Road to recovery: A case for restructuring Nigeria
The IMF’s forecast is that the Nigerian economy would contract by 1.8%, while the Finance Minister, Mrs. Kemi Adeosun has also confirmed the imminence of a technical recession. In theory, economic recession is a period of temporary or general decline in productive activities, which is typically measured by fall in GDP in two successive quarters. In reality, Nigeria is on the verge of full blown stagflation, a condition of slow economic growth, high unemployment accompanied by rising prices or inflation.
The reasons may not be far-fetched, considering the unwholesome combination of internal and external factors at play. The price effect of the drastic fall in global oil prices, coupled with the drop in export volume from the pipelines bombing campaign of the Niger Delta Avengers, depleted Nigeria’s foreign exchange earnings. The fallout has been the massive devaluation of our currency, increase in unemployment rate, inflationary pressure (at 16.5%), increase in interest rate (the yield on FGN Treasury Bills – risk free instruments – was 21% on 15/08/16!) and general downturn in other economic and social indices. Expectedly, being a mono-cultural economy, the collapse in oil prices has had disastrous impact on governance at all levels, as Nigeria economy is not insulated from the global economic crises. Some state governments find it extremely difficult to pay staff salaries and associated pension contributions, with no immediate solution in sight. The nation’s woes is further compounded by growing restiveness and ethnic agitations, among which is the Boko Haram insurgency (which is now abating), the Indigenous People of Biafra (IPoB) agitation for the actualisation of Biafra, and the endless conflict between herdsmen and farmers in various parts of the country, with the attendant implications for agricultural output reduction. Further delay in arresting the present trend could lead to serious political and social instability.
Our problems are multi-faceted, covering economic, political and social, and the solution must be multi-dimensional in approach. Clearly, it cannot be business as usual anymore as concerted efforts must now be made to appropriately diagnose the problems and proffer workable solutions in order to avoid plunging our economy into full depression. Pertinent questions must be asked…Where did we go wrong? How did we arrive here? How did we move from one of the fastest growing economies to an economy on the brink of recession? How can we navigate our way out of the present quagmire? And more importantly, how do we comprehensively restructure Nigeria in a way that will support our aspiration for a productive and egalitarian economy, a stable polity, and a fairer society? There is a need for reality check by all tiers of government in Nigeria (Particularly the Federal Government of Nigeria). Perhaps, in the process of conducting a reality check, we might just be able to retrace our steps by embarking on a far-reaching and comprehensive restructuring beyond the cosmetic approach that the nation has been accustomed to over the decades.
The reality check by the Federal Government must start with asking the following questions:
. Is it realistic to increase the size of the projected federal budget from N4.49 trillion in 2015 to N6.1 trillion in 2016 in the face of dwindling oil price and production cuts from militants’ bombing campaign?
. Is it realistic to increase budgeted non-oil receipts from N800 billion in 2015 to N1.5 trillion in 2016 without a corresponding structure to drive the increase? Are non-oil earnings capable of 88% elasticity in the face of limited investments and government incentives?
. Is it realistic to project external sources of financing a N2.3 trillion deficit in the 2016 budget when there is global recession and a downgrade of the country’s rating?
. Is it realistic to project N1.5 trillion for debt servicing when capital expenditure is a meagre N1.6 trillion.
. Is it sustainable for the Federal Government to continue to hold on to over 50% of the revenue of the nation, only to spend it on debt servicing, recurrent expenditure and subsidising the foreign exchange market, the natural gas market, the electricity transmission sector and downstream petroleum sector?
The Problem is Structural!
The direction of the on-going debate on the restructuring of Nigeria has been skewed towards yet another political restructuring. Nigeria, since independence, has undergone series of political restructurings programmes from creation of states at different times, to the complete change in the political system from parliamentary to presidential, to revenue mobilisation and allocation restructuring, and other forms of adjustments that are political in nature. It is as if every government at the federal level wants to conduct its own political/constitutional conference to restructure Nigeria. The fact that all the political restructuring initiatives to date have not addressed Nigeria’s problems is evidence that the problems are structural (and substantially economic). While the nation has carried out different political reforms, the only period that Nigeria can be said to have had serious economic reforms that had significant effects on the structure of the Nigerian economy were the reforms of 1985 to 1992 that divested government interests in various business concerns; and the reforms of 2002 to 2015 that restructured some of the commanding heights of the economy – banking, insurance, telecommunications, power among others. It is therefore clear that the solution to solving our structural economic problems must commence with the dismantling of the structural rigidities that have held the country down economically for decades.
The advent of the military in governance created a highly centralised political and economic system, with enormous power and resources concentrated at the centre. Instead of using the resources to build a solid economic base for Nigeria, a regime of over-bloated federal recurrent expenditure (almost 80% of budget year-on-year, subsidised government owned monopolies (NITEL; NEPA; Nigerian Railway; Nigerian Airways; NNPC; Nigerian Gas Company, etc) with huge unfunded pension funds were foisted on the nation. Now that reality has dawned and the federal government’s revenue profile has reduced, FGN cannot carry on with the existing administrative structure. The time to take the bitter pill is now. Accordingly, the Federal Government should carry out the following reforms:
. Prune down the existing structure and divest itself of some unwarranted administrative responsibilities;
. Reduce Ministries, merge functions and devolve more responsibilities to states;
. Hand over intra-state roads to states while keeping only inter-state highways to itself to connect the vast and scattered communities in Nigeria;
. Give more autonomy to states with respect to control of inland water ways;
. Hands off control of lottery business in states;
. Limit the responsibilities of the Ministry of Solid Minerals at the federal level to regulation and cede control of solid minerals to states;
. Divest itself from involvement in distribution of VAT (sales taxes);
. Abolish the law that vests all mineral resources under the soil of Nigeria in the Federal Government. This will allow states to partner with the private sector to exploit mineral resources and pay agreed derivation to the federal government;
; Review mechanism for administration of PAYEE, to give the states more control;
. Reduce taxes for companies and entrepreneurs;
. Allow more private sector involvement in the economy.
•Oluwo, Lagos State Commissioner for Energy and Mineral Resources, delivered this lecture at a retreat.