Strengthening state economic management systems – Part 2

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. Ngozi Okonjo-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.

There are already statutory parameters in place before the Debt Management Office could approve foreign loans to states, but I would want such parameters strengthened such that Nigerian Governors who are close to the President would not use that relationship to get the ministry of finance and DMO to approve wasteful, unnecessary loans that in many cases are squandered on white elephant projects.

There are states in Nigeria who are unable to pay workers’ salaries, yet have taken out huge foreign loans to build stadia and secretariats. Projects that would not improve their financial position. We have seen in recent years that both Fitch and Standard and Poor’s have downgraded Nigeria just as the Egmont Group has suspended us. As one who worked very hard along with President Olusegun Obasanjo between 1999 and 2007 to bring Nigeria back from the brink and pay off our entire foreign debt, these negative indices bother me.

9. It is also imperative that our foreign reserves and revenue buffers are boosted to insulate the economy against adverse shocks and to strengthen countercyclical fiscal capacity.

We will streamline the operations of the Sovereign Wealth Fund, the Excess Crude Account and the Stabilization Account, which is currently embedded in the Revenue Allocation Formula for more effective stabilization outcomes.

Unless these stabilization vehicles are reshaped Nigeria will continue to be subject to the vagaries of the world oil market. Let me end by providing more detail on restructuring – even at the risk of me repeating myself. Restructuring Nigeria is no longer an option. It is a necessity. This is why I said

In February to Nigeria’s elite that ‘restructuring will not cheat you. It will free you.’Restructuring will foster the spirit of co-operation and consensus in a nation of diverse ethnic groups, cultures and religions. It is desirable, in fact you may even say it is required to establish, nurture and sustain a strong and effective democratic government. We must also remind ourselves that restructuring is not a new or strange phenomenon. A number of developing economies have had cause to restructure their economies, for greater efficiency or to correct imbalances or to reorient them towards, for example, more open and market-oriented systems with greater reliance on the private sector as engine of growth. Even the United Kingdom is restructuring its political and economic systems to enable a better union among its component parts. Businesses restructure for better performance. Even families do!

Faced with the reality of non-performance, Nigerians have clamored for the restructuring of the economy towards a more diversified structure. Similarly, in line with current global realities, citizens have come to appreciate that the old economic model, built on public sector supremacy is no longer a viable, sustainable option. They have therefore called for a re-orientation of the economy to leverage resources from the private sector and stimulate growth and development.
To be continued tomorrow
Being an address delivered by His Excellency, Atiku Abubakar, Vice president of Nigeria 1999-2017 at Royal Institute of International Affairs (Chatharm House)