Structural Analysispdf

The true situation of Nigerian federalism constrains local autonomy. It affects the local governments’ ability to mobilise and use revenue to meet their obligations in a sustainable manner. This study examines the possible causes of this problem and concludes that their implications for local government are very serious. It however recognises other issues like corruption, poverty, mismanagement and low quality of personnel, both political and career officers, which also undermines the role of local governments in development.

The study confirmed the dominance of consumption expenditure over capital expenditure, which contributed to non-performance of local government in areas of rural and grassroots development. Also contributing to the non-performance of local governments was the excessive control of state government over the budget of local government. The role of Local Government Service Commission and the Ministry or Department of Local Government in the Deputy Governor’s Office, has virtually constrained the independence of local governments to use their resources for the services that are of priority to their people.

Almost all the expenditures of the local government must conform to the provisions of the Financial Memoranda, which in itself is quite obsolete and out of tune with the developmental role of local government in the 21st Century. This pattern of relationship between the state government and local government councils in the country defeats the intention to make local governments prime centres for social and economic development. The methodology adopted for this study includes econometric techniques, ordinary least squares, multiple and simple regression as well as time series analysis.

Secondary and primary data were also collected for the study. On the basis of the results of regression analysis ;md hypotheses testing based on time series data covering 30-year period (1976-2006) and 12 local government councils in six geopolitical zones in the country, we established a strong and positive relationship between the growth of local government expenditure and external sources of revenue of the local government. The implication of this relationship is that local government expenditure depend heavily on the external sources of revenue and less on the internal sources.

The result of the hypothesis also showed that the external sources of revenue is the major determinant of local government expenditure both the recurrent and capital expenditures during the period of investigation (1976 – 2006). For the result of the Granger causality test using Augmented Dickey Fuller (ADF) Unit Root test, the result showed that economic growth represented by GDP has caused local government expenditure but the expenditure has not caused economic growth, that means there is no feedback mechanism; hence, the variables are not cointegrated.

This implies that irrespective of the specification, there is no long-run relationship between expenditure and economic growth. Under the null hypothesis that Y does not cause X, we observed that the test is not significant for all the three models. This result has confirmed what was determined already that public sector expenditure and income do not move in sympathy.

Thus, for the Nigerian economy, even (hough there has been tremendous expansion in public spending since oil became a major export commodity, a greater percentage of revenue has been allocated to transfers i;nd what is left has been channelled to consumption expenditure and day to day running of public administration, which is very corrupt and do not add anything to economic growth. And for the case of local governments, even though there has been stable and elastic sources of revenue since 1976, a reater percentage of expenditure has gone to recurrent, which do not add to growth in income. The little that is left is used in servicing capital expenditure that are supposed to benefit the people. The implication of this is that local governments in the country have not been able to fulfil or carry out their constitutional assigned functions of developing the rural areas, despite the number of reforms at that level of government. In the light of our finding, several recommendations were made as to how to make the local government a prime centre of development in Nigeria.

INTRODUCTION Fiscal federalism refers to the allocation cf taxing powers and expenditure responsibilities to the different levels of government in a federation (Okigbo 1965:40). However, the most important characteristics of fiscai federalism are to be found in the financial status of the intermediate political entity, the regional or state government which are designed to perform certain functions which in a unitary government are assigned to the central government.

In most federations, fiscal federalism refers essentially to the fiscal relationship between the central government and the regional or state government, since the position of local government in the federation is not appreciably different from that of the unitary government as far as fiscal powers are concerned (Mbanefoh 1993:26). Traditionally, in a federal system of government according to Adamolekun (1993:92) very little attention is paid to the issue of allocation of jurisdictional powers below the major sub-national level i. . states. The functional responsibilities of local government are invariably assumed to be the exclusive concern of the state governments. The principle of classical federalism on the other hand requires that within framework of federalism, matters of local concern should be managed by the recognised unit of government free from interference by central government. For example, in the United States of America, specific powers are delegated to the central government, hile residual powers are assigned to states.

Local government was not mentioned ir. the Federal Constitution. In Canada, residual powers go to the Federal while specific powers go to the States. In India, specific powers are delegated to both federal and states; while in Nigeria, fiscal federalism becomes a tripartite issues with the constitutional recognition of local government as a third level of government after federal and state governments.

The Nigerian fiscal system has come a long way, graduating from a complete fiscal independence in the protectorate of Northern Nigeria, the protectorate of Southern Nigeria and a colony of Lagos to a two tier fiscal system in 1906 when the colony of Lagos was merged with the protectorate of Southern Nigeria with a new name of the colony and protectorate of Southern Nigeria. And on 1st January, 1914, the colony and the protectorate of Southern Nigeria was merged with the protectorate of Northern Nigeria by Lord Lugard, who later became the Governor-general of Nigeria (Amawo, 1988:31).

And with the amalgamation of the protectorates and colony of Lagos in 1914, a new centralised fiscal system emerged under a unitary government. This fiscal centralisation lasted for 32 years (1914-1936) after which the decentralised fiscal structure began to emerge. The decentralisation of f seal system began in 1946 when the three regional provinces, the North, the West and the-East were created. With the creation of the three regional provinces a grand design for the emergence of federal structure which culminated into fiscal federalism was established.

It was not until the 1976 Local Government Reforms that a uniform structure and a stable fiscal system was introduced into local government administration in Nigeria. It was also in 1976 that the financial system of the country was modified in such a wa> that local governments were statutorily entitled to a given proportion of federal and state revenues. The 1979 constitution further strengthened the revenue position of the ! o:a! governments bv specifying chat, the Nationd Assembly should determine the proportion of the Federation Account and State Joint Local Government Account that should go to the local governments.

The National Assembly decided in 1981 that 10 percent of the total revenue of the state through the State-Local Government Joint Account should go to the local governments, However, the 10 percent of the total revenue of the state was reversed to 10 percent of the internal revenue of the state in 1984 Reforms. The federal revenue to local government was later increased to 15 percent in 1991 and to 20 percent in 1992, while that of the state remained unchanged. When Value Added Tax (VAT) was introduced in 1993, a proportion was given to the local government. In spite of all these upward iscal adjustment from the federal Government to the local governments, in addition to their internally generated revenue, there have been increasing complains by local government managers of mismatch between their revenues and their expenditure responsibilities (Ekpo 1990:71). Even though there is a popular view among economists that in a federation, it is very difficult if not impossible to adjust nicely, the revenue powers and expenditure responsibilities of a tier of government, it is however important to investigate che cause of such disparities between the revenues and expenditure of local government in Nigeria between 1976 and 2006.

Such an exercise is imperative in view of the fact that fiscal federalism can acquire the status of an independent variable in determining the character of dependent variable which in this case is the expenditure responsibilities. Also, to be investigated are issues of economics of inter-governmental transfers. Inter-governmental transfers are generally referred to as grants. These are transfers from a higher level government to a lower level government in order to accomplish inter-governmental objectives relating to benefits spill over, minimum standard of local services and problems of unequal fiscal capacity.

The most common form of financial transfer is statutory allocation. This constitutes the bulk of the Local Government revenue and has been a subject of long history and politics. As at 1989 when the “National Revenue Allocation and Fiscal Commission was established as a permanent revenue allocation body, nine commissions had been set up in the country since the maiden fiscal commission of 1946. Apart from these commissions, there have been executive tinkering with the allocation formula, like the amendment effected in 1984 and 1992.

The major pitfalls of most of these commissions were their ad-hoc nature and the absence of fiscal relationship between the various tiers of government in their terms of reference. However, the principles advocated by those commissions for revenue allocation were based on equality of states and local governments, population, derivation, needs and social development. The bulk of statutory allocations to local governments are in form of grants. Over the years, the allocation to local government councils has been rising, while the internal generated revenue constitute a very small proportion of the total revenue of the local overnments. The direct grant or what we call statutory allocation in Nigeria to local governments used to be 10 percent of the Federation Account according lo 1981 Revenue Allocation Act. It was later increased to 15 percent and in 1992 budget, it was further increased to 20 percent. The states were also mandated to allocate 10 percent of their internal revenue to local government since 1984. It should also be noted that other discretionary grants are made available to Local Governments on availability of funds from the granting agency for specific purposes.

These grants can be general or unconditional in the sense that there are no strings attached as to the services On which the grant may be spent. General grants are also referred to as block grants. The grants could also be selective where they are targeted to specific services. Grants can also be matching or non-matching depending on whether it is related to the revenue-raising potential of the recipient unit either generally or with respect to a given service. Finally, grants may or may not be related to the need of the recipient unit.

From : the above, we may distinguish among various types of grants (Musgrave and Musgrave, i 1980:32). 1. 2 STATEMENT OF THE PROBLEM The Nigerian Local Government leaves very much to be desired in spite of the • financial inflow from the Federation Account, the State-Local Government Joint Account and internal revenue sources since 1976. The Nationwide Local Government Reform of 1976, formally recognised Local Government as a third tier level of government in the Nigerian political system.

Subsequently, the 1979 constitution of the Federal Republic of ; Nigeria brought Local Government into the league of fiscal federalism which permits its participation in inter-governmental Fiscal relation, thereby deriving directly its financial resources from the Federation Account in exactly the same way as the Central and State . ; Governments. Despite these stable sources of financial resources, Local Government ;; spending in Nigeria taken both in absolute and relative terms as a percentage of GDP of > the country has not made desired impact in any of the function assigned to it by the ~ constitution.

Rural communities still remain underdeveloped, basic infrastructures are ; ‘ ;v unavailable and where they are available, they paralysed all other activities of the rural ‘; economy through non-performancel Poverty in the rural areas has become chronic, persistent, intergenerational and dualistic. According to Olayiwola (1986) recurrent expenditure accounted for 70% of the expenditure of’he local governments in Nigeria.