Nigeria Must Wake Up to the Changing Role of State Governments

By Ohio Omiunu, De Montfort University

Nigeria needs to review existing structures to drive growth.

By Ohio Omiunu, De Montfort University

Image Attribute: Abuja Gate / Wikimedia Commons

There have been sustained efforts to diversify Nigeria’s economy since the country returned to democratic civilian rule in 1999. Successive governments have made the foreign direct investment a priority to achieve this aim.

Originally, the organized private sector was intended as the primary driver of investment-led economic reforms. But, in the process, the policy space was inadvertently opened up for state governments. Nigeria has three constitutionally recognized levels of government. These are the federal government, 36 state governments, and 774 local governments. Each level of government has defined powers under the constitution. States are not meant to engage in foreign economic relations.

However, successive economic reforms have given impetus to Nigerian states to grow in stature as gatekeepers to foreign direct investment. It’s now common to hear of states introducing specialized agencies to facilitate and coordinate investment inflows. Examples include the Kaduna State Investment Promotion Agency, the Lagos Office of Overseas Affairs and Investment and the Anambra State Investment Promotion and Protection Agency.

Some states have also floated development focused corporate entities in which they have controlling stakes. A recent example is the Development Agenda for Western Nigeria Commission. This was set up by the six state governments in Nigeria’s South-West. They are pursuing a regional economic integration strategy.

All these initiatives invariably lead to foreign entities including diplomatic envoys, multinational companies and international organizations getting directly involved at the state level.

The emerging practice is an interesting example of bottom-up economic development. However, the current state of affairs isn’t optimal. This is because having states all pursuing separate deals and arrangements makes central coordination problematic. If coordination is weak, there’s the potential for unnecessary duplication of processes and institutions. This, in turn, would have a knock-on effect on the ease of doing business in Nigeria.

There are also constitutional questions over the legality of agreements which Nigeria’s state governments have signed with foreign entities. If left unchecked, these could expose the Nigerian state to legal claims by foreign investors. And there’s a question mark over the constitutional status of states opening foreign offices, as Bayelsa state did in 2013. On the face of it, this was unconstitutional. States in Nigeria don’t have constitutional powers to operate quasi-diplomatic offices.

The trend of decentralized economic development has striking similarities with how things worked in the first Nigerian Republic, from 1960 to 1966. Regional governments in this era had the constitutional authority to participate in Nigeria’s foreign economic engagements.

An example was the control of commodity boards by states (then regions). Surplus from levies imposed on export commodities was a vital source of funds for economic development in the respective regions.

Given this history, it’s not surprising that states today are keen to take control of foreign investment inflows to fund their economic development objectives.

Why action is needed

No constitutional disputes have been raised between the federal government and the states. This can be taken as tacit acceptance of these emerging practices by states. Alternatively, the federal government prefers to deal with any fall-out on an ad hoc basis. This would make sense, given the benefits that can accrue from the arrangements.

But those responsible for Nigeria’s economic development policy coordination need to wake up to the changing realities of the times. Other federal systems have been proactive in restructuring the cooperation mechanisms for foreign relations. These include the US, Canada, Belgium, Argentina, Austria, and Germany.

These countries have recognized the need to adjust their existing regime to catch up with an emerging reality about sub-national governments – like states. These groupings are critical stakeholders in the 21st-century global economy.

In Nigeria, meanwhile, there’s little evidence that states going abroad is viewed as a matter of urgency. It’s time it was.

Time to review

The emergence of states as gatekeepers of Nigeria’s investment-led economic reforms demonstrates the dynamic nature of federalism. States have already carved out the autonomy they need to determine the pace of their economic development. And they have done so with no formal constitutional changes.

Now the federal government must realize that it’s no longer the sole determinant of Nigeria’s foreign economic policy. It would be both impossible and undesirable to try and reverse the trend.

Instead, there’s an urgent need to review existing arrangements for cooperation. These reviews must happen at the constitutional and institutional levels. The aim should be to maximize the benefits of the drive and impetus that states are bringing to the Nigerian economic reform agenda.

Nigeria stands to benefit immensely if states drive economic development. But effective coordination is critical.

About the Author:

Ohio Omiunu, Senior Lecturer in Law, De Montfort University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

DISCLAIMER: The views expressed in this insight piece are those of the author and do not necessarily reflect the official policy or position of the IndraStra Global.