It is official: Nigeria is broke! President Buhari finally acknowledged this at the sidelines of the India-Africa summit in Delhi, India. “Nigeria is broke… Where is the money? You must have known that the Federal Government has to help 27 states out of 36 to pay salaries. Nigeria cannot pay salaries; the federal government itself has to summon the governor of Central Bank on how it could pay salaries, not to talk of projects, agreements we signed with other countries on counterpart funding and so on,” he was quoted as saying.
The cookies appear to be crumbling for the Nigerian federation. The Nigerian federation has always been financed by rents from the sale of oil resources. This is against the classical dictates of federalism where the component units enjoy fiscal autonomy and revenue flows from the component units to the centre. That order was reversed by the military, which centralized oil revenue collection and its consequent redistribution to all tiers of government in Nigeria. Consequently, states in Nigerian came to depend almost exclusively on the federally distributable revenues for survival.
For as long as oil prices remain high there was no problem. However, the sharp decline in oil prices (from as high as $147 to $44 per barrel) since the middle of 2014 has thrown Nigeria into serious financial crisis. But that is not the first time oil prices are falling or the first time Nigeria is facing revenue crisis. Indeed, like all commodity prices in the international market, oil prices are cyclical. That is why states that depend on the sale of commodities try to save when prices are high so that when prices crash, they could live off their savings until prices pick up again. For instance, oil prices crashed in 2008 and 2009 to as low as $40 per barrel. Nigeria survived the crash mainly because the previous regime saved enough for the rainy day.
But even for Obasanjo, it wasn’t an easy decision or effort to save. Nigeria’s state governors – who run very bogus and parallel governments to that of the centre – have no appetite for saving. Therefore they protested, raved and dragged Obasanjo to the Supreme Court for daring to save excess revenues from oil. They accused him of violating the constitution which stipulates that all revenues accruing to the federation should be SHARED among the federating units of the federation.
However, because of the nature of Jonathan’s ascension to power, state governors were able to wrestle great concessions from him, prominent of which was the sharing of money from the excess crude account and the subsequent sharing of virtually all oil receipts with little or no savings. And now that oil prices have crashed, Nigeria has no savings to fall back on.
But that is not all. With the shale revolution that has seen the United States transform from a net importer to the world’s largest producer of natural gas, declining demands due to growth slowdown, the re-entry of Iran into the global oil market, and persisting surplus production, prices may fall further – with some analysts predicting that prices could fall as low as $20 – and may remain low for a very long time. In that case, it is difficult to see how the Nigerian federation will remain the way it is. Something must give.
About 27 of Nigeria’s 36 states are bankrupt. They have been unable to pay their workers’ salaries, some, for upwards of ten months. Recently, the states went to beg the president to bail them out. This was almost inevitable since the states were largely economically unviable units created mainly as conduits for the dissemination of federal resources to the diverse ethnic and cultural formations in the country and rely almost exclusively on proceeds from the sale of crude oil to finance their governments. The alarm was sounded the moment the price of oil began its free fall in 2014. Even before the crash of oil prices and the consequent decline in the federally distributable revenues, most states had been on a borrowing spree and usually sign irrevocable payment orders with banks such that the debts are serviced from their federal allocations at source. With their huge debt burdens and rapidly shrinking federal allocations, most of the states are no longer capable of justifying their existence as governments in their own rights.
But the governors have remained bullish. They still walk about with considerable swagger and have shown no appetite, like the president, for curbing spending, running leaner governments, exploring and utilizing constitutionally guaranteed non-oil revenue sources or developing new ones. When the secured bailout funds – which are strictly for the payment of salary arrears of workers – run out, the problem will still be staring them in the face. What will they do then? Run back to the president for another bailout? But the federal government itself is broke and looking for ways to shore up its revenue shortfall.
For some observers, it was only a matter of time before the acute financial situation leads to governance collapse in most of the states. The social chaos that will ensue is better imagined than experienced. Will the Nigerian political class and elite be proactive enough to redefine and restructure the nature of its federation now or does it prefer to wait until the seams can no longer hold?
Christopher Akor
