The Nigerian constitution is designed to collect and share oil rent and has little or no incentive for the growth of a productive economy, Charles Soludo, a former governor of the Central Bank of Nigeria has said.
Mr Soludo made this known in an essay titled: “The Political Economy of Restructuring the Nigerian Federation”, which he read at a lecture organised by the Ndigbo Lagos Foundation in Lagos on Wednesday.
Mr Soludo, whose lecture focused on restructuring, said prosperity in every society is usually tied to the role accorded the economic institutions. Therefore ”if Nigeria desires prosperity to the generality of its people, a new Constitution with incentives for the prosperity of the mass of Nigerians will have to be written”.
“Our thesis is that while other considerations may be important, the overarching case for restructuring is economic: restructuring should provide the necessary foundational meta-level socio-political-governance architecture for the emergence and sustainability of a secured and prosperous post-oil economy.
“Context and history matter, and building progressive institutions is a continuous work in progress. However, subjective one may view institutions, we can still recognise a good institution as one that unleashes and maximises the creative energies of the people for the promotion of the highest possible security, prosperity and happiness of the people.
“We argue here that Nigeria’s meta institution, its Constitution (legal-political-governance architecture) is designed to share and consume the oil rents and has perverse incentives for a productive economy,” he said.
The former CBN governor said by its reliance on oil rent, mass economic prosperity in the country is being truncated by the twin malady known as the Dutch Disease and what he termed the Lottery Effect.
“Oil or natural resource boom is known to cause the appreciation of the real effective exchange rate thus harming the economy, and this has been referred to as the Dutch Disease syndrome. Ours is beyond the Dutch Disease. We also suffer what can be described as a Lottery Effect—a syndrome whereby a hitherto hard working person wins a lottery, quits his job and restructures his family’s lifestyle around the consumption of the lottery money; breeds more children and each with guaranteed allowance from the lottery money; and centralises decision-making in the family such that the children never have the experience to take up challenges and mature in the process; etc.
”At adulthood, the children have developed a dependent/entitlement mindset and the ageing dad can no longer cope while the lottery money can no longer service the bloated lifestyle. Instead of the Lottery windfall aiding the family, the arrangements designed to utilise it might turn the Lottery into a curse,” Mr Soludo said.
He said the reason several attempts by past government to diversify the economy has failed was because of the structural defects.
“When oil price goes up, we celebrate and the economy booms, and when it falls, the economy slumps and everything goes burst— salary arrears, exchange rate collapse, inflation, output stagnation, poverty and unemployment soar, etc. It still accounts for more than 90 per cent of Nigeria’s export and foreign exchange earnings and more than 65 per cent of government revenue. Something has to give!
“Having defined institution partly as an incentive system, it is our view that Nigeria’s federal structure (its state and local government creation) and more so its fiscal federalism constitute a set of perverse incentives for competition and productivity. The current state structure has been largely a response to political pressures, especially the agitation by the elite for their respective empires—the so called marginalisation arguments,” he argued.
Mr Soludo therefore proposed a restructuring of the country’s political structure that will start from the drafting of a new “progressive Constitution”.
He then proposed a change of the political governance, devolution of powers and fiscal federalism.
“Political-governance arrangements that ensure participation and ownership of the Nigerian project by all segments of the federation—a stable and more efficient system which is fairer, more equitable and just.
“Devolution of powers according to the principle of subsidiarity and variable geometry-away from the current system of unitary-federalism, with its suffocating concentration of powers and responsibilities at the inefficient centre; and fiscal federalism that is consistent with (b) above and which alters the incentives faced by economic and political actors, thereby unleashing the competitive spirit, hard work, innovation and efficiency which are the hallmarks of prosperous economies of the future.”
Elaborating the above further he proposes, a “dismantling and recoupling several of the institutions that help or hinder us, including a serious re-examination of the 36 state structure as federating units vis-à-vis their fiscal/economic viability or their consolidation into six or more regions with economies of scale and higher investment rates.
“Multiple vice-presidency representing respective regions other than the region of the president, each with supervising powers over certain ministries to ensure equitable representation at the federal cabinet (the Central Bank has four Deputy Governors for instance).
“Principle of equality of regions; multivariate judicial systems with state/regional appellate courts up to regional supreme courts while the federal supreme court becomes the constitutional court— and this is to decongest the centralised system and guarantee speedy dispensation of justice; introduction of commercial courts for speedy resolution of commercial disputes; institution of merit and equal opportunity principle.”
He also called for the abrogation of the Land Use Act of 1978, the Solid Minerals Act, as well as the various Petroleum/Gas Acts and amendments, and return the right of ownership, control and exploitation of these assets to the federating units.
“In turn, they should pay appropriate taxes to the federal government. Nigeria urgently needs a new Fiscal Responsibility Act to constrain irresponsible fiscal behaviour and incentive to create wealth. We must restructure to ensure that never again shall we need a wholesale bailout of state governments,” he said.