Adducing the prevailing “economic realities” that have contorted the income projections of different tiers of government, Nigeria has initiated a process to review its contentious revenue sharing formula. Given that the last revision was done in the early days of the Fourth Republic, agitation for a fresh template has assumed a raucous note. Conscious of this, the Revenue Mobilisation, Allocation and Fiscal Commission, headed by Elias Mbam, has restated its intention to review the template. In view of the heightened agitation for fiscal federalism, the RMAFC should discharge this responsibility with patriotic zeal.
Frankly, the extant allocation formula is grossly unfair, mainly to the states from where the bulk of the revenue is generated, but who collect a pittance every month when the Federal Government doles out funds to the three tiers of government. The RMAFC review should prioritise correcting this anomaly. Currently, the Federal Government receives 52.68 per cent of all disbursements from the Federation Account. Being just one entity, this is inequitable, considering the fact that the 36 states share 26.72 per cent. There is a sense of an overarching potentate in this when, in fact, the states should be largely autonomous in a federal political system.
Unlike in other federal systems, revenue to the federating units diminishes further with the 774 Local Government Areas directly collecting 20.60 per cent monthly. Essentially, this tilts Nigeria’s federalism preponderantly towards sharing. It has obstructed inventiveness and the big economic picture where states are supposed to be unique economic centres. For the economy, it is not sustainable. Hence, the task before the RMAFC is to consign this dangerous practice to the dustbin and come up with a model that encourages production among the states and the centre.
At independence in 1960, Nigeria operated a truly federal system that accelerated economic and social development among the federating components. Then, the Federal Government did not solely control the resources generated by the regions. In that halcyon era, the regions took half of revenues generated from their resources, remitting the rest to the centre and the distributable pool for all the regions. This encouraged healthy competition, with each region leveraging its comparative advantage to produce wealth. However, all this was disrupted by the 1966 coup when the military overturned the system, turning a natural federation into a unitary set-up.
Things have never been the same since that reckless usurpation. As a result, unending dissension over who gets what has clouded Nigeria’s aspirations for development. Before the Olusegun Obasanjo administration reviewed the sharing formula in 2002, 1992 was the last time the government had touched it. Unjust as ever, the 1992 formula allocated 48.5; 24.0; 20.0 and 7.0 per cent to the federal, state, LGA and Special Fund (in Federal Government custody) respectively.
Under Obasanjo, this was terminated. The 2002 formula arrived after a mixture of political compromise and a verdict by the Supreme Court that nullified the provision of Special Funds with the Federal Government. It took cognisance of the ecological devastation in the Niger Delta region, where the bulk of the oil wealth that is being shared by the entire country is produced. So, it allocated 13 per cent derivation to the states producing oil and gas. This recognition partly assuaged the agitation in the Niger Delta states, but the proposal to graduate it upward has taken too long to bear fruit.
In fact, at the height of the negotiating process of the former minimum wage of N18,000 in 2011, the states (under the aegis of the Nigeria Governors’ Forum), proposed a fresh formulation to give them more resources. Governors cited their inability to pay. However, most of the governors have been reckless with the allocations they have been receiving, these days, resulting in several states owing workers salaries and pension arrears.
All this makes a new sharing formula imperative. In the interim, state governments deserve to get more. The derivation on natural resources should also be jacked up with legally binding provisions on regular upward adjustments.
Nevertheless, the envisaged review is not the universal remedy for Nigeria’s stunted economic outlook. For now, Nigeria is a poor country. The World Bank estimates its Gross Domestic Product at $375.8 billion, the largest in Africa, but it is a deceptive narrative. At 200 million, its population far outstrips that of any other country on the continent. The country has been described by the World Poverty Clock as the global poverty capital, where 93 million people live below the $1.90 per day threshold.
Even if just the 36 states continue to share the oil resources being currently generated, it will not be of significant help. Therefore, the three tiers of government will permanently be bogged down in financial crisis, primarily because Nigeria’s current structure is a dangerous aberration. For it to be progressive and dynamic, it has to promote equity and justice in our federal system. Also, the retrogressive culture of entitlement to oil revenue should end. Ideally, the states should strive to become centres of development.
As an initial step, the 774 LGAs should be expunged from the 1999 Constitution. A federal system is known for having just the centre and the federating units. Properly, the third tier is the responsibility of states in Mexico, Malaysia and Russia, where they do not have any constitutional status, the Britannica states. In the United States, Australia, Canada, Pakistan and India, LGAs are, constitutionally, appendages to states with little or no direct relationship with the federal government. The RMAFC, the National Assembly, the federal and state governments should consider this salient factor in the review of the formula. States should be free to determine the number of the LGAs they require and fund them as in other federal countries.
Through the legal process, state governments should continually assert their autonomy. Ultimately, Nigeria could only attain its dream of development by operating true fiscal federalism, where every tier of government generates its own revenue and controls the bulk of it, just as it was in the First Republic.
