Nigeria generates roughly 85% of its federation account revenue from oil, a single extractive commodity, yet distributes that revenue to 36 states and the FCT through a formula that has not been fundamentally revised since the 1990s. That structural dependency is the starting point for economist Dipo Baruwa's two-part essay in Premium Times, which argues that Nigeria's federalism is designed around redistribution rather than production — and that the difference is everything.

Baruwa's central claim in Part 1 is sequential and precise: development begins not with money but with the allocation of authority, which then shapes incentives, which then builds capabilities, which then raises productivity, which finally expands the revenue base that makes redistribution sustainable. Skip any step — hand states cash without accountability, or devolve responsibility without matching authority — and the chain breaks. Nigeria, he implies, skips nearly every step.

The argument has empirical teeth. States that depend on federal transfers for more than 70% of their recurrent budgets — a figure that applies to at least 27 of Nigeria's 36 states by recent estimates from the National Bureau of Statistics — have little structural reason to invest in tax administration, attract private capital, or build the human capital that would make them less dependent over time. The incentive runs the other way: lobby Abuja harder, capture more of the shared pool.

In Part 2, Baruwa shifts from diagnosis to design. Productive federalism, he argues, requires three deliberate alignments: authority must be paired with real fiscal responsibility, incentives must reward states that grow their own revenue base rather than those that extract more from the centre, and capability-building — in institutions, in the civil service, in infrastructure — must be a measurable political output that voters and investors can evaluate. When those three elements are aligned, inter-state rivalry becomes developmental rather than predatory.

The comparative reference point here is implicit but recognisable. India's GST-sharing formula, revised in 2017, introduced a devolution component tied to states' own tax effort. Brazil's fiscal responsibility law of 2000 capped subnational borrowing and penalised states that ran structural deficits. Both reforms created measurable incentives for state-level fiscal discipline. Nigeria has no equivalent mechanism: the Revenue Mobilisation Allocation and Fiscal Commission's sharing formula rewards population and land mass, not productivity or own-source revenue growth.

For investors and businesses operating across Nigerian states, the practical implication is already visible. Lagos, which has invested in its internal revenue service since the early 2000s, now collects above ₦200 billion monthly in internally generated revenue — more than most other states collect in a full year. Rivers State, with its oil infrastructure, runs a distant second. The remaining 34 states compete mainly for the federal handout, not for private investment, which is why greenfield manufacturing, logistics, and financial services have concentrated in Lagos to a degree that distorts the entire national economy.

Baruwa's framework suggests the corrective is not merely constitutional — it is incentive architecture. A revised allocation formula that increases the weight given to states' own-revenue growth, combined with enforceable expenditure accountability, would change the calculus for state governors within an election cycle. A governor whose re-election depends partly on whether her state's tax base grew would prioritise the conditions — security, property rights, ease of business registration — that attract productive investment. One whose survival depends on federal patronage will not.

The counter-argument — that weak states lack the administrative capacity to mobilise revenue even if incentivised — is real, and Baruwa does not fully resolve it. Capacity cannot be conjured by a formula change alone; it requires sustained investment in civil service training, digital infrastructure, and institutional design that takes years and political will to execute. The risk is that a productivity-linked formula punishes already-weak states before they can build the muscle to compete, deepening regional inequality before it narrows it.

Why it matters: Nigeria's 2025 budget deficit is projected at ₦13.08 trillion against total expenditure of ₦47.9 trillion, with debt service alone consuming over 30% of revenue. That arithmetic is unsustainable without either a dramatic rise in state-level productive output or a continued slide into fiscal fragility. Baruwa's two-part argument — grounded in the logic that authority, incentives, and capability must be deliberately aligned — offers the clearest framework yet for why reforming the federation's incentive structure, not just its revenue formula, is the indispensable first step.