The federalism that promotes productivity (2), By Dipo Baruwa

Ultimately, federalism succeeds not merely because power is decentralised, but because authority, incentives and capability are deliberately aligned to make productivity the basis of political success. When states compete to build institutions, attract investment, develop people and expand their productive frontiers, rivalry becomes developmental. It is through that alignment, not constitutional perfection, that productive capabilities are built, locational comparative advantages emerge and sustainable development becomes possible.

Productive Federalism

Productive federalism is not a race to duplicate identical industrial parks, airports, universities or government-owned enterprises. While such investments are not inherently negative, the use of scarce resources requires a more strategic rather than reactive process through which states identify their economic opportunities, coordinate public and private investment around them, develop the required capabilities, and progressively construct locational advantages. The aim is not competition for appearances but for measurable outcomes.

How many sustainable businesses have been created? How many firms have expanded or reinvested? Has agricultural output per hectare improved? Have logistics costs declined? Are technical institutions producing the skills demanded by local industries? Has the state attracted complementary firms around an emerging sector? Has internally generated revenue expanded because productive activity has increased, rather than merely because taxes and levies have multiplied? This requires capable institutions that can identify external opportunities, connect them to local capabilities and ensure that the benefits become embedded within the domestic economy.

This distinction is important because Nigeria has sometimes confused productive rivalry with politically motivated aggrandisement. States compete to announce the largest airport, the most imposing government building, the newest university or the most ambitious industrial project, even where the economic foundations required to sustain those initiatives are absent. The result is rivalry in expenditure, rather than in capability.

A productive federation would reward governments not for the scale of their announcements but for the durability of the economic systems they create. Public investment would be judged by whether it reduces production costs, improves access to markets, expands knowledge, raises labour productivity and attracts further private investment. Political success would be increasingly connected to economic outcomes, rather than to the ability to distribute patronage or commission conspicuous projects. Unfortunately, the latter is the lived reality of the Nigerian polity.

What is Behind the Cry of Local Government Autonomy?

This also has implications for the relationship between states and local governments. The same authority–incentive–capability framework that applies between the federal and the state governments must also apply within the states themselves. Nigeria cannot build a genuinely productive federation, while local governments remain institutionally marginal to development.

Many services closest to communities, including basic infrastructure maintenance, local markets, primary healthcare support, community libraries, sanitation, local economic information and aspects of agricultural extension, require functioning local government institutions. Yet state governments have progressively absorbed functions and revenues without always providing a more effective replacement. Authority has become concentrated, accountability has become blurred, and local governments have been left with limited incentives or capability to shape development within their jurisdictions.

States should be able to compare themselves transparently on investment attraction, education quality, healthcare delivery, agricultural productivity, infrastructure maintenance, business survival, internally generated revenue and employment creation. Successful reforms undertaken by one state should be documented and adapted by others. Governors should face not only electoral comparison within their states but developmental comparison across the federation.

The question is, therefore, not simply whether local governments should receive allocations directly. It is whether authority, revenue, responsibility and accountability can be aligned at the level in which particular public services and developmental functions can be performed most effectively. Direct funding without capability and accountability may simply reproduce the same distributive weakness at a lower level. But denying local institutions meaningful authority also removes an important layer of experimentation, information gathering and development implementation – basic ingredients for building the federation’s institutional capability to generate, synthesise, and utilise local economic information for national development.

Productive federalism, therefore, requires clarity about who is responsible for what, the resources available for performing those responsibilities, and the outcomes by which performance will be assessed. Where authority is assigned without financial or administrative capability, failure becomes inevitable. Where revenue is provided without responsibility and accountability, distribution becomes an end in itself.

This is also where institutions such as the Nigeria Governors’ Forum should assume a more developmental role. The Forum should not function principally as a platform for political bargaining with the Federal Government or for coordinating common positions on revenue allocation. It could become an institution for productive peer review among states.

States should be able to compare themselves transparently on investment attraction, education quality, healthcare delivery, agricultural productivity, infrastructure maintenance, business survival, internally generated revenue and employment creation. Successful reforms undertaken by one state should be documented and adapted by others. Governors should face not only electoral comparison within their states but developmental comparison across the federation.

Kenya’s experience with county-level devolution offers a useful, though imperfect, illustration. Counties have increasingly been compared on healthcare, agriculture, infrastructure and service delivery. Rwanda, although not a federation, has used performance contracts to connect subnational administration with measurable outcomes. The lesson for Nigeria is not to copy either country, but to recognise that decentralised authority becomes developmental only when performance is visible, comparable and consequential.

The Federal Government also has an indispensable role. Productive federalism does not imply a weak or indifferent centre. It requires a centre that concentrates on functions that benefit from national coordination: macroeconomic stability, national infrastructure, interstate commerce, competition policy, national standards, external trade relations, security coordination, research and the provision of public goods that individual states cannot efficiently supply alone.

The debate before Nigeria is therefore not simply whether to restructure the federation, but what kind of federalism the country wishes to practise. A federation organised predominantly around distribution will continue to produce political competition for existing wealth. A federation organised around productive capability will encourage competition to create new wealth.

The centre should also generate and distribute economic information, coordinate national and subnational institutions, remove barriers to interstate production and trade, and ensure that equalisation supports minimum standards without extinguishing incentives for subnational initiative.

Redistribution remains necessary. Nigeria’s states possess different resource endowments, populations, revenue capacities and historical advantages. A federation cannot ignore these differences. However, redistribution should provide a foundation from which less-advantaged states can build capabilities; it should not become a permanent substitute for productive effort. Equalisation should enable participation in development, not institutionalise dependence on allocation.

The debate before Nigeria is therefore not simply whether to restructure the federation, but what kind of federalism the country wishes to practise. A federation organised predominantly around distribution will continue to produce political competition for existing wealth. A federation organised around productive capability will encourage competition to create new wealth.

Conclusion

The argument throughout this series has been simple. Many of the constitutional and institutional ingredients for productive federalism already exist within Nigeria’s governance framework. What remains deficient is not merely constitutional design, but the governance architecture needed to align authority, incentives and institutional capability.

As Nigeria approaches another general election cycle, this debate should not be ethnicised or reduced to slogans about “true federalism.” Nor should it become a contest between those who support redistribution and those who advocate production. Every viable federation requires both. The real task is to design a system in which equitable redistribution strengthens rather than weakens the incentive to produce.

Ultimately, federalism succeeds not merely because power is decentralised, but because authority, incentives and capability are deliberately aligned to make productivity the basis of political success. When states compete to build institutions, attract investment, develop people and expand their productive frontiers, rivalry becomes developmental. It is through that alignment, not constitutional perfection, that productive capabilities are built, locational comparative advantages emerge and sustainable development becomes possible.

Dipo Baruwa is a business climate development analyst.