People & Money

On restructuring Nigeria

The fact that there are as many descriptions of the problem with Nigeria as there are commentators on the matter is one of the many clichés with which chat rooms on how best to fix the economy are littered. Depending on which one of these echo chambers you wander into, the bane of the country could be corruption, tribalism, the multiplicity (and contradictions of) our sectarian confessions, the succession of non-profit (for the country) military interventions in politics, etc. The catalogue is a near-endless one. Regardless, however, of which of these problems you settle on, there seems to be a strengthening consensus around the silver bullet that solves all of them.

“Restructuring”, it would seem, is the answer to the myriad political, social and economic problems afflicting Nigeria. According to this take on the matter, the current constitution is fatally flawed to the extent that it hands too much power to the government at the centre and not nearly enough to its constituent parts. One obvious consequence of this is not just that the centre then proceeds to issue (to sub-national governments) one-size-fits-all prescriptions from the top down. But that, as a result, politics at the grassroots has been stymied. It has never looked like becoming robust or critical enough to provide sustenance to the polity at any level ― whether in terms of constantly churning out a new cadre of younger successor politicians or serving as sandboxes for trialling new ideas.

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While this reading on the pivotal role of a written constitution in the governance of a country may not solve the question of how the United Kingdom gets things done in the absence of a written constitution, at bottom it is a pitch for the related European concept of “subsidiarity”. At the heart of the diverse arguments for the restructuring of the way the Nigerian state is currently organised is the contention that “the federal government should have a subsidiary function, performing only those tasks which cannot be performed at more local levels”. This would allow provincial and municipal governments experiment with solutions that take note of local constraints ― avoiding the top-down procrustean policy making that is currently the vogue. It would also, by bringing governance closer to the electorate, significantly improve accountability and transparency.

In this sense, the recent ruling by the federal high court in Nigeria which favoured the state as the level of government that should collect value added taxes reinforces this notion of “subsidiarity”, while de-fanging those who would blame flaws in the 1999 constitution for much of the country’s current problems. At the same time, though, the ruling has exacerbated old debates around the formula for the sharing of taxes by the federal government.

The hypocrisy of states in the north of the country who make a show of waging religious war on bottles of alcoholic beverages while continuing to receive and spend from taxes levied on/collected by other states on alcohol sales and gambling activities, simply contributes much noise to this conversation. But at its core, to the extent that much of the debate around how the tax take is shared challenges the rationale for taking from tax-rich states of the country and giving this to tax-poor states, a great deal of the debate around the VAT issue raises questions around the economic viability of the Nigerian state.

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A key requirement for an economic area to share a common currency optimally, is that there must be stabilising fiscal transfers. This would have the central government move money (for a variety of reasons) from resource-rich parts to resource-poor ones. In developing the theory of the optimal currency area in the 1960s, Robert Mundell argued for this risk-sharing arrangement as compensation for a failures to deploy and/or use both labour and capital properly in those areas where development lags the rest. Ideally, therefore, such fiscal transfers will be used to boost the productive capacity of laggard economies ― through more and better schools and healthcare facilities, investment in infrastructure, laws to ease the inflow of investment and improve conditions for doing business, etc. Not of course as largesse for white elephant projects or for the financing of a janissary that specialises in waging jihad on beer bottles.

In order, therefore, that an economy such as ours functions close to its production possibility frontier, there must not only be no impediments to the movement of labour and capital across the country. But both prices and wages must be subject to the market across all activity segments ― especially in the sale of foreign exchange and petroleum products. These requirements are a key part of the restructuring that this economy so badly needs.

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