The Nigerian federation has been derisively described as ‘feeding bottle federalism’ characterised by the monthly revenue sharing among the three tiers of government. In recent times, states have started demanding for a new revenue formula in line with current economic realities. Assistant Editor LEKE SALAUDEEN examines the issues involved and why a sharing formula acceptable to the federating units may be difficult to attain.
THE precarious economic situation in the country where many state governments are unable to meet their obligations to workers has rekindled the call for the review of the revenue sharing formula among the three tiers of government. Nearly two-thirds of the 36 states are insolvent. They have backlog of salaries to clear, while the provision of social services is no longer feasible. The slump in crude oil price at the global market has reduced the nation’s earnings from the commodity and this has adversely affected state governments who depend almost exclusively on allocations from the Federation Account.
As a result, the Nigeria Governors Forum has come up with fiscal restructuring plan that will put more money in the coffers of the states, if such a review is undertaken. Analysts are of the view that the review of the revenue sharing formula is inevitable, given the situation many states have found themselves. The structure of the federation, they say, does not give room for creativity at the grassroots. At present, the Federal Government gets 54 per cent from the Federation Account; the 36 states share 26 per cent, while the 776 local governments are left with the remaining 20 per cent.
An economist, Dr. Adebayo Adesina, observed that revenue sharing and allocation between the federal and other tiers of government have become the most contentious issue in Nigeria’s fiscal federalism. He said revenue allocation is fundamental to the political stability of the country. According to the economist, fiscal matters transcend the purview of economics. In plural societies, he added, they assume political, religious and social dimensions. He argued that the percentage of the revenue accruing to the Federal Government vis-à-vis other federating units is lopsided and that it has eroded the financial autonomy of states, making the Federal Government to venture into areas exclusive to or shared concurrently with the two tiers of government.
Adesina added: “The principal effect of overbearing lopsidedness of the revenue sharing system has continued to strengthen the position of the Federal Government and in turn weaken the position of the other two tiers. It can be argued without fear of contradiction that one of the reasons for the high turnover in revenue allocation principles and formula is the relative share of each layer of government in the Federation Account. Each level of government, particularly the states, only agitate for reviews of the formula so that more money can be allocated to them.”
The economist said the general opinion in the country is that the Federal Government controls a disproportionate amount of resources to the detriment of the states and local governments. “The Supreme Court judgment on Onshore and Offshore Dichotomy has proved this right. There is flagrant violation of revenue allocation laws by the Federal Government to its advantage. Before now, not all federally-collected revenues are paid to the Federation Accounts for distribution among the tiers of government,” he observed.
Elder statesman Alhaji Femi Okunnu described the 54 per cent share of the Federal Government as outrageous. In his opinion, the Federal Government should not take more than 25 per cent.
The former Federal Commissioner of Works and Housing recalled that, before independence, the colonial government with the consent of the regional governments appointed the Fiscal Commission to look into the functions and powers of the legislative list and determine the percentage of revenue the regional government will need to carry out their functions and the percentage that will go to the Federal Government to service its own functions. He said: “That was how government at independence up to the time of Murtala/Obasanjo followed the fixed constitutional formula of 20 per cent to the Federal Government, 50 per cent to the states and the remaining 30 per cent to distributive pool to be shared among the regions or states.
“But, today, the Federal Government takes 54 per cent to discharge its own functions. The functions as listed in the 1999 Constitution include weights and measures, traffic on federal roads, declaration of waterways, stamp duties, quarantine, designation of professional occupation, passport and visa, insurance, law of evidence, awards of national honours, law on copy right and such other functions which do not require a great deal of expenditure. Rather, some of them like stamp duties and passport generate income for the Federal Government. There are some functions, which the government itself is selling to the private sector which require little expenditure.
“All functions listed in the Concurrent Legislative List and Residual Powers that are not listed in the Exclusive Legislative List like primary healthcare, education (primary and secondary), land, housing, water supply and agriculture are mainly the basic functions of the state governments. These are the areas through which the people feel the impact of government every day and they require huge capital outlay to accomplish, compared with the Federal Government’s functions. Why should the Federal Government’s share of the Federation Account jump from 20 per cent to 54 per cent when the functions of the states are getting bigger?”
An economist, Adedotun Philips, believes both the state and local governments are short-changed, because they receive only half of their constitutional entitlements from the Federation Account, due to the Federal Government’s subterfuge. He blamed the military for arbitrarily increasing what accrues to the Federal Government. He said: “It expanded substantially from 52 per cent in 1983 to 74 per cent in 1995. On the other hand, there was abysmal decline in state governments’ share from 40 per cent to below 20 per cent within the same period.”
Adedotun said the situation was compounded by the fact all tiers of government, particularly state and local governments, depend on statutory allocations for their survival. He said: “Therefore, whenever there is a drop in allocations, their development efforts are adversely affected. Rather than supplement the internal revenues of the states, the statutory allocations to states on the average account for over 80 per cent of their revenue. In fact, it is the primary source of the states’ financial resources.
“This simply exposes the weakness of Nigeria’s federalism in which the states and local tiers of government lack the necessary initiatives to mobilise resources internally, thereby failing in their responsibilities to the people.”
Okunnu said it is ironic that the country is not ready to face the historical truth about the basis of the revenue allocation, particularly the reason why the colonial era and, until 1979, the Federal Government was assigned only 20 per cent of the revenue allocation, instead of the 54 per cent it now receives for running the central government.
Quoting copiously from Section 134 (1) of the 1960 Constitution, Okunnu said: “There shall be paid by the Federation to each region a sum equal to 50 per cent of the proceeds of any royalty receive by the federation, in respect of any mineral extracted in that region and any mining rents derived by the federation during that year from within that regions.
“The Federation shall credit to the Distributable Pool Account, a sum equal to 30 per cent of the proceeds of any royalty received by the federation, in respect of the mineral extraction in any region and any mining rents derived by the federation from any region.”
The elder statesman said the remaining 20 per cent was kept by the Federal Government as its own share and that under the colonial rule the revenue allocation was fashioned in such a way that regions would derive revenue from the Federation Account according to the functions and powers allocated to them under the constitution.
Constitutional lawyer Dr. Ejike Ezimora said one major feature that is lacking in the Nigerian federalism is financial autonomy. He said this has never been achieved in Nigeria federalism. The high level intervention of the Federal Government through national financial policies, grants-in-aids among others, increases its power and makes the federating units subordinate to the central government.
Ezimora explained: “The increased revenue from oil boom has made the Federal Government to be more financially powerful over the state governments than before. As a result of this excess liquidity, the Federal Government embarked on some projects which were meant to be in the Residual List. The Universal Basic Education project and primary healthcare are examples.
“Today, the revenue profiles of the states show little growth potential while, conversely, the expenditure shows a high growth potential. This is very unhealthy and suicidal of a federal polity. That is the reason why many states are openly calling on the Federal Government for financial assistance, thereby making the constituent governments subservient to the central government.
“If states find that the services allotted them are too expensive to perform and if they call upon federal authority for grants and subsidies to assist them, they are no longer coordinate with the Federal Government, but subordinate to it. Financial subordination makes an end of federalism.
“It follows, therefore, that both state and federal authorities in a federation must be given the power in the constitution each to have access to and to control its own sufficient financial resources. Each must have a power to tax and to borrow for the financing of its own service by itself.”
On why Nigeria has failed over the years to come up with an acceptable revenue sharing formula, Phillips blamed it on lack of consensus on the criteria of distribution, the absence of reliable socio-economic data, the rapid rate of constitutional change and the extent to which revenue distribution is tied to perceptions of regional ethnic dominance.
Philips noted that the major problem of inter-governmental revenue sharing in Nigeria has always been the formula for sharing revenue among regions and states that is, the horizontal revenue sharing scheme. He added: “In terms of horizontal (inter-state and inter-local) distribution, the Nigerian revenue allocation formula is based on two major principles: first principle of equity which includes even development, national interest, minimum responsibility of government, financial comparability, and primary school enrolment. The second principle is social factor that includes national minimum standard, population landmass, and terrain.
“Since independence, each region or state has argued for the revenue sharing principles that support its particular interest. The states in the Southsouth or Niger Delta Region of the country always agitate for the derivation principle to be the major criterion in revenue allocation formula. This is with the belief that the derivation principle will enable them to benefit tremendously from the large deposits of crude oil in the region. States like Kano, Lagos, Imo, Oyo, Sokoto and Borno want revenue sharing formula to be based on population and landmass, which will work in their favour.”
Analysts believe it will be very difficult to have an acceptable revenue sharing formula in Nigeria because of its pluralistic nature. Apart from the fact that revenue sharing is seen as a symbol of ethnic domination, there are no reliable and acceptable socio-economic data on which technical impartial allocations can be based, they observed.
