Addressing State Failure in Nigeria: Recommendations for a Policy Shift

Nigeria’s descent into state failure has been catalyzed by the fuel subsidy removal strike and compounded by Boko Harams seemingly endless displays of terror throughout the nation. This policy brief aims to analyze and address the major dimensions of state failure. The policy options center around the subsidy removal, an analysis of these options bring to light larger economic, political and security dimensions facing the state. The recommendations seek to address the wider policy issues that face the nation. This brief is produced and endorsed by Niger Delta Professionals for Development (NIDPRODEV).

I. Executive Summary

Nigeria is at the brink of state failure despite its wealth, both in natural resources and human capital. The subsidy removal protests, sectarian violence perpetrated by Boko Haram, incidences of crime and unsettled grievances in the Niger Delta region are all indicative of state failure. The brief centers on policy options concerning the nations fuel subsidy, existing options include, removal of the subsidy, maintaining the subsidy and a phased subsidy removal. Following analysis, the brief calls for a phased subsidy removal pending significant developmental reforms. These recommendations include: enhancing capacities beyond the oil sector to include value creation sectors of the economy, combating corruption, reducing wasteful spending by government, fostering a greater sense of national identity, engaging in national dialogue on national development and security issues, address youth unemployment and making the nation’s existing refineries functional. While the policy recommendations are largely directed at the State, it is crucial to note that transforming the nation requires an effort by society at all levels, this considered the recommendations also speak to the role of civil society and international development partners.

II. Background of Problem

Nigeria is known as the African giant for its wealth, influence and population. It plays a significant role in regional and international relations. Domestically, the situation is dire, there is an overdependence on the oil economy, high youth unemployment, increasing insecurity, a lack of social safety nets and laudable underdevelopment evidenced by poor infrastructure development. The youth unemployment rate for 2011 was 41.6% according to the Central Bank of Nigeria. Poverty rates are also an area of concern, currently, 70% of the population lives below the poverty line, this is stark increase from the 2004 figure of 54%; the North East, North West and North Central have the highest incidences of poverty and this has been the case since 1985. These factors persist despite tremendous oil wealth; in 2010, oil revenue totaled 59 billion USD. This considered the fuel subsidy was one of the few tangible benefits that the populace received from its resource wealth. The subsidy was put in place to lower fuel prices and increase its accessibility for Nigerians. Removal of this subsidy has generated frustration and resentment toward a government unable to meet the needs of its citizens.

The state has a responsibility to deliver political goods to its citizens. Political goods refer to “security, health and education, economic opportunity, good governance, law and order, and fundamental infrastructure.”1 Its inability or unwillingness to deliver these goods is tantamount to state failure. In the Nigeria, confidence in the state is significantly undermined by its inability to deliver these goods.

Underdevelopment and insecurity are the nation’s key challenges at the moment. It is these factors that point to state failure for the nation, which has significant implications, at worst civil war and a fractured state. State failure is evidenced by numerous factors and indices. “Occasionally, the official authorities in a failed state face two or more insurgencies, varieties of civil unrest, different degrees of communal discontent, and a plethora of dissent directed at the state and at groups within the state.”2 The rise and increase in the magnitude of sectarian violence by Boko Haram and the recent subsidy related protests and strikes demonstrate the need for a policy shift.

1 Potter, Donald. State Responsibility, Sovereignty, and Failed States. Australasian Political Studies Association Conference 2004

2 Rotberg, Robert. Failed States, Collapsed States, Weak States: Causes and Indicators. p 5

III. Policy Options

Removal of the Fuel Subsidy: The recent removal of fuel subsidies by the Federal Government is to save the government a total of 8 billion USD, freeing up resources that can be devoted to social services such as health and education. Proponents of this approach argue that savings from the subsidy removal would recover decades of lost investment in infrastructure, health and education. In 2006 the IMF conducted a study, entitled, “The Magnitude and Distribution of Fuel Subsidies: Evidence from Bolivia, Ghana, Jordan, Mali, and Sri Lanka,” on the impact of fuel subsidies in five countries. The study revealed that the direct effect of subsidy removal on low income households was minimal ranging from 0.9% to 2%. However, in Nigeria, this approach has proven disastrous in the short term, as the removal of the subsidy has increased fuel, food and transportation costs which have adverse effects on the population. This decision paralyzed the nation, resulting in losses of N 100 Billion daily. The subsidy was one of the few benefits that Nigerians gained from the nation’s tremendous resource wealth. While the subsidy removal is to free funds for development purposes, there is no guarantee that these funds will be effectively utilized, especially considering the high levels of corruption in the nation. This approach brushes issues of corruption, mismanagement and insecurity under the rug and places an emphasis on marginal issues. A more positive unintended consequence of this approach is that is has fostered a greater sense of national unity, with Muslims and Christians fighting for a common cause.

Maintaining the Subsidy: The Trade Union Congress and Nigeria Labour Congress call for the subsidy to remain intact and for fuel prices to remain around N65 per litre. Marinating the subsidy provides Nigeria’s poorest households, who account for 70% of the population, with access to low fuel prices. The weakness of this approach is that the subsidy is a form of patronage and only benefits those with close ties to the government. Most of the subsidies are stolen by middlemen so it does not reach those that it is intended to benefit. The Governor of the Central Bank of Nigeria notes that in 2011 the cost of the subsidy paid to importers exceeded N16 billion.

A phased subsidy withdrawal: Nigerians have always been opposed to subsidy removal. Past attempts by Babangida and Abacha, in 1986 and 1994 respectively, were met with opposition. However, the January 1 subsidy removal was particularly ill timed considering the high levels of insecurity resulting from indiscriminate terrorist attacks carried out by Boko Haram. There is also fear of retaliation by militant groups in the Niger Delta. The subsidy removal detracts attention from these more pressing and potentially damaging issues. The phase subsidy removal is supported by The Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA). This approach allows for the cultivation of social protection mechanisms to cushion the impact of price hikes associated with the removal. This approach calls for refineries to become fully functional within six months, and then to undergo privatization. The Federal Government should then take steps to pass the Petroleum Industry Bill which has the capacity to produce 5 billion USD in savings per year. Once all this is accomplished a phased subsidy removal can commence.

IV. Policy Recommendations

In reviewing the options above it becomes clear that the subsidy issue is a minor factor in the larger equation of state failure. The unrest prevalent in the country is indicative of a state that has failed to meet the general needs of the population with or without a subsidy. The question is not whether or not a subsidy should be reinstated, it is what the state needs to do to produce transformative development that reaches the marginalized sectors of society. Failure to take a pro-poor economic development approach can prove to be disastrous, as evidenced by the recent subsidy strikes.

The recommendations listed below should be addressed prior to a subsidy removal of any sort. Of the various approaches to the subsidy issue, a phased subsidy removal approach is the most appropriate to allow other reforms to take effect, to ensure its effectiveness.

Increase spending on the agricultural sector. There is an over reliance on the nation’s oil wealth, which has left non-oil producing regions, particularly the North, feeling marginalized. The agricultural sector has the potential to create numerous jobs due to its labour intensive nature. Investments should be made in to address issues of inadequate credit and high interest rates in agricultural lending. According to the 2011 African Economic Outlook, in 2010 the agricultural sector grew by 6% due in part to the 2009-2010 Commercial Agricultural Credit Scheme, implemented by the Central Bank of Nigeria and the Federal Government which provided 200 billion Naira in low interest loans to farmers. To produce greater growth the scheme should be replicated for small scale rural farmers.

Address Youth Unemployment. The Amnesty Programme of 2009 emphasized skills training in the oil and gas sector in an attempt to combat youth unemployment in the Niger Delta. This demonstrates the governments over reliance on a sector that only produces 4% of jobs. Emphasis should be placed on training youth in value creation sectors of the economy such as Agriculture (as noted above), mining and manufacturing and information communication technology.

Foster a greater sense of national identity. The subsidy removal protests served as a common rallying point for Muslims and Christians, and demonstrates the ability for Christians and Muslims to peacefully coexist. Boko Haram’s Christmas attacks have fueled greater disunity between the North and South. These attacks have produced reprisals by Christians on Muslims in the North. The sect has made calls for the exodus of Christians living in the North and has called for Muslims in the South to return to the North. It is important to understand that terrorism in the North and militancy in the South stem from the same underlying causes, thus seeking common solutions to these issues is necessary. These actions are indicative of fracture and disunity and are a threat to national cohesion and peaceful coexistence. To counter this, there is need for a Sovereign National Conference, this forum will allow, government officials, policy makers, and citizens to engage in frank discussions on action planning for the achievement of peace and development.

It is imperative for faith-based organizations and civil society organizations to form other areas grassroots collaboration between the north and south and between Christians and Muslims.

Cut costs in government spending. While the subsidy removal was an attempt to reduce government spending, it was the wrong place to start. Most Nigerians view the subsidy as one of the few direct benefits they receive from the nation’s immense resource wealth. The subsidy removal only served to foster greater mistrust of the government, and to highlight the pressures corruption places on development. To demonstrate the government’s firm commitment to economic development and transformative agenda to the people it was elected to serve, it is imperative that government put an end to wasteful spending. This can be achieved through:

• Reducing the number of over bloated cabinet (Ministers, Special Assistants Special Advisers and other aids)
• Reducing the daily allowances of the President, Vice President, Senate President and Deputy, Speaker House of Representatives and His Deputy as well as all Senators and Members of the House of Representatives in both the upper and lower chambers in the National Assembly by 70% and monthly salaries by 25%, respectively.
• Publishing and make public, in both print and electronic media, names of some dubious Nigerians whom government officials have been described as Cabals or cartels that have been benefiting from the subsidy as the expense of Nigerian masses; so that they can face prosecution following thorough investigation

Fight Against Corruption and Promote Transparency. Nigeria’s commitment to combating corruption has produced very little. No politician is serving a prison sentence for corruption despite estimates that $4 to $8 Billion is lost to corruption per year. Corruption also prevents foreign investors from investing in the country and contributing to its growth. It is these factors that have contributed the strong dissent concerning the subsidy removal. With corruption so high, and punitive measures non-existent, there is no guarantee that savings from the subsidy removal will be used for the development of the nation. Sanctions and punitive measures should be put in place that bring public officials to justice for these crimes. To combat administrative corruption, customs, immigration and police officers should be compensated adequately. Civil society should act as a watch dog to ensure that reforms are put in place. NGOs can also promote budget advocacy, monitoring and tracking to equip community residents with the skills to monitor state expenditure.

Enhance engagement with the masses. There exists a tremendous disconnect between the government and the governed; so much so, that the government was unable to foresee the damaging reaction to the subsidy removal. Government needs to facilitate greater engagement with civil society organizations and facilitate forums for experience sharing and solidarity between the North and South. This is an area where civil society can play a role by including townhall meetings and multi-stakeholder dialogues in the design of their projects. Many of NIDPRODEV’s interventions in the Niger Delta have successfully included these forums, providing a rare opportunity for community residents to engage with their elected representatives.

Immediate reactivation of the nations refineries. Government should put in place immediate machineries to embark on turn around maintenance of the Nation’s four refineries to ensure full refining capacity production. Investigation should be carried out at the Nigerian National Petroleum Cooperation to identify officials who were responsible for the non functionality of the Nation’s refineries with a view to bringing them to justice.

Curtailing the Insecurity Issues. Government should, as a matter of urgency, take proactive measures to tackle and address the excesses of the Boko Haram uprising in the North that have claimed innocent lives through their acts of terrorism. This can be achieved by;

• Significant reform and revitalization of the Nation’s security agencies
• Service Chiefs including the Inspector General of Police, should be relieved of their appointments as they have failed in their responsibilities
• Channeling developmental funding to the North for to mitigate feelings of exclusion and marginalization

V. Sources Consulted

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