Economy: Resigned Veep Amidst Revenue Leakages

A two-day national workshop on alternative sources of revenue generation for sustainable development in the states and local councils held in Abuja on 11-12 September. Vice President Yemi Osinbajo sent the opening address whose thrust was as follows, “Over the years, our over-reliance on statutory transfers from the Federation Account has resulted in the unsustainable culture where 36 state commissioners of finance come to Abuja every month to collect their share of revenue derived from crude oil… we saw the Federation Account Allocation Committee distribute revenue as high as N909 billion in June 2014 for example, but by the same month in 2016, the FAAC allocation was N302 billion (though) the minimum amount required to cover monthly salaries, statutory transfers and debts service is N700 billion.” Without adding that the 2016 sum was arrived at after hefty devaluation, he said that the vulnerable nature of the oil sector and resultant inability of state governments to meet financial obligations made inevitable the need to diversify the country’s revenue base.

It is not clear what alternative sources were proffered by participants. However, 18 years after military rule, the extant Federation Account allocation formula remains the child of a presidential executive order sired by a former military head of state. The parentage and DNA of the Federation Account accruals consisted in curtailment of state taxing powers. The Presidential Commission on Revenue Allocation inaugurated in November 1979 put it thus, “The Military Government had not only introduced far-reaching changes in Nigeria’s system of revenue allocation during its regime (1966-79); it also took several measures which severely curtailed the latitude of State Governments in respect of their internal revenues.

Thus, the FMG abolished export duties and sales tax on agricultural produce; reduced poll taxes to a uniform level throughout the country; standardised personal income tax rates throughout the country thereby removing from State Governments the power to vary the rates; introduced a uniform fuel price thereby removing the power of State Governments to impose petroleum sales taxes; abolished pools betting, casino and gaming taxes, etc. The effect of all these measures (justifiable as they may be for purposes of national or macroeconomic control) was to increase the dependence of State Governments on revenues from federal sources to well over 70 percent in the period 1975-79.”

Not much has changed since then. Evidence? With revenue collection centralized and the operation of the Joint Tax Board, efforts at extracting additional revenue by some state and local governments have been greeted with cries against multiple taxations. While armchair critics (who are unaware that the states have been dispossessed and emasculated taxation-wise) berate the states for low internally generated revenue, the Veep knows that even the Federal Government, despite controlling the lion’s share of the Distributable Pool Account, cannot point to commensurate service delivery regarding its constitutional responsibilities.

For example, contrary to the Veep’s standpoint, the DPA is already being fed from diversified revenue sources. Also, the revenue pool is expected to be adequately replenished and expanded directly by the FG through sound economic management rather than shedding crocodile tears at workshops while making abstract assertions that the administration was working to achieve inclusive and sustainable growth. Hard-nosed analysis cannot miss the fact that lack of robustness of the DPA constituted the stimulus for the current heightened and widespread calls for restructuring and (true) fiscal federalism. Pertinently from the opposite side, Obasanjo, disturbed by the unraveling of his pet unitary federalism in his lifetime, last month openly expressed, rather superfluously, non-belief in true federalism.

Nonetheless, as occurred after previous changes in the political arrangement since 1946, the outcome of eventual restructuring of the country should include assuaging the proponents’ zero accommodation of any federating unit that freeloads through a revenue allocation formula which gives to any federating unit from which revenue of whatever kind originates at least 50 percent of the receipts (even if federally collected) with the balance going to the Federation Account for sharing among all beneficiaries in an agreed manner.

Until that future comes to pass, Osinbajo should break his lengthening dereliction of constitutional duties highlighted below. As law professor and constitutional lawyer, Osinbajo is the most opportune Veep since 1999 to cast off Obasanjo’s put-down likening of his Veepee’s role to that of a spare tyre by discarding the toga of resignation and constant lamentation of the weak economic situation brought about by wrong practices. The present Nigerian Constitution gives the Vice President the constitutional role of Chairman of the National Economic Council, which effectively makes the incumbent the veritable terminator of past economic mismanagement and prompter of actualization of the economic policies of the ruling administration. The NEC has the mandate to hone and recommend “measures necessary for the coordination of economic planning efforts or economic programmes” designed to actualise the economic objectives laid down by the Constitution under Section 16 such as to “harness the resources of the nation and promote national prosperity and an efficient, a dynamic and self-reliant economy” among others.

 

Therefore, the Vice President is the constitutional lead adviser on institutionalized (nationally honed) economic agenda or strategy. Thus, the impermanent economic management teams empanelled since 1999 were/are inferior rivals which (with the benefit of hindsight) have been bereft of the country’s sovereign and long-term interest thereby merely pandering to foreign-leaning private policy measures. End product? An economy not anchored on Nigerian national interest. Such a directionless economy, left at the mercy of corrupt and self-serving domestic and foreign elements, was doomed to underperform.

So, rather than wring his hands over dwindling FAAC allocations, Osinbajo should wake up to the fact that revenue required to meet government obligations should be sourced from various economic activities and not just from crude oil exports. Indeed, the government would be best placed to meet its responsibilities, achieve national prosperity and accumulate huge external reserves if it took advantage of fully exploiting and wholly utilizing domestically the country’s petroleum endowments without leaving a single barrel of crude oil for export. It is instructive that it was the understanding from the inception of commercial oil production that crude oil was (still is) a wasting asset and that proceeds from oil exports should be devoted to developing vital economic sectors in order to facilitate rapid growth and sustainable development.

Why has the above dream proved unrealizable 58 years into exportation of crude oil? The reason has been identified and cannot be over-restated. Oil proceeds accruing to the Federation Account are withheld only for the economy to be subjected to unappropriated excessive fiscal deficits with resultant persistent macroeconomic instability. The CBN then proceeds to deploy the withheld public sector forex to fight the numerous symptoms of the apex bank-induced macroeconomic instability. In the process, the bulk of the forex is used for anti-economic activities or gets purloined. In sum, the improper procedure leaks government revenue directly and indirectly to cheaters/haters/milkers of the country leaving a wobbly economy that traps the generality of the people in abject poverty.

After looking the other way for 29 months, Osinbajo should now take up his unambiguous constitutional mandate and block the revenue leakages. Firstly, the national domestic debt (NDD) is almost entirely made up of sterilized (unspent) excess liquidity funds: it is a fake debt. Payment of service cost and redemption of “matured” NDD tranches are avoidable leakages from the federal treasury, which should otherwise be used for genuine government obligations.

Secondly, public and private sector forex holdings in the country including remittances by Nigerians in the Diaspora fall under Nigeria’s export proceeds. These foreign currencies should be converted to naira (this is a naira currency economy) within a set short time limit in a single forex market at the Appropriation Act (AA) exchange rate. Buyers and sellers of forex should pay a fixed gross commission not exceeding 1 percent. Hence, for example, the existing wide differences between the 2017 AA exchange rate of N305/$1 and the various forex market segment rates represent government revenue leaking to interloping cheaters/haters/milkers of Mother Nigeria. It should be an integral part of national budgeting for the National Planning Commission to draw up and monitor a periodically updated eligible import list. The list may be classified into, say, five priority levels. Top priority imports should access forex at the AA rate, but lower priority imports should be subject to the graduated rising exchange rate (which incorporates forex access tax). Banks should collect and promptly remit the forex tax to the government treasury. The traditional discriminatory import duties, excise duties, etc, would yield further revenue.

Thirdly, the petroleum equalization fund should be scrapped in order to recoup revenue leakages. Kerosene subsidy should be formally removed to stop revenue being looted by the NNPC. Similarly, petrol consumption volumes, which are being bloated for the purpose of looting revenue, should be trimmed to actual size. Fourthly, Eurobond issues are subscribed using mainly forex previously purloined from withheld Federation Account allocations. This is unacceptable.

And so, the trouble with the economy (the economy is the father and mother of politics) revolves around the fact that government fiscal and monetary measures have not conformed to economic best practice by choice of the political leadership beginning from 1971. The official goading pushed the CBN to kowtow part ways with its enabling law. The Vice President, who since 1999 has possessed the statutory mandate to restore and ensure adherence to sound practices for proper running of the economic system, in turn, ignored the constitutional duty with the incumbent thus far remaining asleep. But should he?Nigeria needs patriots in government. Patriots who trust in the naira. Patriots to run the naira economy. Patriots.

 

 

Source: The Guardian