New Telegraph

December 10, 2023

Federalism as a system of government (part 3)



In parts 1 and 2 of this important topic, we dwelt on concept and meaning of federalism, history of federalism in western thought, reasons for federalism, the Nigerian federal structure and the issues in its origin and creation in Nigeria.


Today, we shall continue with the more controversial and vexed issue of “True Federalism” or what some people refer to as “Fiscal Federalism”.


True federalism is essentially a derivative of federalism as a concept. It is also referred to as fiscal federalism. This deals essentially with how revenues are generated and distributed among federating units in a federation; an issue that has proven to be highly emotive and touching in Nigeria.




The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries. – Winston Churchill Revenue allocation refers to the mechanism for sharing the country’s financial resources among the different tiers of government in the federation, with the overall objective of enhancing economic growth and development, minimizing inter-governmental tensions and promoting national unity.


According to John Idumagbo, the colonial policy of divide et impera reinforced the security of communal identity, thus making the task of tribal integrities more complex.


No doubt, politics was seen as a struggle among the various factions, first, to establish regional dominance as a spring board for the acquisition of national wealth.

We have been forced to believe that unless our “own people” are in power, we cannot secure those amenities that are disbursed by the government. What resulted from this belief was dirty politicking in revenue allocation, the siting of industries, building of roads, and quota system of admission into universities, award of scholarships, contracts and statism in appointments to the federal public service.




From the Willinks Commission in 1958 to the Irikefe Commission in 1975, the vast increase in bad government with its attendant proliferation of states has been seen as a way of diffusing economic and political power.

As early as 1943, Dr Nnamdi Azikiwe had suggested the creation of eight states in Nigeria. In 1947, Late Obafemi Awolowo argued for a federal Constitution based on the ethnic factor.


Ostensibly, the impetus for this agitation was the desire to minimize inter-ethnic tension. The most fundamental issue in state creation is fiscal autonomy. Nigerian federalism has stubbornly shunned fiscal autonomy, or what may be referred to as resource control.


The calculation has been for the majority to create states and LGAs based on population so they can share from the common pool of oil resources. As new states and LGAs emerge, so does a complex calculus of resources distribution, which of course, must be based on justice, equality and fairness.


But the Nigerian situation is anomalous. Most of the states can hardly generate 10% of the annual revenue from internal sources. States depend almost solely on statutory allocations from the Federation Account.


Thus, most states are no better that glorified local governments as they lack the capacity to generate internal income or revenue. In 1960, largely autonomous regions possessed the residual powers in the federation and functioned almost independently.

Even before the First Republic collapsed, the Federal Government was asserting greater powers. In particular, it controlled the national economy and possessed emergency powers to intervene in any region where law and order had broken down, as it did in the Western Region in 1962.


The Federal Government took over state and local government functions for a variety of reasons: the transfer of legislation and administration of mining rent and royalties to the federal government; centralisation of the marketing boards, fixing of producer prices; right to revenues emanating from company income tax, import, export, petroleum profit (PPT), introduction of uniform rates in personal income and sales taxes while the states were to administer the taxes.



The Okigbo Commission report in 1980 made it mandatory for all for all federally collected tax to be paid into the Federation account.


Consequently, the vertical distribution formula was adjusted in 1980 to 55.34; 6.8: and 2.5 per cent while in 1993, the formula was changed to 48.5; 24.20: and 7.5 per cent for federal, state and local governments and special funds, respectively.

The horizontal distribution formula had remained stable since 1981, except, for the increase in derivation principle for mineral revenue to 13 per cent since 1999.

Even the derivation monies are subjected to reckless spending by the states, and in spite of agitations that the 13% be upped to 25% and progressively to 50%, the Federal Government has been foot-dragging in implementing such recommendations because it would be in the interest of a section of the people.


Danjuma argues that the issues of revenue allocation are partly economic but largely a matter of political compromise and an issue central to this compromise is the impact of a given ‘revenue allocation structure’ on the nature of federalism. This is an important and delicate issue, since it is federalism that creates the need for revenue allocation.



Since 1946, several criteria have been used to allocate revenue among the regions/ states, but the most controversial has been the “Derivation principle”.

Because of the variability in the types and quantity of material resources in the regional units, inequality in economic development is inevitable.

But Awa argued that no unit should be allowed to remain too poor and  too backward compared to the average standard of living of the units within the federation.

Some have argued that the presence of petroleum in any state is fortuitous and the revenue from rent and royalty accruing from its mining should not be monopolized by the state of origin.

On the other hand, it is maintained that agricultural produce which goes into the export market flows from the skill and perseverance of the people in the state of origin and the export duty accruing from it should be surrendered in full to the state of derivation.

But contrary to this, there is also an argument that there is an element of the fortuitous in both the agricultural produce and petroleum as the agricultural produce is partly a function of such places being favoured by nature.

Indeed, the totality of the relationships among the units must be predicated on patriotic consideration as evidenced by the spirit as essential ingredients to federalism. Each unit must be given the opportunity to develop at its own pace within the overall national framework.

An important factor that intensified and heightened the agitation of the minority nationalities was the argument that when the various regions dominated by the majority nationalities were producing the wealth of the federation, the principle of derivation dominated revenue allocation. But since the discovery and exploration of oil from the minority areas, the issue of derivation has been greatly down-played.

The inimitable Odia Ofeimun captured the fluctuating fortune of the derivation formula in Nigeria from historical perspective in the following words: FROM 100% DERIVATION TO 13% From 100 percent in 1946, the Philipson Commission recommended 50 percent for derivation in 1951; Hicks- Philipson recommended 50 percent, 100 percent was actually disbursed in 1953 when the Western Region pushed for it; in 1958, however, the Raisman Commission set derivation at 50 percent; in 1960, it was 50 percent; by 1970, the regime of General Yakubu Gowon… reduced derivation share to 45 percent… In 1975, derivation fell to 20 percent. The Obasanjo / Yar’ Adua administration fixed it at 25 percent…


Shehu Shagari reduced it to 5 percent in 1981. Under Buhari, it crashed to 1.5 percent. General Ibrahim Babangida raised it to 3 percent …it took the rise of Sara Wiwa phenomenon for consideration to be given to a 13 percent rise on the principle of derivation as proposed in the 1995 and now the 1999 Constitution.


It is our view that the elite have effectively hijacked the revenue allocation process in Nigeria to meet their selfish or myopic interests.


On the allocation of revenue between the central government and the units, there have been all efforts to ensure that the  central government controls the bulk, even when these allocations are finally appropriated to individual pockets of the elites controlling the central government.


These elites have used their position by virtue of the institution they occupy, either military or civilian, to amass the wealth of the country to their families and that of their allies.


As regards the allocation among the states, the states with oil resources have argued in favour of higher percentage of allocation via derivation principle and those states without oil have supported the opposite.



To be sure, true fiscal federalism reigned supreme under the 1960 Independence and 1963 Republican Constitutions when Nigeria had autonomous regional governments.


Derivation of natural resources was based on 50% share for the producing region, 25% share for the Federal Government at the centre and 25% was shared amongst all the regions, including the producing region that has already shared 50%.

With this fiscal autonomy, Chief Obafemi was able to use the Cocoa product of Western Nigeria to build the Cocoa House in Ibadan, the first television station in Africa, the Liberty Stadium in Ibadan, and the University of Ife, aside giving free education at all levels to the Yorubas.

Sir Ahmadu Bello, the Sardauna of Sokoto, built the Northern Nigerian Development Corporation (NNDC) group, such as Durbar and Hamdala hotels, Ahmadu Bello University, Zaria, Yankari Games reserves, etc, all with income from hides and skin, cotton and the famous Kano groundnut pyramids.


Okpara and Akanu Ibiam used the palm oil produce of the East to carry out a massive agricultural revolution build the University of Nigeria, Nsukka, Enugu Stadium Trans Amadi Estate, and other infrastructural facilities. On creation of the Mid-West Region on 9th August, 1963, spear headed by Oba Akenzua II, Dr. Dennis Osadebey, Kessington Momoh, Chief Edebiri and Jereton Mariere used their resources from rubber and timber plantations to develop the old Mid-West Region. That was how effective true fiscal federalism was.


That is why the question is being asked as to why the equation has suddenly changed to a meagre 13% now that the Niger Delta (South- South) zone produces the crude oil that drives the engine of the Nigerian Nation.


That is why the South – South people feel offended when they are told to show “gratitude” for being “allowed” 13% of product derived from their soil, an activity that destroys their ancestral totems, cultural relics and causes unprecedented degradation of their eco and aquatic systems. (To be continued).




“We need to reinstate the idea of federalism.” (Jeff Fortenberry).




Fellow Nigerians, kindly follow me every week, to enable us jointly put our heads together on the task of re-engineering Nigeria. We shall accomplish this right here on “The Nigerian Project”, by Chief Mike A. A. Ozekhome, SAN, OFR, FCIArb, LL.M, Ph. D, LL.D.

Follow me on twitter @ MikeozekhomeSAN

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