The argument for restructuring Nigeria’s laggard federation

Given the nature of the Nigerian federation and the role of the central government as the revenue-collector of the federation the issue of revenue sharing will be of utmost importance to all stakeholders in the Nigerian federation. Since the wave of state creation started in 1966, and especially, since the oil boom began in the early 1970s, the military has arrogated to itself the right to determine how centrally collected revenues would be shared and usually gave to itself the largest pie. At present, the sharing formulae gave the federal government 52 per cent, states 26.72 per cent and local governments 20.60 percent. To determine how the 26.72 per cent meant for the states would be shared, various criteria had been adopted ranging from population, land mass, minimum responsibility, balanced development of the federation, and lately, derivation.

This structurally imbalanced federal arrangement had created a financially hegemonic centre and weak/fiscally impoverished states that have to rely on, and lobby the centre for economic patronage.

There are many difficulties with this kind of federal arrangement. First, it turned the principle of federalism right on its head by creating a federation where revenues flow from the centre to the units instead of the other way round. Secondly, it ensured a federation that, by design, cannot be productive and exist only to share centrally collected revenues. Thirdly, and most importantly, by creating a nation that depends largely on rents from the sale of crude oil for its revenues, the architects of the Nigerian federation created a federation where the governments cannot be accountable to their people.

Extant literature on political economy – and supported by real world experience – is clear that there cannot be accountability in systems where the government is not funded by its people but through what some scholars refer to as ‘unearned rents’ – that is revenue not derived from the people but gotten from mineral resources or large aid inflows. The payment of tax is a key and central element in the development of a real social contract where the people directly fund the government and the government in turn, remains accountable or is forced to be accountable to the people because government revenue is peoples’ or more appropriately ‘tax-payers’ money. That is perhaps, the most effective connection between the government and the people.

That is the main reason why, of all the oil exporting countries, perhaps only Norway has a truly accountable government. To be sure, Norway exports roughly 2 million barrels of oil per day and rakes in billions of dollars in annual revenues. With a population of just under 5 million people, it could have afforded the luxury of using the revenues from oil to finance the state and provide the infrastructure and other needs of its citizens, but decided against it. It rather maintained its high tax rates – one of the highest in the European Union – so as to ensure the existence of a social healthy contract and ensure government accountability to its people. Its government is therefore fully financed by the taxes of its citizens. It deposits 100 percent of its oil and gas revenues into its sovereign wealth fund – worth about $840 billion – the largest such fund in the world. It then withdraws an average of 4 percent a year to help pay for public services. It can also withdraw a large sum in times of economic depression.

In majority resource-exporting countries however, rent revenues are linked with dictatorship or have anti-democratic effects largely because the governments do not rely on the people for their revenues and are therefore not accountable to them. That is also the case with Nigeria and that is why despite the agitations and the hues and cries, the government, by nature, is unaccountable to the people.

The structure of the Nigerian federation is such that both the governments and the people are perpetually in competition for the sharing of the ‘national cake.’  That appears to be the raison d’être of the Nigerian state. An implicit but unstated logic of the Nigerian state also is that the state or the federation, at the very least, will cease to function without oil rent. And that is why virtually all the states have gone bankrupt with the collapse of oil prices.

It is easy to advise the states to focus on internally generated revenues like Lagos and learn not to depend on federal allocation. While it is true that the states could do more to boost revenue generation, anyone familiar with the nature of the states – deliberately created small, fragmented, weak, and incapable of self-support – knows that such ambitious plans and exhortations may not work for all of them. The reasons for Lagos’ revenue-generating capacities are well known and very few states possess the kinds of advantages that Lagos possesses.

The hard reality, which many are unwilling to countenance, is the fact that the states are unviable and unproductive and must be restructured if we ever hope to get them productive and viable. What is wrong with having, say, six strong regions and a federal government make up the federating units of Nigeria? This will not only reduce the cost of governance, it will make the regions or states large enough and capable of generating its own revenues and ensuring its survival outside of the federal government.

Christopher Akor