Fiscal Federalism: The Centre

This article is Part I of a Series. Read Part II here.

Looking back 55 years, it is clear that Nigeria’s unity is a gift, and despite cultural and religious differences, the giant of Africa has been slowed, but not stopped. At the core of this reality is the foundation set in stone by our Independence nationalists, the representative federalism on which the nation is built. 

Federalism is the constitutional division of powers between the central unit; Federal government, and its sub-units; states and local governments. Historically, federalism has been a political concept, not an economic one. But today, Nigeria’s federal structure arguably has a more significant impact on its current economic structure, and therefore a bigger role to play in economic choices. As a nation built on political expediency and compromise, the economic decisions we have faced are combinations of both military and civilian regimes, with different political and fiscal priorities. 

The question then becomes – is Nigeria’s federal structure serving today's nation?

The beginning – Regional governance

Sir Ahmadu Bello, former Premier of the Northern Region, is credited with arguing that ‘federalism is the only guarantee that the country will grow evenly all over; [because] we can spend the money we receive, the money we raise, in the direction best suited to us’.

The unifying leader of the Yoruba nation, Chief Obafemi Awolowo supported this argument on the basis that ‘any other system would be unsuitable and generate ever-recurring instability which will eventually lead to the disappearance of the Nigerian composite state’.

But while the Nigerian state still exists today, the new focus is on whether the nation can continue to exist, with its current federal structure. Our leaders made valid arguments, and at that time, their ideas worked for the economy. The regional economies of the First Republic, with palm produce in the East, cocoa and rubber in the West, and groundnut in the North allowed regional growth based on these agro products. 

Things have changed significantly since then. 

55 years later – false federalism

Our Federalism is supposed to centralise power, while simultaneously devolving control to sub-national governments at grassroots level. But, critics now call it ‘feeding bottle federalism’ – a situation where the federal government is economically viable and revenue generating, with the states as administrative dependents. Today, states rely on the federal allocation model where they migrate to the centre to raise funds for state and local development.

Arguably, this is a unitary system where the federal government supervises and controls all resources. Under our system, a federal ministry in Abuja is expected to extend its supervisory role to all 774 local government areas of the nation, working in tandem with the offices of commissioners and state governors. This style of governance has triggered reactions from state governors, such that the former Governor of Ekiti State, Dr Kayode Fayemi chided that ‘the federal government is not a super government, the federal government is not our supervisor, this kind of feeding bottle federalism does not exist anywhere I know’. But despite his complaint, a few months ago, the Federal government reaffirmed this governance style by berating the states for their fiscal management, but then going ahead to announce an economic bailout to the states worth ₦804.7 billion. These are traits of a truly super government.

We may then ask ourselves, what options do we have?

More resource control?

This national dependency on the centre has been one of many reasons the south-south region continues to demand more resource control. Resource control is the concept of local management and control of resources on its land, as opposed to the situation under the Land Use Act 1978 which gives the government exclusive rights over the ownership of land and resources in all parts of the country. Extreme resource control would allow Nigerian states retain up to 100% of their revenue, whether oil based or agro based, as opposed to placing it in a central pot to be redistributed among the states. This is in contrast to the current derivation formula where state governments retain only 13% of their oil revenue.

But resource control is a Niger Delta question that is unlikely to be answered satisfactorily. Oil producing states consistently agitate for more revenue control over their resources, and the argument is made complicated by the Land Use Act. The Act itself is contentious because it transfers ownership of all land (except Land vested in the FG such as mineral and oil resources) to the governor of the state. Therefore, the outcome is that the Federal government controls oil revenue derived from these states. Any change to the ownership of these mineral resources may put Niger Delta states far ahead of other states, and as opposed to balancing our federation, may make it even more lopsided.

Performance of state governments

Nevertheless, handing over more control to state governments cannot be viewed as the panacea to all problems. Some state governors have proven incapable of managing their internal revenue, even while they received steady income from the centre. Most state governors have been unable to create economically viable states, with up to 23 states unable to pay salaries at the onset of a tougher economic outlook.

Understandably, many Nigerians look to state governors as powerful individuals with supreme control over state affairs. Political reality paints a different picture. 55 years ago, regional governments had enough autonomy to focus on internally generated revenue, promote development and compete economically against each other. Local and state resources were leveraged on geographical grounds, leading to a general agro based economy. Some states participated in forms of mining such as tin in Jos (Plateau state) and coal in Enugu – all this before the advent of ‘sharing oil revenue’. Today, there is a lot more reliance on the central government, and dependency on Niger Delta resources. This creates a strong case for redefining the structure of our fiscal federalism. The dependents must become more independent.

Nigeria’s federal structure is a fragile one, a balancing act between political and economic interests. Experience indicates that over time it will strengthen. But a concerted effort must be made to tackle the problem at the heart of it all – the federal and state relationship. If the conversation is renewed under this new government, the political capital of the Presidency may redefine a new Nigeria – 55 years later.

This article is Part I of a Series. Read Part II here. 

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