Resolving the Fiscal Federalism Challenge in Nigeria ... · federations like Ethiopia, Nepal, etc,...
Transcript of Resolving the Fiscal Federalism Challenge in Nigeria ... · federations like Ethiopia, Nepal, etc,...
International Journal of Social Sciences. Vol. 12, No.3, October, 2018 Special
161
Resolving the Fiscal Federalism Challenge in Nigeria:
Lessons from the Federal Democratic Republic of Ethiopia
(FDRE)
by
1Olawari D. J. Egbe
Department of Political Science
Niger Delta University
Wilberforce Island
Bayelsa State
+2348037461293
2Iyabrade Ikporukpo
Department of Political Science
Niger Delta University
Wilberforce Island
Bayelsa State
+2348032462017
Abstract Globally, heterogeneous states are no strangers to near-state breaking challenges like the
practice of a genuine fiscal federalism. However, if a particular challenge becomes seemingly
intractable like the fiscal federalism question in Nigeria, it then becomes heartache to the state in question. Whereas states such as Ethiopia, and Nepal that are equally as highly
heterogeneous as Nigeria have resolved their daunting fiscal challenges, the Nigerian state is still grabbling with the challenge of a genuine fiscal federalism. Thus, this paper, relying on
the Normative Theory of Multinational Federalism as its theoretical handle, interrogates why
the Nigerian state cannot resolve the fiscal federalism question after 58 years of political independence. In attempting this concern, the paper attempts to answer the following
questions: Is the difficulty in practicing a genuine fiscal federalism laid on the altar of ethnicity in Nigeria, excessive dependence on a mono product or the fear of the unknown? The
paper adopted ex post facto research in examining qualitative sources of information. It
discovers that Nigeria’s fiscal federalism question is cancerous and endemic to Nigeria’s unhealthy mono product dependence on crude petroleum; and which is further aggravated by
intra-ethnic fear of the unknown. It is recommended that if a challenge as fiscal federalism
cannot be resolved nationally, i.e. in the context of Nigeria, then lessons should be drawn from fellow African states as Ethiopia, other Third World states as Nepal and even from
matured federal democracies as the United States, etc, that had long resolved their challenges of fiscal federalism.
Keywords: Federalism, Fiscal Federalism, Challenge, Nigeria, Ethiopia.
International
Journal of
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1. Introduction
Without exception, all federations are conterminous to shared challenges arising
from differences in history, politics, and development patterns (Kymlicka & Norman,
2000). Thus, federalism remains the much-welcomed framework for peaceful coexistence
in any heterogeneous state. However, working out a viable economic component of most
federal states remains the principal challenge to achieving nationhood. Scholarship has
identified the act of learning from the experiences of other states as a major way forward.
But why has Nigeria not learnt or reluctant in learning from the experiences of other states
like Ethiopia, Nepal, etc, that have walked on similar trajectories?
In Nigeria, this is even made worse where discourses or agitations by academics,
ethnic groups, etc, on wanting to attain a workable fiscal federalism are cavalierly
dismissed as unpatriotic tribalism. Thus, Adedeji (1979, p.62) rhetorically ask: How have
we come to this sorry state of affairs in the post independence years which seemed at the
beginning to have held so much promise? How did Nigeria come to this enigma? Is it the
Nigeria our nationalist leaders in Dr. Nnamdi Azikiwe, Sir Ahmadu Bello, Alhaji
Abubakar Tafawe Belewa, Chief Obafemi Awolowo, etc, anticipated (Ade-Ajayi, 1982)?
Hitherto, Nigeria had a tract record of these leaders who pledged unalloyed commitment
for federalism. For example, in 1957 Alhaji Abubakar Balewa, was reputed in saying,
"the federal system is, under the present conditions, the only sure basis which Nigeria can
remain united” (Ademolekun, & Kincaid, 1991, p.175). The 1987 Political Bureau report
equally saw hope in federalism by asserting that, “we do not see any other
accommodating and healthier arrangement for Nigeria than the continuation of the system
of federalism” (Ademolekun & Kincaid, 1991, p.175). Furthermore, ex-military President
Ibrahim B. Babangida while assenting to the 1989 Constitution unequivocally affirmed
that “we are firmly and faithfully committed making our nation an example to the world
of how a multi-ethnic and multi-religious society, such as ours, can be effectively
organised in a federal democratic system” (Ademolekun & Kincaid, 1991, p.175).
Obviously, these generation of leaders encouraged and practiced fiscal federalism
where all the then three regions (North, West and East) controlled and exploited resources
at their regions for regional development purposes but remitted specified remittances to
the federal authorities (Etekpe, 2007). Again, the 1963 Republican Constitution in Section
164 even provided that financial arrangements in the country should be reviewed from
time to time (Teriba, 1966; Osemwota, 1984; Ovwasa, 1995).
But why and how did Nigeria deviate from the immediate post-independence
fiscal model? However, rather than avoiding the obvious; the challenge of fiscal
federalism in Nigeria has remained unresolved by reason of ethnicity. There is the fear of
the unknown among ethnic groups in Nigeria. For example, how will a scarcely endowed
natural resource region survive in a genuine fiscal federalism regime in Nigeria? This fear
though remains tangible in Nigeria; however, it is unfounded because all ethnic groups in
Nigeria are endowed in their peculiar ways. In this context, an elementary knowledge of
Economics in comparative advantage teaches us that each region or ethnic group in
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Nigeria is capable of developing in resources in their comparative advantage. It is in such
context that Governor Ezenwo Nyesom Wike of Rivers State, Nigeria asserted that,
We are clamouring for true federalism. When you talk of true federalism, they think you don’t want to be part of the country. We
talk about true federalism as practised in America. We demand a
true presidential system where all the federating units will be allowed to enjoy their resources and contribute to the centre. That
means we believe that there must be a country called Nigeria. All of us will work together for the unity of the country (Onoyume,
2017, p.2).
The governor‟s assertion invariably implied that all regions in Nigeria are
comparatively advantaged in specific resources. Therefore, it is a matter of government
prioritising attention in resource development in terms of exploration and exploitation.
The remainder of this paper is laid out in four sections. The next section after this
introduction (i.e. section 2) understudies theoretical framework and some previous
discussions on federalism and fiscal federalism. The third section focuses on the trajectory
of fiscal federalism in Nigeria‟s political development. The practice of fiscal federalism in
the state of Ethiopia is taken up in section four; while the fifth section concludes the
paper.
2. Aim and Objectives
This paper intends to resolve the daunting and intractable challenge of fiscal
federalism in Nigeria. Specifically, it interrogates why the Nigerian state cannot resolve
the fiscal federalism question after 58 years of political independence. The objectives
include:
a. To examine federalism as a social science concept
b. To examine the prevailing fiscal federal structure/pattern in Nigeria
c. To examine fiscal federalism as it is operational in the state of Ethiopia as a
panacea to Nigeria‟s fiscal federalism debacle.
3. Theoretical framework and Extant Literature
This section undertakes a brief discourse on the „Normative Theory of
Multinational federalism’ as this paper‟s theoretical framework and a literature review of
federalism and its fiscal component.
a. Theoretical framework: Normative Theory of Multinational Federalism
This paper relies on the normative theory of multinational federalism as espoused
by Karmis and Norman (2005). The centrality of this theory is “how do we determine the
just or otherwise appropriate type of and degree of self-determination for national
minorities within a federal state”? The salience of this question lies in the fact that no
federation is devoid of national minorities (Kymlicka & Norman, 2000), even as Laski
(2005, p.193) posited in the case of the United States that “no one can travel the length
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and breadth of United States without the conviction of her inexpugnably variety. East and
West, South and North, its regions are real and different and each has problems real and
different too”.
Like the United States, all geo-political zones in Nigeria have national minorities
who wish to “distinguish themselves from the majority or other minorities by language,
dialect, religion, ethnicity or race...which means they do not think of themselves as
merely as ethnically different, they feel that they constitute a nation or a people with a
right to self-determination” (Karmis & Norman, 2005, p.13). It is therefore never an eye-
opener that there are national minorities in the core Northern Nigeria or national
minorities within the South-South Nigeria, who together claim to be a nation and
therefore need self-determination but are constrained by anthropogenic hiccups and
natural causes including geography in spreading people of identical nations to several
political units or states; as it is the case of Ijaws in Nigeria. However, these clamours for
self-determination by national minorities, it is hoped can be resolved by a federal design
within a united country.
Federalism is expected to determine the powers of the diverse federal sub-
nationalities in order to create a sense of belonging to the federation. Among the several
expectations of by national minorities, the economic component of federations otherwise
referred to as fiscal federalism, feature prominently. The potency of this singular factor in
fostering or stifling federations is in two-fold. First, it is the denominator to “which
aspects of their collective life they will have exclusive control and over which aspects
they will be subject to the control of „outsiders‟ within the federation” (Karmis &
Norman, 2005, p.15). Second, the point must be established that “however impeccable in
its logic, the federal constitution may be and whatever practical guarantees it may supply,
it will not survive if economic factors tend persistently to dissolve it...political right
requires to be buttressed by economic right” (Proudhon, 2005, p.186).
Thus, if it is so established that fiscal federalism is the substructure of any
federation, the state in Nigeria must resolve the fiscal federalism challenge plaguing it
since the post independence era. Indeed, Nigeria ought to do the needful because if other
federations like Ethiopia, Nepal, etc, similarly so challenged have successfully resolved
theirs within constitutional measures.
b. Federalism: Some Previous Discussions
This section offers a theoretical approach on federalism; which allows making a
general analysis of federalism just as Wheare (1963, p.1) advised that “an inquiry into the
working of federal government begins of necessity with some discussion about the
meaning of the term”. It is generally in this sense that, the discourse on federalism here
would be applicable to any political situation and at any time where political units
recognised as states are discussed.
However, in an attempt to undertake a theoretical approach on federalism, a
moderate discourse on federalism will suffice. Thus, attention is focussed on political
(constitutional) analysis of fiscal federalism as originated by the works of Tocqueville
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(1990) and Mill (1910); and therefore, will not undertake an economic analysis of fiscal
federalism. As a word of guide, the political component of federalism referred to here
“can be characterised as a movement away from the study of the operation of federal
states, towards a more comparative and constitutional analysis of federalism which
stresses the process of becoming a federal state and the inherent advantages and
disadvantages of federalism” (Hamlin, 1985, p.187).
Federalism is practiced where two or more hitherto self-governing units occupy a
political space (Karmis & Norman, 2005). According to Rubin & Feeley, 2008, 170)
federalism “refers to a mode of organising a political entity that grants partial autonomy
to geographically defined subdivisions of the polity”. The emphases on geographical
subdivisions tend to signify the salience of co-existing units that of equal importance in
both existential purposes and performance of designated functions. Equality in population
and wealth is vital because “if a republic be small, it is destroyed by a foreign force; if it
be large, it is ruined by an internal imperfection” (Montesquieu, 2005, p.55). Similarly,
Nigeria‟s constitutional lawyer Nwabueze (1983, p.1) defines federalism as,
an arrangement whereby powers of government within a country
are shared between a national (nation-wide) government and a number of regionalised (i.e. territorially localised) governments in
such a way that each exists as a government separately and independently from the others, operating directly on persons and
property within its territorial area, with a will of its own, and its
own apparatus for the conduct of its affairs and with an authority in some matters exclusive of all others.
As clear as these definitions seems to be, defining federalism is not devoid of
controversies. In a note of clarity, Sawer (1969, p.125) proffers that “so long as the
amending procedure of the constitution, the operation of the judicial review and the
pattern of politics...restrict the ability of the centre to abolish a regional structure...the
position of a region is sufficiently secured and so, the polity in question should be called
federal”.
According to Shah (2007, p.4) federalism represents either a “coming together” or
a “holding together” of geographically diverse people in order to “take advantage of the
greatness and smallness of nations in a flat (globalised) world in which many nation-states
are too large to address the small things in life and too small to address large tasks”. In
identifying the utility of „coming together‟ and „holding together‟, Shah (2007, p.4)
asserted that while the „coming together‟ view of federalism is the guiding framework of
mature federations as in the U.S, Canada, the „holding together‟ variation of federalism
implies “an attempt to decentralise responsibilities to state-local orders of government
with a view to overcoming regional and local discontent with central policies”; as it is
prevalent in new federations as Brazil. In Canada, Harper (in Harmes, 2007, p.417) rather
used open federalism to describe
...renewed respect for the division of powers between the federal
and provincial governments...a strong central government that focuses on genuine national priorities like national defence and the
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economic union, while fully respecting the exclusive jurisdiction of
the provinces...that stresses democratic reform and the
accountability of government to the people.
It is in such circumstances that the working of federalism is seen as “promoting choice,
fostering competition, facilitating participation, enabling experimentation, and warding
off a national Leviathan” (Gerken, 2014, p.1891).
Foremost American Political Scientist, Tocqueville (1990, p.163) asserted that
“the federal system was created with the intention of combining the different advantages
which result from the magnitude and the littleness of nations". The advantages here
referred to is that federalism comes with it political and economic advantages derivable
from unity in preserving the sanctity of the centre and the coordinate levels. A number of
political advantages so derivable are that aside ensuring the security of the federating
units in both peace and war times by the centre, there is equally flexibility on the part of
the coordinate units in making to ensure policy makers do the will of the people; which in
essence “results in a closer congruence between public preferences and public policy. It
promotes diversity in public choices. It enhances democratic values and provides the
opportunity for people at the local level to define and debate the problems facing their
area" (Wolman, in Sharma, 2003, p.172).
Federalism in Tocqueville‟ (1990) discourse, also fosters economic advantages.
Among others there are the benefits derivable from operating a common market, the
provision of certain goods and services by the centre at subsidised rates. Furthermore,
Tocqueville analysis brings to focus a number of salient advantages from federalism.
First, federalism promotes what is commonly referred to as unity in diversity as most
suitable for highly heterogeneous states. Second, federalism is simply a trade-off between
autonomy and efficiency (Sharma, 2003, p.172). It is in reference to such trade-offs that
Riker (in Sharma, 2003, p.172) asserted that "federalism is an outcome of rational bargain
among various constituents. The bargain may be for political or economic gains. In the
political bargain, the constituents give up political autonomy for security from external
threat. The economic bargain is to enable a common market and to ensure optimal
provision of public services by reaping economies of scale and catering to diverse
preferences". Third, federalism is both self rule and shared rule (Elazar, in Sharma, 2003,
p.172).
It was in reference to this uniqueness of federalism that Watts (1998, p.133) said
in the context of contemporary global scene, federal political
systems, combining shared rule and self rule do provide a practical way of combining the benefits of unity and diversity
through representative institutions...federal arrangements and the
idea of federalism have shown that they can provide a means for reconciliation in the world. The challenge for scholars is to
contribute, by critical, objective and comparative analysis, to a better understanding of how new federal systems may be
established or existing ones made more effective.
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Not oblivious of the fact that no federation perfectly fulfils every criteria of fiscal
federalism, just as no democratic state ever satisfies the majority rule ideal model as
enunciated by Dahl (1956) in every circumstance, yet federations must aspire to attain the
basic tenets of federalism expected of it from its citizens. The first major requirement of a
federation is the enthronement of peace, instilling a sense of fulfilment in its citizenry.
Scholarship is rich in this respect. According to Montesquieu (2005, p.56) “the spirit of
monarchy is war and enlargement of dominion; peace and moderation are the spirit a
republic”. To Mill (2005, p.169) “the powers of a federal government naturally extend not
only to peace and war and all questions which arise between the country and foreign
governments, but to making any other arrangements which are in the opinion of the states
necessary to their enjoyment of the full benefits of union”. Proudhon (2005, p.173) was
emphatic when he posited that,
...among the many constitutions proposed by philosophy and put
to test by history, one alone reconciles the demands of justice,
order, liberty and stability, without which neither society nor the
individual can live...the one constitution which it will be the
greatest triumph of human reason to have grasped is nothing
other than the federal system. Every form of government which
departs from it must be considered an empirical creation, a
preliminary sketch, more or less useful, under which society finds
shelter for a moment and which, like the Arab’s tent, is folded up
in the morning after it has been erected.
c. Models of Federalism
This section explains different models of federalism and their application to fiscal
federalism as proffered by Super (2005) and Bulman-Pozen & Gerken (2009). Among
others the following models are discussed.
i. The Dual Sovereignty Model
This model of federalism protects the ability of central and the coordinates units
to function fully as being independent from each level. This model debars each level of
government from encroachment on each other. The emphasis on encroachment in dual
federalism therefore focuses attention on actions from either levels of government that
impact adversely on the other level to act (Super, 2005).
This arrangement, however, delimits state functions in Nigeria into exclusive,
concurrent and residual functions with a proviso that in case of conflict of interest in
performing a function enlisted in the concurrent list, the interest or action of the federal
government supersedes the interest of the state to the extent of the inconsistency. Yet in
other instances, the federal level may act in areas of state concern where such federal
action does not impinge on the states‟ ability to function as a legitimate level of
government (Wheare, 1963).
The application of dual federalism in the context of fiscal federalism may be seen
from the context that in as much as states as sacrosanct coordinate levels of government
must be sovereign in performing both regulatory and fiscal powers (i.e. ability to impose
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tax, collect and expend). This entails that a huge federal government must not limit the
ability of states to spend, for to spend is always a concurrent function (Lees, 1961). This
is after all the economic argument for sub-national levels to federate in the first instance.
Arguing in this context Ewa (1976, p.80) posited that,
...the various territories are separate markets and when brought together under one federal government, will constitute an
expanded and free market. A common monetary system develops and permits a free movement of goods and capital within the
enlarged area and there may be regional specialisation of
industries and diversification of exports.
ii. The Comparative Process Model
This model allocates functions to the level of government that most suitably or
likely to render best results. However, determining best result and most suitable level of
government is relative. Despite this constraint, the federal level is often entrusted with key
functions as defence, economy, migration, international relations, civil rights, etc.
In other instances, states are better placed to render good results due to proximity
instead of the remote federal government. It is in this context that political gladiators in
Nigeria clamour for state police in the intention to producing best results on account of
proximity to trouble spots.
iii. The Pluralist Model
This model of federalism simply places emphasis on decentralisation (Sharma,
2005). Pluralist scholarship on decentralisation premises their advocacy on a number of
arguments. First that “decentralisation allows the states to become laboratories of
democracy from which other states can learn about a variety of different responses to
common problems” (Super, 2005, p.2556); Second, to the extent that citizen preferences
vary along geographic dichotomies, states are better placed to deal with local preferences
when indeed states are not restrained by undue federal encumbrances. Third,
representatives are better placed on accountability watch by voters when under state
checkmate vis-à-vis under a federal sphere. Fourth, the intention in delegated legislation
avers that decentralisation places states in good stead in making legislations pristine to
their environment and peculiar circumstances. However, a caveat pluralist was quick to
acknowledge that where issues of national concern are at stake, the federal government
should be the sole reservoir of such discretionary powers (Super, 2005).
iv. The Comparative Efficiency Model
Proponents of this model aver that possible externalities often emanate where a
number of state policies conflict with the policies of adjoining state policies (Super,
2005). Thus, scholars of this model consider the economies and diseconomies of scale of
state actions vis-à-vis other state actions. In Nigeria, arising from state creation exercises,
erstwhile single states do often engage in actions detrimental to the other. For example,
Rivers and Bayelsa States are engaged in series of court cases on account of oil well
disputes. Between these two states there are several instances of reprisal state policies and
actions following an earlier act by either of the two sister states. In other instances,
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citizens in the employment of sister states are summarily dismissed on account of new
state citizenship.
v. The Co-operative Model
Federalism scholarship talks of cooperation between federal and state levels of
government when the interests of both levels of government converge; and in stipulating
procedures for assigning responsibilities between the centre and the coordinate levels of
government when cooperating (Super, 2005). In cooperative federalism states are not seen
as autonomous outsiders but as supportive insiders in serving as servants and allies in
carrying out federal agenda (Bulman-Pozen & Gerken, 2009). In fiscal federalism, centre-
state cooperation depends on one of the following typologies:
a) The Compensatory Model
This model explains the adverse externalities federal policies and actions imposes
undue fiscal constrains upon the state. In Nigeria, a number of federal government
operations adversely impact on the fiscal capacities of states. For example, federal joint
military operations intended to install peace places fiscal burden on such restive or
troubled states in providing logistics to the federal forces. Again, a number of federal
projects like health, education and even a new minimum wage places undue financial
burden on states. As Walter Heller (in Super, 2005, p.2572) noted, “prosperity gives the
national government the affluence and the local governments the effluents”, federal
governments upon this realisation do institute compensatory federal models to
compensate states of these burdens. However, what has been worrisome is that states
demand for compensation has been greeted with mixed success. Nigeria‟s federally
determined new minimum wage has remained a source of pain to resource-stifled states
and oftentimes palliatives are grossly inadequate.
What all of these federal policies entails is the need to limit the burden on states
by the federal government so that the federal government do not to unintentionally
impinge on the legitimate powers of the state governments to carry out their legitimate
roles. However, it is impossible to completely abstain the federal government from
imposing one form of burden or the other on states if at all the federal government wants
to succeed in a wide range of activities that positively impact on the generality of the
entire country (Super, 2005).
b) The Superior Capacity Model
As a variant of the cooperative model, this model is essentially a call on the
federal government to utilise its huge financial wherewithal to undertake projects that are
ordinarily beyond the financial muzzle of the states (Super, 2005). A number of examples
in this context in Nigeria include all of the functions as enshrined in the exclusive list
(defence, migration, currency) and even beyond (federally assisted bail-out funds to
states, challenges of climate change, and its vagaries in flooding, coastal erosion).
However, as good as this model appears to be, it is practically impossible to
implement this model as it will hobble the federal government and unexpectedly
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marginalise states in key policy issues where there is a federal overwhelming dominance
and presence or even an encroachment.
c) The Leadership Model
Federalism scholarship argues that the federal government with an enormous
financial superiority should undertake certain projects it believes are of national interests
(Super, 2005). In performing this leadership role, the federal government has the
discretion on the nature of state involvement in the projects so executed. For example,
arising from the massive lack of development in the Niger Delta region, successive
governments in Nigeria have set-up state intervention agencies such as the Oil Mineral
Areas Development Commission (OMPADEC), the Niger Delta Development
Commission (NDDC). In doing this, the federal government has incorporated the Niger
Delta states and oil Transnational Corporations (TNCs) operating in the region as co-
sponsors in funding development projects.
Federal-state leadership model is unique in that both levels of government are
participants in project execution. However, states contend that to the extent that federally
undertaken projects are in their domains, they have an interest to protect and therefore
would want to make financial contributions towards such projects (Super, 2005).
vi. Uncooperative Federalism
Contrary to the state serving as a servant, insider and ally of the federal
government as a basis of federal-state relations in a cooperative arrangement, the state can
as well become a rival, dissenter, and challenger in resisting the powers of the federal
government. Therefore, an uncooperative federalism subsists,
when states carrying out the Patriot Act refuse to enforce the portions they deem unconstitutional, when states implementing
federal...law use that power to push federal authorities to take a new position or when states relying on federal funds create welfare
programmes that erode the foundations of the very policies they
are being asked to carry out (Bulman-Pozen & Gerken, 2009, p.1258-1259).
The literature on uncooperative federalism shows that states resist, challenge,
tweak, and even dissent from federal directives on concurrent legislative issues such as
education, healthcare, etc. While uncooperative federalism occurs on daily basis, in a
federal arrangement as Nigeria, scholarship is yet to develop an account of what it means,
why states reneges, and the possible far-reaching policy implications, etc, even when
states lack the autonomy to challenge federal mandates.
Advocates of uncooperative federalism contend that where states have the
requisite autonomy to resist federal policies, it so happens on account of reasons. First,
autonomy of the states prevents the federal level from suppressing state opposition.
Second, state autonomy creates areas where states are independent of the federal
government which enable states to experiment policies divergent from federal directives.
Third, autonomy enables states to become outspoken against an excessive arrogant federal
government. Fourth, state autonomy serves as a veritable checkmate to the federal
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government, especially in making federal officials accountable in instances of abuse of
power (Bulman-Pozen & Gerken, 2009). Fifth, against the basic federal ethos that no state
should be so financially buoyant that it can compete with the rest of the units or the entire
union, fiscal superiority of states often emboldens states to renege federal directives (Ewa,
1976).
But what is that embolden states to resist federal policies even where they lack
the requisite autonomy? Bulman-Pozen and Gerken (2009) identify three possible
reasons. First, there is the power of the state derivable from dependence; where the state
has the discretion on how to accomplish given tasks, assignments, responsibilities,
delegated to them by the federal government. Contra-wise, the dependence of the federal
government on the states to implement its policies empowers states to renege. Oftentimes,
the federal government being not oblivious of state discretionary posture concedes to state
demands. The federal government helplessly concedes to state demands because,
Whatever a boss’s formal powers may be, there are always
significant limits on his or her practical authority. Only a very bad manager fails to consider the needs and interests of subordinates
or to consult them before making significant policy changes...the
federal government needs the states as much as the reverse, and this mutual dependency guarantees state officials a voice in the
process (Bulman-Pozen, & Gerken, 2009, p. 1267).
However, while the federal government seems completely locked-in dependence
on states, it would be a misnomer to equate the autonomies of both levels of government,
as the federal government can contract or eliminate state autonomy by removing its
dependence on states.
Second, integration serves as a means of state influence on federal government or
even to renege. A long integration between federal and state governments on specific
issues or projects often create lasting bonds resulting from trusts built over a period of
time (Bulman-Pozen & Gerken, 2009). Scholarship argues that state administration of
federal programmes instils in the federal government a sense of seeing the state as its
integral part, a union federalism scholarship sees as a political safeguard of federalism
(Kramer, 2000).
Third, as federal servants‟, states enjoy the advantage in serving as two masters;
i.e. in implementing federal programmes, where these programmes are within the domain
of the state which makes the state to appear as doing the bidding of the state while serving
as a federal servant. The peculiarity of this two-master advantage is that states are
conveniently able to renege on federal directives (Bulman-Pozen & Gerken, 2009).
d. Fiscal Federalism: What Is It and Variants
Scholarly discourse on fiscal federalism is gargantuan. Oates (1999, pp.1120-
1121) defines fiscal federalism as "understanding which functions and instruments are
best centralised and which are best placed in the sphere of decentralised levels of
government". Sharma (2005, p.44) defines fiscal federalism as “a set of guiding
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principles, a guiding concept that helps in designing financial relations between different
levels of government”. Musgrave (1959, p.179) assert that the purpose of fiscal federalism
“is to permit different groups living in various states to express different preferences for
public services; and this, inevitably, leads to differences in the levels of taxation and
public services”. Fiscal federalism implies shifting power from the coordinate units to the
national government. The implication of this is that the preferences of individuals or
lower levels of government are limited or neglected entirely on account that central
government spending is always determined by the preferences of diverse regions and
citizens.
This otherwise implies fiscal federalism to mean the study of how the
competencies (expenditure side) and fiscal instruments (revenue side) are allocated
among the different levels of government. This is meant to say that the literature on fiscal
federalism focuses on three interrelated subjects. First is the question of who does what-
the constitutional provision in the distribution of expenditure responsibilities among the
different levels of government. The second is the division of revenue raising powers
between the centre and the coordinate units. These two functions are accompanied by “the
study of the causes and impact of fiscal imbalances between the tiers of government in
executing their respective responsibilities...the design and objectives of intergovernmental
transfers towards establishing a meaningful relationship between the tiers of government”
(Negussie, 2016, p.11).
Fiscal federalism while referring to money in form of revenue (resources in form
of taxes, fines, duties, rents, royalties, etc) and expenditure (public salaries, grants,
subsidies, etc) is basically the system of transfer payment wherein a central government
shares revenue with her coordinate levels of government. Fiscal federalism basically
operates on three basic functions for the public sector: macroeconomic stabilisation,
income distribution and resource allocation. Fiscal federalism theory however favours
assigning the macroeconomic stabilisation which is national in nature to the central
authority, a level considered better suited for such assignments vis-à-vis other levels that
the capacity to handle issues of national challenges as unemployment, inflation, etc is
herculean. Income distribution as well is better handled by the central level, especially in
managing taxation issues in redistributing income from the wealthy to the poor and in
readdressing wealth dichotomies among levels of government in a state (Negussie, 2016).
The rationale for the varying functions performed by the central government and
other coordinate levels of government stems from the argument that certain services such
as defence, migration, etc, are better or most efficiently rendered or provided by the
central government and to the fact that these services are consumed by the generality of
the populace. This same argument explains the provision of localised services by the
coordinate levels that are better placed to identify local priorities. It is clear therefore that
public goods are possibly provided by both the central and the coordinate units in a
federation (Negussie, 2016).
International Journal of Social Sciences. Vol. 12, No.3, October, 2018 Special
173
However, in highlighting the modus operandi for a state to be fiscally federal, it is
worth noting a few happenstances in federations that are contrary to the basic
requirements of fiscal federalism. First, while “fiscal federalism is argued to exist
wherever governmental policy varies from region to region in an attempt to adapt to local
circumstances...and confirms that fiscal federalism is constrained to discuss only the
narrowly economic outcomes of allowing regional variations in policies” (Hamlin, 1985,
p.188); this prescription is wantonly jettisoned in federations as Nigeria; where different
regions in Nigeria are made or dependent on same economic policy prescriptions of the
central authority. Second, in line with Wheare‟s (1941, p.17) prescription that,
If state authorities...find that the services allotted them are too
expensive for them to perform, and if they call upon the federal
authority for grants and subsidies to assist them, they are no longer coordinate with the federal government but subordinate to
it. Financial subordination makes an end of federalism, in fact, no matter how carefully the legal forms may be preserved. It follows
therefore that both state and federal authorities in a federation
must be given the power in the constitution each to have access to and to control, its own sufficient financial resources. Each must
have a power to tax and to borrow for the financing of its own
services by itself.
However, as unique this prescription, Super (2005) cautioned that while Kenneth
Clinton Wheare was appropriate in his prescriptions, the complex workings of modern
governance mandate otherwise. In continuing this line of thought, Super (2005, p.2546)
posits that,
In some programmes, funding seeks to insulate states from
particular fiscal burdens, such as the side effects of federal policies or the abrupt termination of federal responsibility for
particular problems. In other programmes, funding provides an incentive for states to follow federal policy leadership. And in still
others, the federal government assumes financial responsibility
because of its superior fiscal capacity.
In an attempt to settle this disagreement in fiscal federalism Ubi & Inyang (2017,
p.92) and Ikeji (2011, p.124) outlined the following as the guiding principles of fiscal
federalism:
a. “The principle of diversity. This has become necessary in order to accommodate
diverse ethnic groups with diverse public goods and services.
b. The principle of centralised stabilisation. This principle demands that the federal
government be positioned to efficiently use fiscal instruments to achieve both
micro and macro stabilisation.
c. The principle of derivation. This requires that the federating units should exercise
some control over some of their preferences with their resources.
d. The principle of fiscal equalisation. There should be some degree of fiscal
equalisation between the various levels of government in order to ensure the
Egbe, O. D. J. and Ikporukpo, I.
174
provision of a minimum level of public goods and services. This will assist in
meeting the overall marginal equilibrium.
e. The efficiency principle. This is in two folds, firstly, efficiency in the allocation
of resources without making anybody worse off. Secondly, efficiency in ensuring
that each level of government optimises its internal revenue earning capacity at
minimum tax effort with optional distortions.
f. The principle of minimum provision of essential public goods and services. This
requires that the federal government should ensure that each citizen, no matter
where they reside, be provided with a minimum level of essential public goods
and services such as healthcare, education and other welfare needs”.
g. The Principle of Locational Neutrality: Interregional fiscal differences tend to
influence location choices of individuals and firms. Based on different resource
endowments, differences in tax capacity and effort, some decree of locational
interference seems to be an inevitable cost of intergovernmental fiscal relations.
Therefore, policy should focus on minimising distortions due to some
interference. Hence, differential taxes which create locational distortions should
be avoided as much as practicable (Ikeji, 2011, p.124)
h. The Principle of Centralized Redistribution: This principle states that the
redistribution function of fiscal policy through progressive taxation and
expenditure programmes should be centralized at the federal level. This seems
consistent with the principle of locational mentality. That is, if the redistributive
function is decentralized, it can result in distortions in location decisions (Ikeji,
2011, p.124).
4. Fiscal Federalism in Nigeria
The political history of Nigeria makes an interesting reading to scholarship; for it
has attracted the good and not too pleasant comments. As a country, Nigeria‟s
heterogeneity is interestingly complex to behold. Ethnicity, religion, language, etc, are all
the complexity generating indices that have caused Nigeria‟s chequered history.
However, by adopting the federal design, it was hoped to achieving the much cherished
and bandied unity in diversity mantra. Fifty-eight years after political independence, the
unity in diversity slogan is far from being attained. One peculiar area which has remained
endemic in Nigeria‟s attempts at working out a united and indivisible Nigeria is its
inability in turning out an acceptable fiscal federal arrangement.
Attempts at fiscal federalism in Nigeria dates back to colonial times; a period the
country had to set up numerous revenue allocation commissions to have a sustainable
fiscal arrangement (Teriba, 1966). While this section will not elaborate on the different
revenue allocation commissions dating back to colonial times, it is appropriate just to
mention some. On this note the Phillipsom Commission of 1946, the Hicks-Phillipson
Commission of 1951, the Chicks Commission of 1953, the Raisman Commission of
1958, the Binns Commission of 1964, the Dinna Interim Revenue Allocation
International Journal of Social Sciences. Vol. 12, No.3, October, 2018 Special
175
Commission of 1968, the Aboyade Technical Committee of 1977, the Dr. Pius Okigbo
Revenue Commission of November 1, 1979, etc, readily comes to mind (Arowolo, 2011,
Elekwa, Matthew & Akume, 2011).
While these revenue allocation commissions have all grabbled with the same
subject, but turned in divergent reports with a wide rejection from the various ethnic
nationalities in Nigeria, yet the immediate post-colonial leaders worked out a fiscal
federal arrangement where,
...every region was run like a semi-autonomous component of a
greater Nigeria. Regions controlled their resources and an agreed
percentage due to the government at the centre was appropriately
remitted. Development was faster because every region understood
that their destiny lies within. We had the era pyramids were built
with groundnut, we were world largest exporter of cocoa and palm
oil, coal was equally exported and so many other minerals. That
was how Awolowo’s government could grant and sustain free
education for western region but today even with our so called
petro-dollar; no state can grant and sustain free education
(Onochie, 2017, p.2).
If Nigeria had worked on such harmonious fiscal arrangement in the First
Republic (1963-1966), curiosity compels this paper in asking these questions. With the
avalanche of the aforementioned revenue commissions, why has Nigeria not achieved a
sustainable fiscal federal arrangement? Why was the fiscal federal design of the First
Republic jettisoned? This paper identifies two principal reasons.
First, the thief in Nigeria‟s economy is ethnicity. This remains the greatest
impediment to Nigeria‟s economic growth. Federalism requires that while it discourages
inequality, there is no sub-national unit that is entirely sterile in resources and so federal
subunits must be partners engaging themselves in economic matters. However, in Nigeria,
due to misplaced priorities, deliberate economic sectors are developed to the detriment of
other sectors. This makes those resources or sectors with priority attention and the
designate region to benefit to the envy of other regions. It is therefore not surprising that
on each occasion where derivation is recommended as the basis for revenue sharing,
regions in Nigeria not so favourably endowed in resources criticise and condemn the
derivation policy in its entirety. Therefore, it is not surprising that in the subsisting
inappropriate fiscal arrangement in Nigeria, “monetary policy has been inadequate, fiscal
policy has rewarded state governments but not brought their spending policies in line with
their own resources and with national economic objectives, and resources have been
consistently misallocate largely because of the principle of federal character”
(Osayimwese & Iyare, 1991, p.89).
Second, military rule in Nigeria. While Generals Murtala Mohammed and
Yakubu Gowon consciously followed the then prevailing fiscal design of the 1963
Republican Constitution, the General Olusanju Obasanjo military junta killed the federal
spirit in Nigeria. It may be recalled that while the 1963 Republican Constitution allowed
Egbe, O. D. J. and Ikporukpo, I.
176
this fiscal formula: 60% revenue from minerals to the states of origin, 20% to the central
government, and 20% to others, the 1979 Presidential Constitution drafted under the
General Obasanjo Administration legislated revenues accruing from mineral resources
totally to the federal government through the obnoxious Land Use Act. As at today,
federal fiscal arrangement in Nigeria is structured as shown in Table 1:
Table 1: Nigeria – Horizontal allocation of revenue basis
Sharing from Federation Account Sharing VAT Revenue
Criteria Percentage Criteria Percentage
1 Equality 40% Derivation 50%
2 Population 30% Equality 40%
3 Social Development Need 10% Population 10%
4 Land Mass and Terrain 10%
5 Internal Revenue Generation Effort 10%
Source: Negussie, 2016, p.20
However, there is danger in allowing ethnicity to override the practice of
derivation to have such an ugly full sway in Nigeria‟s fiscal federal design (Agbaaeze,
Udeh & Onwuka, 2015). It is worrisome that, if a “particular federal arrangement is not
just to be long and bitter waiting station for minority groups hoping eventually to achieve
full independence, then it will be important for the system to nurture a healthy sense of
identity and loyalty of all citizens to both their subunit and the federal state” (Karmis &
Norman, 2005, p.17).
One basic antidote to this cancerous malady in Nigeria remains in working out an
acceptable fiscal design that is devoid of suspicions or marginalisation from all sub-
national states. And of course, there are a number of merits in practising a fiscal federal
design on the basis of derivation in Nigeria. For example, this will lead to the devolution
of economic, social, political power to sub-national levels which will make the rush for
the centre unattractive, less violent and divisive. Moreover, such trend will prevent the
ongoing „feeding bottle federalism‟ where “our ever roaming and nomadic governors
who have virtually moved their offices to Abuja where each picks up financial hand-outs
monthly like civil servants” (Onochie, 2017, p.3).
5. The Practice of Fiscal Federalism in other States: Lessons for Nigeria
This section understudies the practice of fiscal federalism in the Federal
Democratic Republic of Ethiopia. Ethiopia, though highly heterogeneous, has
successfully moved her peoples forward and what lessons can be translated to practical
realities in Nigeria‟s chequered fiscal federal practice. Specifically, how is fiscal
federalism practiced in Ethiopia?
a. Ethnic Federalism in Ethiopia
Diversity is one word that succinctly describes the Federal Democratic Republic of
Ethiopia. The diversity in Ethiopia is commonplace in language with more than eighty
language groups, dominated by four principal groups: the Oromos (34.5%), the Amhara
(27%), Somali (6.2%), and Tigrayans (6.1%) making up 74% of the entire population
International Journal of Social Sciences. Vol. 12, No.3, October, 2018 Special
177
(Negussie, 2016). Aside linguistic differences, religious diversity equally stands
conspicuous with 44% of the population being Christians, 34% being Muslims and the
remainder percentage of the population being Protestants, Catholics and African
Traditional Religion (ATR) (Negussie, 2016; Deng, 2016).
Politically, the state of Ethiopia never had rosy political administrations (Young,
1998). Governance was centralised by a unitary form of government patterned after a
monarchical structure. However, Ethiopia‟s then unitary government was contested by
farmers‟ revolts, truncated a civil war and later supplanted by a military regime. These
unpleasant trends in Ethiopia‟s political history came to an end in 1991 with a change in
government from a centralised regime under the Derg to a decentralised government led
by the Tigray People's Liberation Front (TPLF). Ethiopia‟s present federal design which
came to effect in 1995 was consciously structured to cater for the ethno-linguistic
diversity of the country by way of two layers of government: self rule at regional state
level and shared rule by means of representation at the federal level (Moges, 2003). The
Ethiopian ethnic federal constitution‟s uniqueness in serving as a lesson to other federal
states as Nigeria includes the following areas.
First, the constitution of the FDRE specifies in Articles 51 and 52 the powers and
functions of the central government and those of the state/regional functions as indicated
on Table 2.
Egbe, O. D. J. and Ikporukpo, I.
178
Table 2: Constitutional Division of Powers and Functions in Ethiopia
Federal Powers and
Functions (Article 51)
State/Regional Powers and
Functions (Article 52)
Comment
Foreign affairs, defense,
federal police, public
security
Ensuring Self-government
Overall economic and social
policies and food security
Ensuring democratic order based
on rule of law
Fiscal, monetary and foreign
investment policies,
commerce
Socioeconomic development
policies at the state level
Local planning &
development
Natural Resource
Management
Land conservation and Natural
Resources management based on
federal laws
Air, rail and water transport State police and public security
Regulation and inter-state
trade
Civil service at the state level
National standards and basic
criteria for public health,
education, science and
technology
Implementation of federal
policies, laws and policies, but
needs constitutional clarity in
future
States: secondary
schools, state colleges
Wereda (local):primary
education
Interstate roads, railways and
highways
Intrastate and rural roads
Levy and collect federal
taxes
Levy and collect state taxes
Nationality and immigration
issues
Residual powers Local level: Water,
Sewerage, fire
protection
Source: Negussie, 2016, p.31
Second, the power of taxation is an enshrined component of Ethiopia‟s Ethnic
federalism. As indicated on Table 3, the components of taxation which both levels of
government can legislate upon are clearly specified.
International Journal of Social Sciences. Vol. 12, No.3, October, 2018 Special
179
Table 3: Division of Taxation Powers
The federal Power of
Taxation/Functions
(Article 96)
The State Power of
Taxation/Functions
(Article 97)
The Concurrent Power of
Taxation/Functions
Custom duties, taxes and
other charges on imports
and exports.
Personal income tax
collected from employees of
the state and private
enterprises.
Profit, sales, excise and
personal income taxes
levied on enterprises jointly
established by the federal
and state governments
Personal income tax on
employees of the federal
government and
international organizations.
Rural land use fee and tax on
income of private farmers
and cooperative associations;
Profit, sales and excise
taxes on companies, and tax
on dividend due to
shareholders;
Personal income tax, profit
tax, sales and excise taxes
on enterprises owned by the
federal government
Profit and sales tax on
individual traders; tax on
income from inland water
transportation
Profit tax and royalties on
large-scale mining and all
petroleum and gas
operations
Taxes on income from
national lotteries and other
chance winning games;
taxes on the income of air,
rail and sea transport
services.
Taxes on income derived
from rent of houses and other
properties in the state
individual owned or owned
by state.
Tax on rental of houses and
properties owned by the
federal government.
Personal income tax, profit,
sales and excise taxes on
enterprises owned by the
states.
Federal stamp duties and
tax on monopolies; and
collecting fees and charges
related to licenses issued
and services rendered by the
federal government.
Income tax, royalties and rent
of land levied on small and
medium scale mining
activities;
Royalties for use forest
resources; and charges and
fees on licenses and services
issued by state government.
Source: Negussie, 2016, p.34
Third, the constitution‟s adherence and strict compliance to the Principle of
Subsidiarity; which place people as the sources and owners of power in the republic. The
philosophy behind the principle of subsidiarity is that, a government level closer to people
is more responsive to local preferences. It also promotes bottom-up and top-down
accountabilities. The Ethiopian experience shows that inadequate institutional, human,
administrative and fiscal capacities were/are not persuasive arguments not to devolve
power from the centre to the states. Neither these problems are justifications to pass over
Egbe, O. D. J. and Ikporukpo, I.
180
powers and functions upward (Baraki, 2015, p.171). In strict compliance with this
principle, the federal constitution of Ethiopia clearly designates the functions of all levels
of government by means of the following articles:
a. Article 8: All sovereign power resides in the Nations, Nationalities and People of
Ethiopia.
b. Article 50(4): States shall be established at State and other administrative levels
that they find necessary. Adequate power shall be granted to the lowest units of
government to enable the People to participate directly in the administration of
such unit, and,
c. Article 52(1): All powers not given expressly to the Federal Government alone, or
concurrently to the Federal Government and the States are reserved to the States.
Article 88(1): Guided by democratic principles, Government shall promote and
support the People‟s self rule at all levels (Baraki, 2015, p.171).
Fourth, the July 1991 Transitional Charter gave unreserved recognition to ethic
rights and civil liberties to self-determination. The constitution within this context even
gave consent to secession of any ethnic group upon the compliance with a referendum. It
may be recalled that, it was within this context that Eritrea benefited from the charter‟s
provision in securing its secession from Ethiopia (Praeg, 2006). Furthermore, the charter
unequivocally declares for:
The rights of nations, nationalities, and people to self-determination are affirmed. To this end, each nation, nationality
and people is guaranteed the right to (a) preserve its identity, and
have it respected, promote its culture and history and use and develop its language; (b) administer its own affairs within its
owned defined territory and effectively participate in the central
government on the basis of freedom and fair and proper representation; (c) exercise its right to self-determination of
independence, when the concerned nation/nationality and people is convinced that the above rights are denied, abridged or abrogated
(Kefale, 2003, p.261).
6. Conclusion and Recommendations
It is concluded that, Nigeria‟s fiscal challenge is not a matter of not knowing how
to resolve it but a national question being bedevilled by governance or political leadership
rigmaroles, inconsistencies, suspicions, etc, all of which with ethnic underpinnings
(Adamolekun & Kincaid, 1991, pp.61-67). There are mutual ethnic suspicions among the
intellectual, political, military and traditional elites in Nigeria on how to fashion out a
workable fiscal federal design. No doubt, the ethnic factor instigates the fear of the
unknown; which is how the peoples of the geopolitical zones with sterile natural resources
will cope in Nigeria with a true fiscal federal structure? In this respect, the paper posited
that this fear is unfounded because no geopolitical zone in Nigeria is sterile in resource
endowment, if at all government deliberately diversify the economy of Nigeria from the
ongoing mono-product dependence on crude petroleum to other sectors as agriculture,
International Journal of Social Sciences. Vol. 12, No.3, October, 2018 Special
181
steel, mines, etc. The obvious lesson for Abuja is that it should borrow a leaf from Addis-
Ababa‟s ethnic fiscal federal model that has received global accolades in solving the
challenge of fiscal federalism in a multi-ethnic state as Ethiopia.
Finally, borrowing a leaf from Ethiopia poses a genuine question, and which is
that will Nigeria undergo similar trajectories in terms of civil wars as secessionist Eritrea
underwent with Ethiopia? War would never be glorified as a solution to Africa‟s political
and economic challenges (Cervenka, 1977; Johnson & Johnson, 1981; Herbst, 1990);
instead this paper avers that Nigeria can overcome this challenge without necessarily
going through war but by means of negotiations using the National Assembly or a
sovereign national conference of all ethnic groups to renegotiate Nigeria‟s terms of
continuing co-existence. This is most important as genuine ethnic specific grievances are
rife among all ethnic nationalities in Nigeria.
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