When distribution weakened development, By Dipo Baruwa

Nigeria's federal structure theoretically aligns its three government tiers for national development, but this coordination is not spontaneous. The author, Dipo Baruwa, argues that enduring systems, including federations, are built on clear relationships of cause and effect: authority and responsibility, action and consequence, and incentives for sustained commitment. Development itself is not automatic; it stems from communities investing with expected returns, businesses innovating due to rewarding incentives, individuals acquiring skills for better livelihoods, and governments pursuing reforms when institutional arrangements encourage performance and accountability.

Baruwa posits that a federal system is more than just a constitutional distribution of powers; it's an incentive structure that dictates decision-making, responsibility, rewards, and the costs of failure. When these elements align, constituent units compete, innovate, and develop. Conversely, misalignment leads to dependence replacing enterprise and political competition overshadowing economic competition. The evolution of Nigeria's fiscal federalism, therefore, should be viewed not just as a history of revenue allocation but as a narrative of shifting developmental incentives.

Before independence, Nigeria's fiscal policy was rooted in financial responsibility, with regions benefiting significantly from their production and adhering to the principle of "cut their coat according to their cloth." This fostered a direct link between productive effort and fiscal capacity. Taxes and revenues were largely tied to producing regions through the derivation principle, a concept recognized in historical analyses, including those by the IMF. This principle served as a developmental instrument, creating strong incentives for regions to expand their productive bases, specialize according to comparative strengths, develop location-specific capabilities, and pursue external markets. Fiscal policy was intentionally designed to encourage wealth creation, not merely distribute it. This incentive structure explains the regions' aggressive investments in productive sectors, such as the Western Region's expansion of its cocoa economy to fund initiatives like free primary education and industrial estates.