How Nigeria’s governments share the money!

In the last couple of weeks, I’ve read two different but unrelated books. One is China’s Great Wall of Debt by Dinny McMahon and the other is Fighting Corruption is Dangerous by Ngozi Okonjo-Iweala, Nigeria’s former finance minister. Yet, as unrelated as the two books were, I found myself drawing some very uncomfortable comparisons between them. 

Let’s start with China. The author tried to explain the incentives that local politicians and leaders have when it comes to raising revenues and how to spend them. Unlike Nigeria where one type of revenue (corporate taxes) belongs to the federal government and another type (PAYE taxes) belongs to states, all tax revenues are shared by the different tiers of government in China in varying percentages. In practical terms, a local government will do everything in its power to keep businesses alive because it knows that as long as those businesses are producing and selling, it will collect a share of the VAT on those sales. And it can take those proceeds and reinvest them to boost growth given that growing your local economy is the sole criteria for promotion as an official in the country. So, if for example, a business is dying, the incentive is for the local government leader to either get another healthy company to buy it or get one of the government-owned banks to provide financing to keep it alive. There are many problems with this system of course but that is a fairly accurate description of how Chinese political incentives are lined up. 

Now to Okonjo-Iweala’s book. The book, to my mind, is not really addressed to Nigerians – she’s talking to the international community where her bread is currently buttered. But the lynchpin of the book is Chapter 4 where she describes ‘A Twisted Budget Process’. It is in this chapter that you see everything wrong with Nigeria as a country. She documents so much fighting and quarrelling between various arms of government over one single issue – how to ‘Share The Money.’ What this makes you realise is that Nigeria has a whole political class in which no one knows how to actually grow revenues or the economy unlike the Chinese as described above. The system is wired for sharing as such if you know how to grow, you won’t go far as your skills are completely redundant. It is so bad that everyone from the legislature to the executive now know that simply raising the budget benchmark price of crude oil by $1 translates into an extra N50bn to share in the budget. As you can imagine, this then becomes a big battleground. 

The foolishness and mental deficiency of this arrangement is made manifest when you realise that Nigeria’s political class fights with so much energy over something it absolutely has no control over. For 2013, the executive proposed $72/barrel as the benchmark. The Senate raised this to $76 (extra N200bn to share) but the House led by Aminu Tambuwal raised it to $80 (another N200bn to share) saying that ‘how can you save money when you are hungry?’ Eventually, after much fighting and quarrelling, they agreed on $79. The next year, there was more quarrelling – the benchmark started at $76.50 and again, after much fighting, it ended at $78. But oil prices began to fall in August 2014 so the benchmark was revised to $73 and then to $65. The oil price still laughed at Nigeria by ending the year at $58. 

There is no breakthrough technology for oil exploration that was invented by Nigeria. Nigeria is a relatively small player in the world of oil production. The only way Nigeria can affect the price of oil is when militants blow up pipelines and the country does not benefit from that. Ordinary PIB that might give the country a chance to grow revenues in future has been languishing for a decade. Everything about the price of oil is completely out of the control of Nigeria. Yet the entire political class only has one skill – how to Share The Money. 

It is really amazing that a country of 180 million people wakes up every morning and follows these people that it calls its ‘leaders’. But where are they leading the country to? Nigeria is like a child inside an adult’s body. They might be quiet now because there is not much money to share but you can expect more fights over how to Share The Money very soon now that oil prices are going up again. In other countries, when they are short of revenues, they debate whether to increase taxes by whatever percentage and whether or not it might have adverse effects. Nigeria’s leaders do not concern themselves with such debates. How the money arrives or grows is the headache of another person somewhere far away. 

God must really love Nigeria because it is the only explanation for why the country continues to exist even as its leaders confidently lead it to a place even they do not know. 
Both books are recommended for your reading.