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Lagos-Ogun Partnership for Economic Development - Thoughts on What Is Possible

State and Local Govts	6334 VIEWS
State and Local Govts
6334 VIEWS

Sunday, November 03, 2019 / 04:37PM / By Olufemi Awoyemi / Header Image Credit: newmail-ng.com

Being a commentary on the Trade & Investment focussed October 2019 Edition of The Nigeria-South Africa Chamber of Commerce (NSACC) Breakfast Meeting with business leaders, industrialists, thought leaders, scholars and experts; sponsored by Phillips Consulting (PCL), Nigeria's leading transformation and innovation consulting firm; when it hosted Governors Babajide Sanwo-Olu and Prince (Dr.) Dapo Abiodun, MFR at the Eko Hotels, Victoria Island, on October 31, 2019.

The meeting between the Governors of Lagos & Ogun States, by all accounts, was long overdue and a fruitful one. Whilst the meeting was business like, it could have benefited from some context around economic data and implications; if only to underscore the vital importance of the principle of consanguinity that binds both states.

The need for strategic collaboration, coordination and cooperation is trite. The realities of culture, commerce and community makes it a necessary and natural thought process that should otherwise occupy the thoughts of the leadership and people of both states. To their credit, the Governors of both states gave a reason for optimism, even to those frustrated by the slow grind of governance our current sovereign construct permits

There are serious issues to be addressed.

This article is an attempt to recalibrate the concerns highlighted in the April 2019 Proshare Confidential on Ogun State titled: "Leaning Against The Wind", and place within context the responses provided at the breakfast meeting, with the hope that some guidance consensus around the issues these two sub-nationals have to address during their governance tenure is clearly recognized; and is considered in the Lagos-Ogun joint commission deliverables.

Context

The focus on and around trade, investments and industry is guided by three anchors: trade facilitation and agreements, ease of doing business; and the economic growth and well-being of citizens.

The engagement, in fulfilling its natural intent, looked at sovereign governance and productivity around these anchors for these contiguous states. This is a very good prism with which a fit-for-purpose conversation around sub-national productivity and economic well-being can be approached.

Within that context there is a point to be made about the role and place of an overarching national trade, industry and investment strategy given the nature of and residual control over such issues in Nigeria. One trite point must be the signaling, in the trade sector at least, of the need for a proper replacement of the late Ambassador Chiedu Osakwe, Nigeria's highly esteemed Chief Trade Negotiator who passed on in September 2019; a man whose work and sacrifice the Trade Facilitation Office is poised to build on, in his honour and for the benefit of the country.

There are several fronts were action is required, viz:

a. Nigeria is currently involved in many bilateral trade agreement discussions; at both the federal and state levels;

b. The long interregnum between reviews of the fiscal and trade agreements with and between sovereigns; and the initiation of talks around new developments in the geo-political space - the consequence of which is being felt by companies operating in the export sector especially, and to a lesser extent the import business. These issues go to the heart of sovereign competitiveness even where we have quality and price advantages, easily eroded by tariff structures caught in geo-political arrangements that require prompt reactions, that mirror the fast changing foreign policies and alignments and the reducing shelf life of what constitutes long term competitive advantages.

c. Shortcomings in the sovereign governance structures that creates(ed) errors of omission, commission and new realities that need to be synched with our national and sub-national economic plans;

d. The border operations required subsequent to matters arising from border closures;

e. The stale review of the tariff structure of the country and customs union it needs or is considered important; and

f. The absence of a state-to-state trade agreement(s) that establishes a quasi-customs union /tariff sharing agreement that recognizes the shared distribution of taxes, tariffs and duties for trade within both states or multiples in as far as it relates to federal regulations or/and state regulations within/without constitutional provisions.

g. Legislative changes needed and required to address design and default provisions inimical to trade and commerce.

General Thoughts

The trade facilitation goals of contiguous states are better represented by a trade agreement and no formalized one unfortunately, currently exists between the two states. It is therefore a welcome development that such thoughtful consideration has been harmonized through a proposed legal framework with binding agreements or understanding for the setting up of The Joint Border Area Development Commission.

The planned Joint Border Area Development Commission. a long overdue intervention; is therefore a good starting point for addressing the issues arising. Yet, the issues related to both sub-nationals go beyond that, and we will explore in greater detail here.

The idea of a commission was originally mooted in 2005, improved upon as described recently, remains an interesting concept that should be able to deal with the resolution of boundary delineation, communal border issues, land management, traffic management, housing projects, transportation networks, coordinated markets, agricultural projects, tax management, urban migration, overflow support services and other legal issues that are related to or arising from the conjoined nature of the states.

It is envisaged that the Deputy Governors of the respective states will co-chair this initiative, even as this presents its own challenges given our political and governance history. The governance structure of the commission thus becomes an issue to be reflected upon in the finalization of its structure and relationship(s) with inter-state agencies, preferably as a clearing house for efficiency rather than another contribution to the bureaucracy.

Suffice to say, the whole idea is to ensure that both sub-nationals are able to take steps that are complementary and economically beneficial and sustainable to both entities within a federal structure hampered, on many fronts with bureaucratic incongruence; focused on making the two major IGR contributors an economic destination of choice in the near future.

Ogun State, being the true gateway out of Lagos State (explained in detail under specific thoughts), is uniquely positioned, not as a junior partner but an equal partner in the long run, as an adjunct to the concept known as LAGOS 2.0; an entry-exit strategic partner for a plural engagement with the Nigerian state; offering comparative joint advantages economically as well as offering the template for a true federating states' collaboration where sub-nationals can and do exercise sovereignty over their futures.

Take the issue of a megacity to be jointly developed by the two sub-nationals before now and for which no update or traction has been achieved. This ought to form a critical component of this commission's agreement/focus, even as both states explore areas around the viable and fund-available concepts such as 'Green Smart Cities' as a feature of the new town development schemes being explored; even as it does not lose sight of the rural housing needs of the poor in our society leveraging on new programs and schemes for affordable housing.

Frankly, an immediate announcement on the breadth and width of this joint commission is therefore long overdue, and we expect the Governors to go beyond the pre-work and current efforts at a resolution to announcing an agreement in principle to signal to investors and the populace that action is imminent.

Recently. The World Bank released the Ease of Doing Business report in which Nigeria was widely celebrated. This was a positive outcome, but one that was not unexpected given the nature of the consultancy in and around the PEBEC project that delivered less on its legislative change agenda but more on the perception, equally needed to attract investments to the sovereign and sub-nationals.

It is our research team's contention that the report, which was premised largely. on an assessment of Lagos State and Kano State and it does not necessarily reflect the whole landscape, including Ogun State; which has done well, but still has the challenge of building a more effective and efficient system for facilitating business, capturing same, taxing same and capturing its ecosystem value; as it engages Lagos State (which allowed Lagos to operate as a senior partner in the economic marriage at this time).

The issues relating to the ease of business, while most can be resolved at the sub-national level; they are mostly related to the national sovereign regulatory regime - an evolutionary problem that we must recognize and take strides to resolve.

Yet, the point must be made that it is not something the nation should at this time be beating its chest over as a landmark achievement. Indeed, all sub-nationals are better served taking an introspective look at their realities beyond a generic measurement as an indication of value to the citizenry.

In this regard, the PEBEC collaboration with the World Bank to produce a country sponsored sub-national analysis and report throws up some interesting and useful findings which will be a worthwhile reading for all to fully appreciate how sub-nationals rank, what is needed to be done and where best practices can be sought locally.

The Lagos and Ogun States government will appear to recognize this, as they indicated their preference to study the Edo State Government's strides in the education sector as a learning reference point. This is a welcome development in benchmarking and best practice development and recognition amongst sub-nationals.

The ICAN Releases Inaugural Accountability Index Assessment Report issued in May 2019 is also a complimentary tool and one of a kind mechanism for assessing public finance management and public governance practices amongst sub-nationals.

Download Here - ICAN AI Assessment Report

The principle of consanguinity - the fact that both sub-nationals are descended from the same ancestor or common ethos; is best exemplified in the following factual realities:

That all exits out of Lagos (minus the Badagry outlet - subject to common borders with Ogun) is only through Ogun State via our common AWORI brothers and sisters; (the gatekeeper principle).

It is a trite fact that you cannot discuss the Lagos State economy without discussing the Ogun State economy and this is clearly showcased in the Top 5 IGR results of Nigeria. While it is folklore that Lagos is the flagship of sovereign economic development and non-oil revenue; analytics show that Ogun State is as much a facilitator and beneficiary; as it is a critical linkage in the Lagos economy, often ignored in the ecosystem analysis. It must be amplified and made clear that the largest number of manufacturing plants in the country (outside some key brands) is situated in Ogun State (as other metrics such as education, religious centers and non-oil value points), on a person/square kilometer measure.

That an economically viable proposition is open to both sub-nationals to build upon a nascent blue economy (ports - wet and dry) for which both states are uniquely positioned to deliver on.

That the Lagos Port is the major port outlet for the Nigerian economy and remains an appendage of and critical influencer of the Lagos State Economy.

That said, Ogun State equally has the potential and economic justification to build its own port, bearing in mind the critical issues around why the Lagos Ports is not a sustainable and efficient port focused on around the emerging realities around deep sea ports - i.e. modern deep sea ports such as the Sri Lankan and Djibouti ports are estimated at around 15m to 17m draft while the deepest sea port in Nigeria is 11m draft - unable to handle the demands of a modern seaport in handling cargo transport - an efficiency indicator, especially giving the new types of ships being built to operate in the future.

Noteworthy must be the fact that the entire US GDP is 20% driven by port activities alone even as it does not reflect its entire blue economy numbers. The danger in not modernizing our seaports is evident in the consequence on the sovereign's ability to influence trade and its strategic enablers.

From available evidence, the current output nationwide is estimated at about 60 million metric tonnes whereas the demand is about 120 million metric tonnes, thus creating a capacity crisis and a serious gap bemand and supply. Added to this, is the management capacity available at the Apapa ports.

This is an opportunity for Ogun State to step in with a fit-for-purpose and more efficient port, rather than allowing the port traffic to move to the Republic of Benin which advertises the benefit of a more efficient cargo management system, capacity and tariff structure. The comments in Point 6 below expands on this and equally draws attention to the pitfalls in financing infrastructure by sovereigns we can benefit from.

Whilst the Republic of Benin thrives under the guise of exercising the ECOWAS protocols, the current BORDER CLOSURE issues actually works in the favour of Lagos-Ogun State; as it reveals the linkages in the sub-national's economic matrix and also brings to fore quite succinctly, the issues around the arguments for efficiency focused restructuring of the Nigerian sovereign state.

These issues may appear complex but in the main, relate simply to how we can have federating units become more efficient in managing their resources (not merely mineral resources) for the equitable development of its sub-federating units more within and with other foreign sovereigns independently without the baggage of a structure designed to maintain a command & control structure of a single federating unit.

This subject may appear outside the scope of the discourse but remains a key issue as we address the challenges to state development occasioned by the residual, concurrent and exclusive list currently in operation.

The Governors appear to echo the same sentiments expressed here; even as they took time to explain the practical realities that promote non implementation of time-tested solutions in our clime.

The above comment about the triple limitations around the exclusive, residual and concurrent list enshrined in the constitution brings to fore the obvious issue of a set of people bound by culture, commerce and collaboration now forced to act in ways occasioned by real and imaginary fault linesâ€¦.. people have worked and lived in Lagos and Ogun States, from the days of the western region to date; and who cannot understand why there is a need for a delineating line for co-existence. In building a new partnership, there are few points around border communities that must be addressed; and I have tried to raise that below under specific thoughts.

Specific Thoughts:

STATE BORDER DISPUTE(s):

The clear fact that both states have not been able to resolve their border disputes is not entirely left to both Governors. Yet, the incidences in and around the issue directly impacts the trade and economic outcomes of the states. Both states are bound to recognize the protocols of the ECOWAS and the Federal Government of Nigeria.

Let us take the current border closure as a case study.

Whereas the ECOWAS protocol permits the free movement of goods and services across member states, there is no where in the protocol that it allows for one member-state to sabotage the economy of another. This is at the heart of the current government action which some of us object to, not on principle but on strategy. The inefficiency in our ports alluded to in points 3 above, has created a push factor for Nigerian entrepreneurs to find a cost-efficient means of managing their business targeted at a disposable-income challenged consumer base.

Facts indicate that the 12m people (approx..) of the Republic of Benin cannot be the beneficiary of the imports that make their ports the biggest import destination of Rice and Cars from Asian and Europe respectively. It is also a trite fact that the ECOWAS protocol provides for nations who desire to become PORTS OF DESTINATION (a goal for Ogun State) to do so, ONLY if such a nation is obeying a Customs Union (my words) whereby a portion of the tariffs and duty earned is shared with the final destination country.

The Republic of Benin does not declare customs duty nor share same with Nigeria, in clear violation of the cooperation and collaboration principle contained in the Kampala document 1991 on the four calabashes - now adopted at the 36th Session of the Assembly in LomÃ©, Togo in July 2000 under The Conference on Security, Stability Development and Co-operation in Africa (CSSDCA) policy development process.

In effect, when looked at constructively, the Republic of Benin is operating like the thirty-seventh (37^th) state of the Federal Republic of Nigeria without all the responsibilities attached thereto. This was not what the protocols envisaged.

The Border closure, which is essentially based around this argument appears to be a policy move well intentioned but does not give cognizance to the ecosystem around the Republic of Benin-Lagos-Ogun ecosystem. Indeed, if sustained over a long time, can collapse the entire Republic of Benin economy without necessarily addressing the fundamentals of the issue nor strengthening the economies of Lagos and Ogun State as intended, without an end-game strategy.

Checking smuggling is now about automation, strategic mapping and goods tagging and tracking which also delivers a linkage to the main economy in Nigeria.

It is the absence of this thought-led engagement which both governors can articulate at the Federal Executive Council (FEC) or in direct discussions with the President/CoS that has created the unintended consequence on food prices which government assumes will go away after a while, oblivious of the economics around the problem; and with attendant impact on the IGR of these states.

On Friday, November 1, 2019, the Nigeria Customs Service sent out signals to the Joint Border Operation Drill that "Exercise Swift Response" will be extended to January 31, 2020 upon approval of same by the President, because despite the 'overwhelming success of the operation, particularly the security and economic benefits to the nation, a few strategic objectives are yet to be achieved'.

It would be nice to know what the Governors are thinking on this issue from a strategic position, strongly enhanced if they were to have a uniform position as the two major points of contact are in the two states - The Seme border and the Idi-Iroko border; apart from other nameless routes around our porous borders.

A New PORT:

There is no need crying over spilled milk - The Lagos Port does not need an overhaul or further dredging (even as the FG may consider this a worthy move eventually) from the states perspective; we simply need new and modern ports (that can deliver on efficiency, capacity and alignment with global best practice for economies that can take large ships that will help drop the cost of goods for the consuming publics AND is able to ship out goods from Nigeria's focused export sector to make it worth the while of shippers); and the location is one of the issues both states will have to agree on to enable issues around rails, cargo holds, dry ports to be symbiotically resolved in such a way that revenues are shared and a common front created to capture a foundational aspect of the blue economy.

Funding for this can be achieved through a joint-partnership project along the lines of a BOT model or a direct PPP engagement.

Other thoughtful ideas possible under the joint commission will cover such issues like tolled trailer parks designed to ensure proper and efficient access to/from the ports; as well as the use of Inland terminals to ensure that we do not necessarily have all containers discharged in Lagos State. Economic linkage or corridors to take as much transportation stress out of Lagos State will be a worthwhile deliverable.

It is noteworthy to point out though, that in tackling this inevitable new port projects that we remain mindful of poor financing arrangements, as the examples given in point 3 above of the Sri Lankan and Djibouti ports has shown. Both ports were seized by the Chinese in 2017/18 respectively due to financing agreements entered into - they borrowed more money from China than they could pay back. Djibouti, for example took on public debt worth around 88 percent of the country's overall $1.72 billion GDP, with China owning the lion's share of it, according to a report published in March by the Center for Global Development (CGD). In both countries, the money went to infrastructure projects under the aegis of China's Belt and Road Initiative. Sri Lanka, on its part, racked up more than $8 billion worth of debt to Chinese sovereign-backed banks at interest rates as high as 7 percent, reaching a level too high to service. With nearly all its revenue going toward debt repayment, in 2017 Sri Lanka resorted to signing over a 70 percent stake and a 99-year lease to the new Chinese-built port at Hambantota. See How China Got Sri Lanka to Cough Up a Port.

The above typifies some of the lessons we should pay attention to as we take steps to source for finance to meet our infrastructure development deficit.

The recent history of Ogun State with the OLOKOLA project can be discussed purely from a learning point as we now pay attention to new projects being undertaken in the state (though with lesser outlays and impact).

Illustration 1: The Economic Burden of Ports/Terminals Inefficiency

Source: Proshare Content, Research

Illustration 2: SWOT Analysis of Nigerian Ports

Source: CBi 2019 Port Users Survey Report

BORDER COMMUNITIES:

The unspoken challenge in the inter-state diatribe has often been the unresolved issues around the border communities. I am talking about such communities like:

IFO 1 and IFO 2 constituencies that for example, in IFO 2 covers territories such as Railway line, Alagbado, Alagbole, Akute, up to Ojodu-Berger and Isheri;
Agbara (under Ado-Odo/Ota LGA) - a designated industrial space and other key linkage border communities such as Ado-Odo, Iju-Ota, Itele, Kooko Ebiye Town, Owode, Sango Ota etc.; and
Owode-Obafemi LG Area - that covers the expressway (biggest constituency in Ogun State in linkage to Lagos State.

The above typifies not only the vast reach of Ogun State into what some had hitherto considered a Lagos territory but the challenge of recalibrating the issues around the border communities such as:

The fact that people who live in these communities' work in Lagos (with attendant implications for taxes and govt focus);
The absence of development remains a dicey issue for the communities to resolve;
The recent release of the Ogun Dam and Asejiri dams in Oyo State has laid bare the absence of coordination among state agencies in Ogun State and those in Lagos State with far reaching consequences on economic activities of entities operating in these "grey" areas.

Truth be said, these communities, especially those along the expressway, exist more like a DISPLACED PERSONS' COMMUNITY that is without a government; and with all the attendant consequences.

How can we get an Ogun State Govt to work out a collaboration to SHARE REVENUE & RESPONSIBILITY for these communities and economy?

The Geo-political structure of the states lends a veritable case to the linkages that exist and approximates the value-added to Lagos State in particular. Do we want a situation where we enter into a winner takes all scenario or one where both states are able to create a New York - New Jersey type of template (even with all its defects) to allow entrepreneurship to thrive - driven by co-opetition; and in some cases, outright competition via lower taxes from Ogun State to encourage mobility in employment?

Gladly, the Governors appear well informed about these issues and made useful statements around this, such as:

Cutting cheques to Ogun State on a basis which can benefit from a review
Pay taxes where you reside policy for sub-national boundary community residents;
Joint resident registration schemes will be executed (the practicality and ownership of data and its use will be looked at);
A goal specific security scheme to track entities for joint security collaboration;
Shared Environmental Impact Assessments (EIA) reports to address community issues, road infrastructure and drainage, waste management and related matters; and
Inter state agency cooperation on shared services such as waste management, traffic management, emergency services and others under an "Overflow" understanding, amongst others.

BUILDING A BRIDGE OUTSIDE THE FGN:

The roads linking both states are all federal roads. Generally, Federal roads are structured thus:

Trunk A1 to A4 - South to North
Trunks A5-A9 - East to West

If, as currently stated via a presidential directive, that the FGN is unable to fund new federal road projects due to the N1 Trillion owed state governments, (which means the Federal Governments' hands are tied literally and figuratively); the diminished, compromised and internationally criticized private sector may not be able to help the states; just as the Infrastructure Concession Regulatory Commission (ICRC) agency who through no fault of theirs, have been equally emasculated.

So how do the state government(s) build an alternative to bad roads, bridges and inter-state routes, for example the Lagos - Sagamu - Ibadan expressway or the Ikorodu-Sagamu road to mention a few. Some are of the opinion that such an alternative proposition exists and can be funded as tolled roads under a PPP. There is talk about the possibility of a route through the Ojodu-Abiodun axis linking a bridge to an inner road that connects the abandoned link-road to Mowe to Sagamu to link Abeokuta and Sagamu Interchange. This would be an alternative to the decades-long reconstruction of the Lagos-Sagamu exit out of Lagos, which continues to be productivity limiting albatross.

Is this something the two Governors can constructively engage on to the benefit of the people?

Nationally, states have revenue challenges relative to infrastructure needs; and don't have money outside FAAC for most, and with the failure of neo-liberal policies as well as the reluctance of international partners to lend money to entrepreneurs backed by Federal Government guarantees; we have reached a point where accessing funds is at a higher risk premium than previous, and the trend will continue unless we have creatives means of financing infrastructural projects needed to unleash the stunted potentials of citizens.

What are the Governors doing to address the key issue of infrastructure (capital) funding outside the scripted meeting with investors, access to aid and such tokenisms we have been inundated with for the past seven months, and quite frankly has worn out stakeholders?

So, what is Lagos and Ogun State Governments doing to deliver actual serviceable and sustainable investments into the states?

The Governors fully empathized on the issue of Federal Government roads and represented that both the citizens and state government revenues suffer equally from the deplorable state of infrastructure; and that executable action is being taken to reverse this unsustainable situation through sustained engagement with the Federal Government on their proposed solution(s). For context, a case in point was the Lagos-Sagamu road construction contract that was awarded eighteen (18) years ago and is yet to be completed. The two States have decided to finish this project to ensure that people and goods are able to move from one point to the other with an attendant boost to productivity.

Other steps being undertaken include, but not limited to:

Fixing the Shagamu-Ikorodu axis through a joint collaboration to open up another vista of opportunity and new corridors for businesses in the border communities;
Opening up of the waterside platform of Ogun State will be open through partnerships and collaborations.
The rail from Lagos to Ibadan for instance, will run through Ota and Abeokuta and will be complemented by access roads at terminals.
There will be flyovers over two (2) lagoons - from Lekki behind Epe to expand the Ijebu-Ode corridor; with a bridge from the Lekki Free Trade Zone that leads into the expressway such that traffic will not have to come into the town; and
Leverage on and support the efforts of the Federal Government who is currently working on the Ebute Metta - Alagbado - Abeokuta - Ibadan axis. The joint States effort will utilize this same corridor with an intercity arrangement to eventually route traffic out of Lagos State.

Closing Thoughts

Lastly, and specifically about the Ogun State Government - If we are to assume a reasonable basis for an expectation, we must interrogate why it has been so difficult for the State (Governor) to settle down seven (7) months after with a cabinet and not a plethora of consultants which runs awry in the face of the excellent plans and thought process shared in private and public consistently about the problems of the state and the needed steps to be taken. This points to an execution capacity within the political confines of governance.

Upon reflection, the evidence will however point to or lean towards a somewhat deft move that, infuriates some; while in the main, provides a strategic context as to why the Government will continue along this path in view of the political IOUs that weigh upon its neck. The decision to set a new architecture for governance under a collaborative relationship with its revenue generating partner has been argued by some to have better served the state through the absence of the traditional bureaucracy that would have normally ensued. This argument however flies against its foundational logic, given that Lagos State has a cabinet in place and is able to move forward on the partnership.

Whether planned or fortuitous, the Ogun State Governor has forged a positive relationship with its direct neighbor as an ally, a co-player in the needs-based reality of two sub-nationals which will now, after signing this agreement; open these states for value-based outcomes.

Those who have rightfully requested that the Governor settles down to the business of focusing on the growth of the state, can, based on the evidence submitted here offer the Governor a benefit of doubt and understanding.

Same must apply to the Governor of Lagos State, who has had to deal with obvious perception challenges which create the impression he was not sending the right signals that he was in charge, on top of issues and was managing at best a hand, he was dealt with.

That said and truth be told, the nation and its sub-nationals are faced with a liquidity crisis that is manifesting in a number of ways - from increased social deviancy to a growing lack of faith in traditional institutions of the state; all the way to trust in the government(s) itself, from the federal to the local government levels; with people ready to believe and propagate the most vile narratives about the political and ruling elite. The private sector is not spared in this carnage of faith.

The people are right. The promises made often disappear under the cloud of blame game and tales of woe. People are however convinced and prepared to hold the private sector forged Governors to account around measurable indices, as a last vista of hope in rebuilding trust in our governance structures.

This is the context under which these two states, and indeed most state governors will be assessed. Performance is now political party-blind and it is all about the common well-being of citizens; and the task ahead is hard enough as it is; requiring all of their leadership skills and leverage.

On the face of it, Governors Babajide Sanwo-Olu and Dapo Abiodun have built a close relationship and a common affinity; which has enabled them to find a common ground upon which to tackle such serious issues of which the Joint Border Community commission forms a crucial part.

We can only wish them the very best as we look forward to this defining moment for formalized relationships between federating units.