What next after the bailout?

Palpable relief and joy followed the report that President Muhammadu Buhari has approved a comprehensive relief package for both states and the federal government to end the unfortunate episode of unpaid workers’ salaries all over the country.

The comprehensive package comes under three categories. The first is a sum of $2.1 billion (N413.7bn) in taxes paid to the Federation Account by the Nigeria Liquefied Natural Gas (NLNG) Limited which is to be shared amongst the component units of the federation as prescribed by the constitution. The second is a special Central Bank of Nigeria (CBN) intervention fund or soft loan of between N250-300 billion to be accessed by states to help them clear the backlog of salaries owed their workers. The third is a debt relief programme proposed by the Debt Management Office to help heavily-indebted states restructure their commercial loans currently put at more than N660 billion, extend the lifespan of such loans and thus reduce their debt-servicing expenditure.

The relief and joy are understandable given the harrowing experiences state workers, some of whom have gone 10 months without salaries, must have passed through. While we also join the workers, labour unions, analysts, and civil society groups in urging state governments in particular not to divert the funds to projects other than the payment of staff salaries and offsetting the backlog of salaries, the issue 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 despite 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 come with the trade in commodities.

But it has not always been like this. In the First Republic, the 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 Republic 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 was centralised. 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 since, it appears, the raison d’etre 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 collapsing 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 rise and fall with the prices of crude oil in the international market.

In the meantime, so-called state governments must imbibe a savings culture, curb their financial recklessness, cut all unnecessary costs, avoid indiscriminate borrowing and consequent accumulation of debt, and embark only on viable projects that add value to the lives of their citizens.