SUNDAY MUSINGS
The Un-Federal Nature of Nigeria's Fiscal Federalism

By: Mobolaji E. Aluko, PhD , Burtonsville, MD, USA

Sunday, January 7, 2000

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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.

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 were those resources in 1997?

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.

What that means is that Naira figures below should be divided by 1000 and multiplied by 582,811.1 to get the ACTUAL Naira amounts. Also note the columnar alignments of the figures.

Please follow closely with me.

Table 1: Gross Sources of Total Federally Collected Revenue (1997)
Total Federally Collected Revenue....	N1,000
Oil Sources....	N715
COE, PPT, Royalties, Dom. Sales....	N491
AFEM Intervention Surplus....	N224
Non-oil sources....	N285
Companies Income Tax....	N45
Customs & Excise Duties....	N108
Value Added Tax....	N58
Federal Independent Revenue....	N14
Others....	N59

Thus, note that only 1.4% of the total federally collected revenue is really federal INDEPENDENT revenue, while the rest 98.6% ashould properly belong to the state and local governments, which could then have been taxed in some mutually agreed way.

Now, how did the Federal Government allocate this N1,000? The main categories were Federation Account, VAT Pool Account, AFEM Surplus Account, etc. Here is it:

Table 2: More Detailed Sources of Federally Collected Revenue (1997)
Total Federally Collected Revenue....	N1,000
Federation Account....	N357
Federal Retained (48.5%)....	N173
State (24%)....	N86
Local (20%)....	N71
Special Funds (7.5%)....	N27
FCT Fund (1%)....	N3.6
Ecological Fund (2%)....	N7.2
Derivation Fund (1%)....	N3.6
OMPADEC (3%)....	N10.8
Stabilization Fund (0.5%)....	N1.8
VAT Pool Account....	N58
Federal Retained (35%)....	N20
State (40%)....	N23
Local (20%)....	N15
AFEM Surplus Account....	N224
Federal Retained....	N81
Undisbursed (?)....	N143
Petroleum Special Trust Fund (PSTF)....	N65
Federal Retained....	N65
National Priority Projects....	N75
Federal Retained....	N75
External Debt Service Funds....	N75
Federal Retained....	N56
Undisbursed....	N19
JVC Payment Accounts....	N77
Federal Controlled....	N77
Others (eg transfers to reserves)....	N60
Federal Controlled....	N60
UNACCOUNTED FOR....	N9
Federal Controlled (?)....	N9

Thus, per N,1000 of total federally collected revenue, what was made available to the state and local governments are as follows:

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 kept 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 allocation formula, then the federal government should not have more than N400 instead of N805 (40% of N1,000).

If we were to repeat this as a 40-60% state/local government split, then 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.

The overall formula would then be 40-24-36 Federal/State/Local 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 currently running an un-federal fiscal federalism, and the federal government is STEALING money from the state and local governments, and hence these lower-level government, despite being closer to the people, are not able to fulfil their responsibilities, like maintaining roads, schools, paying salaries, etc..

Now there is another aspect of all this unfortunate circumstance that we must address: the regional imbalance that goes on in our budget allocation. This can be deciphered beginning from the following table:

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 get 55% of the state allocations from the Federation account, about 50% of the VAT allocations, receive grants that are 72% of all allocated, but generate only 22% of all internal generations.

Quite frankly, the Northern Region took much of the cake home without baking much of it in 1997.

On the other hand, the South-East political zone is indeed "marginalized" when we look at the numbers, bringing up the rear in almost every category, although it needs to TREMENDOUSLY increase its own internal generation to be at par with the rest of the other Southern zones.

This circumstance may be partially due to some reliance of the revenue allocation on population and land mass, both of which do not favor the SE relative to the other zones of the country.

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 (10%) of its contribution.

Despite all the talk about 13% derivation, thus 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.

Table 4 had to do with the states. 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 Generations....	5
Total South....	2.51
SW....	1.33
SE....	0.58
SS....	0.60
Total North....	2.5
NW....	0.76
NE....	0.65
MB (NC)....	0.77
FCT....	0.32
From Grants and 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

From the above figures in Table 5, we find that the internal generations of the local governments (a total of N5, with the North and South at dead-heat of about N2.5 each) 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, roughly consistent with the notion that funds are disbursed to local government on an equal basis, irrespective of population or need.

However, the basis for the high mismatch for disbursement from the Federation account (N12.8 for the South to N21.2 for the North) remains nebulous at best.

Epilogue
So where do we go from here, given this unfair distribution of fiscal resources, either from a governmental level or a regional level? 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:

   Sam Aluko To Sue Govt Over Privatisation
   http://www.ngrguardiannews.com/news2/nn806605.html
   Guardian, Sunday, December 17, 2000
   

   Fiscal rascality, squandermania' et al
   http://www.vanguardngr.com/27112000/vp227110.htm
   Vanguard Viewpoints By Olorunnimbe Farukanmi
   

   Govs ask for 40% revenue allocation
   http://www.vanguardngr.com/28082000/fp129080.htm
   Vanguard TUESDAY, 29th AUGUST, 2000
   

   Constitution defies federal arrangement"
   http://www.vanguardngr.com/04092000/ch107090.htm
   J Vanguard Conference Hall I

   FG asked to give more funds to states, LGs
   http://www.vanguardngr.com/14082000/Se515080.htm
   Vanguard South East By Tony Edike AWKA
   

   Deprivation depreciation and derivation
   http://www.vanguardngr.com/va/052000/Vc202050.htm
   Vanguard Comment
   

   The Niger Delta & Expropriatory Laws: Time for resources control
   http://www.ngrguardiannews.com/law/ln800502.html
   Tuesday, October 17, 2000
   By Akpo Mudiaga Odje

   How to assert our inalienable rights to resource control
   http://www.ngrguardiannews.com/law/ln801202.html
   Tuesday, October 24, 2000 [Continued from Tuesday last week]
   By Akpo Mudiaga Odje

   13% Derivation wayo
   http://www.vanguardngr.com/va/052000/PV030500.htm
   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....

   Utomi, LG Chief, Advocates Revenue Allocation
   http://www.ngrguardiannews.com/news2/nn808013.html
   Sunday, December 31, 2000
   

   Democracy not solution to fiscal discipline
   
   Friday, October 27, 2000, By Malachy Ezema

   Council challenges govt on oil production figures
   http://www.ngrguardiannews.com/business2/bn804106.html
   Wednesday, November 22, 2000, From Ben Akpan (Calabar)

   Govt cannot spend oil windfall without statutory reductions, says Edebvie
   http://www.ngrguardiannews.com/business2/bn805505.html
   Wednesday, December 6, 2000
   

   Politics of derivation principle in Delta
   http://www.vanguardngr.com/04092000/vp107090.htm
   Vanguard Viewpoints I Politics of derivation principle in Delta
   Continued from yesterday By David Edevbie
   

   States decry new revenue sharing formula delay
   http://www.ngrguardiannews.com/business2/bn805001.html
   Friday,December 1, 2000 - From Alifa Daniel, Abuja

   Revenue allocation: A governor's sane voice
   http://www.vanguardngr.com/13112000/rp213110.htm Oluwole Elegbede - Vanguard MONDAY, 13th NOVEMBER, 2000

   Anpka LG chairman laments low revenue allocation
   http://www.vanguardngr.com/18092000/n5180900.htm
   Vanguard MONDAY, 18th SEPTEMBER, 2000

   Osoba calls for urgent review of revenue allocation formula
   http://www.vanguardngr.com/28082000/W1010900.htm
   Vanguard South West By Kolade Larewaju ABEOKUTA

   Duke challenges Obasanjo over revenue allocation increase
   http://www.vanguardngr.com/11092000/d2140900.htm
   Vanguard Niger Delta By George Onah CALABAR

   Review revenue allocation formula - NLC V-P
   http://www.vanguardngr.com/18092000/L2210900.htm
   Vanguard Labour

   Assembly Speakers frown at non review of revenue
   http://www.vanguardngr.com/27112000/nd327110.htm
   Across the nation Niger Delta By George Onah CALABAR CROSS RIVER

   Revenue Mobilisation Commission wades into South-South govs row over derivation
   http://www.vanguardngr.com/09102000/nd191000.htm
   Vanguard Across the nation Niger Delta By Emma Amaize BENIN CITY

   AD Govs allege distortion of reports on revenue formula
   http://www.vanguardngr.com/18122000/n3201200.htm
   Vanguard National Newsreel By Sina Babasola

   Revenue mobilization: FG asked to consider commission's report
   http://www.vanguardngr.com/11092000/Nn212090.htm
   Vanguard North By Paul Attat SOKOTO

   2000 LG workers protest zero allocation in Ibadan
   http://www.vanguardngr.com/20112000/w4231100.htm
   Vanguard South West by Sina Babasola IBADAN

   FG organises special briefing for members of revenue commission
   http://www.vanguardngr.com/18122000/n5231200.htm
   Weekend Vanguard News L By Okechukwu Jombo Abuja

   Revenue: Rivers unfairly treated, says Odili
   http://www.vanguardngr.com/13112000/nd714110.htm
   Vanguard Across the Nation Niger Delta By Sam Onwuemeodo PORT HARCOURT, RIVERS

   Derivation fund controversy
   http://www.vanguardngr.com/21082000/D4240800.htm
   Vanguard Niger Delta I Derivation fund controversy L By Fred Majemite

   Osoba accuses FG of withholding N2.4bn meant for states, LGs
   http://www.vanguardngr.com/04092000/W1080900.htm
   Vanguard South West By Kolade Larewaju ABEOKUTA

   THE DERIVATION FUND CONTROVERSY: Our stand on Derivation Fund -Urhobos
   http://www.vanguardngr.com/25092000/nd427090.htm
   Vanguard ACROSS THE NATION NIGER DELTA By Benjamin O Okumagba

   36 state govs drag Obasanjo to court oOver alleged illegal deduction of allocations
   http://www.vanguardngr.com/11122000/sn617120.htm
   Sunday Vanguard News BY Yinka Olusanya

   Tinubu threatens to sue FG over ETF
   http://www.vanguardngr.com/01102000/R1103000.htm
   Vanguard National Newsreel - by Kenneth Ehigiator

   Court option for 13% derivation formula
   http://www.vanguardngr.com/va/042000/vp2030400.htm
   Vanguard Viewpoints - by Richard Tosanwumi

   Abia demands more revenues
   http://www.vanguardngr.com/11092000/se611090.htm
   Vanguard Across the nation South East - by Vincent Ujumadu ABIA

   Federalism and the Southern Governors' Forum
   http://www.vanguardngr.com/09102000/pw113100.htm
   Vanguard Politics this week BY Jide Ajani Political Editor

   South-South plans political party to pursue resource control
   http://www.vanguardngr.com/27112000/nd127110.htm
   Vanguard Across the nation Niger Delta By Tommy Solomon UYO AKWA IBOM

   Lagos deserves 13% derivation from VAT-Somolu LG boss
   http://www.vanguardngr.com/21082000/P2240800.htm
   Vanguard Politics I

   LGs and the 13 per cent derivation funds
   http://www.vanguardngr.com/04092000/vp206090.htm
   Vanguard Viewpoints I By Ebi Evinson

   Statutory revenue and VAT allocation to state govts for August
   http://www.vanguardngr.com/04092000/fp307090
   Vanguard 3RD LEAD STORY

   FG distributes N869 billion from federation account in 10 months
   http://www.vanguardngr.com/04122000/b1051200.htm
   Vanguard Business BY Yinka Olusanya Abuja

5. A Primer on Federalism
   For a good introductory reading on federalism, please check:
   Distribution of powers and functions in federal systems
   By Dwight Herperger, Institute of Intergovernmental Relations, Queen's
   University Canada (1991)
   

 

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Published with the permission of Dr. Mobolaji Aluko