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The politics of revenue allocation
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Ken Saro Wiwa
In his top secret dispatch to the secretary of State in May, 1905, Lugard urged the British Government to accept "Amalgamation" as a goal to achieve the unification of Northern and Southern railways and to enhance trade.
Lord Scarborough, Chairman of the Niger Company, had earlier declared that the coast ought to pay for the development of the interior. As Lugard himself put it in his report, "the necessity" for the unification of the Northern and the Southern Protectorates was due partly to "finance" and partly to "railway": finance because the treasury of the Northern Protectorate had been running at a loss and, in the words of Kirk Greene in his Introduction both Great Britain and the Southern Protectorate". The necessity for amalgamation was also to put an end to "the disastrous divergence of railway policies". It was on record though that with the completion of the Bornu-Kano railway line in 1911, the financial position improved because of access to the sea and the Northern Protectorate showed some surplus.
During the 1950s, there was a great debate countrywide about the appropriate system of revenue allocation, whether it was to be based on principle of need. In a federation however, there was no way the principle of need would gain the upper hand. The Constitutional Conference therefore, in 1957, agreed that the Secretary of State should appoint a Fiscal Commission to carry out a financial review. Its terms of reference included the following"
To examine the present division of powers to levy taxation in the federation and the present system of allocation of the revenue thereby derived in the light of: Experience of the system to date.
The allocation of functions between the governments in the federation as agreed at the present conference.
The desirability of securing that the maximum possible proportion of the income of regional governments should be within the exclusive power of those governments to levy and collect, taking into account considerations of national and interregional policy.
In connection with (iii), the special problems in the field of indirect taxation as a result of the position of Lagos as federal territory.
Insofar as the independent revenues that can be secured for the various governments are insufficient to provide not only for their immediate needs but also for a reasonable degree of expansion, and bearing in mind the federal government's own further needs, the desirability of allocating further federal revenue in accordance with such arrangements as will best serve the overall interests of the federation as whole.
The recommendations of the commission were embodied in ss.134 and 135 of the 1960 constitution.
Section 134(1)
There shall be paid by the Federation to each Region a sum equal to 50 percent of the proceeds of any royalty received by the federation in respect of any mineral extracted in that Region, and any mining rents derived by the Federation during that year from within that Region.
The federation shall credit to the distributive pool account a sum equal to 30 percent of the proceeds of any royalty and any mining rents derived from any Region under the Distributive Pool, 40.95 percent 24.95 percent and 31.95 percent would go to the North, West and East respectively.
Section 134 and 135 of the 1960 Constitution were reproduced as ss.140 and 141 of the 1963 Constitution states in identical terms:
For the purpose of this section the continental shelf of a region shall be deemed to be part of that Region.
Inexplicable, those sections of the 1963 Constitution did not form part of the 1979 Constitution. The Revenue allocation formula which took account of the fact that Nigeria is a federation, and the distribution of legislative powers of functions between the federal and the regional governments and was based on justice and fair play for all - the formula which served Nigeria best and sustained its stability and corporate existence - was completely abandoned.
Section 149(1) of the 1979 Constitution simply stated that all revenue collected by the Federal Government shall be paid into "the Federation Account." Section 149(2) stated further:
Any amount standing to the credit of the Federation Account shall be distributed among the federal and state governments and the local councils in each state, on such terms and in such manner as maybe prescribed by the National Assembly.
Section 151 added:
The federation may make grants to a state to supplement the revenue of that state in such sum and subject to such terms and the National Assembly may prescribe conditions as.
Sections 149(1) and 151 of the 1979 Constitution were reproduced in identical words as Sections 162(1) and 162(1) and 163 of the 1999 Constitution. There is now no distinction between revenue from mineral royalty or mining rent and revenue from other sources like customs, import or export duties, or excise duties. They are simply lumped together, and allocated to the three tiers of government in such proportion as the national Assembly shall determine. There is a small concession though: In the proviso to S. 162(2): "13 percent of the revenue accruing to the Federation Account directly from any natural resources" shall be distributed on the principle of derivation.
This is a serious breach of faith and a breach of the principle of federalism. When in 1914 the two Protectorates of the North and the south were amalgamated, it did not bring about a fusion of their finances.
The federation of Nigeria did not come about until 1954. The Federation of Nigeria was first proclaimed by virtue of s.3(1) of the Nigeria (Constitution) Order in Council 1954 which stated as follows:
The Northern Region of Nigeria, the Western Region of Nigeria, the Eastern Region of Nigeria, the Southern Cameroons and the Federal Territory of Lagos shall form a Federation which shall be styled the Federation of Nigeria.
This was a culmination of a series of meetings in different parts of Nigeria after the arrival of Sir John Macpherson as Governor in 1949 (Lagos and Ibadan in 1950 came to mind) and thereafter in Lagos and London in the 1950s. Political events moved faster after 1954, than before, especially with the Gold Coast attaining Independence as the Dominion of Ghana in 1957. In that year between May 23 to June 26, a Constitutional Conference took place wherein the Western Region and the Eastern Region requested for internal self government, and the British Government granted the request.
The Northern Region deferred its request till 1959, when it was also granted internal self-government. Election to the House of Representatives was to be by Universal Adult Suffrage and there was no control of or any limit to the number of political parties wishing to contest election. Both the people of Southern and Northern Cameroons were assured that being Trust Territories, the British Government would respect their wishes in a referendum, whether to remain as part of Nigeria or not. In the event, Northern Cameroons opted to remain as part of Nigeria and became Adamawa Province, while the south opted out and later became part of the Republic of the Cameroons. Nigeria thereafter became an association among themselves (Northern Nigeria, Western Nigeria, Eastern Nigeria and Lagos) and embodied in a Constitution for the Federation of Nigeria. The 1960 Constitution became the bond among them, a bond which regulated the relationship between the federating regions and Lagos on the one hand and the Federal (common) Government on the other. Each of the regions also had its own Constitution to regulate its affairs. The financial bond between the federal government and the regional governments is contained in ss. 134 and 135 of the 1960 Constitution.
50 percent of royalty from minerals extracted from a Region, and 50 percent of mining rents derived from that Region will be given to that Region.
Section 135 dealt with the distributive pool account. Why the change? Why the breach?
In the decade before 1960, the Western Region derived 50 percent derivation from the sale of its cocoa, and used it to build a Welfare State. Similarly, the Northern Region enjoyed 50 percent of the profit from sales of cotton, groundnuts, hides and skins to the exclusion of any other region. The Eastern Region similarly enjoyed its 50 percent from palm oil and palm kernels. Why now deny the oil producing states what other and bigger states or regions enjoyed and used to develop their present economic and educational base! Why now deny these states whose terrain is under water during the dry season, with little infrastructure, a fair share of their oil wealth?
The controversy about revenue allocation is intense and is tearing the country apart. The people in the oil producing states have not in recent times, especially since 1984, felt the federal presence in their area but only the activities of the oil companies in oil exploration and ecological and environmental devastation of their area as a result of oil production. Since the federal highway construction programme of the 1970s, there was little else in terms of infrastructure and economic development. The people see the expatriate firms operating in their areas and their Nigerian associates or partners from other parts of the country as foreigners and exploiters.
That was what led to the Ogoni Rising which in turn led to the "Judicial" murder of the play wright and the environmental crusader, Ken Saro-Wiwa, and his other Ogoni patriots by the Abacha regime. They rejected the 13 percent oil revenue allocation on the basis of the principle of derivation under s. 162(2) of the Constitution. They demanded complete control of their resources. That is the essence of the agitation for resource control.
During the 1950s, there was a great debate countrywide about the appropriate system of revenue allocation, whether it was to be based on principle of need. In a federation however, there was no way the principle of need would gain the upper hand. The Constitutional Conference therefore, in 1957, agreed that the Secretary of State should appoint a Fiscal Commission to carry out a financial review. Its terms of reference included the following"
To examine the present division of powers to levy taxation in the federation and the present system of allocation of the revenue thereby derived in the light of: Experience of the system to date.
The allocation of functions between the governments in the federation as agreed at the present conference.
The desirability of securing that the maximum possible proportion of the income of regional governments should be within the exclusive power of those governments to levy and collect, taking into account considerations of national and interregional policy.
In connection with (iii), the special problems in the field of indirect taxation as a result of the position of Lagos as federal territory.
Insofar as the independent revenues that can be secured for the various governments are insufficient to provide not only for their immediate needs but also for a reasonable degree of expansion, and bearing in mind the federal government's own further needs, the desirability of allocating further federal revenue in accordance with such arrangements as will best serve the overall interests of the federation as whole.
The recommendations of the commission were embodied in ss.134 and 135 of the 1960 constitution.
Section 134(1)
There shall be paid by the Federation to each Region a sum equal to 50 percent of the proceeds of any royalty received by the federation in respect of any mineral extracted in that Region, and any mining rents derived by the Federation during that year from within that Region.
The federation shall credit to the distributive pool account a sum equal to 30 percent of the proceeds of any royalty and any mining rents derived from any Region under the Distributive Pool, 40.95 percent 24.95 percent and 31.95 percent would go to the North, West and East respectively.
Section 134 and 135 of the 1960 Constitution were reproduced as ss.140 and 141 of the 1963 Constitution states in identical terms:
For the purpose of this section the continental shelf of a region shall be deemed to be part of that Region.
Inexplicable, those sections of the 1963 Constitution did not form part of the 1979 Constitution. The Revenue allocation formula which took account of the fact that Nigeria is a federation, and the distribution of legislative powers of functions between the federal and the regional governments and was based on justice and fair play for all - the formula which served Nigeria best and sustained its stability and corporate existence - was completely abandoned.
Section 149(1) of the 1979 Constitution simply stated that all revenue collected by the Federal Government shall be paid into "the Federation Account." Section 149(2) stated further:
Any amount standing to the credit of the Federation Account shall be distributed among the federal and state governments and the local councils in each state, on such terms and in such manner as maybe prescribed by the National Assembly.
Section 151 added:
The federation may make grants to a state to supplement the revenue of that state in such sum and subject to such terms and the National Assembly may prescribe conditions as.
Sections 149(1) and 151 of the 1979 Constitution were reproduced in identical words as Sections 162(1) and 162(1) and 163 of the 1999 Constitution. There is now no distinction between revenue from mineral royalty or mining rent and revenue from other sources like customs, import or export duties, or excise duties. They are simply lumped together, and allocated to the three tiers of government in such proportion as the national Assembly shall determine. There is a small concession though: In the proviso to S. 162(2): "13 percent of the revenue accruing to the Federation Account directly from any natural resources" shall be distributed on the principle of derivation.
This is a serious breach of faith and a breach of the principle of federalism. When in 1914 the two Protectorates of the North and the south were amalgamated, it did not bring about a fusion of their finances.
The federation of Nigeria did not come about until 1954. The Federation of Nigeria was first proclaimed by virtue of s.3(1) of the Nigeria (Constitution) Order in Council 1954 which stated as follows:
The Northern Region of Nigeria, the Western Region of Nigeria, the Eastern Region of Nigeria, the Southern Cameroons and the Federal Territory of Lagos shall form a Federation which shall be styled the Federation of Nigeria.
This was a culmination of a series of meetings in different parts of Nigeria after the arrival of Sir John Macpherson as Governor in 1949 (Lagos and Ibadan in 1950 came to mind) and thereafter in Lagos and London in the 1950s. Political events moved faster after 1954, than before, especially with the Gold Coast attaining Independence as the Dominion of Ghana in 1957. In that year between May 23 to June 26, a Constitutional Conference took place wherein the Western Region and the Eastern Region requested for internal self government, and the British Government granted the request.
The Northern Region deferred its request till 1959, when it was also granted internal self-government. Election to the House of Representatives was to be by Universal Adult Suffrage and there was no control of or any limit to the number of political parties wishing to contest election. Both the people of Southern and Northern Cameroons were assured that being Trust Territories, the British Government would respect their wishes in a referendum, whether to remain as part of Nigeria or not. In the event, Northern Cameroons opted to remain as part of Nigeria and became Adamawa Province, while the south opted out and later became part of the Republic of the Cameroons. Nigeria thereafter became an association among themselves (Northern Nigeria, Western Nigeria, Eastern Nigeria and Lagos) and embodied in a Constitution for the Federation of Nigeria. The 1960 Constitution became the bond among them, a bond which regulated the relationship between the federating regions and Lagos on the one hand and the Federal (common) Government on the other. Each of the regions also had its own Constitution to regulate its affairs. The financial bond between the federal government and the regional governments is contained in ss. 134 and 135 of the 1960 Constitution.
50 percent of royalty from minerals extracted from a Region, and 50 percent of mining rents derived from that Region will be given to that Region.
Section 135 dealt with the distributive pool account. Why the change? Why the breach?
In the decade before 1960, the Western Region derived 50 percent derivation from the sale of its cocoa, and used it to build a Welfare State. Similarly, the Northern Region enjoyed 50 percent of the profit from sales of cotton, groundnuts, hides and skins to the exclusion of any other region. The Eastern Region similarly enjoyed its 50 percent from palm oil and palm kernels. Why now deny the oil producing states what other and bigger states or regions enjoyed and used to develop their present economic and educational base! Why now deny these states whose terrain is under water during the dry season, with little infrastructure, a fair share of their oil wealth?
The controversy about revenue allocation is intense and is tearing the country apart. The people in the oil producing states have not in recent times, especially since 1984, felt the federal presence in their area but only the activities of the oil companies in oil exploration and ecological and environmental devastation of their area as a result of oil production. Since the federal highway construction programme of the 1970s, there was little else in terms of infrastructure and economic development. The people see the expatriate firms operating in their areas and their Nigerian associates or partners from other parts of the country as foreigners and exploiters.
That was what led to the Ogoni Rising which in turn led to the "Judicial" murder of the play wright and the environmental crusader, Ken Saro-Wiwa, and his other Ogoni patriots by the Abacha regime. They rejected the 13 percent oil revenue allocation on the basis of the principle of derivation under s. 162(2) of the Constitution. They demanded complete control of their resources. That is the essence of the agitation for resource control.
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