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Nigeria’s love and hate for fiscal federalism 08 Apr 2021

On February 23, 2021, a bill seeking to amend the Nigerian Constitution by removing matters relating to the national minimum wage from the Exclusive Legislative List to the Concurrent Legislative List passed second reading in the House of Representatives. If the bill is passed into law, the legislative power to determine the minimum wage for workers would no longer be exclusively maintained by the National Assembly but a concurrent power shared between the federal legislature and the State Houses of Assembly.
    
The sponsor of the bill, Garba Datti Muhammad from Kaduna State, described it as part of a larger process of devolution of the federal government (FG)’s powers to the states. Critics of the bill argue that it will undermine the collective bargaining power of labour unions. Organised labour in Nigeria, comprising the Nigeria Labour Congress (NLC) and Trade Union Congress (TUC), have strongly opposed the bill and even threatened a nationwide strike.
    
The goal of the constitutional amendment is to allow state governments to individually fix minimum wage as opposed to the current practice whereby we have a centrally-determined minimum wage that does not take cognizance of the different socio-economic and fiscal conditions of the states. The current National Minimum Wage Act, signed by President Muhammadu Buhari on April 18, 2019, stipulates the national minimum wage at N30,000.00 for the entire country.
     
In a separate development early last month, the United Kingdom and Nigerian governments signed an agreement for the return of over £4.2 million recovered from former Delta State Governor, James Ibori, and his associates. Ibori was convicted in the UK in 2012 for money laundering, conspiracy to defraud, and forgery. The Nigerian government, through the Attorney General of the Federation (AGF), Abubakar Malami, stated during the signing ceremony in Abuja that the recovered funds would be used to fund some federal infrastructure projects, including the Lagos-Ibadan Expressway, the Abuja-Kano road as well as the Second Niger Bridge.
    
Malami’s statement sparked a serious debate on whether the FG has the right to utilize the recovered funds given they had been stolen from the people of Delta State by the former governor. The public outcry led to the House of Representatives passing a resolution on March 10, 2021 directing the FG to hand over the funds to the Delta State government for infrastructural development in the state.
    
Two academics on opposite sides of the debates are Ernest Ojukwu (SAN), a former Deputy Director-General of the Nigerian Law School, and Simeon Igbinedion, a senior lecturer in the Department of Jurisprudence and International Law at the Faculty of Law in the University of Lagos. Ojukwu has argued that neither Nigeria as a state nor Delta State has legal claims to the recovered funds as the money was forfeited to the UK by the courts. He opined that since the UK government was the one handing over the funds to Nigeria in line with diplomatic agreements to be spent on specially agreed projects, the funds should be regarded as “donor funds,” which “must be utilized according to the donor’s instructions.”
    
Igbinedion, on the other hand, argued that the UK was not repatriating the funds just out of international comity or benevolence but in compliance with its obligations under the United Nations Convention against Corruption (UNCAC) 2003 to which both countries are parties. Article 57 of the UNCAC obligates state parties to repatriate recovered assets to prior legitimate owners or victims of the related crime.
    
According to Igbinedion, any Memorandum of Understanding (MoU) between the UK and Nigeria on the return of looted funds must be subject to the UNCAC. As a result, the MOU would be inconsistent with the UNCAC if it allows the FG to utilise the funds on developmental projects outside Delta State.
    
Both conversations – the determination of minimum wage and control over the recovered Ibori loot – relate to the structure of ownership and control of public funds in Nigeria’s federal system of government. In all the clamour for restructuring the coun-try, determining a suitable model for fiscal federalism is one of the most important items on the agenda. As long as we fail to restructure the country, governance out-comes will remain suboptimal and we will always be confronted with the sorts of issues raised above.
    
German-born American economist, Richard Musgrave, who introduced the term ‘fiscal federalism’ argued that the federal or central government should be responsible for economic stabilisation and income redistribution. But the allocation of resources should be the responsibility of state and local governments. In this manner, regional and local differences can be taken into account and there can be healthy competition among the federating units, leading to organisational and political innovations and more efficient policies.
    
For efficient performance of the federating units, fiscal federalism demands that each level of government should have adequate resources to perform its functions without appealing to another level of gov-ernment for financial assistance. Following this reasoning, it goes without saying that since state and local governments are closer to the populace, they should be allowed to provide most of the services required by the citizens. Thus, they should have enough financial autonomy to take decisions and allocate resources based on individual priorities in the areas of their jurisdiction.
    
Nigeria’s fiscal arrangement is fraught with many issues. We are over two decades into the Fourth Republic and the country is still struggling under a hangover of the unitary system that was imposed on a federal structure by virtue of military rule. Under the military, the FG had a wide range of powers, including direct control over primary education, higher education, agriculture, roads, housing, urban development, environment, and social development. This system required extensive re-source control. Despite being under democratic rule, this inefficient system has been constitutionally sanctioned with the FG still maintaining a dominant role in the sharing of national resources.
    
In Nigeria’s current fiscal federalism, the FG has control over the “most productive income-elastic taxes,” according to a paper, titled “Fiscal Federalism in Nigeria: Theory and Practice,” by Olabanji Ewetan and published in the International Journal of Development and Sustainability. The author said the increasing dependence of the states on federally collected revenues has made subnational governments almost subservient to the central authority and unable to carry out their functions.
    
We need the political will to correct the inefficient fiscal federalism we practice and a constitutional amendment by the legislative arm of government is a valid way to do so. It is unfortunate that some previous changes to our laws have not translated to immediate implementation. An example is the constitutional amendment granting financial autonomy to the judiciary and state legislative houses. The Judiciary Staff Union of Nigeria (JUSUN), on March 25, 2021, threatened to embark on a warning strike due to the failure of the government to fully implement the financial autonomy for the judiciary.
    
Notwithstanding the constitutional violations by the executive, amendments to the constitution to address the devolution of powers to other federating units is a good way to start. A lot needs to be done to decen-tralise the decision-making machinery of the government and the proposed mini-mum wage bill is just an aspect of that.
    
It is universally agreed that several factors are considered when fixing mini-mum wage. These factors include cost of living, labour market conditions, inflation rate, welfare policies and other economic factors. It is also important to highlight that minimum wage policies are aimed at protecting low-income workers. Therefore, simply giving states the power to determine minimum wage when other economic policies are so centrally controlled would not provide the desired outcome.
    
As a poverty alleviation tool and mechanism for addressing the power imbalance between employers and workers, the minimum wage policy in Nigeria has been very ineffective. The rising poverty and high level of underemployment in the country is enough evidence of the weak bargaining power of workers. Furthermore, minimum wage law enforceability is difficult given the large informal sector. There are also many state governments that do not even apply the current minimum wage.
    
With respect to the Ibori loot, there are legitimate fears of the recovered funds being misappropriated if they are refunded to Delta State. Nevertheless, the FG would be setting a bad precedent of withholding repatriated funds of a state and investing them in another state. I hope the FG’s action is legally challenged.

Funmilayo Odude, a Financial Nigeria columnist, is a Lagos-based legal practitioner, and a public affairs analyst.