The paradox of a federal state with a unitary economic management model has been cited as a major reason Nigeria is yet to achieve economic diversification, despite effort by successive governments.
Abraham Nwankwo, an economist and former director-general, Debt Management Office (DMO), expressed this view in a speech he delivered at an international conference organised by the Faculty of Management Sciences, Nnamdi Azikiwe University, Awka, Anambra State, on Thursday.
A country that is practicing federalism should “naturally incline towards economic diversification,” Nwankwo noted, but posited that the subsisting arrangement in Nigeria had worked against that expectation and renders the system a sharing one rather than a producing one.
According to Nwankwo, Oil revenue that accounts for between 75 and 80 percent of public revenue over the past four decades is adjudged owned by the federation and not the sub-national territories where they occur.
But following the unitary approach to administration entrenched by military governments for about 30 years starting in 1966, the 1999 Federal Constitution requires that such revenue be moved to the federal treasury, from where it is shared to all the governments according to the prevailing revenue allocation formula.
However, Doyin Salami, CEO, Kainos Edge Consulting Limited, said in Lagos that the Nigerian economy was diversified in terms of output, and where diversification effort should focus on was on revenue sources.
The 46 sectors of the economy need to grow faster, Salami said, saying, “We as a country need to see what role technology can play in modernising this economy.”
“The sharing formula has nothing to do with useful contribution to the revenue but is rather based on such factors as population, school enrolment and land mass. This economic model encourages allocation and sharing rather than production and saving,” Nwankwo said.
While Nigeria’s political arrangement is federalism, the economic arrangement is essentially unitary, which is a major factor inhibiting economic diversification.
The unitary management of the economy in a federal state had led to a few in congruencies, which are symptoms of sustained economic mismanagement, he said, but stressed that this “disorder” must be addressed to achieve economic diversification.
To achieve economic diversification, he urged the government to address some of the in congruencies which include “The non-oil sector which contributes more than 91 percent of GDP contributes less than 20 percent to export earnings while oil which contributes less than 9 percent to the GDP contributes more than 80 percent to exports earnings, the big non-oil sector contributes less than 30 percent to public revenue while the small oil sector contributes between 77 percent and 80 percent to public revenue.”
Also he said the non-oil sector is not able to fund its foreign exchange needs but depends largely on foreign exchange generated from the oil sector. “This means that the non-oil sector is dangerously connected to the oil sector and therefore vulnerable to the latter’s volatility,” he said.
