Falling oil price, states and governance

In this piece, SUNDAY ADEPOJU writes that the meagre resources going to states from the Federation Account appear seriously threatened because of the negative effects of the Coronavirus epidemic in relation to the international price of crude oil.


WITH the World Health Ogranisation (WHO) raising the alarm over the spread of Coronavirus despite the spirited global effort to contain the menace, the domino effects are unimaginable in other spheres of life. Beyond the large scale of human losses are the dislocations in both macro and micro economic levels. Funds needed to keep government running and maintain stability in governance are shrinking by the day.

In Nigeria, the authorities are already weighing a number of options capable of cushioning the spiraling effect of the pandemic effect, particularly because of the uncontrollably decline in the price of crude oil, the mainstay of the nation’s economy. Panic measures so far embarked upon by the Federal Government include the setting up of a committee to work out how to ameliorate the effect, just as the National Assembly is already considering options since the crash in oil price has made nonsense of the benchmark adopted for the 2020 Appropriation Act.

For the 36 states, the question about a likely general economic squeeze cannot be ruled out since the large chunk of their revenue comes from the Federal Allocation. With a huge overhead cost occasioned by the implementation of the new national minimum wage, coupled with an abysmal record of internally generated revenue, many of the states could be in for a hard time. Whereas the states are sitting on goldmines in terms of mineral deposits and agricultural endowments, they are hamstrung by inadequacies in the existing federal arrangement.  And one of the recurrent topical issues in the Nigerian version of federalism is the sharing of revenues among the centre, states and local governments. The system presupposes that power should be shared between the central authority and the component units and each of the centre and the units deriving their powers from the constitution. There is a  relative departure from such coordinate arrangement because Nigeria appears to be running a quasi-unitary system under which states are mere pawns. The centre literally feeds fat on the states, whereas the resources are based in the latter. And because what come to them are mere handouts, states are constantly overburdened by the functions and responsibility government owes the citizens.

At the moment, most of the monetary resources that accrue to the states go to overhead, payment of salaries and little is left for capital projects. Poor internally generated revenue remains the bane of the states, just as legal framework constitutes another major obstacle to their apparent insolvency. Therefore, it is curious to note that out of the 36 states in the country, only four states– Lagos, Kano, Akwa Ibom and Rivers, perhaps, are generally regarded as viable in terms of liquidity, economic growth and prosperity. They do not absolutely depend on federation allocation to survive.

Governor of Plateau State, Rt. Hon. Simon Bako Lalong

The predicament of many of the other states is because of Nigeria’s mono-economy. Despite its huge human and natural endowments, the country relies solely on crude oil as its economic mainstay. Most tragic is the lack of equity and fairness in the sharing formula for federal allocation. The existing formula favours the centre at the expense of the states where most of the resources are. The allocation is in accordance with a vertical formula determined by the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC) with the approval of the National Assembly. The formula allocates 52.68 per cent, 26.72 per cent and 20.60 per cent to the federal, state and local government, respectively. The allocations are shared among the component units by applying factors such as equality, population, land mass, Internally Generated Revenue (IGR) and social development. Also in the strategies of the revenue allocation is 13 per cent, which is deducted as a first line charge, which is further shared among the oil-producing states. So, in the opinion of many, the present formula for revenue allocation is faulty, thus the sustained public outcries for the review of the formula.

We won’t devalue Naira, foreign reserves adequate ― CBN

Though belated, the commission in charge of the review is currently working on the project in conjunction with other stakeholders for their input as required by the law.  The chairman of RMAFC, Mr Elias Mbam, said; “Last year, I inaugurated a new committee to review the revenue allocation formula. It is a timely wish of most Nigerians and it is one of our primary responsibilities. The committee has been constituted and has commenced work. They have to do some studies on fiscal matters and areas that will be considered in arriving at the appropriate revenue sharing formula.”

Nonetheless, he suggested some pragmatic steps that should be taken to address most of the economic challenges, including diversification of the economy. Mbam said, “We should be able to let the states know that they have gold at their backyard and they are looking for silver elsewhere. There is no state in this country that does not have one form of mineral resources or another; there is no state that doesn’t have enough arable land. So, we are making progress but we want to let our people know the need to diverse. Oil will finish one day. If we develop solid minerals’ sector, I can assure you, it is going to contribute more than what oil and gas are contributing now and it is more sustainable. Agriculture is there to boost our economy too.”

In terms of mineral resources, only 10 of the 36 states have below five mineral resources. These are Zamfara, Yobe, Taraba, Niger, Kebbi, Katsina, Jigawa, Enugu, Ebonyi and Adamawa states. Others have more of the resources. There are investment opportunities in the solid mineral sector of the economy. Despite that the resources are deposited in the states, it is the Federal Government that grants prospecting licenses to investors through the Federal Ministry of Solid Minerals Development. In the area of agriculture, the states are also stupendously blessed. Nigeria is equally blessed with fertile soil, arable land and agile youths. Agricultural resources once made Nigeria the pride of nations. That was when agriculture was the mainstay of the economy before the oil boom. On this, it has been asserted that states will continue to have challenges as a result of overdependence on the allocation from the federation account.

The myriad of the opportunities provided by the agricultural and mineral resources stated above notwithstanding, constitutional constraint has sledged the states and this bars them from embarking on projects that are on the exclusive legislative list. A careful examination of the case of the Nigerian federalism will necessitate the issues such as what is lacking in the system; the states’ complaints of having more to do but handicapped by finance; review of the 1999 Constitution;

regionalism as practised in the past; and perhaps, how the states should operate. Against this background, some experts offered their opinions on possible panacea for the lingering problems of over-dependence on the federal allocation and the constitutional constraint as a clog, inter alia.

A public affairs analyst, Comrade Deji Ola, situated the crisis in a proper perspective. In his view, “Our economy has been monopolised. We focus on crude oil alone while other resources await total exploration. There are lots of low hanging fruits. But the current system is not allowing such to be tapped. States should start exploring all these resources within their capacity and also sponsor bills through their members and senators in the state Houses of Assembly and the National Assembly on decentralisation of powers to the states and not the Federal Government wielding so much power.”

A legal practitioner, Femi Popoola, explained that the problem  of resource control is borne out of the country’s defective constitution, stressing that the foundation on which every system is laid is faulty. He said that in 1963, there were four constitutions and crests: the Nigerian Constitution and its crest and those of the Western, Northern and the Eastern regions. He recalled that there was regional autonomy.

Popoola said: “Then, in the past, there was regional autonomy; that was why Western Region could decide to use cocoa money to do free education, Eastern Nigerian decided not to do that, Awolowo decided to use cocoa money to build Cocoa House and all that.  Northern region could do what it had with its cotton, colanut money and everybody was going at their different paces. The error started when the military took over on January 15, 1966 and imposed a ‘Military Constitution’ on us, down to 1999 the ‘Abacha Constitution’ which we are still using. All the defects are there.” He maintained that the foundation must be re-examined on restructuring and harped on the need to go by the six geopolitical zonal arrangement brought about by the late General Sani Abacha’s ingenuity. “Let us go by the six geopolitical zones arrangement as it is done in Canada as a case,” he said.

Ebonyi, south-East fruit, governors, states, federation account, oil price,
Dave Umahi, Ebonyi State Governor

Comrade Ola said the vacuum created by the constitution nonetheless, the era of states relying heavily on federal allocation needs to be discontinued as a matter of urgency. He buttressed that each of the states has enough resources to cater to their need and boost their IGR.  “A lot of what we are seeing as physical projects now was erected during the era of the late sage, Chief Obafemi Awolowo, as premier. Should we continue to fold our hand while things decay during the present system of government? Drastic action should be taken since we have tried the two options of federalism and regionalism.”

On how states can survive in the face of the constitutional constraint and over-dependence on allocation from the Federal Government, Popoola canvassed a strict adherence to regional system, citing the recommendations of the constitutional conference organised by the Goodluck Jonathan presidency. “Some people are forcing themselves as feudal lords on the Nigerian nation. We feign to use ‘unitarism’ and call it federalism. You call it federalism and there is no financial autonomy for the federating units, the states. When the military took over, they said it is the Federal Government that owns everything. Even, if they find gold in your father’s backyard, it is Federal Government’s property. Where is the land of the Federal Government? We have Oyo, Osun, Akwa Ibom, Adamawa, Anambra, Lagos, Enugwu, etc. lands. Where is the land of Federal Government? So, if this operation continues, rebellion and social revolution loom in the country. The solution, therefore, is restructuring of our system and for the laws to accommodate states’ autonomy.”

A scholar of political economy and business journalism at the Pan-Atlantic University, Lagos, Dr Austin Nweze, said restructuring cannot solve the Nigeria’s problem. “The economic restructuring cannot happen if the political system has not been taken care of. The Nigerian system is not structured to create wealth and prosperity. That is why Nigerians leave the shores of Nigeria and prosper. How many states are viable today? But, we all know that each state has enough natural resources and that is the way God made it. Our leadership must think outside the box to do moon-shot thinking.  The country must move beyond what Ayo Fayose called ‘stomach infrastructure’,” he said.

Nweze also said; “In the sixties, we had competitive communalism. Each region was going at its own pace using the resources available. In the West, we had Oodua Group; the North had Northern Nigeria Development Corporation; the East had the Eastern Nigeria Corporation which collapsed after the Civil War. So, it is the politics of survival that hampering economic progress of the nation,” he said.

Gbenga Bamgbose, a lawyer, said there is a mix-up in the Nigerian version of federalism where the state cannot develop at their own pace and the political leadership in the states cannot rise against the odd system due to constitutional constraint. “Our idea of federalism is very faulty and peculiar. The essence of the federating units should be that states should develop according to their capacity, but we have a feeding bottle system that wrecks untold hardship and lethargy on the polity. Even, the political leadership of each state also finds it convenient to go cap in hand, at the end of every month to Abuja rather than develop and harness the ideas that would make their states to be self-sufficient. To me, Lagos is about the only exception and this is evident in their IGR. Apart from the poverty of ideas plaguing the states, the constitution has also been remiss in the allocation of areas the states could have easily tapped into by giving the Federal Government an exclusive preserve on such areas. VAT is one of the unfortunate examples,” he said.

Bamgbose argued that states should collage into regions while each region cater for its people in all aspects. This, he said, will serve twin purposes. His words: “It will ensure adequate utilisation of resources and also allow easy monitoring of both human and natural resources, hence making the regions self-serving in nature.”

Despite the fundamental problems affecting states as federating units – ranging from constitutional impediment, error of the nation’s federalism, poor leadership, failure of the states to recognise potentials, the need to review constitution, among others, the problems are still surmountable if the leadership, at all levels, are ready to salvage the polity from the messed fouls in the system.



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