Bailout of states not enough!

In just under two years of this administration and following the declining price of crude oil and federally distributable revenue, the federal government has extended several bailouts to states in one form or another. Our estimation since last year was that such ad-hoc measure was not going to solve the problem of state financial non-viability but only postponing the ‘evil day’.

Recently, BudgIT released a report showing that the country’s 36 states have received bailouts totaling N1.75 trillion between 2015 and 2016. Many of such states have continued to receive various forms of bailout into 2017. However, evidence on ground is that many states continue to owe salaries even as their domestic debts continue to rise.

Like we have argued before, the issue of state bankruptcies 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 or two, 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 cemented with 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 entities within 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.

Editorial