Sani Garba Consulting

1.0 INTRODUCTION

True Federalism is a mirror that reflects Devolution of Powers, Regionalism, Resource Control or, Restructuring as some would prefer to call it. The clamour for “Restructuring” of the Nigerian nation has become more vocal as reflection of the maturing democracy, which ironically, had become the target of criticism. The call to restructure the nation is simply the new form that the agitation for “Resource Control” and/or “Devolution of Power” has taken.

1.1 DEFINITIONS

The following definition of relevant terms and phrases as contained in this article.

1.2 Federalism

This is simply defined as a system of government with specified relationship between the central government at the national level and its constituent units at the regional, state, or local level. It is, in a legal terms, a system of government which has created, by written agreement, a central and national government to which it has distributed specified legislative (law-making) powers, and called the federal government, and regional governments (or sometimes called provinces or states) governments to which is distributed other, specified legislative power.

1.3 Fiscal Federalism

It is easy to situate this if we grasp and understand that the principle under which federalism operates dictates that power and authority are allocated between the national and local govemental units, such that each unit is delegated a sphere of power and authority only it can exercise, while other powers must be shared.

2.0 APPLICATION OF FISCAL FEDERALISM

2.1 Universal Applicability

This is concerned with “understanding which functions and instruments are best centralized and which are best placed in the sphere of decentralized levels of government” (Oates, 1999). In other words, it is the study of how competencies (expenditure side) and fiscal instruments (revenue side) are allocated across different (vertical) layers of the administration. An important part of its subject matter is the system of transfer payments or grants by which a central government shares its revenues with lower levels of government. Federal governments use this power to enforce national rules and standards.

2.2 Fund Allocation

There are two primary types of transfers, conditional and unconditional. A conditional transfer from a federal body to a state, local authority, or other territory, involves a certain set of conditions. If the lower level of government is to receive this type of transfer, it must agree to the spending instructions of the federal government. The second type of grant, unconditional, is usually a cash or tax point transfer, with no spending instructions. An example of this would be a federal equalization transfer.

2.3 Devolution of Power & Fiscal Decentralisation

Fiscal federalism constitutes a set of guiding principles, a guiding concept, that helps in designing financial relations between the national and subnational levels of the government; while the principle of fiscal decentralization on the other hand, is a process of applying such principles. This is what should interest us the most here in Nigeria as it relates to the sharing of revenues from, say, tax between the central government and regional or local authorities. The revenues may be raised by either authority and switched between them, as VAT is raised by governments and passed to the national government for distribution. (Economics-Dictionary.com)

3.0 THE PRINCIPLES & MANAGEMENT OF FISCAL FEDERALISM

Fiscal federalism is delicate as sovereignty must be focal to nationhood and whatever relationship that defines the constituent units, a balance that strengthens rather than weaken it must be ensured. The principle of dependency and interdependency should be brought to bear on the concept of the indivisibility of a sovereign nation.

3.1 Inter-Dependence

Fiscal federalism supports the independence of the federating units in the management of their fiscal affairs. In other words, fiscal affairs are decentralised and the units enjoy management of their revenues, expenditure and debts. In the Federal Republic of Nigeria, however, this relationship is governed by the principle of fiscal responsibility where the sanctity of the oneness of the economy is preserved and the activities of all tiers of government, which impact national economy are coordinated by the federal government.

3.2 Independence

The central government is expected to ensure equitable distribution of income, maintain macroeconomic stability and provide public goods that are national in character. Decentralised levels of government on the other hand are expected to concentrate on the provision of local public goods with the central government providing targeted grants in cases where there are jurisdictional spill-overs associated with local public goods.

3.3 Principles of Fiscal Responsibility

Fiscal Federalism demands Fiscal Responsibility, which principle is underscored by the following:

• government spending is prudently managed and sustained,

• government is not over-leveraged,

• government spending promotes growth,

• uniformity, transparency and accountability as well as timely disclosure and reporting of government financial affairs.

3.2 Fiscal Responsibility and Devolution of Power

✓ Decentralisation or devolution of power can simply be defined as the transfer of part of the powers of the central government to regional or state authorities, usually in response to demands for diversity and agitations based on perceived imbalance. In general decentralization or devolution is a response to the problems of centralized systems. It is seen as a solution to problems like economic decline, government inability to fund services and the demands of minorities for greater say in local governance. Decentralization or devolution of powers is linked to concepts of participation in decision-making, democracy, equality and liberty from high authority.

✓ The processes by which entities choose to achieve decentralization vary. They can be initiated from the central government in a top-down approach. Top-down decentralization may be a political gimmick while bottom-up decentralization initiated by individuals or states may be opposed as is the case with federalism we are now debating. At any rate whether it is top-down or bottom-up decentralization or devolution, it may not be constitutionally binding. Such decentralization or devolution may depend on the whims of the central government either to implement or ignore it.

The following reasons are often advanced for the increasing demand for decentralisation/devolution of fiscal affairs of the nation: –

• Central governments increasingly are finding that it is impossible for them to meet all of the competing needs of their various constituencies, and are attempting to build local capacity by delegating responsibilities downward to their regional governments.

• Central governments are looking to local and regional governments to assist them on national economic development strategies.

• Regional and local political leaders are demanding more autonomy and want the taxation powers that go along with their expenditure responsibility.

In 1997 the World Bank and other multilateral institutions observed that decentralisation had become a feature of reform agenda, which they promoted and continued to support. The rationale for this had been in part that decentralisation promotes accountability. It was not therefore surprising that by 1997, 62 of 75 developing nations, Nigeria inclusive, had embarked on one form of decentralisation or another.

4.0 FISCAL FEDERALISM IN NIGERIA; THEORIES & PRACTICE

In Nigeria, the Fiscal Responsibility Act, 2007 as an enforcement instrument for fiscal federalism, was promulgated toward ensuring a behaviour true to a federal nation.

4.1 The Theories of Fiscal Federalism

• “Fiscal Federalism” concerns the division of public sector functions and finances among different tiers of government. In undertaking this division, Economics emphasizes the need to focus on the necessity for improving the performance of the public sector and the provision of their services by ensuring a proper alignment of responsibilities and fiscal instruments. While economic analysis, as encapsulated in the theory of fiscal federalism, seeks to guide this division by focussing on efficiency and welfare maximisation in determining optimal jurisdictional authority, it needs to be recognised that the construction of optimal jurisdictional authority in practice goes beyond purely economic considerations. Political considerations, as well as historical events and exigencies, have in practice, played major roles in shaping the inter-governmental fiscal relations in most federations.Economics teaches us that public goods will be under-provided if left to private market mechanisms since the private provider would underinvest in their provision because the benefits accruable to her or him would be far lower than the total benefit to society. Governments and their officials were seen as the custodians of public interest who would seek to maximise social welfare based on their benevolence or the need to ensure electoral success in democracies.

• Once we allow for a multi-level government setting, this role of the state in maximizing social welfare then provides the basic ingredients for the theory of fiscal federalism. Each tier of government is then seen as seeking to maximize the social welfare of the citizens within its jurisdiction. This multi-layered quest becomes very important where public goods exist, the consumption of which is not national in character, but localized. In such circumstances, local outputs targeted at local demands by respective local jurisdictions clearly provide higher social welfare than central provision. This principle, which Oats (1972) has formalised into the “Decentralisation Theorem” constitutes the basic foundation for what may be referred to as the first generation theory of fiscal decentralisation (Oats, 2004). The theory focussed on situations where different levels of government provided efficient levels of outputs of public goods “for those goods whose special patterns of benefits were encompassed by the geographical scope of their jurisdictions” (Oats, 2004: 5). Such situation came to be known as “perfect mapping” or “fiscal equivalence” (Olson 1969).

4.2 Issues with Fiscal Federalism

To discuss the problems of fiscal federalism is actually to enumerate the problems of Federalism itself. And the single most important issue that is being viewed by most, from the political dimension, is over-concentration of power at the centre. This translates to more resources in the hands of the federal or central government. At the moment, all revenues accruing to the Federal Government of Nigeria is lodged into a pool account called the Federation Account and broadly shared in the following manner:

The table above represents the subsisting constitutional arrangement, which is implemented on monthly basis after 13% derivation on the gross oil revenue is first deducted and shared between the eight oil-producing states of the Republic of Nigeria. This information is generally published online and in different reports produced by government every month. Some see the above arrangement as fiscal centralisation or skewed fiscal federalism. States have continued to call for the decentralisation in the sharing of the national income so as to give them greater share corresponding to their responsibilities and, most importantly, the derivative nature of these resources. Some of the factors supporting this call may be discussed under the following:

4.2.1 Infrastructure

The states have vast needs to develop intra-state road network to enable economic movement of persons and goods

4.2.2 Agriculture

Many argue that agriculture could be a sustaining sector for the nation or, at least, a major complementary area for the nation’s sustenance in food crops and earnings from cash crops.

4.2.3 Education

Education has continued to defy measures taken to stop the falling standards in all the three tiers of education.

4.2.4 Employment

Government has raised the National Minimum Wage to a level that some states had decried; current realities have made the ₦18,000 objectionable to most.

4.2.5 Environment

Environmental degradation of the oil-producing areas is also an area posing social and security concerns, and, hence, the call for a higher derivation share or greater resource control.

4.2.6 Insurgency

The surge of militancy and terrorism in the north-east and south-south Nigeria threatened the core existence of Nigeria. The central government only was responsible for bringing back normalcy. Whatever level of Fiscal independence that is granted the federating units, national security is always handled by the Central Government with Security as its exclusive preserve.

4.2.7 Poverty

Poverty level differs between state to state and region to region. It was regarded the precursor to the insurgencies in the country.

5.0 CONCLUSION

Every region, every state in Nigeria is richly endowed with resources, be they oil, solid minerals, forest resources, arable land, etc. The centralisation of oil wealth and the resultant over-dependence of all states on the revenues therefrom has accelerated the national degeneration into the resource curse and Dutch disease conundrum. What we have done by this process is that, we have shielded the states from a hard budget constraint, thus encouraging them to merely ‘raid the commons’. Incentives for developing own tax bases and resources are thus stultified to the detriment of overall growth and development. Recent studies provide evidence on the growth impact of decentralisation and enhanced regional autonomy (Kee, undated; Desai et.al, 2003).

The global shift from fossil energy derived from crude oil, natural gas and heavy oils to alternative and renewable sources has ushered a dawn of realization that, for any nation to remain a viable economy, it must diversify to other sources of economic and human sustenance. Nigeria is a fledgling democracy operating a centralised federalism under an equally centralised fiscal federalism. The previous constitutional amendment took cognisance of this fact and, therefore, carefully avoided adjusting the subsisting fiscal arrangement .

Our main concern should be the focus on the political unity of the federation for now. Issues concerning decentralised fiscal federalism can still be revisited under the ongoing constitutional review without losing sight of where we are headed. Let us target the consolidation of true gains of democracy, and aim to achieve paradigm shift in our collective psyche as well as a measurable shift from dependance one a mono production society to other alternate national growth enablers such as agriculture and industrialization. The basis for my concern predicates on the consequence of absolute devolution where each state gets 100% control of its resource. Oil, as a priceless resource today, will cease to be so in a decade or two, according to the global trend. Ownership of Nigeria’s main commodity may change with time. We need to keep faith with the shared model for the political and socio-economic survival of our Nigeria.

Meanwhile, for true federalism to be realized, the centre may need to surrender its substantial holding on federation allocation. The following is suggested:

The devolution of resource control to the federating units as proposed, shall effectively abrogate the 13% derivation allocation of resources to any specific state or unit as obtained under the current arrangement. The devolution of resources to producing and controlling federating units is an inclusive principle and impartial principle of universal application.

Under the proposed arrangement, a few of the responsibilities being exercised exclusively by the federal government are expected to devolve to the federating units with the emphatic exceptions to security functions. The lower federating units are to be granted the largest share of VAT income, to spur them into greater income generation activities at the grassroots level. Power and resources shall be effectively exercised by the local governments, hoping that, fiscal responsibility by all tiers of Government, would not only be respected but assiduously observed.

A Template of Success


Sometimes success comes in a template; that template is President Muhammadu Buhari.

In October 1994, the pump price of fuel was increased to ₦11 from ₦3.25k by the former military Head of State, General Sani Abacha, which caused restiveness across all sectors of our socio-economic existence. Following the hues and cries generated by the hike, the General promulgated Decree 25 establishing the Petroleum (Special) Trust Fund. A retired Major-General and a former Head of State, Muhammadu Buhari was inaugurated the Executive Chairman of the Board on March 21, 1995. An initial ₦60 billion was made available to the Board to commence operations. The fund was worth ₦115.1 billion as at December 31, 1997. The only mandate given to him at the time was to ensure distribution “….of the gains from the (petrol price) increase on social and infrastructural projects.”

On accepting to serve as Chair, he said to the PTF contractors “If you perform well, you get a handshake. If you perform badly, you get a handcuff.” That quote became very famous. The PTF went ahead at inception to award contracts for the rehabilitation of 12,000 km of federal highways. It impacted our health care, education, water, and the agricultural sectors. The successes of the PTF are numerous and, was unarguably the only Agency to achieve a very high success level within the period it existed. He exhibited transparency and accountability as, for the first time, a government agency produced and published audited accounts two consecutive years.

Notwithstanding the controversies surrounding the appointment of a consortium of professional consultants that managed the fund, the overall achievements recorded by the PTF are incontrovertible. The records of its successes and mistakes provide an adaptive template that can be refined with acquired experiences and modern technologies.
From reports, we know the EFFC has so far recovered stolen assets worth about $3.1 billion. Mopped up funds on the TSA have also been announced. Several sources have been identified in fantastically unscrupulous nations that harbor stolen assets taken from this country and efforts have been intensified for their repatriation. The President has promised to reveal more on 29th May 2016 when he addresses the nation on Democracy Day. Planning for efficient utilization of these resources for national good is equally as important as recovering them.

In an earlier post, NO PAIN, NO GAIN (you can read it here https://m.facebook.com/SaniGarba.Gusau/posts/10205720891373857), I suggested the creation of a Trust Fund to manage the recovered assets. I called it the National Asset Recovery and Reconstruction Trust Fund (NARRTFUND); replicating a success template developed from the PTF era. Several administrative structures are available, but one where an Executive Vice-Chairman reports to the President or his Vice may present the ideal framework, giving the Presidency a grip on policy oversight. An appropriate legislation is therefore desired, both as a critical legal support and as an essential component of our laws to serve all generations. The NARRTFUND can serve this purpose.

In a military regime, policies desired by the junta were easily decreed into law, but never so in a democracy. The National Assembly is the only body empowered to appropriate federally owned funds before they are expended, and the recovered assets were once federal resources that had been shared inappropriately. Legislation that created the Sovereign Wealth Fund under the Nigeria Sovereign Investment Authority presents the right framework to be emulated. The encouragement here is to get the Presidency to romance the NASS to legislate for the establishment of the NARRTFUND. The politics that will dominate debate on the legislation would very much border on not just who to appoint, but majorly a battle of who appoints who as members on the Board of Trustees. The National Assembly, uncertain as some of us are regarding its efficacy, will serve to check and balance any excessive discharge of duties. Most importantly, the social media and the civil societies in cohort with the conventional media have consolidated into a dominant force in the cyber world that can even bring a government down to its knees. There are more than enough formal instruments and informal authorities to watch over the Fund.

Let’s consider a few of the benefits.

Annual Budgets in the past have failed to impact on the economy mainly because of their short lifespan. Like the 2016 Budgets, its predecessors have never been passed and made operational by January, the beginning of every financial. The budgets were often signed into law halfway into the year. With the rigors of procurement processes eating more into the year, hardly are three cohesive months available for implementation to achieve meaningful outcomes regarding real projects by the end of the financial year. The result has often been abandoned and cost overrun projects. This circle of waste can be stemmed by upgrading priority capital projects to a greater budget cycle of three years. The accounting year needs not change, but the project and programme budget period can extend beyond a conventional twelve months’ cycle.

The legacy of the Change Government must be felt, seen and labeled. Here, I’d like you to visualize an insignia inscribed on milestone projects, say, a modern bullet train that travels on schedule from Lagos to Sokoto bearing the “NARRFUND” label. A truly and well dredged River Niger to allow large ships to move goods and people to and from the hinterland. A Nuclear station to power up one-third of the country. All these monumental projects built from the proceeds of the fund would surely be a legacy to bequeath Nigerians by this administration.
It is my hope and that of all Nigerians that, as he unfolds his plans on Democracy Day, President Buhari would present policies, programmes, and projects to grow and develop our economy and to honestly claim the title “Giant of Africa” and a regional economic superpower. An end that more than justifies the means.

I close with the following quote, and most of you will nod in agreement.
An army of sheep led by a lion would defeat an army of lions led by a sheep – Alexander the Great

He Needs to Succeed. He Has the Will; He Has our Support!

I took a friend to a local orthopedic surgeon to mend a fractured limb. Two previous visits were unsuccessful and were actually the cause for the third before this renowned surgeon whose works had received good testimonies in the region.

After 15 minutes of intense examination, which caused my friend to emit groans and sweat in pain, the ensuing verdict was not only a frightening proposition but felt like medieval judgement direct from hell. The old man announced that to mend the limb, he would need to break it again to reinsert a missing piece then realign the bones together before placing the leg in a locally assembled cast. We didn’t invite the patient into this part of the conversation, knowing he would have to undergo this procedure without any anesthesia, but only the strength of the surgeon’s son to hold him down. I now leave you to imagine the level of pain my friend had to endure.

The procedure was successfully completed and my friend retained his leg as against the amputation early proposed in the conventional Hospital.

Do pardon the long story above, which I hope you enjoyed. The purpose is this: in life and more often than not, we are compelled by circumstances to endure seemingly destructive and unpleasant processes and procedures in order to attain permanent and enduring ends. As it is said, the end justifies the means. If my friend did not endure (I accept we forced the choice on him) the pain of the dislocation procedure and the subsequent resetting of the bones in his fractured limb, he would have ended up with no leg at all.

The 67.63% or ₦58.50 increase in the pump price of PMS from ₦86.50 to ₦145 is a painful process toward a journey of mending the Nigeria economy and growing it to a sustainable and enviable levels. I am not going into reminding you that the true cost of purchasing fuel at ₦86.50 in the past couple of months was much more than the new pump price. But do remember the nights spent in petrol stations, diluted fuel bought at black markets, increases in the prices of products resulting from the mentioned reasons. The list is long, but we had lived through them. I agree with those who rationalize that so long as the end result brings steady fuel supply and whatever subsidy withdrawn is finally ploughed back to develop the economy, then it is a sacrifice worth making. Yes, I agree and wish to proffer a few more suggestions.
Functional channels of information dissemination like the National Orientation Agency and other Social Media outlets need to be immediately reinvigorated. There is no better time as now for the President to address the nation on the State of the Nation. The 2016 Budget should serve as fulcrum for unfolding and justifying all the policies aimed at addressing the many economic maladies The nation faces. Do not leave Nigerians to the mercy of their imaginations, perception is often greater than real truth. Talk to the people, as often and directly as possible.
Set up a National Asset Recovery and Reconstruction Trust Fund (NARRTFUND). With the 2016 Budget Strategic Implementation Plan already unfolded, the President could use the opportunity to inform the nation of his plan regarding the recoveries being made of the looted assets. It may take a year or more for most of the assets to be fully or substantially recovered; the Government will gain accolades by unveiling a strategic plan to put the funds to direct and specific development projects. I suggest the setting up of the NARRFUND, the legalities of which may take sometime to establish. Now is the best time to spread the news as national morale has been scathed by the sudden increase in fuel prices.
Our dear President needs to come out guns blazing against the current economic tides with the same gusto he is fighting this fantastic monster called corruption.
Introduction of palliatives for political fiats only such as the purchase and introduction of refurbished vehicles could grossly abuse workers collective psyche, and is therefore not advised.
The next bold and necessary thing is to restructure the entire civil service in both the federal and states. The gains of the Public Service Reform attempted during former president OBJ have been substantially eroded in part by policy somersaults, but mainly due to non completion of the reformation programme to 100% level as conceptualized.
Shrink to 60% the Public Civil Service workforce. Split the 40% into two groups and redirect one to an Elite Agricultural Programme to be set up for the purpose. I’d suggest a drastic scale down in the sizes of our two legislative chambers, but I won’t. Certain things are better left not done. The complexity of the Nigerian State demands an all-inclusive engagement at the Federal level at all times; not to do so would create a problem greater than any planned financial savings.
The second group disengaged from the service should be prepared for high-end entrepreneurial programmes directed at skills acquisition and business strategies. Remember that over 60% of our annual budget goes into sustaining the workforce. If 40% of the funds saved through down-sizing in the first two years are channeled to fund the foregoing programmes, the economy would be the better for it while providing life employment to the disengaged persons. I’d gladly elect to be a participant in the Elite Agric Programme.
To further support and ensure the success of the programmes, funding can further be drawn from the interests earned on the contributory pension funds, the accruing excess crude oil proceeds and, of course, the NARRTFUND.
Sometimes in order to relocate to another position, dislocation becomes inevitable. Happy events, like the rebasing of the economy, sometimes come unexpectedly, other times, like now, the situation is painful but necessary to ensure the attainment of a long-term permanent succor.

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