Bailout of states is not enough!

The federal government has, yet again, decided to advance another bailout to most of the states that have clearly gone bankrupt and are unable to meet salary obligations. The fresh financial support to the states, according to Kemi Adeosun, Nigeria’s finance minister, is to cushion the effect of the current economic crisis, but this time with stringent conditions. These conditions may require the states to publish their audited financial statements and budgets, biometric and Bank Verification Number (BVN) payroll review exercises for the workers, and restrict recurrent expenditure. Also, the states are expected to set and meet targets to enhance their internationally generated revenue (IGR), establish efficiency units to reduce overhead costs, privatise state owned enterprises (SOEs), domesticate Fiscal Responsibility Act, and put a limitation on further bank loans. The aim, as it were, is to ensure the sustenance of governments across the federation. “Overall we believe that the survival of State Governments is essential to the economic recovery of Nigeria, specifically their ability to meet salary obligations,” she was quoted as saying.

While we commend this new measure aimed at forcing the states to be fiscally responsible and accountable, we still feel it is incapable of solving the dire financial problems of the second tier of Nigeria’s federal structure.

We recall two other bailouts have been provided to the states since July 2015 to enable them pay the backlog of staff salaries. However, the states remain chronically indebted and are still unable to meet even their salary obligations not to talk of providing the dividends of democracy to the rest of the people, who constitute more than 95 percent of the states.

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.