The Ebola virus spreading through West Africa has reached Nigeria. While the number of Ebola cases in Nigeria is small, the highly contagious disease can spread quickly, especially in a country with chronically low-quality health services. One might think that the biggest economy in Africa should have the resources and infrastructure to battle the health threat, but despite billions of dollars in annual oil revenues, Nigeria’s poor health services are putting the country at risk of spreading the epidemic. Unfortunately, the problems with public service delivery in Nigeria do not stop with health. Authorities have recognized that Nigeria is unlikely to achieve any of the Millennium Development Goals (MDGs) by 2015 (see the Government’s full review here).
Why the dearth of public services in a booming economy? Corruption. Above all else, pervasive and endemic corruption remains the Achilles Heel of the Nigerian economy. As the Finance Minister recently noted, “Corruption is a serious issue for us because it is destroying our country, eating deep into the fabrics of the economy, we can’t have infrastructure and development with these level of corruption.” In an environment of such endemic corruption, what can be done to help translate huge natural resource revenues into tangible improvements in the lives of the 110 million Nigerians living on less than US$1.25 a day?
In a recent study conducted with the Centre for the Studies of the Economies of Africa – an Abuja-based economic think-tank – we put forward an approach designed to improve the provision of public goods and services that we believe could work within the current Nigerian system. That approach is known as Results-Based Financing (RBF). (For an example of the RBF approach, see this World Bank initiative; the approach is conceptually similar to other ideas such as Pay for Performance, Cash on Delivery Aid and Output-Based Aid.)
To understand how RBF would work in Nigeria, it is important first to understand that Nigeria, like many large countries, practices a form of “fiscal federalism,” in which the national government and the subnational governments (states and localities) share responsibility for public service provision. In the Nigerian system, the central government is responsible for collecting most revenues and for distributing these revenues to state and local governments. These subnational authorities depend on the center for revenues, but remain highly autonomous in their spending decisions. Weak political and administrative structures at these levels mean state governors are all-powerful and direct subnational funds as they see fit.
In the traditional approach to public service financing, revenue allocations from the center to subnational governments are based on the “inputs” that the subnational governments plan to procure – things like building hospitals or hiring health workers. The hope and expectation is that supplying these inputs will lead to improved outcomes. But input-based financing schemes are ripe for graft. Politicians can easily direct funds to preferred contractors who can use a fraction of the funds to meet minimum requirements, while pocketing the rest. Even when funds are used properly, international experience has shown that interventions focused on inputs do not necessarily led to better outcomes.
RBF, in contrast, directly links central government financing with the monitoring and verification of results, such as a reduction in maternal mortality or an increase in the rate of infant immunization. By linking payments with measureable outcomes, RBF makes it harder for corrupt politicians/officials/providers to cheat the system, since real results must be achieved and verified before funds are disbursed. Additionally, RBF is designed to work within existing government structures, and hence to strengthen transparency and local accountability by encouraging community participation in delivery and monitoring of service provision.
How would an RBF-style program work in Nigeria?
Our RBF proposal is designed to provide conditional federal financing to subnational governments to improve specific human development outcomes within their jurisdiction. By offering federal financial and technical support, the program would encourage subnational governments to tackle locally-nominated problems. Since the RBF scheme will be based on outcomes, the initiative would require a non-manipulable method for setting targets and for measuring outcomes; this method must be sufficiently ambitious but still feasible. To set these targets, we propose a technique that has been used to determine poverty reduction targets in Latin America and is discussed at length in our paper. (That technique has the advantage of being both transparent and easy to calculate – meaning it can be maintained by a bureaucracy with limited technical capacity.)
Furthermore, rather than offer a standard RBF package to all subnational governments, we instead propose that the central government offer the subnational governments a range of options that vary in terms of local autonomy, openness of the monitoring and evaluation (M&E) process, and financial risk. The subnational governments could then opt into whichever package is most appropriate. For example, better performing subnational governments that want more autonomy could opt for a design with fewer compliance requirements, but with a more open M&E process, and greater financial risk. In the paper, we provide an example involving three options, and show how the program can be designed to encourage subnational authorities to select the option that is most suited to their needs and capacities.
The RBF proposal will not solve all of Nigeria’s woes, nor does it directly attack the overall environment of corruption. It is, however, a pragmatic method to promote more efficient public service delivery, with less incentive or opportunity for diversion of funds. We believe the RBF approach provides a valuable alternative in the toolkit of policymakers in Nigeria, and in other countries where corruption undermines the capacity of the government to do what governments are supposed to do – create a better future for all citizens.