Urhobo Historical Society


The Economic and Political Dimensions

By Senator David Dafinone

Subject:         Resource Control: The Economic & Political Dimension by Senator David Dafinone
   Date:         Thu, 12 Apr 2001 08:35:17 +0200
   From:        "D. O. Dafinone" <dod@dafinone.com>
     To:         UrhoboHistory@waado.org

Expectedly, the Governors of the 17 southern states rose from its third summit in Benin City, the Edo State Capital, March 27, 2001, and proclaimed its preference for fiscal Federalism based on the principles of national interest, need and derivation.  Its communiqué at the end defines resource control as “the practice of true federalism and natural law in which the federating units express their rights to primarily control the natural resources within their borders and make agreed contribution towards the maintenance of common services of the government at the centre.  This dogma is not true in its entirety as the individual and not the state is the final repository of this General Will.  The benefits of resource control according to Chief Obafemi Awolowo should accrue to the individuals and not the state following the principles finally expatiated upon by Adam Smith in The Wealth of Nations in 1776.

But I am fascinated with the succinct manner the host of the summit, Mr. Lucky Igbinedion put it to reporters. He said,  “Resource control means that if I as a Bini man goes to Kebbi State and finds gold, the resource should belong to me and not the state or the federal government.  All I owed the Federal Government is to pay taxes and royalties.  The same principle should apply if a Kano man comes to Edo, Delta or Bayelsa and strikes oil.  He only pays royalties and taxes to the state or the federal government”.

The issues at stake in Nigeria’s economic philosophy is that the current formula for the distribution of the nation’s wealth is unacceptable.  As members of the same family, the President of the Federal Republic of Nigeria owes it as a duty to call all shades of opinion to decide the matter rather than the pursuit of the matter through the legal process.  The action of the Federal Government in dragging the 36 state governments and the Federal Capital Territory to the Supreme Court to seek judicial interpretation of the constitutional provision on the matter may turn out whatever the outcome, as an ill wind which could cause a tremour which the Federal Government cannot control.  Also, the Federal Government suite asking the Supreme Court to define the seaward boundary of a littoral state within the federal republic for the purpose of determining the amount of revenue accruing to the federation account directly from any natural resources derived from the State as contained in the section 162(2) of the Constitution of Nigeria is based on the false premise of ignoring Section 162(1) which initiated the provision that all funds collected by the Federal Government with the exception of the personal income tax of the police, armed forces, the foreign affairs ministry and the residents of the Federal Capital Territory,  Abuja accrues to the Federation Account.  These raises the issue of what the Federal Government intends to do with the on-shore off-shore funds if they are not going into the Federation account.  For, if section 162(1) is to be applied, then, the basis for the writ without prejudice to the decision of the Supreme Court would be called to question.  Equally, there is an existing Act namely No. 106 of 1992 of Federation Account, etc., Amendment Act which states, “For the purpose of subsection (2) of this Section and for the avoidance of any doubt, the distinction hitherto made between on-shore oil and off-shore oil mineral revenue for the purpose of revenue sharing and the administration of the fund for the development of the oil producing areas is hereby abolished”.  The question then arises: Are we asking the judiciary by fiat to make new laws?

Resource control is a basic economic theory grounded in the fact that land, labour, capital and enterpreurship are factors of production (Adam Smith, an early economist, outlined these in The Wealth of Nations the principal factors of production.  These are land, labour, capital and enterpreneurship.  Just as the price of labour is wages, capital has interest, enterpreneurship is driven by profit while rent and royalties are rewards for land ownership.  Rent is a return for the use of the original and indestructible properties of the soil.  Whoever owns a land expects some form of compensation from those hiring this very important factor of production.  The clamour for resource control is a clamour for adequate compensation, a cry for redistribution of the revenue allocation formula, and nothing more.  The only thing a government should do is to impose tax to be used for the welfare of the community.  This theory has been in existence since the creation of man and is correctly reflected in the Bible.  If you change these rules ordained by God, then you invite chaos.  Hence the Psalm says, “change and decay around I see; oh thou who changeth not, abide with me”.

To be fair, the statutory distribution of revenue from the Federation Account had been controversial as well as contentious.  The Political Bureau Report of 1987 observed that the issue is so contentious that “ none of the formula evolved at various times by a commission or by decree under different regimes since 1964 has gained general acceptability among the component units of the country”.

But the Report also observed that the issue of revenue allocation and to be specific derivation, had been essentially a political rather than an economic tool.  Whoever is in charge introduces a formula that best serves his interest.  The British administered the country initially mainly from the proceeds from oil palm trade derived largely from the then Eastern Region.  Derivation was not given any prominence.  But when groundnuts and tin from the North and cocoa and rubber from the West became major earner of revenue, derivation, to use the words of Dr. S. J. Cookey in his report, “was catapulted into a major criteria for the allocation, thus underscoring the linkage between regional control of the political process and the dominant criteria for revenue allocation at any given time.  This linkage was further underscored when, following the increasing importance of petroleum derived mainly from the Eastern States (now Niger Delta) as a revenue yielding source, derivation was again de-emphasised.   And now, it is instructive to note that the exclusive federal jurisdiction over a natural resources apply only to oil and gas, and not to cocoa, palm oil, hides and skin, bitumen, marble, etc.  This is the core of the agitation of the people of the South-South Region.

To be sure, the practice of federalism had been so traumatic, making some to blame it on the “mistake of 1914.”  Even so, our nationalists who negotiated the form of our existence made some efforts to stimulate healthy competition among the regions.  The 1958, 1960 and 1963 Constitution allowed for competition among the various segments of the society now.  The 1963 Republican Constitution was not a perfect document but its stance was clear on issues of the society, issues that were central to federalism. It directed that revenue derived from imports be paid 100 percent to the state in proportion to the consumption of the product.  The same goes for Excise Duty: 100% payment to the state according to the proportion of the duty collected.  For minerals, the constitution shares the revenue in the proportion of 50: 20: 30; i.e. 50 percent for derivation, 20 percent to the Federal Government and the remaining 30% paid into the distributable pool to be shared among the states, including the Donor State.  It was not perfect, but it made up somehow for past mistakes.

However, the advent of the Military in power made nonsense of our federalism.  Based on its hierarchical command structure, the central government became so powerful while the states are relegated and subordinated, or like the Soviet Federalism of old, “ mere administrative units of the central government.  But federalism is the direct opposite, the coming together of different entities for the good of all but not the loss of their respective independence.”  Like I have said before, at a different occasion, Nigeria fought a little civil war to safeguard the federation.

(It is my considered opinion, from all available facts that the civil war was caused by the betrayals, intrigues, compromises, arrangements and settlements in the command structure of the Military which resulted in Ojukwu refusing to serve under a junior officer.)

The Willink’s Report of 1958 succinctly declared that we are a group of independent and autonomous kingdoms and peoples, with separate languages, culture and religion, equal in status and in no way subordinate to one another but united as a corporate body to form the Federal Republic of Nigeria.

During his electioneering campaigns, President Olusegun Obasanjo assured all the aggrieved and marginalised people that as soon as he assumed office, he would redress all the injustices that have for years occasioned the polity as a result of long period of military mis-rule. A glaring case of this is the Niger-Delta. Obasanjo gave the people his words. And they were taken as sacrosanct. A promised sense of belonging in place of lost and despairs. Of course, these promises were made against the background of the obvious sustained neglect and abandonment by successive regimes including the multi-national oil companies engaged in exploration activities and the consequent declining security situation in the Niger-Delta and its implications to the economy.

Apparently worried by this development, the conferees of the 1995 Constitutional conference convoked by the late Head of State, Gen. Sani Abacha recommended against all the rancour at the conference a sharing formula of the Federation Account Revenue, that 13 percent instead be set aside for derivation to assist the development of the oil communities long pillaged by the Federal Government. The thrust of the recommendation was succinct - to financially empower the oil communities of the Niger-Delta Region to tackle headlong the colossal neglect, exploitation and degradation arising from absence of federal presence and the insignificant spending in the region. But unfortunately, this was not to be, as General Abacha failed to implement it.

The golden opportunity came in May 29, 1999 when the 1999 Constitution in which the 13 percent derivation was enshrined finally became operational at the assumption of office by President Obasanjo. The swearing-in of the President equally heralded optimism in the deprived and neglected people of the Niger Delta as the prospect of the implementations of the 13 percent derivation engendered relief that the once hostile and indifferent nation was suddenly waking up to the unwholesome, sordid injustice wrought against them for decades. They believed that the nation was now alive to the grim reality of a people with long bruised psyches.

But contrary to all expectations this has not come to be. While the President faces the onerous task of governance, the problems and the issue of the degradation of the oil producing communities of the Niger-Delta has receded to the background despite the vandalisation of old pipe lines constructed in 1976 which are awaiting renewal.  The President has my sympathy but not withstanding this therefore, he should brace up and accept the challenge which destiny has bestowed on him and should not hide in the mask of the Supreme Court which will do no one any good.

And to some finer issues: Who owns the land? In many of the oil communities in the Niger- Delta, the activities of exploration and exploitation have killed fishes, and destroyed the ecosystem.  Who bears the pains of exploitation? Is it only the Federal, the State Government, the multinational or the communities that are directly affected? So on what basis is the federal government appropriating 40% of the 13 percent derivation revenue?  The continental shelf belongs to the ethnic nationalities adjoining it if Section 3 of the 1999 Constitution is construed in accordance with the spirit upon which it was framed as the Federal Government has no land except the Federal Capital Territory.

The Land Use Act of 1978 does not vest the land on the Federal, State and indeed the Local Government. Section 3 of the 1999 Constitution recognises 36 States and the Federal Capital Territory. There is nowhere the Federal Government is said to own the land.   In States, land is vested on Governors to hold in trust for the people and in local government, to the chairman and the Traditional Rulers, also to hold in trust for the people. But when the land is occupied before the Decree came into effect, the land is vested on the owners because they have the statutory right of occupancy. The case of Ojema vs Momodu was an eye opener. That is the structure before the Constitution.   The citizens of these communities were in existence there before the coming into being of the country called Nigeria.

And talking about the Constitution, there is nowhere it says that the revenue accruing from derivation should go to the State, but to the communities which sustained losses through the evils of oil extraction.  And so, why are the States getting all the money and not the immediate communities from which the oil/revenue is derived?  It is common knowledge that many oil bearing communities complain of the diversion of funds meant for projects in their areas to some other issues.  As a matter of fact, there is nowhere in the Constitution where it is stated that the 13% should be paid to the State Government.  The money is “rent” for the land hired from the communities to the oil companies.  They need the money for their pains, their sufferings and as a result of the destruction of their means of livelihood, and their environment through ecological disasters.  The money ought to be deposited in a Trust Fund that would underwrite their education, and economic development, each according to its value and contributions.

It is therefore necessary that whenever funds emanate from derivation, it should be placed in a Trust Fund to be administered by representatives of all the stakeholders; the communities, the Federal, States, Local Governments and the multinationals.  Such a Board of trustees should administer all funds for the implementation of projects.

No meaningful social, political and economic progress would be made unless we restructure and devolve in all its ramifications.

It is Midnight NigeriaThe House is Falling and unless all the parties come together in a round-table and find a lasting solution to its intractable problems, Nigeria will always be at war, not of the spirit, not of the body, but of the soul.