• Friday, March 29, 2024
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How Nigeria’s 1999 Constitution is stifling economy

How Nigeria’s 1999 Constitution is stifling economy

Nigeria’s 1999 Constitution began with a lie.

“We the people of the Federal Republic of Nigeria having firmly and solemnly resolved, to live in unity and harmony as one indivisible and indissoluble sovereign nation under God…”

But Nigerians were never consulted in the negotiation for this ‘indissoluble union’ now hurtling towards implosion.

The disparate groups making up Nigeria were excluded in negotiation for the management of their resources, the security of their regions, and how power should be shared.

The consequence is a flawed union where some in the South are crying over marginalisation, while in the North, a region that priorities acquiring political power, many live in conditions that would put poverty to shame.

The concentration of too much power at the Federal level is an often acknowledged defect of Nigeria’s 1999 Constitution but its deleterious impact is felt the most in the creaky economy.

Read Also: Avoid taking the slippery slope path to constitution review

As the House of Representatives’ members collect the views of Nigerians to amend the 1999 Constitution, important economic reforms needed to improve lives may be buried under the din of renaming the country UAR.

Nigeria’s 1999 Constitution was hastily cobbled together by a military junta who piled power at the centre replicating the military’s command control structure and ended up reducing state government to mere appendages.

For example, Section 162 (1)of the 1999 Constitution, which prescribes that government income, apart from personal income tax, should be placed in the Federation Account and shared among the Federal, State, and Local Governments, has removed the incentive to save or for state governments to generate their own income.

Every month, state chief executives who should sail the ship of state towards progressive ideas to grow their economies run to Abuja cap in hand, groveling for allocations.

The Nigerian Extractive Industries Transparency Initiative (NEITI), a transparency watchdog, in several policy briefs has admonished politicians to create a healthy minerals savings fund, the size of which should reflect not only the volume of revenues from mineral resources but also the size of the national economy.

The term Dutch disease was coined by The Economist magazine in 1977 when it analysed the aftermath Netherlands’ discovery of vast natural gas in the North Sea, in 1959.

The newfound wealth and massive exports of oil caused the value of the Dutch currency (guilder) to rise sharply, making Dutch exports of all non-oil products less competitive on the world market. Unemployment rose and capital investment in the country dropped.

Over the course of three decades of an oil boom, Nigeria not only was infected with the Dutch disease but also tested the limit of profligacy as national policy. Now, it seems more appropriate to call it the ‘Nigerian Disease’.

For oil-producing nations, the global practice is to save some oil revenue for investments so that unborn generations can benefit as crude oil is a non-renewable resource.

Former President Olusegun Obasanjo began the Excess Crude Account in 2004 to save oil revenues above budget benchmarks and state governors balked.

But in reality, the funds saved are mostly inadequately ring-fenced and are too tiny to fully serve the intended purpose.

Last year during the outbreak of COVID-19, Nigeria’s three ‘rainy day’ funds – Stabilisation Fund, Excess Crude Account, Nigeria Sovereign Investment Authority (NSIA) – had about $2.25 billion, which could only fund about 7.7 percent of the revised 2020 federal budget.

However, Norway has a sovereign wealth fund worth more than $1 trillion. To assuage the impact of COVID-19 on the government’s earning, Nigeria withdrew $150million from its stabilisation fund but Norway cashed $37billion to care for its people.

NEITI also recommended abolishing the 0.5percent Stabilisation Fund and the ECA then transferring the balance in those accounts to the NSIA.

The transparency watchdog further advised Nigeria to abolish the Oil Price-based Fiscal Rule (OPFR), where revenue in excess of the oil price benchmark is saved and replaced with a mandatory saving of a percentage of daily oil production like Angola does, saving proceeds from 10percent of its daily production.

This ensures savings at all times, whether oil prices are high or low. Nigeria can save proceeds of between 5percent and 20 percent of its daily oil production.

With this, Nigeria could easily save between $1billion and $3billion every year even in periods of low oil prices but this will require that Section 162 of the Constitution be amended.

The VAT Act of 1993 introduced VAT in Nigeria to impose and charge tax at 5 percent on the value of goods and services supplied in Nigeria. The 2020 Finance Act first increased the rate to 7.5 percent.

It is administered by the Federal Inland Revenue Service and according to Section 160, revenue deposited into the Federal Account should be shared.

Revenue from VAT is shared among the three tiers of government in the ratio of 15 percent to the Federal Government, 50 percent to the State Governments, and 35 percent to the Local Governments.

Analysts say Nigeria’s VAT administration leaves little incentives for states to grow their economies. In sharing the revenue, the derivation is 20 percent, equality 50 percent, and population 30 percent.

“This makes it worse as equality and population make nonsense of derivation,” said Ayodele Oni, energy lawyer, and partner at Bloomfield Law firm.

This revenue-sharing practice encourages a governor to destroy alcoholic beverages in Kano and earn income from its sale in Lagos, while pretending to be pious.

If states were to live almost entirely by the strength of economic viability, religious fundamentalism and ethnic jingoism would not be hills corrupt governor will die on.

Nigeria’s 1999 Constitution also prescribes a retrogressive list of matters that only the Federal Government can legislate upon – railways, safety and policing, which are crucial to business, are left to a Federal Government that is distant and insular.

“Policing and police-related issues should go to the current list so that there can be state police. Without safety and security, investment inflow will always dwindle,” Oni said.

Nigeria’s deteriorating security situation speaks to the futility of a centrally controlled police force, limits funding, and partly accounts for why Ghana attracts more foreign direct investments than Nigeria.