By Dr. Emmanuel Ojameruaye
According to the report, “the Federal Government may have opted to appease some
northern states … government was worried about rising insecurity in the northern part of the country with vociferous leaders of the north blaming the situation on poverty and inequality arising from alleged
lopsided revenue allocation against them…It was learnt that government’s decision to pay the money was an indirect way of stemming the growing discontent and violence in that part of the country”.
The report further stated that the Chairman of the Revenue Mobilization,
Allocation and Fiscal Commission, RMFAC, Mr. Elias Mbam, stated that
the payment would commence in April, 2012 and that the decision had no
political motive, because “The payment is a constitutional matter,
which states that derivation should not be less than 13 per cent and
derivation is not limited to oil and gas.
This also includes all other mineral resources. If you have minerals in your state and it is
developed and it generates revenue into the federation account, you
are entitled to 13 per cent of what is paid into the federation
account.”
The report concluded that “N90. 4 billion is expected as non-oil Gross
Domestic Product by the Federal Government in the next three years as
contained in the revised Medium Term Financial Framework between 2012
and 2014. The solid mineral states are expected to earn 13 per cent
of the amount. On the other hand, the nine oil producing states will
share at least N1.9 trillion as their share of 13 per cent derivation
within the period”.
Elements of the above report are troubling because they are either
deceptive or mischievous or are based on a lack of understanding of
Nigeria’s public finance and macroeconomic data.
Firstly, the payment of 13% revenue derivation on solid minerals to
Northern states will not appease them because the amount will be
insignificant and will not make any dent of their revenues. This is
because solid minerals account for such an insignificant percentage of
federation account or federally collectible revenue (FCR) that it is
not even reported in the federation account statistics posted on the
Central Bank of Nigeria and the Federal Ministry of Finance websites.
Since we do not know the exact contribution of solid minerals to the
FCR, we can only speculate. My guesstimate is that it should be in the
neighborhood N29.5 billion which is less than 0.3% of the FCR in 2011.
Therefore, 13% of this amount equals N3.8 billion. If you divide this
amount among the 19 Northern states, each will get an average of N0.2
billion or N200 million in a year. Compare this to the average of
N7.87 billion or N7,870 million each the state received from the
federation account in the amount of August 2010 alone which can be
translated to about N93.36 billion or N93,360 million in a year. In
other words, the payment of 13% derivation on solid minerals may
result in an increase in the average Northern state’s revenue by only
0.2%.
Tell me how N200 million or 0.2% increase in revenue can “appease” a state?
Secondly, Northern states do not have a monopoly in the production of
solid minerals. The solid minerals in Nigeria are distributed all over
the country. According to the website of the Federal Ministry of Mines
and Solid Minerals (
www.mmsd.gov.ng ) there are “34 types of solid
minerals” located in Nigeria including limestone, gypsum, kaolin,
clay, dolomite, granite, marble, gold, coal, bitumen, zinc, silver and
iron ore. These minerals are found in both Northern and Southern
states including oil producing states. In other words, if 13% of my
guesstimated N3.8 billion revenue from solid minerals is shared among
all 36 states, each state will get only N105.5 million a year which
would mean only 0.1% increase in the revenue accruing to Northern
States!
Thirdly, it is wrong and baseless to assume that the “rising
insecurity in the northern part of the country” is due “the situation
on poverty and inequality arising from alleged lopsided revenue
allocation against them.” There is simply no empirical basis to accept
this hypothesis. Whilst poverty could be an explanatory variable for
conflict and insecurity, it is usually a weak explanatory variable in
cross-country, cross-state and intra-state studies. There are other
stronger explanatory variables such as religion, ethnicity,
corruption, small arms proliferation, heavy-handed military response,
emergence of vigilante groups, elections, high youth unemployment,
boundaries, growing income inequality, impunity by leaders, human
rights violations, and struggle over scarce resources such as land.
The above factors are present in virtually all the states in Nigeria.
In fact, poverty is common to all the states, including the oil
producing states. Clearly, the rising insecurity in the northern part
of the country caused by the Boko Haram insurgency has more to do with
religious extremism and intolerance than poverty.
The federal government and the northern states need to conduct a
detailed conflict assessment of the “rising insecurity” in the North
in order to address the key causative factors instead of playing
politics by blaming it on poverty and “lopsided revenue allocation.”
After all, the “lopsided revenue allocation” has not solved the
poverty problem in the oil producing states that are ostensibly
benefiting from it. What about the non-oil producing states in the
West and East that are also “victims” of the “lopsided revenue
allocation”? Altering the revenue allocation formula as canvassed by
the Northern governors will make things worse for them as it will lead
to another round of militancy in the oil-producing Niger Delta region
which will significantly reduce oil revenue which account for between
70% and 85% of the FCR, depending on the price and production of crude
oil in a given year. This in turn will reduce revenue accruing to the
Northern states. In other words, it may amount to killing the
proverbial goose that lays the golden egg.
Fourthly, the author of the report erroneously or deceptively tried to
equate Gross Domestic Product (GDP) with FCR by stating that “N90. 4
billion is expected as non-oil Gross Domestic Product by the Federal
Government…between 2012 and 2014.
The solid mineral states are expected to earn 13 per cent of the amount”. Students of Economics 101
(Basic Economics or Elementary Principles of Economics) know that GDP
and its components are different from government total revenue and its
components. Not all components of GDP are paid into the FCR; hence FCR
is usually significantly less than GDP. From an expenditure approach,
GDP = C + I + G + (X –M), where C = personal consumption, i.e.
expenditure by individual on durable and non-durable goods as well as
on service, I = gross private investment, X = exports, M= imports, and
G = government (federal, state and local) purchases or expenditure
which equals revenue when there is a balanced budget (no deficit). In
most countries, G is usually between 15% and 30% of the GDP, depending
on the size of the government. From a production or output approach,
GDP is the market value of all goods and services produced in a year
less the market value of intermediate goods and services.
In other words, it the sum of the value added by all the productive sectors of
the economy, including agriculture, crude oil and gas, solid minerals,
manufacturing, building & construction, services, finance, etc.
The FCR is the revenue (mainly taxes) collected by the federal
government from the above activities or sectors. Thus, the FCR is
usually a fraction or percentage of the GD, and the components of the
FCR by sectors or activities are usually a fraction of the
corresponding components of the GDP (value added) by sector or
activities, with the percentage depending largely on tax/fiscal regime
applicable to the sector. For instance, while the corporate tax rate
for the oil & gas sector is set at 85%, it is between 20% and 30% for
solid minerals sector. According to CBN data, in 2010, the GDP of
Nigeria was N29,206 billion, of which oil & gas sector accounted for
N9,747 billion (or 33.4%), solid minerals sector accounted for a
paltry N46 billion or 0.16%, manufacturing accounted for N647 billion
or 2.2% while agriculture accounted for N10,274 billion or 35.2%. On
the other hand, the FCR in 2010 was N7,304 billion (or 25% of the GDP)
while oil & gas accounted for N5,336 billion or 74% of the FCR while
all the other sectors (non-oil revenue) accounted for only N1,908
billion or 26% of the FCR. The percentage contribution of solid
minerals to the FCR is unknown (not published), but given the fact
that it contributed only 0.16% to the GDP, one can surmise that it
contributed far less than that percentage to the FCR, perhaps less
than 0.05% if we are to use the rule of thumb given that oil & gas
accounted for 74%. Thus, it is fatally erroneous to posit the
projected “N90.4 billion expected as non-oil GDP” is the same as the
“non-oil FCR”.
Furthermore, there is a difference between “non-oil” and “solid
minerals”. Solid mineral is a small fraction of the “non-oil” sector
as shown above. Even if the author used GDP instead of FCR, the fact
is that 13% of “non-oil” revenue cannot be paid to solid mineral
producing states alone. It is only 13% of the solid mineral revenue
(taxes and royalties) that accrued to the FCR account that can be paid
to the solid mineral producing states in accordance with section 162
(2) of the subsisting 1999 federal constitution. And this amount is
very small, almost insignificant!
I do not have access the revised Medium Term Financial Framework which
the author referred to. However, the “Fiscal Framework 2012 -2015”
posted on the Federal Ministry of Finance website (
www.fmf.gov.ng )
does not contain GDP estimates or revenue from solid minerals. The
projected oil & gas revenue for 2012 to 2015 is N19,548 billion while
the project non-oil revenue for the same period is N10,039 billion. If
we therefore assume that the N90.4 billion referred to by the author
is actually the expected revenue from solid minerals that will accrue
to federation account (i.e. part of the N10,039 billion stated above),
then 13% of N90.4 billion amounts to only N11.752 billion for the
three year or an average of N3.97 billion a year which is almost equal
to my guesstimate of N3.8 billion earlier stated in the third
paragraph above. As I demonstrated previously, this amount is
insignificant and will not make a dent on the revenues accruing to
solid mineral producing states in the North or South.
Finally, I agree with the Chairman of the Revenue Mobilization,
Allocation and Fiscal Commission that 13% of the revenue from solid
minerals (any mineral) should be paid to the states from which such
minerals are derived in accordance with the section 162 (2) of the
constitution. Frankly, I am surprised if this had not been the
practice since 1999. If it has not been, it is probably because the
amount involved is insignificant as I have demonstrated. However, no
matter how small the amount is, it should be paid and published to
ensure transparency and compliance with the constitution. But there
should be no illusion that this will solve the poverty and insecurity
issues in the north or any other part of the country.
In my next article on this subject, I will analyze and the clamor of
the Governors of the Northern states under the aegis of the Northern
Governors Forum (NGF) for a review of the revenue allocation formula
in a way that will be “more equitable and favorable to the North”.
This clamor came on the heels of an interview which the Governor of
the Central Bank of Nigeria, Mr. Sanusi Lamido Sanusi, had with the
Financial Times of London in January 2012. In that interview, Mr.
Sanusi curiously linked the Boko Haram insurgency with the revenue
derivation formula. He said : "attempts to redress historic grievances
in Nigeria’s oil-rich south may inadvertently have helped create the
conditions for the Islamic insurgency spreading from the impoverished
north-east of the country...A revenue sharing formula that gave 13
percent derivation to the oil-producing states was introduced after
the military relinquished power in 1999 among a series of measures
aimed at redressing historic grievances among those living closest to
the oil and quelling a conflict that was jeopardising output…There is
clearly a direct link between the very uneven nature of distribution
of resources and the rising level of violence…When you look at the
figures and look at the size of the population in the north, you can
see that there is a structural imbalance of enormous proportions.
Those states simply do not have enough money to meet basic needs while
some states have too much money….The imbalance is so stark because the
state still depends on oil for more than 80 per cent of its revenues".
I have rebutted some of the above claims in this paper. I will
complete the rebuttal of Sanusi’s claims and those of the NGF in my
next article. Stay tuned.
Dr. Emmanuel Ojameruaye
emmaojameruaye@yahoo.com
