The reality of state finances and federalism in Nigeria

The debate over state fiscal autonomy or resource control often assumes that if the federal government were to grant full financial control to states, they would all prosper similarly to some European countries. However, a review of recent data suggests that Nigeria’s fiscal landscape is far more uneven—and the implications of full autonomy would vary […]

The debate over state fiscal autonomy or resource control often assumes that if the federal government were to grant full financial control to states, they would all prosper similarly to some European countries. However, a review of recent data suggests that Nigeria’s fiscal landscape is far more uneven—and the implications of full autonomy would vary significantly across states.

 

Uneven internal revenue generation

According to the National Bureau of Statistics (NBS), the 36 states and the Federal Capital Territory generated a total Internally Generated Revenue (IGR) of N2.43 trillion in 2023, up from N1.93 trillion in 2022. 

However:

• Lagos State alone generated about N815.86 billion in 2023. 
• At the bottom end, some states such as Taraba State, Yobe State and Kebbi State recorded IGRs of just N10.87 billion, N11.19 billion and N11.74 billion respectively.  

This suggests that only a few states have meaningful internal revenue-bases; many states remain heavily reliant on allocations from the federation.

 

Allocation of federal revenue to states

According to Nigeria Extractive Industries Transparency Initiative (NEITI), in 2023 the three tiers of government shared N10.143 trillion from the federation account: the federal government got N3.99 trillion (39.4%), states got N3.585 trillion (35.3 %), and local governments got N2.56 trillion (25.3 %). 

For example, in the seven-month period of January–July 2025, the states received about N4.43 trillion, with the top five states (Delta, Rivers, Lagos, Akwa Ibom, Bayelsa) alone accounting for 35% of that total. 

On the Value-Added Tax (VAT) front, the data are even more concentrated: in 2024, Lagos alone contributed 54% of the total non-import VAT pool for the states/FCT.

 

Implications for state autonomy

Taken together, these data underline a few points:

• Since only a handful of states generate large IGR or VAT contributions, handing full fiscal autonomy (or resource control) to all states simultaneously would likely favour only those states with strong revenue-bases.
• Many states, particularly those with low IGR or minimal corporate/industrial base, would likely struggle to finance their operations independently without federal transfers.
• The argument for autonomy thus needs to be accompanied by realistic considerations of economic capacity, industrial base, and revenue generation potential, not just legal or political claims.

 

Towards balanced development

Rather than framing the autonomy question purely in terms of redistribution or “who controls what,” the emphasis could shift to a dual strategy:

1. Strengthening the internal revenue-generation capacity of states (e.g., through industrial diversification, tax administration, formalisation of the informal economy).
2. Revising the fiscal federalism framework to reflect both equity and efficiency, recognising that states differ significantly in revenue capacity and development levels.

In short: granting states full financial autonomy without addressing the underlying disparities risks widening rather than narrowing the development gap among states. A more sustainable approach would be gradual, data-driven, and context-sensitive.

 

Dr M. Tayo Bello wrote from Lagos, Nigeria.