Proposed Federal system for future South Sudan: Let’s serialize it Part Five

BY: SINDANI SEBIT, NAIROBI, JUL/18/2014, SSN;

Part 5 of these series focuses mainly on the sources of financial resources for both the Federal Government and Federal states and how the federal resources can be distributed between the federal government and states. It will further illustrate how state resources can be distributed within the states. It will also outline the role of the body that will be responsible for financial resources distribution at the three levels of government.

Before discussing the sources of revenue for both the Federal and State Governments, it’s important to point out here that South Sudan is endowed with vast resources that if managed well, would spur rapid economic development in the country and perhaps transform the country into a middle class country within 15 to 20 years.

With a population of nearly 10 million and Gross Domestic Product (GDP) of USD 1,858 in 2011, there is no reason why the economic transformation in South Sudan cannot supersede its neighbours because South Sudan has the highest GDP compared to all countries in the East African Region.

It should also be mentioned here that the GDP referred to above is calculated based mainly on oil income that accounts for 98% of the production in South Sudan. However, South Sudan has other resources that could increase rapidly the GDP if these resources were exploited.

These resources include copper, gold, diamonds, uranium, chromium, manganese, iron ore, zinc, mica, silver, tungsten and hydropower. In addition, one would also need to mention some of the potential economic areas, namely agriculture, forestry, fishery, trade and commerce which could have vastly contributed to boast the economy of the country. Sadly enough these resources are yet to be exploited.

In addition to failure to exploit all the potential of South Sudan, rampant corruption and poor resource distribution by the regime in Juba has, severely stagnated the economic development of the country.

This is due to concentration of resources in the hands of the central government, poor planning by the central government, incompetent leadership, weak governance institutions at the center, lack of separation of powers between the executive, parliament and judiciary so as to ensure accountability, transparency and prudent planning and implementation.

Therefore, as the situation exists now in South Sudan, most of the country resources are used rightly or wrongly in Juba and its environs while the so called states have been neglected.

Judging from the 2014 budget of 17.3 billion SSP whereby a total of 14.098 billion (81.5%) (6.590 billion, to repay doubtable debts, 4.130 billion for central employees and soldiers and 3.130 billion for security) was allotted to the central Government, no kind of imaginable development or services can been rendered at state level.

Therefore, the proposed federal System for South Sudan is a deliberate effort to correct the gross failures created by the current constitution and form of government that exists now.

This can only be done by establishing independent governing institutions at all three levels of federal government. These are aimed at guaranteeing accountability, transparency and prudent planning and resource management.

Secondly, by establishing mechanisms that can distribute resources equitably and equally, to all the federal states as per the population sizes. The objective here is to ensure that these resources reach the intended populations and guarantee that the resources are used for the intended purposes.

In relation to a country, resource is defined as “the means available for economic and political development such as minerals, labour force and armaments” (Free dictionary) or “a country collective means of supporting itself or becoming wealthier as represented by its reserves of minerals, land and other natural assets” (Oxford dictionary) or “is a source or supply from which benefit is produced.

Typically resources are materials, energy, services, staff, knowledge, or other assets that are transformed to produce benefit and in the process may be consumed or made unavailable” (Free encyclopedia).

Therefore in a federal system, the right to collect revenue from resources must also be divided according to the levels of government namely Federal resources and state resources.

1. Federal resources
The federal government resources will include among others that may be regulated by federal law:
a) Natural resources such as mineral and petroleum
b) Customs
c) Immigration
d) Federal courts (federal Supreme Court and Federal Court of Appeal)
e) Value Added Tax (VAT)
f) Assets such as airports, railways, weight and bridges
g) Services such as Federal employees, investments

Therefore, the Federal Government will collect revenue from mineral resources, immigration, customs, courts (Federal courts), VAT, federal investments, income taxes on federal employees, service taxes on airports, railways and weight and bridges. The revenue collected by the Federal government shall all go to the national consolidated fund.

The funds collected by the Federal government are for whole nation and the federal government is not entitled to use it until it is distributed between the federal government and the states. The distribution of this fund shall be done by the Revenue Allocation and Distribution Commission.

This is an independent commission which is set up under a constitutional provision purposely to ensure that national resources are collected and distributed between the Federal Government and the federal states according to a formula defined by the constitution which should be 30% for the Federal Government and 70% for the Federal States.

This ratio is purposely established because Federal States are the service delivery organs in the country and so they must be provided with enough resources to effectively and efficiently deliver services according to the needs of the states.

This is meant to offset the current system in Juba where the regions are designated to deliver services to the people yet they helplessly depend on the central government on what is given to them as grants. As usual these grants have always being less than 10% of the national income. As a result the regional governments have failed to deliver services to the people.

2. Federal state resources
The federal state government resources will include among others that may be regulated by state law:
a) Land
b) Games and parks
c) Courts
d) Royalties
e) Services
f) Taxes
g) Loans

Therefore, the federal states revenue sources will include land and housing rates, market taxes, licenses, agriculture, court fees, game and game parks, tourism and recreation services including parking fee and income taxes from state employees and residents. Others are vehicle registration fee, service taxes such for water, sewerage and electricity, road tolls and import and export taxes. However, interstate taxes such not be levied. The states will also get resources from royalties, federal contribution and loans from local banks.

3. Distribution of federal resource between the Federal Government and states
In sharing the national resources at whatever level, the principle of public finance is underpinned by the fact that there shall be openness and accountability, including public participation in financial matters.

The public finance system shall promote an equitable society, and in particular that the burden of taxation shall be shared fairly and revenue raised nationally shall be shared according to the federal constitutional provision of 30% to 70% in favour of the federal states and that distribution of resources at state level is equitable.

Expenditure shall promote the equitable development of the country, including making special provision for marginalized groups and areas in addition to ensuring that the burdens and benefits of the use of resources and public borrowing shall be shared equitably between present and future generations.

The principle shall also guarantee that public money shall be used in a prudent and responsible way. Financial management shall be responsible and fiscal reporting shall be clear.

However, while sharing the federal resources, the following additional criteria should be taken into consideration:

a) The national interest and obligations shall be a priority particularly such as in a state of war and national calamities. This means the Revenue Allocation and Distribution Commission must ensure that resources are made available to the Federal Government to meet these challenges before distributing the federal resources according to the formula set out in the constitution. In such situation, the federal government is required to come out with concrete budget proposals that shall be reviewed by the commission to ensure that they meet legitimate needs that are in the interest of the nation. Thereafter the commission with present such request to the Federal Parliament for debate and approval. Once approved these funds shall be credited to the emergency fund account created for this purpose.

b) The need to ensure that State governments are able to perform the functions allocated to them
In order to ensure that the annual federal resources are shared between the federal government and the state governments according to the stipulated formula, this money shall be calculated on the basis of the most recent audited accounts of revenue received and approved by the federal Parliament.

4. Distribution of 70% of the federal resources among the states
The distribution of federal resources among the states shall be shared according to population size in each state. This is to ensure equity in distribution of resources among the states and guarantee that every citizen in each state gets its correct share of the national resources and services.

This means that states with large populations will get more money than those with low population. This is because high population density means there is greater need for more services such as health, education and road infrastructure. Demand for housing, water and electricity increases with increasing population in addition to other social demands such as recreation, sporting and urbanization.

Therefore once the 70% of the Federal funds is credited to state allocation account, the Revenue Allocation and Distribution Commission shall calculate the amount to be allocated to each state according to the population of the state. This shall be done independent of the state governments so as to avoid undue pressure exerted on the commission by the state governors. The population of the state shall be calculated according to the latest census taking into consideration the country’s average annual population growth rate.

5. Distribution of state resources to the counties
The state resources that shall be distributed among the counties of each state shall include funds received from the federal government and the funds collected by the state. All these constitute the state revenue.

While distributing these funds, the Revenue Allocation and Distribution Commission should first consider the state government budget which should not exceed 30% of the total state revenue. This must be the budget approved by the state parliament. Having allocated the amount to the state government, the rest of the funds (70% of the total) shall be distributed among the counties based on the following criteria:

a) The fiscal capacity and efficiency of county authorities to absolve the funds;
b) Developmental and other needs of counties are ensured
c) Economic disparities within and among counties and the need to remedy them is considered seriously
d) Affirmative action in respect of disadvantaged areas and groups is upheld

Revenue Allocation and Distribution Commission

This commission shall be established through a constitutional Act like other independent commissions established under this Act. This means members of the commissions are:
• Subject only to the Federal constitution and law
• Independent and not subject to direction or control by any person or authority
The Commission members shall be nominated and appointed by the President/Prime minister subject to approval by the federal parliament. It shall be composed of:
• Four persons who are not members of parliament nominated by various political parties represented in the federal Parliament according to their strength
• Permanent Secretary in the ministry of finance
• Two persons nominated by the Public Service Commission. These should not be members or employees of the commission
• One person nominated by the Judicial Service Commission who is not a member or employee of the commission

Person nominated to be appointed to this commission shall have extensive professional experience in financial and economic affairs or should be a qualified lawyer in case of the representative of the judicial service commission

The commission shall be charged with the following responsibilities
1. Ensure that the revenue raised by the federal government is shared according to the constitutional stipulated sharing formula of 70% revenue going to the states and 30% remaining with the federal government
2. Make recommendations concerning basis for the equitable sharing of state revenue to the counties
3. Make recommendations on the matters concerning financing of, and financial management by state governments
4. While formulating the recommendations, the commission should seek to consider the following:
• National interest
• Public debt and other national obligations
• Ensure that state governments are able to:
a) Perform their functions
b) Development needs
c) Economic disparities within the counties in each state
d) Affirmative action in regard to the disadvantaged areas and groups within the states
• Population density of each state
• Desirability of the county and predictable allocations of revenue
• Need for flexibility in responding to emergencies
• When appropriate define and enhance the revenue services of the federal and state governments
• Encourage fiscal responsibility
5. Determine, publish and regularly review a policy in which it sets out criteria for disadvantaged or marginalized area within states
6. Submit recommendations to the senate, federal parliament, federal executive, state assemblies and state executive

In conclusion, the proposed federal system intends to deliberately establish a robust and independent revenue allocation and distribution mechanism that first aims at fighting corruption and money laundering at any level of the federal government. The objective is to ensure that national resources are distributed equitably and transparently between the federal government and states and among the states.

The second objective is to curtail or obstruct the federal Government from garrisoning funds in the Federal capital instead of ensuring that states have resources for development and service delivery.

The third objective is to ensure that all federal states get equal chance for rapid and equal development. This means all South Sudanese will have access to basic services regardless of where they live or settle. The overall intention is to avoid the current constitutional loopholes that have resulted in amassing all the national resources in the hand of the central government giving no chance to the regions to access resources and foster development.

Currently the regions are totally dependent on Juba government for their existence but the federal system aims to put the states in-charge of their own affairs and promote equal development and growth.

Due to the fact that many South Sudanese have misunderstood Federalism as a system aimed at sending other South Sudanese away from Equatoria or other parts of the country though is absolutely far from it, part 6 of these series shall focus on the rights of individuals and citizens in the proposed Federal Republic of South Sudan.

The aim of serializing this system is to enable South Sudanese fully understand what is being proposed. We try here and there to compare the proposed system with the current one so as to see the advantaged and disadvantages.

Sindani Sebit
Nairobi; Kenya


6 Comments

  1. oyhath says:

    Good contribution to the federalism debate. OK, but I just have a few points to make in relation to part 5 of your series. You speak about three levels of governments in a federalist system, which I absolutely agree with. You enumerate the sources of revenues for the federal and state governments, but no mention of the sources of revenues or finances for the third level of government and this is where I want to step back a bit. Part 5 of your series makes the 3rd level of government in a federalist system looks like a mere recipient of funding from the federal and state levels government – you say in point 5 and I quote: “The state resources that shall be distributed among the counties of each state shall include funds received from the federal government and the funds collected by the state. All these constitute the state revenue”. The truth is that in a truly federalist system, just as the 2 levels of government (the federal and state governments) are financially self-sustaining, the third level of government is also self sustaining and not just a mere recipient of revenues from the federal and state governments. The sources of revenues for the third level of government in a federalist system are distinct and include, for example, 1) property taxes – for example, in a federal system property taxes for the city of Juba goes into Juba city budget and the government of central equatoria has nothing to do with it. 2) Vehicle registrations – in a federal system all revenues from vehicles registered in Juba is to be planned, raised and controlled by the city of Juba and the central equatoria government has nothing to do with. 3) Revenues levies on road, road accidents and traffic violations and bridge construction and maintenance within cities/counties – in a federal system bridges and roads within cities and counties are planned, managed and maintained by cities and counties, not state or federal governments. Roads linking between cities are state government responsibility, and interstate roads/highways are federal government responsibilities. There are many other examples of sources revenues for the 3rd level of government, but the above are just to give a few examples.

    There may be various names for the third level of government in a federal system, but the one I am familiar with is municipal government (or municipal level). This level of government is responsible for running affairs in the localities – cities and counties. For example, the mayor (or you call it commissioner) and city council of Juba or Rumbek belong to the 3rd level of government and are not part of the central equatoria or lake state governments, just as the governor and legislative assembly of central equatoria and lake states are not part of the central federal government. The three levels of governments are cousins, however, in that they actually work in cooperation and partnership since in the final analysis their goal is the same: bringing power closer to the people, equitable development and, above all, peace and security. We can’t speak of a federal system with only 2 levels of federal and state governments and we can’t underestimate role, resources and sources of revenues for the the 3rd level. The 3rd level of government is not just a mere recipient of funding from the state and federal governments, just as the state government is not simply a mere recipient of funding from the federal government. As debate federalism as an appropriate system for south Sudan, we should be clear of the roles and responsibilities of each level of government within that system and the point I want to stress here is that all the 3 levels of governments are equally important not simply because this is how federalism operates elsewhere but because it is very relevant for the unique situation of south sudan. I would also add that despite oil being the main resource and source of revenue for the young nation, accounting to over 98% of its revenue as reported by some sources, the most important resource to me is the human resource because you can’t develop your resources including the oil resource without the human resource. Everything requires creativity and planning by the human resource and by careful planning by human resources in western equatoria state, for example, who knows if oil or other big natural resource could be discovered there. The key to distribution of resources in a federal system is a fair and equitable formula that gives fair share to resource-rich states, while promoting equalization for those with least resources. Once you have an appreciation of this principle and formula at each level of government to me you really don’t need to create an independent central commission because city and county councils, state legislative assemblies and the federal parliament are there to see that these kind. In some federals systems that I am aware of there is the auditor (who possibly admittedly represents a federal commission or other such entity), who looks into how the federal money was distributed and spent annually and who issues a report accordingly; and there are of course auditors at state and municipal levels of government. To me it’s better to make financial accountability for each level of government the responsibility of that government level, rather than giving the entire responsibility to some remote central federal government entity that is not answerable to state and municipal jurisdictions.

  2. Goge says:

    Your posting on federalism has been very educative, would please come up with the central bank organization and functions. Most importantly how correlates the different banks in the states or local government.

  3. Sindani Ireneaus says:

    Dear Oyhath,
    Thnk you very much for your comments. indeed the detil of resource mobilization at state level and levels below are tied and shall be retructured wthin the state. When talked about tate resource it doe not mean that the role of the third level of government is ignored. i m happy that you have elabborated it eloquently and this is thhe idea of these series to have indepth discussion nd feedbck.
    Sindani

  4. upiu says:

    Sindani,
    You have been doing a very commendable job of educating South Sudanese about the merits of federalism as opposed to those who chastises non-adherents of federalism without giving substance to their argument. The literature you have been producing could act as an excellent resource in federalism debate by interested in that debate.
    I have to point out one contradiction in your elaboration of sources of revenue of federal and state governments. You categorize natural resources as a source of revenue of federal government and that land belongs to state governments.
    Didn’t your realize that natural resources are harnessed from the land?

  5. Sindani says:

    Dear Upiu,
    Thank you for this comment. I indeed know that natural resources come from the land but remember that natural resources come from the underneath of what we consider land that is used building, agriculture, making roads etc. In terms of economics the two sides of land constitute two different sources of wealth ad so must be taken in that context.
    Sindani

  6. upiu says:

    Sindani,
    I am sure there will be some intense debate on this revenue section of federalism debate. If we are giving back all the financial powers to the federal government, what is the whole gist of pushing so hard for federalism?
    On another hand, your definition of land is getting a little tricky. I understand that natural resources come from different layers of earth, or land for that matter. What layers of land/earth would your consider belongs to States and which layers would a federal government have jurisdiction over? How much deeper is the underneath you talk about?
    Besides, to have access to deeper layers one will have to go through the land surface which according to your opinion belongs to the States and there are people who live and farm on the land surface which may have a potential for more lucrative natural resources. This can only get messy! and I don’t think we should have it both ways.

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