Fiscal federalism and economic recession

Written by the Editorial Board of The Guardian Newspaper

Nigerian state is, with scientific and statistical precision, in recess after six months of consecutive negative records (two quarters) in Gross Domestic Product (GDP). It cannot be denied that the present Nigeria’s economic explosion is a “cyclical burst”, which origin is traceable to the “missing gap” or “failed wisdom” during the period of “boom cycle”. Neither is it a sudden explosion when the National Bureau of Statistics is there to release quarterly economic reports on the direction and health of the economy.

When a man is sick, appropriate diagnosis is applied, the symptoms are identified and studied and the ailment is arrested or terminated with a corresponding therapy. It stands to reason, therefore, that the economic challenge facing the nation at the moment that has adversely affected the states and local governance can be tackled well enough through commitment to economic diversification in the states. Certainly, going to the centre to share oil revenue every month would not solve the problem.

The hard time of the economic downturn, some argue, is a blessing in disguise as this is convertible into variables for a knowledge-based economy. Now there are infrastructure deficit, global oil glut, devaluation of naira, surging inflation, unemployment, high foreign exchange rate, poverty and insecurity, state governments must retrospectively learn from the bitter experience of economic adversity; invest in infrastructure holistically and cut costs as well as entrench discipline in all institutions of the state with a view to increasing productivity. The state governments have not been creative in these areas. They have been quite reckless but this cannot continue for the most populous black nation in the world.

It would be recalled that as at 2013 when oil prices were about $100 per barrel, states were very rich with Akwa Ibom getting as much as N260bn from the Federal Government; Rivers State N260bn; Delta, N209bn; Bayelsa, N73bn; Lagos,N68bn; Kano, N140bn; Katsina, N103bn; Oyo ,N100bn; Kaduna, N97bn and Borno, N94bn. But with the advent of economic recession, states like Bayelsa would get monthly allocation as abysmally as N1.6bn and other states with relatively very low allocation.
The Minister of Finance, Mrs. Kemi Adeosun blamed the paltry allocations to states on the fall in the prices of crude oil from $39.04 in December 2015 to $29.02 in January 2016. This is the whole truth.

However, ‘recession’ has made a statement and a word is enough for the wise. The blame game on the fall in crude oil prices is unconscionable because at the core of why recession could be so devastating from the outset is the ineptitude of the government in failing to save during the boom period. Certainly, the state governments cannot continue to rely on bail-outs instead of restructuring to avoid future insolvency. The years of locusts (waste) should be over now. Creativity and strategic planning are what this season demands, not economic summits’ rhetoric.

Recession has made it imperative for states to cultivate the culture of fiscal independence and responsibility. Agriculture used to thrive in all seasons in the tropical and sub-Saharan Africa including the states in the Northern and Southern parts of Nigeria, before the quantum of oil production in the Niger Delta over shadowed agricultural productivity in Nigeria. Now it is time to prioritise agriculture and agro-based businesses in all the states of the federation.

Incidentally, nature has been faithful to us in Nigeria. From groundnut and millet farming and cotton production in Kano, to palm produce in the South East, from timber and rubber in the Delta State and Edo State to cocoa farm in the South West Zone, Nigeria can be an economic powerhouse.
Exploiting these natural resources can generate substantial export earnings in dollars to sustain economic growth, eliminate inflation, increase foreign reserve and raise the value of naira in the foreign exchange market.

In the main, that agriculture and agro-based businesses can return as the mainstay of Nigeria’s economy cannot, therefore, be over-emphasised.Green revolution as the ideology for agro-business, agro-earnings and agro-self-reliance is currently evolving in parts of North West as well as Lagos, Ebonyi and Anambra states. Cross River State has empanelled the Calabar garment factory and other revenue earning initiatives. Other states must out of necessity explore and exploit their areas of competitive advantage now because necessity is the mother of invention.

Although agriculture has the potential of strengthening the states fiscal solvency, another means of raising internally generated revenue is the tax system. But sadly, tax evasion, multiple taxation, middle men syndrome in tax collection, over-dependence on oil revenue and bailouts from the Federal Government have eroded the capacity of the states governments to generate revenue through this reliable stream. Taxation is a legitimate and legal instrument of raising revenue and therefore, should be systematised and institutionalised.

The lame duck nature of the tax system in Nigeria is not only the area the states have demonstrated ineptitude and inertia, local government mal-administration is one other area of failure. In more than 90% of the states, local government councils are just white elephants and conduit of wasteful spending in salaries not matched with productivity.

Most state governments and local councils in the country cannot fiscally justify their existence. And in their comatose state, the workers sleep during official hours and at the end of every month they collect salaries they never earned. One of the tasks of state governors in this adverse economic situation should be to revitalise the local government system for efficiency, productivity, inclusive and sustainable growth while eliminating all elements of wastefulness, below capacity utilisation and excess bureaucracy in the three-tier federal structure. It is a common knowledge that diversification is only structural but requires political will, discipline and financial accountability for consolidation.

A corrupt system thrives where a lot of people live on unearned moneys and salaries, where they live ostentatious life-style and where there is a sort of scramble to steal from the government purse. Therefore, it is an irreducible moral minimum that the state governors must task themselves in cutting cost so that they can invest in human, material, and productive resources in the real, corporate, agricultural and educational sectors.

Finally, the state governors should recognise that private business and enterprises are very important to diversifying and improving a country’s productive capacity. They should, therefore, encourage entrepreneurship through micro, small and medium enterprises, which are vital contributors to states’ economic growth, self-reliance and development. Entrepreneurs create jobs and reduce poverty, and facilitate healthy competition, which improve the lives of the people.

This is one other way economic recession can be tackled through fiscal federalism as a fundamental objective of state policy. As originally defined by Musgrave (1959) and Oats (l972), “fiscal federalism” concerns the division of public sector functions and finances among different tiers of government. It is nothing to be feared.