…As controversy trails use of subsidy windfall
In Nigeria, public discourse on governance often tilts toward the federal government, yet the most glaring failures in the delivery of essential services and public accountability are unfolding at the subnational level.
Despite a significant increase in revenue since the removal of fuel subsidies and the unification of the exchange rate, state governors have largely failed to translate the windfall into tangible improvements in the lives of their citizens.
A windfall from reforms
The fuel subsidy removal in mid-2023, hailed by economists as a necessary step to restore fiscal sanity, has brought about an unprecedented increase in allocations from the Federation Account Allocation Committee (FAAC). In 2024 alone, FAAC shared N28.78 trillion to the three tiers of government, a 79 percent jump from the N16.28 trillion disbursed in 2023, and a leap from N12.36 trillion in 2022, according to data from FAAC and Agora Policy.
Much of this bounty flowed to state governments, offering what many described as a rare opportunity to reset their fiscal outlook and invest heavily in social and economic development. Yet, observers argue, the opportunity is being squandered.
A 2024 Afrobarometer survey reveals deep public dissatisfaction with the subsidy removal policy. According to the survey, 62 percent of Nigerians believe that the removal of petrol subsidy has made life worse, intensifying the burden of rising costs and economic hardship.
Only 18 percent of respondents said they believe the savings from the subsidy removal are being put to good use, highlighting a widespread perception of mismanagement or lack of visible impact from the policy shift.
“Since they removed the subsidy, life has only become harder for people like us. Prices keep rising, food, transportation, even school fees. They said the money saved would be used to improve our lives, to fix roads, build hospitals, and provide support. But we haven’t seen anything change,” Wale Adeowo, a Lagos-based teacher, lamented.
“In fact, things have only gotten worse. Every day feels like a struggle, and it’s hard to see how any of this is benefiting ordinary Nigerians.”
According to Simon Samson, an economics lecturer at Baze University, Abuja, “subsidy removal has worsened an already bad situation, causing the cost-of-living crisis to reach fever pitch. But, hopefully in the medium to long term, if policies are well sequenced, properly implemented and managed well, then there would be competition, with the concomitant lowering of prices, hence a more affordable life.”
Read also: Cost-of-living crisis persists amid N15trn FAAC payouts
Poverty amid plenty
Nigeria’s fiscal structure ensures that states not only receive federal allocations but also generate their own internal revenues. With this dual-stream income, plus access to loans and bond markets, state governments are expected to shoulder substantial governance responsibilities. Yet, the outcomes on the ground tell a different story.
Insecurity, hunger, failing healthcare systems, and dilapidated schools remain the norm across most of the country. In 2024, Nigeria ranked 130th out of 141 countries for infrastructure quality, according to the World Economic Forum. Despite swelling state coffers, basic amenities are lacking, and economic hardship deepens.
A joint report by the World Bank and the National Bureau of Statistics (NBS) found that 129 million Nigerians, over half the population, now live below the national poverty line, up from 104 million in 2023. This means that an additional 25 million people fell into poverty within a year. Analysts say the pressures from subsidy removal, high inflation, and a sluggish labour market have pushed more households into precarity.
On why poverty continues to grow despite an increase in revenue, Samson, who is also the chief economist at the consultancy ARKK Economics and Data Limited, said, “the primary reason is that, even though revenues are up nominally, they are not up in real terms. When you adjust for inflation as well as the exchange rate, you realise that the nominal rise is not good enough.
“Secondly, these increased revenues hardly trickle down. Those in power have directed them in directions which would hardly move the needle for the sake of the poor. Even if the money goes down, as demonstrated in the increase in minimum wage, these new wages have highly diminished purchasing power. Inflation has constantly nibbled at it slowly but surely over time.”
Where is the money going?
“The fundamental question is: What are the states doing with all this money?” asked an economist and policy analyst, who preferred not to be named. “When you compare the size of the allocations to what’s happening on the ground, it’s clear that there is either mismanagement or gross inefficiency, or both.”
The opacity in public finance management at the state level makes it difficult to track how FAAC allocations are being utilised. Budget documents are sometimes published, but performance reports are rare. In many states, procurement processes remain closed to public scrutiny, and citizen participation in governance is minimal.
Read also: Senate urges inclusion of local governments in FAAC
Short-lived palliatives, long-term problems
In response to the economic shock triggered by subsidy removal, the federal government launched the Renewed Hope Conditional Cash Transfer Scheme, targeting 15 million households with N75,000 each over three months. However, reports of poor coordination, delayed payments, and lack of transparency have marred the initiative.
Some states introduced their own relief measures, such as Ounje Eko, a subsidised food programme and transport subsidy for BRT buses in Lagos, but these interventions have been either unsustainable or insufficient to stem the tide of hardship.
The minimum wage was increased to N70,000 from N30,000 after a prolonged battle with the organised labour union. Many states have approved it, but few are paying the new wage.
Critics say that for many governors, the increased allocation has merely expanded the scope for patronage politics. New convoys, bloated bureaucracies, and inflated contract awards are more visible than road repairs or school renovations.
The need for subnational reform
The federal government may bear the brunt of public outrage, but experts argue that real governance reform must begin at the state level. The renewed fiscal capacity of state governments should translate into a golden era for grassroots development, if properly managed.
“Nigerians must understand that most of the schools their children attend, the hospitals they go for treatment, the roads they ply everyday are under the state governments,” the policy analyst, earlier quoted, said. “Governors are the alpha and omega in states and we must hold them accountable.”
“The government must use the increased allocation judiciously and to the benefit of all. The most vulnerable should have social safety nets. Problems in agriculture, security, and human capital, especially education and health, must be tackled urgently,” Samson, earlier quoted, said.
The removal of fuel subsidies and the liberalisation of the exchange rate were “tough but necessary” reforms, as economists have said. But without corresponding improvements in governance, especially at the state level, these policies will only deepen inequality and distrust in government.
As the FAAC figures continue to rise, the real question for Nigerians is not just how much money is coming in, but what, if anything, it is achieving.
