Fed up of a recession that has persisted for some twelve months and growing discontent with the management of public services, more and more Nigerians are speaking up about the possibility of a governmental restructuring. In essence, the demand sit on a spectrum of devolution in central governmental power, ranging from dividing Nigeria into new sovereign states (recall Biafra) to empowering the existing roster of 36 states within the existing framework. With economy in mind, it is more about control of resources than anything else.
The discussion is not a new one, although the level of agitation is renewed, with roots in the 1960s ‘Republican constitution’ under which an independent Nigeria was born. This constitution called for ‘true federalism’ in the new republic, yet roadmaps for what that means and how to get there were agreed upon. Since then Nigeria has metamorphosed from a three region, twelve state structure, through the traumas of military rule, and finally into its existing 36 state form. Three constitutions later — with the most recent being the 1999 constitution dictated under military rule — the debate is live once again.
Those pushing a separatist agenda are unlikely to make much headway; the embattled Buhari administration will not allow itself to be the government which broke Nigeria. As such we can safely take this off the table, despite some groups declaring independent states.
Yet, despite commentators declaring the change to be inevitable, the government has pushed back. Initially it had been agreed that change should take place incrementally through gradual review of the constitution, however on July 26 the Senate rejected a range of mostly non-radical bills which would be a step towards devolution.
Acting President Yemi Osinbajo also lashed out at those driving the agenda as political opportunists looking to undermine government in order to secure administrative positions.
When restructuring will take place and in what form is difficult to say — indeed as the country gears up for a general election in two years we could see a swing in the narrative — but it remains useful to discuss what a more moderate ‘fiscal federalism’ would mean for the country.
Fiscal federalism, depending on its breadth, essentially concerns control of resources borne of a territory, by that territory. In the context of say, Edo State, this would mean all oil revenues, in whatever form they take, would fall mostly into state coffers. This could be easily scaled to a scenario where the country is divided into regional governments comprised of a number of states. At present revenues such as these are repatriated to a central government which distributes from a consolidated pot. The central government takes 52.68% of the pie, leaving the state and local governments with 26.72% and 20.68% each.
Investors looking to do business in partnership with local governments or sweep up public tenders would benefit from states having greater budget autonomy. At present, expenditure beyond budget allocation needs to be approved by the Senate which can be lethargic and unsympathetic to the ambitions of other states. Presumably fiscal federalism would streamline the process depending on the limits of a state’s practical autonomy — such as whether states can access credit or not — and how well a state manages its own tender processes.
However, making individual states/regions responsible for self-financing would no doubt generate winners and losers. Southern states such as Lagos, Akwa Ibom, and Rivers which benefit from oil wealth and commercial hubs would amass bigger budgets and, given proper management of said budget, would attract juicier PPPs and inflows of investment that come with greater economic prosperity.
It is unsurprising, then, that representatives of the country’s North has thus far shown disdain for any shakeup of revenue allocations given that years of insurgency by Boko Haram, cross-border flows of cheap goods and environmental challenges have devastated many industries. Data compiled by Economic Confidential reveals that states such as Borno and Yobe respectively received 2,100% and 2,450% more in Federal budget allocations than they actually generated in 2015. Meanwhile Lagos received 34% less than it generated. To this end, we could see greater devastation as more of the workforce migrate to ‘more prosperous’ states. Nineteen northern governors have constituted a committee headed by the Sokoto State Governor, Aminu Tambuwal, to reach consensus on the matter.
This goes hand-in-hand with the Ricardian notion of comparative advantage. Proponents of fiscal federalism suggest that states which bear the brunt of the change will take it as a wake-up call, claiming that much of the country has ‘grown lazy’ on easy oil riches even when they do not produce oil themselves. Faced with no other choice, states will look to develop their own comparative advantages in natural resources or manufacturing and would now have autonomy to do so by offering more attractive investment incentives. For investors this could provide not only lucrative business conditions, but also an opportunity to access sectors in the Nigerian economy (for individual states) in which local governments had little interest in in the past. The same would be true for regions which perhaps in the past didn’t make the cut; it could essentially open up the market.
Although a sexy slice of economic theory, it’s intuitive that no state anywhere in the world could grow a competitive industry overnight. The question then becomes whether or not a state could kept its head above water in the interim convincingly enough to satisfy its people and would-be investors.
As it stands many states struggle even to pay public sector workers and this includes those that are on the right side of the existing revenue calculation. It is therefore more likely that we see economic meltdown in some states than a robust economic development plan taking hold across the whole of Nigeria.