The political economy of restructuring the Nigerian federation (1) By Chukwuma Charles Soludo

 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 manifestos 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 non-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/mobilisation 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. 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. Role of Institutions in Growth and Development In their seminal paper on “The Role of Institutions in Growth and Development” (2008, p.7), Acemoglu and Robinson summarise 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 synchronise, 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 recognise a good institution as one that unleashes and maximises 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 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,1 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” summarises the failure of Nigeria’s institution and measures four clusters of variables, namely: a) Cohesion (security apparatus, factionalised 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. Perverse incentives for competition and productivity 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 marginalisation arguments. With the scrapping of the 1963 Republican Constitution together with its decentralised 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 bioengineering? 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-a-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 counter factual: 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 minuscule 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-a-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 counter factuals may not be conclusive, there is incontrovertible evidence that Nigerian economy grew much faster in the late I950s to early I 960s 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 I960s. 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 I950s and I 960s are crying for emergency urban renewal programmes. The problem is that the incentive system has been upside down. 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-cl-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 cur-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. Politician 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 manifestos that don’t add up. To repeat, the cloud is threatening, and a wise man gets the umbrella ready before the rain starts!