and more viable federating units with greater devolved powers to plan and pursue development and peace in their respective areas.
Eminent personalities at the lecture included Igwe of Oko, Professor Laz Ekwueme; former Chief of Naval Staff, Rear Admiral Allison Madueke, retd; Publisher of Vanguard Newspapers, Mr. Sam Amuka; Elder Uma Eleazu; Governor Dave Umahi of Ebonyi State; Chief Ziggy Azike; Mr Cosmas Maduka; Mrs Stella Okoye and Mrs Kate Onyechere among others.
Delivering his 12-page lecture, Professor Soludo outlined a litany of reasons Nigeria must be restructured urgently.
The reasons include: Nigeria’s constitution, which he said is an inappropriate Meta institution for a productive economy, institutional dysfunction and circular stagnation, unviable states and inability of 30 of the 36 states to pay salaries without federal allocation, over-dependence on oil revenue, and disincentive for economic diversification among others.
He said the overarching case for restructuring is economic. ”Restructuring should provide the necessary foundational meta-level socio-political-governance architecture for the emergence and sustainability of a secured and prosperous post-oil economy…
”Nigeria’s meta institution, its Constitution (legal-political-governance architecture) is designed to share and consume the oil rents and has perverse incentives for a productive economy. Oil or natural resource boom is known to cause the appreciation of the real effective exchange rate thus harming the economy, and this has been referred to as the Dutch Disease syndrome.
Ours is beyond the Dutch Disease. We also suffer what can be described as a Lottery Effect – a syndrome whereby a hitherto hardworking person wins a lottery, quits his job and restructures his family’s lifestyle around the consumption of the lottery money; breeds more children and each with guaranteed allowance from the lottery money; and centralises decision-making in the family such that the children never have the experience to take up challenges and mature in the process; etc.
At adulthood, the children have developed a dependent/entitlement mind-set and the ageing dad can no longer cope while the lottery money can no longer service the bloated lifestyle. Instead of the lottery windfall aiding the family, the arrangements designed to utilise it might turn the Lottery into a curse.
”The above is a caricature of Nigeria’s experience with oil and the institutional arrangements to share and consume it. A combination of the Dutch Disease syndrome and Lottery Effect produced what I refer to as Nigeria’s Oil Structure Disease.
“Until we wean the system of this Disease, Nigeria’s economy will continue to sluggishly muddle along. This structural disease is the key reason Nigeria’s quest for economic diversification over the decades has been moving in fits and starts.”
To solve the problem, Soludo said there are three types of restructuring: soft restructuring (amendment of the constitution to allow state police, scrapping of local councils and resource control, etc) as recommended by the All Progressives Congress Restructuring Committee; and Hybrid restructuring (negotiation of a new constitution with regional autonomy within the federation); and hard restructuring (confederation or outright independence for any desiring part of the country.)
He identified hybrid restructuring as the best for the country and urged political leaders, who he said have developed inertia to act, to carry it out. He also observed that those benefiting from the current structure do not want restructuring.
Noting that restructuring will have short to medium winners and losers, he added that everyone could potentially win in the long run.
He argued: ”For a constitution that proclaims a federal structure, the exclusive and concurrent lists constitute an atypical concentration of powers at the centre. Currently, the federal government is burdened with hundreds of parastatals and agencies trying to inefficiently micro manage the entire Nigeria, with recurrent expenditure of the federal government exceeding total federal revenue.
“Every penny of capital spending by the Federal Government of Nigeria is borrowed, and its fiscal position is precarious. Put starkly, not one kobo of oil money is invested in infrastructure by the FGN; it is all consumed by the obtuse federal bureaucracy. Unless we assume that oil boom will rebound and endure, devolution is a matter of survival for the FGN and the national economy.”
Soludo said the Buhari government, if it is serious about restructuring, can start by implementing the report of the committee set up by his own party, APC, on restructuring as a step to reposition the country.
The APC committee on true federalism was constituted by the party in August 2017.
It was set up to consider and make recommendations to the National Working Committee on key items relating to the Nigerian Federation and the agitations for “True Federalism” or “Restructuring”.
The committee submitted its report to the party in January 2018.
Soludo said some of the recommendations of the committee, headed by Governor Nasir El-Rufai, held great promises for the country’s development.
He said if such recommendations as creation of state police, resource control and abolishment of the local government system were implemented, the country would be set on the path of progress in just three months.
The ex-CBN governor said the APC had the opportunity to walk its talk on restructuring to reposition the country, as it controlled the government.
“As a first step to restructure the country, let us start with a low hanging fruit — the APC ‘s minimum template.
“The APC committee on restructuring has many interesting recommendations, but three stand out.
“It is our opinion that this will be a significant step forward.
“So, what is holding action on this? The APC currently controls 24 states or thereabouts plus a majority at the National Assembly.
“The import of this is that if the APC as a political party decides to walk its talk, it can give Nigeria these changes within three months or before the end of 2018.
“Now that the bill for state police is before the National Assembly, why can’t we follow up with the other ones?”
Soludo, who said the political class was not committed to the agenda of restructuring because they feared it would dismantle their privileges in the current structure, however, harped on the need to abandon such inertia to act in the interest of the country.
Below is the full lecture:
The Political Economy of Restructuring the Nigerian Federation
By Chukwuma Charles SOLUDO, CFR
African Heritage Institution, Enugu
Delivered at the Maiden Lecture organized by Ndigbo Lagos Foundation
On Wednesday, 1st August, 2018, At the Nigerian Institute of International Affairs; 13- 15 Kofo Abayomi Street, ,Victoria Island, Lagos
I: Introduction:
No issue commands a greater, broader consensus in Nigeria today than the need for restructuring the Nigerian federation. Almost the entire Nigerian socio-cultural-political groups (South West/Yoruba Nation; South South; South East/Ndigbo; Middle Belt, and the former Northern Region) have either produced or are working to announce their template for restructuring. Even some political parties, led by the All Progressives Congress (APC), have either announced details of their position on restructuring or made “true federalism” the centre piece of their manifestoes for a better Nigeria. It is fair to admit however that there is still reasonable disagreement regarding the consistency of the case for restructuring and the nature and content of restructuring.
In terms of content and nature, we can group the various restructuring models into three categories: soft restructuring (tinkering with amendments of the 1999 Constitution); hybrid restructuring (negotiate a new Constitution with sufficient regional autonomy within the federation); and hard restructuring (confederation or outright independence for any desiring part of the country). There seems to be a preponderance of mainstream opinion around the hybrid option, and the loudest case for restructuring is so far based on political and ethno-religious agitation. We now need to deepen the conversation in at least two levels. First is to ensure greater convergence of views on what should be the content of restructuring. Second and for the first one to happen, the public must understand how the proposed restructuring will affect their lives—especially their pockets.
Our thesis is that while other considerations may be important, the overarching case for restructuring is economic: restructuring should provide the necessary foundational meta-level socio-political-governance architecture for the emergence and sustainability of a secured and prosperous post-oil economy. Furthermore, to translate the agenda from declarations to action, we need to understand the basis for inertia on the part of political actors and hence focus on the incentive structure and organization/mobilization required to make it happen. Put differently, restructuring will have short to medium term “winners” and “losers” but everyone could potentially win in the long run. But if we don’t understand the concerns of the temporary ‘losers’ and address them, our collective long term benefits may be delayed or derailed.
II: Institutions Matter: Nigeria’s Constitution as Inappropriate Meta Institution for a Productive Economy
The literature on the role of appropriate economic institutions for prosperity is vast. Institutions as the sanctions/constraints on and incentives of the key actors (including the political- legal-governance arrangements, property rights and rule of law, fiscal structure and distributional arrangements, transparent and accountable governance, speedy and fair dispensation of justice, competition and incentives for private wealth creation, etc) determine whether a society stagnates or prospers. In their seminal paper on “The Role of Institutions in Growth and Development” (2008, p.7), Acemoglu and Robinson summarize some of their key findings by noting that:
“…we argue that the main determinant of differences in prosperity across countries are differences in economic institutions. To solve the problem of development will entail reforming these institutions. Unfortunately, this is difficult because economic institutions are collective choices that are the outcome of a political process. The economic institutions of a society depend on the nature of political institutions and the distribution of political power in society. As yet, we only have a highly preliminary understanding of the factors that lead a society into a political equilibrium which supports good economic institutions… Nevertheless, some countries do undergo political transitions, reform their institutions, and move onto more successful paths of economic development. We also can learn a lot from these success stories… Making or imposing specific institutional reforms may have little impact on the general structure of economic institutions or performance if they leave untouched the underlying political equilibrium…A piecemeal approach may be dangerous”.
An important insight from the above as well as cross country experiences is that institutional development is not a cut and paste affair. The political and economic institutions must synchronize, and there is no universal template as to how they emerge given the varied political and historical experiences. Context and history matter, and building progressive institutions is a continuous work in progress. However subjective one may view institutions, we can still recognize a good institution as one that unleashes and maximizes the creative energies of the people for the promotion of the highest possible security, prosperity and happiness of the people.
Institutional Dysfunction and Nigeria’s Circular Stagnation
We argue here that Nigeria’s meta institution, its Constitution (legal-political-governance architecture) is designed to share and consume the oil rents and has perverse incentives for a productive economy. Oil or natural resource boom is known to cause the appreciation of the real effective exchange rate thus harming the economy, and this has been referred to as the Dutch Disease syndrome. Ours is beyond the Dutch Disease. We also suffer what can be described as a Lottery Effect—a syndrome whereby a hitherto hard working person wins a lottery, quits his job and restructures his family’s lifestyle around the consumption of the lottery money; breeds more children and each with guaranteed allowance from the lottery money; and centralizes decision-making in the family such that the children never have the experience to take up challenges and mature in the process; etc. At adulthood, the children have developed a dependent/entitlement mind-set and the ageing dad can no longer cope while the lottery money can no longer service the bloated lifestyle. Instead of the Lottery windfall aiding the family, the arrangements designed to utilize it might turn the Lottery into a curse.
The above is a caricature of Nigeria’s experience with oil and the institutional arrangements to share and consume it. A combination of the Dutch Disease syndrome and the Lottery Effect produced what I refer to as Nigeria’s Oil Structural Disease. Until we wean the system of this Disease, Nigeria’s economy will continue to sluggishly muddle along (I made a similar argument in my 2005 Democracy Day Lecture). This Structural Disease is the key reason why Nigeria’s quest for economic diversification over the decades has been moving in fits and starts, as we repeatedly expected bumper harvests out of an arid soil. Despite the plethora of Plans and efforts at diversification, oil is still the oxygen/life support of the economy. When oil price goes up, we celebrate and the economy booms, and when it falls, the economy slumps and everything goes burst— salary arrears, exchange rate collapse, inflation, output stagnation, poverty and unemployment soar, etc. It still accounts for more than 90% of Nigeria’s export and foreign exchange earnings and more than 65% of government revenue. Something has to give!
Having a visionary and capable leadership is critical for the transformation of a society. But the ‘system’ in which the leader emerges and operates is equally, if not more, important. Whatever the skills of Lionel Messi or Christiano Ronaldo as footballers, if the field of play is a cassava farm, their talents might come to naught. Perhaps some rugged street urchins might be the real football ‘leaders’ in the cassava farm. Sometimes the debate about leadership and system comes down to chicken and egg argument. My view is that we have searched for too long for the good leaders to fall from heaven but for a change, let us focus also on reforming our evidently defective institutions—at least to loosen the suffocating stranglehold of Abuja and unleash the creative and competitive drive of our people. It is an oxymoron to repeat the same thing over and over and expect a different outcome.
Nigeria at the moment is stuck on the low speed lane. I don’t want to open the Book of Lamentations and rehash the long list of what is wrong with Nigeria. Most times, I insist (for my sanity) to keep focused on the list of what is right with Nigeria. However, for our discourse, I draw attention to what I call the Nigerian Newspaper Headline Index (here I compute over a given period the ratio of good news to bad news on the headlines of Nigerian newspapers). One is amazed how it correlates well with other indices of our progress or retardation. In other words, our Newspaper Headlines summarize the health of the nation.
In particular, I don’t know how many Nigerians take interest in studying the 12 clusters of variables that are considered in computing the Fragile/Failed States Index by the U.S Fund for Peace. The index which aims to “assess vulnerability to collapse” summarizes the failure of Nigeria’s institution and measures four clusters of variables, namely: a) Cohesion (security apparatus, factionalized elite, and group grievance); b) Economic (economic decline, uneven economic development, and human flight and brain drain); c) Political (state legitimacy, public services, and human rights and rule of law); and d) Social (demographic pressures, refugees and IDPs, and external intervention). Nigeria’s ranking has deteriorated from 54 in 2005 and now stands between 13 and 15 over the past seven years and largely in the red alert category with countries such as Afghanistan, Iraq, Haiti, Guinea, Syria, Yemen, etc. We can’t reverse this ranking without addressing the underlying causative factors. Remove the life support of the oil rents and one can only imagine the conflagration and the race to the bottom that might follow. We don’t have to wait to reach that point before we take action.
Having defined institution partly as an incentive system, it is our view that Nigeria’s federal structure (its state and local government creation) and more so its fiscal federalism constitute a set of perverse incentives for competition and productivity. The current state structure has been largely a response to political pressures, especially the agitation by the elite for their respective empires—the so called marginalization arguments. With the scrapping of the 1963 Republican Constitution together with its decentralized fiscal federalism, and the imposition of a military command and control structure after the military coup of 1966, the subsequent creation of states and local governments had little consideration for economic or fiscal viability. With every created state and local government guaranteed unconditional cash handouts (largely oil money) from the federation account, every group wanted its own state. State and local government creation became a patronage and political tool for elite buyout and political balancing where those at the helm conferred advantages to themselves. The incentive system tilted towards a culture of cake sharing and consumption—an indolent, entitlement culture and the earlier culture based on hard work, competition and cake baking died.
The umbilical cord between government and private sector/citizens was severed. Governments do not lose sleep to provide appropriate enabling environment for private enterprise largely out of love for the private sector. Government depends on the private sector to create jobs and pay taxes. In return government does everything to create the enabling environment and even undertakes economic activities — in its enlightened self-interest, to generate jobs and tax revenue. Where government gets easy rents (akin to aid dependent society or manna from heaven), there is no incentive to grow private enterprise or engage in profitable enterprise. The reality of life is that hardly anyone who is guaranteed a huge flow of funds and comfortable lifestyle without working for it would choose to work for the fun of it. Incidents abound where state governments or even federal government targeted and literally destroyed the private enterprises of known or perceived political opponents. Why would a state governor or president for instance be having sleepless nights thinking about innovative ways to attract and sustain productive activities when everyone is concerned about the monthly Federation Account allocations?
Under our rentier system, why would the political process search for and encourage talents and the emergence of leaders with ‘best ideas’? You do not need a lot of talent to share or distribute rents. The political system only cares for those who could be trusted to ‘share well’— and not necessarily those who can bake the cake. With sharing and consumption of mineral/oil rents as the only game in town, the taxation capacity of the governments remained grossly underdeveloped. Non-oil tax revenue constitutes about 5% of GDP compared with 18- 25% in other, even poorer countries. The taxation powers are concentrated at the centre. Why would a state labour to attract and promote a high tech company only for the entire company income tax to be collected by Abuja and shared to everyone and the state in question might even get the least amount depending on the FAAC allocation criteria? Put simply, where is the incentive for government to promote enterprise beyond empty sloganeering? With a divorce between citizens’ wallets and government spending, the incentive to demand for public accountability by citizens has remained inchoate. Rather, citizens line up for their own ‘shares’ of the rent: after all, it is “government’s money”!
Add to the above the suffocating concentration of powers at Abuja (see the long list of items on the exclusive and concurrent lists of the Constitution). With its limited institutional capacity, Abuja is mandated to micro manage the entire country, literally with glass ceiling on everyone by imposing common rather than minimum standards. The development of institutional capacity at the lower level is therefore stalled. We have centralized policing even with state governors as ‘chief security officers’. The Federal Government has exclusive right over all minerals, while the Land Use Act grants the Governors the right over land. To get to the solid minerals, you must have access to the land and the conflict between State and community powers over land vis-à-vis the federal right to what is underneath it has not been resolved. The enduring conflict as well as the continuing flow of oil rents have combined to provide little incentive to develop the solid minerals, and gas is still being flared.
Some argue that state creation brought development closer to the grassroots but without the counterfactual: what could have happened if states were aggregated and the wasteful duplications on consumption and recurrent spending saved for investment— considering the quantum of oil resources expended over the years compared to the miniscule resources under the regions? The former East Central State with one ministry of education, one ministry of finance, one ministry of health, etc now has five states with five ministries and five commissioners of every sector, five parliaments, five governors etc. A simple aggregation will reveal the level of duplications and waste which could have been utilized for capital investment. Compared to the level of resources available to the government of Mr. Ukpabi Asika under the East Central State vis-à-vis his achievements in those few post-civil war years, it is arguable whether the current five states with the quantum of resources available to them over the decades have not performed several times much worse. This is an important debate which we need to have. A difficult analytical issue however pertains to the delineation of the optimal or appropriate size/economic indicators to make for a viable political-economic entity as a region or state.
While a debate on counterfactuals may not be conclusive, there is incontrovertible evidence that Nigerian economy grew much faster in the late 1950s to early 1960s under the competitive federal structure based on the regions. It was observed that the Eastern Region was one of the fastest growing parts of the world in the early 1960s. Regions competed among themselves, and innovation and development were the results. Regional governments built plantations, farm settlements, agricultural research centres, industries, built roads and infrastructure to the major production locations, promoted cooperative societies, standard educational institutions, water and sewage systems, etc. In the Eastern region, revenue from palm produce was used to build cities such as Aba, Onitsha, Port Harcourt, Calabar, Enugu, etc as well as the University of Nigeria (Nsukka, Enugu and Calabar campuses), the African Continental Bank, etc. Industrial estates adorned the region. All of these were built within a short period of time. With the current unitary-federalism and the suffocating central government, everyone has been levelled to the ‘common denominator’. It is not common to hear state governments advertise the number of private sector jobs created in their state or the number of new start-ups, not to talk of the rate of unemployment, poverty, life expectancy etc as indicators of their performance. The huge cocoa plantations, oil palm plantations, and groundnut pyramids as well as the industrial estates of that era are all gone. Several of the cities built in the 1950s and 1960s are crying for emergency urban renewal programmes. The problem is that the incentive system has been upside down.
Nigeria is a federation of 36 largely unviable states. Our current system focuses all attention on the centre—Abuja. But we cannot clap with one hand. A competitive federation is required to unleash the creative energies of all the component parts into a synergistic boom. Without this, Nigeria’s prosperity will remain extremely volatile, and the talk about a prosperous post-oil economy will remain a convenient slogan.
III: What Should We Do?
Philosophers, they say, have interpreted the world, but the problem is to change it. An economy based on oil and other depleting natural resources is fast becoming obsolete. The global economy is already in the 4th Industrial Revolution or digital age, dominated by Robotics, Artificial intelligence, Machine learning, Virtual reality, Augmented Reality and others. At the moment, Nigeria is largely bypassed and still grappling with the most basic aspects of the old economy. But given its geographic- demographic conundrum, Nigeria has to leapfrog the industrialization value chain or stagnate. Yet its institutions are those woven around the distribution and consumption of oil rents and the old economy. A system designed for consumption cannot be expected to become efficient for competition and production in the 21st century. Sadly, many people miss this point.
Institutions lead economic transformation. Many analysts and politicians brandish economic blueprints for a post oil Nigeria but without the concomitant legal-political-governance infrastructure to deliver such Plans. This is actually a key missing link in many of the failed National Plans not only in Nigeria but also in many countries. Such economistic plans either sought to legislate politics out of public policy or misunderstood change to be a push-button technocratic process. Such plans are often predicated on the false assumption that committed and visionary leadership to implement them will fall from the skies without understanding that leadership is an endogenous variable. In the end, politics will always trump economics and only very few politicians understand that sound economics is excellent politics.
For a change since the military incursion into our body politics, let us sit down and craft a new Constitution that not only provides for a stable, equitable and just polity but even more so focuses on the incentive structure to usher a competitive and productive economy of the future. The most fundamental change over the next four years should be a new, progressive Constitution for Nigeria’s prosperity.
Stripped to the barebones, restructuring (of the hybrid option) can be summarized in three categories:
- Political-governance arrangements that ensure participation and ownership of the Nigerian project by all segments of the federation—a stable and more efficient system which is fairer, more equitable and just;
- Devolution of powers according to the principle of subsidiarity and variable geometry—away from the current system of unitary-federalism, with its suffocating concentration of powers and responsibilities at the inefficient centre; and
- Fiscal federalism that is consistent with (b) above and which alters the incentives faced by economic and political actors, thereby unleashing the competitive spirit, hard work, innovation and efficiency which are the hallmarks of prosperous economies of the future.
Let us elaborate briefly, albeit with some caveats.
Reforms at the meta-level would entail dismantling and recoupling several of the institutions that help or hinder us, including a serious re-examination of the 36 state structure as federating units vis-à-vis their fiscal/economic viability or their consolidation into six or more regions with economies of scale and higher investment rates; multiple vice-presidency representing respective regions other than the region of the president, each with supervising powers over certain ministries to ensure equitable representation at the federal cabinet (the Central Bank has four Deputy Governors for instance); principle of equality of regions; multivariate judicial systems with state/regional appellate courts up to regional supreme courts while the federal supreme court becomes the constitutional court— and this is to decongest the centralized system and guarantee speedy dispensation of justice; introduction of commercial courts for speedy resolution of commercial disputes; institution of merit and equal opportunity principle; etc.
Designing such a meta-level governance architecture is an essentially political process, with continuing bargaining among different interest groups and the ensuing compromises and trade-offs. What emerges is a satisficing equilibrium (excuse my economic jargon) which delicately balances between the requirements of efficiency (to bake the cake) and the necessary inefficiencies (distributional arrangements) to “carry everyone or at least the major interest groups along”. It is not an optimization process where only efficiency counts.
Every political governance system has a dose of inefficiency/waste imbedded in it, sometimes to buy off the weak but important constituents needed to stabilize the system. Many examples illustrate this including, for example: the welfare system in the western world, the plethora of subsidies, affirmative action (‘federal character’) programmes, social insurance schemes, etc. The challenge is to ensure that the overall system is efficient enough to guarantee unhindered prosperity to pay the bills on a sustainable basis. Our current system tilts the balance in favour of distribution and consumption thereby creating a near permanent dependency on the life support of the oil rents. If after more than 26 years of existence, more than 30 states (federating units) cannot meet even their minimal running costs without the handout from the Federation Account, then we need to re-examine the structure that produces such outcomes. The existing structure is for a time we no longer live in. The fact that some groups are still canvassing for more states shows that many are still stuck with the politics rather than the economics/fiscal viability of states and still expect the sharing/consumption economy to continue. Nigeria must be guided by its history and evidence as it tries to redesign its Meta level structure. Useful lessons may also be learnt from other countries such as Switzerland, United Arab Emirate, Canada, the U.S. and Brazil.
Devolution of functions between the central and federating states/regions should be guided by the principle of subsidiarity. According to the European Charter, subsidiarity means that: “Public responsibilities shall generally be exercised, in preference, by those authorities which are closest to the citizen. Allocation of the responsibility to another authority should weigh up the extent and nature of the task and requirements of efficiency and economy“. This principle is not observed in the 1999 Constitution. For a Constitution that proclaims a federal structure, the exclusive and concurrent lists constitute an atypical concentration of powers at the centre. Currently, the federal government is burdened with hundreds of parastatals and agencies trying to inefficiently micro manage the entire Nigeria, with the recurrent expenditure of the federal government exceeding total federal revenue. Every penny of capital spending by the Federal Government of Nigeria (FGN) is borrowed, and its fiscal position is precarious. Put starkly, not one kobo of oil money is invested in infrastructure by the FGN: it is all consumed by the obtuse federal bureaucracy. Unless we assume that oil boom will rebound and endure, devolution is a matter of survival for the FGN and the national economy. Some argue that without better capacity and accountability at the lower levels, the expected efficiency may not materialize. Our counter argument is that institutions, like human capital, can only mature with usage. The federal government should loosen its hold on policing, electricity (power), railways, ports, aviation, business incorporation, taxation powers, regulatory functions, etc. This will give impetus for a new pathway for the economy.
Fiscal relations affect the behaviour of firms, households and governments and hence economic activity. Section 162 of the 1999 Constitution needs to be scrapped urgently and replaced with a fiscal arrangement that is consistent with devolution of powers and which creates incentives for innovation and hard work. We need to abrogate the Land Use Act of 1978, the Solid Minerals Act, as well as the various Petroleum/Gas Acts and amendments, and return the right of ownership, control and exploitation of these assets to the federating units. In turn, they should pay appropriate taxes to the federal government. Nigeria urgently needs a new Fiscal Responsibility Act to constrain irresponsible fiscal behaviour and incentive to create wealth. We must restructure to ensure that never again shall we need a wholesale bailout of state governments. For example, fiscal transfers should be based on performance as well as in the form of matching grants scheme (thereby replacing unconditional transfers with conditional transfers). Another example is that the fiscal responsibility law could constrain governments at all levels to meet their recurrent expenditures out of their internally generated revenues while revenue from natural resources are deployed only for physical and human capital development. A key point is that Nigeria is desperately in need of domestic and foreign savings to significantly jumpstart investment that leads to prosperity. Rostow in 1960 proposed the stages of economic growth and the required investment levels required to meet them. Nigeria’s investment rate is less than half of what Rostow believed to be required for the ‘Take-off’ stage. Our current structure is centred around consumption, with an unsustainable public finance. An alternative structure would free up resources for investment and hence growth. This will completely alter the incentive system and power a different trajectory for the economy.
Much of the tax powers are currently concentrated at the National Assembly and this constrains states’ flexibility in deploying fiscal instruments for development. For example, why should all corporate taxes and Value Added Tax be paid into the federation account? Wherein lies the incentive for states and local governments to attract and promote industrialization? The probable direct benefit to the state government is the personal income tax of the employees. But why would a state go out of its way to attract high tech companies (especially those operated by robots) but with high revenue and corporate taxes if it will share equally in the benefits with other states? If the power for the incorporation of companies is devolved to the states/regions, perhaps some could be creative to design tax haven status for some categories of companies. Some countries make hundreds of millions of dollars per annum from this kind of innovation. Our point is that the federating units should have the flexibility to deploy taxation as a veritable instrument to attract or promote enterprise and for independent revenues. Furthermore, why should we have uniform salary scales across the country or even common minimum wage? There is just too much of a unitary system which constrains everyone to move at the same speed instead of incentivising different segments of the society to innovate and prosper at different speeds.
Let me not burden you with further details. What remains is action. There are many proposals to serve as background papers including the Report of the 2014 National Conference, the declarations of the various socio-cultural groups, and proposals by independent analysts and statesmen. In terms of the speed of reforms, while some argue for incrementalism, many others see the urgency of the moment and urge for a big bang approach.
As a first step, let us start with a low hanging fruit— the APC’s minimum template (the APC’s proposals can be interpreted to fit into the ‘soft restructuring’ model in the sense that it prescribes the amendment of the 1999 Constitution). The APC Committee on Restructuring has several interesting recommendations but three stand out, namely: state police, scrapping of the local government system from the Constitution, and resource control. The APC recommends abrogating the extant legislations and transferring rights over minerals to the federating units or states. Of course, once we transfer the mineral rights to states, a new fiscal federalism will have to be negotiated. It is our opinion that this will be a significant step forward. So, what is holding action on this? The APC currently controls 24 states or thereabout plus a majority at the National Assembly. The import of this is that if the APC as a political party decides to walk its talk, it can give Nigeria these changes within three months or before the end of 2018. Now that a bill for state police is before the National Assembly, why can’t we follow up with the other ones?
More fundamentally, there is a question about the commitment of the political class to the restructuring agenda. The APC at least has a Committee Report which is public knowledge. Where is the position of PDP as the main opposition party? Are the politicians from the South West, South South, South East, and Middle Belt singing from the same hymn books as their socio-cultural-political leaders (regions that have openly announced their restructuring agenda)? If so, why is there no bill at the National Assembly for the Establishment of a Constituent Assembly to craft a new Constitution? The media is awash with claims and counter claims between the two major political parties as to which one has majority in the National Assembly. Aside from the positions for respective members, what does this actually mean for the legislative agenda?
Sometimes, one gets the impression of a chasm between the National Assembly and the people especially on matters relating to the restructuring of the country and its Constitution. For example, while the 2014 National Conference recommended that Local Governments should be the concern of the federating units and the popular view was that it should be scrapped from the Constitution since we shouldn’t have three federating units at a time, the National Assembly was busy proposing ‘local government autonomy’ in its constitutional review. There seems to be a dissonance between those whose responsibility it is to act and the popular demands of the people.
IV: Why Is there Inertia to Act?
Answering this question takes us to the heart of political economy: the nexus of winners and losers. How can those who consider themselves as the privileged winners of the created advantages voluntarily surrender their advantages? Second, most of the current actors entered the trade of politics and public life with the incentives of appropriating the existing rents and patronage system based on sharing/distribution. Over the years, the states and federal institutions have taken lives of their own. There are whole generations of elite who are not tutored through the productive/efficiency trajectory but hooked to their fiefdoms based on sharing and distribution. Change brings anxiety and uncertainty. A new system based on cake baking rather than cake sharing under restructuring dramatically alters the incentive system and their calculations. An Igbo proverb says that you don’t learn to use the left hand at old age. Since you can’t give what you don’t have, many of the actors would resist the ‘new system’.
The challenge is how to get some of the elite whose privileges are provided by the existing system to support its dismantling into a system that is potentially beneficial to ‘society’ but perhaps disproportionately harmful to their interests in the short term. In other words, we are faced with the same kind of conundrum as some western countries with their welfare system. Having designed and implemented it for generations, it has grown into an unsustainable octopus of inefficiency but reforming it is not easy. In the US, millions of voters are hooked to the feeding bottle and its government keeps postponing the day of reckoning by borrowing to keep the system alive (the US, with the global reserve currency can afford to borrow for a while from the rest of the world but Nigeria cannot). Everywhere, such a distributional system has acquired a huge and powerful constituency, and the political cost of dismantling and recoupling is not trivial. There is also an intergenerational issue involved. The present beneficiaries don’t care if the same benefits do not extend to the future generations: they just want to have their share and go, and let the future generations take care of themselves.
Even for those who understand the imperative of a more efficient structure, politicians often have short-term time horizons. Electoral cycles are every four years and they fear that the burden of short term adjustment costs might fall disproportionately on them. Let’s be practical here. More than 30 states cannot pay salaries without allocation from Abuja. A desired change that disrupts that flow or threatens to consolidate the states, will surely raise huge short term adjustment issues. Richer states do not want to carry the burden of poorer states under the proposal for consolidation of states, and poorer states want the handout to endure. Thus, for some of the governors and other actors, the attitude might be: “please postpone it until after my tenure”!
Finally, there is a possible fear of the consequence of Glasnost with Perestroika. When USSR was stuck at a dead end and Boris Yeltsin saw no other option but to ‘open up the system’ (Glasnost) and ‘restructure it for efficiency’ (Perestroika), the reforms snowballed to the disintegration of USSR into 15 independent countries. Some may fear that implementing the hybrid restructuring might lead to hard restructuring.
Many might dismiss some of the foregoing hypothetical concerns as symptomatic of myopia and unpatriotic disposition by our politicians and leaders. Yes, we might respond by reminding them that necessity is the mother of invention and pointing to several examples of countries and societies where adversity or disruptive change forced innovations that took the society to far higher levels than imaginable. We could point to Dubai, the state of Nevada in the U.S, Japan, Israel, etc. But these societies persevered for a long time and in circumstances in which they had no choice. But our politicians seem to think that they have a choice to hang on to the diminishing pie in the short term, and that’s the problem. My view is that it would smack of great naiveté if we think that we can reconstruct a society in a purely technocratic manner without sensitivity to the myriad but conflicting interests which might aid or hamper progress. We need to factor the concerns in the design and implementation.
Organized political agitation is important to ignite reforms. Even more important is for us to deepen the analysis: to articulate the benefits and costs in concrete terms and build a broader constituency for the desired change. So far, it seems that only those canvassing for hard restructuring have mustered some grass root followership. Beyond the elite declarations at sporadic events, where is the constituency and organized pressure group(s) for hybrid restructuring?
Furthermore, beyond mass mobilization for change and articulating the case to convince the actors of the desirability for change, we need to think through how to “buy out” the current actors to also see restructuring to be in their own interest. Alternatively, they will hold on to their privileges until the impending systemic threats or collapse threaten them with a total loss of the privileges. This will compel them to act in their enlightened self-interest— to at least preserve or hold on to “something” rather than to lose “everything”.
As part of the “buy out” strategy, the actual design of restructuring must of necessity incorporate a transition period and graduated transition agenda to minimize disruptions or smoothen the transition phase. In addition, we need to think through a national agenda that guarantees every citizen a minimum opportunity to survive. For example, we could design a tax structure whereby a proportion of the revenues from natural resources will be devoted to guarantee free and compulsory primary and secondary education throughout Nigeria. The point here is that we must think through what to offer the masses to secure their buy-in and which is also consistent with long term growth trajectory. There are several ideas to consider.
V: Conclusion
Restructuring is not just a political agitation: it is the foundational plan for Nigeria’s future prosperity without oil. The contradictions of the old, oil-based economy vis-à-vis the population and geographical pressures are swirling and the challenge of a new institutional framework to lead the emergence of the new economy is urgent. We have a choice of pre-emptive, proactive action to orchestrate a new productive (rather than sharing/consumption) structure or wait until change is forced upon us in a most chaotic manner. A wise man gets the umbrella ready before the rain starts. We are currently at the cul-de-sac and need a fundamental disruptive change to reverse the trend. One of our key messages therefore is that restructuring is not only progressive politics but excellent economics.
The 2019 election is around the corner and what I see so far in the arena is largely theatre and little substance. Politicians are busy negotiating for personal positions but hardly anyone is negotiating for the future of Nigeria. Political parties are offering us platforms and slogans to capture power, and politicians as members of the same club (Nigeria Incorporated) are regrouping into subgroups to capture power. Some are announcing fantastic programmes and targets but without the slightest understanding that the underlying structure renders such targets/programmes as a no brainer or hallucinations.
Restructuring ought to be on the ballot in the 2019 and future elections. Put differently, 2019 elections ought to partly be a referendum on restructuring. To be credible, political parties and candidates need to spell out the specifics of the restructuring they offer. We need to elevate the debate beyond pedestrian manifestoes that don’t add up. To repeat, the cloud is threatening, and a wise man gets the umbrella ready before the rain starts!
Thank you for listening!