Very interesting article and lays out the fiscal reality of an increasingly weakened central political authority.
As you will know, I have long argued that the nature or culture of the region politically tilts towards decentralisation and away from the accumulation of political authority by anyone. No thanks to yams. Historical blips aside. I wonder if this is another manifestation of that history. Of course decentralisation is not in of itself a bad thing. But it leaves many questions unanswered such as how to efficiently provide public goods that by the nature need to be in some way centralised, such as security or monetary policy like you mention. I wonder if some answers lie in how the Swiss govt operates, or even the EU as an institution.
Second thought. The 1970s brought about a dramatic change in the structure of government revenues thanks to both oil discovery and the oil boom. I mean, if oil exports made up close to 40% of GDP then the question rightly is how to fairly distribute that. And the answer was born. Now that oil is circa 8% the question has changed but the answer is still the same old answer. I had hoped that a CBN debt fuelled inflation spiral would be the spark for a national agenda around revising the fiscal landscape. In a way it was but the reforms seemed to have been mismanaged on the political front and so we are left with largely administrative reforms but no fundamental structural solution.
Yes, that hand of history is really strong and it bends toward decentralisation or proliferation. You observe this even at the level of a WhatsApp group. I was surprised that even Switzerland where no one knows who their president or whatever their chief executive is called is manages to retain a significant chunk revenues at the centre. Or even Spain where at any point in time one or two regions are murmuring about independence. How Nigeria has managed to sleepwalk itself into this extreme version of federalism is baffling to say the least.
About Nigeria “sleepwalking itself into an extreme version of federalism”, Obafemi Awolowos quote which you even use in the article offers clues and answers.
Even with that said, Nigeria is not even a federal state. Even hardcore federal states have rhythm and rhyme to them and a discernible logic which everyone understands.
Nigeria is just an extremely incoherent multicultural state - and a cautionary tale -which is glued together by a redistributive machinery (which you outline in your article)!
Brilliant and well-researched piece as expected. Fundamentally, my opinion about Nigeria remains unequivocally clear as ever: it is not a cohesive nation. With various groups competing for access to resources, it is not surprising that we've found ourselves in a seemingly fiscal loop. But we need to be cautious. As much as a powerful central government is appealing, it possesses vulnerabilities that may prove existential to the existence of the country. Take for example the cutthroat competition for power between ethnic/regional groups and the consequences it could have on state's existence.
A powerful federal government under the helm of an incompetent, corrupt individual is equally a reality that cannot be ignored. Nigeria as a concept and a reality are different. The creation of local government, for example is an aberration that can only be found in a place like Nigeria but it becomes interesting when you realize that not all states in Nigeria are culturally homogenous and some of these local government are outlets for political expression of minority ethnic groups. The inability of the Nigerian political class to admit that the country is a charade politically will always result in a convoluted fiscal mess like this.
This shouldn't have been funny but I found myself laughing out loud at LGs being an outlet for political expression. It really doesn't make sense and yet, as you say, it makes perfect sense when you understand Nigeria.
Interesting article. Think I remember reading something a similar piece in The Conversation a few years back. My thoughts.
1. Just how much weakening of the centre has really happened? While it is true that there has been an increase in FG responsibilities, is it really the case that the FG can't make do with current allocation levels (even with the reductions you highlight)? It's not clear to me that that is the case. The FG certainly has not made any complainta to that effect. In fact, the Tinubu admin looks to be pushing for more decentralization.
2. You argue for re-centralization of taxes and expenditures but you don't make clear why you think this system is/will be superior more decentralization. Is your view that states will not spend allocations wisely? Or that there is more corruption at the subnational level than at the centre? Or is that there is greater capacity at the centre? Because while I think these are real problems, I don't think that they are insurmountable. I have not really seen any convincing argument for re-centralization in Nigeria. I find arguments for more decentralization more compelling . My strongly held opinion today (because I might give you a different answer tomorrow) is that the ideal is a combination of the two, and I think our current framework, while imperfect, does a lot of things well in that regard. One area where I would love to see improvements is subnational policy-making. There's almost no policy differentiation at the state level in Nigeria because states simply aren't making enough policies. If sending more money downwards to the subnational level will cause there to be more eyeballs on happenings at that level, then I am all for it.
In sum, while I'm with you on reviewing/remaking the current revenue allocation process, it's not obvious to me that work in that area should focus on strengthening the centre.
The first thing I will say is that politicians should really not be trusted on this. They don't even talk about it as a problem and the president will be happy to give away another 5% share of federal revenues to the states if it helps him win the next election. After all it will be someone else's problem. So the fact they don't complain should not be taken as a sign of anything. You can just look at the numbers and see how bad they are struggling. As of this moment, things have flipped where states are hardly owing salaries anymore but you are now seeing the FG owing salaries and contractors. No capital budget has been released this year.
Even if you don't want more recentralisation, the first thing is there has to be a floor under the FG's share. The second thing is for incentives to be better aligned. FG sets VAT rates but will only collect 10% of it. It sets income tax rates but doesnt collect anything of it.
Centralisation resources is useful because some things cannot just be done in a fragmented away. Look at Switzerland in the charts in the article and see how much revenues are retained by the centre. And yet I am sure you cannot name who their President or Prime Minister is.
Exactly. Tinubu and most other politicians like him are happy to give away increasing share of revenues to the states because it benefits their patronage politics, while not impacting their ability to rent seek or coral resources for themselves They don't care about the implications for economic growth or long term stability, and they certainly dont care what Switzerland or Spain does.
The people that should care are the technocrats and I wonder if this is at all on their radar. Is there consensus within Nigeria's intelligensia that decentralization of revenues might actually not be a good thing? As far as I can tell, the discourse up till now seemed to suggest the opposite. The latest tax law reforms were shepherded by Taiwo Oyedele, not politicians. I tried to follow his work a bit and don't recall he ever flagged centralization as an objective. The main thing he seemed to get push back on was the Northen states around the VAT sharing matter. Is there a collective blind spot by Nigerian finance/economics experts on this issue?
Currently, the FG has withheld allocations to states led by opposition parties to force the governors to switch to the ruling party, so you can't blame states for doing everything to strip the FG of resources. If the FG continues to abuse their power, they should be prepared for the consequences of that.
Yep. It is usually more political than anything else. The opposition to keeping the ECA then were led by APC governors and you could tell that those funds were planned to be used to finance campaigns and elections. The country is just a mess.
I've spent more time thinking about it and I have just realized that this piece might be interpreted as a cry for one Nigeria (statism). I support statism only when the people in charge aren't morons. The numbers he presented are actually the best way anyone can show Nigeria's road to secession, and just like devaluation, you can only hedge against it. Not stop it.
My take from all this is that it puts an onus on whoever is at the centre to prioritise rule of law. Everybody competes so strongly for the centre because its occupant gets to pick the parties who escape the ire of the federal corruption watchdog. This leverage combined with the ability to codify sham elections at the state level creates a pressure for tit for tat settlement of electoral favors. State actors secure results for aspiring federal aspirants and vice versa. The people are mostly sidelined as a factor in serious decision making. Is it not then unreasonable to expect serious governance from the state actors who are all but fancily dressed henchmen?
Regardless of your political views as it relates to the west, I honestly look forward to reading your offerings.
Why?
Because it is usually clearly thought out.
Starting out by dissecting the historical underpinnings of Nigeria's fiscal arrangement and traversing the decisions of a number of political actors, give us an idea of the kind of fiscal time-bomb that we are sitting on.
Rereading the perpetually irascible Lebanese writer's Black Swan, you start to grasp Benoit Mandelbrot, Louis Bachelier's ideas on Chaos theory and Brownian motion and how small actions have large, profound unseen consequences for the polity.
It may take a decade or even longer for the effects of our extraordinary fiscal indiscipline to be felt, but it is fair to say that it is near inevitable.
I will invite you to my podcast, and I would love to have a broad-based conversation on these topics.
But be rest assured that you have written a piece which will age extremely well.
I have written elsewhere in the context of a 10 point program that Nigeria can literally implement by the end of tomorrow if it wants to get out of a decade old stagnation, that Nigeria should abolish FAAC if it wants to get its deeply messed up and dysfunctional fiscal house in order.
In fact I’m of the opinion that FAAC is one of the low key major - if not the major - driver of Nigerias inflation crisis. Literally removing FAAC out of Nigerias budget while not totally eliminating its deficit more than halves it by some calculations I’ve done. I’ll imagine that at those levels there might be no need for central bank budget deficit monetization.
At the end of day, I’m of the opinion that at best Nigerias federal government should not consume more than 10% of national output. This is a key reason why I’m no supporter of its recently passed “tax reform” with its 18% goal even though I like its meager corporate tax rate reduction.
Nigerian states could generate more revenue and should have a tax completion dynamic among each other. The bulk of government spending should be at the sub national units.
In my ideal world Nigerias federal government should not consume more than 5% of yearly output and its states should do the bulk of spending. And on the whole, accounting for federal and subnational units, total government spending should not exceed 15% of GDP.
Towards this, Nigerias federal government should do far less things but do whatever it does well.
But this is all an ideal world I paint. From the look of things with the fiscal strain on Nigerias federal government, I doubt the tax reform bill would change that much, Nigeria is going to come under very deep fiscal strain which might render “the center” impotent over time or might even cause some kind of economic crisis.
The argument that Nigeria risks becoming ungovernable due to decentralization is, in my view, built on a flawed assumption.
The real issue isn’t decentralization, it’s revenue mismanagement. Despite earning hundreds of billions of dollars from oil over the years, Nigeria’s essential services are either dead, decaying, or chronically underfunded. Historically, the Federal Government (FG) not only controlled the major levers of governance but also took the lion’s share of federation revenue.
Today, while the FG still retains control over most of these critical levers, its share of revenue has declined. That contradiction is exactly where decentralization should come in.
The FG must devolve responsibilities that are more appropriately handled by subnational governments, such as education, primary healthcare, and internal security, and focus on services that are truly national in scope. FG needs to push our lazy states towards self sufficiency.
If the FG’s revenue share has shrunk, so too must its obligations. Decentralization isn’t the problem — it’s the path toward a more functional, responsive, and fiscally realistic federation.
this is a reason you have to have robust mental models. for example, centralization is inherently a losing strategy, no matter the game. it makes you brittle where resilience is the optimal play.
centralizing resources and giving unilateral power to everyone downstream of center is even a worse game, like i can't believe this.
thanks feyi as always for opening my eyes to the systemic palavers underpinning what i just assume is a cultural issue.
Very interesting article and lays out the fiscal reality of an increasingly weakened central political authority.
As you will know, I have long argued that the nature or culture of the region politically tilts towards decentralisation and away from the accumulation of political authority by anyone. No thanks to yams. Historical blips aside. I wonder if this is another manifestation of that history. Of course decentralisation is not in of itself a bad thing. But it leaves many questions unanswered such as how to efficiently provide public goods that by the nature need to be in some way centralised, such as security or monetary policy like you mention. I wonder if some answers lie in how the Swiss govt operates, or even the EU as an institution.
Second thought. The 1970s brought about a dramatic change in the structure of government revenues thanks to both oil discovery and the oil boom. I mean, if oil exports made up close to 40% of GDP then the question rightly is how to fairly distribute that. And the answer was born. Now that oil is circa 8% the question has changed but the answer is still the same old answer. I had hoped that a CBN debt fuelled inflation spiral would be the spark for a national agenda around revising the fiscal landscape. In a way it was but the reforms seemed to have been mismanaged on the political front and so we are left with largely administrative reforms but no fundamental structural solution.
Either way. Good article.
Yes, that hand of history is really strong and it bends toward decentralisation or proliferation. You observe this even at the level of a WhatsApp group. I was surprised that even Switzerland where no one knows who their president or whatever their chief executive is called is manages to retain a significant chunk revenues at the centre. Or even Spain where at any point in time one or two regions are murmuring about independence. How Nigeria has managed to sleepwalk itself into this extreme version of federalism is baffling to say the least.
About Nigeria “sleepwalking itself into an extreme version of federalism”, Obafemi Awolowos quote which you even use in the article offers clues and answers.
Even with that said, Nigeria is not even a federal state. Even hardcore federal states have rhythm and rhyme to them and a discernible logic which everyone understands.
Nigeria is just an extremely incoherent multicultural state - and a cautionary tale -which is glued together by a redistributive machinery (which you outline in your article)!
"so we are left with largely administrative reforms, but no fundamental structural solution"
hmm, this hit me like ....
Na wa o,
What is this Nigerian Macroeconomy abeg ?😵💫
Brilliant and well-researched piece as expected. Fundamentally, my opinion about Nigeria remains unequivocally clear as ever: it is not a cohesive nation. With various groups competing for access to resources, it is not surprising that we've found ourselves in a seemingly fiscal loop. But we need to be cautious. As much as a powerful central government is appealing, it possesses vulnerabilities that may prove existential to the existence of the country. Take for example the cutthroat competition for power between ethnic/regional groups and the consequences it could have on state's existence.
A powerful federal government under the helm of an incompetent, corrupt individual is equally a reality that cannot be ignored. Nigeria as a concept and a reality are different. The creation of local government, for example is an aberration that can only be found in a place like Nigeria but it becomes interesting when you realize that not all states in Nigeria are culturally homogenous and some of these local government are outlets for political expression of minority ethnic groups. The inability of the Nigerian political class to admit that the country is a charade politically will always result in a convoluted fiscal mess like this.
This shouldn't have been funny but I found myself laughing out loud at LGs being an outlet for political expression. It really doesn't make sense and yet, as you say, it makes perfect sense when you understand Nigeria.
So, you're saying that the Nigerian center is getting weakened and the states getting stronger? That is quite news to my ears.
Although, it tracks that Tinubu might favor a weaker center because the APC is rooted in ethnic chauvinism. I did write about that here - https://naijachronicles.substack.com/p/is-there-an-ideological-difference
Interesting article. Think I remember reading something a similar piece in The Conversation a few years back. My thoughts.
1. Just how much weakening of the centre has really happened? While it is true that there has been an increase in FG responsibilities, is it really the case that the FG can't make do with current allocation levels (even with the reductions you highlight)? It's not clear to me that that is the case. The FG certainly has not made any complainta to that effect. In fact, the Tinubu admin looks to be pushing for more decentralization.
2. You argue for re-centralization of taxes and expenditures but you don't make clear why you think this system is/will be superior more decentralization. Is your view that states will not spend allocations wisely? Or that there is more corruption at the subnational level than at the centre? Or is that there is greater capacity at the centre? Because while I think these are real problems, I don't think that they are insurmountable. I have not really seen any convincing argument for re-centralization in Nigeria. I find arguments for more decentralization more compelling . My strongly held opinion today (because I might give you a different answer tomorrow) is that the ideal is a combination of the two, and I think our current framework, while imperfect, does a lot of things well in that regard. One area where I would love to see improvements is subnational policy-making. There's almost no policy differentiation at the state level in Nigeria because states simply aren't making enough policies. If sending more money downwards to the subnational level will cause there to be more eyeballs on happenings at that level, then I am all for it.
In sum, while I'm with you on reviewing/remaking the current revenue allocation process, it's not obvious to me that work in that area should focus on strengthening the centre.
The first thing I will say is that politicians should really not be trusted on this. They don't even talk about it as a problem and the president will be happy to give away another 5% share of federal revenues to the states if it helps him win the next election. After all it will be someone else's problem. So the fact they don't complain should not be taken as a sign of anything. You can just look at the numbers and see how bad they are struggling. As of this moment, things have flipped where states are hardly owing salaries anymore but you are now seeing the FG owing salaries and contractors. No capital budget has been released this year.
Even if you don't want more recentralisation, the first thing is there has to be a floor under the FG's share. The second thing is for incentives to be better aligned. FG sets VAT rates but will only collect 10% of it. It sets income tax rates but doesnt collect anything of it.
Centralisation resources is useful because some things cannot just be done in a fragmented away. Look at Switzerland in the charts in the article and see how much revenues are retained by the centre. And yet I am sure you cannot name who their President or Prime Minister is.
Exactly. Tinubu and most other politicians like him are happy to give away increasing share of revenues to the states because it benefits their patronage politics, while not impacting their ability to rent seek or coral resources for themselves They don't care about the implications for economic growth or long term stability, and they certainly dont care what Switzerland or Spain does.
The people that should care are the technocrats and I wonder if this is at all on their radar. Is there consensus within Nigeria's intelligensia that decentralization of revenues might actually not be a good thing? As far as I can tell, the discourse up till now seemed to suggest the opposite. The latest tax law reforms were shepherded by Taiwo Oyedele, not politicians. I tried to follow his work a bit and don't recall he ever flagged centralization as an objective. The main thing he seemed to get push back on was the Northen states around the VAT sharing matter. Is there a collective blind spot by Nigerian finance/economics experts on this issue?
Currently, the FG has withheld allocations to states led by opposition parties to force the governors to switch to the ruling party, so you can't blame states for doing everything to strip the FG of resources. If the FG continues to abuse their power, they should be prepared for the consequences of that.
Yep. It is usually more political than anything else. The opposition to keeping the ECA then were led by APC governors and you could tell that those funds were planned to be used to finance campaigns and elections. The country is just a mess.
I've spent more time thinking about it and I have just realized that this piece might be interpreted as a cry for one Nigeria (statism). I support statism only when the people in charge aren't morons. The numbers he presented are actually the best way anyone can show Nigeria's road to secession, and just like devaluation, you can only hedge against it. Not stop it.
My take from all this is that it puts an onus on whoever is at the centre to prioritise rule of law. Everybody competes so strongly for the centre because its occupant gets to pick the parties who escape the ire of the federal corruption watchdog. This leverage combined with the ability to codify sham elections at the state level creates a pressure for tit for tat settlement of electoral favors. State actors secure results for aspiring federal aspirants and vice versa. The people are mostly sidelined as a factor in serious decision making. Is it not then unreasonable to expect serious governance from the state actors who are all but fancily dressed henchmen?
Regardless of your political views as it relates to the west, I honestly look forward to reading your offerings.
Why?
Because it is usually clearly thought out.
Starting out by dissecting the historical underpinnings of Nigeria's fiscal arrangement and traversing the decisions of a number of political actors, give us an idea of the kind of fiscal time-bomb that we are sitting on.
Rereading the perpetually irascible Lebanese writer's Black Swan, you start to grasp Benoit Mandelbrot, Louis Bachelier's ideas on Chaos theory and Brownian motion and how small actions have large, profound unseen consequences for the polity.
It may take a decade or even longer for the effects of our extraordinary fiscal indiscipline to be felt, but it is fair to say that it is near inevitable.
I will invite you to my podcast, and I would love to have a broad-based conversation on these topics.
But be rest assured that you have written a piece which will age extremely well.
I have written elsewhere in the context of a 10 point program that Nigeria can literally implement by the end of tomorrow if it wants to get out of a decade old stagnation, that Nigeria should abolish FAAC if it wants to get its deeply messed up and dysfunctional fiscal house in order.
In fact I’m of the opinion that FAAC is one of the low key major - if not the major - driver of Nigerias inflation crisis. Literally removing FAAC out of Nigerias budget while not totally eliminating its deficit more than halves it by some calculations I’ve done. I’ll imagine that at those levels there might be no need for central bank budget deficit monetization.
At the end of day, I’m of the opinion that at best Nigerias federal government should not consume more than 10% of national output. This is a key reason why I’m no supporter of its recently passed “tax reform” with its 18% goal even though I like its meager corporate tax rate reduction.
Nigerian states could generate more revenue and should have a tax completion dynamic among each other. The bulk of government spending should be at the sub national units.
In my ideal world Nigerias federal government should not consume more than 5% of yearly output and its states should do the bulk of spending. And on the whole, accounting for federal and subnational units, total government spending should not exceed 15% of GDP.
Towards this, Nigerias federal government should do far less things but do whatever it does well.
But this is all an ideal world I paint. From the look of things with the fiscal strain on Nigerias federal government, I doubt the tax reform bill would change that much, Nigeria is going to come under very deep fiscal strain which might render “the center” impotent over time or might even cause some kind of economic crisis.
The argument that Nigeria risks becoming ungovernable due to decentralization is, in my view, built on a flawed assumption.
The real issue isn’t decentralization, it’s revenue mismanagement. Despite earning hundreds of billions of dollars from oil over the years, Nigeria’s essential services are either dead, decaying, or chronically underfunded. Historically, the Federal Government (FG) not only controlled the major levers of governance but also took the lion’s share of federation revenue.
Today, while the FG still retains control over most of these critical levers, its share of revenue has declined. That contradiction is exactly where decentralization should come in.
The FG must devolve responsibilities that are more appropriately handled by subnational governments, such as education, primary healthcare, and internal security, and focus on services that are truly national in scope. FG needs to push our lazy states towards self sufficiency.
If the FG’s revenue share has shrunk, so too must its obligations. Decentralization isn’t the problem — it’s the path toward a more functional, responsive, and fiscally realistic federation.
this is a reason you have to have robust mental models. for example, centralization is inherently a losing strategy, no matter the game. it makes you brittle where resilience is the optimal play.
centralizing resources and giving unilateral power to everyone downstream of center is even a worse game, like i can't believe this.
thanks feyi as always for opening my eyes to the systemic palavers underpinning what i just assume is a cultural issue.
Thank for sharing!
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