In her book, “Dead Aid”, Zambian economist Dambisa Moyo wrote about how the practice of giving aid to African countries, rather than help them, contributed to further weakening the country’s systems and its government. She rightly posited that countries dependent on aid mostly abandoned the more sustainable way of development of taxing the production of goods and services within their borders. As such, the social contract between government and citizens is very weak, since the government is not dependent on the citizens for its sustenance.
There is also the fact that aid recipients often have to sacrifice some of their sovereignty as a country, as aid donors could dangle the money they give them over their heads to whip them into line with regards to their policies and programs. A clear example is how countries like Uganda and Malawi had to reverse their anti-gay legislation due to pressure from aid donors.
Contrary to what is mostly believed, Nigeria receives quite a lot of aid, about $1.9billion in 2012, with the bulk of it coming from international development agencies and being spent on health and population projects. However, as a percentage of our Gross National Income that is only to 0.8% and as a percentage of our federal budget for 2012, that is only 4%. Surely, that puts in a far better position than other African countries such as Uganda (aid is 9.9% of its GNI & makes up 20% of its budget), Malawi (54% of GNI & 40% of its national budget) or Liberia, which received 35.4% of its GNI in 2012 in aid, the highest in Africa and about 17% of its budget for that year.
Looking at these numbers, it does sound weird to think that aid is killing Nigeria. However, the aid that is killing Nigeria is a different type, the one that is given by the Federal Government to states and local governments, better known as revenue allocation.
Every month, the Federal Accounts Allocation Committee (FAAC) made up of the Minister of State for Finance, the Governor of the Central Bank, the Accountant-General of the Federation and 36 state commissioners sit in Abuja and decide how to share the revenue that has accrued to the country in that month.
The only difference in the form of aid given by Abuja and those given by foreign countries is that the one given by Abuja is enshrined in our laws, while foreign countries give out of their benevolence (although many will debate this benevolence).
However, they both have similar destructive effects: monthly sharing of revenue to states and local governments, or the giving of aid to them by the FG has robbed them of the impetus to build strong local economies on which they will depend on via taxation. This is because they know that no matter what, they will get allocation the next month to sustain themselves.
It is even worse that these aid packages do not come with strings attached – it is up to the states to spend them as they deem fit. The Federal Government cannot enforce revenue allocations to be spent on specific things (apart from allocations from the Ecological Fund and Universal Basic Education grants) because states and local governments are tiers of government by themselves and are given a certain degree of sovereignty over their domains.
This has also made the whole country dependent on the Federal Government who is dependent on the precarious price of crude oil for sustenance. In a situation where the price of crude oil drops, as it did recently, states are left hamstrung financially, as evidenced by the need to bail out states to meet basic obligations as payment of workers’ salaries.
So how do we rectify this situation of aid dependence by states and local governments?
First, we need to empower states to generate more revenue for themselves by giving them a larger share of taxes from production of goods and services as well as mineral taxes and royalties. As it stands currently, value-added tax and mineral/petroleum taxes go wholly to the Federal Government which then shares it with the other two tiers of government; these taxes need to go to states either wholly or largely. It will also end the practice where the majority of states are not pulling their weight when it comes to wealth creation despite the abundance of potentials that they have.
Next, there should be in place a phased plan, say over 10 years, for reducing allocation from the nation’s treasury to the states and local governments either to zero or to a minimum. The reason for a phased withdrawal is to allow states build up their financial independence; if allocations are stopped in one fell swoop, states will definitely go bankrupt as only two out of 36 states can survive without oil allocations.
Lastly, allocations to states and local governments should be tied to specific projects rather than being given as a slush fund to be spent at the discretion of the states and local governments. This is in recognition of the fact that there will be projects either beyond the financial capacity of the state alone or too important and strategic to be left to only one state.
It is very important that we start thinking along these lines, especially given the current situation of Nigeria’s finances, the price of crude oil and the fact that it is more likely to go downwards as Iran restarts oil exports rather than increase.
With these factors in place, Abuja will have even less money to give as aid to states and local governments.