Legal and Regulatory Frameworks for Resource Diversification in Nigeria

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Legal and Regulatory Frameworks for Resource Diversification in Nigeria

  1. 1. CHAPTER ONE INTRODUCTION1.1 Background to the Study A central factor that affects the economic development of any country is thelegal and regulatory frameworks put in place to coordinate/operationalize resourceutilization. Such framework involves policy formulation, technical and commercialoperations, environmental protection, community relations, as well as revenuegeneration and utilization. Since political independence in 1960, successivegovernments have pursued the goal of structural change to diversify the economyrather than over dependence on the oil sector. The major regulatory framework foreconomic development in Nigeria has been the use of medium-term NationalPlans. The First National Development Plan of 1962-68 made agriculture andindustrial development a priority. The Second National DevelopmentPlan for theperiod 1970-74 focused on reconstruction, rehabilitation and reconciliation of thecivil war battered economy. The Third development plan of 1975 - 80 emphasizedindigenization of the economy with the objective of having Nigerians own controlmajority shares in industries and other investments. The Fourth National 1
  2. 2. Development Plan covers the period 1981-85. It attempted to combat overurbanization, through a vigorous pursuit of a policy of integrated urban and ruraldevelopment. Finally, is the Fifth Development Plan, 1988-1992 which tried tocorrect structural anomalies in the nation‟s economy. The Constitution of the Federal Republic of Nigeria (1999) provides forthree levels of government; Local, State and Federal. The full responsibility formineral exploitation is vested in the Federal Government; none of the states hasany direct control over the exploration and exploitation of minerals. Consequently, ineffective and inefficient government institutionalframework in many instances has hindered optimal resource diversification inNigeria. The reasons being that most of the legal frameworks have not been strictlyenforced and cannot adequately cater for the requirements of the contemporaryNigerian economy.1.2 Statement of the Research Problem Nigeria is endowed with vast arable land (that is suitable for agriculture),large deposits of 54 different solid minerals in addition to petroleum and gasdeposits. However, the country has laid too much emphasis on crude oilexploitation leading to a consequent neglect of other economic resources. Thisneglect of other sectors could be traced to the inadequacy of government 2
  3. 3. instrumentalities required to encourage investment in such sectors. Theinstrumentalities are usually in the form of legal and regulatory frameworks thatguide the conduct of business and resource utilization in Nigeria. Even where necessary legal and regulatory frameworks exist there couldstill be problems with their operationalisation due to corruption and institutionalweakness. There is therefore a need to investigate the impact of legal andregulatory frameworks in Nigeria especially as a means of achieving resourcediversification.1.3 Research Questions The following research questions will be addressed: a. What legal and regulatory frameworks have been in place to guide economic development in Nigeria? b. How effective have been the legal and regulatory frameworks towards resource diversification for sustainable economic development in Nigeria? c. What are the best practices with regards to legal and regulatory frameworks for resource diversification? d. What recommendations and implementation strategies can be proffered regarding legal and regulatory frameworks for resource diversification in Nigeria? 3
  4. 4. 1.4 Aim and Objectives1.4.1 Aim The aim of this study is to examine the place of legal and regulatoryframeworks for resource diversification in Nigeria with a view to profferingrecommendations and implementation strategies.1.4.2 ObjectivesThe objectives of this study are to: a. Establish the legal and regulatory frameworks put in place to guide economic development in Nigeria; b. Evaluate the effectiveness the legal and regulatory frameworks towards resource diversification for sustainable economic development in Nigeria; c. Identify the best practices with regard to legal and regulatory frameworks for resources diversification; d. Proffer recommendations and implementation strategies regarding legal and regulatory frameworks for resource diversification in Nigeria.1.5 Scope This study focuses on the legal and regulatory frameworks in agriculture, theoil sector, solid minerals development, energy and power, research anddevelopment and human capacity development. It covers the period from 1960 todate. 4
  5. 5. 1.6 Limitation The study was limited by the inability to gather primary data. However, thislimitation was effectively overcome by the extensive use of secondary data.1.7 Significance/Policy Relevance of the Study This study is envisaged to help all tiers of government to evolve policies,legal and regulatory frameworks that could guide business operation and resourceutilization in Nigeria. It would also add to the body of knowledge available on thesubject.1.8 Theoretical Frameworks Institutional theory focuses on the deeper and more resilient aspects of socialstructure. It considers the processes by which structures, including schemes, rules,norms, and routines, become established as authoritative guidelines for socialbehaviour (Scott, 2004). Scott (2004) further indicates that, in order to survive, organisations mustconform to the rules and belief systems prevailing in the environment becauseinstitutional isomorphism, both structural and procedural, will earn theorganisation legitimacy. There is substantial evidence that firms in different types of economies reactdifferently to similar challenges (Knetter, 1989). Social, economic, and politicalfactors constitute an institutional structure of a particular environment, which 5
  6. 6. provides firms with advantages for engaging in specific types of activities there.Businesses tend to perform more efficiently if they receive the institutionalsupport. Martinsons (1998) developed a Theory of Institutional Deficiencies(TIDE) suggesting that relationship-based commerce will prevail where rule-basedmarkets cannot flourish due to institutional deficiencies. Martinsons (2008) extends TIDE to show how the development ofrelationship-based commerce could result from a countrys lack of trustworthy andenforceable set of rules for doing business. His theory suggests that factors such aspersonal connections informal information, and blurred business governmentrelations (which also encourage corruption) constrain economic resourcediversification and development. Institutional theory therefore, provides a good framework for analyzing andexplaining the dynamics involved in the study.1.9 Methodology The qualitative content analysis method of data analysis was employed inthe conduct of this study. Secondary data were obtained from sources such asofficial documents, study tour reports, textbooks, presentations, briefs, newspapersand the internet. 6
  7. 7. 1.10 Definition of Terms and Conceptual Clarifications1.10.1 Resource Diversification According to Kwanashie (2012), Resource diversification can be defined asa strategy to increase the variety of business, service, or product types within anorganization. It involves growth strategy, taking advantage of marketopportunities, or it may be aimed at reducing risk by spreading interests overdifferent areas. It can be achieved through acquisition or through internal researchand development, and it can involve managing two, a few, or many different areasof interest. Resource Diversification can also be a corporate strategy of investmentin acquisitions within a broad portfolio range by a large holding company. Onedistinct type is horizontal diversification, which involves expansion into a similarproduct area, for example, a domestic furniture manufacturer producing officefurniture. Another is vertical diversification, in which a company moves into adifferent level of the supply chain, for example, a manufacturing companybecoming a retailer. The above concept of resource diversification is the oneadopted in this study. 7
  8. 8. 1.10.2 Legal Frameworks Umozurike (2012), conceptualizes legal frameworks as deriving authorityfrom or founded on law: DE JURE having a formal status derived from law. Suchframework does not necessarily have basis in actual fact.1.10.3 Regulatory Frameworks Regulatory framework refers to a system of regulations and the means toenforce them, which are usually established by government to regulate a specificactivity (Adekoya, 2011).1.11 Organisation of the Study This study is organised into five chapters: Chapter One is the introductionwhile Chapter Two addresses the literature review. Chapter Three provides anoverview of legal and regulatory frameworks of resource diversification in Nigeria.Chapter Four presents the lessons learnt from some countries toured by SEC 34,2012while Chapter Five concludes and proffers recommendations andimplementation strategies. 8
  9. 9. References1999 Constitution of the Federal Republic of Nigeria.Adekoya, A.A. (2011), “Corporate Governance Reforms in Nigeria: Challenges and Suggested Solutions” Journal of Business Systems Governance and Ethics, Vol. 6, No.1.Land Use Act of the Federal Republic of Nigeria 1978.Martinsons M.G. (2008), Relationship based e-commerce: theory and evidence from China :Information system journal vol. 18 issue 4, Pp331-358.National Bureau of Statistics, 2003Scott, W. R. (2004). “Institutional theory” P408-14 in Encyclopedia of Social Theory, George Ritzer, ed. Thousand Oaks, CA: Sage.Study Group Three, (2012), Foreign Study Tour Report of Malaysia, Resource Diversification for Sustainable Economic Development in Nigeria.Study Group Four, (2012), Foreign Study Tour Report of Canada, Resource Diversification for Sustainable Economic Development in NigeriaStudy Group Six, (2012), Foreign Study Tour Report of Canada, Resource Diversification for Sustainable Economic Development in NigeriaStudy Group Five, (2012), Local Study Tour Report of Kebbi State, Resource Diversification for Sustainable Economic Development in NigeriaUmozurike, U.O. (2012), “Legal and Regulatory Framework for Resource Diversification in Nigeria”. Lecture to SEC 34 Participants of the National Institute for Policy and Strategic Studies, Kuru, on tour to Abia State, Umuahia, 26th April, 2012.Yishau, O, (2012), 52 Years on, the gold mines remain dormant, The Nation, October 1, 2012. 9
  10. 10. CHAPTER TWO LITERATURE REVIEW2.1 Preamble This chapter attempts a literature review on the legal and regulatoryframeworks for resource diversification in Nigeria. It covers general review ofexisting literature regarding legal and regulatory frameworks for resourcediversification in order to highlight the general trends and best practices. It alsocovers the case study review of the literature with particular reference to theNigerian situation and consequently establishes the gap in literature.2.2 General Review2.2.1 National Constitutions and Resource Diversification According to the Organisation for Economic Cooperation and Development(OECD, 2009), regulation, which is one of the three key levers of state power(together with fiscal and monetary policy), is of critical importance in shaping thewelfare of economies and society. The objective of legal and regulatory policyframeworks is to ensure that the regulatory lever works effectively, so thatregulations and regulatory frameworks are in the public interest. 10
  11. 11. Armstrong (2003) considers legal and regulatory framework as an evolvingfield which has gained popularity in recent times. He also acknowledges that goodlegal and regulatory framework helps most developing countries develop marketthat attract domestic and foreign direct investments build their marketscompetitiveness, restore investor confidence, and promote economic growth andnational development. However, Li and Flier (2007) and Wilson (2006) note thatthere are many challenges to ensuring good legal and regulatory frameworks indeveloping countries especially when the business investors need to be convincedthat they are not independent of the society, host community or the naturalenvironment in which they operate. According to Olusa (2007) the issue of legal and regulatory framework iscentral to the diversification of economic resources of any country. In this regard,laws and institutions are put in place in line with the peculiarities of each country,which aim to boost the needed resource diversification. Inyang (2009) notes thatsome incentives may be provided by various governments in order to attractForeign Direct Investment (FDI) in different sectors of their economy. Alo (2003) observes that the National Constitution is the basic law andusually provides the fundamental framework for resources exploitation anddevelopment in most counties. Nevertheless, it also acknowledges that there areusually other laws that are made to provide the detailed guidelines for particular 11
  12. 12. resources and sectors. In Turkey for instance, Cadwalader et al (2012) highlightthat the 1982 Constitution provides the basic framework, but other laws relevant toresource development in Turkey are Agriculture Reform Law of 1984 relating toLand Consolidation in Irrigation areas, Land Protection and Land Use Law of2005, the Natural Resource Law, Law (Decree) No. 2012/3305 on the NewIncentive Scheme of Turkey and the Minerals (Exploration and Exploitation)Ordinance 3 of 1984 among others. Cadwalader et al (2012), state further that Article 163 of the 1982Constitution of Turkey provides that the right to explore and exploit resourcesbelongs to the state. However, the state may delegate this right to individuals orpublic corporations for specific periods. In spite of Turkey being a unitary state,the Governor of a Province is empowered by law to approve on behalf of the state,licences for the exploration and exploitation of mineral resources on land, in theterritorial waters and offshore areas outside the territorial waters. From theforegoing, it is clear that the Constitution of Turkey is flexible in its provisions onthe right to explore and exploit the resources, a factor that is crucial to theachievement of national development. Similarly, Chevalier (2012) highlights that in the case of Canada, whichoperates a federal system, Section 92 of the 1867 Act grants provinces theirlegislative authority which includes direct taxation, management and sale of public 12
  13. 13. lands belonging to the provinces, timber and wood thereon, health, administrationof justice. The provinces have substantial jurisdiction over their internal affairs.The provinces of Canada produce and processover 60 minerals. The provinceshave responsibility for the ownership and management of natural resources withintheir borders. The provinces are responsible for granting mining permits and accessto land. The companies that exploit these minerals pay taxes in the form of FederalCorporate Income Tax of 15% and Provincial Mining taxes/royalties of 10% to18%. As observed by Suhaiza et al (2007) the above trend of keeping a convenientbalance between centralisation and devolution of the rights and responsibility forresource exploitation is found in the constitutions of countries like Malaysia,Morocco, The Gambia, Tanzania and Poland. The authors further conclude that inthe countries where the practical implementation of this balance enabled theunhindered participation of all levels of government in the process of resourceexploitation, there has also been generally more efficiency in the exploitation ofresources. He believes that the guiding principle should be to engender a goodsense of belonging among the locals or indigenes of areas where the resources arefound while ensuring the general extractive right of the state represented by thecentral government. 13
  14. 14. 2.2.2 Land Use LOUAF (2008) opines that land is mostly used for crop cultivation, pasture,tourism, industry and forestry. In line with this view, the Constitution of theRepublic of Turkey (1982) broadly provides for the productive use of land in thecountry. Article 44 of the Turkish Constitution assigns Turkey the duty ofdeveloping agriculture and prevention of soil erosion. Also, the Constitutionempowers the state to provide land to farmers without land as well as those withinadequate land. In this regard, the state is further empowered by the Constitutionto re-define the size of land units allocated to farmers depending on the agriculturalregion and the use of the land. LOUAF (2008),further observes that the land tenure system of the Republicof Niger depends on the indigenous holding as well as legal control by the centralregional government. The government at the centre regulates general landadministration with overriding powers for the public interest. For instance, theterms of lease of a piece of land may be invalidated by the central government inthe overriding public interest. The Article 21 of the Nigerien Constitution providesfor individual right to own property. It also protects the right of the individualproperty owner against deprivation of his property except in the public interest. Inaddition, the 1993 Rural Code decentralises land administration and allows for theregistration of customary land rights. However, confusion exists over what rights 14
  15. 15. can be registered, and the seeming lack of capacity to manage land registration hascaused an increase in land disputes. The highlighted land use practices show a general trend towards governmentor central control and even ownership of land. The motivation is to seek the bestway to ensure that land is available as a factor of production in a sustainable way.2.2.3 Tax Regimes As highlighted by Ecovis (2012), there are various taxes that may beapplicable as sources of revenue in a country. Tax regimes also serve to encourage,discourage or tailor investors towards certain sectors of an economy. Theconstitution or other relevant laws usually stipulate the conditions and levels forcollecting each tax. The taxes include withholding tax, dividend tax, interest rate,royalties and fees for technical and other services among others. The amountpayable as tax depends on the nature of the activity and the applicable tax regime. According to Wilson and Mahbob (2007), Malaysia operates a strict unitaryTax system based on location and residency. Any income derived from workperformed in Malaysia is subject to Malaysian tax regardless of residency status,whether as corporate body or individual. Non-residents are charged at a flat rate of28% only for income derived in Malaysia and are not able to claim tax relief. The Moroccan tax law was amended in 1996 to create the direct and indirecttax system or regime, with the indirect taxes providing greater sources of revenue. 15
  16. 16. Other reforms in the system include the exemption of certain types of income fromtaxation. Examples are income derived from agriculture up to year 2020, andbusinesses set up in the Western Sahara region. Corporations can distribute tax freedividend of common-stock to all common-stock holders, while only 75% ofamount paid for purchase of raw materials and products or start-up expenses anddonations are taxable. Personal income tax is paid by individuals and workers,while VAT rate is 19%, but a reduced rate of 7% applies to specific items. Otherforms of tax are business tax, patent tax, stamp duty/notarial tax, tax on interest,urban property tax, municipal tax, customs duty and import tax levy. In addition,treaties for the prevention of double taxation provide relief from foreign taxes paidon worldwide income by means of foreign tax credit. To encourage foreigninvestment, Morocco has territorial principle for taxation applicable tocorporations, hence has agreement with 17 developed nations for the prevention ofdouble taxation. Some of these countries are UK, USA, Belgium, Canada,Germany, Norway, Romania, Spain, Tunisia among others. (Morocco Tax Rates,2010). The Canadian Tax System is centrally controlled by one agency, theCanadian Revenue Agency (CRA). This agency collects all taxes and thendistributes the proceeds to the respective tiers of government according to theirentitlements, which is regulated by the various tax laws in force in Canada. 16
  17. 17. It could thus be seen that the general trend with respect to tax regimes is toachieve a balance between generation of revenue and encouragement ofinvestment. This is done by a combination of focused direct and indirect taxation.The trend is generally in favour of heavy indirect taxation especially on localconsumption. Efforts are made to avoid double taxation or even get tax reliefs insectors into which investment is being sought.2.2.4 Public Private Partnership (PPP) Sinda and Kapinga (2012) observe that public-private partnerships (PPPs)have become a catchphrase in new development projects. PPPs take variousforms but usually involve a contractual relationship between a private party and apublic entity to provide public services or develop public infrastructure. Thismodel is often used in large developmental projects such as in building roads,bridges and ports. Many governments recognise the importance of encouraging privatesector‟s active participation in national development; thus they put necessary legaland institutional framework in place to enhance it. Examples include theTanzanian Private Partnership Act, 2010, which involved the operation ofTanzania port facilities by private investors for some period of time. It is expectedthat the Act will bring private companies to the formal sector, enable the transfer 17
  18. 18. of skills, technology and quality, and also ensure that foreign direct investmenthas positive spillover effect on the economy. Similarly, The Gambia Chamber of Commerce and Industry (GCCI)encourages an economic environment that brings about enterprise and promoteseconomic development and prosperity through private and public partnerships (TheGambia Investment Guide 2010). Infrastructure and utilities are critical successfactors in diversification and until they remain functional and readily available, it isdifficult for economic visions and dreams to be realised. The Gambia is committedto providing the enabling environment for Public Private Partnership withappropriate incentives for interested investors towards the actualisation of itsdevelopmental objectives. In order to encourage investors, government‟sincentives include: no currency exchange control, up to five years tax free forurban projects, eight years for rural projects and 20% non-quota restriction ofexpatriates etc. Investors in The Gambia are charged 2-3% tax on turnover or 35%on profit. According to The Gambia Investment Guide (2010), genuine investors witha minimum of ten million dalasi or $250,000 (#50million) to invest in The Gambiaare guaranteed land in the Trade Development Area (TDA). Application is madethrough the intervention of the Gambia Chamber of Commerce and Industry 18
  19. 19. (GCCI), provided all necessary conditions governing the grants of such certificatesare met, facilitates and promotes business development. According to Suhaiza et al (2007), the Malaysian Public Private PartnershipUnit (3PU) was established with the objective to promote Public PrivatePartnership (PPP) as the main drivers of socio-economic growth by equipping theprivate sector with the key mechanisms of PPP policies, mechanisms andframeworks. The Malaysian Incorporated Policy, introduced in 1981, and followedby the Privatization Policy in 1983, Guidelines on Privatization in 1985 andPrivatization Master Plan in 1991, are among the economic policies introduced tofoster the involvement of the private sector (EPU 2012). The initiative has yieldedpositive results.2.3 Case Study Review According to Afolabi (2012), the various Constitutions of the FederalRepublic of Nigeria (1960; 1963; 1979; 1999) have always provided that thenation‟s resources shall be harnessed in ways that promote national prosperity anda self-reliant economy. Nigeria‟s legal system is based on English Common Law,Islamic Law and Nigerian Customary Law. Most business transactions aregoverned by the Common Law, as modified by statutes to meet local demands andconditions. The principal laws regulating foreign investment are the Nigerian 19
  20. 20. Investment Promotion Commission Decree No. 16 (Cap, N. 117 LFN 2004) andthe Foreign Exchange (Monitoring and Miscellaneous Provisions) Decree No. 17(Cap. F. 34 LFN 2004), both from 1995, supplemented by laws on companyformation, labour, tax and other relevant legislation. Afolabi (2012) further asserts that the Nigerian Investment PromotionCommission (NIPC) Act, Decree No. 16, 1995 (Cap, N. 117 LFN 2004), wasenacted to encourage, coordinate and monitor enterprise establishment andoperations. The Act lays out Nigeria‟s current investment framework. According tothe law, 100% foreign ownership is allowed in almost all industries and investorscan repatriate all profits and dividends. It also established NIPC as the one-stop-agency to promote, facilitate and monitor all investments in Nigeria. The NIPCprovides numerous services, including the grant of business entry permits, licences,authorisations and incentives (Afolabi, 2012). Other laws that guide investmentand local businesses in Nigeria include Land Use Act, 1978, Companies and AlliedMatters Act 1990 (Cap. C. 20 LFN 2004), Industrial Promotion Act, Decree No.181, 1990 (Cap. 17 LFN 2004), Labour Act Chapter 198, 1990 (Cap. L1 LFN2004), Nigeria Export Processing Zones (EPZ) Act No. 63, 1992 (Cap. N. 107LFN 2004), National Agricultural Land Development Authority Decree No. 92,1992 (Cap. N. 4 LFN 2004), NAFDAC Decree, 1993 (Cap. N. 1 LFN 2004), 20
  21. 21. Stamp Duties (Cap. 58 LFN 2004), Investments and Securities Decree No. 45,1995 (Cap. 124 LFN 2004) and Pesticide Registration Regulations, 2005. Oyejide and Soyibo(2001) observe that under current Nigerian laws,taxation is enforced by the three tiers of government: federal, state and local. Eachtier has its sphere delineated in the Taxes and Levies (Approved list for Collection)Decree No. 21 of 1998 (Cap.T2 LFN 2004). The taxes and levies for collection bythe Federal Government approved and published by the Joint Tax Board (JTB), areCompanies Income Tax, Value Added Tax (VAT), Capital Gains Tax,Withholding Tax and the Nigerian Social Investment Trust (NSITF) Tax. Oyejide and Soyibo(2001) further observe that the Federal Inland RevenueService (FIRS) is responsible for issuing Taxpayer Identification Number (TIN) toevery company, enterprise and individual in collaboration with the State Boards ofInternal Revenue and LGAs. The current law guiding taxation of personal incomeis the Personal Income Tax (Cap P8 LFN 2004). Under the law, federal and statetax boards are empowered to identify persons living in or earning income fromNigeria who are required to pay tax, and to assess incomes and tax their incomesusing specified guidelines and rules. This law also guides the tax official inidentifying the residence of potential taxpayers, as well as the source and origins oftheir incomes for the purpose of taxing the income. There are two forms of taxes 21
  22. 22. that are administered under the Act, namely Pay-As-You-Earn (PAYE) and taxesfrom self-employed persons. The current Company Income Tax rate in all sectors is 30%. The tax ispayable on profits accruing in, derived from, brought into or received from a trade,business or investment. Value Added Tax (VAT) is charged at a flat rate of 5% ofnet value added, based on eligible transactions once consumed. No individual,business, organisation or government agency is exempted from the tax. Only goodsand services and specifically specified activities are exempted. Capital Gains Tax is chargeable at the rate of 10% on capital gains arisingfrom the disposal of capital assets. Nigerian laws subject certain activities andservices to Withholding Tax. During transactions, when a payment is due from oneperson to another, the person making the payment is expected to deduct tax at theapplicable rate and remit it to the relevant tax authority. This should be done notlater than 30 days after the deduction. It is an advance payment of 10% tax.Individuals and organisations are entitled to demand withholding tax credit note. The Education Levy commenced implementation in 1995 and is imposed oncompanies registered in Nigeria that are liable to pay tax on their assessable profitsas defined in Companies Income Tax Acts as the case may be. The rate of the taxis 2% of the assessable profit. The Education Levy is used by the Federal 22
  23. 23. Government to upgrade facilities of various educational institutions. Theassessment of the Education Levy and that of the Companies Income Tax are doneconcurrently. Nigerian Social Investment Trust Fund (NSITF) Tax is governed bythe NSITF Act. This tax requires everybody employed in a Nigerian incorporatedcompany to contribute a certain percentage of their salary to the fund. Expatriatesare however excluded from this requirement. The Constitution placed mining of solid minerals in the ExclusiveLegislative List. Ajani (2012) captures the dilemma of Kwara State Government inrespect of solid minerals exploitation when he states that Kwara State has largedeposits of various mineral resources awaiting exploitation by investors, but isencumbered by laws. The absence of a well-coordinated formal exploitation of thesolid minerals in Nigeria has given rise to illegal exploitation of some of theminerals by individuals, as well as local and foreign firms. This has resulted inenormous loss of revenue which would have been used for economic developmentof the State and the Nation. On Public-Private Partnership (PPP), Omidire (2012) notes that resourcediversification in Nigeria is dictated by the aspiration of all the states in Nigeria tocollaborate with the private sector in the exploration and exploitation of the richsolid mineral potentials for the socio-economic transformation of their states, 23
  24. 24. thereby contributing to the national efforts to diversify the economy through thenon-oil sector. Onyeaso (2012),opines that, while regulations are necessary, they should notbe negative or inhibitory. They should be fashioned with the purpose of facilitatingthe realisation of natural economic objectives rather than clouding the vision ofinstitutions. Unavoidably, Nigeria‟s weak regulatory procedures have become thesubject of scrutiny and criticism. This is in an attempt to position our regulators toprotect investors.It has been noted that unless the regulatory and enforcementframework of the Investments Securities Act (ISA) is strengthened, there would bea continued breach of securities law. In view of this, the Federal Government ofNigeria has resolved to transform the capital market to a reference point in Africawhere there is investor confidence, market integrity, sound regulatory frameworkand international standards of legal and regulatory frameworks.To achieve this purpose, two committees have been set up: to review theInvestments Securities Act 2007 and; to design a code of governance for capitalmarket regulators. It could be seen from the literature reviewed so far that the mechanisms forensuring good legal and regulatory frameworks exists in Nigeria but the will andcapacity to enforce the laws, monitor and ensure compliance need to bestrengthened. According to (Okike 2007) and Amaeshiet al (2008), this is because 24
  25. 25. the CAC and most of the main agencies for regulating and supervising allcorporations and related business matters in Nigeria are weak and perfunctory inperforming their duties.2.4 Gap in Literature Previous works have focused largely on public policy, policy analysis andNigeria‟s national development. However, less attention has been given to therelationship between legal and regulatory frameworks and resource diversificationfor sustainable economic development in Nigeria. This study attempts to fill thisgap.References 25
  26. 26. 1999 Constitution of the Federal Republic of Nigeria.Adekoya, A.A. (2011), “Corporate Governance Reforms in Nigeria: Challenges and Suggested Solutions” Journal of Business Systems Governance and Ethics, Vol. 6, No.1.Afolabi, O.S. (2012), “Legal and Regulatory Framework for Resource Diversification in Nigeria: Globalisation and the Prospects of Resource Diversification” (Paper presented to the Participants of Group One, Senior Executive Course, No. 34, 2012 of the National Institute for Policy and Strategic Studies, Kuru).Ajani, A. (2012), “Kwara State: History, Geography, Occupation and Culture”, (Paper presented to Participants of Group One, Senior Executive Course, No. 34, 2012 of the National Institute for Policy and Strategic Studies, Kuru).Alo, O. (2003) Issues in Corporate Governance.Financial Institution Training Centre. LagosAmaeshi K. &O. Amao (2008), “Corporate Social Responsibility (CSR) in Transnational Spaces: An Institutionalist Deconstruction of MNCCSR Practices in the Nigeria Oil and Gas Sector, CSGR working Paper 248/08.Amaechi, K. Adi, B.C.Ogechie, C. and O.O.Amao, (2006), “Corporate Social Responsibility in Nigeria: Indigenous practices or Western Influences? Journal of Corporate Citizenship (Winter edition) 24: 83-99.Armstrong, P. (2003) Status report on corporate governance reform in Africa, paper presented at the Pan Africa Consultative Forum on Corporate Governance.Cadwalader et al (2012), “Constitution Amendment Benefit the Turkish Power Market,” http://library.findlaw.com/1999/Oct/1/128013.html-Retrieved 12/07/2012. 26
  27. 27. Chevalier,P. (2012),The Canadian Mineral Development Model, Natural Resources Canada. (Presentation to the Delegation of the National Institute of Policy and Strategic Studies, Nigeria on 24/07/2012)Ecovis(2012), “Turkish Tax System,” http://www.ecovis.com/index.php?id= Turkish-tax-system&id=27981&type=98 - Retrieved 12/07/2012.Inyang B.J (2009) „Nurturing Corporate Governance System: The Emerging Trends in Nigeria‟ Journal of Business Systems, Governance and Ethics 4(2) 1 – 13.Kwanashie, M. (2012), “Nigeria and the Challenges of National Economic Development”, Lecture delivered to Participants of Senior Executive Course (SEC 34) 2012, of the National Institute for Policy and Strategic Studies, Kuru 17th Feb. 2012.Li,S. &L. Flier, (2007), “The effect of the governance environment on the choice of investment mode and strategic implications” Journal of International Development 17 (7) 913 - 929.Ngwake C.C (2009) Environmental Responsibility and firm performance: Evidence from Nigeria. International Journal of Humanities and social Sciences 3(2) Pp 97 - 103Niger Republic Land Administration Law (2008), la loi orientation sur l‟ urbanisme et l‟ amenagemtfoncier,(LOUAF) dated March, 2008OECD Regulatory Policy Committee, Indicators of Regulatory Management systems, 2009 Report.Okeahalam C.C &Akinboade O.A (2003). A review of corporate governance in Africa: Literature issues and challenges. Paper Presented to the Global Global Corporate Governance Forum 15 June 2003. Pp 1 -34Okike, W.N.M. (2007), “Corporate Governance in Nigeria: The Status quo”. Corporate Governance (15) 2173-193.Ologba, W.A. (2012), “Security Issues in Resource Diversification”. (Paper presented to the Participants of Group One, Senior Executive Course, 27
  28. 28. No. 34, 2012 of the National Institute for Policy and Strategic Studies, Kuru).Olusa G.J. (2007), Business Ethics and Corporate Governance in Africa, Business and Society 44(10) 94 – 106.Omidire, O.O. (2012), Brief on Kwara State, lecture to NIPSS SEC 34 SG1, Ilorin 2nd May, 2012.Onyeaso N. (2012) Blackflairs LLP; http://www.hg.org/article.asp?id=19931 Retrieved 30/09/2012Oyejide T.A. &A.Soyibo(2001),A paper presented at the Conference on Corporate Governance, Accra, Ghana. 29-30 January 2001.Performance Management and Delivery Unit: Brief to NIPSS Delegation on PEMANDU, July2012.Sinda A.A and W.B. Kabinga (2012), Akono and Company advocates “Tanzania, The Public Private Partnership Act. 2010 and its implications for the Business Community” Snr Denton Arusha Publications.Suhaiza, I.et al (2007), Critical Success Factors of Public Private Partnership (PPP) Implementation in Malaysia.The Gambia Investment Guide, Oct. 2010.Wilson, I (2006) “Regulatory and Institutional Challenges of Corporate Governance in Nigeria Post Banking Consolidation”.Economic Indicators Nigerian Economic Summit Group (NESG) April - June 2006Wilson, S. and S. Mahbob (2007), “Decentralisation and Fiscal Federalism in Malaysia.”In Mahbob. 28
  29. 29. CHAPTER THREE OVERVIEW OF LEGAL AND REGULATORY FRAMEWORKS OF RESOURCE DIVERSIFICATION IN NIGERIA3.1 Preamble This chapter gives an overview of legal and regulatory frameworksforresource diversification in Nigeria from a historical perspective. It will considerhow the constitutional provisions have encouraged or impaired resourcediversification in the country. It alsoconsidersthe place of land resource ownership,Public Private Partnership, Fiscal Responsibility, Tax Regime, RevenueMobilization and Allocation and resource exploitation.3.2 National Development Blueprints The major regulatory framework for economic development in Nigeria hasbeen the use of medium-term National Plans.The First National Development Planof 1962-68 made agriculture and industrial development a priority.It emphasizedthe introduction of modern agricultural methods through farm settlement, co-operative (nucleus) plantations, supply of improved farm implements (e.ghydraulic hand presses for oil palm processing) and expanded agriculturalextension service. 29
  30. 30. The Second National Development Plan of 1970-74 focused onreconstruction, rehabilitation and reconciliation of the civil-war battered economy.There was the introduction of the intervention programme to redress food scarcity.Worthy of note was the National Accelerated Food Projection Programme(NAFPP) in 1977. The Third Development Plan of 1975-80 emphasised indigenisation of theeconomy with the objective of having Nigerians own and control majority sharesin industries and other investments. The period witnessed some agricultureintervention programmes and projects such as: i. Operation Feed the Nation launched in 1976 which sought to increase local food production thereby reducing imports. Citizens were encouraged to engage in farming. ii. Establishment of 12 River Basin and Rural Development Authorities which are saddled with management of water resources and provision of same to farmers through irrigation. (River Basin Development Authorities Act 1979. (Cap 123, 1979 No.87).iii. Promulgation of Land Use Act of 1978 which vestsownership of land in the State Governments. It provides uniformity in the laws governing land - use and ownership, prevents fragmentation of land, prevents speculation of urban land. 30
  31. 31. iv. Green Revolution Programme.Was also inaugurated in 1980. (alsoknown as National Accelerated Food Production Project). It is pertinent to note that while each of the interventionprogrammes/projects sought to improve food production, the World Bank FundedAgricultural Development Projects – represented the first major practicaldemonstration of the integrated approach to agricultural development in Nigeria.The experiment started with World Bank Funding of projects at Funtua (1974)Gusau (1974) and Gombe (1974), Ayangba (1977) Lafia (1977), Bida (1979) Ilorin(1980) etc. The Fourth National Development Plan covers the period 1981-85. This planaimed at regulating urbanization, through vigorous pursuit of a policy of integratedurban and rural development. The Fifth National Development Plan 1988-1992 was the first of the RollingPlans initiated by the Babangida Administration.It was intended to correctstructural anomalies in the economy. In 1992, the National Agricultural Development Authority (NALDA) wasestablished by the Ibrahim Babangida regime, after most of the earlier programmeshad failed to achieve the expected result. 31
  32. 32. Under NALDA, each of the participating states of the federation was toprovide residential/office accommodation for key personnel of the Authority andpayment of initial such of #2 million into NALDA account. Besides makingavailable 4acres of land to each participating farmer and enabling the formation ofco-operatives societies, farm inputs will equally be provided as well as loan whichwill be recovered when due. Other Rolling Plans are the 1990-1999 Rolling Plan, National EconomicDirection 1999-2003, National Economic Empowerment Development Strategy(NEEDS 1) of 2003-2007 and NEEDS 2/vision 20:2020 Seven-PointAgenda/Transformation Agenda.3.3 Legal and Regulatory Framework of Oil and Gas Sectors The most important petroleum legislation in Nigeria is the Petroleum Act,1979 Laws of the Federation of Nigeria, Cap P10 of 1979 with several regulationsunder it.Section 1 of the Act provides that: i. The entire ownership and control of all petroleum in, under or upon any lands to which this section applies shall be vested in the State. ii. This section applies to all land (including land covered by water) which – a. is in Nigeria; or b. is under the territorial waters of Nigeria; or 32
  33. 33. c. forms part of the continental shelf; or d. forms part of the Exclusive Economic Zone of Nigeria. The Petroleum Act provides for the grant by the Minister of PetroleumResources of three types of interest – oil exploration license, oil prospectinglicensee and oil mining lease. These can only be given to companies incorporatedin Nigeria under the Companies and Allied Matters Act Cap C20 Laws of theFederation of Nigeria, 2004. The latest effort is the Petroleum Industry Bill which is presently underreview at the National Assembly. Various pieces of legislation that are at variousphases of processing in the National Assembly are intended to be consolidated intothe comprehensive draft Petroleum Industry Bill, and Among these are theDownstream Gas Bill Petroleum Profit Tax Amendment Bill, the among others. The draft Petroleum Industry Bill is a detailed document covering most ofthe relevant issues pertaining to Oil and Gas exploration, production, transportationand marketing in the country. Other issues covered include: matters of stateparticipation and control, fiscal issues, regulation, safety, health and environmentalconcerns: and finally issues regarding community relations. The Draft Bill isdivided into numerous parts covering exploration, prospecting, production and gas: 33
  34. 34. 3.3.1 Exploration An Oil Exploration Licence (OEL) is necessary to conduct preliminaryexploration surveys. The licence is non-exclusive and is granted for a period of oneyear. It is renewable annually.3.3.2 Prospecting An Oil Prospecting Licence (OPL) allows for more extensive explorationsurveys. It is an exclusive licence given for a period not exceeding 5 years. Itincludes the right to take away and dispose of oil discovered while prospecting. AnOPL granted to a foreign company is now issued with a covenant by the foreigncompany to assign the OPL to the NNPC upon making a commercial discovery.3.3.3 Production The grant of an Oil Mining Lease (OML) allows for full scale commercialproduction once oil is discovered in commercial quantities (currently defined as aflow rate of 10,000bpd). The Lease confers the exclusive right to carryprospecting, exploration, production and marketing activities in and under thespecified acreage for a period of 20 years. The minister exercises generalsupervision over all operations carried on under licenses and leases (Section 8) andmay make regulations prescribing anything required to be under the Act (Section9). 34
  35. 35. There is also the Exclusive Economic Zone Act, Cap E17, Laws of theFederation of Nigeria, 2004. The Act says that the exclusive economic zone shallbe an area extending from the external limits of the territorial waters of Nigeria upto distance of 200 nautical miles from the baseline from which the breadth of theterritorial waters of Nigeria is measured.3.3.4 Gas The current gas legislation is the Associated Gas Re - injection Act, 1979. Inpursuance of government policy, generous fiscal incentives for gas utilization havebeen granted. Gas incentives include royalties at zero per cent, gas developmentunder the companies Income Tax Act and duty/VAT exemptions for gasdevelopment.3.4 Solid Mineral Exploitation:3.4.1 The 1960 and 1963 Constitutional Provisions Item 22 of the Exclusive Legislative List of the Constitution gave theFederal Government control over the Maritime Shipping and Navigation. Inaddition item 25 of the same list gave the Federal Government exclusive control ofmines and minerals including oilfields, oil mining, geological surveys as well asnatural gas. 35
  36. 36. Section 134 of the Constitution provides that “there shall be paid by thefederation to each region a sum equal to fifty percent (50%) of the proceeds of anyroyalties received by the federation in respect of any minerals extracted in thatregion and any mining rents derived by the federation during that year from withinthat region. That 30% of the royalties shall be credited to the Distributive PoolAccount from proceed of any mineral from any region. It further stipulates that the continental shelf contiguous to a region shall bedeemed to be part of that region. The provisions of the 1963 Constitution are the same with those of 1960except for the arrangement of the Sections.3.4.2 The 1979 Constitution Section 40 (3) vests ownership of mineral bearing land in the FederalGovernment and further states that such land.“This shall be managed by theFederal government in accordance with any manner prescribed by the NationalAssembly”. The Exclusive Legislative List in addition reserves the under listed items forthe exclusive preserve of the Federal Government.Item 27 - Fishing and Fisheries (Marine) 36
  37. 37. 34 - Maritime Shipping and Navigation 36 - Mines and Minerals including oil fields, oil mining, Geological Surveysand natural gas.The Constitution did not give an indication of who owns the off-shore resources,neither did it indicate any sharing formula.3.4.3 The 1999 Constitution The provisions of the 1979 and 1999 Constitutions regarding exploitation ofmineral resources are virtually the same except for variations in sections Fishing and Fisheries (Marine), Maritime Shipping and Navigation andMining of minerals including oil fields, oil mining, geological survey and naturalgas are under the Exclusive List.Section 44 (3).vests ownership of mineral bearing lands on the FederalGovernment.3.5 Land Management Land is a factor of production. It could be termed the most vital ingredient ofa nation‟s socio -economic development. On it depends every economic activity.How a country utilizes land determines its level of economic development. Ease ofaccess to land is germane to its ease of doing business. 37
  38. 38. During the pre-colonial times the land tenure system had communal landownership, while the family head (in the south) was the administrator of land.Allocation was effected to the members of the community by the family head inagreement with other members of the family. Land was then never not for sale. In the North, the Emir was the custodian of the land and allocates lands tomembers of the community. Once allocated the land could be sold. However, itcould only be sold to strangers with the consent of the Emirs. The land tenuresystem resulted into fragmentation of land and makes land allocation cumbersomeand highly contentious. There were some laws enacted before the promulgation of the Land Use Actthat are worthy of note:Communal Land Rights Vesting Law of Western Nigeria – 1959, enacted as aconsequence of repeated abuses by tribal chiefs, headmen or members of thecommunity. The law prevented the chiefs from administering the land and vestedsuch customary powers in the board f trustee appointed by government. Thus,government was responsible for dealings in communal land matter. Grazing Reserve Law (1965). This was enacted to give legal backing to theacquisition of grazing reserves. It gave the regional government and NativeAuthorities‟ powers to acquire native land and constitute it into grazing reserves. 38
  39. 39. National Agricultural Policy of 1968: Stipulated that a combination of 10%of the national territory would be acquired and constituted into grazing reserve forlease to herdsmen. This was a conscious effort to protect pastoralism. However,about 313 grazing reserves covering a total of 2,82million hectares was acquired.Only about 52 reserves were gazetted by 1978 (mainly in the northern states) mostof these have been encroached on by crop farmers.3.5.1 Land Use Act of 1978 The Land Use Act was enacted in 1978. The main provisions were:Section 1: Vests all land within the territory of a state in the Governor of that state.To be held on trust and administered for the common good of all Nigeria. Ruralland is vested in the chairman of the Local Government.Section 5: Empowers Governors to issue Certificate of Occupancy for urban land.Section 6: Empowers Local Authorities to issue Customary Right Occupancy forrural land.The objectives of the Act are as follows: a. To remove bitter clashes resulting in loss of life which land is known to generate; b. To streamline/simplify the management of ownership of land; 39
  40. 40. c. To assist the citizenry irrespective of social status to realize his ambition and aspiration of owning a plot of land; d. To enable the government control the use of land tenure by facilitating, planning and zoning programmes for particular use.3.6 Public-Private Partnership Public Private Partnership is a sustainable effort between the public andprivate sectors, in which each contributes to planning and resources needed toaccomplish a mutually shared objective. The bane of national development is easily tied to the dearth ofinfrastructure. Nigeria‟s infrastructural challenges are huge. Recent reports suggestthat the country requires between US$12 to 15 billion annually for the next sixyears to meet the infrastructure requirement. It has become evident that thegovernment alone cannot muster the resources to meet this need. Therefore, theinvolvement of the private sector is not just desirous but necessary. Nigeria has not had consistent investment in infrastructure; howeverinfrastructural development is on the increase. Government has of late involveditself with project development in partnership with the private sector. Over 25projects have been rolled out through PPP. This is an indication that PPP is at itsinfancy in Nigeria.However, the Federal Government has set up the Infrastructural 40
  41. 41. Concession Regulatory Commission (ICRC).It was established by theInfrastructure Concession Regulatory Commission (Establishment, etc) Act, of2005. It is an institution responsible for setting guidelines to promote, facilitate andensure the successful implementation of PPP projects.Its primary objectives are: a. to accelerate investment in new infrastructure and ensure that existing infrastructure is upgraded to satisfactory standard that meets the need and aspirations of the public; b. to ensure that all investment projects provide value for money and that the costs of governance are affordable after allowing for economic growth; c. to improve the availability, quality and efficiency of power, water, transport and other public services in order to increase economic growth, productivity and access to markets; d. to increase the capacity and diversity of the private sector by providing opportunities for Nigerian and international investors and contractors in the provision of public infrastructure, encouraging efficiency, innovation and flexibility; e. to ensure that infrastructure projects are planned, prioritized and managed to maximize economic returns and are delivered in a timely, efficient and cost effective manner; 41
  42. 42. f. to manage the fiscal risks created under PPP contracts within the government‟s overall financial and budgetary frameworks; g. to utilize federal and state assets efficiently for the benefits of all users of public services.3.7 The Fiscal Responsibility Act 2009 The Act provides for prudent management of the Nation‟s Resources, long-term macro economic stability of the nation‟s resources through accountability andtransparency in fiscal operations within the Medium Term Fiscal PolicyFramework and the establishment of the Fiscal Responsibility Commission. This Act provides for accountability, transparency and value for money inthe public resource management of our country. The Fiscal ResponsibilityCommission has the mandate to do the following: a. Compel any person or government institution to disclose information relating to public revenues and expenditure; b. Cause an investigation into whether any person has violated any provisions of this Act; c. Recommend such a person, if so satisfied, to the Attorney-General of the Federal for possible prosecution. 42
  43. 43. 3.8 Tax Laws and Regulations Tax is a financial charge imposed by governmental authority upon property,individuals, groups or transactions to raise money for public purpose.Government‟s power of imposition of tax is not dependent on enforcement ofbenefits, but is essentially of sovereign power.3.8.1 General Outline a. Personal Income Tax Act (PITA); b. Company Income Tax; c. Education Tax – All incorporated Companies are required to pay 2% of their assessable profit into an Education Tax Fund. d. Industrial Development (income Tax Relief) Act – makes provision for the grant of tax relief to pioneer companies.Exemption from tax for companies which have incurred expenditure in itsqualifying building and plant equipment for use in an Export Processing Zone isgranted 100% capital allowance in any year of assessment.Value Added Tax –All purchases of chargeable goods and services are expected topay 5% purchase price as tax. Proceeds are shared among the three tiers ofgovernment. 43
  44. 44. Customs and Excise Management Act: Customs duties are payable byimporters of specified good. This is a very major source of revenue to the FederalGovernment. Stamp Duties Act: This is tax paid on a wide range of documents. Followingthe coming into force of Land Use Act of 1978, income is generated throughtenement rates payable annually on buildings situated within a particular areas.Also payment is made before a governor grants Certificate of Occupancy (C of O).3.9 Revenue Mobilisation, Allocation and Fiscal Commission Established by Decree 49 of 1989, it has on its board, a commissionerrepresenting each state of the federation including Abuja. In the 1999 Constitution,it is listed as paragraph 32 of part 1 of the third schedule. Its powers includetomonitor the accruals into and disbursement of revenue from Federation Account,review from time to time the revenue allocation formulae; provided that anyrevenue already accepted by the National Assembly shall remain in force for aminimum of five years. The Commission is an autonomous body and is not subject to the direction,or control of any other authority or person in the exercise of disciplinary controlover persons. 44
  45. 45. 3.10 The National Planning Commission (NPC) The NPC was established by Decree No.12 of 1992 as amended by Act 71 of1993. It has mandate to determine and advise the Government of the Federation onmatters relating to National Development and overall management of the nationaleconomy. Their functions are indicted in Appendix „1‟. This could be compared with the Malaysian Economic Planning Unit (EPU)which is the secretariat of the NationalPlanning Development Committee and wascharged with the responsibility for the formulation, implementation, progressevaluation and revision of development plans for both the central government andthe federating units. Consequently,the NPC should be forceful in the implementation of itsfunctions. It should ensure strict adherence to Nigeria developmental plans and begiven powers of sanction over non-compliance.3.11 Appraisal Many laws and regulatory frameworks have been rolled from 1960 till date,with regards to the exploitation and management of resources in Nigeria. The lawbooks and statutes are replete with these. The problem therefore has never beenattributable to inadequacy of laws but the capacity of relevant institutions withmandate to exercise oversight functions, including coordination and 45
  46. 46. implementation.For instance, the OFN attracted a sizeable investment into theagricultural sector both for commercial and subsistence purposes. Unfortunatelysuccessive governments after the Gen OlusegunObasanjo regime (1976 -1970) didnot build on the success achieved by that scheme. Otherwise by the turn of thecentury, food security for all Nigerians ought to have been assured and even hugeincome earned through export of food and food product to which value have beenadded. A pointer to the benefits accruable in this regard can be gleaned from theMalaysian experience as per the Study Group Threereport on resourcediversification in that country. This is exemplified in the vertical and horizontaldiversification Malaysia achieved in the oil palm industry. On the contrary, inNigeria, diversification in the field of solid minerals has been seriously hamperedby the constitutional provisions that place it on the Exclusive List, thus shutting outthe state, the local government and private sector initiative. On the whole, what is required therefore is the need to develop and integrateall sectors of the economy through robust legislative and regulatory frameworkaimed at achieving set objectives. 46
  47. 47. References1960 Constitution of the Federal Republic of Nigeria1963 Constitution of the Federal Republic of Nigeria1999 Constitution of the Federal Republic of Nigeria2007 Nigerian Minerals and Mining ActAdedipe N.O. et al.Akinbola, O.D and Oladele, (2004), Food, Agricultural and Environment Vol. 2(1): 249-254.2004Jinaidu, A.M “Management of Common Property Resources for Sustainable Livestock Production in Nigeria. Paper presented at the DFID Workshop on Land Tenure in Sub-Sahara 16th - 19th Feb.1999, UK.Federal Government of Nigeria, (2004), Laws of Federal Republic of Nigeria, Interpretation Act (2004), Cap 123 Sec. 18(1), Abuja: Federal Government Press.Fiscal Responsibility Act, (2007), Cap 31, Abuja: Federal Government Press.Infrastructure Concession Regulatory Commission (establishment, etc) Act 2005.Land Use Act1978Nigeria Mineral and Mining Act (1907), Section 1(1)National Policy on Public Private Partnership (PPP), A document of: The Infrastructure Concession Regulatory Commission (ICRC) July 2009.Oil in Navigable waters, Cap 06 Laws of the Federation of Nigeria, 2004.The Chartered Institute of Taxation: Nigeria Tax Guide and Statues Preface to CITN Proceedings of (2010), Annual Conference.The Land Use Act (1978), Part II Section S(Ia)The Petroleum Act, Laws of the Federation of Nigeria, Cap p.10 47
  48. 48. The NNPC Act, Cap N123, Laws of the Federation of Nigeria 2004.Uyo, J.N. (2011), “The Fiscal Responsibility Act”, Lectured delivered to officers of the Nigeria Police, AkwaIbom State Command on 20/08/11 48
  49. 49. CHAPTER FOURLEGISLATIVE AND REGULATORY FRAMEWORKS: LESSONS FROM COUNTRIES VISITED4.1 Preamble In the search for best practices, SEC 34, 2012visited Argentina, Canada,Gabon, Guinea,Malaysia, Morocco, Niger, Poland,Tanzania, The Gambia andTurkey.This chapterbrings out lessons learnt from these countrieswith specialfocus on agriculture, petroleum, and solid mineral sectors, three sectors that arecritical to resource diversification in Nigeria.Nevertheless, cases such as Researchand Development, Energy and Power as well as Human Capacity Development arealso examined to highlight best practices in the countries visited.4.2 Agriculture and Agro Allied Sector In Malaysia, all land is vested in the government. The country has madeoptimal utilization of its Federal Land Development Authority (FELDA) toestablish agricultural settlements and plantations for the unemployed and landlesspeasants. The FELDA framework has helped the country in its resourcediversification drive. Due to the success of FELDA, Malaysia is the largestproducer of palm produce in the world. Over 15 major products are derived fromoil palm,thusboosting the earnings of the country from agriculture. The 49
  50. 50. productsinclude oleo products, palm kernel cake, biodiesel and cosmetics. This isachieved through determined and integrated research and development activitiescarried out by FELDA in collaboration with the private sector. FELDA operates strictly on commercial basis whereby effective loanrecovery mechanism is put in place and every necessary farm input is supplied tothe farm settlers. Today FELDA that began with settling poor and landless peasantis now a giant conglomerate in Malaysia operating its oil palm refineries andinvesting in countries outside Malaysia (Study Group 3, SEC 34, 2012: 28). The Nigeria Land Use Act of 1978 vests all urban and rural lands ongovernors and local government chairmen respectively.Yet vast hectares of fertileland still lie fallow without meaningful agricultural activities.Nigeria has NationalAgricultural Land Development Authority (NALDA) established in 1992 which istailored to the same purpose as FELDA. However, NALDA was not as successfulas FELDA because it lacked commercial orientation. Unlike FELDA where settlerswere given portions of land on owner - occupier basis and necessary inputsgingered the settlers in loan repayment, the same framework was not adopted byNALDA. 50
  51. 51. 4.3 Solid Mineral Sector In Canada, mining contributed $36 billion to the country‟s GDP in 2010. Italso contributed 21% of the value of exports and earned $8.4billion in taxes androyalties to government. In addition Canada has over 5,000 mining companies thathave created jobs and economic growth for over 115 communities and employed308,000 Canadians in 2010. (Study Group 5, SEC 34, 2012:32). Unlike NigeriaCanada is able to reap from its mining sector because regulations of miningactivities are vested in the Provincial Government that is equivalent to the StateGovernment in Nigeria. Nigeria is also blessed with over 54 minerals deposits that are in commercialquantities yet to be fully exploited. According to Yishau O. (2012), “Not a few are looking forward to the day when the country will start drawing fortunes from its over 27 billion oil equivalent of the bitumen, 2.7 trillion tons of iron - ore and 1.4 billion tons of coal”.Due to over dependence on crude oil Nigeria is not reaping from its rich andabundant mineral deposits. This could be attributed to limitative constitutionalprovisions. The Exclusive Legislative List Part 1, Second Schedule item 39 of the1999 Constitution vests all mines and minerals including oil fields, oil minning,geological surveys on the Federal Government. This constitutional provision andthe Minerals and Mining Act Cap, M12 2004 are the major legal frameworks 51
  52. 52. regulating mining activities in Nigeria. Huge illegal and unregulated miningactivities are going on because of non-active participation of the FederalGovernment that has the exclusive right to mining exploration and exploitation inNigeria (Study Group 3, SEC 34, 2012: 10). The mining sector presentlycontributes a meager 0.4% to the GDP in 2011. This is in spite of the huge andhighly demanded mineral deposits spread all over Nigeria.4.4 Petroleum Sector The Canadian experience may be useful to Nigeria. Canada has 16 refineriesthat produce a full range of refined petroleum products. These include gasoline,diesel fuel, light fuel oil, aviation Jet A fuel, motor oil and grease, waxes,petrochemical among others thereby exhausting diversification within the sector. Canada has been able to record much achievement in the sector because ofher practice of fiscal federalism. Just like the solid mineral sector, Provinces havethe right of exploitation of petroleum resources within their domain. In Canada andMalaysia there is a strict control and monitoring of activities within the sector sothat illegal activities like bunkering and vandalisation of installations are notrampant. By contrast, in Nigeria there is not much resource diversification evenwithin the petroleum sector in Nigeria. There are over 200 by - products possible in 52
  53. 53. this sector. However, Nigeria continues to produce and export crude oil and importrefined petroleum products. Nigeria could increase revenue in this sector throughactive participation in the two streams of production within the sector - up streamand downstream sectors.4.5 Research and Development (R&D) In Malaysia, both the government and the private sector collaborate in R&Dand share results from this activity. Also, a huge per centage of the national budgetis consecrated to R&D. This explains why for instance, Malaysia took oil palmseedling from West Africa in 1965 and has researched into it to improve yield pertree as well as quality of produce. In 2012 Malaysia has gone from palm seedling(PS) 1 to PS12. R&D efforts in Malaysia have also resulted in the zero waste of theoil palm; all parts of the oil palm are useful. In addition, oil palm now has over 15by-products from this one product. The same is true in other produce areas. Nigeria could learn from Malaysia to increase allocation to R&D.Governments research institutes and Private Sector enterprises should also unite toshare the results of Research and Development. This should result in internaldiversification of products as well as in vertical diversification. 53
  54. 54. 4.6 Energy and Power Sector In Malaysia, there are many sources of energy available for developmentpurposes. These include hydro, nuclear, windmills and coal. Malaysia produces84% of electricity from fossil fuels and 16% by hydro power plants. In 2010,installed capacity was 24,187mw, 16,332mw was consumed, leaving an excess of7,855mw. The same high level of energy mix is practised in Canada where there isno over reliance on one energy source. In Poland, there is also a level of energymix; hydro, geothermal, coal, oil, natural gas, wind and biomass. However, energysupply is dominated by hard coal. Nigeria has a large deposit of low sulphurcontent coal which could be exploited and integrated in the energy supply mix inthe country.4.7 Human Resource/Capacity Development Education is free in Malaysia up to the university level while in Canada it isfree up to high school level. In the two countries, scholarship programmes abound.In The Gambia there is emphasis on girl child education to address the problem ofgender inequality in national development programme. The literacy level in thesethree countries are very high due to the free education policy. Malaysia allocates26% of her budget to education. Nigeria could borrow from these practices becausea highly educated work force goes hand in hand with Research and Development 54
  55. 55. 4.8 Coordination of Government Policies In Malaysia, the Performance Management and Delivery Unit(PEMANDU), is charged with coordinating the activities of the various MDAs toensure that governments goals and objectives are being achieved within theproposed timeframe. In Nigeria, the National Planning Commission (NPC) like thePEMANDU,plays a coordinating role of monitoring other MDAs. The NPC willneed to keep a closer tab on MDAs to ensure that the objectives of the PresentTransformation Agenda of government are being pursued individually andcollectively by the various MDA‟s.4.9 Water Resource Management In recent times, the issue of inadequate water management has been acontending national issue. The 12 River Basin Development Authorities have beenadjudged not to be performing at the expected level. Nigeria needs to address theinadequacies in management of its water resources for effective utilisation foragricultural activities. This is to control excess that could unleash flooding duringraining season and provide for irrigation for dry season farming. 55
  56. 56. 4.10 Anti-Corruption Corruption is one of the factors that could prevent effectiveoperationalization of legal and regulatory frameworks in a country. Thus manycountries establish special frameworks for tackling corruption in addition to theconstitutional provision for criminal justice. In Malaysia for instance, institutionssuch as the Performance Management and Delivery Unit (PEMANDU), andpolicies like “whistle blower” and “name and shame” are all special anti-corruptionframeworks. Nigeria also has special anti-corruption institutions like ICPC, EFCC andCode of Conduct Bureau. Policies like the Fiscal Responsibility Act and NigerianExtractive Industry Transparency Initiative represent special frameworks againstcorruption. Despite these legal and regulatory frameworks, corruption remains ahindrance to effective resource diversification in Nigeria. This is mainly because ofslow and inefficient criminal justice procedure in regular courts especially withregard to corruption cases. Nigeria could thus have special corruption courts inaddition to adopting other policies as used in Malaysia. 56
  57. 57. References1999 Constitution of the Federal Republic of Nigeria.Land Use Act of the Federal Republic of Nigeria 1978.Petroleum Industry Bill (Nigeria 2004).Study Group Three, (2012), Foreign Study Tour Report of Malaysia, ResourceDiversification for Sustainable Economic Development in Nigeria.Study Group Five, (2012), Foreign Study Tour Report of Canada, ResourceDiversification for Sustainable Economic Development in Nigeria.Yishau, O.(2012), “52 Years on, the gold mines remain dormant”, The Nation, October 1, 2012 P.6. 57
  58. 58. CHAPTER FIVE CONCLUSION, RECOMMENDATION AND IMPLEMENTATION STRATEGIES5.1 Conclusion This study established that legal and regulatory frameworks play importantroles in successful diversification of a nation‟s economy. Thus, ineffective legaland regulatory frameworkshamper successful diversification of resources andeconomic growth. Nigeria has a good number of regulations and institutions, whichhave been put in place to govern economic activities in the various sectors. Theproblem, however, has been in the implementation of such regulation by therelevant institutions. Over the years, legal and regulatory frameworks have been used toencourage or inhibit investments in certain economic sectors as desired. While thelegal and regulatory frameworks with respect to the agricultural sector havegenerally aimed at encouraging maximum participation at all levels, the contrary isthe case with solid minerals sector. Similarly, the laws, regulations and institutionsthat guide oil and gas exploitation have failed to achieve diversification. HenceNigeria has been unable to actively participate in the downstream oil sector. It has also been established that inadequate legal and regulatory frameworksregarding other aspects of the economy research and development, human capacity 58
  59. 59. development among others are responsible for the poor performances in thoseareas. In order to improve her capacity for resource diversification, Nigeria coulddraw useful lessons from some of the countries visited by SEC 34, 2012Participants. The best practices could help to strengthen institutional efficiency,limit corruption and engender effective operationalization of the existing legal andregulatory frameworks in Nigeria.5.2 Recommendations and Implementation Strategies In light of the foregoing, analysis and lessons learnt, the followingrecommendations and implementation strategies are proffered;Recommendation One The National Planning Commission should exercise stricter coordinating andsupervisory role over MDAs.Implementation Strategies i. The Presidency to ensure that the National Planning Commission coordinates and supervises MDAsin line with budgetary allocations for sectoral developments. ii. Ministry of Finance to ensure timely release of funds for execution of approved projects. 59
  60. 60. Recommendation Two State Governments should participate in the exploitation of resources in theirdomain.Implementation Strategies i. Federal Ministry of Solid Minerals Development to present a Memorandum to the Constitution Review Committee to allow for participation of States and individuals in mineral exploitation. ii. The National Assembly to enact a law to legalise artisanal mining.Recommendation Three The Federal Government should operationalize the Land Use Act of 1978.Implementation Strategies i. The National Agricultural Land Development Authority (NALDA) to be commercial oriented. ii. NALDA to understudy Federal Land Development Authority (FELDA) of Malaysia.Recommendation Four The National Judicial Commission should expedite system of justicedispensation. 60
  61. 61. Implementation Strategies i. The law courts to dispense with cases within a given period of time not exceeding six months; ii. Special Tribunals to try corruption and anti-graft cases to be set up.Recommendation Five The Federal Government should diversify its energy sources.Implementation Strategy Federal Ministry of Power and Energy to make use of abundant coalreserves.Recommendation Six River Basin Development Authorities should work out modalities to ensureeffective prevention of flooding in the River Basins.Implementation Strategies i. River Basin Development Authorities to do hydrological survey of flood prone areas; ii. River Basin Development Authorities to ensure none cultivation/habitation of flood prone areas. iii. The proposed dam on Upper Benue to be constructed. 61
  62. 62. BIBLIOGRAPHY1999 Constitution of the Federal Republic of Nigeria.Adekoya, A.A. (2011), “Corporate Governance Reforms in Nigeria: Challenges and Suggested Solutions” Journal of Business Systems Governance and Ethics, Vol. 6, No.1.Afolabi, O.S. (2012), “Legal and Regulatory Framework for Resource Diversification in Nigeria: Globalisation and the Prospects of Resource Diversification” (Paper presented to the Participants of Group One, Senior Executive Course, No. 34, 2012 of the National Institute for Policy and Strategic Studies, Kuru).Ajani, A. (2012), “Kwara State: History, Geography, Occupation and Culture”, (Paper presented to Participants of Group One, Senior Executive Course, No. 34, 2012 of the National Institute for Policy and Strategic Studies, Kuru).Akinbola, O.D and A. Oladele, (2004), Food, Agricultural and Environment Vol. 2(1): 249-254.2004Alo, O. (2003), Issues in Corporate Governance Financial Institution Training Centre. Lagos.Amaeshi K. &Amao O.(2008), “Corporate Social Responsibility (CSR) in Transnational Spaces: An Institutionalist Deconstruction of MNCCSR Practices in the Nigeria Oil and Gas Sector, CSGR working Paper 248/08.Amaechi, K.A et al (2006), “Corporate Social Responsibility in Nigeria: Indigenous practices or Western Influences?”Journal of Corporate Citizenship (Winter Edition) 24: 83-99.Armstrong, P. (2003),Status Report on Corporate Governance Reform in Africa, Paper presented at the Pan Africa Consultative Forum on Corporate Governance. 62
  63. 63. Chevalier P. (2012),“The Canadian Mineral Development Model, Natural Resources Canada”. (Presentation to the Delegation of the National Institute of Policy and Strategic Studies, Nigeria on 24/07/2012)Cadwalader et al (2012), “Constitution Amendment Benefit the Turkish Power Market,” http://library.findlaw.com/1999/Oct/1/128013.html-Retrieved 12/07/2012.Ecovis (2012), “Turkish Tax System,” http://www.ecovis.com/index.php?id= Turkish-tax-system&id=27981&type=98 - Retrieved 12/07/2012.Federal Government of Nigeria, (2004), Laws of Federal Republic of Nigeria, Interpretation Act (2004), Cap 123 Sec. 18(1), Abuja: Federal Government Press.Fiscal Responsibility Act, (2007), Cap 31, Abuja: Federal Government Press.Inyang B.J (2009) „Nurturing Corporate Governance System: The Emerging Trends in Nigeria‟ Journal of Business Systems, Governance and Ethics 4(2) 1 - 13Land Use Act of the Federal Republic of Nigeria 1978.Li,S. &L.Flier, (2007), “The Effect of the Governance Environment on the Choice of Investment mode and Strategic Implications” Journal of International Development 17 (7) 913 - 929.Martinsons M.G. (2008), Relationship based e-commerce: theory and evidence from China :Information system journal vol. 18 issue 4, Pp331-358.National Bureau of Statistics, 2003Ngwake C.C (2009) Environmental Responsibility and firm performance: Evidence from Nigeria. International Journal of Humanities and social Sciences 3(2) Pp 97 - 103Niger Republic Land Administration Law (2008), la loi Orientation sur l‟ Urbanisme et l‟ amenagemtfoncier,(LOUAF) dated March, 2008Nigeria Mineral and Mining Act (1907), Section 1(1) 63
  64. 64. OECD Regulatory Policy Committee, Indicators of Regulatory Management systems, 2009 Report.Okeahalam C.C &Akinboade O.A (2003). A review of corporate governance in Africa: Literature issues and challenges. Paper Presented to the Global Global Corporate Governance Forum 15 June 2003. Pp 1 -34Okike, W.N.M. (2007), “Corporate Governance in Nigeria: The Status quo”. Corporate Governance (15) 2173-193.OlusaRussouw G.J (2005), Business Ethics and Corporate Governance in Africa, Business and Society 44(10) 94 - 106Onyeaso N. (2012) Black flairs LLP; http://www.hg.org/article.asp?id=19931 Retrieved 30/09/2012Ologba, W.A. (2012), “Security Issues in Resource Diversification”. (Paper presented to the Participants of Group One, Senior Executive Course, No. 34, 2012 of the National Institute for Policy and Strategic Studies, Kuru).Oyejide T.A. &Soyibo A. (2001).A paper presented at the conference on Corporate Governance Accra Ghana 29-30 January 2001.Performance Management and Delivery Unit: Brief to NIPSS Delegation to PEMANDU, Kuala Lumpur July2012.Petroleum Industry Bill (Nigeria 2004).Sinda A.A and W.B. Kabinga (2012), Akono and Company Advocates “Tanzania, The Public Private Partnership Act. 2010 and its Implications for the Business Community” Snr Denton Arusha Publications.Suhaiza, I.et al (2007), Critical Success Factors of Public Private Partnership (PPP) Implementation in Malaysia.Study Group Five, (2012), Local Study Tour Report of Kebbi State, Resource Diversification for Sustainable Economic Development in NigeriaStudy Group Four, (2012), Foreign Study Tour Report of Canada, Resource Diversification for Sustainable Economic Development in Nigeria 64
  65. 65. Study Group Six, (2012), Foreign Study Tour Report of Canada, Resource Diversification for Sustainable Economic Development in NigeriaStudy Group Three, (2012), Foreign Study Tour Report of Malaysia, Resource Diversification for Sustainable Economic Development in Nigeria.The Chartered Institute of Taxation: Nigeria Tax Guide and Statues Preface to CITN Proceedings of (2010), Annual Conference.The Gambia Investment Guide, Oct. 2010.The Land Use Act (1978), Part II Section S(Ia)Uyo, J.N. (2011), “The Fiscal Responsibility Act”, Lectured delivered to officers of the Nigeria Police, AkwaIbom State Command on 20/08/11Wilson, I. (2006), “Regulatory and Institutional Challenges of Corporate Governance in Nigeria Post Banking Consolidation”. Economic Indicators Nigerian Economic Summit Group (NESG) April - June 2006Wilson, S. and S. Mahbob (1997), “Decentralisation and Fiscal Federalism in Malaysia.”In Mahbob.Yishau, O. (2012), “52 Years on, the Gold Mines remain dormant”, The Nation, October 1, 2012. 65
  66. 66. APENDIX 1 FUNCTIONS OF THE NATIONAL PLANNING COMMISIONTo provide policy advice to the President in particular and Nigeria in generalon all spheres of national life;To set national priorities and goals and engender consensus amongGovernment agencies, as may be contained in guidelines issued by theCommission from time to time;To undertake periodic review and appraisal of the human and materialresources capabilities of Nigeria with a view to advancing theirdevelopment, efficiency and effective utilization;To formulate and prepare long-term, medium-term and short-term nationaldevelopment plans and to co-ordinate such plans at the Federal, State andLocal government levels;To monitor projects and progress relating to plan implementation;To advise on changes and adjustments in institutions and managementtechniques as well as attitudes necessary for the alignment of actions withplan targets and goals; 66

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