Revenue Sharing Formula In Nigeria – A Time Bomb

Revenue Sharing Formula In Nigeria – A Time Bomb

Law Mefor


Can President Umaru Musa Yar'Adua go against the fundamental stand of the North on resource control and fundamentally alter the nation's discredited revenue sharing formula? Ledum Mitee-led Niger Delta Technical Committee (NDTC) recommended the damning obvious: let there be 50% resource control, starting with 25% and the balance met in the next few years. Going by the well-canvassed position of the north on the issue, this recommendation should be, to them, a pipedream. So, can Yar'Adua muster the courage to move against the fundamental interest of his north and significantly alter boding evil revenue sharing formula?

According to the Adaka Boro Centre (http://www.adakaboro.org), the  Niger Delta Technical Committee (NDTC) is a "45-member committee set up by President Umaru Yar'Adua of Nigeria on September 5, 2008 to review and distill all previous reports on the Niger Delta and come up with appropriate recommendations on the way forward for the region." In inaugurating them on the president's behalf, the Ijaw-born vice president Goodluck Jonathan also charged them to ‘ferret out' solutions to the Nigeria Delta problem. Now, the committee has ferreted out 50% resource control, which unlikely anticipated by the presidency.

Leaders of the Nigerian nation, past and present, know that lack of fiscal federalism is indeed a time bomb yet run circles round it. To pull the nation back from precipice in 1966/67, the federal elements had to go war against the separatist and since then the nation's unity has remained ever fragile and has to be maintained by centralizing power and adopting military options. When military rule proved too unplumbed and unfashionable, its forms had to change to the strange brand of democracy we now practice, a democracy that excludes popular choice and leave the masses in the cold; a brand of democracy where the oligarchs pick candidates for 140 million people and use the army and the police to keep dissenters quiet and smiling. So, can Yar'Adua dare where even generals could not, to save the nation from cataclysms?

The ruling elite seem to be scared stiff; they fear popular democracy may prove even more ruinous because it can easily throw up a ‘Pharaoh that does not know Joseph', which could spell ‘to your tent oh Israel' for the shilly-shallying nation! It nearly happened with Chief MKO Abiola and they had to move quickly to pluck him from his Ekpe illusions of riding on the crest of the masses' wishful thinking, to Aso Rock. How mistaken he was indeed!

But for how long will the warped elite hold out with the mounting odds? For example, the Niger Deltans are fully united in their quest for resource control and will not accept anything short of the recommendation of the Mittee committee – 50% resource control.(I have not come across any Niger Delta bigwig that is not full  in support of the struggle and I have interviewed a couple them for Legist Int'l magazine).

Giving such scary realities on ground, is Yar'Adua prepared to make a square facing to it or is he just buying time to hand the baton  to IBB or Buhari? You recall these 2 gap-toothed generals hatched policies that amassed much more of the nation's recourses to the center. With the quest for suitable replacement for Yar'Adua really drumming up, one of them is likely to be the brought back by the north to continue the obnoxious and cartelizing policies.

But can IBB or Buhari keep the Niger Delta perpetually at bay iron-fist and force a continuation of the policies that have failed even in their military era? Positions found in various federal documents indicate that our governments and a number of their top functionaries have always been keenly aware of the various defects and the resulting lack of development that the nation faces from the bad resource distributions, but they have done little or nothing to fundamentally change it. Can Yar'Adua do otherwise?

Throughout 2008, the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC) was pressing hard for the passage of the Bill for a new revenue sharing formula among the three tiers of government. It proposed 53.69 per cent for the Federal Government, 31.10 percent for the states and 15.21 per cent for local government. A major feature of the bill is the proposal to pay oil revenue derivation directly to oil producing communities.

Then, Chairman of the RMAFC, Alhaji Haman Tukur, who briefed President Umaru Yar'Adua on the proposed formula described it as "fair and just" and a demonstration of the commission's commitment to an equitable formula for the distribution of the nation's wealth to the various levels of government. This ‘fair and just' formula has now been rejected by the Niger Deltans and they also appear ready for an all-drawn-out war. One look at the crises in Sudan, Somalia, Tamil Tigers' struggle, that of Congo,  will one with enough reason to believe that that of the Niger Delta of over 30 million people can easily mess up Nigeria and her future.

The plan to pay oil revenue derivation directly to oil producing communities to be managed by the communities' traditional rulers, elders and youths is said to be aimed at putting a permanent end to the restiveness in the region. This proposal is begging the issue because lack of accountability at all levels does not preclude traditional rulers, who are also known to have embezzled funds provided by some oil companies in consolation for their culpable drilling activities. The solution that should be acquiescing to full federalism so that parts of the country can take a direct charge of their development agenda and fight their own corruption wars internally, is not at all contemplated by those holding the nation by the tail.

Currently, the management of oil revenue derivation is in the hands of governors of the oil producing states with little or no input from local communities in the management of such funds. And because the constitution and the process of selecting leaders have been useless, president and governors as well as chairmen of LGs remain accountable only to the godfathers who put them in power. The masses have been left on their own since the collapse of the first republic as cabals, since then, run the country.

The quoted RMAFC helmsman further said: "The positive features in the new proposal include direct allocation of derivation funds to oil producing communities where their traditional rulers and youth leaders would be involved in the management. There is 6.5 per cent built into the allocation of the Federal Government to cater for Special Funds thereby leaving it with 47.19 per cent as its due."

With unitary governance in mind, the first proposal by the then Obasanjo administration submitted to the National Assembly from RMAFC was: Federal Government, 41.3 per cent; states, 31 per cent; local governments, 16 percent and Special Funds, 11.7 per cent (that is, FCT 1.2 per cent, Ecology 1 percent, Natural Resources 1 per cent, Agriculture and Solid Mineral Development 1.5 per cent and Basic Education 7 percent).But before the National Assembly could debate that proposal, some interest groups challenged the provisions for Special Funds at the Supreme Court, which led to the April 2002 Supreme Court verdict on the Resources Control Suit which declared Special Funds unconstitutional.

Seeking to retain resources at the center, the RMAFC sought to replace the  formula which is a product of an Executive Order of former President Olusegun Obasanjo and has been in place since March 2003. That yielded the formula: Federal Government 52.68 per cent; states 26.72 per cent; and local governments 20. 60 percent. The 1992 recommendation which was used before 1999 is: FG 48.5 percent; states 24 percent; LGs 20 percent and Special fund 7.5 percent distributed: FCT 1 percent, Ecology 2 per cent, Stabilisation 1.5 per cent and Natural Resources 3 percent).

When the Resource Control judgment blocked that initial attempt, the then President Obasanjo got round it by invoking an initial Executive Order in May 2002 to redistribute the formula to reflect the verdict and retain resources at the center. That Order gave FG a whopping 56 per cent, states 24 per cent and LGs 20 per cent. But when there was an outcry from other tiers against that distribution, the then President reviewed the Executive Order in July 2002 with some adjustments where the FG had 54.68 percent, states 24.72 percent and LGs 20.60 percent. All this constituted a deliberate drift from fiscal federalism.

Subsequently, in March 2004, the then Minister of Finance, Dr. Ngozi Okonjo-Iweala, issued a letter modifying the second Executive Order which increased state allocation to 26.72 per cent and reduced FG's allocation to 52.68 per cent. That ministerial circular on the modification appears to remain in place to date or only re cently changed, and as expected, insignificantly. Can Yar'Adua be any different?

Other typical examples of admission of the un-workability of the revenue sharing formula can be found in January 1993 paper titled; "Revenue Sharing and the Political Economy of Nigerian Federalism" delivered by the unsmiling  former Chief of Army Staff of the Federal Military Government of Nigeria (1975-1979) and Federal Minister of Defence under Obasanjo's second coming, General TY Danjuma. He gave the paper as the then chairman of the National Revenue Mobilisation, Allocation and Fiscal Commission (NRMAFC), and partly stated viz : "Currently, Nigeria operates a federal political economy implying a series of legal and administrative relationships established among levels of government possessing varying degrees of real authority and jurisdictional autonomy. Within a period of 34 years of its corporate existence as a nation, the Nigerian federal system has metamorphosed from a two-tiered federal arrangement initially comprising three unequal political and administrative regions to a three tiered federal system of 30 states, one Federal Capital Territory and 589 Local Governments each of which is constitutionally recognised. Between 1962 and 1992, for instance, the Federal system comprised 3 Regions (1960), 4 Regions (1963), 12 States (1967), 19 States (1976), 21 States (1987) and since 1991, 30 States.

"The Local Governments have also increased from 299 in 1970 to 301 (1979); and then to 781 (1981) before they reverted again to 301 (1984) and increased first to 449 (1987), 500 (1991) and to 589. As can be seen.....the Constituent units in the Nigerian federation had been tinkered with eleven times either at the State or Local Government level. With the increasing number of units, and, with what there is to be shared not varying much, greater pressure is put on available resources; hence the "national cake" is fragmented among many units. With such fragmentation, no unit gets fully satisfied at the end of the day."

In 1997, a Central Bank document released in April, a few months before Abacha's death, returned similarly an alarming summation. That period had thrust  deeply into the throes of Abacha's self-succession bid. The document (CBN Annual Report Year Ended 31st December 1997; Problems of Fiscal Federalism in Nigeria, page 70-71) stated as follows: "The Federal government in its attempt to provide some public services nationwide often assumes more responsibilities than would ordinarily be the case under the Federal Constitution. Examples of these include provision of accommodation, mass transit; bore holes for water supply, roads, etc. Inevitably, the functional responsibilities outweigh the available financial resources in line with statutory allocation from the Federation Accounts under the suspended constitutions. Hence ad-hoc policy measures are adopted by the Federal Government transferring federally-collected revenue to itself and effectively neutralizing the statutory allocation formula. These ad-hoc measures include the use of Dedication Accounts, Stabilization Funds, Petroleum (Special) Trust Fund and AFEM intervention Surplus, which substantially reduce the statuary allocations that are received by state and local governments.....

"The overall impact is that fiscal federalism in Nigeria has not been able to contribute optimally to social and economic development. Despite the considerable increase in the number of administrative units, real economic growth has been low and the per capita income has declined considerably from the level attained in the 1980s. As the nation moves into another era of democracy under a federal constitution, there is need to critically review the division of functions among the various tiers of governments as well as the revenue sharing arrangement in order to substantially improve the delivery of public goods and services as well as promote real economic growth..."

In another CBN report, the apex bank unveiled some standard laments about the relative excessive dependence on the federal government by the two lower tiers:

CBN Annual Report Year Ended 31st December, 1996, Box 4.1 "Improving the Revenue Generating Capacity of the Three Tiers of Government", page 72-73. The need for adequacy of revenue at the three levels of government - Federal, state and local becomes critical, given their expenditure programs aimed at influencing the levels of income, savings, production and distribution for the ultimate goals of achieving equity and increasing prosperity..."

Based on this, an analyst observed that the size of revenue that government generates at any point in time is influenced by its resource endowment, level of economic activities and the efficiency of its revenue collection machinery. This also means  stability and growth of revenue is a function of the ability of government to stimulate and sustain a high level of economic activities and an optimal mix of revenue-generating instruments. In effect, although revenue accruing to the governments over time has increased in absolute terms, their revenue profile has depended largely on statutory allocations while the performance of internally-generated revenue has remained disappointingly unsatisfactory.

The same analysis can also lead this kind of calculation: even without money stolen from our oil sales - and that is impossible for now  with the NNPC running a secret account - to depend almost solely on 2 million barrels of oil per day sold at even $127 per barrel translates to roughly $1.50 per person per day in Nigeria, with our 140 million populations. Though our oil sells for below $50 dollars today, it can still plunge further to the earlier much lower abysmal benchmarks any day, even below $10 a barrel! But it has been fairly over those levels over time and the doosday may not that close.

The fact remains that though we are an oil-rich country, based on our needs, we are not a rich country. The insatiable greed of our leaders even makes us poorer. The point at issue concerning revenue allocation and sharing is power control – controlling the soul of the nation. From 1966 till date, the Nigerian Federation has increasingly been built around power and resource control. Those who have managed to exercise the utmost control of this power and resources are finding it difficult to give up – holding the nation by the tail .

Unfortunately, this mindless attitude is robbing Nigeria of her much needed development and almost creating a near state of anarchy in the country, with the states and local governments at daggers-drawn with Federal Government. The Niger Delta imbroglio remains, like a sour thumb, a case in point and those who believe it matters not should take another look at the road to Kigali. 

In fact, production has long ceased in Nigeria and all tiers solely depend on oil money. Firms are closing down and leaders stash their stolen billions abroad rather than invest it in Nigeria and buy over and repatriate the motley of firms begging to be bought up in Asia and Europe. Even in Indonesia where corruption oozes as in Nigeria, their elite crooks invest at home.

For good reasons, there is widespread clamour for the return to true federalism, which was abolished with the creation of 12 states by General Yakubu Gowon (rtd) in 1967 at the outbreak of the Nigerian Civil War. Since then, all federal principles including revenue allocation have been thrown away - a situation some political scientists feel has encouraged extravagance because the centre is believed to have too much money and power at its disposal. 

Many will recall Governor Sam Mbakwe of the 2nd Republic was known as â€˜weeping governor' for constantly going to the Shagari government, cap in hand, to "beg" for his (Imo )state's sustenance and to solve his state's problems. In today's case, several governors are begging for FG intervention in their peculiar circumstances. The whole of Southeast is caving in under rampaging erosion, with Anambra alone recording over 1000 erosion sites, some dissecting federal roads (e.g. Ekwuluobia, etc.) and cutting off towns.

Furthermore, the high percentage of Federal Government's share of the revenue and the mounting needs of states, to some analysts, is not only the main source of injustice but also the principal cause of corruption, alienation, marginalization, instability and reckless agitation for restructuring of the country. 

To detonate this time bomb, we need to take a deep look at the cited CBN documents; the Federal Government must right-size itself by downsizing and defining its minimum responsibility. FG must hands off issues like even secondary education, health, agriculture and so on and face the big picture. FG must  work within the reality of a weak mono revenue base of the country(oil sales), and at the same time understanding that the states and local governments also have their own minimum responsibilities, which they too must meet.

To achieve this, Yar'Adua will have to implement fully the Mitte committee recommendation – 50% resource control – even if it means staggering it. But the question is, can he?

More importantly, there should be only two tiers government, the federal and states, and local governments left as states' creations/responsibilities. There should be no revenue allocation directly to the LGs from the federation account, because their existence, though justified at a point, is an elongation of the twists in our nation's federalism, which makes its structures more amorphous. 

For good measure, take a look at what revenue allocation has been from time:

Oil revenue sharing formula

Year

Federal

State*

Local

Special Projects

Derivation Formula**

1958

40%

60%

0%

0%

50%

1968

80%

20%

0%

0%

10%

1977

75%

22%

3%

0%

10%

1982

55%

32.5%

10%

2.5%

10%

1989

50%

24%

15%

11%

10%

1995

48.5%

24%

20%

7.5%

13%

2001

48.5%

24%

20%

7.5%

13%

* State allocations are based on 5 criteria: equality (equal shares per state), population, social development, land mass, and revenue generation.

**The derivation formula refers to the percentage of the revenue oil producing states retain from taxes on oil and other natural resources produced in the state. World Bank Report.

To avoid further chaos, therefore, there is the need for a return to fiscal federalism so that the tiers of government can discharge their onerous responsibilities and ensure overall growth and development for the states and nation, implant a mindset of leave and let live and patriotism in citizens.



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