Payment of Minimum Wage and Government Expenditures: The Imperative To Review Revenue Sharing Formula and Clarion Call For The Autonomy of Local Governments in Nigeria

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Kayode Ajulo

Kayode Ajulo, Ph. D

Abstract

It is a known fact that Nigeria operates a federal system of government with each federal unit enjoying some form of autonomy as provided for by the Constitution. Recently, there are hues and cries on the parts of the Nigeria Governors Forum and some concerned citizens on the need for the review of the sharing formula of revenue accruing to the various states viz-a-viz the autonomy of the third tier of government (Local Government) especially as it relates to revenue accruable to it from the Federation Account.

This allocution seeks to appreciate the imperative for the review of the sharing formula of revenue accruing to various states viz-a-viz the autonomy of the Local Government administration in Nigeria and the position of relevant laws on the sharing formula as regards revenue accruable to the Three tiers from the Federation Account.

Introduction

It is pertinent to recall that the renewed agitation and clamour by the Nigeria Governors Forum for the review of the sharing formula of revenue accruing to various states is not far from the statements by some State Governors of their inabilities to pay the ₦30,000.00 minimum wage to their state workers in the light of the looming economic downturn and realties.

Recently, in an interview with the Governor of Bayelsa State, Seriake Dickson, the Governor lamented that the minimum wage is a serious issue in the country. According to him, some states can’t pay the 18 percentage minimum wage because of the existing revenue sharing formula between the federal and other tiers of government.

As a result of the above, various states have resorted into debt financing to implement various projects and pay workers’ salaries. This has resulted into increase in the debt ratio of various states in the federation.

According to the World Bank, 40% of low income developing countries are now either in debt distress or at high risk of default. It is quite apparent that most states in Nigeria have huge debt loads, with very low revenue generated. While debt is soaring, most states apparently depend on more debt to execute any meaningful developmental projects.

Top Ten States Debt Ratio according to NairaMetrics.com

Lagos State: as at 2019, the total debt of Lagos State stands at N980 billion. Data from sources have shown that the domestic debt of Lagos as at the end of March 2019 was estimated at N542 billion. Without a doubt, the state is Nigeria’s trade centre, with the Apapa seaport that controls almost 90% of goods that flow out of the country.

However, on the revenue side, the recent IGR data from the National Bureau of Statistics (NBS) shows that Lagos State generated the sum of N382 billion in 2018. This is the biggest across states, but it only covers 70% of domestic debt only.

Rivers State: Rivers is Nigeria’s second most indebted state. The state is one of Nigeria’s major oil-producing states and scoops monthly 13% derivation from the Federal Government. Rivers State’s total debt stands at N249 billion, while domestic debt is biggest at N225.5 billion. On the other hand, the state generated N112 billion IGR in 2018. Measuring its debt against revenue, it means that the state’s revenue can only pay 49.9% of the huge domestic debt, while the external debt is hanging.

Delta State: Delta State is third on the list, with an estimated N242 billion, out of which domestic debt gulps N223 billion. Delta is equally an oil-producing state with a 13% monthly derivation allocation and several international oil corporations.

More worrying statistics are derived when comparing the state’s debt stock to its IGR. Basically, Delta State’s reported IGR in the year 2018 was put at N58 billion. This means that the state’s IGR represents only 26% of its domestic debt only.

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Cross River: The state’s debt was estimated at N225 billion in March 2019. Cross River generated N17 billion IGR in 2018, and this put the state’s revenue at 10% of N167 billion domestic debt.

Akwa-Ibom: The total domestic debt owed by the State as of March 2019 was N199 Billion. In total, Akwa-Ibomowes N213 billion. This is another oil-producing state, with billions received monthly from the Federal Government. Comparing the state’s total debt stock against its IGR of N24 billion, shows that the state’s annual IGR is just 12% of domestic debt accrued.

Osun State: Osun State’s total domestic debt as of March 2019 was estimated at N147 billion. Compared with the state’s IGR of N10 billion, it means that Osun state’s IGR only covers 7% of the domestic debt owed. In total, Osun State owes a total debt of N178 billion to rank 6th on the list.

Federal Capital Territory (FCT): The FCT is the 7th most indebted state in Nigeria. As at the end of March 2019, the domestic debt accruable to the state was estimated at N193 billion. On the other hand, IGR generated in the year 2018 was N65 billion. This implies that FCT’s revenue covers just 40% of its domestic debt. The total domestic and external debt owed by the federal capital stands at N173 billion.

Edo State: This is the 8th State with the biggest debt accumulated in the country. Edo State’s domestic debt stands at N88.3 billion, with IGR puts at N28.4 billion. This means the State IGR only covers 32% of the domestic debt only. In total, Edo state owes N171.2 billion.

Kaduna State: Kaduna State is one of the main commercial cities in Northern Nigeria. According to the debt statistics, the state’s domestic debt profile was estimated at N121 billion, with IGR estimated at N44 billion. This means that the state’s IGR can only offset 36% of the debt. In total, the state’s debt stands at N162.9 billion.

Bayelsa and Ekiti State: These two states owe N150 billion each and thereby make the 10th on the list. Bayelsa State is one of Nigeria’s oil-producing states. Reports show that as at the end of March 2019, the state’s domestic debt stock was estimated at N147 billion, while its IGR in 2018 stood at N13 billion. This means that the state’s IGR only covers 10% of the huge debt profile. In total, Bayelsa owes NN150 billion.According to the DMO’s report, Ekiti State’s debt was also put at N150 billion in March 2019, with IGR estimated at N6.6 billion only in 2018. This means that its IGR can only offset 5% of its domestic debt of N118 billion.

According to the data above, Lagos State records the largest IGR and simultaneously accumulates the biggest debt. Asides Lagos, most states depend on either more borrowing or monthly allocations from the Federal Government to even pay workers’ salaries.

Recently, in order to ease off the debt-revenue issue, states began to push for a review of the revenue sharing formula that would improve their share of monthly allocation.

Apparently, both the states and the Federal Government now largely depend on borrowing. This is appalling, as some states have plunged into huge debt without major infrastructural face-lifting.

Also, most of the debt acquired by these states are from external sources. Hence, from the monthly federal allocation given to the states, a portion of it is always deducted to service the acquired debt, while the huge debt remains. It is therefore imperative to review the revenue sharing formula in order to minimize states’ debt ratio and maximize revenue accruing to each state.

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Provision of Relevant Laws on the Sharing Formula

The constitution provides that the Federal Government shall maintain a special account to be called “the Federation Account” into which shall be paid all revenues collected by the Government of the Federation, except the proceeds from the personal income tax of the personnel of the armed forces of the Federation, the Nigeria Police Force, the Ministry or department of government charged with responsibility for Foreign Affairs and the residents of the Federal Capital Territory, Abuja.  See section 162(1) of the 1999 Constitution of the Federal Republic of Nigeria (as amended). 

It is imperative to note that all monies standing to the credit of the Federal Government of Nigeria in the Federation Account belonged to all the three tiers of Government, i.e., Federal Government, State Governments and Local Government Councils and as such are to be shared between these three tiers of Government, with an additional 13% for oil producing states as derivative revenue.

Nigeria’s revenue sharing formula is as follows: every month, the federal government takes the lion’s share of 52.68 per cent from the federation account. The 36 states take 26.72 per cent, while the balance of 20.60 per cent is handed to the 774 local governments in the country. See ALLOCATION OF REVENUE (FEDERATION ACCOUNT ETC.) ACT, 2003.

It suffices to add that since independence, the revue sharing formula can neither be said to be equitable nor efficient as the internal revenues generated by each state is largely dependent on civilization, population, infrastructural development and number of foreign investments in the state.

According to data from the Nigerian Bureau of Statistics, in the first half of the year 2019, Lagos State led the collection table with ₦263.25 billion, while Rivers collected ₦151.8 billion and FCT ₦72.8 billion. BayelsaState generated ₦71.6 billion, Kano ₦58.5 billion, Kaduna ₦54.7 billion, Ogun ₦48 billion, Edo ₦47.3 billion, Ondo ₦47.2 billion, Oyo ₦42.1 billion, Sokoto₦38.8 billion, Benue ₦38.1 billion, Imo ₦37.4 Billion and Kwara ₦36.6 billion.

On the lowest rung of the ladder are Ekiti with ₦25 billion, Gombe ₦21.7 billion and Osun ₦20.2 billion.

It is therefore apparent that the ability of various states to pay the ₦30,000.00 minimum wage would only be dependent on the revenue generated by it. It is also clear that some states, especially the ones on the lowest rung of the ladder of IGR may find it difficult to implement the payment of the minimum wage, hence the need for the review of the sharing formula in order to make room for equal distribution of wealth among the various states in the Federation.

Autonomy of Local Governments in Nigeria as regards Revenue from the Federation Account

As stated above, in a federation, the three tiers of government, namely- federal, state and local government there exist elements of autonomy.

The Constitution recognises the ‘autonomy’ of the local government which means that states should have no business with the coffers of the local governments and the federal government should have nothing to do with how states allocate their resources for developmental or infrastructural projects.

More importantly, in recognition of the distinction between the State Governments and the Local Government Councils and their respective funds, the constitution provides in Section 162(6) thereof that:

“Each State shall maintain a special account to be called “State Joint Local Government Account” into which shall be paid all allocations to the local government councils of the State from the Federation Account and from the Government of the State.

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It is a general principle of law of great antiquity that where the words of the Constitution or statute are not ambiguous, they are to be given their literal interpretations. See Sussex Peerage Case (1844) 11 CI & Fin 85; Skye Bank v. Iwu (2017) LPELR—42595(SC) at P. 118 paras. B—C.

Upon a community reading and interpretation of the provision of Section 162(5) and (6) of the Constitution of the Federal Republic of Nigeria 1999 (as amended) it suffices to state that even though the State Government is constitutionally empowered to collect the funds due to the Local Government Councils within their area of jurisdiction, such funds are not to be paid into the account of the State Government or to any other account whatsoever; rather such funds are to be paid into the “State Joint Local Government Account”. See 162(5) and (6) of the Constitution of the Federal Republic of Nigeria 1999 (as amended).

The said provision of Section 162(5) and (6) of the Constitution is mandatory and must be complied with and the operative word in the aforementioned section is “shall” and the word “shall” is carefully chosen by the draftsmen. It is trite that where the provision of a statute is garbed with the word “shall”, it connotes that it is imperative that the provision is mandatory and must be obeyed. This is so because the word “shall” is a word of command. It imposes a duty and make the provision mandatory. See: CORPORATE IDEALS INS. LTD v. AJAOKUTA STEEL CO. LTD (2014) 7 NWLR (Pt. I405) 165.

It is important to point to the attention of the public the provisions of Section 7 of the Monitoring of Revenue Allocation to Local Governments Act (2005) which provides as follows:

(1) It shall be unlawful for any organ, authority or official of a State or the Federal Capital Territory, however described or constituted, to alter, deduct or re-allocate funds standing to the credit of the State Joint Local Government Account, or the Federal Capital Territory Joint Area Councils Account: Provided always that nothing in this subsection shall prevent the House of Assembly of a State, or the National Assembly, from prescribing by law the terms and manner for distributing money standing to the credit of any of the Joint Accounts, as the case may be, to the Local Government Councils in the State, or the Area Councils in the Federal Capital Territory.

(2) In the case of any default in the allocation or distribution to any local government, such amount shall be a first charge on the State’s next allocation from the Federation Account and shall be credited to the affected local government.

(3) Any person who acts in contravention of the provisions of subsection (1) of this section, commits an offence and is liable on conviction to a fine twice the amount altered, deducted or re-allocated illegally, or imprisonment for a term of five years, or to both such fine and imprisonment.”

Thus, in this regards any non-remittance of all the funds due to the Local Government Councils from the Federation Account directly into the State Joint Local Government Account is unconstitutional, illegal and null and void.

Further to the above, the ALLOCATION OF REVENUE (FEDERATION ACCOUNT ETC.) ACT, 2003, provides that the allocation made to Local Government shall not form part of the allocation to the State Government nor shall State Government distribute or redistribute the funds so allocated to Local Government other than as specified.

As at today, local government councils have become departments in the various government Houses in Nigeria and most local government Councils headquarters across Nigeria have been overtaken by weeds. With independent local government system in Nigeria, banditry and insecurity will be effectively tackled.

Conclusion and Recommendation

Globally, most third world and developing countries are faced with the scarcity of funds to finance major infrastructure projects. Meanwhile, in the Nigerian case, most states have basically resorted to debt financing, with little or no effort to improve their internal revenue base.

From the lucent facts above, it is no doubt that high debts always serve as barriers to economic growth of any state. Hence, the imperative to urgently review the sharing formula in the light of the economic realities and high profile debt ratio of various states of the federation as same is long overdue.

On the financial autonomy of the local governments, the Author recommends that the Lacuna created by the Constitution should be filled by providing a well-defined autonomy to the Local Governments in the Federation.

Furthermore, the various regulatory bodies should ensure that funds accruable to the Local Governments are not diverted by the State Governments for any other purposes as prescribed by relevant laws.

*Dr. Ajulo is the Managing Partner of Castle of Law & Chairman, Egalitarian Mission for Africa.

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