Minimum Wage: The Debt – Revenue Question
This allocution by Dr Kayode Ajulo, seeks to appreciate the imperative of reviewing the sharing formula of revenue accruing to various States vis-a-vis the autonomy of local government administration in Nigeria, and the position of relevant laws on the sharing formula, with regard to revenue accruable to the three tiers of government from the Federation Account
It’s 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 1999 Constitution of the Federal Republic of Nigeria (as amended)(“the Constitution”).
Background
Recently, there were hues and cries by the Nigerian Governors Forum and some concerned citizens, on the need to review the sharing formula of revenue accruing to the various States vis-a-vis the autonomy of the third tier of government (Local Government), especially as it relates to revenue accruable to it from the Federation Account.
It is pertinent to recall that, the renewed agitation and clamour by the Nigerian Governors Forum for the review of sharing formula of revenue accruing to various States, is not far from the statements by some State Governors of their inability to pay the N30,000.00 minimum wage to their State workers, in the light of the looming economic downturn and realties.
Recently, in an interview, Governor Seriake Dickson of Bayelsa State lamented that the minimum wage is a serious issue in the country.
According to him, some States cannot pay the 18 percent 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 to debt financing, to implement various projects and pay workers’ salaries. This has resulted in an increase in the debt ratio of various States across the Federation. According to the World Bank, 40 per cent of low income developing countries are either in debt distress, or at high risk of default.
The Debt Load of the Nigerian States
It is quite apparent that, most States in Nigeria have huge debt loads, with very low revenue generation. While debt is soaring, most States apparently depend on more debt to execute any meaningful developmental projects. (Top 10 States debt ratio according to NairaMetrics.com).
Lagos State: As of 2019, the total debt portfolio of Lagos State stood at N980 billion. Data from sources have shown that, the domestic debt of Lagos at the end of March 2019 was estimated at N542 billion. Without doubt, the State is Nigeria’s trade centre with the Apapa seaport that controls almost 90 per cent of goods that flow in and out of the country.
However, on the revenue side, the recent Internally Generated Revenue (IGR) data from the National Bureau of Statistics (NBS) showed that, Lagos State generated the sum of N382 billion in 2018. This is the biggest across the States, but it only covered 70 per cent of domestic debt.
Rivers State, is Nigeria’s second most indebted State. The State is one of Nigeria’s major oil-producing States, and scoops monthly 13 per cent 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 per cent of the huge domestic debt, while the external debt is hanging.
Delta 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 13 per cent 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 per cent of its domestic debt.
Cross River State’s debt was estimated at N225 billion, in March 2019. It generated N17 billion IGR in 2018, and this put the State’s revenue at 10 per cent of N167 billion domestic debt.
For Akwa-Ibom State, the total domestic debt owed as of March 2019, was N199 billion. In total, Akwa- Ibom owes 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, its annual IGR is just 12 per cent of domestic debt accrued.
Osun State’s total domestic debt as of March 2019, was estimated at N147 billion. When compared with the State’s IGR of N10 billion, it means that Osun State’s IGR only covers 7 per cent of the domestic debt owed. In total, Osun owes N178 billion debt to rank 6th on the list.
Federal Capital Territory (FCT), is the 7th most indebted State in Nigeria. The domestic debt accruable to it as of the end of March 2019, 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 per cent of its domestic debt. The total domestic and external debt owed by FCT, stands at N173 billion.
Edo is the 8th in Nigeria, with the biggest debt accumulated in the country. Edo’s domestic debt stands at N88.3 billion, with IGR put at N28.4 billion. This means that the State IGR, covers only 32 per cent of its domestic debt. In total, Edo owes N171.2 billion.
Kaduna 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 per cent of the debt. In total, the State’s debt stands at N162.9 billion.
Bayelsa and Ekiti States, owe N150 billion each; thereby making the 10th on the list. Bayelsa is also one of Nigeria’s oil-producing States. Reports show that, as of the end of March 2019, the State’s domestic debt stock was N147 billion, while IGR in 2018 stood at N13 billion. This means that the State’s IGR, only covers 10 per cent of the huge debt profile. In total, Bayelsa owes N150 billion. According to DMO’s report, Ekiti’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 per cent of its domestic debt of N118 billion.
According to the data above, Lagos recorded the largest IGR, and simultaneously accumulated the biggest debt. Asides Lagos, most States depend on either more borrowing or monthly allocations from the Federal Government, to even pay workers’ salaries.
Debt-Revenue Issue
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, 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 debts acquired by these States, are from external sources.
Hence, from the monthly Federal allocation 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 minimise States’ debt ratio, and maximise revenue accruing to each State.
Laws on Revenue 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 personal income tax of the personnel of the armed forces of the Federation, the Nigeria Police, 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 Constitution.
It is imperative to note that, all monies standing to the credit of the Federal Government of Nigeria in the Federation Account, belong to the three tiers of Government – 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 per cent for oil- producing States as derivative revenue.
Nigeria’s revenue-sharing formula is as follows: every month, the Federal Government takes the lion 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) Act 2003.
It suffices to add that, since independence, the revenue sharing formula can neither be said to be equitable nor efficient, as the internal revenues generated by each State are largely dependent on civilisation, 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 2019, Lagos State led the collection table with N263.25 billion, while Rivers collected N151.8 billion. FCT generated N72.8 billion, Bayelsa N71.6 billion, Kano N58.5 billion, Kaduna N54.7 billion and Ogun N48 billion. Edo State generated N47.3 billion, Ondo N47.2 billion, Oyo N42.1 billion, Sokoto N38.8 billion, Benue N38.1 billion, Imo N37.4 Billion and Kwara N36.6 billion. At the lowest rung of the ladder are Ekiti with N25 billion, Gombe N21.7 billion and Osun N20.2 billion.
It is, therefore, apparent that, the ability of various States to pay the N30,000 minimum wage, would only depend 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, there is a need to review the sharing formula, in order to make room for equal distribution of wealth among the various States of the Federation.
Autonomy
As stated above, in a Federation, there exist elements of autonomy among the three tiers of government, namely – Federal, State and local government.
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 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.
It is a general principle of the law of great antiquity that, where the words of the Constitution or statute are not ambiguous, they are to be given their literal interpretations.
Upon a community reading and interpretation of the provisions of Section 162(5) and (6) of the Constitution, it suffices to state that, even though the State government is constitutionally empowered to collect the funds due to 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.
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 makes the provision mandatory.
“ACCORDING TO THE WORLD BANK, 40 PER CENT OF LOW INCOME DEVELOPING COUNTRIES ARE EITHER IN DEBT DISTRESS, OR AT HIGH RISK OF DEFAULT”