The impact of fiscal federalism on inter-governmental relations in Nigeria (1999 – 2012)

Complete Chapter One

(1999 – 2012)

Title Page i
Certification ii
Dedication iii
Acknowledgement iv
Table of Contents v
List of Table and Figures vi
Abstract vii
Background to the Study 1
1.1 Statement of the Problem 9
1.2 Objectives of Study 14
1.3 Research Hypotheses 16
1.4 Relevance of the Study 17
1.5 Scope of the Study 19
References 21
2.1 Fiscal Federalism : Overview of Selected Countries 22
2.2 Historical perspective on Nigeria’s Fiscal Federalism 29
2.3 The Constitutional Functions of the Three Tiers
Of Government 41
2.3.2 The Constitutional Functions of State Government
In Nigeria 44
2.3.3 The Constitutional Functions of Local Government
In Nigeria 47
2.4 Attempts at Revenue Allocation Formula in Nigeria 50
2.5 Related Decrees of Revenue Allocation 62
References 72
3.1 Population and Sample of Study 75
3.1.1 Population 75
3.1.2 Sample/Sampling Technique 76
3.2 Sources of Data Collection 77
3.2.1 Primary 78
3.2.2 Secondary 78
3.3 Administration of Questionnaires 78
3.4 Analytical Tools 79
4.1 Introduction 80
4.2 Data Presentation 81
4.3 Data Analysis and Interpretation 83
Hypothesis I 83
Hypothesis II 84
Hypothesis III 86
Hypothesis IV 87
References 90
5.1 Introduction 91
5.2 Summary of Findings 91
5.3 Research Conclusions 93
5.4 Recommendations 95
References 97
Bibliography 98
Appendix I (Research Questionnaire) 102
Appendix II (Statistical Appendix) 105

Table 2.1
Table 2.2
Table 2.2
Table 2.4
Table 2.5
Table 2.6
Table 2.7: Horizontal Revenue Allocation
(among States) Formula (%)

Table 3.1: States to be Sampled
Figure 4.1: Categories of Respondents

This study titled “The Impact of Fiscal Federalism on Inter-Governmental Relations in Nigeria, 1999 – 2012” examined the on-going issue of Nigerian Fiscal Federalism with a view to determining if the system over the years has been governed by the principles of efficiency, equity and the impact of our fiscal system on the ability of federating units to generate revenue and meet their responsibilities.
The researcher proposed the Null and Alternative Hypotheses on the four issues, the views of both Federal and State legislators in the six geo-political zones were elicited with the aid of a questionnaire. Their responses were evaluated using a statistical tool – Z-test for the population proportion.
The result obtained revealed that the Nigerian Fiscal system has failed to abide with the principles of efficiency and equity. The resource distribution was also not commensurable with the responsibilities of the federating units, the system also failed to enhance the revenue generating effort of the state. In view of the above findings and problem arising therefrom several recommendations were made to redress the situation.

Nigeria as a single entity came into existence with the Amalgamation of the Northern Nigeria with the Colony and Protectorate of Southern Nigeria by Lord Lugard in 1914. Before then, the territory was according to Burns (1975):
inhabited by a medley of formerly warring tribes with no common culture. With the coming of the colonial powers these tribes were soon welded into the two protectorates which formed the fulcrum for the modern day Nigeria.
Adedeji (1969) while narrating the origin of Nigerian federalism observed that, the process actually began with the cession of Lagos to the British Colony in 1861 and creation of both Protectorates in 1906, which were subsequently amalgamated in 1914. Each of these protectorates was themselves separate. The Northern Protectorate comprised the pre-colonial Hausa states, Kanuri’s and Fulanis trading with themselves. According to Coleman (1986), Kano and Katsina had become famous as centers of Islam, with Kano emerging more as a great commercial entrepot.
Coleman (1986) observed that until the arrival of the British, Northern Nigeria was economically oriented towards Tripoli and Egypt. Kano was famous throughout and beyond the Sudan for weaving and embroidery of clothes, the tarring of skins, and ornamental leatherwork. The latter product known as “Morocco Leather” was exported across the Sahara to North Africa ports, the caravans brought back to Kano European trade goods, mostly cloth, metal articles and glass.
The outstanding economic development in Northern Nigeria since the British occupation has been the virtual cessation of this historic trans-Sahara trade, and the diversion of export products to the Guinea Coast as a result of the imposition of an artificial frontier above Kano and the development of a modern transportation system within Nigeria.
The Southern Protectorate was distinct from the North. It comprised the old Yoruba empire, Bini empire, the Igbo’s, Ibibio’s and Efik’s. Coleman (1986) is of the view that while Islam was consolidating its hold over Northern Nigeria, the impact of export slave trade commenced by Portugal was felt in the South. This part was then known as the ‘slave coast’ until the middle of the nineteenth century; when the trade in palm oil and ivory was developed after slave trade was declared illegal.
The trade in the Southern Nigeria was in Coleman’s (1986) view first conducted by private European traders and companies, and later (1886 – 1900) by the Chartered Royal Niger Company who were empowered by the British to administer, make treaties, levy customs and trade in all territories in the basin of the Niger and its affluent. This arrangement continued until the South was declared a Protectorate.
After this incorporation in 1906, the two protectorates were run separately until 1914, when they were merged into the geo-political entity called Nigeria. Describing the country, Adedeji (1969) observed that Nigeria at birth was a mere geographical expression and an artificial creation which was still run separately by two Lieutenant-Governor without any territorial change and each secretariat and departmental organization. Those departments which were practically indivisible and whose functions were Nigeria-wide in nature (the Judiciary, Military, Railway, Post & Telegraphs and Audit) were centralized under the direct control of the Governor-General assisted by a central secretariat.
While the pristine Islamic nature of the North was maintained, the South was administratively organized into three groups of provinces, each headed by a resident who reported to a Lieutenant-Governor. These according to Coleman (1986) were subsequently amalgamated into one united administration with a free-circulating bureaucracy with headquarters in Lagos and subsequently in Enugu. Throughout this period of Southern unity, administrative policies were essentially uniform, with adaptations for obvious sectional or tribal peculiarities. In 1939, the backwardness of Enugu as a headquarters, together with other factors brought about a division of the South into two groups of provinces (Western and Eastern) with the Niger River as the boundary.
At the outbreak of World War II, Nigeria was divided into four artificial administrative units; the Colony, the Western Provinces, the Northern Provinces, and the Eastern Provinces. The shortage of personnel and congestion of Lagos which resulted from the Second World War soon forced the colonial overlords to delegate powers to each of the three provisional headquarters. This extensive delegation was given a constitutional backing by the Richards Constitution of 1946 which gave each province fairly broad powers. The 1951 Constitution according to Coleman (1986) designated the three provinces as regions and they formally became constituent units in a quasi-federal system. The colony was obliterated in the same year by its amalgamation with the Western Region. The revised Constitution of 1954, gave the regions greater autonomy in the federation of Nigeria and made Lagos the Federal Capital. Thus, accident of historical acquisition together with the changing imperatives of administrative convenience were among the determinants of the division of Nigeria into three regions.
These regions formed the basis of federation at Independence in 1960. For most of the period, discussed above, the north remained a single political entity within Nigeria until the emergence of the military in Nigeria political history, which created new states on 27 May, 1967. With this development, the North was broken into six states, while the South equally had six states. This event marked the shift from regionalization to a more federal arrangement which empowered the center at the expense of the regions.
The emergence of the military in Nigerian politics with its central command system further led to the weakening of the regions now states. The military administrations in the states were appointed by the military leadership in Lagos and were often removed by them. The alteration of this arrangement was also made possible by the suspension of the previous constitution and the practice of ruling with the Decrees, which vested the Federal Military Government with more powers, resources and responsibilities.
While the federal military government was grappling with building a strong center, most politicians and in fact most Nigerians identified primarily with their tribe, states and constituencies. The reason for this according to Coleman (1986) is not far fetched. In his view, the provinces and district boundaries have remained fairly constant. As a result, some of the provinces and districts have become the focus of loyalty and thus have progressed from the status of an artificial administrative unit to that of a political unit possessed of its own individuality. Majority of Nigerians, when queried above their homeland, will usually identify themselves with the name of their division or of the province in which it is located.
In support of this view, Adedeji (1969) explained that this syndrome has in the past been amplified by the decision of the leaders of major political parties in the country to participate in the regional governments rather than in the central government. This coupled with the tribal nationalistic inclination of most Nigerian leaders has stifled the growth of Nationalism and loyalty to the center.
Perham (1970) has linked the problem of Nigeria nationalism to:
The artificiality of Nigeria’s boundaries and the sharp cultural differences among its people, as well as, the fact that it is a British creation whose nationhood is the result of British presence.
He observed further that the present unity of Nigeria, as well as, its disunity, is in part a reflection of the form and character of the common government – the British Super-structure – and the changes it has undergone since 1900. Even after independence, the central Government has generally been perceived as a colonial heritage, whose mission has been to favour some entrenched interest in the polity, at the expense of other constituent parts of the federation. Consequently, loyalty has always been to the tribe or state at the expense of the center.
Despite this overwhelming loyalty to the tribe and state, the central government has since the 1960’s controlled a substantial part of the revenue accruing to the nation (between 47% – 57% of revenue inflows to the federation account). This coupled with inequity in revenue allocation amongst state has led to cries of domination on the part of some states particularly of the Niger Delta extraction. It is the issues raised, within the context of intergovernmental relations, in the course of building a virile federation that this study intends to examine.
An overview of Nigerian federalism reveals that changes in the fiscal system did not lag behind the political and constitutional development which took place in the Nigerian political history. Adedeji (1969) observed that between 1946 and 1958, four commissions inquired into Nigerian fiscal system, specifically, to make recommendations among the federal and regional governments. In 1964, a fiscal review commission was set up to make recommendations on fiscal adjustments. All these were attempts to align the fiscal system with changes in the political system and other economic realities of the time.
Arguing along this line, Mackintosh (1952), observed that “nothing is more certain in a federal constitution than that division of function made reasonably decades ago will prove impracticable under the changed circumstances of a later age and that a disparity between functions and revenue sources will emerge”. Describing the problem of adjusting changes in fiscal responsibilities to resources, the Australian Commonwealth Grants Commission (1934) stated that:
It is impossible in a federation nicely to adjust the functions entrusted to the members to the financial resources; some members may have more financial power than actually needed and another less. Consequently, some adjustments may have to be made in the form of a redistribution of the revenue from the more favoured to the less fortunate members of the union. This must be counted as one of the weaknesses of a federation. It renders it difficult to apply the principle of financial responsibility necessary to sound politics. However, some redistribution must be accepted as almost inevitable in any federation and especially at certain stages of development.

This disparity between fiscal needs and revenue sources are observable at both federal and state levels. The situation in Nigeria seems to have manifested more at the federal level. It has become a critical sore point of Nigerian federalism which crystallized in the battle for resource control.
The seed of this crisis was sown from the 1940’s to the 60’s when the regions were empowered to tap their resource and develop along their own path. The Northern region developed its groundnut and cotton production, the West, its cocoa, while the Eastern economy relied on palm produce. The revenue from these products was used by each region to grow their economy. With changes in the political system, there was a gradual shift from regionalization to a more federal arrangement. This change was reflected in the creation of 12 states from the former four regions in May 1967.
Further creation of states weakened the regions as the Federal Government assumed more responsibilities and acquired more fiscal power to the detriment of the state. This federal shift was made easy by the emergence of military dictatorship on the Nigerian political scene. Their prolong stay in power also resulted in the enactment of the Petroleum Act, the 1979 Constitution as well as other laws which empowered and enriched the center.
The over-concentration of resource at the center created an internecine competition for power at the center, and cries of domination in the states, especially the Niger Delta States which accounted for over 85% of the country foreign exchange. The above situation has been described by pundits like Emenyonu (2002) as a crisis of federation. Ibori (2002) is of the view that Nigeria will know no peace and unity until the condition of inequality and injustice in the Nigerian federation has been undone. The current constitution which empowers the Federal Government to control mineral rights, petroleum inclusive, they opined, is a deviation of federalism because the issue of resource control is an integral part of federalism. Reasoning along the same line, Emenyonu (2002) “wonders why that of Nigeria is an inverted and mutilated federal system from what obtains in other countries which practice the same federal system”
Going by the constant crisis in the Niger Delta, the Supreme Court verdict on resource control, which has been the bone of contention, may not be the last word on Nigerian federalism. A political resolution, as pundits have expressed, perhaps represents the best approach to the issue. This need for constant adjustment in fiscal federalism according to Adedeji (1969) is one of the weakness of a federation which older federations has had to contend with. It is expected that the Nigerian nation will also survive her crisis of fiscal federalism.
The contentious debate on the nature of our federalism has thrown up several issues. Fiscal inequity, Inefficiency, and the need for fiscal adjustment in our young nascent democratic federation. Unraveling these issues is the centre focus of this research, which the researcher hopes to address in the course of this study. In pursuance of this, attempts will be made to answer the following research questions:
What are the operative principles of Nigeria’s fiscal federalism?
What is the impact of this/these principles on the federating units?
Are allocations derived from these principles commensurate with the responsibilities of federating unit?
What is the impact of the revenue formulate on revenue generation?
What are the problems arising therefrom?
How can these problems be solved?
The objective of any research endeavour refers to what the researcher intends to achieve in the course of the study. It is the purpose of the study. It determines largely the activities the researcher will engage in and the methodology to be adopted.
In line with the research questions stated above, the following will serve as the research objective of this study:
1 To identify the operative principles in Nigeria fiscal federalism.
To evaluate the impact of this/these principles on the federating units.
To determine if the allocations are commensurate with the responsibilities of the federating units.
To evaluate the impact of the revenue formula on revenue generation.
To determine the issue/problems arising therefrom.
To seek remedies to address these problems.
The study is essentially a problem solving effort designed to address the festering problems associated with intergovernmental fiscal relations as it impinged on the Nigerian nationhood.
These research hypotheses will form the basis of evaluating this study and drawing inferences. The following Null and Alternative Hypotheses will serve as the reference point in the course of the study.
Ho1: The proportion of respondents who opine that the fiscal allocation system has been based on the principle of equity is not significant.
HA1: The proportion of respondents who opine that the fiscal allocation system has been based on the principle of equity is significant.
HoII: The proportion of respondents who opine that the fiscal allocation system has been based on the principle of efficiency is not significant.
HAII: The proportion of respondents who opine that the fiscal allocation system has been based on the principle of efficiency is significant.
HoIII: The proportion of respondents who opine that the allocation derived from the federal account has been commensurate with the responsibilities of the federating unit is not significant.
HAIII: The proportion of respondents who opine that the allocation derived from the Federal account has been commensurate with the responsibilities of the federating unit is significant.
HoIV: The proportion of respondents who opine that the allocative principle has no impact on the revenue generation in the federating unit is not significant.
HAIV: The proportion of respondents who opine that the allocative principle has no impact on the revenue generation in the federating unit is significant.
The current crisis of Nigerian federalism is a grim reminder to all men of goodwill towards our nation. Any effort geared towards solving this problem is a welcome development. This study is my bumble attempt to contribute my quota to resolution of the problem of Nigerian fiscal federalism. It is expected that the work will help to bring peace to the troubled zones and minds on the Nigerian question. Specifically, the following groups are expected to benefit from this work.
A major beneficiary of the study is the Niger Delta states, which have been the major protagonist for change in the Nigeria federal system. The work will help to bring about peace, order, and development and restore confidence in the viability of the Nigerian enterprise.
The study is expected to provide future researchers in this field with updated information for their research work. This will help solve the problem of paucity of relevant data on the Nigerian research scene.
The average Nigerian is also a net beneficiary of this work, as his primary interest-stability of the polity, will be addressed in the course of the study. It is also expected that his basic needs and welfare will be improved when the recommendation from this study are implemented.
The study will also be relevant to the other states of the federation who through this research effort will be made to understand the dynamic nature of fiscal federation as the issue is bound to affect them in one way or another in the future, either as a contributor to the nation’s wealth or a beneficiary of other states efforts in this regards.
The research scope of any study sets a boundary on the issue that will be treated in the course of the study. Yomere and Agbonifoh (1998) described it, as a delineation of the study, which clearly outline issues, time, and size of the research. It helps to give focus to the researcher in the course of his investigation.
This study is essentially designed to examine the issue of Nigerian fiscal federalism, particularly as it relates to the fiscal relationship between the three levels of governments. Efforts will be made to concentrate on the fiscal crisis that has ensued in the country over the years. The sources of the problem will be identified, the specific problems will be outlined and remedies proffered to these problems of nationhood.


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