Reported by Weng Patrick Atokor | journalist at Weng Global
Nigeria’s Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, has urged state governments to reduce their dependence on federal allocations by strengthening internally generated revenue (IGR), attracting investments and creating jobs.
Oyedele said Nigerian states must build stronger and more sustainable revenue bases if they are to improve their ability to finance development and withstand economic shocks.
His call comes amid growing attention to Nigeria’s fiscal structure, with many states continuing to depend heavily on monthly allocations from the Federation Account Allocation Committee (FAAC) to fund government operations and development programmes.
Speaking at the 2026 National Council on Finance and Economic Development retreat in Owerri, Imo State, Oyedele said the country needed stronger fiscal federalism, increased revenue generation and economic diversification.
States urged to build independent revenue capacity
The minister’s position reflects a long-running concern over the fiscal dependence of many Nigerian states on federal transfers.
While federal allocations remain an important source of funding for subnational governments, Oyedele argued that states should increasingly look inward by developing their productive sectors and improving their capacity to generate revenue.
The approach, he said, would allow states to become more financially resilient and less vulnerable to fluctuations in federally distributed revenue.
According to recent analysis of state finances, 21 states rely on federal allocations for at least 70 per cent of their total revenue, highlighting the extent of the challenge.
Oyedele’s call therefore places greater emphasis on economic activity at the state level, including investment promotion, business development, job creation and efficient tax administration.
FAAC allocations have increased significantly
The renewed call for stronger IGR comes at a time when federal allocations to states and local governments have risen sharply.
Oyedele said economic reforms implemented by the Federal Government had helped push monthly federal allocations to more than N2 trillion, compared with an average of about N300 billion under previous administrations.
Although higher allocations provide states with additional fiscal space, the finance minister has stressed that increased transfers should not discourage governments from developing their own sources of revenue.
The argument is that larger allocations should provide an opportunity for states to invest in infrastructure, productive sectors and systems that can ultimately expand their own revenue base.
Rather than treating FAAC receipts as a permanent substitute for economic productivity, states are being encouraged to use available resources to create conditions for businesses and investors to thrive.
IGR remains uneven across states
The capacity of Nigerian states to generate internal revenue varies considerably.
Data from previous state revenue assessments show that Lagos has consistently maintained one of the country’s strongest IGR performances, while states such as Ogun, Rivers, Kwara, Edo and others have also demonstrated relatively strong revenue-generation capacity.
There have also been notable improvements in some states.
Oyedele previously highlighted strong IGR growth in Enugu, Bayelsa and Abia, citing increases of 381 per cent, 174 per cent and 129 per cent respectively.
Such performances suggest that states can improve their fiscal position when they expand their economic base, strengthen collection systems and reduce revenue leakages.
However, the broader picture remains challenging.
Nigeria’s 36 states and the Federal Capital Territory generated a combined N3.63 trillion in IGR in 2024, according to data referenced in discussions around the country’s fiscal reforms.
Investment and job creation
For states to sustainably increase IGR, revenue collection alone may not be enough.
A larger and more productive private sector can provide a stronger foundation for internally generated revenue through taxes, business activity, property transactions and other legitimate economic channels.
This makes investment attraction a key component of Oyedele’s argument.
States with reliable electricity, good roads, efficient public services, security and predictable regulatory systems are better positioned to attract businesses.
More businesses can translate into more employment opportunities and a broader tax base.
The minister’s call therefore places economic development at the centre of the revenue debate.
Instead of imposing multiple levies on existing businesses, states can improve their finances by creating conditions that encourage new businesses to emerge and existing companies to expand.
Fiscal federalism debate
Oyedele’s position also feeds into the wider debate over fiscal federalism in Nigeria.
The Federal Government has been promoting reforms aimed at improving the country’s revenue system while giving states greater opportunities to benefit from economic growth.
At the same time, there have been calls for a restructuring of Nigeria’s fiscal arrangements so that subnational governments have stronger incentives to develop their economies.
Oyedele has argued for stronger fiscal federalism and economic diversification as part of efforts to make Nigeria more resilient to economic shocks.
The debate is particularly significant because many states face substantial obligations relating to salaries, pensions, infrastructure and debt servicing.
An overreliance on federal transfers can leave states vulnerable when national revenues weaken.
Turning higher allocations into long-term growth
The increase in FAAC distributions provides states with an opportunity to strengthen their finances, but the challenge is how the additional resources are used.
Rather than directing increased allocations primarily toward recurrent expenditure, states can invest more aggressively in infrastructure, agriculture, industrial development, technology, education and other sectors capable of expanding economic activity.
A stronger productive economy would gradually create a wider tax base and reduce pressure on government finances.
The objective, therefore, is not necessarily to eliminate federal allocations but to ensure that states are capable of financing a greater share of their responsibilities through internally generated resources.
For Oyedele, the transition requires state governments to move from an allocation-sharing mindset towards a production and wealth-creation model.
What the call means for states
The minister’s message presents state governments with a clear fiscal challenge: higher federal allocations should not become a substitute for economic transformation.
States will need to improve tax administration, formalise more businesses, reduce leakages, attract private capital and develop sectors where they possess competitive advantages.
They will also need to ensure that revenue collection does not become a burden on businesses and households.
If properly implemented, stronger IGR could give states greater control over their development priorities while reducing their vulnerability to changes in federal revenue.
For citizens, the ultimate test will be whether improved revenue translates into better roads, healthcare, education, security, water supply and other essential services.
Nigeria’s fiscal reforms have already contributed to higher federal transfers, but Oyedele’s latest message suggests that the next phase should focus increasingly on building sustainable economic capacity at the state level.
The long-term goal is a federation in which states do not simply wait for monthly allocations but actively create wealth, attract investment, generate employment and build revenue systems capable of supporting development.
Sources
- Federal Ministry of Information — report on Oyedele’s call for stronger fiscal federalism, revenue generation and economic diversification.
- Punch — report on Oyedele’s call for states to reduce allocation dependence and strengthen IGR.
- TheCable — report on FAAC allocations rising above N2 trillion monthly.
- Vanguard — report on increased federal allocations following economic reforms.
- The Nation — analysis of state revenue performance and FAAC dependence.
