The Subnational Question: How States Can Turn the FAAC Surge into Devt

The distribution of poverty across Nigeria's states is starkly uneven, with rates ranging from 27 percent in Ondo to a staggering 91 percent in Sokoto. Rural areas suffer a poverty rate nearly double that of urban areas, with a significant portion of the country's poor population residing in the northern regions. The National Bureau of Statistics' Multidimensional Poverty Index serves as a scorecard reflecting the performance of subnational governments in various development indices, making fiscal allocations a crucial tool in addressing these disparities.

Fiscal allocations for states and local governments have surged by 157 percent from ₦5.14 trillion in 2022 to ₦13.22 trillion in 2025, with every state witnessing a significant increase in their allocations. Lagos, for example, saw its allocation rise from ₦307 billion to ₦996 billion, while Kano, Katsina, Jigawa, and Enugu also experienced substantial increases.

The newly allocated funds have the potential to address development challenges, but the question remains as to how states should effectively utilize this fiscal windfall.

The historical pattern of allocating resources during periods of high revenue, such as oil booms, has not always translated into tangible development. Many states fell into salary arrears and required federal bailouts when oil prices collapsed, highlighting the need for responsible financial management. The current surge in allocations presents an opportunity to break this cycle and invest in development.

To capitalize on this fiscal uplift, states must prioritize productive spending rather than administrative expansion. This means allocating at least 30 percent of their budgets to capital projects, such as building schools, healthcare centers, roads, and irrigation systems, mapped out on a ward-by-ward basis to target areas with the most pressing needs. By focusing on these tangible assets, states can generate immediate income and job opportunities while improving the quality of life for their residents.

Moreover, states should invest in their productive capacities by building infrastructure that aligns with their unique strengths. For instance, Lagos built the Imota rice mill, Kebbi focused on paddy cultivation, Ogun developed industrial corridors, and Jigawa prioritized rural feeder roads. These investments not only generate revenues but also create a multiplier effect that sustains development over time.

However, the success of these initiatives hinges on the availability and proper utilization of the local government tier, which is constitutionally responsible for providing essential services. Despite receiving ₦11.45 trillion in allocations over the past three years, these services remain underfunded and neglected. States must prioritize clearing arrears, paying a fair minimum wage, and retiring excessive debt to stabilize their finances, but these measures alone do not constitute development.

The story of Bayelsa exemplifies the consequences of mismanaged resources. Despite being among the highest per capita recipients of federal funds for decades, it continues to struggle with poverty. The lesson is clear: simply channelling funds to a treasury without a clear plan for effective delivery will not lead to meaningful improvements in the lives of the poor.