Why Decentralization Could Be Nigeria’s Greatest Economic and Social Advantage

Introduction: Nigeria’s Potential and the Structural Challenge

Nigeria is Africa’s most populous nation, home to over 200 million people, vast natural resources, and a young, entrepreneurial population. The country has enormous economic potential: oil and gas, agriculture, solid minerals, a growing tech ecosystem, and a vibrant informal sector. Yet, despite this potential, Nigeria faces persistent governance, economic, and social challenges.

Leadership failures and corruption are often cited as the main causes. While these are real problems, they are symptoms of a deeper structural issue: the political and fiscal system itself.

The centralization of fiscal control, the dominance of the federal government in decision-making, and weak subnational governance mechanisms have created a system where resources are allocated unevenly, local governments are underpowered, and citizens are often alienated from governance.

Decentralization — granting real fiscal, administrative, and political autonomy to states and local governments — could address these challenges, improve public service delivery, and unlock Nigeria’s economic and social potential.

Historical Background: From Colonial Amalgamation to Modern Federalism

To understand why decentralization matters, it is necessary to review Nigeria’s federal history:

1. Colonial Legacy: Nigeria’s amalgamation in 1914 brought together multiple regions, ethnic groups, and cultures. British colonial administration centralized power, focusing on resource extraction rather than local governance or institutional development.
2. Post-Independence Federalism: After independence in 1960, Nigeria adopted a federal structure to manage its diversity. The federal government retained significant powers, while states were created to accommodate regional demands. This early federalism aimed at balancing ethnic representation, political stability, and resource control.
3. Military Rule and State Creation: Between 1966 and 1999, military regimes frequently restructured states, increasing the number from 12 to 36, alongside 774 local governments. While these changes sought to enhance governance, they often centralized fiscal and political power further, leaving states and local governments dependent on federal allocations.
4. Nominal vs Functional Federalism: On paper, Nigeria has a three-tier federal system (Federal, State, Local). In practice, true decentralization is limited: states and local governments often lack fiscal autonomy, administrative authority, and capacity to deliver meaningful services independently.

Academic studies indicate that the concentration of resources at the federal level has created a cycle of dependency, undermining local initiative and reinforcing political patronage.

Current Structural Realities: Data and Analysis (2023–2025)

Nigeria’s political and fiscal structure remains highly centralized, despite reforms and decentralization rhetoric.

Revenue Sharing and Fiscal Centralization

• 2023 FAAC Allocations: The three tiers shared ₦10.143 trillion. Federal Government received 39.37%, states 35.34%, and local governments 25.28%. (NEITI, 2023)
• 2024 FAAC Allocations: Total disbursements increased to ₦15.26 trillion, a 43% rise from 2023. States saw a 62% increase, and local governments 47%. (FAAC, 2024)

Despite increased allocations, most states and local governments remain dependent on federal transfers, with limited internal revenue generation.

Overdependence of States on Federal Transfers

• State Revenue Profiles: According to BudgIT (2025), 28 out of 36 states relied on FAAC for more than 55% of their total revenue. Fourteen states depended on FAAC for at least 70%. (BudgIT, 2025)
• Internal Generated Revenue (IGR) Gaps: Only a few states, like Lagos, Ogun, and Delta, achieve meaningful IGR, while most states cannot fund basic services without federal allocations.

Uneven Distribution and Regional Inequalities

• Oil-Rich vs Resource-Poor States: In 2025, oil-producing states received approximately 35% of state allocations, despite representing fewer than 20% of the population. (Nairametrics, 2025)
• Social and Economic Consequences: Resource-poor states struggle to fund infrastructure, health, education, and security, perpetuating regional disparities and citizen discontent.

Local Government Weakness

• Functional Limitations: Local governments are constitutionally responsible for grassroots service delivery. However, revenue from the State Joint Local Government Account (SJLGA) is often delayed or mismanaged. (OJS Journal of Management, 2025)
• Impact: Rural communities frequently experience poor sanitation, lack of schools and clinics, and minimal social services. This undermines trust in governance and reduces citizen engagement.

Fiscal Dependency and Governance Weakness

Centralization of resources undermines both state autonomy and accountability:

• Decision-Making Bottlenecks: States and local governments cannot make strategic investment or policy decisions without federal approval or transfers.
• Corruption Risks: Centralized control creates opportunities for misappropriation and patronage, as allocation timing and use are politically influenced.
• Citizen Disillusionment: When governance is distant, citizens lose trust, participate less in civic processes, and remain disconnected from public policy decisions.

Case Study: Lagos State vs Kebbi State

• Lagos State: High IGR, diversified economy (finance, commerce, industry), and significant fiscal autonomy. Able to fund major infrastructure projects without federal dependency.
• Kebbi State: Low IGR, minimal industry, heavily dependent on federal allocations. Struggles with education, healthcare, and local infrastructure, highlighting structural disparities.

This contrast demonstrates how decentralization, fiscal autonomy, and effective local governance can materially affect economic and social outcomes.

Economic Advantages of Genuine Decentralization

Decentralization is not just a political concept — it has measurable economic benefits, especially in a diverse, resource-rich country like Nigeria.

1. Economic Empowerment of States

Fiscal and administrative autonomy allows states to develop policies tailored to their local economies. States can:

• Exploit local resources efficiently: agriculture, mining, solid minerals, tourism, and commerce.
• Encourage private-sector investment by creating state-specific incentives, tax breaks, and infrastructure support.
• Diversify revenue away from oil dependency, building resilience against global price fluctuations.

For example, Lagos State leverages its commercial hubs to collect substantial IGR from businesses, transport taxes, and property levies. This allows the state to fund infrastructure projects — like road networks, ICT infrastructure, and transport systems — independently of federal allocations. Conversely, states with low IGR remain dependent on federal handouts, often resulting in underdeveloped infrastructure and stalled economic growth.

2. Enhanced Service Delivery

Local control over resources ensures that public service delivery aligns with local priorities:

• Rural and urban areas receive tailored healthcare, education, and social services.
• Local governments can respond quickly to community needs without waiting for federal approval.
• Citizens experience tangible improvements in daily life — boosting trust in governance.

Studies in decentralized governance across Nigeria indicate that states with greater autonomy, such as Ogun and Delta, have higher quality service delivery metrics compared to less autonomous states.

3. Competitive Federalism

Decentralization fosters healthy competition among states:

• States innovate to attract businesses, investments, and talent.
• Competition drives efficiency in governance, resource management, and public services.
• Citizens benefit as states compete to improve social services and infrastructure quality.

For instance, Lagos’s efficient urban management and Kano’s industrial investments show how competitive federalism can stimulate growth when states have autonomy.

Social Advantages of Decentralization

Beyond economics, decentralization has profound social impacts.

1. Inclusion and Minority Representation

Nigeria’s diversity — over 250 ethnic groups — means centralized governance often overlooks minority or marginalized communities. Localized governance:

• Empowers minority groups in decision-making at state and local levels.
• Encourages culturally sensitive policy design and implementation.
• Strengthens social cohesion by reducing perceptions of marginalization.

2. Poverty Reduction and Equity

When states manage resources effectively:

• They can invest in infrastructure, education, and social programs targeted to local needs.
• Decentralization allows equitable allocation of resources to underdeveloped areas.
• Reduces regional disparities, lowering the risk of social unrest and fostering national unity.

For example, research shows that states with proactive local policies and fiscal autonomy experience better poverty reduction metrics compared to highly centralized, dependent states.

3. Accountability and Transparency

Proximity of governance improves citizen oversight:

• Local leaders are more accountable because constituents see the direct impact of decisions.
• Participatory budgeting, local audits, and citizen engagement are easier to implement.
• Corruption levels can decline when communities monitor the use of local funds.

Studies of decentralized municipalities worldwide, and Nigerian pilot local government initiatives, show higher transparency and citizen satisfaction in service delivery when autonomy is combined with strong oversight mechanisms.

Comparative International Examples: Lessons for Nigeria

Nigeria can learn from other federal or decentralized systems where subnational autonomy has improved governance, economic outcomes, and social inclusion.

1. United States

• U.S. federalism allows states to raise and manage their own revenues, establish local policies, and tailor education, healthcare, and infrastructure strategies.
• Competition among states encourages policy innovation — e.g., tax incentives to attract businesses, environmental regulation models, and state-led infrastructure development.
• While inequality persists among U.S. states, transparency, institutional strength, and civic engagement mitigate many risks.

Lesson for Nigeria: Fiscal autonomy combined with strong institutional frameworks can drive state-level development and innovation.

2. India

• India’s federalism empowers states with substantial fiscal powers and decentralized planning through local governance bodies (Panchayati Raj system).
• Local governments plan and implement rural development, healthcare, and education policies, improving responsiveness.
• State competition fosters economic experimentation — industrial policies, tax reforms, and infrastructure investments vary by state.

Lesson for Nigeria: Institutionalized local governance and decentralization of administrative authority can improve service delivery and reduce inequality.

3. Canada

• Canada’s federal system gives provinces significant control over education, healthcare, and resource management.
• Resource-rich provinces like Alberta can manage oil revenues while adhering to national redistributive policies, balancing equity and autonomy.
• Provinces implement policies suited to local demographics, geography, and economic priorities.

Lesson for Nigeria: Resource control with equitable redistribution safeguards national unity while empowering subnational development.

Recent Reforms and Policy Opportunities in Nigeria (2024–2025)

Recent economic and fiscal developments provide both urgency and opportunity for decentralization.

1. IMF Reports and Macroeconomic Reforms

• IMF 2025 report notes that Nigeria’s macroeconomic reforms — including removal of fuel subsidies, exchange rate stabilization, and improved revenue mobilization — have enhanced economic stability. (IMF, 2025)
• However, federal dependency remains high, signaling that reforms must also address subnational fiscal empowerment.

2. RMAFC Revenue Allocation Review

• The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) began reviewing revenue allocation formulas in 2025, recognizing the need for equitable and functional fiscal federalism. (Prime Business, 2025)
• This review presents a window for policies that enhance state autonomy while ensuring fairness to less-endowed states.

3. Increased FAAC Disbursements

• 2024–2025 FAAC allocations set records: ₦15.26 trillion disbursed to the three tiers.
• Despite the growth, dependency persists, highlighting the need for internal revenue reforms and subnational fiscal empowerment.

4. Policy Opportunity

The current policy landscape allows Nigeria to:

• Pilot state-level fiscal decentralization for selected states.
• Strengthen IGR collection and capacity building in local governments.
• Encourage public-private partnerships at state levels for infrastructure and service delivery.
• Embed accountability and transparency frameworks to monitor outcomes.

Challenges and Risks

Even with potential benefits, decentralization is not without obstacles:

1. Fiscal Weakness: Many states and LGAs lack the capacity to collect revenue efficiently.
2. Institutional Weakness: Corruption, mismanagement, and poor governance can undermine autonomy.
3. Political Resistance: Federal elites and centralized power structures may resist reforms.
4. Equity Risks: Without redistribution mechanisms, resource-rich states may dominate, worsening inequality.
5. Capacity Gaps: Human resources, training, and administrative competence must be developed for effective decentralization.

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