EDITORIAL: The clamour for 50% derivation fund
Members of the House of Representatives have initiated a new debate on one of the major sources of conflict in Nigeria’s federal arrangement. They have introduced a bill for an increase in percentage allocation to the constituent parts of the federation in the Derivation Fund. This proposal is contained in the ‘Bill seeking to Alter Section 162(2) of the Constitution of the Federal Republic of Nigeria, 1999 by Increasing the Percentage of Derivation Fund of the Revenue Accruing to the Federation Account Directly from Any Natural Resources to not less than fifty (50%) per cent and for Related Matters’.
According to the lawmakers sponsoring the bill, Awaji-Inombek D Abiante (PDP, Rivers) and 13 others, the essence of the bill is to ensure ‘justice and equity’ in the operations of Nigeria federal finance and also to ‘fast-track the development and protection of the ‘region’ where mineral resources or any revenue used in running the affairs of the country is derived from
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It will be recalled that for the decade (1949-1959) the entire (100%) federal transfers to the federating units was based on the singular principle of derivation. Thereafter, the principle was gradually de-emphasised because of seeming arbitrariness in its computation as well as wide inequality and inequity it would cause among the lower-level governments. This was because of the overwhelming influence of oil revenue in the total revenue of the federation.
Nevertheless, the 1980 Presidential Commission on Revenue Allocation headed by the late Professor PNC Okigbo observed that derivation as a criterion of revenue allocation in Nigeria can be justified on two grounds of ‘hazards and special problems in the mining arrears’ and ‘the ownership of land which is vested in the state governments by virtue of the Land-use decree (1978)’. Hence, Derivation Fund was institutionalised as a mechanism of containing environmental degradation in the oil-producing areas on one hand and as a means of allowing the states to partake in the revenue pool of mining rents and royalties on the other hand. Indeed, the goose that lays the golden egg should be ‘reasonably’ compensated by adhering to this basis of revenue sharing in a federal polity.
However, it suffices to point out that fiscal adjustment exercises (between federal and states as well as inter-states) are continuous and constitute a permanent feature of fiscal federalism all over the world. This derives from its role in mitigating inter-governmental fiscal tension in the polity by equalising the standard provision of goods and services in the country.
This transfer mechanism has a lot to do with the structure of the federal polity as well as statutory responsibilities assigned to the governments. That function cannot be performed satisfactorily through a selective percentage adjustment that will not leave an impression on the intractable and controversial issues imbedded in the Nigerian brand of federalism. This way, one may be persuaded to say that what Nigeria needs right now is not a piece-meal approach to vertical and horizontal ‘revenue allocation’ which is inherent in the proposal by the members of the House of Representative.
There are monumental fiscal problems that have been engendered by dysfunctional federalism in Nigeria, ranging from an overbearing assignment of revenue and expenditure functions to the use of controversial and arbitrary principles for intergovernmental resource devolution. A fifty per cent increase in the Derivation Fund will at best serve as a cosmetic temporary relief to the mineral resources-producing areas of the country.
What Nigeria needs now is restructuring the federal polity along the path of fiscal viability of the federating units as well as tinkering with the Exclusive and Concurrent Lists so as to limit the expenditure activities of the federal government to the core functions such as currency and coinage, external affairs, immigration, and national security. This will not only reduce the quantum of money at the disposal of the apex authority of governance but will also disperse expenditure obligations of regional and local jurisdictions to the states and local government areas. Some of these responsibilities include tertiary, primary and secondary health care services, education, policing, transportation, prisons, agriculture and urban development.
Such restructuring will, as a matter of necessity, imply a redefinition of the revenue base of the Federation Account as well as a universal overhaul of the revenue allocation formula. This will not only address the problem of unfairness that characterise our fiscal activities but will also contain the ever-increasing bureaucracy occasioned by an unnecessary fragmentation of the polity into numerous subnational governments.
It is pertinent to note that our attention is often focused on oil resource only, whereas the nation is blessed with solid minerals like gold, tin, gemstones and uranium among others. We should remember the First Republic and how the regions developed their natural resources. All the mineral resources should be explored and revenue therefrom sent to the divisible pool to which the principle of derivation along with other measurable and less contentious principles of revenue devolution should apply.
Such restructuring will reposition the country. It will put it on the path of growth and development by enthroning cooperative federalism, the rule of law, curtailing wastages, reducing corrupt practices, and promoting healthy competition among the subnational governments. To do otherwise would simply mean holding the nation down and perpetrating injustice in the polity.
