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Revenue sharing formula and federalism



THE delay in the payment of the new minimum wage due to the inability of the government and the labour to agree  on the adjustment to upgrade other grade levels has left a sour taste in the mouth of the Nigerian workers and pensioners. Pensioners in some states have been promised harmonisation which was due since May 2011, when the last minimum wage was promulgated into law but some governors breached the law on prompt harmonisation of pension along the new wage or every five years.

The reasons given for not making the harmonisation was constraints in the revenue sources, even as there are  many states that never lived up to the billings of paying pensions and gratuity. The problem in the failure of many state governments to default in paying the former minimum wage of N18,000, pension and gratuity has its source and spring from the  inequity and patently unjustified or what was termed “lopsided template” in the revenue sharing formula between the federal, state, and local governments in a federalist entity. In federalist nations, there is nothing like “Federation Account” where the revenues of the country are paid in for monthly distribution to the federating polities, call it regional governments as it was in the first republic in Nigeria or state governments as in the US.

Bastardisation of the federalist principles in Nigeria by the military regimes led to the dumping of the fiscal federalism in the first republic whereby the federating units called “Regional governments” were engaged in competition in the provision of dividends of democracy, as it were. In line with the federalist principles, each of the regional governments was exploring and exploiting the natural and mineral resources within their jurisdiction while paying a given amount to the federal government for the running of few ministries, departments and agencies (MDAs).

It was the discovery of petroleum and gas resources in the Niger Delta that triggered the manipulation of democratic and political processes by a section of the country which snowballed into political crises and later the military incursion into the leadership and the civil war. The misguided military leadership was cajoled to dump the federalist principles with the enthronement of what political scientists described as “federal-unitary contraption” in Nigeria today.

With the dumping of fiscal federalism practiced in the first republic by the military, the Federation Account was created where the revenues from crude oil sales is domiciled. Statutory revenue allocation to the state governments was introduced and a decree was made barring state governments from exploring and exploiting mineral resources within their jurisdiction. With this military promulgation, the federalist principles were bastardized hence the genesis of the country’s economic problems which has reached climax today.

There was no economic rationale by the military government to restrain the state governments from the exploitation of the mineral resources. The introduction of monthly statutory revenue sharing from the Federation Account led the state governments to abandon the exploitation of natural resources namely: palm oil from the eastern region, cocoa from western region, cotton and groundnut pyramids in the northern region simply because the easy revenue from crude oil sales is apparently sufficient for the development of the country which later became a lie from the pit of hell, hence the financial quagmire facing all the tiers of governments today.

The deluge of petro-dollars from the sale of crude oil and gas was not managed well like using it for massive infrastructural development like roads, bridges that traverse rural areas, adding value to agricultural raw materials, exploring other mineral resources, investing in heavy industrialization, creating conducive environment for foreign direct investments, quality education from primary, secondary to tertiary levels for high level manpower to man all the sectors of governance and the economy. This failure is what the country is suffering today.

The clamour for a review of the statutory revenue sharing formular which has reached a crescendo has prompted chairman of the Revenue Mobilization and Fiscal Commission [RMFC] Elia Mbam to put the necessary steps in motion to review the template which has outlived its usefulness. It was in 2013 that the body had a review but it was not implemented. The extant revenue sharing ratio: 52.68 per cent for the federal government, 26.72 per cent for states, and 26. 72 per cent for local government councils had generated revulsion from Nigerians who severally called a return to fiscal federalism or the federalist principles obtained in the first republic when “True Federalism” was satisfactorily practiced.

If truth must be told, the plan of the RMFC might hit the rocks because the federal government will not be comfortable with a reduction of its extant share. This is because the APC-led federal government has refused to implement the report of the 2014 National Conference which has a substantial reduction of items in the Exclusive Legislative List in the military-imposed 1999 Constitution which political pundits maintained that it was not the people that made it as it did not pass through a Referendum, which is a democratic process.

The import of the whole thing is that the new minimum wage is likely to be implemented by all the state and local governments because the current revenue sharing formula had made over 26 states not be able to pay the former minimum wage of N18,000. The worst is coming because of the federal government’s clamp down on the hijacking of monthly statutory allocations of local government councils by state governors. Some governors had raised the alarm that with the increasing responsibilities of the state and local government councils and the inflationary trends in the comatose economy, reduction in receipts from the Federation Account, many local government councils have been unable to meet up with the recurrent expenditures like salaries, pensions and gratuity, talk-less of embarking on basic amenities and infrastructures to alleviate the plight of the rural dwellers and semi-urban and even urban towns under local government councils administrative canopy.

It will be foolhardy for anybody to ignore this tragic reality in a democratic set up given that the essence of government is the welfare and well being of the governed. The federal government must bestir itself and embark on the implementation of the recommendations of the 2014 National Conference which is a gradual step to restructuring the federation and governance to rescue the country from imminent collapse and a failed state status.

I am constrained to quote extensively the irrevocable logic of an editorial captioned: ‘Sharing the cake’ which aligned with my observation that new revenue sharing formular will not solve the complex economic and administrative challenges facing all the tiers of government. The matter-of-fact editorial contended thus: “It has been argued many times that governors should be more creative and productive in baking the national cake rather than waiting for the Federation Account Allocation Committee to give money to them monthly. This is a valid argument as all tiers of government have been rendered lazy by the dollars accruing from petroleum resources.

“But, even other sources of revenue that the states could have exploited are placed on the Exclusive Legislative List of the 1999 Constitution which only the federal government can legislate on. Solid minerals, for example, that abound in all states of the federation are under the control of the federal government that has felt too comfortable to explore and exploit them.

“Only private concerns, mainly foreign, that found ways of obtaining license from the Federal Ministry of Solid Minerals are aided to exploit the resources. Other sources like the Value Added Tax are paid into the Federation Account. It is sickening that while the lopsided allocations are justified by the 68 items on the Exclusive Legislative List, poor governance at that tier of government has left the states in most cases to fund federal responsibilities. Security institutions, for example, are left for the states to fund in the interest of the people who otherwise would be left at the mercy of criminals.

“Operational funds for the police and military are seldom released, and given the precarious security situations, governors are left with no choice but to source funds to keep them going. Other federal agencies and institutions are always appealing for support from the states. But, when as a result of the drain states are unable to perform their statutory roles, they became beggars. Development has become stultified, thus leaving Nigeria as one of the poorest countries in the world”.

In the same reasoning template, a veteran media executive discountenancing the plan for a review of revenue sharing formula said: “It is strange just how Nigeria continues to dig itself into a futile hole, running a warped federal system and enthroning inefficient and inherently defective political and economic structures

“The present system is untenable and unworkable. Surely it is not too hard for government to understand what it means to practice federalism. Their ignorance must be contrived and malevolent. What Nigeria needs is not a reviewed revenue allocation formula but real political and economic federalism and deep structural changes. Let the states or regions make their money and pay tax to the centre. It is time to banish the cruel and unhealthy monthly circus to Abuja”.

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