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Federal Republic of Nigeria

Federal Republic
of Nigeria
akpan h. ekpo
Nigeria has a population of about 130 million people.1 It consists of over
250 ethnic groups and over 100 languages. The official language is English;
the major ethnic groups are the Hausa, Ibo, and Yoruba located in
the north, east, and west of Nigeria, respectively. At Independence in
1960, these three groups held sway in these regions, hence, minority ethnic
groups agitated for the creation of more states in order to break the
yoke of the dominant three. The country’s fiscal federalism is predicated
on economic, political, constitutional, local, and cultural developments.
From three regions in 1960, the country grew to four regions in 1963.
During the civil war of 1967–70, the country was carved into twelve states.
By 1976, the states increased to nineteen, and by 1987 they increased to
twenty-one. In August 1991, the number of states increased to thirty, and a
separate Federal Capital Territory (fct), Abuja, was created in place of the
old capital of Lagos. By October 1996, six additional states were created,
bringing the total number to thirty-six. At present there are also 774 local
governments. The country exports oil and the gnp per capita in 2003
stood at us$441. Nigeria operates a three-tier type of government (federal,
state, and local).
The country runs a presidential system of government akin to that of the
United States, with a bicameral legislature, a senate, and a house of representatives
at the centre. In each state, there exists a house of assembly. The
local governments have their councils. Members of all houses at the three
tiers of government are elected during a general election. There are several
political parties. However, two parties – the People’s Democratic Party
and the All Nigeria Peoples’ Party – are dominant. The People’s Democratic
Party is the party in power, and it controls twenty-seven states in the
Federation. It has been in power since the return to democratic rule in
1999 and won re-election in 2003. The All Nigeria Peoples’ Party controls
206 Akpan Ekpo
seven states, mainly in the north, while the Alliance for Democracy and the
All Peoples Grand Alliance control one state each in the southwest (Lagos)
and southeast (Anambra), respectively.
There are three branches of government: executive, legislative, and judiciary.
The executive and legislative arms are elected along party lines.
The Nigerian Constitution does not provide for independent candidature.
The judiciary is made up of several tiers of courts, culminating in the
Supreme Court. The Federal Appeals Court entertains appeals from
the Federal High Courts and the State High Courts.
The fct, Abuja, also has its own High Court, as do the states in the Federation.
The Customary and Sharia Courts, the Magistrate Courts in the
states, and the fct run almost parallel to the system of High Courts. The
judges and magistrates of the Customary and Magistrate Courts are learned
in modern law, while those of the Sharia Courts, found mainly in the north,
are learned in Islamic law.
Following years of military rule, the new presidential system faces a series
of challenges. The introduction of Sharia law by some Muslim states in the
north was the first problem for the new administration. There has been a
rise in ethnic/sectional militant groups, such as the O’dua Peoples Congress
in the southwest, the Movement for the Actualization of the Sovereign
State of Biafra (massop) in the southeast, and the numerous militant
groups in the oil-producing Niger Delta Area.
The growth rate of Nigeria’s economy was about 3.5 percent in 2001–03.
It relies heavily on crude petroleum, which provides about 90 percent of
foreign exchange. The country was heavily indebted but recently obtained
debt relief from the Paris Club. About two-thirds of the country’s
debt has been “forgiven,” while the remaining one-third is to be paid in
two installments.
The aim of this chapter is to examine the practice of fiscal federalism in
Nigeria, paying attention to issues such as the structure of government,
macroeconomic management, revenue-raising responsibilities, and challenges
that will result in a better fiscal federalism for the country.2 The
analysis confirms that, for Nigeria’s fiscal federalism to remain robust, the
diverse ethnic groups must be willing to live together in a context of
fairness and equity.
the structure of government
and d iv is ion o f f i s c al powers
Nigeria operates a federal structure of government. The 1999 Constitution
guarantees the existence of the federating units. The functions of the federal
government are listed in the Exclusive List, while those of the states
are in the concurrent list; where conflict exists, the exclusive functions of
the federal government dominate.
Federal Republic of Nigeria 207
The Constitution of the Federal Republic of Nigeria recognizes three
tiers of government: federal, state, and local. The Constitution spells out
the assignment of functions and areas of fiscal jurisdiction among the
various units of the Nigerian federal system.
The current 1999 Constitution, in Section 4 (Second Schedule), indicates
the Exclusive Legislative List, consisting of the responsibilities on
which only the federal government can act, and the Concurrent Legislative
List, on which both the federal and the state governments can act. In addition,
Section 4 (7a) assigns the so-called residual functions to state governments.
These are functions not specified either in the Exclusive List or the
Concurrent Legislative List. Section 7 (5) (Fourth Schedule) of the Constitution
provides for the establishment of local government councils with
responsibilities set out in the Fourth Schedule of the Constitution.
Regarding the structure of government as defined in the Constitution, it
is necessary to note the following:
• The Constitution lumps both expenditure responsibilities and revenueraising
functions together in its assignment of functions.
• The assignment of functions is generally the outcome of several constitutional
conferences that the country has had over the years, while details
of the assignment of revenue-raising functions are usually left to be determined
by the various Fiscal Commissions, which usually follow each
constitutional conference.
• The assignment of functions in Nigeria has remained more or less constant
since the country’s Independence in 1960, starting with the 1963
Constitution up to the current 1999 Constitution.
• It is necessary to examine the underlying principles behind the assignment
of functions in Nigeria.
f isc al federal i sm
and macroeconomic management
The major institutions driving economic policy include the Federal Ministry
of Finance and the Central Bank of Nigeria. The Central Bank is responsible
for monetary and exchange rate policy, while the Ministry of Finance oversees
fiscal policy. In theory and practice, it is important that coordination
exists. Hitherto in Nigeria there was no coordination between the Ministry
of Finance and the Central Bank. In recent times, particularly from the year
2000, there seems to be coordination between the two.
Over the years, the problem with the economy has been persistent budget
deficits. This economic phenomenon exists not only at the centre but
also at the subnational government levels (state and local governments),
where it also creates problems for the wider economy. Hence, there is the
need for fiscal coordination at all levels.3
208 Akpan Ekpo
The Central Bank of Nigeria is independent with regard to the conduct
of monetary policy and the maintenance of price stability. The law establishing
the Central Bank guarantees that independence. However, the governor
of the Central Bank informs the president about monetary, credit,
and exchange rate issues. The independence of the Central Bank can be
anchored on the recent example of bank consolidation, which required all
banks to raise their capital to 25 billion naira. This policy has met no resistance
from the presidency.
The Central Bank’s mandate goes beyond ensuring price stability: as
part of the federal government’s economic team, it participates effectively
in the overall management of the economy. The government’s present
economic reform program, known as the National Economic Empowerment
and Development Strategy (needs), was conceptualized, formulated,
and is now being implemented with the full participation of the
Central Bank.4
The Central Bank has been struggling to reduce the inflation rate to the
single-digit level in order to ensure a positive real interest rate. In addition,
the bank is concerned with reducing the cost of funds in order to stimulate
investment. The economy operates a managed float exchange rate regime.
These issues form part of a broad macroeconomic framework for managing
the Nigerian economy.
It was mentioned earlier that, if the assignment of functions in a federal
system is discussed from the point of view of the major functions of government,
the federal/national government would be in a better position to
perform its stabilization function. Yet the federal system has inherent destabilizing
characteristics due to the existence and fiscal perversity of subnational
governments. For instance, periods of excess oil revenue, when
the economy is likely to be overheated, call for spending restraint. However,
with increased revenue, the state and local governments usually increase
their spending. During downturns, when efforts should be geared
towards increasing spending, state and local governments are often forced
to cut back on their spending, thereby compounding the problem of
macroeconomic management at the national level.
Fiscal Responsibility Act
To improve the management of the economy at all levels of government,
the federal government has proposed the Fiscal Responsibility Act. It aims
at committing all tiers of government to effective, disciplined, and coordinated
budgetary planning, implementation, and reporting. One of the major
features of the act is that it institutionalizes a stabilization strategy to
save windfall oil revenues in order to smooth consumption during periods
of decline in oil revenues. Other features are purposeful investment of the
Federal Republic of Nigeria 209
windfall; reduction in fiscal deficits through the provision of guidelines
against over-borrowing and incurring unjustified debts; standard formats
for reporting and evaluating budgetary goals and performance; guidelines
to stem the culture of indiscipline, waste, and corruption in public finance
in order to improve transparency and accountability; and establishment of
high standards of financial disclosure and public access to information on
government finances. The Fiscal Responsibility Bill has gone through the
various stages in the houses of Parliament and will soon become law.
Stabilization Fund
The concept of the Stabilization Fund, also referred to as the National Reserve
Fund, or the Excess Crude Account, was introduced at the national
level to moderate the impact of up and down swings in oil revenue on aggregate
spending in the economy. It aims at creating a special holding account,
whereby surpluses in oil revenue during periods of rising oil prices
would be set aside and utilized during periods of fall in oil revenue in order
to keep government spending stable. There is no doubt that the stabilization
concept would be a useful tool in macroeconomic management.
However, from past experiences, the problem was not with the idea of a reserve
fund but, rather, with how it was managed and eventually utilized.
The states had complained of their non-involvement in decisions on how
the fund was to be utilized. Indeed, the federal government, especially during
the military era, unilaterally utilized the fund however it pleased. Apparently,
the federal government tended to confuse the Stabilization Fund
with the establishment of the Contingencies Fund provided for in Section 83
of the Constitution. While the Contingencies Fund is also meant for urgent
and unforeseen expenditures, its major characteristic is that it is to be
established out of the federal government’s own money, unlike the Stabilization
Fund, which is established with monies belonging to all the governments
of the Federation. In 2001, the Contingencies Fund stood at
N4.8 billion. It increased to N5.3 billion in 2002.5
It is also important to point out that the Supreme Court did not rule in
April 2002 against the concept of the Stabilization Fund but, rather,
against how it was funded (i.e., deducting it as a first charge on the Federation
Account before the account is shared among the owners, the three
tiers of government).6 In addition, it is important to establish proper ownership
of the Stabilization Fund, whereby the contributions to it would be
proportional to the relative shares of the different tiers of government in
the Federation Account. This would ensure that each tier of government is
fully aware of its share in the Stabilization Fund when it comes to disbursement.
It would also reduce the temptation on the part of the federal government
to see the fund as an additional source of revenue for its own use.
210 Akpan Ekpo
For now, the federal government controls the Stabilization Fund. In 2001,
the Stabilization Fund stood at N6.4 billion; it increased to N7.5 billion in
2002 and to N10.4 billion in 2005. In 2005, state governments received a
total of N1.5 billion from the stabilization fund.7
Borrowing and Taxation
Items 7 and 59 of the Exclusive Legislative List of the Constitution confer
on the federal government exclusive rights over borrowing monies within
and outside Nigeria for the purposes of the Federation or the state, and
major taxes, including taxation of income, profits, and capital gains, respectively.
But it does not appear that the federal government has ever had
a firm grip on controlling borrowing by the various governments, including
itself, especially in terms of the timing, purpose, and monitoring of the
use of loans. It is hoped that, with the better management of available resources
envisaged by the Fiscal Responsibility Act, there will be a reduction
in deficit financing and, consequently, a reduction in public debt, at both
national and subnational levels. At present, subnational governments can
only obtain external loans with the approval of the federal government.
However, taxation has not proved to be a useful tool in managing aggregate
spending in the economy. Outside corporate income tax, income tax
has been of limited use in controlling spending in an economy dominated
by oil revenues.
issu e s i n revenue-raising respons i b i l i t ies
This section discusses the assignment of expenditure responsibilities and
the assignment of revenue powers.
Assignment of Expenditure Responsibilities
If political authority is divided among the different levels of government,
then there is a need to determine the appropriate functions to be performed
by each level. Ideally, two factors may influence the allocation of
functions among the different levels of government. These are the geographic
range of spillover effects, or benefits from collective action, and
economies of scale. With respect to the geographic range of benefits, each
function should be assigned to that level of government that coincides in
size with the group that benefits from that activity. This implies that the national/
central (federal) government would provide those services that
benefit the whole national population, while state and local governments
would provide those services whose benefits are more divisible geographically.
A federal arrangement enables the federating units to take advantage
Federal Republic of Nigeria 211
of economies of scale due to the fact that some functions could be performed
more efficiently (in terms of lower unit cost) by the national government
than by lower levels of government.8
The allocation of functions among federating units is more of a political
than an economic exercise, and there may be no stated principles underlying
such allocation in the Nigerian Federation. However, it is not unreasonable
to infer that considerations of the extent of the benefit region
(externalities) of government services and economies of scale must weigh
heavily in the decision to allocate some functions to the federal government
and others to state and local governments. Hence, those functions
whose benefit region covers the entire country and/or that can be more efficiently
performed at a national level have been assigned to the federal
government. These include national defence, external relationships, banking,
currency, coinage and legal tender, and weights and measures.
Functions whose benefit areas are more local than national but with the
possibility of spillover effects – such as antiquities and archives; electric
power; industrial, commercial, or agricultural development; scientific and
technological research; and university, technological, and postprimary education
– are on the Concurrent List. Finally, functions that are purely local in
character in the sense that the benefits accrue, in the main, to limited geographic
areas within the country, are usually assigned to local authorities.
Such functions include the establishment and maintenance of cemeteries,
markets, motor parks, public conveniences, refuse disposal, and construction
and maintenance of local roads and streets. Table 3 contains a summary
of the assignment of expenditure responsibilities in Nigeria.
It is also conventional to discuss the assignment of functions in a federal
system from the point of view of the major functions of government –
namely, allocation, distribution, and stabilization. At the theoretical level,
it has been argued that the central government would be in a better position
to perform the distribution and stabilization functions. Discussion of
the allocation function is not all that simple because it depends on a number
of factors, one of which is the division of functions between the private
and the public sectors of the economy. The other types of publicly produced
goods that are involved – private goods, impure public goods, and
pure public goods – depend on the degree of market failure in their provision.
For instance, it is questionable whether public production of a private
good such as electricity and its placement under the federal government
can still be justified on the basis of the failure of the market system to provide
for such goods. In other words, not all publicly produced goods are
public goods, and even in the case of pure public goods, as noted earlier,
there is a distinction between national public goods whose spatial incidence
covers the entire nation and local public goods whose spatial
incidence is limited to particular geographic areas.
212 Akpan Ekpo
Assignment of Revenue (Tax) Powers
A proper understanding of the basis of the allocation of tax powers requires
a brief review of the evolution of the division of tax powers in the
Nigerian federal system. Between 1914 and 1946, Nigeria operated a unitary
system of government. With the creation of regional authorities in
1946, there was a need for some formalization of the fiscal relationship
between central and regional authorities. Hence, the 1947 Constitution
identified two sources of revenue for the regional authorities. One was “declared
revenue derivable from within the region and the other was nondeclared
revenue, consisting of block grants from central revenue.”9 Within
this framework, therefore, some of the issues that had to be resolved were
the division of tax powers between central and regional authorities and the
criteria for declaring any revenue source as regional.
The first Fiscal Commission, the Phillipson Commission, appointed in
1946, set out very stringent conditions for declaring any revenue source regional.
For instance, “regional revenue sources would have to be essentially
local in character for easy assessment and collection; regionally identifiable;
and have no implications for national policy.”10 With these stringent conditions,
it became obvious that very few revenue heads (taxes) would qualify as
regional (now states and even local governments). The obvious implications
would be that the revenue sources that would qualify as regional or subnational
would be inadequate for the performance of subregional functions.
Thus, although both the Phillipson Commission and most of the subsequent
commissions saw the merit of the principle of maximum independent
revenue for the regions (now states) and, subsequently, local
governments, they all ended on a pessimistic note about the scope for the
enlargement of the tax jurisdiction of lower-level governments.11
Table 1
Basic political and geographic indicators
Official name: Nigeria
Population: 129.9 million
Area (square kilometres): 923,768.64 square kilometres
gdp per capita in us: $493.2 (2004)
Constitution: 1999 (presidential)
Constitutional status of local government: By election (third tier of government)
Official language English
Number and types of constituent units: federal, state, local governments, municipal governments
Population, area, and per capita gdp in us$ of the largest constituent unit – not available.
Population, area, and per capita gdp in us$ of the smallest constituent unit – not available.
Currency: Naira = 100 kobo
Federal capital: Abuja
Federal Republic of Nigeria 213
We discuss briefly tax powers in Nigeria. Because of the limited scope
for manoeuvreability already noted, there has been very little change in
the allocation of tax powers over the years. The only notable exception
was the reverse transfer of the legal aspects of the capital gains tax, personal
income tax, and sales tax (now value-added tax) from state governments
to the government of the Federation. It became obvious that these
taxes do not fully satisfy the conditions required for them to be declared
truly state taxes. The major sources of revenue – import duties, mining
rents and royalties, petroleum profit tax, corporate income tax, excise
duties and value-added tax, and personal income tax (legal basis only) –
come under the jurisdiction of the federal government. The administration
and collection is conducted by the states, which also retain the
proceeds for their own use. One consequence of the concentration of
revenue-taxing powers in the federal government is the dependence
of lower-level governments on federal sources of funding but not on the
federal government. The other is the imbalance between the functions
constitutionally assigned to state and local governments and the tax powers
available to them.
f i s c al equality and efficiency concern s
and intergovernmental f i s c al transfers
There is no doubt that fiscal arrangements are a consequence of a federal
structure. However, the kinds of fiscal arrangements in place ought
to affect the nature of the federal structure. The fundamental problem
becomes how to devise a federal structure that would be conducive to
national and equitable allocation of the country’s resources among the
different tiers of government so as to reduce intergovernmental and
intergroup tensions. Other problems in the country’s fiscal arrangement
include power sharing and the consequent imbalance between the expenditure
responsibilities assigned to the different levels of government and
the tax powers available to them, state and local government dependence
on federal sources of funding, and the concentration of spending powers
on the part of the federal government.
Consequently, the government faces the challenges of vertical and horizontal
fiscal gaps and how to overcome them. There is no systematic pattern
of providing grants to lower levels of government. Where grants are
provided, they follow an ad hoc pattern. The federal government makes
vertical and horizontal allocations to lower levels based on a formula,
which remains a subject of contention. Budget deficits are prevalent in
the country’s federal system. The Nigerian Constitution established a Revenue
Mobilization Allocation and Fiscal Commission (Section 153) with
powers to review and recommend revenue-sharing rules in the Federation
(Section 162).
214 Akpan Ekpo
The following section considers issues of power sharing and imbalance
between assigned responsibilities and tax powers, revenue allocation, and
the method used to channel allocations to local governments.
Power Sharing and Imbalance between
Assigned Responsibilities and Tax Powers
In a federal structure, it is normal for each order of government to be
given adequate resources to enable it to discharge its responsibilities. In
practice, this does not run all that smoothly. Often, one order of government
may end up with more financial power than it actually needs, while
another may have less than it needs.
The fiscal arrangement in Nigeria is characterized by excessive concentration
of fiscal powers in the federal government. Invariably, there is a
lack of correspondence between the spending responsibilities and the tax
powers and revenue resources assigned to different levels of government.
The federal government is the “surplus unit” and the state and local governments
are the “deficit units.”12 The allocation of tax powers centre on
administrative efficiency and fiscal independence. The efficiency criterion
insists that a tax be assigned to that order of government that will administer
it efficiently (at minimum cost), while fiscal independence requires
that each order of government raise adequate resources from the revenue
sources assigned to it in order to meet its needs and responsibilities.
Concerning tax powers, the efficiency criterion often conflicts with the
principle of fiscal dependence. In Nigeria, weighting has always been in
favour of the efficiency criterion, which allows for the concentration of
taxing powers in the hands of the federal government.
Table 2
Nigeria: Legislative responsibility and actual provision of services by different orders
of government
Legislative responsibility
(de jure) Public service
Actual allocation of function
(de facto)
Federal Education (tertiary and secondary) Federal and state
Federal/state Education (primary) Local
Federal/state/local Health Federal, state, and local
Federal Defence Federal
Federal/state Law and order Federal
Federal and state Fire services State
Federal Republic of Nigeria 215
The effect of concentrating tax powers in the federal government is the
dependence of state and local governments on federal sources of funding,
which is often confused with dependence on the centre. The federal government
is assigned to administer the most lucrative sources of revenue because
it is perceived to be in a better position to administer those taxes efficiently.
Thus, the federal government administers those taxes on behalf of all the
governments of the Federation. Hence, the federal government has no more
right over the monies it collects than do the state and local governments. It
follows that, in sharing the revenues collected by the federal government on
behalf of itself and the other tiers of government, it is not correct to assert
that the lower levels of government depend on the centre. In fact, the federal
government is not constitutionally assigned to collect such revenues.13
Revenue Allocation
With respect to the reassignment of functions, since the federal government
is the “surplus” unit, this would entail shifting functions from state
and local governments to the federal government. However, given the
principles that guide the allocation function, such reassignment of functions
might necessitate assigning the functions that would otherwise be
more suitable for lower-level governments. Nevertheless, there were some
attempts in the past to shift some functions from the state governments to
the federal government. For instance, as a result of its access to more elastic
sources of revenue in the 1970s, the federal military government
shifted such functions as university education and primary education and,
to some extent, television and radio broadcasting and major newspapers
from state and local governments to itself. On shifting tax powers from the
surplus unit to the deficit units, given the principles that guide the allocation
of tax powers in the Nigerian system, any realignment of tax powers to
lower-level governments to match their expenditure responsibilities might
entail transferring to state and local governments tax sources that they lack
the capacity to administer.
In the Nigerian context, therefore, it would appear that the most viable
option for remedying the problem of imbalance between the functions
and the tax powers assigned to the different tiers of government is to make
adjustments in the revenue-sharing formula. This issue is explored further
below in the discussion of public revenues and unresolved issues that
revolve around revenue allocation in Nigeria.
The Federation Account
Section 162 (1) of the current Constitution stipulates that the Federation
shall maintain a special account to be called “the Federation Account” into
216 Akpan Ekpo
which shall be paid all revenues collected by the federal government. Section
162 (2) of the Constitution makes provisions for sharing the Federation
Account among the three tiers of government, as already noted.
Before the Resource Control Suit,14 the areas of contention with respect
to the Federation Account had to do with non-payment of some revenues
collected by the federal government into the account and some deductions
from the account before sharing among the three tiers of government.
The Supreme Court decision declared both actions of the federal
government illegal. However, the controversy over the deductions from the
Federation Account, the so-called Special Fund, still rages. Prior to the Supreme
Court verdict, 7.5 percent of the Federation Account was set aside
and distributed as follows:
Federal Capital Territory 1.0%
Stabilization 0.5%
Derivation 1.0%
Development of mineral-producing areas 3.0%
General ecology 2.0%
The sum set aside as the Special Fund and its allocation to various heads
has changed over time.15
The current debate on the Special Fund tends to confuse the need for
funding some activities with who foots the bill. Taking the Federal Capital
Territory (fct) as an example, no one can fault the case for its development.
However, there is also the need to develop the thirty-six state capitals,
especially those in the newer states. Some of the state capitals still have
the characteristics of a rural setting and need to be developed. As a matter
of fact, there is a compelling reason for dispersing the high population
centres concentrated around Lagos and Abuja to other parts of the country.
Therefore, the development of state capitals points to a way out. If one
accepts the case for the development of state capitals, which must be
funded by state governments, there is no reason why the federal government
could not fund the development of the fct out of its resources, especially
considering the proportion of the Federation Account that goes to
the federal government.
It should be noted that, when the Supreme Court, in its landmark decision
of April 2002, voided the distribution of the Federation Account to
the Special Fund, the federal government, by presidential order, simply
transferred the Special Fund to the federal government’s share, thereby increasing
it from 48.5 percent to 56 percent. This modification to the Revenue
Allocation Act was unsuccessfully challenged at the Supreme Court by
the state governments in January 2003. The court ruled that the president
had the constitutional powers to make such an alteration to an act.
Federal Republic of Nigeria 217
Often the case of funding the fct from the Federation Account hinges
on the often misinterpreted Section 299 of the Constitution. It states that
“the provision of this constitution shall apply to the Federal Capital Territory,
Abuja, as if it were one of the States of Federation.” However, subsequent
Section 299 (a) elaborates on “the constitution applying to fct as if
it were one of the states of the Federation” to mean that, just as in the case
of states, the legislative powers, executive powers, and judicial powers are
invested in the House of Assembly, the governor of the state, and the
courts of the state, respectively. These powers in the case of the fct are
vested in the National Assembly, the president of the Federation, and the
courts established for the fct, respectively. Moreover, the First Schedule of
the Constitution, Part 1, lists the states of the Federation without any mention
of Abuja.
A further concern is that ecological disaster could occur anywhere in the
country. Each level of government should have contingency plans to ameliorate
the effects of such disasters. This would imply that the federal government,
whose territory is the whole country, should also make provisions for
intervening when disasters occur in the country, especially in those cases
where the lower-level government may not be able to cope with the situation.
It is also expected that, when the resource control controversy is finally
settled, more resources will be under the control of mineral-producing
areas to enable them to handle the development problems of their areas.16
Vertical Revenue Allocation
A lingering problem of vertical revenue allocation in Nigeria is how to devise
a rational and equitable allocation of the country’s resources among
the different tiers of government that would minimize intergovernment
and intergroup tension and promote national unity and development.
The federal government has been allocated a large proportion of the Federation
Account relative to the states and local governments. Of interest
here is whether the federal government’s retention of the lion’s share of
the Federation Account could be justified on the basis of the relative
weight of the functions assigned to it. Alternatively, the federal share
might reflect a legacy of past thinking, which, in the absence of a viable
private sector, perceived a leading role for the federal government in the
field of economic development.
Weight of Federal Government Functions
Claiming that the share of the federal government is based on the weight of
functions assigned to it does not tell the whole story. Indeed, many of the
Fiscal Commissions had justified the assignment of more than 50 percent of
218 Akpan Ekpo
the Federation Account to the federal government on that basis.16 Yet, there
is no indication of the basis for assigning both quantitative and qualitative
weights to such functions. For instance, with today’s costs, the whole of the
federal budget may not be enough to “adequately” fund the various arms of
the armed forces (military, navy, and air force). Moreover, it is important to
bear in mind that the allocation of functions in a federal set-up does not necessarily
connote an ordering of such functions in terms of the preferences of
the people for whom the services are provided. The relative development of
the private sector and the current emphasis on private sector-led development
strategy imply that the federal government should move to limit its
role to the regulatory aspects of some functions and to engage less in actual
production. For example, the post office and nitel may not be needed with
the proliferation of private courier services and gsm operators.17 Moreover,
the current policy of privatization should reduce the expenditure responsibilities
of the federal government, which could reduce its funding of public
monopolies. These developments may lead to taking another look at
the weight of federal functions and, by implication, the federal government’s
share in the Federation Account. One thing that is certain is that
an appropriate balance is yet to be struck in the use of revenue allocation
to correct the imbalance between functions and tax powers assigned to
state and local governments.
Federal Presence in the States
Perhaps the concentration of fiscal powers in the federal government
would have been less objectionable if that government were expending its
resources equitably for the good of all the components of the Nigerian
Federation. “Federal presence” refers to the spatial pattern of federal government
spending. It has been argued that federal government spending
in a particular state would probably influence the relative distribution of
state income to a much greater extent than does the direct revenue share
received by the state from the Federation Account. Thus, a state that gets
little or nothing from the Federation Account but attracts a preponderance
of federal spending may, in the final analysis, be at a great advantage.18
The disparity in the development of different parts of the country, occasioned
by the inequity in the spatial distribution of federal spending in the
states, can only heighten intergroup tension. Such preferential treatment
of some states violates the principle of equality among lower tiers of government.
The current cries of marginalization and the controversy over resource
control are cases in point. It is not surprising that some state
governments, groups, and individuals are calling for the minimization or
elimination of surplus funds in the hands of the federal government. Thus,
while there is a need for the centre to be strong enough to maintain the
Federal Republic of Nigeria 219
unity of the component units and to give the country a sense of national direction,
the essential pluralism of Nigeria must be recognized and respected.
A situation in which too much financial power is left in the hands
of one order of government tends to encourage prodigality and gross mismanagement
of scarce resources on the part of that government, and this
does not make for a workable federalism.19
Horizontal Revenue Allocation
One reason for intergovernmental transfers is to correct vertical imbalances
that arise because the national government retains the major tax
bases, leaving insufficient fiscal resources to the lower-level governments to
meet their expenditure needs. Another reason for intergovernmental
transfers is to correct horizontal imbalances. These may arise due to the
fact that some jurisdictions have higher tax bases than do others or have
higher (or extraordinary) expenditure needs than do others. The objective
of the fiscal transfers is to try to close the gap between the fiscal capacities
and fiscal needs of the subunits. The horizontal revenue allocation in
Nigeria is, therefore, a sort of unconditional block grant to states and local
governments to correct the horizontal fiscal imbalances among them. To
what extent do the formulas or principles used for horizontal revenue allocation
address the problem of horizontal fiscal imbalances? More fundamentally,
what is the extent of horizontal fiscal imbalances among the
states and local governments? This question cannot be satisfactorily addressed
without some knowledge of the fiscal capacities and fiscal needs of
the different subnational units. Although it deserves serious attention, excursion
into these areas is outside the scope of this study. Another matter
in contention is the formula for horizontal revenue allocation in Nigeria.
The formulas and principles that have been applied for horizontal revenue
allocation use population as a factor. This tends to complicate the
problem of having an accurate population census in the country as various
states and groups accuse one another of manipulating the census figures in
order to reap some relative advantage in the use of population as a principle
in revenue allocation. In spite of this controversy, the fact still remains
that government is about people, development is about people, and, in the
end, government is about the welfare of the people. Therefore, population
ought to continue to play a dominant role in horizontal revenue allocation
in Nigeria.
The case for internal revenue effort is another factor influencing horizontal
revenue allocation. Internal revenue effort would encourage the
states and local governments to look inward and try to maximize their internally
generated revenue potentials. However, using internal revenue effort
as a factor runs into serious problems when it comes to operationalizing the
220 Akpan Ekpo
concept. The Okigbo Fiscal Commission of 1980 proposed that the ratio of
internal revenue to total expenditure be used as a measure of internal revenue
effort. The government rejected that proposal, and rightly, too, on the
ground that such a measure would unjustly penalize states that raise loans
for their approved capital projects; rather, the government substituted the
ratio of internal revenue over recurrent expenditure as a proxy for internal
revenue effort. Admittedly, this measure is likely to ginger up the lower-level
governments to make serious efforts to either increase their internal revenue
or to put a lid on their recurrent spending. However, the flaw in the index
is that it fails to take into account the fact that internal revenue effort is
a function of two factors – taxable capacity and tax effort (including tax
rates and efficiency in tax administration). Hence, a state with high taxable
capacity but with lower tax rates and inefficient tax administration may still
have higher internal revenue or a higher ratio of internal revenue to recurrent
expenditure relative to another state with lower taxable capacity but
higher tax effort. There is, therefore, an urgent need to devise a better index
of tax effort. And, until such an index is devised, the weight currently
given to internal revenue effort in horizontal revenue allocation should be
very minimal.20
Land mass terrain was surreptitiously introduced into the history of revenue
allocation in the 1980s, when the Shagari Administration used it to
break the alliance between the Unity Party of Nigeria, the Great Nigerian
Peoples Party, and the Peoples Redemption Party at the Joint Committee
of the Senate and the House of Representatives. The Joint Committee was
appointed to reconcile the differences between the two bodies in their recommendations
on revenue allocation. With the introduction of land mass
at the Joint Committee meeting, states that stood to gain from its inclusion
abandoned the alliance and voted with the ruling National Party of Nigeria.
The recommendations of the Joint Committee were successfully challenged
in court, in that they were presented to the president for assent
without reference to the National Assembly, which set up the Joint Committee.
Another reason had to do with the controversy that it was likely to
generate. Land mass, as a principle of revenue allocation, was expunged
from the recommendations of the Joint Committee that were sent to and
approved by the National Assembly and subsequently signed into law. However,
during the subsequent military regimes, landmass and terrain found
their way back into the revenue allocation formula, without being thrown
open to national debate (as is the case with most principles). Until that is
done, the weight assigned to the principle of land mass and terrain should
be greatly reduced.
Perhaps derivation as a principle of revenue allocation, or what has now
come to be known as “resource control,”21 is the most controversial issue in
revenue allocation in Nigeria. The derivation principle has been criticized
Federal Republic of Nigeria 221
as being capable of generating intergroup tension in a federation that
strives for the unity of the component parts. This is because derivation tends
to make the rich richer and the poor poorer. Not only was derivation the
dominant principle of revenue allocation in the 1950s and 1960s but it was
also vehemently defended by the power blocs that benefited from it. It was
even defended on equity grounds – that the area from which the bulk of
revenue is obtained should receive some share of the revenue beyond what
other areas receive.22
Under military rule, and as the source and base of revenue changed, the
principle of derivation became insignificant. The recently concluded National
Political Reform Conference on resource control pointed to the fact
that the appropriate weight to be given to the derivation principle in revenue
allocation in Nigeria is yet to be determined.23
We strongly believe that emphasis on derivation encourages states and
local governments to exploit their natural resource endowments. A situation
in which groups clamour for recognition as states and local governments,
without any regard for the sustainability of such units and mainly
because they expect to be funded out of the Federation Account, does not
make for true federalism.
Oil-Producing Areas and Resource Control
Crude oil production has been the most important economic activity in
the Nigerian economy since the early 1970s. Its impact is not limited to the
fact that it contributes almost 90 percent of Nigeria’s total foreign exchange
earnings but also includes the fact that the national budget is
predicated on the expected annual production and price of crude oil.
Therefore, crude oil is the primary engine for national economic growth
and development. It is, thus, quite reasonable to expect that the areas producing
the nation’s crude oil would be very highly compensated for what is
taken from them as well as for the devastation of the land engendered by
the exploration process.
The Niger Delta region suffers from near total neglect by both the federal
government, which claims ownership of the oil, and the multinational
companies, which actually exploit the oil reserves. It is a picture of wanton
environmental degradation of all types – land (despoliation of farmlands),
water (destruction of fishing areas and sources of drinking water), and air
(release of many pollutants causing diseases in humans, animals, and
plants). The devastation and degradation suffered by the oil-producing areas
are indications of the extraordinary expenditure needs of those areas
that ought to be addressed by intergovernmental transfers. The federal
government’s intervention through the Niger Delta Development Commission
(nddc) is a welcome development. However, enough weight
222 Akpan Ekpo
ought to be given to derivation to enable the state and local governments
of the oil-producing areas to handle their developmental problems according
to self-determined needs and priorities. The minimization of the
derivation factor over the years – from the earlier 50 percent, to 1 percent,
and now 13 percent – affects oil exploration and production, and it seems
both unjust and unfair.
Channeling Allocations to Local Governments
Section 162 (5)–(6) of the 1999 Constitution says that the local government
share of the Federation Account is to go to local government councils
as follows:24
• The amount standing to the credit of local government councils in the
Federation Account shall be allocated to the states for the benefit of
their local government councils on such terms and in such manner as
may be prescribed by the National Assembly.
• Each state shall maintain a special account to be called the “State Joint
Local Government Account” into which shall be paid all allocations to
the local government councils of the state from the Federation Account
and from the government of the state.
On payment into the State Joint Local Government Account from the government
of the state, Section 162 (7) of the Constitution provides that
each state shall pay to the local government councils in its area of jurisdiction
such proportion of its total revenue on such terms and in such manner
as may be prescribed by the National Assembly. A number of issues still
remain unresolved with respect to channeling to local government councils
amounts standing to their credit from the Federation Account and
from the government of the state. The local government councils complain
that not all the amounts due to them from the Federation Account
are paid into the State Joint Local Government Account. They complain
that state governments find all sorts of reasons to make deductions before
the payment of Federation Account proceeds into the Joint Account and
that, contrary to Section 162 (7) of the Constitution, hardly any state governments
paid the stipulated percentage of their internally generated revenue
into the Joint Account.
Another problem that arises with respect to the channeling of revenues
to local governments relates to the apparent contradiction between
Section 162 (5) and Section 162 (8) of the Constitution. Section 162 (5)
states that payment to local government councils should be as prescribed
by the National Assembly. Section 162 (8) states that “the amount standing
to the credit of local government councils of a state shall be distributed
Federal Republic of Nigeria 223
among the local government councils of the state on such terms and in
such manner as may be prescribed by the House of Assembly.” Thus, while
the National Assembly prescribes the manner of payment of the proceeds
of the Federation Account into the State Joint Local Government Account,
the method of the distribution of amounts in the Joint Account to the local
governments is to be determined by the House of Assembly of the state. A
strict interpretation of these provisions is that the House of Assembly of
the state is free to use, in the allocation of the Joint Account to the local
governments, an entirely different set of principles from that used in allocating
the Federation Account to local government councils. An obvious
implication is that no local government council is in a position to legitimately
compare what it receives from the Joint Account with what was due
to it from the Federation Account. Even more frightful is the concern that
some state governments may abuse this freedom and indulge in politically
motivated discrimination in the allocation of the proceeds of the Joint
Account among the local governments under their jurisdictions.
In an apparent attempt to resolve the problem of channeling resources
to the local government councils, the National Assembly enacted the Monitoring
of Revenue Allocation to Local Government Act, 2005. This act
provides for the establishment of a body to be known as the State Joint Local
Government Account Allocation Committee, whose purpose is to:
• ensure that allocations made to local government councils in the state
from the Federation Account and from the state concerned are promptly
paid into the State Joint Local Government Account;
• ensure that the funds paid into the State Joint Local Government Account
under paragraph (a) of this section are distributed to the local
government councils in accordance with the provisions of the 1999 Constitution
of the Federal Republic of Nigeria and any law made on behalf
by the House of Assembly of the state; and
• monitor the payment and distribution of the funds mentioned in paragraphs
(a) and (b) of this section so as to ascertain the actual amount
paid to each local government.
The monitoring process can detect divergence between total payments
into the Joint Account and total payments to local government councils.
However, it cannot legitimately detect divergence between allocations to
individual local governments from the Federation Account and their receipts
from the Joint Account. This is because different principles are used
for payments from the Federation Account into the Joint Account and for
the distribution of the Joint Account to the local governments. It is evident
that intergovernmental fiscal arrangements in Nigeria have several challenges
to overcome, particularly with regard to transfers from both the
224 Akpan Ekpo
centre and state governments to local governments. In order to overcome
some of these challenges, in 1989 the federal government established the
Revenue Mobilization, Allocation, and Fiscal Commission.
Revenue Mobilization, Allocation, and Fiscal Commission
The Revenue Mobilization, Allocation, and Fiscal Commission is the federal
government agency that determines the revenue-sharing formula, pending
approval by both houses of Parliament. The commission was established in
1989 by Decree No. 49 and was inaugurated in 1990 in order to bring some
sanity to the problem of revenue sharing in Nigeria. The commission was
not effective during the military era because the government ignored its advice
on revenue-sharing formulas. The situation changed in 1999, when the
Constitution defined the membership of the commission as consisting of a
chairperson and one member from each state of the Federation and the
Federal Capital Territory, Abuja. The members were to be individuals who,
in the opinion of the president, were persons of unquestionable integrity
with requisite qualifications and experience.
The commission has the power:
• to monitor the accruals to and disbursement of revenue from the Federation
• to review, from time to time, the revenue allocation formulas and principles
in operation to ensure conformity with changing realities: “Provided
that any revenue formula which has been accepted by an Act of the National
Assembly shall remain in force for a period of not less than five
years from the date of commencement of the Act”;
• to advise federal and state governments on fiscal efficiency and methods
by which their revenue can be increased;
• to determine the remuneration appropriate for political office holders,
including the president, vice-president, governors, deputy governors,
ministers, commissioners, special advisers, legislators, and the holders of
the offices mentioned in Section 84 and Section 124 of the Constitution;
• to discharge such other functions as are referred to the Commission by
this Constitution or any act of the National Assembly. (See 1999 Constitution
of the Federal Republic of Nigeria, 147–48.)
The Commission does make recommendations on vertical and horizontal
revenue allocations for the country. However, it is not uncommon for
such recommendations to be adjusted by the federal government in its
favour. Between January 1990 and June 1992, there were five revisions to
the revenue allocation formula.
Federal Republic of Nigeria 225
Table 5 shows changes in vertical revenue allocations between 1992 and
2002. A notable change in the recent vertical revenue-sharing formula is
the increase in the allocation to the local governments from the previous
15 percent to 20 percent to enable them to cope with funding primary
education. In addition, as a result of the Supreme Court judgment on
resource control, allocations to the Special Fund out of the Federation Account
were declared illegal. However, in redistributing the Special Fund,
the federal government appropriated 82.4 percent of the 7.5 percent of
the fund, while only 17.6 percent was redistributed to the states (9.6 percent)
and local governments (8.0 percent). This resulted in a phenomenal
increase in the federal government’s share of the Federation Account,
from 48.5 percent to 54.68 percent.
f inancing cap ital investment
The federal, state, and local governments finance capital projects
through budgetary allocation; there is no law barring governments from
raising invisible funds through the capital market. A few states, for example,
Akwa Ibom, have floated bonds to finance selected projects. Federal
government development stocks – long-term bonds – were introduced in
2003. This instrument deepens the financial market and encourages the
government to source its long-term financing needs from the capital
Table 3
Nigeria: Direct expenditures by function and level of government
Function Federal (%) State or provinces (%) Local (%) All (%)
Defence 100 – – 100
Debt servicing 100 – – 100
General administration 70 20 10 100
Law and order 85 10 5 100
Economic services 80 15 5 100
Social services 70 20 10 100
Health 60 30 10 100
Education 60 20 20 100
Subsidies na na na na
Total 100
Local public services na na na na
Table 4
Nigeria: Tax assignment for various orders of government
Determination of shares in revenue (%)
Federal Base Rate
Tax collection
and administration
province (%)
others (%)
Import duties Federal Federal Federal 100 – – 100
Company income tax Federal Federal Federal/state 70 25 5 100
Withholding tax on companies Federal Federal Federal/state 100 – – 100
Petroleum profit tax Federal Federal Federal 100 – – 100
Capital gains tax Federal Federal Federal na na na na
Minus rents & royalties Federal Federal Federal 100 – – 100
Stamp duties Federal Federal Federal/State na na – na
Value-added tax (vat) Federal Federal Federal 100 – – 100
Education tax Federal Federal Federal 100 – – 100
Personal income tax (except members of the armed
forces, Nigerian police, residents in Abuja, staff of
the Ministry of Foreign Affairs, and non-residents)
Federal Federal Federal/State 80 20 100
Entertainment State State State na na na na
Road taxes (motor vehicle and driver’s licences) State State State na na na na
Pools, betting, and lotteries
Gaming taxes
State State State – – – –
Land registration State State State – – – –
Survey fees Federal Federal State – – – –
Development levies State State State – – – –
Property taxes State/federal State State/local
Market and trading licences and fees Local Local Local na na na na
Motor park dues Local Local Local na na na na
Marriage, birth, and death Local Local Local na na na na
Registration fees – – – –
Bicycles, truck, canoe, and wheel barrow fees Local Local Local – – –
Public convenience, sewage, and refuse disposal fees Local Local Local – – – –
Signboard and advertisement permit fees Local Local Local – – –
Table 4
Nigeria: Tax assignment for various orders of government (Continued)
Determination of shares in revenue (%)
Federal Base Rate
Tax collection
and administration
province (%)
others (%)
Table 5
Nigerian fiscal gaps
Total revenue collected
Total expenditures Total revenue available
2001 2002 2003 2004 2001 2002 2003 2004 2001 2002 2003 2004
(billion naira)
1427.5 1606.1 2011.6 2638.2 797.0 716.8 1023.2 1234.6 1018.0 1018.2 1226.0 1377.3
(million naira)
573.5 670.0 855.0 1114.0 278.8 245.6 309.7 557.1 596.9 724.5 921.2 1125.0
(million naira)
171.5 172.2 370.2 468.3 48.8 47.4 158.5 172.6 171.4 170.0 361.8 461.0
Source: Computed from Central Bank of Nigeria, Annual Report and Statement of Accounts, various issues.
Federal Republic of Nigeria 229
market.25 The proposed fiscal act intends to provide guidelines limiting
lower levels of government from foreign borrowing, except when they
obtain approval from the federal government.
public management framework
The Federal Civil Service Commission is charged with the responsibility of
hiring staff for the federal civil service. This commission cannot influence
the hiring and firing of staff at lower levels of government. However, each
tier of government has its own Civil Service Commission, and they are autonomous
with regard to the hiring and firing of staff. It is very unusual for
the federal government to undermine the authority of subnational governments
in the area of employment matters.
Corruption is a serious matter in Nigeria. Transparency International
lists Nigeria as one of the most corrupt countries in the world. Corruption
produces distortions in the economy. Reasons postulated for corruption
within the economy include low wages and salaries, greed, and a primitive
accumulation instinct. Other forms of corruption include nepotism, tribalism,
and favouritism. During the military era, there was no concerted effort
to fight corruption. However, the present democratic experiment, which
commenced in 1999, has demonstrated some seriousness in fighting corruption,
despite the inherent constraints.
In fighting corruption the economy is seen as one. In other words,
there are three tiers of government but one economy; therefore, the
government agencies charged with fighting corruption cut across all tiers
of government.26 Two prominent agencies are responsible for eradicating
corruption: the Independent Corrupt Practice Commission (icpc)
and the Economic and Financial Crimes Commission (efcc). The efcc
has spread its net over top government functionaries, such as state governors,
members of Parliament (federal and state), and even the inspectorgeneral
of police. It is interesting to note that, recently, the former
inspector-general of police was brought to court and jailed for embezzling
public funds. The general opinion is that these anti-corruption agencies
are moving in the right direction, and it is anticipated that their efforts
can be sustained.
the way forward: contemporary i s s u e s
in nigerian f i s c al federalism
Given the dependence of all tiers of government on centrally collected revenue,
especially the rent from oil and gas production, the most contentious
and controversial issue in Nigerian fiscal federalism is the competing
demands of each tier of government for a larger share of revenue.
230 Akpan Ekpo
Historically, the federal government, especially under successive military
regimes, has retained the lion’s share of federally collected revenue. However,
with the return of civil democratic rule in 1999, the states, especially
in the resource-rich Niger Delta region, have been agitating for a greater
share of national revenue.
The Nigerian Constitution makes provision for periodic review of the
sharing rules to reflect changing economic and social realities. However,
there has been no such review since the 1999 Constitution came into
force. Therefore, agitation for a greater share of the so-called “national
cake” has continued unabated.
The Constitution provides for derivation to be given a weight of not less
than 13 percent in the sharing formula. Advocates of resource control in
the Niger Delta region have continued to press for raising this floor to at
least 25 percent.
There have also been controversies about the way the federal government
operates the Federation Account. In its ruling in April 2002, the Supreme
Court settled the issue of illegal and unconstitutional deductions
from this account. However, the federal government continues to operate
this account, disregarding the Constitution and the Supreme Court’s ruling.
For example, the federal government continues to divert revenues
meant for the Federation Account into so-called dedicated accounts such
as the Nigerian National Petroleum Corporation (nnpc) expenditure account
and the excess crude oil revenue account.
From these illegal accounts, the federal government proceeds to undertake
unappropriated and unbudgeted expenditures. For example, recently
the Revenue Mobilization Allocation and Fiscal Commission alerted the
nation to the fact that the federal government had utilized the funds in the
excess crude revenue account to pay Paris Club debts without authorization
from the National Assembly. This happened in spite of the fact that
these revenues belong jointly to all tiers of government in the Federation.
In addition, some states and all local governments do not owe any Paris
Club debt.
The federal government has similarly withdrawn money from these accounts
to pay for the development of independent power plants, located
solely in the southern part of the country, without appropriation from the
National Assembly. The president himself admitted in a letter to the
National Assembly that he withdrew funds from the excess crude revenue
account to pay for the completion of the National Population Census.
However, if constitutional federalism is to be protected and promoted and
democracy itself is to be sustained in the country, this throwback from the
decade of military dictatorship must be discontinued.
Flowing from all this is the contentious issue of who is the custodian of
the Federation Account. The federal government has, to all intents and
Federal Republic of Nigeria 231
purposes, conducted itself not as just the custodian but also as the owner of
the Federation Account. This claim was, however, not sustained in the
judgment of the Supreme Court in the case of Lagos State versus the federal
government.27 The court held that the federal government has not
been conferred with the powers of custodian and trustee to this account
and, therefore, cannot proceed to operate it in any manner as it deems fit.
The Constitution does not confer on the president the right to withhold
funds meant for any government in the Federation.
It was in order to avert the illegal operations and unconstitutional acts
of the federal government with respect to the operation of the Federation
Account that the National Political Reform Conference recommended
the creation of the position of accountant general of the Federation. This
position is separate from the accountant general of the federal government
and is to be responsible for the maintenance and operation of the
Federation Account.
The National Political Reform Conference
The recently concluded National Political Reform Conference further
cements the notion that perhaps the Nigerian Federation is still fragile. It
was widely reported that South-South delegates (i.e., those from the Niger
Delta region) staged a walkout at the conference over the proposed
marginal increment of the weight assigned to the derivation principle
from 13 percent to 17 percent. The South-South delegates had demanded
50 percent. Despite the walkout, the conference concluded its deliberations
and presented its report to the president, who, in turn, presented it
to a joint session of the House of Representatives and the Senate. It is evident
that the Conference could not agree on the issue of resource control.
The heated debate on resource control and some unpleasant pronouncements
on the matter by some delegates highlight the fundamental problems
in Nigeria’s fiscal federalism.
Another burning matter concerns political power sharing among the different
levels of government and the six geo-political zones. For federalism
to work, the federating units must agree on some workable formula for
sharing power. Power sharing should include which zone is going to account
for the position of president. The same agitation is found both at the
state and local government levels with regard to governors and council
chairs, respectively.
The main purpose of the National Political Reform Conference was to
discuss and find solutions to burning issues affecting Nigeria. While there
were broad agreements on such areas as the economy, foreign policy, education,
youth, and gender, the discordant voices on resource control and
power sharing, among others, are reminders of the fragility of Nigeria’s
232 Akpan Ekpo
federal system. It should also be noted that the conference had no constitutional
or statutory mandate to implement its decisions. Perhaps this
explains why the president submitted the report to both houses of Parliament.
It is hoped that the National Assembly will deliberate on the report
and implement those aspects of the recommendations that will benefit
the country.
There is no doubt that the practice of fiscal federalism in Nigeria has generated
contentious issues, particularly around factors that would ensure an
equitable and stable revenue allocation among the three levels of government.
These factors include, among others:
• adopting a uniform derivation principle;
• giving adequate weight to the equality of states;
• giving special attention to the development of areas producing natural
resources; and
• sharing revenue based on the responsibilities of each tier of government.
If Nigeria is to remain a federation, then meaningful dialogue and compromises
ought to guide deliberations aimed at reducing the tensions emanating
from the practice of fiscal federalism. This would help to guarantee
the sustained implementation of reforms.
I wish to acknowledge the comments of the referees, particularly Chichi Ashwe and
John Kincaid. Their suggestions have improved this chapter; however, the usual
disclaimer applies.
1 This is an estimate. See the Nigerian government’s website: . A national census was conducted in April–May 2006; the results are still
2 There are several studies of Nigeria’s fiscal federalism. For example, see Adedotun
O. Phillips, “Four Decades of Fiscal Federalism in Nigeria,” Publius: The Journal of
Federalism 21 (1991): 103–11; John Kincaid and G. Allan Tarr, eds., Constitutional
Origins, Structure, and Change in Federal Countries (Montreal: McGill-Queen’s University
Press, 2005), 240–75; and B.O. Nwabueze, Federalism in Nigeria under the Presidential
Constitution (Lagos: State Ministry of Lagos, 2002), 4–55.
3 Izevbuwa Osayimwese and Sunday Iyare, “The Economics of Nigerian Federalism:
Selected Issues in Economics Management,” Publius: The Journal of Federalism 21
Federal Republic of Nigeria 233
(1990): 89–101. See also Akpan H. Ekpo, “Fiscal Federalism: Nigeria’s Post-
Independence Experience, 1960–90,” World Development 22 (8): 1129–46.
4 Central Bank of Nigeria, Annual Report and Statement of Accounts (Abuja: Central
Bank of Nigeria, 2004). See .
5 Ibid.
6 Selected states – notably Akwa Ibom, Rivers, Cross River, and so on – had challenged
the federal government’s introduction of the on-shore and off-shore oil
dichotomy for the purposes of revenue allocation. They also urged, among other
demands, that the federal government pay the 13 percent derivation. The Supreme
Court ruling touched on several matters, including the Stabilization Fund. See
Udeme Ekpo, The Niger Delta and Oil Politics (Lagos: International Energy Communications,
2004), 159–241.
7 Central Bank of Nigeria, Annual Report and Statement of Accounts, 156–61.
8 G.F. Mbanefoh, “Federalism and Common Property,” Guardian, 20 February 1993,
9 A. Adedeji, Nigerian Federal Finance (London: Hutchinson Educational, 1969).
10 P.N.C. Okigbo, Nigerian Public Finance (London: Longmans, 1965).
11 Ibid.
12 G.F. Mbanefoh, “Nigerian Fiscal Federalism: Assignment of Functions and Tax Powers,”
seminar organized by rmafc, Enugu, 21–23 April 1992. See also Akpan H.
Ekpo, Fiscal Theory and Policy: Selected Essays (Lagos: Somaprint, 2005).
13 Ibid.
14 The “resource control” suit refers to the attempt by some states to control resources
in their jurisdiction by using the courts; it also implies their having more
than a fair share (through the sharing formula) of mineral resources by emphasizing
participation in the exploitation of such resources. At present, the formula
allows 13 percent for derivation. When the states took the federal government
to court, the latter was not even adhering to the 13 percent provided for in
the Constitution.
15 Akpan H. Ekpo and Enamidem Ubok-Udom, eds., Issues in Fiscal Federalism and
Revenue Allocation in Nigeria (Ibadan: Future Publishing, 2003).
16 Ibid.
17 nitel is the government-owned telecommunications company. gsm operators in
the country now include Vmobile, mtn, and Globacom. See G.F. Mbanefoh and
Akpan H. Ekpo, Review of Constitutional Provisions and Fiscal Federalism in Nigeria,
Abuja: World Bank, 2005.
18 Federal Republic of Nigeria, Report of the Presidential Commission on Revenue Allocation,
vol. 1, Main Report (Apapa: Government Press, 1977).
19 Akpan H. Ekpo,. “Fiscal Federalism and Local Government Finances in Nigeria,” in
Nigerian Economic Society, Fiscal Federalism and Nigeria’s Economic Development (Ibadan:
Nigerian Economic Society, 1999).
20 See Mbanefoh and Ekpo, Review of Constitutional Provisions.
234 Akpan Ekpo
21 It was expected that an increase in the weight attached to derivation might reduce
the tension surrounding the control of petroleum resources by the Niger Delta
22 Victor B. Attah, “Fiscal Federalism in Nigeria: A Re-Examination of My Views,” remarks
made by the Akwa Ibom State Governor during the Roundtable on Global
Dialogue on Federalism, Uyo, 29 September 2005.
23 Ibid.
24 Federal Republic of Nigeria, Constitution of the Federal Republic of Nigeria 1999
(Lagos: Government Press, 1999).
25 See Central Bank of Nigeria, Monetary Policy Circular (Abuja: Central Bank of
Nigeria, 2004), 1–58.
26 Federal Republic of Nigeria, The Corrupt Practices and Other Related Offences
Act, 2000. See also .
27 On 19 April 2004, the Lagos State Government sued the federal government,
challenging the authority of the latter to withhold its statutory allocation to the new
fifty-seven local government councils it created. In its ruling the Supreme Court reaffirmed
that no one tier of government had more rights than did any other over
the Federation Account and that, thus, the federal government could not stop
payment to the Lagos state government’s existing (not new) councils.