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The North, Revenue Allocation and the Games they Play – Dr. Jideofor Adibe

By Dr. Jideofor Adibe | London, UK | March 16, 2012 – The call by Governor Babangida Aliyu of Niger State for a review of the current system of revenue allocation, which he argued ‘disadvantages the North’, has, expectedly generated angry reactions from the South, especially from South-south politicians. Governor Aliyu, who is also the chairman of the Northern Governors’ Forum, reportedly took umbrage at the 13 per cent derivation principle, in particular the fact that revenues from offshore explorations are treated as being derived from the Niger Delta, when in his opinion, they shouldn’t.

Governor Aliyu’s remarks raise a number of fundamental issues:

One, among the nation’s political elites, geopolitics is like a game of chess or draught. You make a move; your opponent anticipates your game plan and makes a counter move to block you from realising your objective. In this game of wits, decoy, grandstanding and exaggerated anger are key elements. For instance in the days of agitation for ‘sharia’ by the North, many of the politicians from the South rallied behind the South- south in its counter agitation for ‘resource control’ (never mind that most of them will be as disadvantaged as the North if resource control were to be implemented). In the current political climate when the South is ‘moving’ its game of ‘Sovereign National Conference’, it is not altogether impossible that Governor Aliyu’s ‘umbrage’ at the 13 per cent derivation principle is meant to be a counter move to the South’s SNC.  In this sense I truly sympathise with Nigerians who work themselves up when the different ethnic and regional factions of the elites play this game. The truth is that when these politicians meet in their hideouts with their mistresses over the best foods and drinks, they review with hilarity  the ‘moves’  they made as they played this game. Honestly most of our politicians are self-interested creatures – despite their grandstanding and pretensions of being champions of the best interests of their regions.

 Two, assuming that the call by Governor Aliyu was not just part of the games the different ethnic and regional factions of the political class play, how correct was he that the 13 per cent derivation principle disadvantages the North? The truth is that derivation – a percentage of the revenues, which states retain from taxes on oil and other natural resources produced in their state – is only one of about five main criteria used in sharing revenue from the Federation Account and the North has the advantage in the other principles. In fact historically, the bulk of the allocation (about 70 per cent) has been on the basis of ‘equality of states’ and ‘population’, and the North enjoys advantage in these two criteria because it has more States and more population. Also the North has strategic advantages in the key units that share the revenues: it has more States and far more local governments than other geopolitical zones. And if you take into consideration the current system of sharing the revenue among the three tiers of the government: Federal government (52.68%); States (26.72%) and Local Governments (20.60%), you will realise the quantum of money the region as a whole gets. In essence while Governor Aliyu was right that individual States from the North get less from the Federation Account than the Niger Delta States because of the 13 per cent derivation principle he was wrong to extrapolate from that to argue that the entire North is disadvantaged by that system because most of the States from the South do not benefit from this. Governor Aliyu’s position was therefore a classic case of committing a ‘fallacy of composition’ – the mistake of assuming that what is true of an individual or unit is true for the group as a whole.

Three, derivation has always been a ‘principle’ for sharing the national revenue from 1958 when the Raisman Commission recommended that it should be 50 per cent. It has never been under 10 per cent under any regime. Even under Abacha, it was 13 per cent and has remained 13 per cent since 2001. So what is the big deal about the current 13 per cent derivation?  True, it has remained controversial whether the derivation principle should apply to revenues from off shore exploration but so have virtually all the principles used or suggested to be used for revenue sharing from the Federation Account.  For instance States from the South- east and the South- west which tend to have more people in schools than other parts of the country have always favoured the use of ‘primary school enrolment’ as a key principle in sharing revenues because as they argue, having a large number of people in schools require increased revenues – not just for paying teachers’ salaries but also for building and equipping schools. Similarly, the North, with population and land mass advantages, has historically always favoured these two ‘principles’ in the sharing of revenue from the Federation Account. Thus while the North accuses the South-south of ‘resource tyranny’, it is in turn accused by the South of ‘population tyranny’.

Four, it is a myth to believe that the States that get more money from the Federation Account perform better than those which do not. For instance, not long ago, Senator Olubunmi Adetunmbi, in a motion entitled ‘Looming danger of bankruptcy in states: the need for fiscal evaluation’, declared that most of the 36 states in the federation are in dire financial straits. Based on figures from the Nigerian Governors’ Forum, Senator Adetunmbi declared that only four States – Abia, Akwa Ibom, Anambra and Jigawa – were in good financial health.  The remarkable thing here is that Akwa Ibom is the only oil rich State that was certified to be financially healthy. In fact Rivers and Bayelsa States which receive huge revenues from the Federation Account were classified along with Oyo, Bauchi, Nasarawa and Gombe as being unhealthy. The conclusion from this therefore is that there is no correlation between the amount of money available to a State and its financial health or what the government is able to achieve if it manages its resources prudently.

Five, there is a need to revisit the myth that the Northern states underperform their Southern counterparts or that they are ‘disadvantaged’. For instance in the list published by Senator Adetunmbi on the financial health of the States, a Northern state  – Jigawa was among the four States regarded as being in good financial health. In the same list, of the 15 States classified as being in ‘critical condition’ –  Ekiti, Plateau, Benue, Edo, Borno, Adamawa, Cross Rivers, Enugu, Taraba, Ogun, Kogi, Yobe, Ebonyi, Ondo and Kaduna – the North accounted for eight States while the South accounted for seven ( a parity between the two regions if one realises the North has more States). In the same vein, the notion that the North will be worse off in the event of a break-up of the country is a myth. True, currently most of the States in the Federation depend on the monthly allocation from the Federation Account to meet even their wage bill.  But we will never know how the various units of the federation will fare without  the monthly allocation from the Federation Account because, as they say, necessity is the mother of invention and no one can predict what each State can achieve if pushed to the wall. If we use Internally Generated Revenue (IGR) as a percentage of total revenue as a guide on how the States could fare without the monthly allocations from the Federation Account, then only Lagos and Sokoto States will survive. According to Mrs Ifueko Omoigui-Okaru, the chairperson of the Federal Inland Revenue Service (FIRS), Lagos had the highest IGR in 2008/2009 of 60 per cent followed by Sokoto State which had an IGR of 46 per cent. Apart from Lagos and Sokoto, other ‘good’ performing States had IGR of 20 per cent or a little above this. And of these, two Northern States – Borno and Gombe made the list along with others like Rivers, Osun, Oyo, Ogun and Abia States. Based on these, the alleged underperformance of the North or that it will be the worse off in the event of a break-up of the country is a myth.

Six, while I believe that some of the ‘real’ grouses over the principles used in sharing the revenues from the Federation Account could have some merit, I am also mindful they could be used to mask non-performance and corruption by the State Governors and Local Government chairpersons.  What is perhaps more important at this point is developing a mechanism to ensure that the capital projects in the Federal Government’s share from the Federation Account are fairly distributed across the country. This could be one way of muffling the perennial cries by all sections of the country of being ‘marginalised’.

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Posted by on Mar 16 2012. Filed under Articles, Columnists, Jideofor Adibe, PhD, NNP Columnists, North-Central, North-East, North-West. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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