“I have just read your column in faraway Taiwan. I am happy that someone is paying attention to what ought to have been the biggest issue of the last campaign, which is the economy--an issue at the heart of Vice President Atiku Abubakar’s message to Nigerians, which of course went unheeded. I note however that you seemed unwilling to give the Turaki a credit for his idealism or the ability to have thought this through. I take this as a healthy dose of scepticism, without which no journalist is worth the name. I however want to tell you that this was a policy well considered. You will remember that in the course of the campaign, the Turaki literally begged for a debate on the economy but President Jonathan ran away. In the light of this, let me say that he is ever ready to sit down with you and any other interested stakeholder to discuss the details of his ideas and more importantly, for you to appreciate the depth of his conviction in view of your wish to explore the issue in great length…”
The foregoing is excerpted from a mail sent to me by Mr. Garba Shehu, former President of the Nigerian Guild of Editors and spokesman to former Vice President Atiku Abubakar. He was reacting to the first part of this series published last week which has generated considerable interest. At the weekend, former CBN Governor, Prof. Chukwuma Soludo, sent me two papers he recently presented which canvassed the same position. Incidentally, at the valedictory reception held in his honour on Tuesday night, former Secretary to the Government of the Federation, Alhaji Mahmoud Yayale Ahmed, also underscored the fact that until we wean ourselves of dependence on oil money, we are not likely to develop as a nation.

I started this series last week with what former Vice President Atiku Abubakar said last year while seeking the Peoples Democratic Party (PDP) presidential ticket. He pledged that if elected president, his medium-term (a four year period) strategy would be to ensure that recurrent expenditure is financed fully with non-oil revenue while every kobo earned from oil is devoted to investment in infrastructure, security, education and health. According to him, “oil revenue is highly volatile and exhaustible. We must have a plan to wisely use it to build capacity for the future - invest in infrastructure and in the people-- and not consume it today. We would also encourage all state governments to set an agenda and timeline within which they would no longer depend on oil revenue for recurrent expenditure.’’

For the purpose of today’s discourse, I am relying on Soludo’s long presentation of May 28 this year in Minna, Niger State, as guest speaker at the inauguration of Governor Babangida Aliyu. In his introduction, Soludo quoted from the 1996 thesis of Adam Przeworski, Michael M. Alvarez, Jose Antonio Cheibub, and Fernando Papaterra Limongi Neto titled “What Makes Democracy Endure”, where they argued on how the economy of a country impacts on the sustainability (or otherwise) of its democracy. According to them: “Once a country has a democratic regime, its level of economic development has a very strong effect on the probability that democracy will survive . . . . . Democracy can be expected to last an average of about 8.5 years in a country with per capita income under $1000 per annum; 16 years in one with income between $1000--- $2000; 33 years between $2000- $4000 and 100 years between $4000--- $6000 … Above $6000 democracies are impregnable and can be expected to live forever. No democratic system has fallen in a country where per capita income exceeds $6055.”

Given that Nigeria’s per capita income lies between $1,000 and $2,000 and with 12 years of democracy already gone, their thesis places us within the 16-year bracket. The implication is that if we don’t pay serious attention to the economy, we run the risk of losing our democracy which is already showing distress signals. With that as background, Soludo offers interesting perspectives on what he described as the triumph of distributive oil politics. “The type of leaders thrown up under a democracy and the latitude they have for creative change depends upon the nature of the legal-institutional infrastructure and the incentive system. If it is a rentier system, no creativity is required to distribute rent. The politics of ‘turn-by-turn’ will continue to dominate as each section or group, believing that what they get from the system depends on their nearness to the ‘distributor’, will always clamour for one of their own to be on the driver’s seat. If it is a system based upon production, people will care more for who is best qualified to create wealth and guarantee ‘food on the table and prosperity’ for all. Citizens would care more about the ‘ideas and credibility’ of intending leaders rather than where they come from,” he said.

However, Soludo believes the past offers a better guide to the future: “Politics in the pre- and post-independence Nigeria before the oil boom was essentially developmental. The regions were the building blocks of the nascent federalism. Each region was largely fiscally self-reliant based upon key agricultural products: palm produce in the East; cocoa in the West; and groundnut in the North. Imperfect as the federal structure was, each region paid its bills and decided on the institutions that best served it. In the Eastern region, the University of Nigeria (with campuses in Enugu and Calabar) was built; farm settlements and palm plantations were built; public water schemes and roads were constructed. In the West, the University of Ife was built; citizens were empowered through access to education; cities were built and basic infrastructure provided. In the North, the Ahmadu Bello University, Zaria was built; schools and basic infrastructure constructed, and cities built. The point here is that the politicians understood that they had to invest in the productive capacities of their people as a foundation for future growth and prosperity. Because governments relied mostly on income taxes, accountability was relatively high. The emergence of oil as the dominant revenue source in Nigeria, together with the institutional arrangement for sharing the rents, has changed all these.”

Now what has oil done, especially to the states? Again, I defer to Soludo: “A governor of a state can afford to squeeze the industries owned by his political opponents. He does not need the tax revenue from the company. As for jobs, he could literally create any number he wanted in so far as the rents flowed. In a sense, there is no incentive to be productive or to actively promote production. The easier rents provided by oil and the distributive state structures means that a large proportion of the population is lured out of productive activities into briefcase-carrying ‘suppliers and politicians’—rent-seeking! The massive consumption involved in servicing the wasteful bureaucracies erected as distribution pipes of the oil rents means that there are little resources available for investment.”

In finding a way out of this problem, Soludo believes it is in the enlightened self-interest of everyone to realise that what we have now is unsustainable: “For many people, while the idea of consolidating states into six regions is appealing they fear that ‘the politicians’ will not want the current structure to be tampered with as this would diminish their power and relevance. This is a self-defeatist argument as in the long-run, it makes better sense to have one per cent of a successful conglomerate than to own 100 per cent of a failing kingdom. However, we could still achieve a lot under the current State structure by essentially enforcing the same principles as enunciated above namely; a new fiscal federalism that migrates from an unconditional grants scheme to a competitive, conditional matching grants scheme whereby oil and all natural resource rents are used exclusively for building bridges to the future--only for capital expenditure in human and physical infrastructure.”

The Constitution, according to Soludo, should be amended to enshrine fiscal responsibility and mandate fiscal viability for all federating units. This will entail that all federating units must, within a specified time-frame, start meeting all their recurrent expenditures from internally generated revenue. “An Act of the National Assembly on National Fiscal Responsibility should constrain ALL governments (states and federal) to spend at least 40% of their annual budget (without deficit) on capital expenditures, especially on infrastructure/power, education and health. Any deficit should be for specific projects that must have capacity to generate revenue to pay back. Nigeria needs a far learner but effective government. The change will not come through the normal course of present day politics: it must be engineered! To move forward, the debate must go beyond the confines of political parlours to the market place occupied by the citizenry” he argued.

This is a good idea but there are several contending issues to address. Given that we have been used to ‘Manna from Niger Delta’, how do we transit from the current rent-dependent system to the non-oil based fiscal regime Atiku, and now Soludo, advocate? What sort of transitional arrangement are we looking at? What should happen in the intervening period and how will states begin to generate their revenues? What about the social consequences of this idea and how will the public respond to such plan?

Anybody who has been paying attention to the Failed State Index, (and I am not talking about politicians who mouth the cliché ‘Nigeria is a failed state’ without an understanding of what they are talking about) cannot but agree that we have serious issues to deal with. But I am one of those convinced that President Goodluck Jonathan made a very wise choice by bringing back Dr Ngozi Okonjo-Iweala, not only to manage the Finance Ministry for him but also to coordinate his economic agenda. The resolve of his administration will, however, be tested in the coming weeks and possibly months with the 2012-2015 Medium Term Fiscal Framework (MTFF) sent to the National Assembly last week. I believe the conversation for the redirection of our economy has begun but my worry is that Nigerians are not being adequately engaged on this most critical issue.
• This piece was first published in THISDAY on 6th October 2011