Revenue shortfall and fear of political colouration are at present threatening the
adoption of a new revenue sharing formula, reports Festus Akanbi
With the speedy completion of the draft report on the proposed new revenue allocation formula last year, expectations were high that one of the priorities of the Federal Government this year would be the adoption of the recommendations of the members of the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC).
However, it was gathered that up till the weekend, despite the announcement by the RMAF in December last year that the report was ready and awaiting submission to the Presidency, the commission was yet to submit its report to the Presidency amid speculations that the Federal Government may no longer be in a hurry to alter the current revenue sharing formula among the three tiers of government.
Draft Report Ready
The Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC) had adopted the draft report on the proposed new revenue sharing formula among the three tiers of government after a two-week retreat in Calabar, Cross River State where all the submissions, documents and input from stakeholders were analysed and considered late last year.
The last time the revenue allocation formula was reviewed was in 1992, having being formulated by the Modification Order issued by former President Olusegun Obasanjo in May 2002, and which was subsequently amended in July 2002 and January 2004 respectively.
The current revenue allocation formula is as follows: Federal Government (52%), States (26.72%), and Local Governments (20.60%).
If the direction of the argument of economic affairs commentators is to be relied upon, then Nigerians may have to wait a little further before a new revenue sharing formula could be adopted.
Not the Best of Time
In her opinion, Standard Chartered Bank’s Head of Africa Research and a well-known commentator on African markets, Razia Khan, explained that, “Given the current political environment in Nigeria, this may not be the best time for the proposed review of Nigeria’s revenue sharing formula. For deliberations to be successful, and to boost the long-term prospects of Nigeria’s economy, the revenue sharing formula needs to be worked-out in an environment of trust, where consensus-seeking is facilitated. Ahead of an election, the risk is that political considerations will dominate, and these may not necessarily overlap with what is required for long-term development and an equitable sharing of Nigeria’s oil wealth.”
Explaining why the progress has been slow, Khan said policy makers were obviously occupied with other matters especially in a pre-election year. She said: “For a successful process, Nigeria needs both a consensus-seeking environment as well as transparency in revenue receipts – including oil. With vast amounts of oil-related earnings still requiring reconciliation, Nigeria still needs to work on issues related to transparency.”
But Head Research and Intelligence, BGL Plc, Mr. Olufemi Ademola, believes there is always a room to do anything relating to governance if there is a strong political will.
“The Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC) was expected to present a draft of the review to the President for his consideration before forwarding same to the National Assembly in late 2013 but this appears not to have been done yet. If it gets to the President early in 2014 and forwarded to the legislators quickly afterwards, the review can still happen before the end of 2014.
“The clear message on the proposed review is that the Federal Government should reduce its share of the allocation and increase allocations to other tiers of government, especially the States. There are also some agitations for the increase of allocation to derivation from the current 13% to between 25% and 50%. However, due to the dwindling national revenue and the huge expenditure outlay for the Federal Government as election draws near, the incentive for such review, which would further reduce the revenue accruing to the Federal Government may not be present right now. In addition, the highly political and sensitive nature of the derivation allocation may also cause the government to foot-drag on the proposed review.”
The agitation for a new revenue sharing formula, according to an Abuja-based development economist, Odilim Enwegbara, is symptomatic of a rent-seeking economy.
Saying heavy reliance on federally-collected revenue brews laziness, Enwagbara said: “Each time I hear that the three tiers of government are fighting over revenue sharing formula, my heart bleeds. It bleeds because not only that these governments are fighting over what they never generated, but also are fighting for more money to be diverted into the private purses. Also my heart bleeds because a lazy government that has literally done everything not to exploit the inventive and creative brainpower of millions of Nigerians has as a result been kept in deep sleep.
“But above all, the question no one seems to be posing is: What if we all wake up one day and discover that the much-talked about post-petroleum revolution has happened, and for that reason, oil prices have plummeted to the level that the cost of oil production has become higher than its market price? What will the nation do given its refusal to move beyond an oil economy? Or do we need the carbon zero energy revolution for us to discover the real wealth of the country remains the exploitation of the infinite creative and inventive brainpower of the citizens?
“From the scenario painted you don’t need to be told that I am one of those few Nigerians who would be praying that that day better comes sooner than later. But more so, I am praying that let our eyes be wide open to the fact that there is now the need for process that should drive the country’s gradual movement away from oil dependent revenue sharing to internally-dependent revenue generation. If not for anything, at least it is the fact that dependence on externally-generated revenues means dependence on external economic growth factors, which at most leads to vertical economic growth effects rather than horizontal economic growth that have trickle-down and multiplier effects. That is why without directing the externally-generated revenues to wealth creation, it is difficult to show why oil dependent economies like ours should be growing faster than the economies generating their purchasing their oil.
“As painful and unbelievable as our oil curse has become, sharing what you have no input into is a fraud, especially when its sharing excludes the real owners, which is the people of Nigeria. Little wonder the endless fight over revenue sharing is not for using the revenue for the transformation of Nigeria into a modern industrial economy, but for more money to go into the pockets of the country’s tiny elite class.
But the whole irony of it is what we have in the federal system with a revenue sharing formula that rather than create equity and harmony continues to introduce conflicts, wastage, and underdevelopment in the country’s fiscal system. Particularly the inclusion of local governments in revenue sharing formula as if they were part of the federating units makes one to wonder why forming part of federal revenue sharing when they are not constitutionally part of the federating units.
Explaining that, we should want to know why the continued insistence on having local governments as part of the federating units. But should we insist on continuing to have local governments as one of the federating units in the next revenue allocation formula, of course, efforts should also be made to explain what criteria were used in creating the country’s present 774 local governments, especially given that some more populous states have fewer local governments than less populous states. In other words, if the country’s revenue sharing formula truly should emphasise equity principles, the question is: were they truly created on measurable factors?”
The Big Question
According to him, “As accusations and counter-accusations over marginalisation continue, the question to ask becomes, who really is marginalising who, why and how? Are we not continuing this fight simply because our current political democracy is yet to carry economic democracy along? If we should come up with a fiscal federalism and revenue allocation and sharing formula that should emphasis poverty alleviation and improvement in human welfare and quality of life across the country, then, the fiscal power and revenue allocation should be designed in a way that determines how much political economy power is controlled by each of the three tiers.
“That is the undeniable truth; the operation of federalism without fiscal federalism. Should engendering healthy fiscal federalism that is beneficial to all federating units, require insistence on all the federating units operating on their respective internally- generated revenues and only making reasonable contributions to the centre? I think that we should be courageous enough to insist on enshrining into the constitution certain level of financial autonomy. If that is not possible in the short-run, shouldn’t we insist that in order to achieve fiscal decentralisation and financial autonomy for the federating units, oil revenue allocations should be wholly spent on development projects that directly benefit the people?
“I think that thanks to the forthcoming national conference, Nigerians should have the unique opportunity of looking themselves straight in the eyes to agree that to bring to an end this unimaginable prodigality and rampant corruption associated with leadership in this country, going forward, the federating states and the federal government should become self-sustaining through internally generated revenues; and any state that fails to live up its financial responsibility should over time seek merger with another state.
“If we should do that we should be forcing government to begin the pursuit of aggressive development of tax policies to increase its internally-generated revenues enough for its upkeep. That is why the proposed national dialogue should be a unique opportunity for us to frankly pose these questions and honestly proffer the right answers to them.”
Enwegbara therefore advocated a federal entity, with specific responsibility for spending a portion of the country’s externally-generated revenues purposefully on federal projects, which should include road, railway, airport, seaport, and hospital infrastructure. “In other words, to ensure that our fiscal laws do not continue to give more powers to the federal government than states and local governments, I will insist that the money set aside is neither controlled by federal government nor by state governments.
“For this reason the new revenue sharing formula should be: 30 per cent for federal infrastructure projects to be managed by what I call the National Council for the Development of Federal Infrastructure Projects; 25 per cent federal government; 20 per cent states; and 15 per cent local governments. That will require the immediate dismantling of Excess Crude Account as well as the SURE-P.
“Addressing head-on the current diversion of huge sums of federally-collected revenues into extra-constitutional items such as ‘Dedication or Reserve Accounts, Priority Projects and Federal External Debt Service obligations, we should insist on making sure that all federally-collected revenues be channeled into the Federation Accounts without exception,” he submitted.