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The Un-Federal Nature of Nigeria's Fiscal Federalism by Mobolaji E. Aluko, PhD Burtonsville, MD, USA
----------------------------------------------------------------------------- ABSTRACT: "Thus, of the N1,000 revenue of the one federal government, it keeps N805 (or 80.5%), under its control, giving a mere N109 (or 10.9%) to the 36 states (average of N3 per state) and N86 (8.6%) to the 774 local governments (average of 1 kobo per local government). Under a truly federal government, where even if we were to talk of a 40-60% federal/non-federal, then the federal government should not have more than N400 instead of N805 (40% of N1,000), the states should have N240 (40% of N600) instead of N109 that it is currently getting from the federal government, and the local government should have N360 (60% of N600) instead of N86 that it is currently getting from the federal government.........Ironically, the SS which generates 90% (?) of the oil, and hence should receive N643.5 (that is 90% of N715 oil sources revenue), or N322 if we have a 50% taxation, receives only N31, a mere tenth of its contribution.....While efforts to tinker with the revenue allocation formula in favor of the states and local government must be continued, compatriots, we need a Sovereign National Conference in order to chart a new popular constitution and fix this damn mess in a comprehensive, holistic manner." - Mobolaji E. Aluko, 2001 INTRODUCTION ------------ I warn you that I am going to put you through some financial whirlwind below in this my first Sunday Musings of the Year 2001, so please bear with me...... I recently took a THOROUGH look at the 1997 Federal budget, the last full year of Abacha in government. I also intend later to look at the 2000 Federal budget, the first full year of Obasanjo to see whether anything was different, but what I found from the 1997 figures, from the above synopsis, is not tidy. Currently, there are three tiers of government - federal, state and local government. In a truly federal system, each should have its own sphere of responsibility, and each should be blamed or commended for how it does within its own sphere. How each level does, of course, depends on the resources available to it. So what are these resources? THE FIGURES AND THE FACTS ------------------------- The actual total federally-collected revenue in Year 1997 was N582,811.1 million Naira. But because I know that you don't like big numbers, I have scaled all the numbers below so that this figure is N1,000. Please follow closely with me. --------------------------------------------------------------------- Table 1: Gross Sources of Total Federally Collected Revenue (1997) Total Federally Collected Revenue.......1,000 Oil sources...........................715 COE, PPT, Royalties, Dom. Sales.......491 AFEM Intervention Surplus.............224 Non-oil sources.......................285 Companies Income Tax...................45 Customs & Excise Duties...............108 Value Added Tax........................58 Federal Independent Revenue............14 Others.......................59 --------------------------------------------------------------------- Thus, note that only 1.4% of the total federally collected revenue is federal independent revenue, the rest 98.6% are should properly belong to the state and local governments, which could have been taxed in some mutually agreed way. Now, how did the Federal Government allocate this N1,000? The main categories where Federation Account, VAT Pool Account, Here is it: --------------------------------------------------------------------- Table 2: More Detailed Sources of Federally Collected Revenue (1997) Total Federally Collected Revenue....1,000 Federation Account....................357 Federal Retained(48.5%)...............173 State (24%).................86 Local (20%).................71 Special Funds (7.5%).................27 FCT Fund (1%)......................3.6 Ecological Fund (2%)...............7.2 Derivation Fund (1%)...............3.6 OMPADEC (3%)...............10.8 Stabilization Fund (0.5%).............1.8 VAT Pool Account.....................58 Federal Retained (35%).......... .. 20 State (40%)..............23 Local (20%)..............15 AFEM Surplus Account................224 Federal Retained...............81 Undisbursed (?).................143 Petroleum Special Trust Fund (PSTF)..65 Federal Retained...............65 National Priority Projects..........75 Federal Retained...............75 External Debt Service Funds........75 Federal Retained..............56 Undisbursed..................19 JVC Payment Accounts..........77 Federal Controlled...............77 Others (eg transfers to reserves).......60 Federal Controlled..............60 UNACCOUNTED FOR ...........9 Federal Controlled (?).........9 ------------------------------------------------------------------- Thus per N,1000 of total federally collected revenue, we have made available to the state and local governments: --------------------------------------------------------------------------- Table 3: State and Local Government Intake from Various Sources (1997) <-----Amount (N)------> Source of fund State Local Gov. Total Federation Account 86 71* 157 VAT Account 23 [=109] 15 [=86] 38 [=195] Internal Generation 44 5 49 State Allocation 0 1 1 Grants & Others 6 0.3 6.3 ---------------------------------------------------- Total From ALL SOURCES 159 92.3 251.3 ---------------------------------------------------- * actually disbursed this year was N34 because LGs were dissolved by Abacha during the year. --------------------------------------------------------------------- Thus, of the N1,000 revenue of the one federal government, it keeps N805 (or 80.5%), under its control, giving a mere N109 (or 10.9%) to the 36 states (average of N3 per state) and N86 (8.6%) to the 774 local governments (average of 1 kobo per local government). Under a truly federal government, where even if we were to talk of a 40-60% federal/non-federal, then the federal government should not have more than N400 instead of N805 (40% of N1,000), the states should have N240 (40% of N600) instead of N109 that it is currently getting from the federal government, and the local government should have N360 (60% of N600) instead of N86 that it is currently getting from the federal government. Granted that the state and local governments should increase their internally generated revenue. But what is the upshot of all of the above analysis? It is that we are running an un-federal fiscal federalism, and the federal government is STEALING money from the state and local governments, and hence they are not able to fulfill their responsibilities, like maintaining roads. Now there is another aspect of this that we must address: the regional imbalance that goes on in our budget allocation: --------------------------------------------------------------------- Table 4: Revenue of the States (by Political Zones, for each N1000 of Federally Collected Revenue) From Federation Account........86 Total South.................... 38.6 SW.......................14.8 SE........................9.3 SS.......................14.5 Total North.....................47.4 NW.......................17.6 NE.......................14.2 MB (NC)..................12.3 FCT.......................3.3 From VAT........................23 Total South.....................11.9 SW........................5.9 SE........................2.5 SS........................3.5 Total North.....................11.1 NW....................... 4.5 NE........................3.5 MB (NC)...................2.9 FCT.......................0.2 From Internal Generation.........44 Total South.....................34.3 SW.......................19.5 SE........................2.9 SS.......................11.9 Total North......................9.8 NW........................5.3 NE........................1.5 MB (NC)...................2.3 FCT.......................0.7 From Grants & Others..............6 Total South...............1.7 SW........................0.4 SE........................0.2 SS........................1.1 Total North...............4.3 NW........................0.3 NE........................0.5 MB (NC)...................0.4 FCT.......................3.1 ----------------------------------------------------------------- What the above figures show is that the states of the Northern Region gets 55% of the state allocations from the Federation account, about 50% of the VAT allocations, receives grants that are 72% of all allocated, but generates only 22% of all internal generations. Quite frankly, the Northern Region took the cake home without baking much of it in 1997, and the South-East political zone is indeed "marginalized" when we look at the numbers, although it needs to TREMENDOUSLY increase its internal generation to be at par with the rest of the other Southern zones. Only the SW has an internal generation (N19.5) that is virtually at par with its revenue from the Federation account plus VAT (N20.7), mainly due to the economic power of Lagos State. The most atrocious in this respect is the NE zone, which internally generates N1.3, but receives N17.7 from the Federation account plus VAT. Ironically, the SS which generates 90% (?) of the nation's oil, and hence should receive N643.5 (that is 90% of N715 oil sources revenue), or N322 if we have a 50% taxation, receives only N31, a mere tenth of its contribution. Despite all the talk about 13% derivation, this situation will not change much because of financial sleight of hand by the Federal government unless the FUNDAMENTAL revenue allocation formulas change. No wonder, it talks of controlling its own resources. What is the situation of the local governments? Very dire indeed! --------------------------------------------------------------------------- Table 5: Revenue of the Local Governments (by Political Zones, for each N1000 of Federally Collected Revenue) From Federation Account (Statutory)...71* From Federation Account (Disbursed)...34 Total South.................... 12.8 SW....................... 4.9 SE........................2.9 SS........................5.0 Total North.....................21.2 NW........................9.9 NE........................6.5 MB (NC)...................4.4 FCT.......................0.4 From State Allocations.............1 Total South.................... 0.64 SW....................... 0.36 SE........................0.05 SS........................0.23 Total North......................0.37 NW........................0.24 NE........................0.09 MB (NC)...................0.02 FCT.......................0.02 From VAT........................15 Total South......................8.5 SW........................4.4 SE........................1.9 SS........................2.2 Total North..................... 6.5 NW....................... 2.9 NE........................1.7 MB (NC)...................1.7 FCT.......................0.2 From Internal Generation..........5 Total South......................2.51 SW........................1.33 SE........................0.58 SS....................... 0.60 Total North......................2.50 NW........................0.76 NE........................0.65 MB (NC)...................0.77 FCT.......................0.32 From Grants & Others..............0.30 Total South...............0.25 SW........................0.03 SE........................0.01 SS........................0.21 Total North...............0.05 NW........................0.02 NE........................0.01 MB (NC)...................0.01 FCT.......................0.00 * actually disbursed this year was N34 because LGs were dissolved by Abacha during the year. -------------------------------------------------------------------------- From the above figures iin Table 5, we find that the internal generations of the local governments (a total of N5, with the North and South at dead-heat) and allocations from the states to them (N1 per N1000 federally collected revenue) are minisicule. On the other hand, while the South (with 355 local governments) collected N21.3 from Federation account plus VAT, the North (with 419 local governments) had N28.7. EPILOGUE --------- So where do we go from here, given this unfair distribution of fiscal resources? The top-heaviness of our governance is due to 34 years of military rule, and has been ossified in our military-imposed constitutions (1979 and 1999) ever since. While efforts to tinker with the revenue allocation formula in favor of the states and local government must be continued, compatriots, we need a Sovereign National Conference in order to chart a new popular constitution and fix this damn mess in a comprehensive, holistic manner. I rest my case. --------------------------------------------------------------------------- NOTES: (1) Nigeria's Political Divisions and Some Physical Data Nigeria: ------- 2 Regions, 6 Political Zones, 36 States, 1 Federal Capital Territory and 774 Local Governments [ 925,717sq. km, 1991 Census: 88,514,581] South (17 States, 355 Local Governments) ---------------------------------------- SW - Ekiti (16), Lagos (20), Ogun (20), Ondo (18), Osun (30), Oyo (33) [6 states, 137 LGs] [78,941sq. km 1991 Census: 17,600,641] SE - Abia(17), Anambra (21), Ebonyi (13), Enugu (17), Imo (27) [5 states, 95 LGs] [29,908 sq. km; 1991 Census: 10,712,675] SS - Akwa-Ibom (31), Bayelsa (8), Cross-River (18), Delta (25), Edo (18), Rivers (23) [6 states, 123 LGs] [85,097sq. km; 1991 Census: 12,939,226] North (19 States + Federal Capital Territory; 419 Local Governments) --------------------------------------------------------------------- NW - Kaduna (23), Kano (44), Katsina (34), Kebbi (21), Niger (25), Sokoto (23), Zamfara (14) [7 states, 174 LGs] [207,745 sq. km; 1991 Census: 22,494,182 ] NE - Adamawa (21), Bauchi (20), Borno (27), Gombe (11), Jigawa (27) , Yobe (17) [6 states, 123 LGs] [271,998 sq. km; 1991 Census: 11,907,122] NC - Benue (23), Kogi (21), Kwara (16), Nassarawa (13), Plateau (17), Taraba (16) [6 states, 106 LGs] [252,012 sq. km; 1991 Census: 12,212,064] FCT - Abuja (6) [1 Capital Territory, 6 LGs] [1991 Census: 378,671] (2) Source of Financial Data ---------------------------- Central Bank of Nigeria: "Annual Report and Statement of Account For the Year Ended 31st December, 1998" (Released 29th April 1999) (3) Year 2000 Revenues and Allocations -------------------------------------- For comparison, a similar set of tables of information of the first full year of Obasanjo's civilian regime (Year 2000) will be prepared next year following the receipt of the Central Bank's 2000 Annual Report. (4) The Agitation for Revenue Allocation Formula Changes -------------------------------------------------------- A sampling of sentiments on revenue allocation in the country will be found in the following URLs: http://www.ngrguardiannews.com/news2/nn806605.html Sunday, December 17, 2000 Sam Aluko To Sue Govt Over Privatisation http://www.vanguardngr.com/27112000/vp227110.htm Fiscal rascality, squandermania' et al J Vanguard Viewpoints L By Olorunnimbe Farukanmi http://www.vanguardngr.com/28082000/fp129080.htm Govs ask for 40% revenue allocation TUESDAY, 29th AUGUST, 2000 http://www.vanguardngr.com/04092000/ch107090.htm Constitution defies federal arrangement" (2) J Vanguard Conference Hall I http://www.vanguardngr.com/14082000/Se515080.htm FG asked to give more funds to states, LGs J Vanguard South East By Tony Edike AWKA http://www.vanguardngr.com/va/052000/Vc202050.htm Deprivation depreciation and derivation J Vanguard Comment http://www.ngrguardiannews.com/law/ln800502.html Tuesday, October 17, 2000 The Niger Delta & Expropriatory Laws: Time for resources control (1) By Akpo Mudiaga Odje http://www.ngrguardiannews.com/law/ln801202.html Tuesday, October 24, 2000 [Continued from Tuesday last week] How to assert our inalienable rights to resource control By Akpo Mudiaga Odje http://www.vanguardngr.com/va/052000/PV030500.htm 13% Derivation wayo J Vanguard Personal View I By Mideno Bayagbon Finally the Olusegun Obasanjo government has grudgingly yielded to pressure on it to pay the oil producing state.... http://www.ngrguardiannews.com/news2/nn808013.html Sunday, December 31, 2000 Utomi, LG Chief, Advocates Revenue Allocation http://www.ngrguardiannews.com/market/cm801502.html Friday, October 27, 2000 Democracy not solution to fiscal discipline By Malachy Ezema http://www.ngrguardiannews.com/business2/bn804106.html Wednesday, November 22, 2000 Council challenges govt on oil production figures >From Ben Akpan (Calabar) http://www.ngrguardiannews.com/business2/bn805505.html Wednesday, December 6, 2000 Govt cannot spend oil windfall without statutory reductions, says Edebvie http://www.vanguardngr.com/04092000/vp107090.htm Politics of derivation principle in Delta J Vanguard Viewpoints I Politics of derivation principle in Delta L Continued from yesterday By David Edevbie http://www.ngrguardiannews.com/business2/bn805001.html Friday,December 1, 2000 States decry new revenue sharing formula delay - From Alifa Daniel, Abuja http://www.vanguardngr.com/13112000/rp213110.htm Revenue allocation: A governor's sane voice - Oluwole Elegbede MONDAY, 13th NOVEMBER, 2000 http://www.vanguardngr.com/18092000/n5180900.htm Anpka LG chairman laments low revenue allocation MONDAY, 18th SEPTEMBER, 2000 http://www.vanguardngr.com/28082000/W1010900.htm Osoba calls for urgent review of revenue allocation formula J Vanguard South West By Kolade Larewaju ABEOKUTA http://www.vanguardngr.com/11092000/d2140900.htm Duke challenges Obasanjo over revenue allocation increase J Vanguard Niger Delta By George Onah CALABAR http://www.vanguardngr.com/18092000/L2210900.htm Review revenue allocation formula - NLC V-P J Vanguard Labour http://www.vanguardngr.com/27112000/nd327110.htm Assembly Speakers frown at non review of revenue J Vanguard Across the nation Niger Delta By George Onah CALABAR CROSS RIVER http://www.vanguardngr.com/09102000/nd191000.htm Revenue Mobilisation Commission wades into South-South govs row over derivation J Vanguard Across the nation Niger Delta By Emma Amaize BENIN CITY http://www.vanguardngr.com/18122000/n3201200.htm AD Govs allege distortion of reports on revenue formula J Vanguard National Newsreel By Sina Babasola http://www.vanguardngr.com/11092000/Nn212090.htm Revenue mobilization: FG asked to consider commission's report J Vanguard North By Paul Attat SOKOTO http://www.vanguardngr.com/20112000/w4231100.htm 2000 LG workers protest zero allocation iin Ibadan J Vanguard South West by Sina Babasola IBADAN http://www.vanguardngr.com/18122000/n5231200.htm FG organises special briefing for members of revenue commission J Weekend Vanguard News L By Okechukwu Jombo Abuja http://www.vanguardngr.com/13112000/nd714110.htm Revenue: Rivers unfairly treated, says Odili J Vanguard Across the Nation Niger Delta By Sam Onwuemeodo PORT HARCOURT RIVERS http://www.vanguardngr.com/21082000/D4240800.htm Derivation fund controversy J Vanguard Niger Delta I Derivation fund controversy L By Fred Majemite http://www.vanguardngr.com/04092000/W1080900.htm Osoba accuses FG of withholding N2.4bn meant for states, LGs J Vanguard South West By Kolade Larewaju ABEOKUTA http://www.vanguardngr.com/25092000/nd427090.htm THE DERIVATION FUND CONTROVERSY: Our stand on Derivation Fund -Urhobos J Vanguard ACROSS THE NATION NIGER DELTA By Benjamin O Okumagba http://www.vanguardngr.com/11122000/sn617120.htm 36 state govs drag Obasanjo to court over alleged illegal deduction of allocations J Sunday Vanguard News BY Yinka Olusanya http://www.vanguardngr.com/01102000/R1103000.htm Tinubu threatens to sue FG over ETF J Vanguard National Newsreel - by Kenneth Ehigiator http://www.vanguardngr.com/042000/vp2030400.htm Court option for 13% derivation formula J Vanguard Viewpoints - by Richard Tosanwumi http://www.vanguardngr.com/11092000/se611090.htm Abia demands more revenues J Vanguard Across the nation South East - by Vincent Ujumadu ABIA http://www.vanguardngr.com/09102000/pw113100.htm Federalism and the Southern Governors' Forum J Vanguard Politics this week BY Jide Ajani Political Editor http://www.vanguardngr.com/27112000/nd127110.htm South-South plans political party to pursue resource control J Vanguard Across the nation Niger Delta By Tommy Solomon UYO AKWA IBOM http://www.vanguardngr.com/21082000/P2240800.htm Lagos deserves 13% derivation from VAT-Somolu LG boss J Vanguard Politics I http://www.vanguardngr.com/04092000/vp206090.htm LGs and the 13 per cent derivation funds J Vanguard Viewpoints I By Ebi Evinson http://www.vanguardngr.com/04092000/fp307090.htm Statutory revenue and VAT allocation to state govts for August J Vanguard 3RD LEAD STORY http://www.vanguardngr.com/04122000/b1051200.htm FG distributes N869 billion from federation account in 10 months J Vanguard Business BY Yinka Olusanya Abuja ------------------------------------------------------------------------- |