A New Initiative for Equitable Resource Distribution
A new initiative is being proposed to replace the current anti-federalist monthly allocation formula, aiming to ensure that resources are distributed among different levels of government in a fair, progressive, and less contentious manner. This initiative was officially launched on August 18 by the Chairman of the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), Mohammed Shehu, in Abuja. The launch received widespread support from key political and economic stakeholders. The goal of this review is to transform Nigeria into a true federal fiscal state.
According to Shehu, attempts to revise the allocation formula since 1992 have only resulted in minor changes through executive orders. However, over the past 33 years, Nigeria has experienced significant demographic, economic, and constitutional changes. Despite these transformations, the existing formula remains largely unchanged, leading to growing dissatisfaction among states and local governments.
Currently, the Federal Government receives 52.68% of all revenues, while the 36 states get 26.72%, and the 774 Local Government Areas (LGAs) receive 20.60%. This distribution contradicts the principles of federalism, as it centralizes power and limits the ability of sub-national entities to manage their own development.
To address concerns from oil-producing states, the Olusegun Obasanjo administration introduced a Derivation Fund (DF) of 13% for the nine oil-producing states. However, this measure has not fully resolved the ongoing agitation for resource control or the push for restructuring along federalist lines. The root issue lies in the unfairness of the current system, which allocates the majority of revenue to the federal government while leaving the states with minimal resources to drive development.
For example, the Federal Government manages just 32,000 km of Nigeria’s 195,000 km road network. Despite receiving more than half of total revenues, the country faces a massive infrastructure deficit. According to the International Monetary Fund (IMF), it would take 30 years of sustained construction and an annual expenditure of $100 billion to bridge this gap.
In 2022, RMAFC presented a revised allocation formula to the late President Muhammadu Buhari after a three-year review. This proposal reduced the Federal Government’s share to 45.17%, increased the states’ share to 29.79%, and allocated 21.04% to LGAs. While this represents progress, it still falls short of what defines true fiscal federalism.
Historically, Nigeria operated under a model of fiscal federalism before the military coup of 1966. During the First Republic, 50% of revenues were allocated to the regions as derivation, 30% to the Distributable Pool Account, and 20% to the center. This system allowed regions to focus on their comparative advantages and generate substantial revenues from agriculture and taxes.
In contrast, modern federal systems like those in the United States and Canada offer insights into how resource distribution can be more equitable. In the U.S., states and local governments collect revenues from production taxes, property taxes, and lease agreements on federal lands. The central government also collects revenue through federal taxes in certain sectors. Similarly, in Canada, resource-rich provinces such as Alberta are wealthier than their resource-poor counterparts.
In Nigeria, the current system makes the center overly powerful and reduces sub-national entities to mere appendages. A true federal state should empower federating units to control and create their own LGAs, rather than having them established by the Constitution. In the U.S., there are two levels of LGs—municipalities and counties—which are subdivisions of the states responsible for delivering essential services. In Canada, nearly 5,000 LGs were created by provinces and territories to serve specific geographic areas.
In Nigeria, LGAs are listed in the Constitution and receive funds from the central government, weakening the federal structure and fueling disputes. The 2014 National Conference recommended removing LGAs from the Constitution and allowing states to control them instead.
Therefore, RMAFC should initiate a fiscal system that progressively moves Nigeria from the current 13% Derivation Fund to the First Republic model of 50% derivation. This shift would empower states as true development centers, reduce the struggle for power at the center, and justify a reduction in the size of the Federal Government.
