AN ADDRESS BY THE CHAIRMAN OF THE REVENUE MOBILISATION ALLOCATION AND FISCAL COMMISSION, ENGR. HAMMAN A. TUKUR, mni, OFR TO THE PRESIDENT ON THE OCCASION OF THE PRESENTATION OF THE REVIEWED REVENUE ALLOCATION FORMULA

September 20, 2004

Mr. President, Sir,

            You may wish to recall that on 19^th December 2002, the Commission resubmitted to you, the Report on the Revenue Allocation Formula for tabling before the National Assembly.  This was after the Commission withdrew its first report, which was submitted to Your Excellency in August, 2001 in view of the Supreme Court Judgment in the Resource Control Suit of 5^th April, 2002, which declared amongst others, as illegal, allocations to “Special Funds” directly from the Federation Account.

2.         However, on 17^th December 2003, Your Excellency returned to the Commission for reconsideration, the Report of the Revised Revenue Allocation Formula and the relevant draft Bill.  In returning the Report, Your Excellency stated that the responsibilities identified in the assignment of weights to beneficiaries of the Federation Account were not exhaustive and pointed out that no weights were attached to such sectors as Energy, Internal Security, Salaries and Pensions of the Armed Forces, Police and on-going infrastructural projects, all of which are critical areas of national development.

3.         On the receipt of Your Excellency’s observations as highlighted above, the Plenary Session of the Commission re-examined its earlier Report to ascertain whether or not the revenue allocation it produced had fully met current realities, taking into consideration, the dynamic nature of our polity.  In doing this, the Commission called in various ways for additional data from all the stakeholders as well as relevant institutions responsible for monitoring the economy, such as the Central Bank of Nigeria (CBN) and the Federal Office of Statistics (FOS), from where it collected vital data which were collated and analyzed with renewed vigour and interest.  I should inform Your Excellency at this stage, that during the extensive tours of the States and Local Governments by the Commission on the review exercise, fourteen States responded to the call for memoranda, while others promised to forward theirs in due course.  Several Federal Ministries also submitted their memos, and statistics through the Secretary to the Government of the Federation.

4.         While awaiting the response from the other Federal Ministries and the States yet to respond, all the thirty-six State Governors in the Federation including the fourteen who had earlier submitted their memoranda, stormed the Commission on the 12^th February, 2004 to protest the review of the Revenue Allocation Formula, which Your Excellency had withdrawn and forwarded to the Commission for review.  The Governors urged the Commission on behalf of themselves and their Local Governments to, instead, represent an authenticated copy of the Revenue Allocation Formula to Mr. President for onward transmission to the National Assembly, which according to them, was the only body constitutionally empowered to review and amend or pass the new formula.  The Commission initially was confused by this seeming conflict between the three beneficiaries of the Federation Account.  However, on closer examination, the Commission considered the development as part of a healthy democratic process, and decided that, as an unbiased arbiter and in the interest of justice, equity and fair play, it was proper for the Commission to consider any view expressed by any beneficiary of the Federation Account.  This, therefore, formed the raison d’etre  for the current review exercise.

5.         Your Excellency, in reviewing the Report of the Revenue Allocation Formula submitted in December, 2002, the Commission avoided abstract technicalities and the use of heavy mathematics.  The empirical approach adopted in the review exercise was to ensure objectivity in the analysis, while the subjective approach, satisfied socio-economic norms in a democratic setting by taking into account the views of stakeholders.

6.         I would like to explain that the Net Effect Analysis adopted in this review exercise is an attempt to produce order out of the morass of available financial data.  It is also the procedure for determining the mean between the two sets of figures from the scientific and normative approaches.  Besides, the process also ensures that empirical rigidities of the scientific analysis are neutralized by the subjective analysis which has taken into consideration, the lines of fusion and fission taken by the various tiers of government in their different memoranda.  There is, in fact, a structural analogy between it and the Sensitivity Analysis often used in Corporate Finance to cover optimistic and pessimistic situations in cash-flow forecasts.

7.         I am happy to inform Mr. President that the Commission has finally prepared an Addendum as an integral part of its December 2002 Main Report.  In the Addendum, some changes have been made in the Vertical Revenue Allocation Formula based on the additional data collected from the Central Bank of Nigeria, the Federal Office of Statistics (FOS) and the stakeholders, which have been analysed by the Commission.  This is precisely the risk that prevails, when an exercise such as ours is opened to additional information after compilation.  It is in the very nature of fiscal matters, a field that is not static, that additional data and fresh insights tend to have their impact on the structures already constructed.

8.         Your Excellency may please recall that payment of primary school teachers salaries has been a source of great concern to all Local Government Councils in the Country.  This is because it has always taken a large chunk of their statutory allocation.  Indeed, the zero-allocation-syndrome experienced by a number of Local Governments before the advent of this Administration is still fresh in our minds.  Yet, the 1999 Constitution under Section 7,(2)(a) of the Fourth Schedule clearly stated that primary education is, in the main, the responsibility of State Governments, with Local Governments playing a participatory role.  This has been restated by the Supreme Court Judgment of 5^th April, 2002.  Consequently, the Commission has, in this review exercise, placed squarely the responsibility of primary education on the State Governments and has also defined the level of participation by the Local Governments in this area.  This, of course, has necessitated a shift of resources away from the Local Governments to State Governments to enable them cope with the responsibility for primary education.

9.         As a result of this consideration, the 774 Local Governments including the Area Councils of the Federal Capital Territory will share 15.21% of the Federation Account indicating an apparent loss of about 5%.  For the same reason Mr. President, Sir, the 36 States of the Federation and the Federal Capital Territory will share an increased allocation from 24% to 31.10%.  The balance accordingly will be shared between the Federal Government as a first tier beneficiary and the Federal Republic of Nigeria.  In the latter case and under the supervision of the Executive President of the Federal Republic of Nigeria, there is provision for 1.5% for general National Ecological problems, 3.5% of the Federation Account to be devoted for diversification of the National economy in the areas of Solid Minerals and Agricultural Development.  The National Reserve Fund has been allocated 1.5% of the Federation Account.  These special funds cut across the responsibilities of all tiers of governments and are peculiar to the whole country.  The percentages have been worked out such that each tier of government has directly and proportionately contributed to it and this is why the provisions have been placed directly under the Presidency with the strong suggestion that all beneficiaries should play proportionate roles in disbursing the funds as, and when so required.  These provisions are already contained in the Presidential Executive Order currently being operated in sharing the Federation Account funds.

10.        Mr. President, Sir, permit me to mention that this has been a challenging exercise.  As a Commission, we are happy to be able to handle and complete this review fairly, justly, and equitably, outside the narrow boundaries of parochial interests; but within the density of despairs and hopes of the average Nigerian, and in the best interest of the nation.  Therefore, Your Excellency, on behalf of the Members and Staff of the Commission, I thank you for the opportunity given us to serve our great nation in this capacity.

REPORT OF THE NATIONAL SEMINAR ON DIVERSIFICATION OF THE NIGERIAN ECONOMY – ADVANCE COPY

11.        May I also take this opportunity to draw the attention of Mr. President to the constitutional provision at Section 32(c) Part I of the Third Schedule of the 1999 Constitution of the Federal Republic of Nigeria that vested this Commission with the responsibility to “advise Federal and State Governments on fiscal efficiency and ways by which their revenue can be increased.”  In line with this mandate, the Commission constantly reviews current economic realities of the country with the aim of determining their significance for resource mobilisation and general economic development.  This realisation culminated into the hosting by the Commission, of the National Seminar on Diversification of the Nigerian Economy at the International Conference Centre, Abuja from 16^th – 18^th March, 2004.

12.        The Report of the Seminar has already been formally presented to His Excellency, the Vice-President and Chairman of the National Economic Council.  He has promised the Commission to study the Report and formally make his views known to Mr. President.  All we are doing at this occasion, is to present to Your Excellency, advance copies of the Report.  We also wish to reiterate that the Report may be regarded as complimentary to the Government’s published National Economic Empowerment and Development Strategy (NEEDS).  The Report contains step-by-step implementation programme and practical suggestions for sourcing the funds for the programme.

13.        It is on that note, Mr. President, Sir, that all the members of the Commission under our joint signatures attached herewith, express our pleasure in humbly resubmitting to you, firstly THE REVIEWED REVENUE ALLOCATION FORMULA comprising the DECEMBER 2002 MAIN REPORT and its ADDENDUM as well as a Draft Bill on same in compliance with Section 162(2) of the 1999 Constitution of the Federal Republic of Nigeria.

14.        Secondly, it is also my honour and privilege to present to you, on behalf of the Commission, the advance copy of the Report on the Diversification of the Nigerian Economy.

15.        Thank you.

Engr. Hamman A. Tukur, mni, OFR

B.Sc, M.Eng, C.Eng, FNSE, MIEE, FYCT

Chairman