As the relevant agencies set about cobbling a new revenue sharing formula, Nigeria has a fresh opportunity to infuse modern scientific acumen into its public financial management. While the state governors are rightly pressing for a more equitable template in allotting portions of the inflow into the Consolidated Revenue Fund of the Federation, they are locked in to the culture of sharing and consumption that has kept the country back and reduced states to beggars. Now is the time to reduce the federal stake, raise the states’ takings and operate the union as a true federation.
State governors, operating through the Nigerian Governors’ Forum, are renewing their clamour for a radical review to tilt more of the funds their way and less to the Federal Government. They have made strong representations on the imperative of this to the federal parliament and to the President, Major General Muhammadu Buhari (retd.), whom they met with last week in Abuja. The process of reviewing it by the Revenue Mobilisation, Allocation and Fiscal Commission, the agency charged with periodic review of the formula by the constitution, is already underway.
The current formula gives 52.68 per cent to the Federal Government, the 36 states share 26.72 per cent, while 20.6 per cent goes to the 774 local governments. This is not only inequitable because it gives a preponderant chunk to the centre, but also bizarre by allotting funds directly to the third tier as if, like the states, they were federating units. The sharing formula is also overdue for review after being adopted in 2002. The preceding one was no better, at 48.5 per cent; 24 per cent, and 20 per cent to the federal, states, and local governments respectively, with seven per cent designated as Special Fund to be shared among the three. In this way, oil-producing states have had a raw deal, given only 13 per cent of the proceeds from their natural endowment.
Debates over revenue sharing have been a recurring feature of Nigeria’s distorted federalism. Instead of states, as the federating units, generating their revenue and contributing to the centre and the distributable pool, they have become mere recipients of sharing. Today, the governors agitate for more in response to their expenses moving far ahead of revenue and more urgently to meet the new wage structure triggered by the new minimum wage legislation. They also want more, primarily, to meet their unsustainable wage bills and profligate recurrent spending. This is wrong and is part of the poverty-inducing fiscal architecture that has made the country the world’s poverty capital where unemployment reached 23.9 per cent in 2018.
The ongoing review is, therefore, an opportunity to begin reversing the assault on fiscal federalism. It is recognised as a system of taxation and public expenditure in revenue-raising powers where control of expenditure is vested in various levels of government. This principle was recognised in the self-government arrangement prior to independence, in the immediate post-independence era and solidified in the 1963 Republican Constitution. Experts say that fiscal federalism makes a federal system of government efficient and effective “by facilitating a just distribution of income, efficient and effective allocation of resources and economic stability.”
This was evident in the three, and later, four-region structure prior to 1966. Revenue allocation is the method of sharing centrally-generated revenue among different tiers of government. Prior to 1959, 100 per cent of revenue from mining rents and royalties went to the host region, but after oil production began in earnest, 50 per cent went to the host region, 20 per cent to the Federal Government, while 30 per cent went to the Distributable Pool Account for sharing among all the regions. This was entrenched in the 1963 Constitution.
Fiscal federalism facilitated growth and healthy competition among the regions until military intervention in governance in 1966 upturned and replaced it with a sharing template in which the centre, having appropriated so much power to itself, atomised the regions into 36 weak states. The oil boom led to the neglect of other minerals and agriculture, and fed consumption and sharing addiction. No other democratic federal union operates such a primitive system.
This has become so glaringly unsustainable. First, the current revenue formula needs to empower the states; the Federal Government has no right to 52.68 per cent and should get less as the revenues are generated by productive activities in the states. Derivation should be nothing less than 50 per cent; the current 13 per cent is a gross injustice that should no longer be sustained.
Fortuitously, the Senate has said the National Assembly will early in 2020 begin the process of further amendment of the 1999 Constitution. Instead of asking for more of crude oil revenues to pay salaries and run unproductive bureaucracies, they should lend their influence to and join progressive forces in making inputs that will devolve more responsibilities to the states, including resource control, state police, power and railways and reduce the overarching role of the centre.
Giving more to the states, however, without the shock therapy of an equitable derivation policy, will only hand over more to waste and plunder into the profligate states. The only effective way to compel states to look inwards to exploit their resources and compete among themselves for investments, manpower and markets is to deprive them of unearned oil revenue; when 50 per cent of oil income goes to oil-bearing states, others will have to attract investments in agriculture, mining, manufacturing and services to survive, as well as overhaul their tax administration.
This also applies to the Federal Government, which is equally inebriated on oil revenues and fails to implement policies that will create jobs, attract investments, maximise taxation and block leakages. Governments do not and should not exist primarily to pay salaries and run cost centres; success in today’s knowledge- and technology-driven global economy is measured by job creation, productive activities and high human development indices. States should strive towards these objectives in seeking and utilising a new revenue formula.
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