By AKPAN H. EKPO
There has been a renewed call to re-examine the revenue-sharing formula under Nigeria’s fiscal federalism. The Governors Forum called for a review in favour of states and local governments having larger shares. The Coalition of Northern Leaders recently called for a reduction or withdrawal of 13 per cent derivative principle on oil revenue allocation to the oil-producing states. Some South-south leaders have advocated a 50 per cent upward review of the revenue allocation formula in favour of derivation. In the present vertical revenue sharing formula, the federal government receives 52.68 per cent; states 26.72 per cent and local government 20.60 per cent. The horizontal revenue allocation formula considers variables such as equality of states, population, social development factor, internal revenue effect, landmass and terrain, among others. Since 1992, the country’s revenue sharing system has remained unchanged except for minor changes occasioned by either the Supreme Court ruling of April 2002 (Resource Control suit) or orders from the Executive branch of government.
The National Revenue Mobilisation Allocation and Fiscal Commission, NRMFAC, seems poised to review the sharing formula based on its constitutional mandate. However, one wonders why the commission needs to visit all the 36 states to obtain data when the required pieces of information are readily available, that is, if the review of the sharing formula is even necessary. Revenue-sharing in Nigeria began in 1946 when the Richards Constitution granted internal autonomy to regional governments and Nigeria has had over nine revenue commissions attempting to derive and implement a fair formula for sharing revenue accruing from natural resources, particularly revenue from crude oil export.
There is no doubt that the centre needs to justify why it receives the lion’s share of revenue when it seems to be far distant from the people. At the same time, most states and local governments cannot show meaningful outcomes or positive impact on the standard of living of persons within their jurisdictions based on the billions of naira received monthly from the centre. The emphasis appears to be more on ‘sharing’ rather than ‘generating’. All levels of government depend on this wasting asset called oil with its inherent volatility and erogeneity as a revenue source. Fiscal decentralisation ought to bring about development but in Nigeria, it has increased poverty and misery. Most states and local governments embark on projects that have no bearing on the lives of the people as their white-elephant projects only enforce the primitive accumulation process. The dependence on all levels of government on oil revenue needs to be halted and done away with. Most of the states and local governments are economically unviable but were created for political reasons and perhaps to reduce ethnic tensions. The attempt by the National Planning Commission to compute state GDPs is a welcome development as this would allow for a more robust analysis of the performance of states and reduce pronouncements of successes without facts.
Once Nigerians decide to live together in a federation, the issue of revenue-sharing and the ‘appropriate’ formula, especially as it relates to derivation, must be completely overhauled. We need to draw experiences from other federations like India, USA, Canada, South Africa, etc. and perhaps arrive at a formula that is just, fair and equitable. It would be useful to examine the variables used by these countries taking into account our own peculiarities. The statutory transfers to states are quite huge and constitute about 85 per cent of their revenues. From N1.1 trillion in 2004, the transfer rose to N2.5 trillion in 2009 and increased further to about N2.7 trillion in 2010. However, total expenditures also grew from N1.12 trillion in 2004 to N2.77 trillion in 2009 and N2.87 trillion in 2010. By the constitution, states and local governments can spend on various activities within and outside the state whether recurrent and/or capital. However, states and local governments do not have adequate revenue handles to sustain their expenditure profile. Consequently, part of the overhauling of the revenue-sharing formula is to re-examine which revenue handles are best suitable for states and local governments. For example, why should the federal government collect VAT? Why should states not exploit the resources within their domain and pay royalty and taxes to the centre? What of the matter of fiscal equalisation? What would be the conditions for transferring federal funds to states and local governments? If the revenue-sharing formula has to be altered, then it should go beyond tinkering with one or two variables. The entire gamut of revenue-sharing in a federal system like Nigeria must be completely dissected and an ‘acceptable’ formula arrived at in the interest of all stakeholders.
One way of solving the revenue-sharing ‘wahala’ is to grant economic autonomy to states to run their economies without depending on the federal government for revenue. It would be necessary to review extant laws, rules and regulations that constrain states and even local governments from propelling their economies to higher production frontiers. While the federating units should engage themselves in matters of mutual interest, they should, nonetheless, exhibit a high degree of competitive as well as cooperative federalism. Under competitive federalism, low-performing states would strive to catch-up and even surpass the high-performing ones. The competitive elements would bring out the best in the states and local governments.
However, there would still be cooperation if Nigerians have decided to live together. The expectation would be that at some point, Nigerians would start ‘voting with their feet’ by moving to states that have put in place durable infrastructure to sustain their economies and improve the standard of living of its people. A new revenue-sharing formula should strive towards reducing drastically the dependence of states and local governments on the centre. In addition, the entire economy must reduce the heavy dependence on an exogenous source of revenue by concretely diversifying the economy away from crude petroleum export. To be an export (oil) dependent economy is not sustainable in the long run.
(Ekpo, a Professor of Economics is Director-General, West African Institute for Financial and Economic Management, Lagos.)