Importance Of Strengthening State Economic Management Systems

Importance Of Strengthening State Economic Management Systems

Monday, April 30, 2018 3:25 pm

Atiku abubakar at Chatham House

By Atiku Abubakar

I thank the Royal Institute of International Affairs for giving me this platform to speak to such a distinguished audience. I specifically want to thank Dr. Alex Vines for inviting me to give this address.

I particularly want to thank Nigerian nationals who are present here today. Your love for Nigeria is evident in that you have left your regular pursuits to be here to interact with lovers of Nigeria on issues that, if implemented, will lead to the progress of Nigeria. Your presence inspires me.

To friends of Nigeria here present, I appreciate your friendship and it is my strong desire that our collective wish to see Nigeria fulfill her potentials are realized in the not so distant future.

I am a widely traveled man, and everywhere I visit around the world, there is agreement that Nigeria has the potential to make that leap from third world to first that Singapore, under Lee Kuan Yew, made. We have the human and material resources required to make the leap and in fact, many of our nationals have helped other nations make that transition.

And it is not that we have not made progress, after all, within a decade we were able to move from being the third largest economy in Africa to being the largest bar none.

Yet, there is still that consensus that we are not meeting up with our potential and all things considered, that verdict is true.

The question becomes why is Nigeria not living up to the promise of her potentials?
More specifically, why are we saddled with a heavy and almost unsustainable debt burden twelve years after President Olusegun Obasanjo and I provided the leadership that paid off Nigeria’s entire foreign debt of $32 billion in one fell swoop?

After paying off a monumental debt accumulated by previous governments, then President Olusegun Obasanjo on April 22, 2006 said “Nigeria will not owe anybody one kobo”. Today, almost exactly 12 years to the day, you can almost say ‘Nigeria is now owing everybody more than one kobo’.

What happened in the intervening years to turn the dream that our administration had, into this present reality where Nigeria now owes double what we paid off in 2006?

In talking about the Importance of Strengthening State Economic Management Systems, we
must identify the structural defects in Nigeria’s federal structure that prevents all levels of the Nigerian government, federal, states and local governments, from operating at optimal levels.

After nineteen years of uninterrupted democracy in the fourth republic, it is now an indisputable fact that today’s Nigerian states essentially have been reduced to parastatals of the Federal Government and are addicted to the monthly allocation they receive from Abuja.

There is nothing as addictive as states that are dependent on their monthly share of revenue from crude oil sales and the only way to get them to manage their economies in an economically viable way is to cure them off that addiction. Nigeria needs to be restructured. We must commit to a new development agenda with focus on wealth creation by the federating units, rather than wealth distribution from Abuja to state and local government capitals. We must undertake far reaching economic reforms to attract private resources, including financial resources and build bigger, stronger and more dynamic sub-national economies. We must expand the frontier of private sector activity beyond the realm of the oil sector and build a new Nigeria without oil.

If oil could save a nation then surely it would have saved Venezuela, the nation with the largest proven reserves of oil in the world. But you and I know what is up with Venezuela and if oil has not saved her, it will not save Nigeria.

If we want to help states strengthen their economies, we must come up with creative ways to encourage them to look inwards rather than outwards.

Before we outline the steps we will take to support the states, we remind ourselves how we got to where we are.

1. We have promoted, tolerated and indeed celebrated a defective political structure. The federalism we practice is not smart. We politicized the creation of states and local governments over the years. States and local governments became too weak to meet their constitutional responsibilities and consequently the Federal Government emasculated them and took away those responsibilities which belong to them. Many of the states are small, subsistence economies with very limited capacity to sustain growth and lift their citizens out of poverty. It is therefore very attractive for these states and local governments to become addicted to revenues from federation accounts and to care less about their internal revenue opportunities. As a result, combined Internally Generated Revenue from all the 36 states came up to less than 1% of Nigeria’s nominal GDP and less than 12% of their 2016 budgets! Internally generated revenue is far less than what the states require to run their administrations – and many state and local governments survive by consuming more resources than they can generate internally – thanks to the generous ‘handouts’ from the federation accounts.

2. We allowed crude oil to ‘crowd out’ the non-oil sectors which were Nigeria’s lifeline in the 1960s and 1970s and celebrated the windfall from oil exports – which resulted in a steep rise in the volume of funds allocated to all tiers of government in the federation. We preferred to survive on rent than on hard, productive efforts. We were too drunk to remember to build a revenue buffer – for the proverbial ‘rainy day’. There has been no effective revenue stabilization programme and effective strategic planning to cushion the effect of falls in the price of crude oil.

3. We lived on another structural fault line for too long and pretended all was well. The Nigerian economy remains fragile and vulnerable to the vagaries of the global oil market, making the fiscal position of the national and sub-national economies become precarious. However, this faulty economic structure has always been shielded by increased revenues from crude oil sales. Its deficiency is only exposed when global oil prices collapse with impact on investments, consumption and growth.

Now the big question: what can we do to help the federating units strengthen their economies?

1. There is no alternative to a policy which promotes the growth and diversification of the sub national economies. How much revenue they generate locally from taxes and fees depends on the size and structure of their economies. The bigger and more diversified the better. The federal government will create a business-friendly macro-economic environment, through the pursuit of appropriate monetary and exchange rate policies, to leverage private sector investments especially in agriculture to promote economic diversification. Indeed, achieving diversification is central to our economic development strategy. Let us begin to visualize Nigeria without oil or one not predominantly dependent on hydro-carbon.

2. Our economic policies will be coherent, consistent and therefore more predictable by the business community. Nothing could be more threatening to investment flows than an environment that is full of policy flip-flops.

3. We will ensure spatially balanced investments, through a carefully designed incentive regime, in order to provide more opportunities in the poorer and less endowed federating units.

4. The sub-national economies will be assisted in reforming their economic management institutions, including the revenue generating agencies which are seen by many as failed and ineffectually managed institutions within the state service. They need to be reformed and strengthened to make them more innovative and efficient in service delivery. The reformed agencies will be expected to improve tax-payer compliance, develop potentials of non-tax revenue sources and block all leakages associated with tax administration.

5. Beyond institutional and administrative reforms to improve operational efficiency of the
revenue agencies the federating units will be challenged to double their efforts in rebuilding the fiscal-social contract, by enhancing service delivery in key areas such as health, education, water supply and infrastructural development. Only this would change the predominant perception that government revenues are diverted to the private bank accounts of politicians and their cronies.

6. And it is for the purpose of making states lose their addiction to federal allocation, to make them look inwards, and return to the healthy competition of 1957-1966, when Nigeria practiced her unique brand of true federalism known as regionalism, that I suggest the introduction of matching grants to states, that have succeeded in increasing their internally generated revenue.

My idea is for the introduction of Matching Grants to be taken from the revenue accruable to the Federal Government for the purpose of matching the Internally Generated Revenue of each state in order to encourage states to become self-reliant. If I have my way, the Federal Government will match state’s IGR up to $250 million per state.

Even with this policy, the Federal Government will continue to offer support (in the form of intervention programmes) for states that rank below the average development index, until such a time as they are able to become self-sufficient and sustaining.

7. In furtherance of strengthening their economic management systems, another policy I would recommend to Nigerian state is to follow the example President Obasanjo and I laid between 1999 and 2007 when we privatized and liberalized many aspects of the Nigeria economy. It had the almost immediate effects of reducing our wage bill and increasing services, capacity and jobs in the private sector.

By privatizing those state government owned public enterprises that gulp huge sums by way of recurrent expenditure yet give little returns by way of return on investment, state governments can free more of their revenue from recurrent and devote it to capital expenditure.

8. We will promote and insist on fiscal efficiency at the federal level to lead other tiers of government by example. The states will be challenged to adopt sound fiscal management strategy so as to reduce wasteful spending. Many view government spending as wasteful, imprudent and lacking in priorities. Typically, recurrent costs constitute between 60% and 72% of state and local governments.

As I said in a recent interview, if I had the opportunity, I would disrupt Nigeria’s budgeting process. We would have a budget heavy on capital expenditure. Roads will be built in every state. Mass housing schemes would pop up in every local government area. Railways will be extended to every state capital. Rivers would be dredged to open up the hinterlands of the North. Licenses would be given to state governments to begin immediate exploitation of resources in their jurisdictions.

While this is happening on a macro level in the Federal Government, I would create the enabling environment for this to be done on a micro level in the states.

When citizens are working, especially in construction and the service sector, the economy benefits because they pay more taxes, they utilize their increased purchasing power in buying goods and services, which improves Value Added Tax revenue and helps the private sector. The multiplier effects are almost limitless.

I am not talking about what can happen. I am talking about what is currently happening in Rwanda. According to the International Monetary Fund, Rwanda’s economy is expected to grow by 7.2 per cent in 2018. This is an economy that already grew by 6.1% in 2017. Their growth is being driven by the services sector, construction and tourism.

In my private capacity, I am already doing this. There has not been a year in the last twenty years that I have not set up a new enterprise to employ Nigerians. The latest being that we brought the Chicken Cottage franchise to Nigeria which will be creating direct and indirect jobs all across the country.

If states are to strengthen their economic management system the Debt Management Office, which our administration set up in the year 2000 to centrally coordinate the management of Nigeria’s debt must be given more independence than it already has. The head of the DMO must be a person with proven ability to say no to powerful persons otherwise the states will keep on borrowing at an unsustainable rate as we see in today’s Nigeria.

In her just released book: “Fighting Corruption is Dangerous –The Story Behind the
Headlines,” Dr. Mrs. NgoziOkonjo-Iweala, former Managing Director of the World Bank and two time Nigerian minister of finance and coordinator of the economy, who served during my time in office, revealed that she almost got beaten up by a particular Governor at a meeting of the National Economic Council, because she would not approve his request to take out more foreign loans for his already over indebted states.

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