The paradox of a federal state with a unitary economic management model has been cited as a major reason why Nigeria is yet to achieve economic diversification despite effort by successive governments.
Dr. Abraham Nwankwo, an economist and former Director General of the Debt Management Office, expressed this view in a keynote speech he delivered at an international conference organized by the Faculty of Management Sciences, Nnamdi Azikiwe University, Awka in Anambra State.
Nwankwo noted that a country that is practicing federalism should “naturally incline towards economic diversification” 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.
He said: “Oil revenue which accounts for between 75 per cent and 80 per cent of public revenue over the past four decades is adjudged owned by the federation and not the sub-national territories where they occur.
“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.
“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.
“As a result, States get lazy about developing and depending on internally-generated revenue and neglect diversification of their revenues. This behavior is a variant of Resource Curse generated in a disjointed federal system like Nigeria’s.”
Nwankwo stated that while Nigeria’s political arrangement is federalism, the economic arrangement is essentially unitary, which has is a major factor inhibiting economic diversification.
The economist further stated that the unitary management of the economy in a federal state had led to a few incongruences, which are symptoms of sustained economic mismanagement, stressing that this “disorder” must be addressed to achieve economic diversification.
To achieve economic diversification, he urged the government to address some of the incongruencies which include “the non-oil sector which contributes more than 91% of GDP contributes less than 20% to export earnings while oil which contributes less than 9% to the GDP contributes more than 80% to exports earnings, the big non-oil sector contributes less than 30% to public revenue while the small oil sector contributes between 77% and 80% 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.