title: revenue allocation formula per-independence nigeria Introduction Nigeria is Africa’s leading producer of oil and the seventh largest produc er of crude oil in the world, and equally endowed with other numerous natural re sources. But rather than utilizing its resources for maximum development, the co untry is unfortunately bedevilled with how to efficiently and effectively distri bute oil revenues in an equitable manner. The revenue allocation phenomenon in N igeria is basically the issue of distribution of national (resources) revenue, m obilized by the central federal government. And as far as the revenue allocation debacle is concerned, the haggling is between those who bake the national cake (major contributors to national revenue) and those at the helm of affairs to all ocate it. There exist two fundamental dimensions of revenue allocation or sharin g in Nigeria. The first dimension is based on the institutions and tiers of gove rnment which the federal government is at the helm of affairs. While the second dimension is the issue of individuals and groups appropriating national revenue for themselves by corrupt and unjust means. It is important to note that, revenu e allocation in Nigeria is defined by an inordinately strong political content, as evidenced in the tendency for major constitutional developments and political transactions to be accompanied by political pressures for revenue sharing refor ms and fiscal adjustments. Therefore the questions that beg for answers are: What is the character of reven ue allocation in Nigerian federalism. What is the rationale behind vehement agit ations for increased revenue allocations in some parts of the country, e.t.c. Th is paper seeks to unravel the politics of revenue allocation in Nigeria, identif y the major players, losers and gainers, and how national revenue is personalize d in Nigeria body polity.
BRIEF HISTORICAL BACKGROUND OF REVENUE ALLOCATION IN NIGERIA Revenue allocation in Nigeria a central theme in governance has a chequered hist orical antecedent. Many Commissions/Committees have been set-up at different tim es in the Nigerian national history and they were saddled with the responsibilit y of examining various fiscal issues and recommend the best principles and formu las in sharing national revenues to meet-up the challenges of the time. Some of these Commissions/Committees include; the Phillipson Commission (1946), the Hick s-Phillipson Commission (1951), the Chicks Commission (1953), the Raisman Commis sion (1958), the Binns Commission (1964), the Dina Interim Committee (1968), the Aboyade Technical Committee (1977), the Okigbo Commission (1980), the Revenue M obilization Allocation and Fiscal Commission (1989) and various military decrees (revisions) particularly 1970, 1971, 1992, etc. It is worthy of note that all t he Commissions/Committees listed above were adhoc in nature except for the Reven ue Mobilization Allocation and Fiscal Commission which was established as a lega l and permanent entity to deal with fiscal matters on a more regular basis as th e need arises.
THE VARIOUS PRINCIPLES RECOMMENDED BY THE COMMISSIONS/COMMITTEES. 1. Basic Needs 2. Minimum Material Standards 3. Balanced development 4. Derivation 5. Equality of of ac access to to de development op opportunities, 6. Independent revenue/tax effort 7. Absorptive ca capacity 8. Fiscal efficiency
9. Minimum responsibility of Government 10. Population 11. Social Development Factor 12. Equality of States 13. Landmass and Terrain 14. Internal revenue generation effort. These principles have continued to serve as the yardstick for revenue allocation up to this day.
Federalism and revenue allocation Federalism simply refers to a system of government where there is constitutional division of powers between two or more levels of government. Revenue allocation in federal systems of government involves two basic schemes. The first implies the vertical sharing between the federal or inclusive governme nt and other tiers of government. The subject of this sharing scheme is the fede rally generated revenue, such as royalties, export duties, import duties, mining rents etc. The second principle of revenue sharing which is horizontal revenue sharing aris es out of variations from the revenue generation capacities of component units. The logic is that, in areas where the revenue generation capacity is high, a rel ative higher tax is imposed vice versa to ensure stability. This transfer is cal led “equalization transfer”. The implication is that high taxation in relatively low revenue generated areas will drive away business investments and also cause fur ther depression of the economy of such areas. To avoid this, the federal governm ent has to inject more funds to such areas to create stability. Nigeria is a federal state. Whereas federalism guaranteed the existence of two o r more levels of government, the health of the federal state is seen in the char acter of the relationship between the various layers of government. One critical aspect of such relationship is the crucial issue of finance which defines the p olitics of revenue sharing in a multi ethnic society like Nigeria. Finance, no d oubt is very critical in Federalism, especially in federal state formed via the devolution method. The idea is that, it determines the extent of autonomy allowe d to sub-national governmental units and the citizens in a federation in particu lar. Key aspects of fiscal federalism include: the nature of mobilization and co llection of revenues, the manner of allocation and distribution, and the level o f autonomy enjoyed by each level in dispensing with its resources. There are arguably no universal nostrums or axioms of federal financial relation s. Rather, a great variety of national systems of fiscal federalism exist, with each system evolving incrementally in an autonomous manner in response to the un ique historical circumstances of each federation. However, there is a high level of financial imbalance in the Nigerian federalism where as the federal central government has huge revenue at its disposal to exe cute its functions much less is available at the level of the other tiers of gov ernment. The simple logic of this misfortune is that, the federating or Oil Economy and the Revenue Allocation Debacle in Nigeria component units are no t allowed to control the resources produced in their territories, as was practic ed before the advent of the oil regime. The laws that govern the Nigerian Oil in dustry equally gives the federal Government dominion over oil proceeds. For inst ance, under the Petroleum Act of 1969, the entire ownership and control of all p etroleum in, under or upon any land in Nigeria is vested in the state. This and other obnoxious laws like the Land Use Act of 1976 etc, denies the ethn ic minorities populated Niger Delta from benefiting from the resources whose bur den of production they bear. That is, the Nigerian State has become the manager of Nigerians national income and has maintained a tight grip on the purse string s . Federalism is a project. It can be linked to a tool for performing specific tasks in a contributed society. The tool being human invention, always needs to be improved upon in order to make it more effective and efficient to carry out t
he specific tasks. In the process of work, problems are encountered. These probl ems provide ideas for improving on the design of the tool in order to improve pe rformance in achieving set goals. Though it has been identified that the tool of revenue sharing (revenue allocation) in Nigeria is bad, faulty and bias, as sho wn in the obnoxious laws that govern the oil industry, the powers that be have s imply refused to improve the design of the tools to make it effective, acceptabl e cum results oriented. It is interesting to note that, due to the controversial nature of revenue allocation in most third world federalisms, since the late 19 40’s, nine fiscal commissions have been set up, to examine the important issue of multi level finance in Nigeria. This is indicative of the dynamic nature of Nige ria’s fiscal federation.
Pre-oil economy and competitive development in federal Nigeria Nigeria became a federation with the introduction of the Lyttleton Constitution of (1954). And the Nigerian federation was then constituted by three regions: No rthern, Eastern and Western regions and agriculture was the major source of reve nue. A peep into the annals of history shows that, the politics of revenue shari ng was very limited when agriculture was the mainstay of the Nigerian economy. T his was because; the regions were accorded the constitutional right to control t he resources they produce. The regions were rich in agricultural resources with Cocoa in the West, Groundnut and cotton in the North and Palm Oil in the East, a nd it promoted developmental competition among the regions. That is, there was a strong competition between the regions to become the most developed part of Nig eria. While Obafemi Awolowo of the Action Group, with its philosophy of “democrati c socialism”, spear-headed development drive in the Western region, Nnamdi Azikiwe of the National Council of Nigeria Citizens, led the Eastern region with the ph ilosophy of “pragmatic socialism”. More so, using the Northern People Congress, and the bulwark of conservatism and primitive capitalism as a vehicle, Ahmadu Bello, the Sarduna of Sokoto, drove development in the North. The then revolutionary f ree education programme in the western region was funded entirely from cocoa and rubber proceeds. So also were the University of Ife, now Obafemi Awolowo Univer sity, Liberty Stadium Ibadan, Cocoa House, Western Nigeria Broadcasting and Tele vision services (the first television station in Africa). Ahmadu Bello Universit y, Zaria and the University of Nigeria, Nssuka, were not built with foreign gran ts or loans, but from proceeds from cotton, groundnuts and palm oil. Revenue allocation in Nigeria a central theme in governance has a chequered hist orical antecedent. Many Commissions/Committees have been set-up at different tim es in the Nigerian national history and they were saddled with the responsibilit y of examining various fiscal issues and recommend the best principles and formu las in sharing national revenues to meet-up the challenges of the time. Some of these Commissions/Committees include; the Phillipson Commission (1946), the Hick s-Phillipson Commission (1951), the Chicks Commission (1953), the Raisman Commis sion (1958). The pre-independent revenue allocation principles/formula as shown in the Philip son (1946), Hick-Philipson (1951), Chick (1953), and Raisman (1958), revenue all ocation reports clearly indicates that the regions enjoy 100% derivation princip le, which they utilized to promote development. A case in point is the Philipson commission of 1946 whose formula was difficult to implement because of the argument by the North that the money that was due to it had gone to the East while the East and West charged that the North had been given an unduly large allocation. The history of revenue allocation regime is the history of Nigeria. This is beca use it pre-dates independence. Specifically, it began in 1946 with Philipson’s Commission which primarily identif ied three principles namely: derivation, even progress and population. This was on until 1951 when we had Hicks/Philipson’s Commission which came up with four general principles: independent revenue, derivation, need and national int
erest. Then came the Chicks Commission in1953 with the main principle of derivat ion. This made the regional governments stronger than the centre and this was la rgely responsible for the landmark achievements that were recorded in the three regional governments. Ironically, there was a stiff opposition to the principle of derivation by some forces who felt cheated because of the imbalance in the polity as a result of av ailability of agricultural resources and especially human management of these re sources. As a result of the deafening dissatisfaction with the derivation princi ple, the Raisman’s Commission of 1958 came on board which led to the addition of t he “complete regional jurisdiction over personal income tax and created distributa ble pool account” principles. COMPONENTS OF REVENUE ALLOCATION FORMULA The Vertical and Horizontal Formulae:Fundamentally, there are two components of the revenue allocation formula used f or the disbursement of the Federation Account as indicated here under. 1. Vertical Allocation Formula (VAF) 2. Horizontal Allocation Formula (HAF) i) The Vertical Allocation Formula: This formula shows the percentage s allocated to the three tiers of government i.e. federal, states and local gove rnments. This formula is applied vertically to the total volume of disbursable r evenue in the Federation Account at a particular point in time. The VAF allows e very tier of government to know what is due to it; the Federal Government on one hand and together to 36 States and 774 Local Governments. ii) The Horizontal Allocation Formula: The formula is applicable to Sta tes and Local Governments only. It provides the basis for sharing of the volume of revenue already allocated together to the 36 States and the 774 Local Governm ents. Through the application of the principles of horizontal allocation formula , the allocation due to each State or Local Government is determined. Thus, it c an conveniently be concluded that the vertical allocation formula is for inter-t ier sharing between the three tiers of government while the horizontal allocatio n formula is for intra tier sharing amongst the 36 States and the 774 Local Gove rnments. However, with the attainment of independent in 1960, the derivation principle wa s reduced to 50%, as provided in section 134(1) and section 140(1) of the 1960 a nd 1963 constitutions of Nigeria. And this remains until 1970, when it was gradu ally reduced to 1.5%. It is significant to observe that the derivation principle which allows the federating units to benefit maximally from resources produced in their domain was the dominant criteria of revenue sharing in Nigeria during t he dominance of agriculture as the focal point of national revenue. HICKS-PHILLIPSON COMMISSION OF 1950/1951. The hicks-phillipson commission of (1950/1951) in Nigeria was convened as part o f a constitutional review to look into issues that arose out of the derivation b ased revenue allocation system that emerged out of the 1946 constitution. The commission was the second in a series of ad hoc committee commissioned to lo ok into the revenue allocation system in the country. THE COMMISSION. From 1926-1946, the country utilized a unified system of revenue allocation unde r the colonial government. However, the Richards constitution of 1946 introduced the concepts of devolution and derivation whereby large measures of financial r evenue are accorded to areas where the revenues are generated. However, some peo ple expressed their dissatisfaction with the new measures. Many of them felt the derivation principle was blind and also the poor statistical information at the same time was an impediment to the full operation of the 1946 system. The hicks - phillipson commission was appointed to look at the sentiments, the report of t he commission maintained the necessity of a strong regional revenue base but it added three new principles to the Nigerian federal finance: more tax powers to b
e given to the regions, a need and population based principle that would increas e grants to areas of large population and those in need and federal government t ransfers to specific regional service areas of national interest such as police and education. The proposals became part of the 1951 constitution but by 1953, i t appeared the colonial government gave way to a true federal system following a constitutional crisis in 1953. THE RAISMAN COMMISSION 1958 – 1964. The Raisman Commission on revenue allocation which was set up in 1958 lasted unt il 1964. The Raisman Commission was set up as a result of dissatisfaction of Nig erians especially the Northerners with the derivation principle adopted by Louis Chick Commission of revenue allocation 1954. The Raisman Commission was commiss ioned to review the financial relationships between the Federal and regional gov ernments. The Commission recommended the payment of import and exercise duties o n tobacco to regions in relation to their consumption level. Furthermore, the Ra isman Commission recommended the creation of a distributable pool of federally c ollected revenue to be shared on percentage basis as follows Northern Region: 40.95% Western Region: 24.95% Eastern Region: 31.95% Southern Cameroon 5.95% The following were to serve as deterministic variables for the allocation of rev enue: (i) Derivation – This principle emphasize the source of earning. (ii) National Interest – The sector of the economy that the nation is interested in should be given greater attention. (iii) Uniform Development – The revenue is to be shared in such a way as to ensur e even national development. (iv) Population – Those with highest population should have greater part of the r evenue. The recommendations of the Raisman Commission were highly welcomed by Nigerians. In spite of this however, the regional governments agreed that the central gove rnment should appoint from time to time, as fiscal Review Commission. However, i n spite of this agreement by the regional governments, before the end of party p olitics in 1966 only one such commission had been appointed. Oil economy and the revenue allocation debacle in Nigeria As an observable dynamics, the politics of revenue sharing was brought to limeli ght when oil became the main source of national revenue and oils the wheels of t he Nigerian economy. The revenue allocation commissions that were constituted wh en oil gradually displaced agriculture as the bane of the nation’s economy trickle d down the derivation percentage, and eventually displaced cum ignored it, as sh own in Table 1 below. The commissions were the Binns (1964), Dina (1968), Aboyade (1977), and the Okigbo (1980) Revenue All ocation Commissions. The interest of minorities does not count if they do not ha ve a significant representation in the ruling class. Therefore, instead of deriv ation that hitherto benefits the regions, the commissions lay emphasis on Need, Population, Landmass, Balance Development, Equality of states, National minimal standard etc, to the detriment of the goose that lays the golden egg. Without mi ncing words, the implication is the deliberate and criminal transfer of the oil wealth out of the 3 Niger Delta to develop other regions. It is evidently clear that, with the ascendance of oil (found mainly in the homelands of the ethnic mi norities) as the pivot of the nation’s economy, the interest of derivation on the part of those who wields state power faded, given that it will now promote the i nterest of the minorities who do not control state power. The abundant crude oil in the minority territories of the Niger Delta region became a subject of envy, and the majority groups adopted every means to ensure that the owners receives very little benefit from it. Due to the difficult terrain of the Niger Delta, an
d the effect of oil exploration and production, the region obviously needs more funds to promote development, hence agitations to reverse to at least 50% deriva tion fund for the region. Some may argue that, the Niger Delta, which is agitati ng for increment in the derivation percentage equally benefits from the era the principle held sway in the pre-oil economy era. However, the undeniable truth is that, the region was Balkanized into the Eastern and Western regions, where the y constitute minorities. For example, the western Ijaws in present Delta State w ere minorities in the Yoruba’s dominated western region, and as such were even exc luded from the famous free education legacy that the Yoruba’s enjoy. More so, the glaring need of development and absence of basic social infrastructures, excruci ating property and generation backwardness in the region corroborates the fact, the Niger Delta was neglected parts of the Regions. CONCLUSION. Revenue sharing or cake as the case may be, is very crucial in heterogeneous pol itical entities like Nigeria, and especially when there is uneven distribution o f political power and natural resources. And that those who wields political pow er, use it to appropriate more resource to themselves and ethnic groups, and lea ve those who not control state power with peanuts and mere tokens. The revenue s haring formula in Nigeria is undoubtedly skewed in favour of the major ethnic gr oups to the detriment of the minority ethnic groups in the Nigerian federal syst em. The revenue sharing mentality has also breaded laziness and eroded hard work as a virtue. The reason been that, it has introduced corrupt, unjustified, and bias criteria of appropriating and allocating national resources, which has caus ed dissatisfaction, disconnect and agitations for redress in the Nigeria state. Most states in the federation have nothing to show for the huge financial alloca tions they receive from the federal government. And until the trend is revised t o make them productive, the drive for competitive development will be elusive. Revenue allocation in Nigeria be it in pre-independence or post-independence era is characterized with controversy. Each levels of governing-Federal, State and Local want to have a sizeable share of the national cake. The frequent promulgat ion of military decrees before now and the frequent setting up of commissions bo th for the purpose of revenue allocation was to satisfy the interest of the stak e-holders in having a fair share of allocation from the common pool account. It is in a bid to satisfy this competing interests that Nigeria is in a continues s earch for a generally acceptable formula for revenue allocation. REFERENCES. Aaron, K. (2005) “Perspective: Big Oil, Rural poverty and Environmental Degradatio n in the Niger Delta of Nigeria”, Journal of Agriculture Safety and Health 11(2) p p.127-134 Aiyede, R (2005) “Intergovernmental Relations: the Strengthening of the Nigerian Federation”, in Onwudiwe, E. and Suberu, R. (eds) Nigerian Federation in Crisis: Critical Perspective and Political Opinions. Programme of Federal and Et hnic Studies, Department of Political Science, University of Ibadan, 221-230. Am uwo, Kunle et al (eds) (2004) Federalism and Political Restructuring in Nigeria, Spectrum Books Limited, Ibadan. Danjuma, T. (1994) “Revenue Sharing and Political Economy of Nigerian Federalism” Journal of Federalism, 1, 43-48. Egwaikhide, F. A iyede, R, et al (2004) Intergovernmental Relationships in Nigeria. Programme on Ethnic and Federal Studies (PEFS) Department of Political Science, University of Ibadan, Ibadan. Ekeh, P. (2001) “The Misrepresentation of History: Bala Usman’s Unm aking of Nigerian History” The Guardian, 7 May, Lagos, pp. 8-9 Etekpe, A. (2007) P olitics of Resources Allocation and Control in Nigeria; The Niger Delta Experien ce, Department of Political Science Monograph, Niger Delta University, No 1 Gboy ega, Alex (2003) Democracy and development: the imperative of local Good governm ent. An inaugural lecture, university of Ibadan, (Faculty of Social Sciences) Ib aba, I. (2005) Understanding the Niger Delta Crisis, Amethyst and Colleagues Pub lishers, Port Harcourt Idahosa, S. & Okotie (2005) “Why Government is Opposed to R esource control in Nigeria, in Orababor, et al (eds) Federal-State and Resources Control in Nigeria, Parker publishing company. Ikein, A. (1990) The Impact of O
il on a Developing Country: The Case of Nigeria. Evans Brothers limited, Ibadan. Ikporukpo, C. (1996) “Federalism, Political Power and the Economic Power Game: Con flict over Access to Petroleum resources in Nigeria. Environment and Planning: G overnment and Policy, 14. pp 159-177 Isumonah, A. (1998) “Oil and Minority Ethnic Nationalism in Nigeria: The Case of the Ogoni”, Unpublished Ph.D thesis, Universit y of Ibadan. Lubeck, P. Michael J. et al (2007) Convergent interest: United Stat es Energy Security and the Securing of Nigerian Democracy. International Policy Report, Center for International Policy, Washington, February. Myrdal, G. (1967) Economic Theory and Underdeveloped Regions, Duckworth, London Ojo, E. (2010) “The Politics of Revenue Allocation and Resource Control in Nigeria.
