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How Coronavirus, Fall in Oil Prices Will Expose Nigeria’s Faulty Federal Structure

There are palpable fears amongst senior government officials in Abuja and three recent events give credence to this assertion. On Monday, President Muhammadu Buhari in Abuja inaugurated a committee headed by the minister of finance Zainab Ahmed to “access the impact of the Corona Virus on the implementation of the 2020 budget.” The same Monday, it was announced that the federal government would be considering cutting the 2020 budget in the wake of the drastic fall in the price of crude oil in the international market in response to (a) the price war between Saudi Arabia and Russia and (b) fall in demand due to the impact of Coronavirus on the production lines in China, America, Germany and several parts of Europe. Then on Tuesday, the House of Representatives announced the setting up of an ad hoc committee to “recommend measures to address the continuous fall in price of crude oil at the international market due to the negative effect of Coronavirus disease (COVID-19).”

Palpable Anxiety

Minister of Finance, Zainab Ahmed

The setting up of committees by the executive and legislative arms of government to review how the emerging realities will affect the economy in the short to medium term tells an important story: Abuja is panicking. Things will certainly not be the same again.

Consider also a Tuesday report by Bloomberg that the Nigerian Central Bank will weigh the possibility of devaluing the country’s currency in view of the fall in oil revenue and the dwindling of external reserves which fell by $4.45 billion in 2019 according to figures released by the Central Bank of Nigeria.  The naira went into a freefall in 2016 hitting around N520/$1 in the first quarter of 2017. Will the naira go for N1, 000 to $1 by June this year? Will it be worse? How will this affect the average salary earner?  How about the estimated 65 million people who are either unemployed or under-employed? How can they survive the coming hard times which will see the prices of goods and services reach unprecedented levels?  Already, more than a hundred million persons currently live below the poverty line. Can they still muster the courage to go on if a cup of rice goes for N500 per cup and fuel becomes available at double the rate we get it today?

A Strange Federation

Revenue from crude oil is the mainstay of the country’s economy

One of the bizarre realities of the Nigerian federation is that it is the only federal system in the world where states converge at the capital every month to share revenue from oil and taxes. Sadly, more than 75% of the states which share the nation’s revenue every month contributed less than 5% into the purse over the same period. Remove revenue from oil in Bayelsa, Rivers, Delta and Akwa Ibom and tax earnings from Lagos and Port Harcourt from the national treasury and what would be left in the treasury may not be enough to foot the transport and accommodation bills of the scores of people who take up the choicest rooms in Abuja and fly first class between the 15th and 18th of every month.

With oil revenue likely to fall to a 20-year low in the coming months and not much coming from the tax man as businesses struggle to stay afloat, things would definitely not remain the same for the commissioners of finance and their teams in the states as the realities begin to bite.  How will salaries be paid? Will ongoing infrastructural projects be abandoned? How much more can be sourced by way of borrowing? What social services will be suspended? Education? Health?

Beyond the Anxiety

Kaduna State Governor, Nasir El-Rufai

While this is a time of great anxiety, it is also a time to imagine what could have been? What if the country had diversified its income base over the years? What if the constitution had been amended to make the states competitive?

Pray, Governor Nasir El Rufai did once claim that Kaduna has more diamond deposit than South Africa, why then is there no known effort to develop these abundant diamond mines to make them veritable source of earning for the state and the country?

It was speculated in the wake of the violent attacks on Zamfara natives by armed gangs last year that the killings were instigated by cabals seeking to gain absolute control of the state’s gold mines. What has stopped the development of this important mineral for the benefit of the entire country?

Beyond Kaduna and Zamfara, the fact is that there is no state in Nigeria without a huge mineral deposit that can sustain its economic survival and even growth. Shamefully, the existing law creates a disincentive to the development of those mineral resources.

Isn’t it strange that in states like Kano where Sharia law is operational, sale of alcohol is prohibited and in fact containers used in storing alcoholic beverages are destroyed every now and again in the full glare of the public.  Curiously, these states in the north-west and northeast would still send their delegates to Abuja every month to share in the proceeds of VAT paid by breweries in the south.

The communities in the south bear the environmental and social impacts of the production of crude oil, alcohol beverages and just about every economic activity that fetches money for the federation. However, by the 15th of every month, states (including some in the south also) officials troop to Abuja to “share” revenue.

What impact would a constitutional amendment that allows states keep at least 90% of their tax revenue and contribute 10%  to Abuja have on state’s competitiveness?  Would Zamfara leave its gold mines to criminals if the law is made to allow states keep the bulk of their solid mineral revenue?  Think about the revelations from the Kaduna state governor. Is it possible that El Rufai will do nothing about the “rich diamond mines” in Kaduna if he learns that there would be no Federal Accounts Allocation Committee Meeting in Abuja next month?

Haunted by a national culture of irresponsibility

Promises to diversify the economy are common at campaign rallies

Since the 1980s, officials in Nigeria have not stopped talking about economic diversification and moving away from over-dependence on oil. Decades after, the country still relies on crude oil for more than 70% of its revenue.  Is it not silly to think of locking the stable after the horse had bolted?

What can the various committees in Abuja and the ones the states will definitely set do in the wake of what looks like an economic and social Armageddon? Borrow more money? That’s unlikely. The nation’s debt profile is in excess of N30 trillion. The Western creditors know that the nation’s economic fundamentals are weak and with oil prices falling steadily, making a case for a new trench of loans by Buhari’s economic managers may be a fool’s errand.

The APC-led federal government announced in 2015 that agricultural growth and promotion would be a cardinal objective of its administration. What it failed to realize is that no one farms in an unsecured environment. With more than 20 thousand Nigerians killed in the last five years across farming communities in several parts of the country, not many people consider agriculture as a venture worth their consideration.

It is clear that the government has lost grip of the security system and it does appear that several regions have been surrendered to murderers and other criminals. What recommendations can Buhari and the House of Reps committees possibly give to mitigate the food shortage the nation is bound to suffer in a season of low revenue?

Many will be paying attention.

What if a sincere war against corruption had been waged?

Corruption is largely responsible for poverty, unemployment and other social vices in the country

Corruption has been pointed as the most vicious menace plaguing the country. Transparency International recently ranked Nigeria as the most corrupt country in the West African region and one of the most corrupt in the world. Several estimates puts the amount of money lost to corruption at somewhere between 20%- 40% of state and federal revenues.  Spare a moment to consider the gargantuan sum this figure represents and what it could have done for the country’s development. This is a time to think about how much could have been different if a sincere effort to fight corruption had been put in place a few years ago.

There is no easy or quick way out. Nigeria is in a mess and the bureaucrats who failed to offer a sound economic road map over the last five years cannot be relied upon to navigate a sinking ship out of the present danger.

The most reliable help that can come to Nigeria can only come from outside its shores. It is either we hope for a quick resolution of the Russia/Saudi imbroglio or even better, a disappearance of the Corona virus. Then and only then can we heave a sigh of relief. If any of those or the two happens, the country shall be faced with two options: awaken to the urgency of a holistic economic reform or continues on its reckless path.



The views expressed in this article are the author's own and do not necessarily reflect ROOT TV's editorial stance.


Okafor Chiedozie
Okafor Chiedozie is an economist, political writer and amateur Igbo historian. He pursues these and other interests out of Abuja.