he Revenue Formula can be reviewed every five years, according to the law that established the Mobilization Allocation and Fiscal Commission (RMAFC), but no one has done so since the military administration put the current one in place in 1992. In essence, we have been using the same formula for nearly three decades, despite the fact that the number of States has increased from 30 to 36, the number of councils has increased from 589 to 774, and the population has increased from 88 million to 200 million. That is why I feel sorry for RMAFC Chairman Mr. Elias Mbam, who has ventured into territory that saints have carefully avoided. Anyone familiar with Nigeria’s revenue allocation history realizes that this is a difficult task.
Revenue allocation in Nigeria is divided into two categories: Vertical and Horizontal.
The sharing of federally collected revenue across the three levels of government (Federal, State, And Local) is known as Vertical Sharing. The Federal Government receives a whopping 52.68 percent under the existing methodology. In fact, it is 48.5 percent. The rest is managed on behalf of the federation by the Federal Government: 1 percent for general ecological concerns, 1 percent for the Federal Capital Territory, 1.68 percent for natural resource development, and 0.5 percent for statutory “rainy day” stabilization. The 36 states collectively receive 26.72 percent of the total, which is almost half of what the federal government receives on its own. The remaining 20.60 percent are divided across 774 local governments.
Horizontal Sharing of 26.72 percent by the States is the most contentious formula, which easily ignites ethnic champions since it inflames regional enthusiasm. Since 1946, the formula has been based on five principles:
- 40 percent for state equality.
- 30 percent for population.
- 10 percent of landmass/terrain.
- a 10 percent effort on internal revenue.
- a 10% emphasis on social development.
This formula differs from the 13 percent derivation paid to mineral-rich states, and it is not included in the 26.72 percent horizontal sharing. It is also distinct from VAT revenue, which goes to the 36 states for 50 percent, the federal government for 15 percent, and local governments for 35 percent.
The first horizontal principle is that all states are equal and that 40 percent of the 26.72 percent should be shared equally. For example, if 26.72 percent equals N100, states will receive N40 equally. That is N1.11 per State, regardless of size. The second principle states that the population will determine the 30 percent share. That example, N30 of the N100 will be distributed based on population. According to the FAAC approach, the most populous state will receive 16 Kobo from the N30, while the least populous will receive 3 Kobo. This notion is frequently questioned by Southerners who believe that the 19 Northern States all get more than the 17 Southern States because the North is more populous according to Census statistics.
Nigeria’s population, on the other hand, is not as unbalanced as it appears. It is because we do not pay attention to the finer points of a situation. Six of the ten most populous States, according to official census data, are in the North, while four are in the south. In fact, if we look at the top 20, we will find that ten are from the North and ten from the South. If we look at the bottom ten, we can see that five are from the North and five are from the South. Take a look at the bottom 16, and you will notice that eight of them are from the North and eight from the South. Northern States will take N16 of the N30, while Southern States would take N14, based on the existing population ratio of 53:47. This does not appear to be a catastrophe in my opinion.
Since 1952/53, every national census done by colonial, civilian, and military governments has found that the north is more populous — despite southerners’ claims that the figures are skewed and that the “coastal south” should have more inhabitants than the “desert north.” That is something we will not be able to look into in this piece. But why use population as a revenue-sharing criterion in the first place? I believe the logic is that as the population grows, so does the cost of providing services. Catering for a 1,000-person hamlet would be more costly than catering for a 500-person village. Surprisingly, since 1946, population has always been a part of every commission’s and committee’s recommendations. It has to make sense in some way.
The ten percent allocated among states based on landmass is another contentious principle. This 10% is then divided into two parts: landmass (50%) and terrain (50%). Landmass refers to the size of the state in relation to the country, whereas terrain refers to the wetlands and water bodies, plains, and hills. The landmass reasoning, like the population principle, states that having more land means you will need more money to create roads, run power lines, and install water pipes in your towns and villages. In comparison to a 10,000-Square-Kilometre-State, a 76,000Square-Kilometre-State is estimated to spend more on supplying these amenities. Maintaining a duplex should normally be more expensive than maintaining a bungalow.
Northern states, which account for around 70% of Nigeria’s landmass, clearly benefit from the landmass. The 13 largest states in terms of land area are all located in the North. The 15 smallest, on the other hand, are all in the South. However, those who devised the landmass idea attempted to balance it by including more uniformly distributed wetlands, as well as mountains and plains. In fact, the Niger Delta is Africa’s largest wetland and home to the world’s third-largest mangrove forest. They profit more than any other portion of Nigeria from the terrain principle. However, landmass/terrain favours the North in general, despite the fact that a larger landmass comes with more obstacles and demands.
The origins of the landmass principle are funny, to say the least. President Shehu Shagari initiated it in 1981, ostensibly to split the opposition alliance’s ranks against his regime. In the National Assembly, the Unity Party of Nigeria (UPN) joined with the Great Nigeria Peoples Party (GNPP) and the Peoples Redemption Party (PRP). GNPP and PRP broke ranks with UPN and backed Shagari’s addition of landmass to the formula. Why? Borno (formerly Borno and Yobe) and Gongola (presently Adamawa and Taraba) were GNPP-controlled states with vast landmasses. PRP also had two major states: Kano (currently Kano and Kaduna) and Kaduna (presently Kaduna and Katsina).
The Igbo states with the smallest landmass were the largest losers. Chief Sam Mbakwe, the Governor of Imo (currently Imo and Abia) at the time, was outraged. The formula was later rejected by the Supreme Court after the UPN-controlled Bendel (currently Edo and Delta) faulted the procedure — but Ibrahim Babangida reintroduced landmass back into the equation in 1991 and 1992. We will not go into details of the various conflicts that have accompanied income allocation since 1946 due to time and space constraints. People, on the other hand, often take views based on their beliefs of who benefits and who loses, though most agitators simply repeat them without scrutinizing the facts.
Self-interest is acceptable in politics. That is self-evident. The issue arises when arguments are presented in an emotive rather than scientific manner. As a result, the quality of Nigerian public discussion is disheartening. People may properly wonder why revenue is shared in a federal government. It is not a Nigerian phenomenon. We cannot re-define federalism on our own just to win a discussion. One reason for embracing federalism is to pool resources. The oldest federation in the world, the United States of America, was created by 13 former British colonies to pool military resources in order to oppose external assault. Federalism blends independence and interdependence in practice.
That is why federalism academics discuss “fiscal federalism,” which is a system of allocating income handled in a federation to encourage even development. “Fiscal federalism” in Nigeria, on the other hand, translates to “slaughter and eat alone.” To achieve a fiscally balanced federation in the interest of national progress, fiscal federalism deprives one to pay another. There should be no extremes of wealth in one area and poverty in another. One portion will certainly stifle national progress if it is not balanced. Federal transfers are used by major federations, such as the United States and Germany, to correct state imbalances. Redistribution by the Federal Government is not unique to Nigeria; it is a frequent aspect of federalism.
But, in my opinion, federation funding should be treated as “pocket money” for the states. It is meant to be the bare minimum. The real goal is for states to create substantially more internal money than they are given. As a general rule, a state’s internal revenue should be at least double its monthly allotment. It does, however, necessitate a great deal of consideration, planning, dedication, and discipline. Who has got the time for that? Lagos is the only city that generates more IGR (Internally Generated Revenue) than it receives. FAAC is relied on by up to 95% of states. The all-in-all and the end-of-all now rest on the hoax of federation allocation. The abnormal has been normalized, and the subpar has been standardized.
Meanwhile, Mbam should get a Nobel Prize for anything if he can persuade the stakeholders to agree on a new formula. Revenue allocation is a touchy subject that is feeding feelings of injustice and stirring up calls for balkanization. It is critical to use this review process to shed light on significant topics, dispel concerns, and develop consensus. It is not just about finding a more equitable and agreeable way to split revenue; it is also about raising considerably more revenue at the Federal and State levels. “There can never be calm in a kennel when there are three bones to four dogs,” Chief Obafemi Awolowo, the sage, reportedly said in the 1970s. That is the root of the problem.