CHAPTER ONE

INTRODUCTION

A thorough investigation into the economics of other developed countries like United States, Canada and Germany seem to point to the direction that federalism is harmonious with the Nations growth or development. There seems to be a consensus among scholars of fiscal federalism that decentralization of spending responsibilities in federal states bring about economic development (See Boadway and watts, 2004, Kincaid, 2001; Oates, 1999; Ter-Minassian, 1997; Watts, 2003).

(That fact that Nigeria is not among the world wealthiest economics). Fundamentally, Nigeria as a case study), Scholars argue that some of the factors that affect the economic performance of many of the poor federations include the absence of a functional federal system.  In other words, the manner in which a federal system is operated affects the political and economic performance of federal state and vice versa.

In federations, fiscal imbalances occur because constituent units hardly have enough resources to match their expenditure. But irrespective of how they occur, imbalances must be corrected in order for the federation to continue to exist, and this may take the form of intergovernmental transfers which have the capacity to enable or limit government in the discharge of their responsibilities.

Nigeria fiscal federalism, just like those of other federations is principally characterized by the sharing of fiscal resources amongst the different tiers of government that make up the federation. However, the country’s social and economic disparity has continually rendered the issue of revenue allocation the most controversial aspect of the country’s federal system.  Presently, no single fiscal theory has yet been developed to ensure equitable distribution of revenue in a federal system; Federations adopt principles that seem to favour their individual circumstances, and most importantly, they ensure that their fiscal systems are designed in such a way that economic development is realized and sustained. In an ideal and close-knit federations, such revenue sharing formula as the principle of need and of equalization are predominant, while loose federations like Nigeria are always predisposed to the principle of derivation, which is the method of distributing centrally generated revenue to constituent units in relation to the contribution made by a unit in relation to the contribution made by a unit to the country large revenue, in Nigeria derivation means, in addition to the regular federal statutory transfer, some proportion of the revenue collected from federating unit is returned to the government of that unit. In Nigeria, fiscal federalism is aimed at ensuring a balanced federation, economic development of national unit; so the argument goes, how has the country fiscal federalism performed in this aspect?

To what extent can Nigeria’s fiscal federalism be said to have achieved its objectives?

1. Problem statement

Fiscal federalism is the dynamic interaction between different tiers of government. It poses questions as to how the nature of financial relations in any federal system affects the distribution of the nation’s wealth. Nigeria is beset with structural imbalance, and true federalism implies that component units should freely pursue their own development.

Revenue sharing in Nigeria, has witnessed a plethora of reviews, as evidenced by various committees and commissions instituted in this regard, yet no reliable formula has been evolved in meeting the country’s yearnings and aspirations (Teidi, 2003:39). Such experienced deficiencies

have triggered off many untoward actions, particularly among the sub-national governments that complain of fiscal imbalance (Okeke, 2004:28). The statutory allocations from the Federation Account, even when it is disbursed, result into zero allocation for some of the federating units to run their affairs (Yusuf, 2008:1). Disharmonious fiscal federalism reflects on low level of political maturity and inability to allow true federalism to evolve without undue politicization.

Nigerian federalism is fraught with the external imposition of arrangement and political will, amongst others. Revenue allocation among various units of government in Nigeria is replete with agitations, controversies and outright rejections due to the nature of politics in vogue. Sec. 149 (7) of the 1979 Constitution provides for state-local government fiscal relations, while Section 162 (5) of the 1999 Constitution regards local government as an extension of the state tier, this leads to disharmonious fiscal federalism. The 1977 Aboyade Technical Committee on population was illogical as the principle of national interest it recommended defied particular interpretation in the prevailing circumstances in Nigeria. Moreover, the 2005 Political Reform Conference was stalemated because; delegates from South-South Region staged a walk out on the issue of fiscal

imbalance. Financial relations of the component units of any federation should bring about federal progress and productivity. In Nigerian federation however, it appears as if fiscal federalism brings disharmony among the federating units, and this reduces the productive capacity of the federation

as an entity.

1. Theoretical Framework

The Theoretical framework for the paper is “System Relations Approach to Inter-governmental Relation (IGR)” as propounded by Chin (1969), and cited in Olugbemi (1980). The systems model provides a comprehensive framework for identifying, coping with and integrating the institutional, behavioral and management dimensions of IGR. Furthermore, the systems model has a potential for resolving the allocation controversies which bedevil inter jurisdictional relationships.

The theory is conceived as an organized purposeful whole, composed of structurally and functionally identifiable though inter-related parts and delineated by identifiable boundaries from the suprasystem (environment) in which it is embedded. Ackoff (1972) states that the emergence of systems construct marked an important transition from the mechanistic conception of social reality which sought to explain a phenomenon from the stand point of its component units to holistic view parts

in terms of a whole. He sees a system as a whole which cannot be taken apart without the loss of its essential characteristics which include:

1. A set objective which the entity seeks to achieve, without which it cannot exist.
2. A hierarchy of inter-dependent units among which the system objectives are divided for national development.

iii.      Specificity of sub system roles, each system has a defined and specialized role in the realization of the total purpose(s) of the unitary whole and sub-system roles are mutually reinforcing.

1. An input transforming technology which refers to the processes and techniques by which resource inputs extracted from within and outside the system are transformed into outputs which themselves have implications for system persistence and effectiveness through feed-back mechanism.
2. A boundary that excludes the plethora of other systems and defines the threshold of transactions among the universe of systems.

OBJECTIVE OF THE STUDY

This paper intends to project the character of Nigeria’s Fiscal federalism with a view to using the system as a yard stick to measure the National economic development performance of the Nigerian federation. To achieve this, the following objectives would be tackled.

1. To examine political and economic rational to revenue sharing in Nigeria
2. To access the underlying imperative of fiscal federalism in Nigeria’s development in Nigeria
3. To examine how inter-governmental relations have been handled in Nigeria
4. To measure the level of hope for both human and infrastructural development in the country via revenue distribution.