Former of Lagos State Governor Bola Tinubu in this article, x-rays the controversial Sovereign Wealth Fund (SWF) and concludes that the concept is against the principle of federalism.??
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Nigeria struggles to become a nation governed by the rule of law and the principles of federalism. Establishment of the Sovereign Wealth Fund represents a grave challenge to these democratic concepts. The government tries to paint the SWF as evidence of financial prudence. In reality, the SWF reveals a government that has little regard for law. Operation of the Sovereign Wealth Fund is an unprovoked onslaught on the rule of law. The SWF is illegal because it violates the constitutional
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provisions concerning the allocation of revenue to the three tiers of government. In effect, the SWF improperly confiscates funds meant for state and local government to use these funds for purposes determined solely by bureaucrats hired by the federal government.
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This gives rise to a second point. The SWF changes the balance of federalism by giving the federal government practical ownership and control of funds intended for the states. In other words, the SWF strengthens the federal government at the expense of state and local governments.
The third point is that the SWF as currently envisioned gives too much latitude to the ‘Authority’ established to administer it. The structure lacks transparency and this lack of openness will encourage malfeasance and the misuse of the funds.
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Need for a Review
First, this law is fatally flawed and must be revised in two important ways. First, deductions from state and local budgetary allocations should not be involuntary.? The SWF bill should allow for voluntary participation by state and local governments. Those states wishing to participate in the scheme should be able to do it. However, those that do not want to join should receive their full allocations without penalty or pressure.
Second, the structural flaws in the law that provide the administering Authority the unfettered right to set up an unlimited number of shadow companies worldwide, to hire any number of outside consultants, to incur unlimited debt and to investment in all types of risky investment should be revised to place more stringent safeguards on the investment of what is not this Administration’s money but is the patrimony of every Nigerian present and in the future.
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An Obvious Breach of Law
It is clear the SWF is an attempt to subvert the constitution by giving the federal government the power to undermine the states’ fiscal independence.
The intense lobbying efforts by the federal government to convince state governors to drop their opposition to the SWF are telling indications of the law’s infirmity.? The federal government fears the law would be invalidated if states took the matter to court. If the federal government had faith in the legality of its position, there would be no need to lobby the governors. The federal government would not waste its time trying to convince the states of the rightness of the federal government’s purpose. If it knew its legal position was strong, the federal government would simply enforce the law and dare the states to go to court to overturn the law. However, the Jonathan government would rather settle this by political accommodation because it knows that the rule of law is not on its side. An impartial court would rule the SWF unconstitutional.
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It is important that state governors not be tricked. Whatever Abuja offers or tells them can’t change the illegality of the SWF. State governors must not be complicit in this unconstitutional weakening of their own fiscal position. To do so would only encourage future unconstitutional infringements. State governors should insist that their fiscal status be preserved and that constitutional rule be followed.?
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To put it bluntly, the SWF violates fiscal federalism as enshrined in the constitution. The SWF purportedly was established to bring greater probity to government finance by ensuring funds are not squandered but used for developmental purposes. The SWF is supposed to invest funds in a manner that brings either generous returns on investment or creates projects accelerating the nation’s reconstruction.
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The SWF insults the constitution as did is predecessor, the Excess Crude Account.? The excess crude account disrespected the constitution because it sequestered funds rightfully due the states. The SWF perpetuates this constitutional infraction. Those who will benefit from the creation of this fund seek to convince you that it will bolster Nigeria’s financial standing.
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Because we are a pliable citizenry that does not regard the rule of law as we should, we are easily fooled into thinking the uncertain financial benefits claimed by SWF supporters should outweigh the clear violation of the constitution the SWF poses. We should inquire of ourselves when was the last time the obvious abrogation of the constitution ever benefitted the people? The answer is never. The SWF will be no exception.
Under the constitution, all government revenue should be deposited into the federation account. Once funds are placed in the federation account, they must be automatically distributed to federal, state and local governments according to the formula established by the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC).
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If this mechanism had been properly implemented, the Excess Crude Account would not have been established because there would not have been any ‘excess revenue’ to account for. Neither the constitution nor the RMAFC allocation formula contemplates federal, state or local government having ‘excess revenue’.
Obviously, the federal government has the right to designate any of its own funds as excess and to place these federal monies in such an account or an SWF. Individual states have the right to voluntarily deposit any portion of their money into such an account as well.
However, the federal government has no right to unilaterally withhold one naira of state or local funds. This device is the product of a nefarious mind seeking to enlarge federal power by weakening the states’ fiscal positions. This is an act to concentrate power instead of distributing it to the states in accordance with fiscal federalism.
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To establish the SWF, the federal government stood the revenue allocation and budgetary processes on their heads. Instead of basing federal, state, and local allocations on actual revenue received, Abuja now is attempting to base state and local allocations on federal budgetary estimates instead of on aggregate revenues received. This process is clearly wrong and does injury to the letter and spirit of the constitution. Revenues the states receive should not be contingent on federal government revenue projections and the estimated federal budgets. State revenues should be based on actual revenues received into the federation account.To determine the funds a state actually receives by how the federal government estimates its own budget is to circumvent the constitution and federalism. It is to place inordinate power over the fiscal destiny of the states in the hands of the central government. The federal government purposefully uses a below-market-figure for the price of oil in order to lower the earnings expectation upon which the federal budget is based. This malpractice is not evidence of fiscal discipline as the federal government would have us believe. It is a trick so that a higher percentage of the total national revenues will be considered ‘excess and thus subject to federal government control. This effectively lowers states’ allocations and control over revenue while improperly channeling the misplaced revenue to the federal government to use at its unguarded discretion. This is tantamount to creating a massive federal government slush fund and it has the broad political and economic repercussions attendant upon the creation of such a fund.
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Imagine total revenues were 20 naira and the federal: state: local allocation ratio was 5:3:2.? Properly, the federal government would get 10 naira, states 6naira and local government 4 naira. However, the federal government purposefully set its budgetary projection at 5 naira.? While the federal government is provided the 5 naira, the states only get 3 naira and local government 2 naira.? 10 naira would be counted as excess or earmarked for the SWF.? In effect, this would give the federal government control over 15 naira, depriving state and local government of the 5 naira rightfully due them.
This is an unconstitutional confiscation of funds that mocks federalism and paralyzes the ability of states to develop themselves according to their own plans and priorities.
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SWF Advocates have been reduced to claiming the constitution calls only for “distribution” of funds but not the actual transfer of the funds to the states. What they are saying is that, as long as the proper percentage of money is said to belong to the states, the federal government does not have to pass those funds to the states. These supporters further claim the SWF law explicitly provides that the states still own the money placed into the SWF and they will get a piece of paper as documentary proof of ownership. This is mere wizardry with words. The ownership as defined in the SWF is meaningless.
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This shows the length people will go to defend an indefensible position. It makes a mockery of the revenue process. If this position were true, then the federal government could legally pass a measure that removes every last kobo from the hands of the states as long as the legislation says the funds have been ‘distributed’ and are still ‘owned’ by the states. The constitution cannot be interpreted to allow for this unjust outcome. Anyone who supports this contention cannot be taken seriously on this issue. The contention that the federal government could indefinitely withhold state funds would render meaningless all constitutional provisions regarding the allocation of revenues to states and local government.
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Section 162 (2) of the federal constitution provides the National Assembly pass a revenue allocation formula after receipt of formal advice submitted by the RMAFC. Subsections (4) and (5) state that all revenues due the state and local governments shall be distributed to them as prescribed by the National Assembly. The prescription of the National Assembly relates to its power to develop the revenue formula described in subsection (2). The National Assembly has no power to exceed that constitutional limitation by creating another fund to effectively withhold state monies.
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The SWF law does not give the states any voice in the amount of their money placed in the SWF. States have no true voice in how the SWF will operate.
The only participation states will have is in the Governing Council. State governors are members but this Council can only meet once yearly. The Council is headed President and major economic members are also on the Council. There is little chance the Council will allow for independent input. After the President takes a position, who dare challenge him in such a forum?? The Council was conceived to be a public rubberstamp of what had already been decided in private.