In Nigeria’s complex federal architecture of 36 states and the Federal Capital Territory (FCT), the locus of transformative governance has decisively shifted from Abuja’s corridors to state houses across the federation. The latest Phillips Consulting State Performance Index (pSPI) 2025 crystallises this reality with uncomfortable precision, revealing a federation in flux where some states are engineering rapid transformation while others drift toward institutional decay. The methodology behind these rankings—70 percent objective indicators weighted against 30 percent citizen perception—provides a sophisticated lens through which to examine Nigeria’s subnational governance landscape. Yet beneath these numbers lies a more profound story: a federation where the quality of leadership, institutional design, and policy choices at the state level increasingly determine whether citizens prosper or merely survive.
The Lagos Phoenix: Reclaiming leadership through fiscal discipline
Lagos State’s return to the summit position, despite ranking a concerning 32nd in citizen perception, exemplifies the complex relationship between technocratic competence and democratic legitimacy. The state’s ₦2.3 trillion internally generated revenue in 2024—exceeding the IGR of 30 other states combined—demonstrates how sustained institutional reform can create fiscal resilience even amid national economic turbulence.
The Lagos model rests on three pillars that other states would do well to emulate. First, its diversified economic base spans financial services (contributing 35% of state GDP), manufacturing (28%), technology and creative industries (18%), and trade (19%). This diversification insulates the state from mono-economic vulnerabilities that plague resource-dependent states. Second, its sophisticated tax administration system, anchored by the Lagos Internal Revenue Service (LIRS), has achieved compliance rates exceeding 78% among registered businesses—a figure that would be remarkable in any developing economy. Third, its strategic infrastructure investments, from the Lagos-Ibadan Motorway to the Blue Line Rail project, have created multiplier effects that attract both domestic and foreign investment.
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However, Lagos’s modest citizen perception ranking reveals the democratic deficit in technocratic success. High living costs, traffic congestion, and perceived inequality suggest that economic growth has not translated into broadly shared prosperity. This disconnect between performance metrics and lived experience offers sobering lessons for other states pursuing similar development models.
The reform dividend: Lessons from the rapid risers
The meteoric ascent of Niger (29th to 6th), Adamawa (26th to 5th), and Abia (36th to 10th) provides compelling evidence that political will can catalyse rapid institutional transformation. These states share common reform strategies that merit deeper examination.
Niger state’s agricultural renaissance: Governor Mohammed Umar Bago’s administration has systematically addressed the structural constraints that kept the state’s vast agricultural potential unrealised. The establishment of commodity exchange centres in Bida, Kontagora, and Mokwa has reduced post-harvest losses from 40 percent to 15 percent within two years. Moreover, the state’s partnership with the African Development Bank to rehabilitate 2,500 kilometres of rural roads has connected previously isolated farming communities to urban markets, increasing farm-gate prices by an average of 35 percent.
“Citizens in transparent states are three times more likely to report satisfaction with government services and twice as likely to participate in community development initiatives.”
Adamawa’s security-development nexus: Perhaps no state better illustrates the symbiotic relationship between security and development than Adamawa. Governor Ahmadu Fintiri’s multi-pronged approach—combining community policing initiatives with targeted economic interventions—has created a virtuous cycle. The establishment of 15 agro-processing centres has provided legitimate livelihood alternatives to youth who might otherwise be vulnerable to criminal recruitment, while improved security has encouraged displaced farmers to return to their lands, boosting agricultural output by 28 percent since 2022.
Abia’s manufacturing revival: Once written off as a declining industrial centre, Abia has leveraged its strategic location and existing infrastructure to attract light manufacturing investments. The Aba Industrial Hub, established through a public-private partnership, now hosts over 200 small and medium enterprises, creating approximately 25,000 direct jobs and spurring ancillary economic activity throughout the state.
The transparency imperative: Beyond disclosure to accountability
The FCT’s exclusion from the rankings for failing to publish audited financial statements represents more than administrative negligence—it signals a fundamental misunderstanding of 21st-century governance expectations. In an era where citizens increasingly demand accountability and investors scrutinise governance quality, transparency has evolved from a democratic ideal to an economic necessity. States that excel in transparency demonstrate common characteristics. They maintain digitalised budget platforms accessible to citizens, publish quarterly expenditure reports, and establish clear procurement processes. Ogun State’s “Open Budget Initiative” allows citizens to track government spending in real-time, while Rivers State’s procurement portal has reduced contract costs by an estimated 20 percent through competitive bidding. The trust dividend from transparency is quantifiable. States with high transparency scores report tax compliance rates 40 percent higher than opaque states. Citizens in transparent states are three times more likely to report satisfaction with government services and twice as likely to participate in community development initiatives.
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The employment crisis: From job creation to economic transformation
Nigeria’s employment challenge extends beyond crude unemployment statistics to encompass underemployment, skills mismatches, and the informal economy’s limited productivity. With less than 15 percent of citizens believing meaningful employment is accessible in their localities, states face an existential challenge that traditional approaches have failed to address.The most successful states have moved beyond conventional job creation strategies to embrace economic transformation models. Lagos’s emergence as West Africa’s technology hub—with over 400 registered fintech companies—demonstrates how states can position themselves within global value chains. The state’s Lagos Startup Bill, which provides tax incentives and regulatory sandboxes for technology companies, has attracted over $800 million in venture capital investments since 2020.
Similarly, Ogun State’s industrial policy has attracted multinational manufacturers seeking alternatives to Lagos’s congested industrial estates. Companies like Dangote Cement, Lafarge, and Nestle have established significant operations in Ogun, creating formal sector jobs with career progression opportunities. The employment dividend extends beyond immediate job creation. States with diversified economies report lower crime rates, reduced rural-urban migration pressures, and higher tax compliance. Young people with economic opportunities are less susceptible to political manipulation and more likely to engage constructively in democratic processes.
Security as economic infrastructure
The economic costs of insecurity extend far beyond direct violence to encompass opportunity costs, investment flight, and social fragmentation. States like Zamfara, Borno, and Kogi demonstrate how security challenges can create self-reinforcing cycles of underdevelopment. Zamfara’s mineral wealth—estimated at over $2 billion in gold reserves—remains largely inaccessible to formal investors due to illegal mining and banditry. The state’s inability to secure its territory has created a parallel economy where criminal networks extract resources while the state treasury remains starved of revenues. Conversely, states that have successfully addressed security challenges demonstrate the development dividend of safety. Adamawa’s community policing model, which trains local volunteers to work alongside security agencies, has reduced violent incidents by 60% in participating communities. This improved security environment has encouraged the return of approximately 150,000 internally displaced persons, revitalising agricultural production and market activities.
Infrastructure as competitive advantage: The Multiplier Effect
Infrastructure quality serves as both a catalyst for economic activity and a signal of state capacity. The correlation between infrastructure investment and economic growth is particularly pronounced in Nigeria’s federal system, where states compete for mobile capital and talent. Lagos’s infrastructure strategy illustrates how targeted investments can create competitive advantages. The Lekki Free Trade Zone, supported by deep-sea port facilities and dedicated power infrastructure, has attracted over $15 billion in investments and positioned Lagos as a manufacturing hub for the West African market. Similarly, the state’s bus rapid transit system and planned rail networks address congestion challenges while improving productivity. At the opposite extreme, poor infrastructure in states like Taraba and Ebonyi imposes hidden taxes on economic activity. Businesses in these states spend up to 40 percent more on logistics costs due to poor road networks, while unreliable electricity forces manufacturers to maintain expensive backup power systems.
The fiscal independence dividend
Internally generated revenue represents more than fiscal capacity—it embodies political independence and policy flexibility. States heavily dependent on federal allocations remain vulnerable to external shocks and federal policy changes, limiting their ability to pursue counter-cyclical policies or make long-term investments. Lagos’s IGR success rests on systematic tax administration reforms implemented over two decades. The state’s property tax system, which uses satellite imagery and geographic information systems to identify taxable properties, has expanded the tax base from 400,000 properties in 2010 to over 1.2 million in 2024. This technological approach has increased property tax revenues from ₦8 billion to ₦180 billion over the same period. Rivers State’s experience demonstrates how resource-rich states can diversify revenue sources. Despite substantial oil revenues, the state has developed significant IGR through port fees, business registration, and service charges. This diversification strategy insulated the state from the oil price collapse of 2020-2021, when many oil-producing states struggled to pay salaries.
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Local government: The democratic deficit
Nigeria’s local government system represents one of the federation’s greatest untapped potentials. Constitutionally empowered to deliver primary healthcare, basic education, and rural infrastructure, local governments could serve as democracy’s front line. Instead, they have become governance’s weakest link. The joint account system, whereby state governments control local government finances, has created a dependency relationship that undermines local accountability. Citizens cannot hold local government officials responsible for service failures when those officials lack financial autonomy. This accountability deficit explains why over 60 percent of citizens cannot identify their local government chairman—a startling indictment of democratic engagement at the grassroots level. States that have strengthened local government systems report improved service delivery outcomes. Niger State’s decision to grant greater financial autonomy to local governments, combined with capacity-building programmes for local officials, has improved rural road maintenance and primary healthcare delivery. Similarly, Adamawa’s participatory budgeting initiatives at the local level have increased citizen engagement and project ownership.
Inclusion as a competitive strategy
Demographic dividends emerge when societies successfully integrate all their human capital into productive activities. States that marginalise significant populations—whether based on ethnicity, religion, gender, or age—forfeit competitive advantages that more inclusive states capture. Women’s economic participation illustrates this dynamic clearly. States with higher female labour force participation rates consistently outperform their peers in multiple development indicators. Lagos’s female labour force participation rate of 68% (compared to the national average of 52%) contributes significantly to the state’s economic dynamism. Similarly, Adamawa’s targeted programmes for women farmers have increased agricultural productivity while strengthening social cohesion. Youth inclusion presents both opportunities and risks. States with high youth unemployment rates face security challenges, while those that successfully integrate young people into economic activities benefit from innovation and dynamism. The correlation between youth employment opportunities and political stability is particularly stark in Nigeria’s volatile security environment.
Migration as a market signal
Internal migration patterns provide market-like signals about state competitiveness. Citizens and businesses “vote with their feet”, relocating to states that offer better opportunities and governance. These migration flows create self-reinforcing cycles—successful states attract talent and investment, while declining states experience brain drain and capital flight. The FCT, Lagos, Plateau, and Ogun emerge as preferred destinations, while Zamfara, Borno, and Bayelsa experience net out-migration. These patterns reflect citizens’ rational responses to differential opportunity structures and governance quality. For receiving states, in-migration brings both opportunities and challenges. Lagos’s population growth of approximately 600,000 annually strains infrastructure and housing while providing labour and entrepreneurial energy. Managing this growth requires sophisticated urban planning and substantial infrastructure investment. For sending states, out-migration represents lost human capital and shrinking tax bases. The departure of educated, productive citizens creates negative feedback loops that further erode state capacity and economic dynamism.
The federal dimension: Competitive federalism in practice
Nigeria’s federal system creates natural experiments in governance approaches. States serve as “laboratories of democracy” where different policies and institutions can be tested and refined. The pSPI rankings effectively measure the outcomes of these natural experiments, revealing which approaches generate better results. This competitive dynamic benefits the entire federation. Successful innovations in one state can be adapted by others, while policy failures provide cautionary lessons. Lagos’s tax administration reforms have been studied and partially replicated by Ogun, Rivers, and Kaduna states. Similarly, Adamawa’s security strategies are being examined by other states facing similar challenges. However, competitive federalism also creates risks. States may engage in “race to the bottom” dynamics, reducing regulatory standards or social spending to attract investment. Moreover, significant disparities between states can undermine national cohesion and create political tensions.
A reform agenda for the next decade
The 2025 pSPI results provide a roadmap for state-level reforms that could transform Nigeria’s development trajectory. Priority areas include:
Institutional Strengthening: States must invest in professional civil services, independent judiciaries, and transparent procurement systems. These institutional foundations enable effective policy implementation and build citizen trust.
Economic Diversification: Moving beyond federal allocation dependency requires identifying and developing comparative advantages. States should conduct comprehensive resource audits and develop sector-specific strategies.
Human Capital Development: Educational and health systems require substantial investment and reform. States that improve human capital outcomes create foundations for sustained economic growth.
Infrastructure Investment: Strategic infrastructure investments can create competitive advantages and attract private investment. States should prioritise projects with high economic multiplier effects.
Digital Governance: Technology can improve service delivery, reduce corruption, and enhance transparency. States should invest in digital platforms for citizen engagement and service delivery.
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Conclusion: The promise and challenges of competitive federalism
Nigeria’s federal system creates both opportunities and risks for subnational development. States that embrace reform, transparency, and inclusive governance can achieve rapid progress, as demonstrated by Niger, Adamawa, and Abia. However, states that resist change or mismanage resources face decline, as shown by various examples across the federation. The 2025 pSPI results remind us that in a competitive federal system, standing still means falling behind. Citizens, investors, and talent are increasingly mobile, creating market-like pressures for good governance. States that respond to these pressures with meaningful reforms will thrive; those that do not will continue to struggle. For Nigeria as a whole, the quality of state governance increasingly determines national outcomes. A federation is only as strong as its constituent units, and Nigeria’s future depends on whether its states embrace the reform agenda that successful examples have demonstrated.
The path forward is clear, even if it is not easy. Transparency builds trust, jobs create opportunity, inclusion strengthens society, and good governance attracts investment. States that commit to these principles will not only improve their rankings—they will improve the lives of their citizens and contribute to Nigeria’s democratic and economic transformation. The choice facing Nigeria’s states is stark: reform or decline, compete or stagnate, include or fragment. The 2025 pSPI results show that the right choices are possible—and increasingly, they are necessary.
Dr. Oluyemi Adeosun, Chief Economist, BusinessDay Media
