Non-oil Producing States and Growing Socio-Economic Crisis

By

Murtala S. Sagagi Ph.D.

Department of Business Administration, Bayero University, Kano

sagagims@yahoo.com

Preamble

Prior to the discovery of massive oil reserves in the 1960s, the North and South West were the richest geographical zones in Nigeria. Over the years, the South West is able to sustain relative growth and poverty reduction through massive human capital and infrastructural development. The North has not been so fortunate. This is partly because majority of the states in the North operate with the simple belief that resources are meant for distribution and not as a source of building economic and social capital. This mindset has invariably cost a number of non-oil producing state in the country the chance to grow and remove people out of poverty and misery. The objective of this paper is to show (using data across the country) that reliance on the fortunes of the Niger delta is a weak foundation for achieving development. With a renewed focus and strategy non-oil producing states in Nigeria can thrive and develop amidst prevailing social and economic challenges.  There is no gainsaying that spread of economic opportunities across the Country remains the only chance for Nigeria to enjoy sustained development and peaceful coexistence.

The Problem

Many believe that culture plays a significant role in underdevelopment. This could be true where leaders promote backward thinking and failed to advance strategic thinking. Northern states in Nigeria have a unique problem of resource misapplication and lack of policy direction while the South eastern states are bedeviled with massive corruption and crime. These human made predicaments (not the culture) are responsible for slow growth in these regions. For instance, Borno State failed over the years to utilize the advantages of its nearness to the borders of Niger republic, Chad and Cameroon to achieve economic diversification leading to growth. Also, the budgets of many states lack connection with economic development and poverty reduction. Consider the budgetary allocation of Kano State to parastatals in table 1. The budget for Hajj sponsorship to political allies and subsidy (N797 million) is more than the combined budget of the Scholarship Board, the State University, Board of the disabled, small and medium scale enterprise promotion and others listed. How can poverty be reduced through prayers? It is rather unfortunate that the leaders of many northern states have (mistakenly) conditioned the mindset of their people to think “why worry to strive when you can pray”.

Table 1: Subvention to Parastatals

Source: Approved year 2005 budget of the government of Kano state.

In the South, I wonder whether they do have budgets. Save for the South west, both the oil and the non-oil producing areas manifest a tendency to concentrate wealth in the hands of a privileged few and neither in the infrastructure nor in schools or hospitals could one justify their federal revenue allocations. Thus, idleness and despair (not culture) are the main reason for crime epidemic and hopelessness in the South.    The main issue is not the size of the federal allocation to a state but how well such funds are put to productive use. Table 2 below may paint a picture of how the most populated non-oil producing state failed to combine abundant human resources with their federal allocation to generate economic growth and poverty reduction. Even with the 13% derivation, the Niger delta has failed to improve infrastructure, security and human capital. Therefore, one begins to wonder whether Nigeria, in reality, is run by the humans or the ‘homo erectus’.

Survival  Strategy

Corruption is not the only factor thwarting progress in Nigeria.  Other factors also play a deadly role. I don’t work for Economic and Financial Crime Commission (EFCC), but the national survey conducted recently indicates that Kano State is one of the least corrupt states in Nigeria. However, the poverty level in the State is above the national average of 54.4%. The point is that high poverty in Bauchi, Kano, and Katsina states has more to do with lack of focus on growth than with corrupt practices. In spite of huge investment potentials, these states lack the resourcefulness to generate growth.

Table 2:  Net Federal Revenue Allocation to oil producing states and ten other most populated States in Nigeria*

Source: Author’s computation of data from the Federal Ministry of Finance, 2007; Federal Republic of Nigeria Official Gazette 4 (94) January, 2007) and NLSS, 2006.

*Most populated states here refer to states with population of four million and above.

To buttress this point clearly, consider the internal revenue generation of four states in table 3 below. The average percentages of internally generated revenue in relation to the federal allocation were between 5-9 percent for most non-oil producing states. Kano was able to slightly exceed 10% in 2004 due to aggressive revenue generation efforts. Lagos was the only exception. From the interviews conducted, Lagos has used its vast potentials (and expertise of consultants) to build robust revenue base that is somewhat at par with its federal allocation. Without strong revenue base, effective revenue collection mechanism (perhaps using e-government, banks, or private collectors) as well as the right policy direction/discipline to deploy resources wisely, no non-oil producing state can guarantee its own future prospect.

Table 3: Internally generated revenue

Source: States’ ministries of finance

Redirecting local government administration

First, development has to be moved closer to people. We found no evidence what so ever on growth and poverty reduction strategy in the 15 LGs studied. Many local governments are over staffed and most of the projects executed are substandard. Audit departments and ministries of local governments have failed in their responsibilities to ensure sanity in LG administration. This is disturbing considering LGs share of federal revenue. Evidently, there is no local government in Nigeria that received less than 600 million in 2006. Any local government with a 5 year vision has the capability to produce at least 30 professionals in various fields. Again, with active public-private partnership, a number of small and medium scale businesses can be promoted annually. Education and entrepreneurship development are the yin yang essential for poverty reduction and growth.

At present, only few LGs administrators can free resources necessary for growth and development because that may offset some powerful people who are accustomed to making easy money from public resources. For this, I recommend the establishment of a Joint Development Trust Fund to be managed by credible experts from the private sector in each state. The Trust Fund is to be funded by an agreed percentage from states and LGs federal revenues. It can also attract funding from the private sector, foreign investors and international development agencies.  In order to be effective and sustainable the Fund should be backed by appropriate legislation. The mission of the fund is to map out development priorities over a period of time and device a strategic plan with effective monitoring and evaluation. The Fund managers may also advise on budget, internal revenue generation and general improvement of investment climate and peace.

Table: 3 Net Federal Revenue Allocation to local governments in selected states for 200

Agricultural transformation

More than 60% of people living in non-oil producing states are peasant farmers. It is observed that the land per person is too small and it keeps shrinking from generation to the next. Because of low productivity the yield could not sustain a family for more than 4 months and because of low opportunities in rural areas individuals migrate to cities. Over the years, agricultural policy of state governments has failed because it merely served the interest of importers of fertilizer and other inputs. States spent between one to four billion naira annually on the procurement and distribution of fertilizers. Unfortunately, according to a Federal government survey more than 70% of farmers in northern Nigeria obtain their fertilizers and other inputs from the open market. An interview with major farmers and top civil servants reveals that politicians and their associates are the main beneficiaries of fertilizer import business and often they sell their allocations in the open market or resell the merchandize to the government.

Revitalizing agriculture requires land reform, year round food production, promoting large scale commercial farming, institutional funding, and embedded processing. Encouraging processing and light manufacturing in rural areas would absorb farmers who would likely be displaced by large scale farming methods. When resources are freed from fertilizer imports, massive irrigation structures, extension services and support can be funded. Again, a number of states have agricultural supply companies. Some of them have the capacity to use local expertise and resources to produce agricultural inputs such as pesticide, seedlings, implements and fertilizers. With active public-private partnerships these establishments could be resuscitated and be made competitive. In the short run states may utilize credible merchants in the procurement of affordable inputs without over stretching states resources.

Refocusing of Industrial growth

A society can not develop simply becomes of its accomplishments in agricultural transformation. This is because returns in agriculture tend to be much lower than in most other sectors. A speedy growth of the industrial sector requires power to energize it and the will to sustain growth. Independent Power Project should be vigorously pursued by states. The project could better be executed jointly among neighboring states. Where there is significant private sector participation, a state may decide to go solo. Nnewi in Anambra state has succeeded in becoming the old Taiwan while Ogun State has benefited from massive Foreign Greenfield Investments. Other states need to make their investment climate right in order to attract investors. With active public- private sector dialogue any state can develop its own competitiveness and industrial policy.

Growth of formal sectors

There are areas where policies not big budgets are required to boost growth and reduce poverty. Among them are enterprise promotion and building a viable formal sector. Any state that so wishes can provide an enabling environment for the entrepreneurs to produce enormous wealth. Today, many businesses in Nigeria are not registered. Government is denied of substantial revenue from taxes and business registrations fees by the failure to create a strong formal sector. In the 21^st century, people and businesses need to be reoriented on the need to unlearn past ineffective practices that are mostly based on history and traditions. A comprehensive programme should commence to ensure that genuine businesses are registered, supported and streamlined not just for the revenue but also to sanitize towns and cities from chaos emanating from the nuisance of petty traders.

 Conclusion

Many leaders still operate with a dated mindset regarding their role in the society. They have failed to prepare people for necessary and inevitable change. People hardly know what they really need; they only know what they want. The job of a leader is to push people outside their comfort zone in order to reach a new stage of development. Sadly, while the world is heading fast towards the Space Age some of our practices still replicate that of the Stone Age. The task of economic transformation may look difficult for a politician yearning for votes, but using the right strategy it can and should be done.