Road to recovery: Why structure is the problem – Part 2

GDP

GDP

The reforms the Federal Government should embark upon for a more prosperous Nigeria also include: divesting from the natural gas infrastructure of Nigeria (including removal of subsidies) in order to create a competitive gas sector that will attract private investments and support the economy. It should equally:

. Divest from the Transmission Company of Nigeria and break the national grid to regional grids. This will allow private sector investments and eliminate the subsidy distortions;
. Fully deregulate the downstream oil sector;
. Abolish all forms of subsidy intervention in the foreign exchange market so the market can operate competitively and allocate resources appropriately;
. Diversify earning capacity of the Federal Government to increase revenue. Access to increase in revenue may lead to increased government spending, which may alter the recession narratives, provided the right policies prevail without the usual leakages.

In Nigeria, we have an abysmally low level of tax revenue to Gross Domestic Product (estimated at 1.6 per cent in 2012 and currently 7 per cent) compared to other African countries.

From the available statistics, anything less than 200 per cent increase in tax revenue, in the first instance, will still be sub-optimal. To effectively close the gap in the above table, there is the urgent need to come up with effective tax reforms.

Kogi State, for instance, has tantalite deposits. Tantalite is used in the electronics industry for capacitors and high power resistors. It is also used to make alloys to increase strength, ductility and corrosion resistance. In the international commodity market, tantalite traded above USD250/kg which has now fallen to USD132/kg compared to crude oil price at below USD50 per barrel. However, this precious metal has remained buried under the ground.

Approximately 70 per cent of our population engages in agricultural production at a subsistence level. The sector could boast of about a quarter of our GDP, yet we have not been able to achieve self-sufficiency in food production. We spend about $11billion importing food each year, including wheat, rice, sugar and fish. A swift correction of this menace is bound to create thousands of jobs, less pressure on our foreign exchange and indeed a positive narrative for our food security. We have no business importing food but rather we should be exporting food to other countries. Furthermore, we must discourage raw export of agricultural produce for value added purposes, which will in turn create jobs and more tax revenue. The menace of herdsmen must be curtailed in order not to deplete capacity in the agricultural sector.

Another key sector that seems to hold the ace for the Nigerian economy is the power sector. Relative stability in electricity supply will go a long way in boosting industrial productions and indeed SMEs, which will ultimately improve our GDP growth and youth employment. However, with less than 4,000MW power generation, Nigeria will need a minimum of $20 billion investments to generate additional 20,000MW. Another $10 billion may be required as investments in the transmission and distribution value chain of the power sector. While the generation and distribution have been privatised, the transmission still remains in the tight grip of Federal Government. Beyond mere privatisation, what will ultimately unlock value and attract investors into the sector is full deregulation where states are supported to generate their own power through regional grid transmission structure or off-grid embedded power programmes. Yet, Federal Government has continued to artificially fix the price for power as well as the feed stock, thus stifling the emergence of a competitive trading in bulk power where market forces determine price and allocation of power resources.

Still, there is the more fundamental issue of fiscal federalism. Over the years, our practice of fiscal federalism has run parallel to our model of market economy. In a market economy like ours, decisions on production and distribution activities are based on market forces in a free price system (or a guided market dynamics with minimal artificial intervention). However, while we profess a market economy, our practices and procedures largely have the semblance of a centrally planned economy, where government decisions drive most aspects of the country’s economy, particularly the commanding heights that have the greatest multiplier effects. This comes at a very heavy price in form of inefficient allocation of resources and unsustainable pricing system.

The call for restructuring of the country is not entirely new. Former Presidents Olusegun Obasanjo and Goodluck Jonathan convened National Conferences, which recommended the retention of a federal system of government, the core element of which shall be a Federal (central) Government with states as federating units. The conference did not foreclose the issue of a Regional government, saying instead that each state that is regionally based should create a self-funding Zonal Commission to promote economic development, good governance, equity and security in accordance with the Constitution of the Federal Republic of Nigeria (as amended).

In recent times, however, the likes of Wole Soyinka and Abubakar Atiku have renewed the call for restructuring on the basis that the current structure is heavily defective, as it does not provide the enabling environment for growth and progress among the 36 component states of the federation.

Considering the fact that most economic decisions are taken in a political environment, there is also the need to restructure our constitution. The restructuring should focus on devolution of power and resources to the states and local governments while the Federal Government should concern itself with: Security (State Policing?); foreign Affairs; Economic wellbeing of Nigerians by implementing sustainable monetary and fiscal policies; and Reduce its share of the financial resources of Nigeria. The country’s current sharing formula gives Federal Government 52.68 per cent, States 26.72 per cent and Local Government Councils 20.60 per cent. This has to be reviewed in favour of the states and local governments for sustainable development.

The present structure of governance, where petrodollar money is shared every month encourages no state to develop its resources. It should be noted that before the advent of oil in Nigeria, the various regions were encouraged to invest heavily in commodities like cocoa, groundnuts, coffee, palm oil, etc. But fiscal federalism was sacrificed at the altar of the oil-boom. Nevertheless, no political restructuring can move the nation forward without first dealing with the economic malfunction of the Nigerian fabric. It seems settled that regional autonomy belies the real economic independence for survival of the states. The time has come to refocus the restructuring debate on a workable model that advocates appropriate political and economic reforms that is complementary and reinforcing.
Concluded.
• Oluwo, Lagos State Commissioner for Energy and Mineral Resources, delivered this lecture at a retreat.

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3 Comments
  • Oduna

    the question that should be asked is whether the present arrangement has served anybody well

    • Basil Ogbanufe

      Certainly, not.

  • Basil Ogbanufe

    Divest, deregulate etc. are neither here nor there. I think what we should be saying is outright privatization and liberalization of the economy through the NSE (Nigeria Stock Exchange) by way of IPO (Initial Public Offer). Government cannot be regulator and operator at the same time. This is corruption. Government must hands off the economy and focus on regulation while Nigerians manage it.

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