Bailout of states is not enough!

Following the bailout advanced to states in July 2015 and our estimation that such ad-hoc measure was not going to solve the problem of state financial non-viability but only postponing the ‘evil day’, the financial situations in the states of the federation are yet to improve. In fact, they are getting worse and many of the states are on the verge of collapsing. In an interview recently, the Katsina state governor, Bello Masari painted a grim picture of the situation of the states and the inevitability of major reforms.

Hear him: “The reality is that the problem is deeper than this ad-hoc measure of bailout. We have to have a budget support programme – that this is the budget of a state and this is what the state can get, then the central bank with the Federal Government and whatever agency will have to have a way of supporting that project.” He continued: “I think if there is any word that is more than serious, it is more than that. I am telling you as at today, some states after federation accounts (allocation) are going home with less than N60 million…Some are in the negative, majority cannot pay salaries from the federation account allocation.”

Like we have argued before, the issue of state bankruptcies of state governments goes beyond just transparency and equitable allocation of resources. It has everything to do with the dysfunctional and unproductive nature of our federal system, which ensures that despites states having constitutionally guaranteed avenues of raising revenues, virtually all of them, except one, still hopelessly depend on allocations from oil receipts to function.

First, we consider it a shame that a country of the size and magnitude of Nigeria – a so-called federation – will depend almost exclusively on rents from the sale of crude oil. Generally, ‘rentier’ states lack a productive outlook and are mainly preoccupied with ‘allocation’ or ‘distribution’ of rents than with wealth creation. Second, by relying on mainly external capital inflow to finance the country, the country is exposed to the shocks and volatility that always comes with the trade in commodities.

But it has not always been like this. In the First Republic, states or regions were productive centres and the principle of derivation held sway. Resources also flowed from the regions to the centre. However, with the military incursion into governance and the need to break the backbone of the then nascent state of Biafra by starving it of funds with the corresponding need to provide the federal government with funds to effectively prosecute the Civil War, collection of revenues from mineral resources were centralized. That ‘temporary’ arrangement became ‘permanent’ after the Civil War – a period that coincided with the oil boom. The arrangement was consequently cementedwith its insertion into the 1979 constitution and since then, Nigeria was programmed to rely exclusively on rents, remain unproductive and thus vulnerable to the shocks that come with the rise and fall of commodity prices.

One consequence of the ‘distributive’ character of the Nigerian state is the proliferation of states and agitations for more states by groups in Nigeria since it appears the raison d’être for states creation is for them to be used as instruments of extraction of resources/rents from the Nigerian state by ethnic formations. Any wonder then that states in Nigeria have elaborate governance structures – over bloated executive councils, parliaments, judiciaries and civil services just like the federal government – whereas they, bar Lagos,produce very little or next to nothing and have no way of justifying their existence as semi-autonomous entitieswithin the Nigerian federation?With the current arrangement, the major preoccupation of political authorities in Nigeria will continue to be ‘allocation’ and ‘distribution’ of rents rather than with ‘wealth creation’.

A concrete solution will necessarily involve the collapsing of the current state structure into more manageable, productive and economically viable units that will be governments not only in name, but also in functions and capacities. Of course, this can only be achieved by way of a constitutional amendment. Until this is done, the country will sadly, continue to exist only to share rents and our fortunes will continue to raise and fall with the prices of crude oil in the international market.