Executive Summary i

Introduction iv

I. An Historical Overview of Nigerian Federalism 1

1. Federalism Before Independence 1

2. Federalism After Independence 4

II. Governance Capacity in the States 11

1. State Level Government in the Third Republic 11

2. Political Leadership and Key Institutions 16

3. The State Civil Service 21

4. Improving the Quality of the Civil Service 25

5. Budgeting and Financial Management 30

III. The Capacity of Local Government Authorities 39

1. The Evolution of Local Government 39

2. Local Government Staffing 44

3. Budgeting and Financial Management 45

4. Local Government and Community Development 49

IV. Operational Implications 50

1. Support for Capacity Building 50

2. The Challenge Framework for State Government Reform 56

3. The Role of the Federal Government 57

Appendix A: Individuals Interviewed for Study 58

Appendix B: Characteristics of States 63

Map of States Included in Study 64

EXECUTIVE SUMMARY

The purpose of the study is to increase knowledge about state capacity in Nigeria by taking stock of governance issues, including public financial management and civil services, and analyzing them in representative states across the regions, as states assume an expanded role in delivering services to their populations under the 1999 constitution. The immediate beneficiaries are those agencies of the Federal Government, such as the State and Local Government Affairs Office, which have mandated links with state governments, and the Bank itself, which needs to build its knowledge after disengaging from Nigeria in the latter years of military rule.

Specifically, the study lays the groundwork for the preparation of a program of assistance to state governments, should the Federal Government seek financing from the Bank.

Before capacity can be strengthened, the broader context for capacity building must be understood. Thus the study focuses both on the evolving story of federalism in Nigeria, as well as the challenges states face in managing their finances and delivering services in the aftermath of misrule and decay under the military. With the guidance of the State and Local Government Affairs Office, five states were selected for review: Bauchi, Nasarawa, Rivers, Anambra and Ogun.

The principal findings of the study are the following:

1. There is a great deal of variation across states in their capacity for governance. While all states suffered under military rule, some states maintained core civil service capacity better than others. Much has to do with when and how states were created.

2. A new generation of state governors is emerging, albeit still a minority. These are new men coming to politics with a strong private sector background, determined to make their mark by results rather than patronage. These governors are tackling energetically the legacy of stagnation and decay.

3. Some are beginning to address public sector reform, through civil service modernization and right sizing, and strengthening financial management. As is already happening in a few states, there is an opportunity for external agencies to support this process by providing resources, expertise and the experience of other countries in public sector reform.

4. Suggested areas for support include: modernization of civil services, including rebuilding management systems, strengthening budgeting and financial management, and enhancing accountability structures in both the executive and the legislature. Overall, there is a great need to invest in the rehabilitation of national and state civil service training institutions, and the updating of training curricula.

5. The emphasis of governors at the moment is on rehabilitating existing structures, through channeling as much resources as can be spared to the capital budget. A concern of senior civil service managers is to restore adherence to due process. Progressively, the emphasis will broaden to the quality of services provided, and this will entail modifying budget structures, inculcating a performance orientation in staff, and increasing transparency.

6. At the same time, both states and the Federal Government will need to resolve an apparent imbalance between the service delivery mandates of states and the resources at their disposal. The pass through of last year’s Federal Government salaries increase has greatly strained the finances of subordinate tiers, putting many rehabilitation plans on hold.

7. Federal Government and states will also need to re-examine whether the present degree of harmonization of systems across tiers of government continues to serve their interests. There is a case for striking a new balance between common systems and state variation and innovation.

8. If external support for capacity building is to be effective, it must be calibrated with the commitment to reform in states, and not provided on an entitlement basis.

INTRODUCTION

The success of Nigeria’s federal system for effective governance depends on an appropriate division of responsibilities and resources between federal, state and local authorities supported by a sufficient institutional capacity at each of these levels to carry out its assigned functions. The purpose of this study is to assess the extent of such capacity by reviewing key governmental institutions at the state and local level as well as the changing relationships between these two tiers of government and the center and between each other. The report is intended to inform the Federal Government of Nigeria, especially the State and Local government Affairs Office, and the World Bank about the strengths and weaknesses of governance at the state and local levels and what institutions require support to strengthen Nigeria’s federal system as a whole As such, it is hoped that the study will lay the ground for future Bank lending to strengthen capacity of selected institutions at the sate and/or local level.

The study is also intended to provide Bank staff concerned with a variety of sector specific programs, and especially those charged with designing programs in the area of Community Driven Development (CDD), with an understanding of the institutional and historical context within which these programs will be established. Many of the programs now being considered by the Bank in Nigeria will require implementation via state and/or local government. It is therefore crucial that the nature of these tiers of government be understood before moving forward with such programs, and that appropriate steps be taken based on this understanding to guide these programs’ success. It is also important that the historical and political context of these institutions be appreciated. State and local government do not function in a vacuum but are the products of societal forces that determine their structure and mode of operation. A significant portion of this report is therefore devoted to providing this background to deepen the understanding of the nature of capacity and the steps that might be taken to strengthen it. In this way, this report represents a departure from the conventional approach towards public sector analysis in the Bank.

The report that follows is divided into three sections. The first section presents an historical overview of the development and nature of Nigeria’s federal system of governance. The second is an analysis of governance capacity in the states. This analysis is extended to local government in the third section.

This study was prepared by a multidisciplinary team of three specialists led by Mike Stevens, a public sector management specialist who served as the Task Team Leader for the study. He was joined by two political scientists: Joel D. Barkan, Professor of Political Science at the University of Iowa, and a specialist on the politics of African development, and Alex Gboyega, Professor of Political Science at the University of Ibadan, Nigeria and a specialist on state and local government.

Field investigations for this study were conducted in February, March and May, 2001 during which time the team spent one week in each of five Nigerian states conducting interviews for the study—Bauchi, Nasarawa, Rivers, Anambra and Ogun. More than 150 people were interviewed in the process of these investigations including senior government officials, civil servants and members of non-governmental organizations. A list of those interviewed appears in Appendix A.

The field investigations for this study would not have been possible were it not for the assistance provided by the State and Local Government Affairs Office of the Federal Government of Nigeria. We especially wish to thank Cornell Obi, the Director of the office, and Chief C.C. Agbaneje, the Deputy Director for their invaluable support throughout the preparation of this study. We also wish to thank the many officials who took time from their busy schedules to meet with members of the team during which time they candidly shared their observations and aspirations regarding the future of state and local government.

Finally a word of caution: While we are confident that findings presented in this report are valid for the states considered for the study, and while we are also confident about the conclusions we have drawn from the study for Nigeria as a whole, it is prudent to remember that this group of states was not randomly chosen, but selected according to pre-determined criteria. The choice of states was determined in consultation with the State and Local Government Affairs Office to include one state from each of five of the six principal geo-political zones that frame most policy discussions in Nigeria.[1] This selection of states embrace the wide diversity of socio-economic and political conditions found across the Federation. They nevertheless constitute a relatively small “sample” and one that probably reflects those states that have achieved more distinctive records of effective governance than others since the return of democratic rule.

I. AN HISTORICAL OVERVIEW OF NIGERIAN FEDERALISM

Nigeria is a federation of 36 states, a federal capital territory (FCT) and 774 local government areas. To understand the various dimensions of governance capacity at the state and local levels, one must begin by appreciating the changing federal context within which state and local governments were formed. It is particularly important to understand the varying extent of state autonomy vis a vis the federal government and the manner in which revenue has been allocated across the three tiers of government. These are the defining parameters of all federal systems, and Nigeria is no exception. We therefore begin this report with an historical overview of Nigeria’s federal system—how and why the system was established in the manner that it was, and the enduring implications of these developments for the country today. The states that comprise Nigeria today are the product of an interplay of regional forces that have unfolded over a period of nearly ninety years. During this period, which includes the period of colonial rule, power shifted back and forth between the center and Nigeria’s constituent parts—provinces, regions and later states, and between north and south. The prospects for the states to play a leading role in the economic transformation of contemporary Nigeria are conditioned by this historical experience.

1. Federalism Before Independence: From Two Protectorates to a Single Federation

Nigeria was incorporated in 1914 when Frederick Lugard who became its first Governor-General amalgamated the two British protectorates of Northern and Southern Nigeria and the Crown Colony of Lagos into a single entity. The primary reason for amalgamation was economic rather than political. The Northern Protectorate which became the Northern Province had annual budget deficits, while the Southern Protectorate which became the Southern Province had surpluses. To eliminate the subventions from the British treasury, the budgets of the two components were integrated. In addition, some central institutions were established to anchor the evolving unified structure. The Governor-General organized a Central Secretariat at Lagos, which was the seat of government, and established the Nigerian Council (later the Legislative Council) to provide a forum for representatives drawn from the provinces. Certain services were integrated across the Northern and Southern Provinces because of their national significance—military, treasury, audit, posts and telegraphs, railways, survey, medical services, judicial and legal departments—and brought under the control of the Central Secretariat in Lagos.

The process of unification was undermined by the persistence of different regional perspectives on governance between the Northern and Southern Provinces, and by Nigerian nationalists in Lagos. While southern colonial administrators welcomed amalgamation as an opportunity for imperial expansion, their counterparts in the Northern Province believed that it was injurious to the interests of the areas they administered because of their relative backwardness and that it was their duty to resist the advance of southern influences and culture into the north. Southerners, on their part, were not eager to embrace the extension of legislation originally meant for the north to the south. These same concerns persist across both north and south today.[2]

These differential attitudes signalled that a federal system might be a suitable framework for keeping Nigeria as a single political entity. Subsequent political developments confirmed the federal solution as the best political arrangement that could provide the compromises and assurances necessary for advancement to political unity. No final consensus, however, has been reached on what such compromises and assurances should be, and in many ways Nigerian history is the search and struggle for an enduring federal formula, which continues today.

Nigeria has had no less then seven constitutions and demands are building up for review of the current constitution. In an effort to establish a viable federation, the British modified the constitution four times—in 1922, in 1946, in 1951, in 1954. The final result was a federation of three regions following the splitting of the Southern Province in 1946 to create the Eastern and Western Regions, and the Northern Region which was a continuation of the Northern Province. The establishment of the regions was a response to the fundamental ethnographic and cultural configuration of Nigerian society. It was also an impetus for the further ethnicization of politics.

Each of the regions was formed around the largest ethnic group residing in the region—the Northern Region around the Hausa Fulani, the Western Region around the Yoruba, and the Eastern Region around the Igbo. However, none of these groups, with the possible exception of the Yoruba in the Western Region, constituted more than 65 percent of the population of the region in which it was the dominant group. Each of the regions thus contained significant populations of ethnic minorities that would subsequently demand their own region or state.

The three regions were also distinguished by their unique cultures and rural economies. The Northern Region was and remains overwhelmingly Muslim in religious background and resisted Western education and other cultural importations of the colonial regime. Prior to the colonial era, the Hausa were governed by a series of centralized political authorities or Emirates ruled by powerful emirs. The British reinforced these traditional structures by ruling through the emirs the most important of which was the Sultan of Sokoto. Although the importance of the emirs declined significantly during the period of military rule, governors across the North seek to maintain cordial relations with these leaders. The North has historically been a significant region of cattle raising and supplies much of southern Nigeria with meat. The region was also a major producer and exporter of cotton though, as with the rest of the agricultural sector, cotton production has declined in importance.

The Western Region, which included the capital city of Lagos, became the economic hub of the country prior to the discovery of oil in the 1960s. In addition to the trade associated with the capital, the region became one of the major producers of cocoa in West Africa. The Yoruba traditionally resided in urban areas—one of the few manifestations of a pre-colonial urban pattern of residence in Africa, and one which stimulated trade across the region. Less centralized than the Hausa, the Yoruba were organized into a series of small kingdoms and chieftaincies which were reinforced during the colonial period. Although the region rapidly embraced Western education and, to a much lesser extent, Christianity, the region maintains its distinct cultural identity, one that has shaped Nigerian politics.

The Eastern Region, the homeland of the Igbo peoples and other acephalous groups, embraced both Western education and the colonial economy. The region is also the most heavily Christian in Nigeria having been the site of intensive missionary activity by the Catholic church. During the colonial era the East became a major producer and exporter of palm oil and other palm products, however, since the discovery of oil and the civil war, palm oil no longer dominates the economy. Igbo traders are legendary in their entrepreneurial skills and are found throughout Nigeria. However, their presence has often resulted in ethnic friction, particularly in the North whose economy was once heavily influenced by these settlers from the South.

During the run-up to independence, the British transferred responsibilities to Nigerian leaders by establishing a parliamentary form of government based on the British model at both the regional and federal level, and holding elections for each of these bodies. Internal self-government was thus granted to the Eastern and Western Regions in 1957, and to the Northern Region in 1959.

A related and critical issue was the allocation of revenue between the regions and the federal government. In 1958 a commission[3] was appointed to advise on a revenue allocation formula. It emphasized the principle of derivation by recommending that 50 percent of mining and mineral rents and royalties should be retained by the regions of origin, i.e. the regions where the extraction or production occurred. Of the remainder, 30 percent should be allocated to the distributable pool account that would be shared by all the regions, and 20 percent to the federal government. The result is that as Nigeria approached independence, it consisted of a federation of three autonomous political entities, each with a different ethnic base, and each with its own revenue base. The federal government was relatively weak—a loose framework to hold the country’s disparate parts together and provide common services

2. Federalism After Independence and the Drive for New States, 1960-1996

“The First Republic”: Nigeria’s First Attempt at Democratic Governance (1960-1965)

At independence in October 1960 Nigeria was a multi-party democracy with a federal constitution. Its parliamentary system gave promise of evolution toward a stable plural political system. The judiciary was independent while the civil services of the federation and the regions had a high reputation for efficiency and integrity. This system was soon undermined by the nature of political forces of the time.

In the decade prior to independence, three political parties emerged to dominate Nigerian politics. Each became dominant in a single region by organizing the largest ethnic group of the region into its political base. The National Council for Nigeria and the Cameroons (or NCNC) became the dominant party in the Eastern Region by organizing the Igbo heartland. The Northern People’s Congress (NPC) became the dominant party in the Northern Region by appealing to Hausa speaking peoples, and the Action Group (AG) gained ascendancy in the West as the representative of the Yoruba. Each of these parties came to control the government in its region while a coalition of the NPC and NCNC—a coalition of the North and the East—formed the government at the center, and the AG formed the federal opposition. The result was an inherently unstable situation where the ruling parties of any two regions could dominate the third. In 1963 an intra-party crisis in the Western Region gave the federal coalition partners the opportunity to intervene in the region to incapacitate the AG government. The federal government invoked emergency powers to dismiss the western regional government. While the regional leadership was in disarray, the region was split by the creation of the Mid-West Region, a new region for the non-Yoruba minorities of the original region..

Disagreement over the 1962/63 population census figures then ruptured the federal coalition of the NCNC and the NPC. Both parties were keen that the regions where they dominated gained advantage from the census. The conflict over the census exacerbated political tensions that had previously led to outbreaks of violence in the Western Region and some parts of the Northern Region. This situation led to the first military intervention in January 1966. It was followed by a second coup six months later.

The First Period of Military Rule (1966-1979)

The coups of 1966 thrust Nigeria into two protracted periods of military rule that were to last thirty years save for a short interregnum from 1979 to 1983. After the second coup that was a reprisal for the first and wanton killing of Easterners in northern Nigeria, the Eastern Region attempted to secede and to create an independent Igbo homeland (i.e. Biafra) which resulted in a 30-month civil war. In response, the federal military government, began to create more states—to outflank and break-up the Eastern Region by providing homelands for ethnic minorities of the region, but also to break-up the dominant bases of power in the West and the North. The military believed that by creating a larger number of relatively weak states under a strong central government that it could overcome the instability of the past. Put simply, the military sought to unilaterally redefine the shape of Nigerian federalism into one consistent with its own hierarchical structure and vision. The result was the creation of eight additional states, raising the total to 12 in 1967. Another 7 were created in 1976 raising the number to 19. The number was again raised to 30 during the second period of military rule in 1991 and to the present 36 in 1996.


Table 1

THE SEARCH FOR A VIABLE FEDERATION

Year	Number of	Extent of	Regime
	Regions	Regional or State	Type
	or States	Autonomy

1914	2	Very High	Colonial

1954	3	Very High	Colonial

1963	4	High	Democratic

1967	12	Low	Military

1976	19	Low	Military

1979	19	Medium	Democratic

1991	31	Low	Military

1996	36	Very Low	Military

1999	36	Medium & rising	Democratic

The military also whittled down areas of autonomous decision-making on the part of the states by appointing senior officers and members of the Supreme Military Council as governors of the states.[4] More significantly, the military regime centralized the fiscal system. Under the guise of raising resources to fight the civil war, the military transferred tax resources previously vested in the regional governments to the federal government and reduced the proportion of federally collected revenue distributed according to the principle of derivation from 50 percent to 10 percent. Another impetus for the reduction of the derivation principle was Nigeria’s emergence as a major oil producer. By the early 1970s oil had become Nigeria’s leading export and the leading source of revenue, but without the reduction of the principle of derivation, half of all oil revenues would have flowed to the littoral states located in the south-eastern part of the country. By reducing the derivation principle, the bulk of these funds were available for redistribution throughout the federation.

Before the return to civilian democratic rule in 1979, 90 percent of all oil revenues plus all other federal sources of revenue were deposited into the Federation Account and allocated according to a formula that gave the federal government 75 percent, state governments 22 percent, and local governments 3 percent. The military also deprived states of revenues from excise, export and import duties previously distributed on the basis of derivation. Federal takeover of agricultural commodity marketing boards also eroded sources of state revenue. Also during this period the federal government assumed responsibility for fixing the rates of income tax, although in principle it remained a state tax.

Finally, but significantly, the military in 1976 established a system of elected local government authorities or LGAs. Though seemingly inconsistent with the logic of military rule, the military believed that elected local government would provide a more viable and legitimate form of government at the local level and further weaken the states. Three hundred LGAs were established at the beginning of this effort, but over the years, the number grew to the present 774.

After 13 years of military rule, the military ceded power in 1979 to an elected civilian government established under a new constitution, and known as the Second Republic. The military handed back a radically altered federal structure compared to that which it inherited. In 1960, the regions were powerful because they had independent sources of revenue. By 1979 they were totally dependent on federally collected revenues. In addition, the economy had become a semi-monoculture in which approximately half of Nigeria’s GDP was derived from oil.

“The Second Republic”: Nigeria’s Second Attempt at Democratic Governance (1979-83)

In 1979, Nigeria returned to civilian rule, following the drafting of a new constitution according to specifications by the military. To overcome the defects of the past, the parliamentary system was scrapped in favour of a presidential structure of government that provided for direct election of the executive by the entire federation. The “presidential” model was replicated at the state and local government levels. The new constitution also required that political parties be truly national (rather than regional) in character by being registered in two-thirds of the states, and that the executive was elected in a manner that reflected the country’s federal character (i.e. by obtaining at least 25 percent of the vote in two-thirds of the states). At least one cabinet member was required to be appointed from each state in the federation. The government, in short, was required to be more “inclusive” but the balance of power (and revenue) established by the military between the federal government on the one hand, and the states and local governments on the other was to remain in place.

Despite these provisions, the coalition government that formed at the federal level after the 1979 elections once again comprised the dominant regional political parties in the north (the National Party of Nigeria) and east (the Nigerian Peoples Party) with the dominant party in the west (the Unity Party of Nigeria) serving as the opposition. The basic ethnic orientation of Nigerian politics had defied constitutional and structural reforms carried out by the military to change the character of the polity. The presidency was won by Alhaji Shehu Shagari, who is from the North and acceptable to the military.

Within four years, the politicians had replayed old mistakes of the 1960s and created an environment for the return of military rule. They massively looted the treasury, mismanaged the economy and undermined the legitimacy of civil democratic rule by blatantly rigging the 1983 federal elections. State governments did not hold local government elections when they were due preferring instead to administer local affairs through un-elected appointees. A disappointed public denied a democratic means of changing their rulers broadly applauded the military’s return in January 1984.

Notwithstanding this record, Shagari’s government did adjust the allocation formula of the Federation Account that shifted revenue back to the states and LGAs. The Revenue Allocation Act of 1982 reduced the allocation to the federal government from 75 to 55 percent. The states were now to receive 32.5 percent, a substantial increase over the old formula of 22 percent with 10 percent (up from 3) going to the LGAs. Of the remainder, 1.5 percent was allocated to mineral producing areas, and 1 percent to an ecological fund.

The Second Period of Military Rule (1984-2000)

The second period of military rule lasted fifteen years during which time the patterns that emerged during the 1970s were compounded as more states were created that were directly ruled from the center via military governors, while the government’s continued dependence on oil revenues meant that both state and local governments depended on subventions from the federal government for upwards of 90 percent of their revenues. Although the military government initially announced that it would add only two states, it nearly doubled the number from 19 to 36. In the process, the states became progressively weaker vis a vis the center. The second period of military rule also saw the reestablishment of elected government at the local level, although elected officials were replaced by administrators appointed by the military in 1996. Military rule brought yet another change in the revenue formula. Consistent with its approach of empowering local governments irrespective of impact on the states, the state allocation of the Federation Account was reduced to 24 percent while the share for the LGAs was raised—from 10 percent to 15 percent in the 1980s, and then to 20 percent in the 1990s.

The second period of military rule was marked by different governing styles of each of the four military governments. The first, headed by General M. Buhari, was repressive in approach and lasted barely a year from 1984 to 1985. It was followed by the eight year stewardship from 1985 to 1993 of General Ibrahim Babangida, a period that began with an apparent commitment to returning Nigeria to civilian rule, but ended with the annulment of the 1993 presidential election, an election that was widely regarded as the “freest and fairest” of all elections held in the Nigeria since independence, and which was to be the basis of a return to civilian rule.

General Babangida vacated office in August 1993 and was replaced by the Interim National Government, (ING), headed by Chief Ernest Shonekan that ruled from August 27 to November 17, 1993. The ING was supplanted by General Abacha whose four-year rule was marred by decline in the quality of governance, human rights abuses and repression of opposition including the arrest of Chief M. K. O. Abiola, presumed winner of the presidential elections, who eventually died in detention in July 1998. Nigeria became a pariah state, investors fled and the international donor community, including the World Bank, largely withdrew from the country. At the state level, military governors ruled their realms as if they were personal fiefdoms and presided over the deterioration of every form of basic infrastructure - roads, schools, hospitals, government office buildings, water systems, and power grids, etc. The result was a total loss of credibility and legitimacy by the military, and thus, ultimately, its authority to rule. When Abacha died in June 1998, it was clear that the military could not hang on to power much longer. Abacha was succeeded by General Abdulsalami Abubakar whose administration lasted only 11 months, but which was committed to effecting the democratic transition. Under President Abubakar’s leadership Nigeria began to emerge from international isolation as the government established a commission that drafted a new constitution, and held elections at the local, state and national levels. Nigeria embarked on its third democratic governance in June 1999.

Notwithstanding success of the Abubakar government in bringing about the end of military rule, the transition left a number of crucial issues unresolved or only partially resolved regarding the future of Nigerian federalism. Chief among these is the failure of the present constitution to articulate a clear delegation of authority to both the states and to the local government authorities (LGAs), and the continuing debate over the allocation of federal revenues between the three tiers of government.

The “Third Republic” (1999-present)

The elections of 1999 gave rise to three major political parties—the People’s Democratic Party (PDP), the All People’s Party (APP) and the Alliance for Democracy (AD). However, in marked contrast to prior elections, only one of these parties, the Alliance for Democracy based in the west, is regional in character. The electoral process was regarded as generally reflective of the Nigerian population. Chief Olusegun Obasanjo, who had headed the military government that turned over power to the Second Republic in 1979, and who stood as the candidate of the PDP was elected president. Obasanjo was regarded as an acceptable southerner to both the military and the North. The PDP controls both the houses of the National Assembly, and the governments in 24 of the 36 states.

The Constitution for the Third Republic closely resembles that of the Second in that it provides for a presidential system of government at the federal level, and a directly elected executive at the state and local level. Political parties are again required to be national in character, as is the composition of the central government. As in the Second Republic, the President must receive at least a quarter of the vote in two-thirds of the states to gain election.

The basic flaw in the constitution is that most of the powers accorded to the states in the Second Schedule of the 1999 constitution are exercised concurrently with the federal government. This situation has caused confusion since the return to civilian rule and led to a continuing debate over which tier of government, federal or state, is best equipped to deal with various areas of policy (e.g. secondary education). A related flaw is that while the functions of local government are specified in the Fourth Schedule, local government authorities (LGAs) can exercise their authority only in accordance with enabling legislation passed by the states. Depending on the specifics of this legislation—which varies from state to state—LGAs are thus subject to varying degrees of state oversight and control.

As discussed in the next section, the debate over the allocation of federal revenues is both continuous and intense, because it is fundamentally a debate over how much power will be effectively held by each tier in the federal system. In 1994, the Abacha administration agreed that the oil producing states should retain 13 percent of all oil revenues thus re-establishing the principle of derivation. The reestablishment of the derivation principle, however, was not implemented until 2000 after the handover to the new civilian government. Notwithstanding this change, the allocation formula among the three tiers of government of all federally collected revenues distributed after derivation remains at 48.5 percent for the federal government, 24 percent to the states, 20 percent to local government, with 7.5 percent retained for “special”, i.e. federally determined projects.[5]

The leaders of both state and local governments insist that the percentages allocated to their tiers be raised given their responsibilities. The future of the Third Republic and the future of Nigerian federalism is thus dominated by the continuing debate and negotiation over the division of authority and the allocation of revenue. The outcome of these negotiations will have a profound impact on the capacity of governance at both the state and local level, and thus the context within which the World Bank and donors seek to reduce poverty at the grassroots of Nigerian society.



			Table 2

THE SEARCH FOR A VIABLE REVENUE SHARING FORMULA

Year	Commission	Allocation of the Federation Account (pct.)

STATE AND LOCAL GOVERNANCE IN NIGERIA

TABLE OF CONTENTS

INTRODUCTION

I. AN HISTORICAL OVERVIEW OF NIGERIAN FEDERALISM

Table 1