Governors and the Revenue Allocation Formula

08 Feb 2011

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Tolling Bells, By Bisi Daniels. Email:,


As the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC) reviews the country’s revenue allocation formula, one begins to wonder if there is, indeed, any justification for increased revenue to the states.

And on account of very poor performance, justification for the existence of most local governments is a lot more difficult than finding out how much the federal government actually does for the people.

Under the current revenue formula, the federal government takes 52.68 percent; the states 26.72 percent, the 774 local government councils,  20.60 percent with 13 percent derivation revenue going to the oil-producing states.

There is also some reason to question the judgment of the RMAFC. When it reviewed the year 2000 remuneration package for political office holders for approval by the National Assembly, the reason was that it was to ensure a living wage that would shield political office holders from corruption.

Today, the salaries and allowances of legislators continue to draw wide public outcry, perhaps far more than the rage over the handling of state government tills by some governors and the near unrewarding existence of most local governments.

The RMAFC has absolved itself of any blame over the ever increasing allowances for legislators and it finds support in the Nigeria Bar Association. When the association filed a suit against the federal government over the jumbo pay National Assembly approved for themselves, it argued that constituency allowances were raised without recourse to the RMAFC.

This whole confusion faults the basis for fixing current salaries of legislators. If it was to shield them from political office abuse, the argument has been invalidated.

However, the heat generated by the allowances has somehow been diffused by the commitment of the leadership of the National Assembly to review downwards their allowances.

So, on the front burner now is the renewed concern over the revenue allocation formula. The current formula dates back to July 10, 1992 with the promulgation of the "allocation of revenue (Federation Account, etc, amendment) Decree of 1992. It provided for a vertical allocation to the tiers of government, etc, as follows: Federal Government 48.5 per cent of Federation Account; the state governments 24 per cent; local governments 20 per cent; and a special fund of 7.5 per cent of the Federation Account.

During the President Obasanjo regime, the RMAFC did try to review the formula, by submitting a revised vertical allocation proposal to the National Assembly as follows: FG 41.3 per cent; States 31 per cent; local government councils 16 per cent; and special funds 11.7 per cent. However, before the National Assembly could debate on that proposal, there was a Supreme Court verdict in April 2002 on the Resources Control Suit which nullified provision of Special Funds in any given Revenue Allocation formula.

With that, the formula changed as Obasanjo invoked an Executive Order in May 2002 to redistribute the formula to reflect the verdict. That Executive order, which is acceptable by law, gave FG 56 per cent; States 24 per cent; and local government councils, 20 per cent.  But the new formula was resisted by the other tiers of government so fiercely that barely two months later the Presidency reviewed the Executive Order in July 2002 making the federal government take, 54.68 per cent; States 24.72 per cent; and local government councils 20.60 per cent.

Some two years later in March 2004, the then Minister of Finance, Dr. Okonjo Iweala issued a letter modifying the second Executive Order  that increased state allocation to 26.72  per cent and reduced the federal government’s share to 52.68 per cent.  

Even at that the RMAFC made further attempts at reviewing the formula. One of them, which increased the allocation to states to 33 per cent, was shot down amidst allegations that different versions of it, including fake bills, were circulating in the National Assembly. This singular allegation influenced the withdrawal of the formula until September 2004 when another proposal from RMAFC was submitted to the President.

But here we go again: The newly appointed chairman of RMAFC, Mr. Elias Mbam, has promised to deliver a new revenue formula for the three tiers of government, because the existing one is outdated. He described the current formula as a creation of the military regime and was no longer relevant.

Living up to his word, Mbam announced recently the formation of a committee to review the existing formula. He said the committee would come up with what it deemed appropriate for sharing national incomes among the three tiers of government.

And see where the first reactions came from: of course the states.  Shortly after the plans of the Commission to review the formula was announced, Commissioners of Finance in the 36 States of the Federation declared their support for the review during a courtesy visit to the Commission's headquarters in Abuja.

And speaking in Lagos recently, Lagos State Governor, Babatunde Fashola appealed to the Nigerian federal Government to review the revenue allocation formula which, he says, currently favours the government at the centre to the detriment of component units.

For convenience of this argument, let’s quickly rest the case of the local government councils, most of which are mere appendages to state governors’ offices. Indeed, going by the parable of the talents, some people have said their allocation should be reduced but not to a level that will shut them down since they hardly generate much revenue themselves. Also, there is need to keep them for a proper governance structure, while we pray that, with time, they will mature to be of relevance to the people.

I was in total support of the 2004 proposal of the RMAFC, which slashed local councils’ allocation to 15.21 per cent.  Even at that, there is need to consider the different challenges of the councils in sharing their allocation.

For the states, their desperation for increased revenue from the federation account is obvious, even as many have no evidence of any meaningful utilisation of their allocation, other than enriching the governors. The litany of poor socio-economic amenities like healthcare, educational facilities and potable water; and months of unpaid salaries are common features hidden by boastful talk and deceptive propaganda.

The states show desperation in their penchant for borrowing from local banks, foreign loans, sale of bonds and by flexing their strong political muscles to cause the depletion of the Excess Crude Account. For example in 2008 seven governors took the late President Yar’ Adua to court over the Excess Crude Account and other deductions. But while the Obasanjo government resisted the pressure from the governors to share what was going into the account, the political influence the Governors’ Forum seem to wield over President Jonathan appears to have turned his favourable ear to them.

And it is feared that the governors will leverage their influence again to get the new revenue allocation formula in their favour. It is however hoped that the current exercise would be concluded after the 2011 elections, by which time, whoever becomes the President would have freed himself from the clutches of the governors to be his own man.

This reasoning is not to discount the overall performance of the current governors. Compared to the last set of governors, this set is far more accountable, and there is evidence of a gradual formation of the critical mass that can be an agent for change in governance at that level. States like Rivers, Lagos, Gombe, and Anambra may not have become paradise overnight, yet it would be sheer political mischievousness to write off the achievements of their governors.

Could they have done more than they have done? Yes, there is room for further improvement, but a more scientific way to assess their performance is to look at where the states were in terms of development on the assumption of office by these governors and where the states are now. I am a strong advocate of positive reinforcement – encouraging people to do better by commending achievements. It is better to see the glass as half full than as half empty.

However, for some of these governors, like Rotimi Amaechi and Babatunde Fashola, who may keep their offices, the real test of their motives would be how well they perform in their second and last term, knowing that performance cannot give them a third term.

On the part of the Federal Government, the argument to reduce its allocation on the basis of its historical performance and in an attempt to reduce the enormous power at the centre is still valid. Let’s devolve more financial and political power from the centre for a sustainable growth of democracy, while allowing the system to check the excesses of governors. It is better to risk more revenue with 36 states than to risk it with the centre.

Also it is necessary for the RMAFC to de-emphasize cake-sharing for increased productivity and saving by all tiers of government. One clear way of doing this is to build a sovereign wealth fund –essentially so as the oil market remains bullish and the MDAs continue to demonstrate lack of capacity to fully utilize their meagre capital votes.

I hope it was not all political talk when Mbam, the new RMAFC boss, said: “the Commission would be more concerned with how to increase the size of the national cake rather than dissipate all our energy on how to share a shrinking cake......”.

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