It is the Economic Incentives, Stupid

Let us talk about milk in Nigeria. Yes, milk. We consume about 1.1 billion litres of milk every
year. Out of that amount, about 400 million litres are produced locally. We import between
700 750 million litres of milk annually, spending a lot of scarce foreign exchange in the
process.
We have cows, and cows produce milk, but our cows are not very productive. Our cows
produce 0.6 1.5 litres of milk per day. This pales in comparison with imported high
performance cows who can do about 30 litres of milk per day. Our cows cannot simply
compete with their cows, so you can do the maths, we end up importing.
But that should not be the end of the story; we could do artificial insemination, cross breed
our low-performance cows with high performance cows through a process of trial and
error, gradually improve the output from 1.5 litres per day to 4 litres per day. Eventually we
could get to 15 litres per day (or thereabouts). If we had been consistent about doing this
since the 1970s, we would have gotten to that point and probably exceeded it.
So why have we failed to do stuff like this? There are no incentives to do so.
This lack of incentives lies at the heart of Nigerias economic dysfunction. Nigeria is one
nation where it can be said that the whole is less than the sum of its component parts. We
made a decision during the 1970s to build a federal structure based on allocation of crude
rents to the so-called federating units. It is not working, it does not create incentives to do
anything else except;
Demand more crude rents.
Dambisa Moyo wrote Dead Aid about how Western aid had denied African governments of
their agency. Her argument was that aid is like welfare, welfare does not create incentives
for economic productivity. Having said that, Nigeria has something worse than Dead Aid. I
will explain.
Nigerian state governors depend on crude oil rents from the federation allocation account
(FAAC). They are guaranteed FAAC allocations every month (except in very rare occasions
when they get into trouble with the sitting president e.g. Lagos vs Abuja). The point is that
unlike Western aid that comes with some conditions, the federal dole from the FAAC
account is (like we say in Nigeria), awoof. If Western aid makes African leaders lazy, then
the federal dole makes Nigerian state governors twice as lazy and twice as unimaginative
about building their local economies.
Now lets go back to milk. Several states have competitive advantage in dairy production.
Unfortunately, the way the present system is configured, a governor can get by without
understanding anything about the local economy of his state, let alone seeking ways to
improve it. I am told that one of the governors of the states in question is demanding 13%
derivation (just like the Niger Delta states).
In a system that creates incentives for state governors to be managers of their state
economies, not merely cost centre managers, the driving force for dairy production would
have come from the states. The operating principle would have been produce or die. That
system existed in the 1960s; that is why we had groundnut pyramids and cocoa and oil palm
plantations. Regional premiers did not have assured inflows from crude oil rents to fall back
on, the success of their regions depended on the success of the local regional economy.
They did not depend on the price of a barrel of crude, as obtains today.

What is likely to happen today is a Federal Government initiative for dairy production.
Money from crude oil rents is devoted to some dairy development scheme. State governors
who should drive the development of the dairy sector end up being spectators. The program
ends up being unrealistic and poorly implemented. Nothing changes. We continue importing
vast quantities of milk. This has happened so many times in the past, and will continue to
happen until we realise this fundamental truth;
The current internal political architecture and the Nigerian Constitution do not create the right
incentives for economic productivity at the state level.
It is extremely difficult to explain to the average educated Nigerian that not all Nigerias
problems are due to corruption. That the solution to all of our problems does not lie in the
hands of a mythical messianic disciplinarian. Some problems are structural. Our constitution
is a problem; no sane intelligent person genuinely believes our constitution with its emphasis
on oil, oil money and sharing oil money is the best guide for managing a nation of almost
200 million people.
The solution to some of our structural problems is a federal system which creates incentives
for economic productivity. A true federal system, fit for purpose.