Legal and Institutional Restructuring for the Next Nigeria
President Mohammadu Buhari’s 2019 Independence Day address to the nation may have created an enabling platform to encourage new discussions on how to transform Nigeria’s economy. The President’s setting up of an Economic Advisory Council (EAC) is an important tool in this regard. At the Platform, a biannual televised conference organized by Covenant Christian Centre in Lagos, Prof Chukwuma Soludo and Bismarck Rewane laid out a strategy upon which economic transformation can work. Prof. Soludo aptly likened Nigeria’s current reality to building a 100-storey building upon the foundation of an old bungalow.
I agree entirely with Prof. Soludo that it is not feasible to build a 100-storey building on the foundation of an old bungalow. Likewise, economic transformation can’t be built on Nigeria’s outmoded economic development model. It is crucial to design a comprehensive institutional development design, which is like an architectural plan to transform Nigeria. It is important that the design take into account development law as it is a vital element of any successful model. Some thoughts.
Development Law as Part of Economic Reforms
Development law is a public policy tool that intersects law and economic development. Development law scholars agree that there is a strong link between law, regulatory institutions, governance, economic development and national welfare. It is argued that the Nigerian legal and judicial framework is hopelessly outdated and needs an urgent review to meet current challenges. Yet governments generally fail to link legal policy, economic development and governance. The late Prof. Mansur was the leading scholar on this linkage. Economic transformation depends on vital legal institutional, regulatory and governance frameworks. The links unfortunately between legal institutions, political economy and development have often, and in our case, been completely overlooked or missed, hence underdevelopment.
HernadoDe Soto in his unique book “The Mystery of Capital” gives a striking example of law as a key primer of development using just one index; property law. Property consists of two values, physical and conceptual. The physical value may be fixed in say, a house. The abstract or conceptual value is fixed in property law systems. In developed nations, property law allows owners of housing, to represent their value in the conceptual realm. This possibility allows easy access to credit that in turn generates capital for development. In Nigeria with a very weak legal regime, conceptual representation of property to create value is absent. Yet the assets inventory of Nigerian housing exceeds six trillion dollars. But this is dead capital. If the housing value is indexed to the banking system by massive legal reform of the property law system, we can create an instant credit market with major impact on development.
In this way, we wake up dead capital for development.It is important therefore that policymakers must, consider that although macro policies are unquestionably important, there is a growing consensus that the quality of business regulations and the legal institutions that enforce it are a major determinant of development. If development law is applied as a public policy tool in the following areas, for example, Financial Services Sector, National Trade Policy, Maritime, Aviation and Space, Legal and Justice Sector, Land Administration, Corruption, Social Security Administration etc. It will transform the economy, create millions of jobs and pull 200 million Nigerians out of poverty.
Financial Services Sector
The Financial Services Sector (FSS) is the oxygen and lifeblood of a strong economy. The FSS ought to consist of the following key institutions, the Banks, the National Credit Guarantee Agency, a Development Bank and the CBN. The banks lend to the real sector of the economy and consumers and ensure the economy is stimulated. In Nigeria, it is doubtful if the banks have performed optimally, delivering on cash to the real sector and consumers. They seem to be engaged in short term lending including treasury bills. The result is that the economy is anaemic.
A banking policy that delivers resources to the economy is needed. In the US, the Glass – Steagall Act and Frank-Dodd Act focused banks on the proper role to lend to consumers at lowinterest rates. The second key FSS institution is the National Credit Guarantee Agency. This is absent in Nigeria. The National Credit Guarantee Agency supports viable business proposals. When viable business proposals are guaranteed, the economy gets stimulated and expanded and that gets converted to goods and services that are sold on to consumers. The economy will benefit from the establishment of the National Credit Guarantee Agency. The third FSS institution is a Development Bank to lend to the vital sectors of the economy. The Development Bank of Nigeria is undercapitalized and so the CBN plays a distorted role.
The Development Bank of Nigeria needs to be properly capitalized so it can support the economy. The CBN is the fourth FSS institution. The CBN as presently constituted is overburdened with far too many things – monetary policy, banking supervision and banking. The major role of the CBN is monetary policy stability and so the CBN may benefit from streamlining and strengthening its legal framework. A new policy and legislation can unbundle the CBN and create a new agency to regulate banks by ensuring they deliver on core mandate. In England, they have the Prudential Regulatory Authority.
National Trade Policy
Tied to the FSS is the need for a National Trade Policy to stimulate local industry, grow export and reduce dumping of foreign goods. The Central Bank of Nigeria recently stated at the launch of its vision and policy thrust for the next 5 years, that it will target unscrupulous individuals and businesses that embark on massive smuggling and dumping of goods that can be produced in the country thus leading to the demise of our agriculture and manufacturing sectors.
This needs to be supported. There is a need to strengthen the National Office of Trade Policy. This Office has to be ministerial level. Trade laws have import substitution as their main goal. This means to reduce imports and create local industries. The National Assembly can pass legislation to establish the Trade Remedies Agency, devoted fully to fair trade issues. This will support our local industries around Rice, maize, cassava, cotton, cocoa, tomato, oil palm, poultry, fish, etc. Trade policy on Fly Nigeria will grow Nigeria Airlines, a strong Cabotage Act will grow shipping lines, oil and gas, legal, banking, insurance, shipping etc. If trade legislation is favourable, Trillions of Naira will flow with Job creation in the millions.
Review of Nigeria’ s Bilateral Investment Treaties
Flowing from the discussion on trade policy; there is a need to review Nigeria’s Bilateral Investment Treaties (BITs). BITs are part of a countries trade policy. Nigeria is a signatory to over 30 bilateral investment treaties. The recent arbitration award secured by a company, Process and Industrial Developments Limited (P&ID) has raised the question of how fair it is for Nigeria to have arbitration clause with a foreign seat. We understand that an Executive Order is currently under contemplation to make Nigeria the seat of arbitration and require parties to choose an arbitration institution in Nigeria.
While the proposed Executive Order is laudable, it is our opinion that the Order might be confronted by challenges that might defeat the essence of enacting it. It will be recalled that Arbitration Agreements are embedded in Bilateral Investment Treaties (BITs) that Nigeria has signed and ratified with many countries. An Executive Order may conflict with the BITs. This is so because BIT’s provide that disputes arising between Nigeria and foreign investors will be determined in foreign institutions of arbitration and seeking to alter this position simply by an Executive Order might generate significant opposition by concerned interests.
Furthermore, the Executive Order might conflict with the underpinning principles of arbitration that are premised on the notion that parties to an arbitration have a right to determine the arbitration institution and arbitrators that will undertake the arbitration proceedings. Given the above, we would rather suggest that an Executive Order should create a National Work Group that will be authorized to review the scheme of the arbitration provisions currently incorporated in the BITs, and the task of proposing how Arbitration connected to Nigeria will have Nigeria as seat of Arbitration.
Maritime Matters
This is potentially the largest economic sector outside of hydrocarbons. Nigeria’s maritime sector is estimated to be capable of generating N7 trillion annually and four million jobs over five years. However, to tap revenue from this sector there needs to be an overhaul of policy, institutional, regulatory and legal framework. For instance, the Government needs to immediately implement the policy for Inland Container Depots (ICDS). We have 6 (Six) ICDS spread across the geopolitical zones that can generate at least 15,000 jobs for different levels of manpower.
Due to the lack of infrastructure to support business and operations by concessionaires, these depots have not been optimally utilized. 80 per cent of Nigerian trade is diverted to ports in Cotonou and other West African ports. Further to this is the need to review our cabotage regime to stem capital flight and boost capacity for Nigeria’s Shipowners. Despite the enactment of the Coastal and Inland Shipping Act 2003 Nigeria loses an estimated 7 Trillion Naira in the shipping sector. Foreign vessels trade in violation of the Cabotage regime. This is responsible for capital flight.
There is a need for immediate enactment of several critical bills pending before the National Assembly. This would facilitate the legal framework to move the maritime sector to the next level. Such bills as the Petroleum Industry Bill (PIB), the Ports and Harbour Bill, Maritime Zones Bill, Ocean Bill etc. are yet to be passed into law. There is also an urgent need to review the Nigerian Shipping Policy of 1987.
Aviation/Space
The Aviation Sector requires major reform. Nigeria has no presence in the Aviation business. Nigeria Airways has been long comatose. Foreign aircraft dominate the Nigerian airspace and earn well over a trillion Naira to our exclusion. A trillion Naira is about a quarter of our entire national budget. A Fly Nigeria Bill will ensure that every government Naira used to purchase a ticket must originate and terminate on a Nigerian carrier. This Fly Nigeria Bill will create an instant market for our national carrier.
On Space, it has been said that that the future of mankind is in Space. Space has many major applications for developing our economy. We will mention at least three examples. First, space can be applied to the energy sector as remote sensing can tell us the quantum of our hydrocarbons. Second, it is the value of space applications to the Maritime sector. Third, it is the link between space and national security. Satellite technology intelligence gives us vital footprints in the national security infrastructure. The growing threat of terrorism and the adverse impact on economic stability can only be checked by intelligence provided by space satellites. We must upgrade our space legislation.
Legal/Justice Sector Issues
The legal and judicial system has experienced legal failure. The judicial system has never really been reformed. The Nigerian judicature is based on the 1875 Judicature Act. The consequence is that cases take too long to resolve. It takes between 5 to 20 years to resolve simple contractual disputes. Investors, whether local and international will not invest in a country where there is no sanctity of contract and simple contractual disputes take between 5 to 20 years to resolve.
We must give urgency to this sector and reverse legal failure. A speed of justice policy will reduce delays. In this regard, the National Assembly can consider introducing the Administration of Civil Justice Bill to ensure efficient administration of civil disputes. Also, new methods of dispute resolution should be considered such as Alternative Dispute Resolutions, small claims courts, traditional and customary arbitration. Finally, quasi-judicial administrative tribunals can be established by sector, following the UK example. In England there exist many administrative courts to cover Telecommunications, taxation, transportation, Insurance, Education, Financial Services, Trade, Investments, etc.
Land Administration
The Land Use Act created a framework for ascertaining title and therefore it became easy to determine title. It also meant that landholding was major collateral for investment and financing. In doing this the state governors play an administrative role, issuing consents, licenses, permits etc. which has become overwhelming. The process has become clogged and as a result of this clog, the impact of land collateralization on lending and borrowing is affected. A recent study shows that the housing asset inventory of Nigerian property exceeds six trillion dollars. Most of this is dead capital and is not fungible. There is a need to wake up this six trillion dollars’ worth of dead capital. A Land Use Administration Commission Bill will make the Land Use Act and consent rules more efficient and instil confidence in financial institutions. This will impact positively, collateralization, lending and borrowing within the financial system.