1. 1
MOBILISING LOCAL GOVERNMENT TAX REVENUE FOR
ADEQUATE SERVICE DELIVERY IN NIGERIA:
(AN EMPIRICAL ANALYSIS)
BY
EGBEGBEDIA OGHENOVO
A project work submitted to the Department of Economics and
statistics in partial fulfillment of the requirement for the award in
Masters in Economics (M.Sc Degree)
December 2010

2. 2
DEDICATION
This work is dedicated to God Almighty in appreciation of his
special love, care, mercy and protection.

3. 3
ACKNOWLEDGEMENT
I wish to express my profound gratitude to God Almighty for
seeing me through this work. My sincere appreciation goes to Dr.
D.E. Oriakhi, my project supervisor whose guidance,
contributions and supervision helped in the completion of this
work.
I also want to appreciate Dr. Oaikhenan, Dr. Ekanem and other
lecturers, staffs and my fellow colleagues of the department of
Economics and Statistics for their immeasurable support. Thank
you so much.
Finally, I want to appreciate my family especially my father, Mr.
A.E. Egbegbedia. Thank you for supporting me financially
throughout this programme.

4. 4
TABLE OF CONTENTS
Title page - - - - - - - - - - i
Certification - - - - - - - - - ii
Dedication - - - - - - - - - - iii
Acknowledgement - - - - - - - - iv
Table of Contents - - - - - - - - v
Abstract - - - - - - - - - - viii
CHAPTER ONE: INTRODUCTION
1.1 Introduction - - - - - - - - 1
1.2 Statement of Problem- - - - - - - 8
1.3 Research Questions - - - - - - - 9
1.4 Statement of Hypothesis - - - - - - 10
1.5 Objectives of Study - - - - - - - 11
1.6 Scope and Limitation - - - - - - - 12
1.7 Significance of Study - - - - - - - 13
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction - - - - - - - - 15
2.1.1 Revenue Instruments for Local Governments - - 18
2.1.2 Who Levies What Taxes? - - - - - 19
2.1.3 Transfers and Borrowing- - - - - - 22
2.2 Reforming Local Government “Own Revenue” Systems - 25

5. 5
2.2.1 Strength and Weaknesses of Major Local
“Own Revenue” Instruments - - - - - 27
2.3 Evolution of Nigeria’s Federal Structure - - - 28
2.3.1 Federalism and Local Government
Autonomy in Nigeria - - - - - - - 41
2.3.2 Implications of Local Government
Autonomy in Nigeria - - - - - - - 51
2.4 Revenue Utilization for Local Development - - - 59
2.4.1 Local Government Tax Finances and
Revenue Utilization - - - - - - - - 65
2.4.2 Problems of Local Governments Tax
Mobilization and Utilization in Nigeria - - - - 78
2.4.3 Prospects of Local Governments Revenue
Mobilization and Utilization in Nigeria - - - - 80
2.5 Concepts, Measurement and Accountability
of Service Delivery - - - - - - - 81
2.5.1 The Political Economy of Services- - - - - 83
2.5.2 The Central Role of Accountability - - - - 85
2.5.3 Developing the Capacity of the Centre to
Enable the Local- - - - - - - - 89

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2.6 Problems of Adequate Local Service Delivery- - - 91
2.7 Capacities Needed for Effective Local Service
Delivery- - - - - - - - - - 94
CHAPTER THREE: THEORETICAL FRAMEWORK
AND METHODOLOGY
3.0 Theoretical Framework - - - - - - 108
3.1 Specification of Models - - - - - - 112
3.2 Methodology
3.2.1 Nature and Sources of Data - - - - - 114
3.2.2 Method of Data Presentation - - - - - 114
3.2.3 Method of Data Analysis - - - - - - 115
CHAPTER FOUR
4.0 Analysis of Regression Results - - - - - 117
4.1 Policy Implication of Results - - - - - 120
CHAPTER FIVE: SUMMARY, RECOMMENDATIONS
AND CONCLUSION
5.0 Summary of Findings - - - - - - - 124
5.1 Recommendations - - - - - - - 126
5.2 Conclusion - - - - - - - - - 128
Bibliography - - - - - - - - 130

7. 7
ABSTRACT
The growth of Nigeria’s towns and cities has out placed local
authority capacity in terms of management, infrastructure and
financing. Many Nigerian towns and cities are now facing a
governance crisis. Accordingly, the federal structure in Nigeria
constraints local government’s ability to mobilize and use
revenue to meet their obligation in a sustainable way. In
particular, fiscal decentralization- the devolution of revenue
mobilization and spending powers to lower levels of government-
has become a main theme of urban governance in recent years.
Local government system as the third-tier of government
deserves adequate finances to enable it cope with numerous
developmental activities within its jurisdiction.
This study empirically tests the relationship between local
government revenues and expenditure in Nigeria, a low income
developing country. A regression test is conducted and
estimation is via a regressive model using data for the period
1970 to 2007. Our findings reveal that both own-source revenue
and allocations from central government have no important
impact on both health service delivery and education services,
across provinces in Nigeria. Thus, local governments need to be
given access to adequate resources to do the job with which they
are entrusted. However, a general conclusion emerging from this
study is that local revenues mobilized in most urban authorities
in Nigeria are necessary but not sufficient to develop and supply
adequate services for the fast-growing urban population.

8. 8
CHAPTER ONE
1.1 INTRODUCTION
One of the recurrent problems of the three-tier system in Nigeria
is dwindling revenue generation as characterized by annual
deficits and insufficient funds for meaningful growth and viable
projects development. Local governments are the nearest
government to the people at the grassroots in Nigeria; they are
strategically located to play a pivotal role in national
development. Since they are responsible for the governance of
about 70 percent of the population of Nigeria, they are in
advantage position to articulate the needs of the majority of
Nigerians and formulate strategies for their realization.
Nigeria is one of the few countries in the developing world to
have significantly decentralized both resources and
responsibilities for the delivery of services including basic health
and education services to locally elected governments. Local
governments in Nigeria are constitutionally entitled to a share of
about 20 percent of federal revenues, which in recent years of oil
price booms has implied substantial resource flows to local
governments.

9. 9
Local administration in Nigeria can be traced to the colonial
period. Available record shows that the first local administration
ordinance was the Native Administration Ordinance No. 4 of 1916
which was designed to evolve from Nigeria’s old institutions the
best suited form of rule based on the people’s habits of thought,
prestige and custom (Bello-Imam 1998). These local
administrations were used in the North Eastern and Western
parts of the country while the indirect rule was introduced in the
rest of the North.
For example, in 1926, a centralized budget system was
introduced, following the creation of Northern, Western and
Eastern regions in 1946; a decentralized public revenue structure
began to emerge. The first revenue commission was set up in
1946. During the colonial period, four revenue commissioners
were created. The principles, criteria and allocation formulas
recommended by the commissions are well documented (See,
Ekpo 1994)
Macpherson constitution of 1948 initiated some remarkable
changes, the regions introduced some reforms in their local

10. 10
administrations to collect rates and levy pools and income taxes
to finance their activities, the regions had overall control of the
taxes. Local administration lacked self-determination, hence their
resources were inadequate. Though, the local authorities were
partially successfully in the North but unsuccessful in the Eastern
and Western regions. Ever since the Macpherson constitution of
1951 provided four reforms at the local government level, the
exercise has become a routine in Nigeria, in a bid to improve the
effectiveness of this level of governance in national development.
The local government has become a particularly important issue
in Nigerian politics since the landmark nationwide reform of
1976. That reform saw the local government as “Government at
the local level exercised through representative councils
established by law to exercise specific powers within defined
areas” (FGN 1976).
In the foreword to guidelines for Local Government Reform,
government expressed serious concern about how best to make
the local government “an effective instrument of development”
and the need to generate adequate resources to enable them
meet their obligations, the most important of which is to

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stimulate development at the grassroots level. To this end, the
principal aims of the local governments were to:
- Make appropriate services and development activities
responsive to local wishes and initiative by devolving or
delegating them to local representative bodies;
- Facilitate the exercise of democratic self-government close
to the local levels of our society, and to encourage initiative
and leadership potential;
- Mobilize human and material resources through the
involvement of members of the public in their local
development; and
- Provide a two-way channel of communication between local
communities and government (both state and federal)
(FGN 1976:1).
To ensure the attainment of these aims, the 1976 reform was
quite unequivocal in its recognition of local governments as the
third-tier of government in Nigerian federalism, with all the
necessary paraphernalia of office, most especially a grant of local
autonomy. This was the first time Nigerian local governments
enjoyed such recognition, which was consolidated three years

12. 12
later in the 1976 constitution (Roberts 1997). Subsequent
administration measures in the 1980’s enhanced the importance
and autonomy of the local governments. Such measures included
an increase in their share of federal revenue, direct disbursement
of such revenues to them, abolition of some political and fiscal
controls exercised over them by state governments, extension of
the presidential system of governance to the local government
system, entrenchment of the Local Government Areas (LGAs) in
the constitution and the simultaneous use of these areas as state
and federal electoral constituencies, especially during the
1994/1995 National Constitutional Conference (Benjamin 1996).
Local governments have also increased in number from 301 in
1976 to 774 in 1998.
Local government administration in the country experienced
fundamental changes in 1976. The 1976 local government reform
created for the first time, a single-tier structure of local
government in place of the different structure in the various
states. Our interest in the 1976 reform hinges on the
restructuring of the financial system. The reforms instituted
statutory allocation of revenue from the federation account with

13. 13
the intention of giving local government fixed proportions of both
the federation account and each states’ revenue. This allocation
to local government became mandatory and was entrenched in
the recommendations of the Aboyade Revenue Commissions of
1977.
At present, local government receive 20 percent of the federation
account. In addition, proceed from the Value Added Tax (VAT)
are also allocated to them. Presently, VAT’s allocation is 35
percent based on equity of states (50 percent), population (35
percent) and derivation (2 percent). The 1976 local government
reforms states the internal revenue sources of local governments
to include;
- Rates, which include property rates, education rates and
street lightening.
- Taxes such as community, flat rates and poll tax.
- Fines and fees, which include court fines and fees, motor
park fees, forest fees, public advertisement fees, market
fees, regulated premises fees; registration of births and
deaths and licensing fees; and

14. 14
- Miscellaneous sources such as rents on council estates,
royalties, interest on investment and proceeds from
commercial activities.
Despites this clear demarcation, states and local government still
clash over sources of internal revenue. There has been a
significant increase in the number of Local Government over the
years. There were 96 divisions in 1967. By 1976, they had
increased to 3,000. The number was increased to 774 after five
years (Adedokun A.A. 2004) we will like to emphasize here that
the rise in the number of Local Governments has implication on
the assignment of public revenue responsibilities among the tiers
of government.
Although recently many developing countries have implemented
or are implementing decentralization reforms, the Nigeria
experience is rare in terms of both the length of time that locally
elected governments have existed, and in terms of substantial
revenue devolution to local governments for the discharge of
their responsibilities. India, for example, which has a longer
standing democracy than Nigeria, adopted a constitutional

15. 15
amendment as recently as 1993 to create locally elected
governments, compared to Nigeria where local governments
were constitutionally recognized in 1976; India has still not
provided systematic sources of revenue to its local government
whereas Nigerian local governments are constitutionally entitled
to substantial united grants from the federal government
(Adeniyi and Oladepo 2007) describe the survey in details.
1.2 STATEMENT OF PROBLEM
Adedeji (1979) blames the ineffectiveness of local administration
on the following reasons;
- Lack of mission or lack of comprehensive functional role.
- Lack of proper structure (i.e. the role of local governments
in the development process was not known).
- Low quality of staff and;
- Low finding.
According to Him, these problems led the local governments into
a vicious circle of poverty because inadequate functions and
powers lead to inadequate funding which result in the
employment of low skilled and poorly paid staff.

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This problem appears to be an endemic one for basic service
delivery in Nigeria (with a similar problem of non-payment of
primary school teacher salaries creating a public outcry in the
1990s), and has been argued to be the result of federal
institutional arrangements where local governments are
overwhelmingly dependent on federal revenue transfer for the
discharge of their responsibilities. While some argue that the
problem is lack of adequate resource transfers to local
governments to finance their expenditure responsibilities, others
argued that over-dependence of local governments on federal
transfers has undermined local accountability and created
perverse incentives at the local level to misallocate public
resources (Olowu and Enero, 1995; Ekpo and Ndebbio, 1990; the
World Bank, 2004).
This research study will therefore address how the Local
Government can mobilize tax revenue for adequate service
delivery.
1.3 RESEARCH QUESTIONS
This study attempts to answer the following questions;

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a. Has Local Government tax revenue mobilization provided
adequate service delivery?
b. How accountable are locally elected governments for the
delivery of local public goods?
c. What is the impact of inter governmental fiscal relations on
local accountability?
d. Has the increase in revenue from local government
statutory allocations enhanced their economic fortunes and
service delivery ability?
e. To what extent has Nigeria’s fiscal structure contributed to
the local government and their inability to mobilize local
resources and people for grassroots developments?
1.4 STATEMENT OF HYPOTHESIS
The research hypothesis will be stated thus;
HYPOTHESIS I
H1: There exist a significant relationship between health service
delivery and Local Government own tax revenue.
Hypothesis II
H1: There exist a significant relationship between Education
services and Local Government own tax revenue.

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1.5 OBJECTIVE OF STUDY
The aim of this study are vast and vain, most importantly, the
research will examine and evaluate the way local government tax
revenue can be mobilized for adequate service delivery in
Nigeria. Others are;
a. To determine how Local Government tax revenue can be
mobilized to ensure adequate service delivery in Nigeria.
b. To explore ways of financing decentralization through
intergovernmental transfers, in the absence of sufficient
local revenue potential.
c. To determine local government responsibility for primary
health care services, in particular, is emphasized in a
recently revised health policy document formulated in the
1980s.
d. To determine the impact of intergovernmental fiscal
relations on local accountability.
e. To suggest measures that will accelerate the mobilization of
local government tax revenue in Nigeria.
However, we shall determine the effect of some other variables
on Adequate Service Delivery in Nigeria.

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1.6 SCOPE AND LIMITATION
The research study will focus on mobilizing local government tax
revenue for adequate service delivery in Nigeria from the period
of 1970s to 2007.
Practically, Adequate Service Delivery does not attempt to cover
the totality effects such as social and political ramifications. Only
the impact on major economic variables which are important for
economic growth and development are examined.
This research work is devoid of some constraints which includes,
the problem of data collection, no easy access to some offices in
possession of the required information and data required and
also the fact that some of the data were on quarterly basis, it
took time to collect actual information for the period under view.
Additionally was the problem of time, which was constrained with
academic activities coupled with traveling for the required
materials.

20. 20
However, these limitations will no way make this research study
substantial. All the materials included are relevant, valid and
dependable.
1.7 SIGNIFICANCE OF STUDY
This study will be reliable and significant to all stakeholders in the
public sector. The need for this study cannot be over-emphasized
since it will be useful to local government tax officials,
government agencies, tax payers, students and all interest
individuals.

21. 21
REFERENCES
Adebayo Adedeji (1970): ‘Local Government Finance and
Prospects, Adebayo Adedeji and Rowland, eds. Ile-Ife:
University Press pp. 1-19.
Adedokun, A.A. (2004): The Development of Local Government
in Nigeria Since Pre-Colonial Era to 1999 Constitution
Polycom Vol. 2, No. 2, 2004.
Adeniyi, J.O. Oladepo and A. Soyibo, (2003): ‘Survey of Primary
Health Care Service Delivery in Lagos and Kogi State’: A
Field report. African Regional Health Education Center,
University of Ibadan.
Bello-Imam, I.B. (Ed) (1990): ‘Local Government Finance in
Nigeria, Ibadan, NISER.
Ekpo, Akpan A. (1994): ‘Fiscal Federalism’; Nigeria Post-
Independence Experience, 1960-1990 World Development
Vol. 22, No. 8.
Ekpo, Akpan H. and John Ndebbio, (1998): “Local Fiscal
Operations in Nigeria; Research Paper 73, AERC Nairobi,
Kenya.
the World Bank, (2004): State and Local Governance in Nigeria,
Sector Report No. 24477, Washington D.C.

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CHAPTER TWO
LITERATURE REVIEW
2.1 INTRODUCTION
The urbanization of poverty is one of the most dramatic
developments on the African continent, yielding contrasting
images of affluent residential and business districts and utter
misery in sprawling shanty towns or slums. More than 50 percent
of Africa’s population will soon live in towns and cities, and 50
percent of Africa’s poor will live in urban slums by 2025
(Tostensen et al 2001). Southern Africa is the most urbanized
region on the continent, with Angola currently having an urban
population of more than 60 percent and South Africa and about
55 percent urban migration does not seem to slow down, taking
hundreds of thousands of women, men, and children to towns in
search of a better life. Over the next ten years, some 50 million
people in West Africa are expected to migrate to cities, and by
2030, it is protected that 63 percent of the population will live in
cities. The demographic change in East Africa is just as dramatic.
The growth of Africa’s towns and cities has outpaced local
authority capacity for service delivery in terms of management,

23. 23
infrastructure and financing (McCluskey et al. 2003, p. 3). Firstly,
the urban municipal authorities, many of which were originally
instituted as colonial administrative institutions, have not been
restructured to cope with the fast growing population (Beall,
2000). Secondly, a growing number of urban residents live in
informal settlements characterized by deficient basic services
such as housing, clean water, electricity, sanitation, refuse
collection, roads and transport (Devas, 2003). Thirdly, many
municipalities are financially weak and rely on financial transfers
and assistance from the central government (Brosio, 2000).
Moreover, the revenue collection administrations are often
inefficient and large amounts of revenues collected are
inappropriately managed.
As a result, many African towns and cities are now faced with a
governance crisis and poor service delivery capability.
Consequently, the restructuring of governmental functions and
finances between the national and municipal levels of
government has entered the core of the development debate. In
particular, fiscal decentralization-the devolution of revenue
mobilization and spending powers to lower levels of government-

24. 24
has become a main them of urban governance in recent years.
The purpose of this study is to explore the opportunities and
constraints facing local revenue mobilization in urban settings.
The study examines various revenue instruments available, their
revenue potential, and how they affect economic efficiency and
income distribution. Moreover, the paper discusses political and
administrative constraints facing local revenue mobilization and
factors impacting on citizens’ compliance behaviour. The
emphasis is on local government “own revenues”, but fiscal
transfers from the central level and borrowing are also
addressed. The study argues that urban local governments need
to be given access to adequate resources to do the job with
which they are entrusted. However, own revenues mobilized in
most urban local authorities in Africa are generally not sufficient
to develop and supply adequate services for the fast-growing
urban population. Hence, a general conclusion that emerges from
this study is that local own revenues are a necessary but not a
sufficient condition for fiscal decentralization.
The remaining part of the study is organized as follows: The next
section provides a brief review of the main components of

25. 25
current local government revenue systems, including “own
revenues” and transfers from the central level. Thereafter,
challenges facing local government revenue reforms in Africa are
assessed. The following section focuses on the strengths and
weaknesses of major local “own revenues” instruments.
Measures to improving current property taxes, business licenses
and user fees are emphasized.
2.1.1 REVENUE INSTRUMENTS FOR LOCAL GOVERNMENTS
A sound revenue system for local governments is an essential
pre-condition for the success of fiscal decentralization (Olowu and
Wunsch 2003). In addition to raising revenues, local revenue
mobilization has the potential to foster political and
administrative accountability by empowering communities (Shah
1998; Oates 1998). However, prescriptions deriving from the
theory and from good international practice impose huge
constraints on the choice of revenue instruments for local
governments.
In general, there are two main categories of current revenue for
local authorities in Africa:

26. 26
i. “Own revenue”, which includes taxes, user fees and
various licenses and
ii. Transfers from the central or regional levels, usually in
the form of grants and revenue sharing (Bahl et al 2003,
p. 71). In some countries, municipalities are also allowed
to borrow money for capital investments in
infrastructure. This section briefly reviews some general
principles for revenue assignment between different
levels of government, and discusses challenges to
securing fiscal responsibility at sub-national levels with
respect to transfer systems and borrowing.
2.1.2 WHO LEVIES WHAT TAXES?
There is no ideal assignment of revenue sources between central
and lower levels of government. Nevertheless, a set of “tax-
assignment rules” has been developed in the traditional fiscal
federalism theory (Oates 1972; Musgrave 2000). These principles
relate to the respective responsibilities of central and lower tiers
of government in macroeconomic stabilization, income
redistribution and resource allocation (Boadway et al 2000).

27. 27
Furthermore, in developing countries the administrative
capabilities of local governments in revenue design (i.e., deciding
on revenue bases and setting rates must be taken into
consideration) (Bird 1990). Moreover, in large and diverse
countries the issue of revenue harmonization between
jurisdictions is important when assigning taxing powers.
The stabilization objective of the fiscal system calls for central
control over the revenue instruments that may substantially
influence central budget deficits or inflation. Thus, taxes on
international transactions (custom duties) and a considerable
share of income and general sales taxes (such as VAT) should be
assigned to central government across regions, as there are in
many African countries, then local taxing powers may
exacerbates these differences. Hence, the distributive function of
government is an argument for centralized, progressive
corporate income and wealth taxes.
Since the central government can borrow money to make up for
short falls, it can live with the more unstable revenue sources,
such as customs duties and income taxes. Local governments, by

28. 28
contrast, require relatively stable sources of revenue. Thus,
lower-level governments should tax revenue bases with low
mobility between jurisdictions. Property tax is therefore often
labeled as the “ideal” local tax. Moreover, if properly designed,
user charges on trading services such as electricity, water,
sanitation, and solid waste collection may be attractive local
revenue instruments. The same applies to benefit taxes such as
road and port tolls and to various licenses, which also may have
regulatory functions.
There is no “ideal” way of dividing revenue responsibility between
central and lower tiers of government. While the general
principles and theoretical discussions of revenue assignments are
useful, in practice, country-specific factors play a large role
(Tanzi, 2000). The case for centralization is usually built around
macroeconomic considerations and equalization, and the case for
local government taxing powers on efficiency considerations. The
“optimal” way to do things, however, depends on how the
government weighs these considerations (Bahl and Wallich,
1992). Furthermore, the capacity to administer revenue
instruments is always an important constraint to the assignment

29. 29
of “taxing powers” to lower levels of government in developing
countries. Finally, but not least important, local revenue sources
must be politically acceptable (Bahl et al. 2003, p. 75). As a rule
of thumb, less visible revenue instruments tend to be more
acceptable to tax payers.
2.1.3 TRANSFERS AND BORROWING
Almost without exception, governments across the world assign
more expenditure functions to local authorities than can be
financed from their own revenue sources. The result of this
mismatching of functions and finances often referred to as
“vertical imbalances”- is that local governments are generally
dependent on transfers from higher levels of government.
There are a number of methods to close the fiscal imbalances of
sub-national governments, some of which also reduce imbalances
between jurisdictions (Ahmad 1997, p. 6). In practice, transfers
may be in the form of surcharges or revenue sharing whereby a
local government receives a share of the revenues from
particular taxes collected by the central government within its
jurisdiction (Mclure, 1999, p. 12). The main mechanism for
intergovernmental transfers in Africa, however, is conditional

30. 30
and/or unconditional grants from central to local governments.
Moreover, in some countries, for instance in South Africa,
municipalities are also given the right to borrow to finance
investments in local capital infrastructure (Bahl and Smoke,
2003, p. 8).
Promoting fiscal responsibility at sub-national levels calls for
implementation of a stable and transparent system of transfers,
geared to filling any gap between the assigned spending and
revenue-raising responsibilities to lower-level governments (Ter-
Minassian, 1999). The definition of such a system is far from
easy, especially given the need to preserve adequate incentives
for tax effort and cost effectiveness in spending by the sub-
national governments.
However, in the process of fiscal decentralization it is important
to be aware of the risks for macroeconomic management and
fiscal discipline. Mechanisms of fiscal transfers may impose
considerably rigidity to the central government budget.
Therefore, substantial devolution of revenues and spending
responsibilities to sub-national jurisdictions can affect the central

31. 31
government’s ability to carry out stabilization and
macroeconomic adjustment through the budget.
The destabilizing potential of sub-national governments is
greatest when they face no hard budget constraint (Ter-
Minassian, 1999; World Bank 2000). Expectations of bail out in
case of financial trouble weaken the incentives to economies on
costs, and may generate resource waste and rigidity within local
authorities. These inefficiencies, in turn, may spill over into
macroeconomic imbalances. In particular, concern for
macroeconomic imbalance lies behind the common
recommendation that strict limits should be imposed on the
borrowing ability of sub-national jurisdiction (Bird and
Vaillancourt, 1998). It is feared that sub-national governments
that are highly dependent on national transfers may increase
their current expenditures above their capacity to fund them out
of current revenues and then close the gap through borrowing.
For instance, in the mid-1990s in Mexico, provincial borrowing
contributed to a situation where some states were defined as
“bankrupt”. (Tanzi, 2000).

32. 32
2.2 REFORMING LOCAL GOVERNMENT “OWN REVENUE”
SYSTEMS
A widely found characteristic of local “own” revenue systems in
Africa is the huge number of revenue instruments in use by local
authorities (Bahiigwa et al. 2004; Brosio, 2000; Fjeldstad and
Semboja, 2000). In many countries, local governments seem to
raise whatever taxes, fees and charges they are capable of
raising, often without worrying excessively about the economic
distortions and distribution effects that these instruments may
create.
A complicated and non-transparent local government revenue
system is costly to administer and it facilities corruption and
mismanagement (Bardhan and Mookherjee, 2002). Moreover,
many local taxes have a distorting effect on resource allocation
decisions, and, thus, an inhibiting effect on the start-up of new
enterprises and the achievement of economic growth (Bahiigwa
et al. 2004; Davas and Kelly, 2001; Sander, 2003). These effects
occur when effective rates vary greatly between different goods
that are traded, or when license fees are set too high for start-up
small scale enterprises to survive. In addition, the levels and

33. 33
types of local revenue instruments by themselves can result in
the tax burden falling more on the poor than on the relatively
better off in local communities (Fjeldstad and Semboja, 2001).
This is mainly due to the basic design of the local revenue system
and the way revenues are collected (Fjeldstad and Semboja
2000; Fjeldstad 2001).
Despite the many comprehensive central government tax
reforms during the last decade, local government revenue
systems in sub-Saharan Africa have remained largely unchanged
until recently. Generally, a fundamental requirement when
redesigning local revenue systems is greater emphasis on the
cost-effectiveness of revenue allocation, taking into account not
only the direct costs of revenue administration, but also the
overall costs to the economy, including the compliance costs to
tax payers. In addition, losses through corruption and evasion
need to be reduced. Clearly, improved revenue administration
cannot compensate for bad revenue design. Thus, reforming the
revenue structure should precede the reform of revenue
administration since there is not much merit in making a bad
revenue system work somewhat better.

34. 34
Recently, Tanzania conducted a comprehensive reform of its local
revenue system. The main elements of this reform were:
i. Abolition of unsatisfactory local revenue instruments, which
were costly to collect from administrative and political
perspectives (including the poll tax), and
ii. Improvements to remaining revenue bases by simplifying
rate structures and collection procedures. The Tanzanian
reform demonstrates that radical changes of the local
revenue system are possible, although it is too early to
assess the long-term impacts of this reform on local
government revenues.
2.2.1 STRENGTHS AND WEAKNESSES OF MAJOR LOCAL
“OWN REVENUE” INSTRUMENTS
As noted above, the local ‘own revenue’ systems across Africa
are often characterized by a huge number of revenue
instruments. However, the main sources of ‘own revenues’ in
urban councils are usually property rates, business licenses and
various uses charges, often in the form of surcharges for services
provided by or on behalf of the municipality. Nevertheless,
experiences from a number of African countries show that these
revenue instruments have serious shortfalls. For instance,

35. 35
property taxes can be very costly to administer (Brosio, 2000, p.
20), and the enforcement of user fees has resulted in widespread
resistance to pay from the poorer segments of the urban
population in some countries (Fjeldstad, 2004; Fjeldstad et al.
2005). Moreover, complex business licensing systems have
proved to be major impediments for the start up and expansion
of especially micro and small enterprises (Devas and Kelly, 2001;
Sander, 2003). However, international evidence shows that when
well administered, these revenue instruments can provide
substantial and reliable revenues for urban municipalities.
2.3 EVOLUTION OF NIGERIA’S FEDERAL STRUCTURE
Nigeria’s fiscal federalism is anchored on economic, political,
constitutional, social and cultural developments. As the country
progressed from a unitary government to a federal one and
governance became more decentralized, there were also changes
in fiscal arrangements.
The process towards a federal structure was not that smooth.
The colonial administration demarcated the country into three
segments, namely, the protectorate of Southern Nigeria; the
colony of Lagos and the protectorate of Northern Nigeria. In each

36. 36
administrative area, there was complete fiscal independence
which lasted up to 1914. That same year, following the
amalgamation of the Northern and Southern protectorates
(including the colony of Lagos), attempts was made to unify the
fiscal system.
For example, in 1926, a centralized budget system was
introduced. Following the creation of Northern, Western and
Eastern regions in 1946, a decentralized fiscal structure began to
emerge. The first revenue commission was set up in 1946. By
1951, a quasi-federal structure was in place followed by self-
governing regions in 1954. During the colonial period, four
revenue commissions were created. The principles, criteria and
allocation formulas recommended by the commissions are well
documented in the literature (See, for instance, Ekpo, 1994).
From three regions in 1960, the country grew to four regions in
1963. During the civil war of 1967 to 1970, the country was
carved into twelve states. By 1976, the states had increased to
nineteen and it remained that way until 1987 when it was
increased to 21. In August, 1991, the number of states increased

37. 37
to 30 and a separate Federal Capital Territory was carved out in
place of the old capital in Lagos. By October, 1996, six additional
states were created, thus bringing the total number to 36.
The evolution of local government administration Nigeria can be
examined within the context of regionalism. The local
government system experience several changes in the early
1950s. During that period, the system was constituted on a
representative basis. Colonial local administration revolved
around traditional rulers, with the unit of local administrative
referred to as the Native Authority. Executive authority lay with
the District Officer. The authorities at that time established
administrative organizations that were adhoc. “However, some
success of this type of administration was noticeable in the
centralized emirates of the former Northern Nigeria” (Ekpo and
Ndebbio, 1998). The former regions of the East, West and North,
because of the different stages of development, also
experimented diverse ways of strengthening their systems of
local administration. (for an examination of the evolution of local
government administration prior to the 1976 local government
reform see NCEMA 1990 and Gboyega, 1983).

38. 38
Local government administration in the country experienced
fundamental changes in 1876. the 1976 local government’s
reform created for the first time, a common, single-tier structure
of local governments in place of the different structures in the
various regions/stages. Our interest in the 1976 reform hinges on
the restructuring of the financial system. The reforms instituted
statutory allocations of revenue from the federation account with
the intention of giving local governments (LGs) fixed proportions
of both the federation account and each state’s revenue. This
allocation to local governments became mandatory and was
entrenched in the recommendations of the Aboyade Revenue
Commission of 1977. The 1979 constitution empowered the
National Assembly to determine what proportion of the federation
account and revenue from a state to allocate to local
governments. In 1981, the National Assembly fixed these
proportions at 10 percent of the federation account and 10
percent of the total revenue of a state. In 1985, the state’s
proportion was reduced to 10 percent of the internally-generated
revenue. Local governments’ allocation from the federation
account was later adjusted to 20 percent. Thereafter, it changed
to 25 percent with the argument that local governments are

39. 39
expected to take on large developmental responsibilities. The
proportion has continued to vary overtime.
At present, local governments receive 20 percent of the
federation account. In addition, proceeds from the Valued Added
Tax (VAT) are also allocated to them. At present VAT’s allocation
is 35 percent based on equality of states (50 percent), population
(35 percent) and derivation (20 percent).
The 1976 local government reforms stated the internal revenue
sources of local government to include.
- Rates, which include property rates, education rates and
street lightening;
- Taxes such as community, flat rate and poll tax.
- Fines and fees, which include court fines and fees, motor
park fees, forest fees, public advertisement fees, market
fees, regulated premises fees, registration of births and
deaths and licensing fees; and
- Miscellaneous sources such as rents on council estates,
royalties, interest on investments and proceeds from
commercial activities.

40. 40
Despites this clear demarcation, it is not uncommon to find
states and local governments clashing over sources of internal
revenue.
Overtime, there has been a remarkable increase in the number of
local government. There were 96 divisions in 1967. By 1976,
they had increased to 300. The number further increased to 448
between 1987 and 1990 before jumping to 598 in 1991. The
number was again increased to 774 after five years.
(NES 1999 Annual Conference).

41. 41
Table 1: Evolution of Nigeria’s Federal Structure 1914-1996
Date Northern Nigeria Southern Nigeria Total Enabling Laws
1914 1 protectorate 1 protectorate 2
1993-
1939
1 group of province 2 groups of provinces
(East and West).
3 Native, authority
ordinance
1946 1 region (Northern
Region)
12 Provinces
39 Divisions
2 regions (East and
West
11 Provinces
44 Division
3
23
83
Notice No. 43 of
1933 Notice No.
1725 of 1938
Notice No. 17 of
1943
1963 1 Region (Northern
Region)
14 Provinces
41 Divisions
3 regions (East,
West, and Mid-West)
21 Provinces
55 Divisions
4
35
96
The mid-West
Region
Transitional
Provisional
Act No. 19, 1963
1967 10 States
41 Divisions
2 States
55 Divisions
12
96
State (creation
and Transitional
Provisional)
Decree 14, 1967.
1976 10 States
152 Local Governments
9 States
148 Local
Governments
19
300
States (creation
and Transitional
Provisional)
Decree 14, 1976.

42. 42
1987-
1990
11 States
240 Local Governments
10 States
208 Local
Governments
21
448
State (creation
and Transitional
Provisional)
Decree 1987 and
1989.
1991 17 States (including
FCT)
14 States
272 Local
Governments
320 Local
Governments
31
595
States (creation
and Transitional
Provisional)
Decree 37, 1991.
1996 20 States (including
FCT)
414 Local Governments
17 States
355 Local
Governments
37
769
State (creation
and Transitional
Provisional)
Decree 36, 1996.
Note: Provinces created between 1993 and 1963 now have the
status of states while divisions created in the same period now
have the status of local governments.
Sources: Tell Magazine, March 29, 1999, pp. 50
Northern Region and 355 in the former Southern Region.
According to government, decentralization was necessary to
broaden the growth of development centers. It should be noted

43. 43
that the rise in the number of local governments has implications
in the assignment of fiscal responsibilities among the different
levels of government.
Local government system in Nigeria needs a moderate amount of
financial autonomy to be able to discharge its responsibilities
effectively. Public revenue in a federal system assumes that
there are benefits to be derived from decentralization. Public
revenue decentralization occurs when lower tiers of government
have statutory power to raise taxes and carryout spending
activities within specified legal criteria. This is referred to as the
Overlapping Authority Model propounded by Deil .S. Wright
(1978) on intergovernmental relationships. Public revenue
decentralization occurs when much of the money is raised
centrally but part of it is allocated to lower levels of government
through some revenue-sharing formula otherwise known as
administrative decentralization.
The main reason for decentralization is anchored on allocation
sharing or efficiency grounds so it is possible to advance
argument for decentralization in Nigeria where there are many

44. 44
ethnic groups. Oates (1993:240) contends that “there are surely
reasons, in principle to believe that policies formulated for the
provision of infrastructure and even human capital that are
sensitive to regional of local conditions are likely to be more
effective in encouraging economic development than centrally
determined policies that ignore these geographical differences”.
There is a great relationship between decentralization and
economic growth and behaviour for economic fundamentals
within the decentralized jurisdiction is a matter that remains an
empirical issue and discussions must be country specific.
Kim (1995) quoted in Oates (1996) has shown that in his mode
of explaining rates of economic growth, revenue decentralization
that there are positive and statistical significant change, using a
sample of countries. His results also shows that, other things
being equal, more public revenue decentralization was associated
with more rapid growth in GDP per capita during 1974-1989
period. Prud’Homme (1995) on the other hand, argues that
decentralization can increase disparities jeopardize stability,
undermine efficiency and encourage corruption. He maintains
that local authorities, for example, have few incentives to

45. 45
undertake economic stabilization policies. The instrument of
monetary and public revenue policies are better handled by the
central government.
Oates (1993) opines a contrary view that the principles of
centralization is costly because it leads the government to
provide public goods and diverge from the preferences of the
citizens in particular areas (regions, provinces, state, local
governments). He also argues that “when these preferences vary
among geographical area, a uniform package chosen by a
nation’s government is likely to force some localities to consume
more of less than they would like to consume.
According to Tanzi (1995) the interpretation of both Oates and
Prud’homme assumes that sub-national government levels
already exist, hence the crucial problem becomes which of the
existing government levels ought to be responsible for particular
forms of spending. The function of government can be divided
into three-allocation, distribution and stabilization function
(Musgrave, 1959). Using this stratification, stabilization and
distribution functions are expected to be under the periphery of

46. 46
the central government while lower government undertakes
allocative functions. Hence, any spending and taxing decisions
that will affect the rate of inflation, level of unemployment, etc
are better handled at the centre, while other activities that will
affect social welfare are more efficient if undertaken by sub-
national governments. Theoretically, the scope of benefit is the
basis for allocating responsibilities governments. Public goods
and services which are national in nature (foreign affairs,
environment, immigration and defense) should be provided by
the central government while those whose benefits are mainly
localized should be assigned to the lower levels of government.
Quasi-private goods or intermediate goods and services such as
administration, health and welfare services should on account of
efficiency delivery, be assigned to lower levels of government
(Vincent .O. 2001).
Studies on tax and public revenue mobilization in Nigeria have
shown a high degree of centralization. According to Emenuga
(1993), the allocation of revenue to the tiers of government has
no adhere strictly to the expenditure requirements of each tier,
thus the federal government has become a surplus spending unit

47. 47
while other functions, he proposes the determination of a tier’s
share through the aggregation of its basic expenditure needs. To
reduce the gap between tax power and responsibilities, two types
of revenue sources are allocated to each tier. These are
independent revenue sources and direct allocation from the
federation to which centrally collectable revenues are paid. Local
government also receives allocations from states Internal
Revenues. An agreed formula for vertical revenue sharing is used
in sharing funds from the federation account. Another key issue
in the practice of public revenue mobilization in Nigeria is how to
distribute the bloc share from the federation account among the
constituent units of each tier i.e. among the 36 states and the
774 local governments. This is called horizontal revenue sharing.
In Nigeria, there are four categories in the vertical allocation list-
federal, state, local governments, and the special fund. The
allocation to the Federal Capital territory (FCT) is accounted for
under the special fund which is administered by the Federal
Government.

48. 48
2.3.1 FEDERALISM AND LOCAL GOVERNMENT AUTONOMY
IN NIGERIA
Local government autonomy is the degree to which a local
government is able to decide and act on issues within its defined
jurisdiction, irrespective of whether or not higher levels of
government are disposed towards such decisions and/or actions
from this definition, we can list some essential elements of local
autonomy as;
- It is a matter of degree; therefore, it is relative and not
absolute.
- It has to be effectively backed up with human, financial and
material resources to make its exercise a reality;
- It has to be intra vires, that is, it must be exercised within
the scope of the enabling statutes which define the
intergovernmental distribution of responsibilities in a polity;
and
- It is empirically observable if the local government can
decide and/or act on issues, without falling foul of higher
levels of government.

49. 49
The extent of local government autonomy may be considered
from the viewpoints of the extent to which power is conferred on
it within the prevailing system of decentralization, and the
amount of control that is exercised over it (Okunade, 1997), or,
if in a federation, the level of the structured system of non-
centralization that is adhered to.
The purpose of dividing government into many tiers is to better
achieve the developmental objectives of the state through the
division of work, authority and resources. The system of relations
between the tier in a given polity primarily reflects the
constitutional or other statutory provisions specifying their
establishment, structure composition, finance and functions. In
this context, local governments are sub-national units of a
unitary or federal nation-state and legally, conferred with
power/authority over specified functions and territory. To that
extent, they are supposed to have requisite executive and
administrative power as well as financial and human resources to
register their existence and activities. Moreover, they should
enjoy some degree of freedom over the defined functions and
territory. This is the crux of local autonomy.

50. 50
The traditional theory of local government autonomy emanates
from a liberal democratic analysis of the state and politics. The
theory accepts pluralism, but is very critical of centralization
(Roberts, 1997:10). Its North American models favour political
pluralism and decentralization with emphasis on local control and
self-determination (Clark and Dear 1984). Its British variant
derives from beliefs in “collective convictions” about local self-
government as a “traditional institution” and “proper
government” which informed the local government policy in the
former British colonies, including Nigeria (Mackenzie, 1961).
From May 1967 (when states were first created in Nigeria) up to
1976, federal government relations with the local governments
were generally maintained through state governments. On the
other hand, state-local relations were consummated mainly
through the erstwhile Ministries of Local Government (MLGs),
which served as supervising ministry. Sometimes, the states
used this power positively. Most of the time, however, the power
was used negatively to the detriment of Local Government
autonomy. The result was that up to 1976, local governments

51. 51
suffered from “continuous whittling down of their powers by state
governments” (FGN 1976).
The 1976 reform responded to the situation by recognizing the
Local Government as a distinct tier of government in Nigeria and
one which exercises specific statutory powers. The reform was
expected to result in substantial local government control over
local affairs, as well as the use of their institutional and financial
powers to implement projects that will complement the activities
of the state and federal governments in their areas (FGN 1976).
The 1979 constitution not only recognized the local governments
as the third tier of government, it also assigned specific roles to
them, thereby according to them the status of a development
partner to the state government rather than a mere subordinate
agent.
Paradoxically, however, the reform which preceded the Second
Republic (1979-1983), retained the principle that local
governments were essentially the responsibility of the state
governments. Evidently, besides the recognition that local
government councils should have substantial control over local

52. 52
matters, the reforms did not give them the necessary amount of
administrative and financial autonomy that would enable them to
operate as a distinct level of government. Thus, as noted
elsewhere (Roberts, 1997:63), in the early years of the 1976
reform, there was a tendency for superintending
ministries/departments at the state level to try to do things for
local governments even when such things were well within the
latter’s competence.
Uncertainty about autonomy of the local government reached a
head in the Second Republic. Arising from the simultaneous but
contradictory recognition of the local government as “the third
tier of government” and the acceptance that it is yet “primarily
the responsibility of state government”, controversy raged on, for
instance, as to whether state governments could create local
governments without federal concurrence. The constitutional
ambiguity, in particular, posed a major implementation problem
in the scheme of local autonomy. In spite of constitutional
provisions which appeared to grant local governments a measure
of autonomy, they were, up to the end of the second republic,
tightly controlled and subordinated by state governors through

53. 53
sundry mechanisms, including manipulation of the disbursement
of financial transfers to them.
The Major-General Muhammadu Buhari administration (1984-
1985), which sacked the Second Republic and set up the Dasuki
Committee on local government administration (cf. FGB 1984)
did not have the time to fully implement its planned reform on
the local government. It was, therefore, left to the succeeding
regime of General Ibrahim Babangida (1985-1993) to carry out a
number of measures designed to give strength to the local
government in Nigeria. The central plank of the reform
introduced by the Babangida regime was to devolve
responsibilities to the local governments and allow them some
autonomy “to function effectively as the third tier of government
which is truly local to the environment” (Babangida 1988).
The guarantee of local autonomy was of particular significance in
the Babangida reform of the local government. In the National
Day Broadcast of October 1, 1998, President Babangida had
noted that:

54. 54
Local Government will be given the necessary
freedom and autonomy to operate within the
ambits of the constitution as a mere adjunct to
the state as a truly coordinate and effective level
of government.
Parallel measures were also adopted to strengthen the
independence of local governments on financial matters. The
most significant of these was the decision to disburse their share
of federal revenue directly to them instead of going through their
respective state governments, where such funds were routinely
hijacked. Such measures, including the increase in federal
allocation to the local governments from 10 to 20 percent, were
based on the conviction that local governments should enjoy
greater freedom of action if they are to be effective as the closest
level of government to the people. The implications of these
measures are;
- The conviction that all forms of state government control
over the finances of local governments must cease; and
- That states should no longer act as financial
intermediaries for local governments in the allocation
and transmission of funds (Okunade, 1997).

55. 55
These measures were complemented by the Presidential system
of government at the local government level which was designed
to strengthen the autonomous status of local representatives,
particularly the local government chairman, as the fount of
executive power and locus of accountability. Other significant
measures designed to enhance local autonomy during the period
include;
- The holding of elections into local government councils in
1987, 1990 and 1996;
- The directive that all state statutory allocations not paid
to local governments be deducted at source by the
federal government;
- The adjustment of local government boundaries and the
creation of some new local governments in the areas
that demanded them; and
- The change which made LGSCs constitutional rather than
merely statutory. Up to 1993, the Babangida
administration continued to assure the nation of its
intention to “remove all constraints” in local government
administration before leaving office.

56. 56
In spite of these novel provisions for local government
autonomy, the reality differed much from expectations. State and
Federal Government pronouncements and actions largely
subverted these expectations of local autonomy. The federal
Government consistently warned “over zealous” local
government officials of the non-absolute status of their autonomy
(Roberts 1997:63). Okunade (1997) reports that the Attorney-
General of Ogun State categorically stated that “Local
Governments are not totally free” and that they were still subject
to administrative and financial control by the state government.
Also, the Deputy Governor of Oyo State indicated local
governments in the state, accusing them of abuse of power,
gross misconduct, outright maladministration, nepotism,
favouritism, partiality and violation of regulations and guidelines
in the name of local government autonomy. Such indictments
were made in order to maintain state governments’ stranglehold
over local governments.
In effect, the state governments continued to behave as if the
old system had not changed. The Department of Local
Government in the State Governor’s office which replaced the

57. 57
MLG continued to function as a de facto MLG. In Rivers States,
the government monitored the performance of Local
Governments ostensibly to ensure that their development
programmes and policies conformed to those of the state
government. It was believed that although local governments
had a measure of autonomy, they were still part of the state
government in a generic sense (Roberts, 1997). The Federal
Government itself also took some anti-autonomy measures
including fixing the salaries of local government chairmen and
secretaries even after the deregulation of salaries, and failing to
shield the local governments from the over lordship of the states
(Okunade, 1997). In the end, elected local government councils
were even dissolved by military fiat during the period.
From November 1993 to June, 1998, whatever gains that were
made in local autonomy were lost completely with the scrapping
of all democratic structures under the regime of General Sani
Abacha. In December 1993, central government officials in
charge of local government affairs asserted that the
government’s intention in granting financial and administrative
autonomy to local governments were “concessions” which were

58. 58
misunderstood by council officials. By 1994 when local
government administration was reconstituted, it was a return to
the status quo ante, which placed local government caretaker
committees at the mercy of state military administrators
(Roberts, 1997).
2.3.2 IMPLICATIONS OF LOCAL GOVERNMENT AUTONOMY
FOR REVENUE MOBILIZATION
The degree of local autonomy that exists in Nigeria at any
moment has critical implications for the ability of local
governments to mobilize and utilize revenue for developmental
purposes. The implications can be positive or negative, and are
normally dependent on the existing nature and structure of local
government finance. Normally, Nigerian local governments
mobilize their funds from external and internal sources. The
external sources include federal and state governments’ financial
transfers to local governments (grants, statutory allocations,
their share of Value Added Tax (VAT) receipts), and loans. The
internal sources include property and community rates, taxes,
fees and charges of various kinds.

59. 59
Since the constitutional recognition of the local government as
the third-tier of government in Nigeria, external revenue has
become a major source of income for the local government. Both
Federal and state Government sometimes gives grants to Local
Governments for specific service delivery (Bello-Imam, 1988).
The most important of these is the general grant called statutory
allocation which local governments are entitled to receive from
federal and state governments. Initially, Nigerian local
governments were entitled to 10 percent of federally collected
revenue in the federation account and 10 percent of total
revenue of the states. Currently, this has been revised to 20
percent of revenue in the federation account and 10 percent of
the state’s internally generated revenue.
While loans are not a very popular source of revenue for Nigerian
local governments, they now also receive a share of the VAT
which was introduced in 1994. The contribution of VAT to local
government revenue is growing and some local governments
have come to depend on it as a distress-avoidance mechanism in
the light of significant financial challenges facing them. This is

60. 60
particularly so, given the recent upward revision of their share of
VAT from 25 percent in 1997 to 30 percent in 1998.
The local governments were expected to complement their
federal and state allocations with revenue earned from their
internal statutory sources. Generally, the most buoyant internally
generated revenues of them remain local licenses, fees and
charges. (Bello-Imam, 1992). Particularly since 1981, the
significance of poll tax has greatly declined for reasons which
include erratic decisions on it by the central government, labour
mobility which renders it difficult to administer, and impropriety
on the part of the collectors. In spite of long-standing recognition
of its potential, property rate has remained a largely neglected
source of local government revenue except in Lagos State where
it has been operated since 1915. The reason for its neglect is
political: it suffers culture-bound definitional problems which
make it difficult to justify to clients, and it also suffers technical
problems of defective valuation mechanisms coupled with the
incidence of too many exemptions. Similarly, for fees and
charges, the issue has not been whether the charges could be
imposed (Bello-Imam 1990; Roberts 1997).

61. 61
Against this background, the prevailing reforms and the attempt
to accord some autonomy to local governments certainly had
some positive implications for local revenue mobilization. The
institution of statutory allocations as a local revenue mobilization
mechanism, the increase of the allocation from 10 to 20 percent
of the federation account, the direct disbursement of federal
revenues to local governments, and the abolition of several
political and fiscal controls over the local government, in
principle, boosted the revenue profile of Nigerian local
governments.
Increases in local government budgets have been due mainly to
large infusions of money to them from the federation account-
about 10 billion between 1976 and 1987 (Roberts 1997:53).
Their allocation of N1.095 billion in 1986 had risen sharply by
1990 to N7.2 billion. In January 1993, it rose further to N22.1
billion (Gboyega, 1997). This rising allocation has put more
money at the local government, irrespective of the real worth of
the money against its nominal value.

62. 62
On the other hands, the status of local government autonomy in
Nigeria has had some profoundly negative implications for
revenue mobilization. While local governments have certainly had
more money at their disposal over the years, a critical look at the
structure of their revenue reveals that it is mainly derived from
external sources. As we shall see shortly, the nature of these
external sources and the manner of their disbursement not only
reinforce the erosion of local autonomy, but also introduce a
dependency syndrome in local governments’ revenue
mobilization effort. As local governments come to depend almost
exclusively on statutory allocation, their internal revenue
mobilization capacity is weakened.
Other than statutory allocations from the federation account and
grants from federal and state governments, loans are
constrained by intergovernmental controls which limit local
financial autonomy through;
- Prescription of source, extent and purpose of borrowing
- Official sanctions restricting loans to a minority of local
government projects.

63. 63
- Structures on local governments to avoid deficit
budgeting, thereby making borrowing irrelevant and
- Absence of appropriate lending institutions outside the
capital market.
As for VAT, local governments have absolutely no say or power
over the administration of this tax or over how much revenue
they can expect to raise from it. The prevailing structure of local
autonomy means that the local governments are totally at the
mercy of the federal government in mobilizing revenue from this
source.
Also, the relations between states and local governments have
also created uncertainties over allocation of state government
funds to local government councils. For instance, there are
questions about which income sources to include or exclude the
formula to apply, the method of distribution of funds, and the
regularity and punctuality of remitting state financial
contributions to local governments.
This uncertainty was demonstrated at a workshop on Local
Government Administration and Finance in Ibadan in 1997 when

64. 64
officials of the State’s Budget Department said that the State no
longer paid its statutory 10 percent allocation to Local
Governments because it was performing Local Government’s
obligations by paying primary school teachers pensions and
gratuities. The local government officials at the workshop said
the argument was “unimpressive”.
Again, in spite of local government’s entitlement to statutory
allocations, intergovernmental financial transfers are highly
politicized. The higher levels of government are generally tardy in
their funds disbursement. During the Second Republic, all the
States except Lagos hardly remitted the Local Government’s
share of statutory allocations to them. Using their supervisory
and control powers, many states either diverted these grants to
other buses or reduced the amount that actually got to the local
governments. Under the Abacha regime, statutory allocations,
especially capital votes were always released very late. As
characteristic of the regime, the federal government always
made upfront appropriations and deductions from total revenue
collections before the balance was paid into the federation
account. Consequently, state and local governments were denied

65. 65
about 40 percent of their legitimate funds which was cornered by
the Federal Government during that regime (Phillips, 1998).
In spite of the foregoing, a further constraint is imposed on Local
Government revenue mobilization capacity through State control
over Local Government budget, which is made to pass through
state control over local government budget, which is made to
pass through many levels of approval in the hands of the State
government. Even after approval, post-budget controls still
impose further restrictions on what local governments can do
(Roberts, 1998).
One of the most serious implications of the local governments
have found themselves is that they are dependent on external
sources-even with all the vagaries mentioned above and this has
the twin effect of instilling a dependency syndrome in them and
weakening their internal revenue mobilization capacity. The
structure of local government revenue is such that over three-
quarters of it is externally derived. This level of dependency on
external sources has induced a decline in their internally-
generated revenue. It has also made them more vulnerable and

66. 66
further eroded their fragile autonomy. An ideal framework of
local autonomy anticipates that each level of government must
mobilize the necessary revenue or resources from within its own
sphere for purposes of carrying out its programmes, with
statutory financial allocations serving as supplements to internal
budgetary efforts.
2.4 REVENUE UTILIZATION FOR LOCAL DEVELOPMENT
With their direct and expanded access to federal revenue the
local councils have assumed important responsibilities in the
prosecution of their own development functions, especially
primary education and health programmes, as well as the
implementation of a wide range of federal development policies
and programems at the Local level. Local Government
contributions to the Gross Domestic Product (GDP), for instance,
dropped from 2 percent in 1960 to 0.3 percent in 1976. Their
share of public expenditure also fell from an average of 11 to 15
percent between 1955 and 1966 to 2 percent in 1976. From
1976, however, local government share of GDP has been rising-it
rose to 3 percent in 1987, while their share of public expenditure
reached 7.5 percent (Olowu, 1988).

67. 67
Essentially, then, the increasing revenue from local government
statutory allocations have enhanced their economic fortunes and
service delivery capacity. Their ability to deliver to services
depends on the availability of revenue. Yet, it is clear that neither
the enhanced autonomy nor the increased and direct fund
disbursement over the years has been adequate to meet their
needs. Lack of adequate financial resources to backup the
workings of established local councils has, therefore, become an
economic constraint which derives from and, in turn, reinforce
their relative lack of autonomy.
Consequently, many local governments in the country have
ended up spending the bulk of their revenue on recurrent rather
than capital expenditures, and even this has hardly been
sufficient. Examples include the Akinyele Local Government in
Oyo State and Ahoada Local Government in Rivers State where
the best capital expenditure performance in the early 1990s was
about 28 percent of total expenditure (Roberts, 1994). In 1993,
Oyo Local Government received a quarterly allocation of N3.8
million from the federation account out of which N3 million was
used to pay salaries and allowances, leaving N.8 million for other

68. 68
council activities. No less than nine local governments in Oyo
State had this same experience that year (Roberts, 1997). This
pattern of revenue utilization is still widespread in the country
and defeats the intention to make local governments “prime
centers” for social and economic development. General
Babangida, a former Nigerian Head of State, articulates the
expectations from the Local Government thus;
Local Governments are no longer there just to
pay salaries. They are there to ensure collective
participation in governance, motivate physical
and economic development, create the
conditions for employment opportunities, and
provide social services which can improve the
well being of our people (Babangida 1988).
In 1996, many local governments made representation to state
and federal governments concerning the continued burden of
staff salaries on their revenue. Their fear was that as elected
officials, they risked being characterized as failures by the
electorate, given that in their desperation, many of them had
resorted to using their VAT receipts meant for capital projects for
recurrent expenditure (Benjamin, 1996).

69. 69
Even of more direct importance but of no less consequence in
determining the effect of local government autonomy on revenue
utilization is the fact that local governments have limited freedom
over their expenditures. The absence of local discretion in
planning and budgeting at the local level tends to stifle local
initiatives, contrary to the stated objectives of the local
governments. Planned appropriations also get distorted in the
course of scrutiny and control by higher levels of government
(Roberts, 1998). The Department of Local Government in the
Military Administrator’s Office has continued to be “obstructive,
inhibitive and no less meddlesome” than the former MLGS
(Okunade, 1997). Spending limits are routinely imposed on local
government officials. Local government officials in the former
Kwara State, for instance, complained of the tendency to
subordinate them to the state government by means of
“incessant circulars… which tended to supersede the contents of
edicts stating local government functions”. Sometimes, local
governments utilization of revenue had gone far in one direction
only for circulars which are in direct conflict with them to be sent
“from above” (Roberts, 1997:63). Hence, the absence of local
autonomy directly affects the local government’s revenue

70. 70
utilization for development. Nevertheless, the constraints of local
autonomy are not the only inhibitions on the role of local
government in development. Particular cognizance must be taken
of the role of corruption. While some isolated cases of good
performance were evident during the botched Third Republic, for
most local government chairman, it was a case of:
A rare change to go on pilgrimage to Mecca or
Jerusalem, to acquire and brandish a fleet of the
latest posh cars in town, to erect some of the
best architectural castles as their private homes,
while unbridled corruption and fraud closely
punctuated the officials activities of the council’s
rank and file (Iyioke, 1993).
In Cross River State, the State Government had to freeze the
accounts of Biasse Local Government in 1993 the legislature
opened an “illegal account” from which its members drew “illegal
allowances”. In Lagos, an audit panel into the activities of the
then 15 local governments noted diversion of local government
funds into private pockets and dubious business ventures. In
Ondo and Akwa Ibom States, several chairmen deposited local
government subvention into savings and loans companies in
which the local governments had no account. Jigawa State lost

71. 71
about N147 in 2000 due to similar activities by its local
governments (Roberts, 1997).
The cumulative effects of these acts of corruption on local
development have been quite telling. It is hardly surprising that
Nigerian local governments prefer “contractocracy” as
development strategy, in contradistinction to “contracting out”
which defined the thatcherite era in the British local government.
Thus, even in the context of local autonomy, corruption injects
autonomous local authority with allocation as well as production
inefficiency. What obtains, therefore, is the multiplication of
“autonomous” nodes of corruption nationwide, thereby making it
more widespread. Theoretically, the benefits of decentralized or
relatively autonomous corruption are better distributed than
those of centralized corruption. However, the real cost is that it
leads the local government to favour development projects with a
significant scope for kickbacks over and above those defined by
popular need but with little scope for personal gains. Corruption
is also costly to local development because it leads to corruption
avoiding strategies that increase costs, favour ineffective
technologies, and waste time (Prud’ homme, 1994).

72. 72
2.4.1 LOCAL GOVERNMENT TAX FINANCES AND REVENUE
UTILIZATION
Public revenue mobilization is one of the most keenly contested
issues in Nigeria. A comprehensive review of the reports of the
various commissions and government policies from the 1946.
Philipsons commission to the activities of the National Revenue
Mobilization, allocation and fiscal commission established in 1989
could be found in Kayode (1993), Emenuga (1993) and Ekpo
(1994).
Local governments in Nigeria received statutory allocations from
the two higher tiers of government (Federal and States). At the
present, revenue sharing formula, local governments receive 20
percent from the federation account. They are also statutorily
entitled to 10 percent of states’ internally generated revenue. As
regards to Value Added Tax, local governments receive 30
percent in 1998. This was shared to local governments, on the
following basis; equality (50 percent): population (30 percent)
and derivation (20 percent). In 2006, local governments received
35 percent of the VAT proceeds.

73. 73
The federal government controls all the major sources of revenue
like import and excise duties, mining rents and royalties,
petroleum sales tax, petroleum profit tax and companies income
tax among other revenues sources. Local government taxes are
minimal hence this limits their ability to raise independent
revenue and so they depend solely on allocation from the
federation account. But the federal government seems to
exercise too much control over its distribution. So many
deductions are made from the total revenue collected before the
rest is distributed according to the sharing formula.
Table 3 summarizes federal allocation to local governments for
the period 1976 to 2006. The federal allocation showed steady
increases during the periods. In nominal terms, the allocation
which stood at N100 million 1976 jumped to N352.6 million in
1980 and further jumped to N1166.9 million in 1986, reflecting a
compound growth rate of almost 29 percent. During the
structural adjustment programme (SAP) federal allocation to
local governments increased remarkably by 45.7%. This jump
could be as a result of the increase in the number of local
governments.

74. 74
Table 2: Jurisdiction of Major Taxes in Nigeria 1990
S/N Type of Tax Administration
and Collection
1 Import duties Federal
2 Exercise duties Federal
3 Export duties Federal
4 Mining and royalties Federal
5 Petroleum sales and profit tax Federal
6 Companies tax Federal
7 Capital gains tax Federal/State
8 Personal income tax (other than listed in 9) States
9 Personal income tax, armed forces,
external affairs officers, on-residents,
residents of the Federal Capital Territory
and the Nigeria Police.
Federal
10 License fees on television and wireless
radio.
Local
11 Stamp duties Federal/States
12 Capital transfer tax (OTT) States
13 Value Added Tax Federal
14 Pools Beffing and other Beffing, taxes States
15 Motor vehicle and Driver’s licenses States

75. 75
16 Entertainment tax States/Local
17 Land registration and survey fees States
18. Property taxes and rating Local
19 Marketing and trading licenses and fees Local
20 Motor parks duties Local
21 Advertisement fees Local
22 Gift tax States
Source: Constitution of the Federal Republic of Nigeria.

76. 76
Table 3: Nigeria Federal Statutory Allocation Revenue to
Local Governments, 1976-2006 (N million)
Year FA FR FA/FR%
1976 100.0 6765.9 1.5
1977 250.0 8012.2 3.1
1978 150.0 7469.3 2.0
1979 261.4 10913.5 2.4
1980 352.6 15234.0 2.3
1981 1085.0 12190.2 8.9
1982 1081.7 11764.4 9.2
1983 876.9 10508.7 9.3
1984 1061.5 11766.8 9.0
1985 1327.5 14680.8 9.0
1986 1166.9 12837.6 9.1
1987 2117.8 25099.8 8.4
1988 2727.1 27310.8 10.0
1989 3399.8 50272.1 6.8
1990 7680.0 66895.4 11.5
1991 10764.8 100991.6 10.6
1992 16488.0 90453.2 8.7

77. 77
1993 18316.4 192769.4 9.5
1994 17321.3 201910.8 8.6
1995 17983.4 459987.4 3.9
1996 21590.6 520190.0 4.1
1997 22881.5 452000.0 5.1
1998 30,600.9 44948.2 68.1
1999 43,870.3 60,800.6 72.1
2000 118,589.4 151,877.3 78.1
2001 128,500.5 171,523.1 74.9
2002 128,896.7 172,151.1 74.9
2003 291,406.9 370.170.9 78.7
2004 375,656.3 468.295.2 80.2
2005 493,000.3 597,219.1 82.5
2006 550,796.3 674.255.7 81.7
Source: Central Bank of Nigeria, Annual Report and
Statement of Accounts (Various Issues)

78. 78
Table 4: Nigeria: Fiscal Balance of Local Governments
1993-2006 (N million)
Year Revenue Expenditure Surplus
1993 19,915.6 19,544.7 370.9 (+)
1994 19,072.7 18,776.4 296 (+)
1995 25,227.1 24,191.5 1035 (+)
1996 23,789.6 29,809.9 1422.4 (+)
1997 31,254.4 29,939.9 1,314.3 (+)
1998 44,948.2 44,056.9 891.3 (+)
1999 60,800.6 60,441.2 359.4 (+)
2000 151,877.3 153,864.8 1,987.5 (-)
2001 171,523.1 171,374.5 148.6 (+)
2002 172,151.1 169,820.2 2,330.9 (+)
2003 370,170.9 361,713.2 8,457.7 (+)
2004 468,295.2 461,050.6 7,244.6 (+)
2005 597,219.1 587,977.8 9,241.3 (+)
2006 674,255.7 665,838.0 8,417.8 (+)
Source: Central Bank of Nigeria, Annual Report and
Statement of Accounts 2006.

79. 79
The internally generated revenue sources of Local Government
consist of taxes, rates, fines, fees and licenses. The study shows
that taxes continue to form the bulk of internal revenue, followed
by fines and fees. There is also a list of users’ charges, royalties
and proceeds from stocks and shares, which are categorized as
“others”. Internally generated revenues increased from
N19,915.6 million in 1993 to N674,225.7 million in 2006,
representing a growth rate of 50 percent. “For all the local
governments, taxes rates, fines and licenses increased during the
period under review. In Ijebu-North Local Government, taxes
jumped from N31,000 (N55,259.19 in real terms) in 1980 to
N121,000 (N67,760.00 in real terms) in 1984 and by 1991 taxes
stood at N31,000 (N74,745.19 in real terms). The taxes grew by
12.8 percent between 1980 and 1991. During the same period,
taxes and rates grew by 31.2 percent and 18.9 percent
respectively. However, in metropolitan Calabar, taxes and rates
grew by 5.1 percent and 9.8 percent respectively, during the
same period. On the other hand, licenses declined by 4.4 percent
(Ekpo and Ndebbio, 1998:16).

80. 80
Value Added Tax also constitutes an additional source of revenue
to local governments. There is a limit to the imposition of taxes
on the people in order to provide infrastructures. One should try
to strike a balance between aggressive internal revenue sources
through increased taxation and the need to avoid governance
problems.
The viability of local governments has implications on the
management of the wider economy. Budget deficits at the local
level may create or aggravate public revenue mobilization
problems. In Nigeria, major tax bases remain under the central
government. Some taxes are shared by state and local
governments, for example, property taxes and rates (see table
2). On the other hand, licenses and fees on television and
wireless radio are shared between the federal and local
governments. But the federal government may manipulate tax
rates to solve macroeconomic problems without bothering about
the lower levels since the latter have no major tax bases
assigned to them. It is evident from the available data that for
the period 1993-2006, local governments had fiscal surplus. This
situation may be different when specific local governments are

81. 81
examined. Hence, it is difficult to conclude whether
decentralization may result in stability or instability.
There are several other off-budget accounts that have been
operated by the federal government. Some of these are the oil
surplus account opened at the beginning of the Gulf War in 1990.
Another one is the special debt account intended for repaying
part of the country’s external debt. This discretionary powers
exercised by the federal government has caused public resources
to be over-concentrated at the centre. This concentration can be
seen from the distribution of total public sector expenditure
among the three tiers of government’s from 1993 to 2006 as
shown in table 5.

82. 82
Table 5: Distribution of Total Public Sector Expenditure
among the Federal, States and Local Governments, 1993-
2006 (N million)
Date Federal States and FCT Local Total
1993 1912229.1 44180.9 19475.5 254885.5
1994 160893.2 55916.4 18967.1 235776.7
1995 248767.8 79591.6 22443.3 350802.7
1996 288289.3 84177.1 24261.7 396528.1
1997 356262.3 92647.6 30833.0 479742.9
1998 487113.4 143773.6 44056.9 674943.9
1999 947,690.0 163121.0 60441.2 1171252.2
2000 701.1 355679.7 153864.8 510245.6
2001 1018.0 529951.2 171374.5 702343.7
2002 1018.2 707669.2 169820.2 878507.6
2003 1226.0 869328.6 361713.2 1232267.8
2004 1426.2 969738.5 461050.6 1432215.3
2005 1822.1 1303852.1 587977.8 1893652.0
2006 1938.0 1478300.3 665838.0 2146076.3
Source: Central Bank of Nigeria, Annual Report and Statement of
Accounts 2006.

83. 83
Table 5 shows that from 1993 to 1999, the Federal Government
controlled between 68 and 75 percent of total public expenditure
while the other two tier accounted for the remaining 32-25
percent. All the local governments in the country had control
over only 8 percent of total public spending in 1993 and 6
percent of same in 1999. At this same time, local government
internal revenue only increased marginally from 5 to 8 percent as
shown in table 6. From 1999 to 2006, the Federal Government
control of total public expenditure dropped drastically. While that
of the other two tiers rose up tremendously.

84. 84
Table 6: Relationship between Direct Allocations and
Internally-Generated Funds at the Local Government Level
Date Direct
Allocation Less
Grant Internal Tax
Efforts
Total
1993 18569.5 269.4 1035.6 19874.5
1994 17787.7 229.5 1205.91 19223.1
1995 18500.9 242.9 2110.8 20854.6
1996 18271.6 0.0 2211.1 20482.7
1997 21022.2 139.2 2506.9 23668.3
1998 31351.3 94.5 3331.6 34777.4
1999 44290.1 2266.9 4683.8 51240.8
2000 120512.5 10,303.2 7152.9 137968.6
2001 130099.1 15300.9 6020.4 151420.4
2002 130569.0 12434.1 10420.8 153423.9
2003 293526.7 16820.3 20175.5 330522.5
2004 379282.0 20620.2 22407.8 422310.0
2005 496244.2 21138.8 24042.5 541425.5
2006 554231.1 20879.5 23225.1 598335.7
Source: Central Bank of Nigeria, Annual Report and Statement of
Accounts 2006.

85. 85
Also, local governments are not allowed to borrow externally, to
develop any viable project; through they may borrow
domestically. Since local governments are very crucial for
national development, then revenue and expenditure
decentralization must accompany each other.
2.4.2 PROBLEMS OF LOCAL GOVERNMENTS TAX
MOBILIZATION AND UTILIZATION IN NIGERIA
There is shortage of well trained and qualified personnel which
suppose to serve as tool for collection of taxes and rates at the
local level, even the few available are not properly trained in
efficient budgetary and financial management systems. Also
most of the local governments are short staffed to carry out their
duties. Local governments lack the capacity to attract and retain
the right caliber of staff to articulate plans and execute
programmes and projects in order to transform the lives of the
grassroots people in a short period.
Despite the fact that there are constitutional provisions for
statutory allocations and internally generated revenues, local
governments are tightly controlled and subordinated by state
governors through sundry mechanisms, including manipulation of

86. 86
the disbursement of financial transfers to them. Local
governments in Nigeria mobilize their funds solely from external
sources. The external sources include federal and state
governments financial transfers like grants, statutory allocations,
share of Value Added Tax (VAT), receipts and loans. These
external sources introduce a dependence syndrome in local
government revenue mobilization effort. Any set back from the
external sources would have adverse effect on the administrative
machinery and execution of some viable projects. This also has
weakened their internal revenue mobilization capacity.
Another constraint is imposed on local government revenue
mobilization capacity through state control over local government
budget, which is made to pass through many levels of approval
in the hands of the state governments. Even after approval, post-
budget controls still impose further restrictions on what local
governments can do (Roberts, 1998).
The delay in the passage of annual budget for local governments
poses a great problem in the sense that budget sometimes takes
3 months before approval. Some local governments chairmen

87. 87
deposited local governments subventions into savings and loans.
Companies in which the local governments had no account some
local governments see this as an avenue to divert council’s funds
for personal use.
2.4.3 PROSPECTS OF LOCAL GOVERNMENTS REVENUE
MOBILIZATION AND UTILIZATION IN NIGERIA
The increase in revenue from local government statutory
allocations definitely enhanced their economic fortunes and
service delivery ability. No doubt, the institution of statutory
allocation as local revenue mobilization mechanisms, the increase
of the allocation from 10-20 percent of the federation account,
the direct disbursement of federal revenues to local governments
and the removal of some political bottlenecks and abolition of
other administrative hindrances have boosted the revenue profile
of local governments in Nigeria. Local governments in Nigeria are
no longer there to discharge administrative functions they are
deeply involved in collective participation in governance,
encourage physical and economic development, and create the
conditions for employment within their localities and provide
social services that will improve the well being of their people.

88. 88
The 1976 reform has given local governments in Nigeria a short
of radical transformation from being an appendage of state
governments to a very important and autonomous third tier of
government. With this reform, local government became a legal
and conditional entity.
2.5 CONCEPTS, MEASUREMENT AND ACCOUNTABILITY OF
SERVICE DELIVERY
Delivering public services is a top priority in fragile states of
these states are to make progress towards the Millennium
Development Goals (MDGs). Strengthening the provision of
essential services can also contribute to the long-term process of
state building and may help to rebuild the legitimacy of the state
and to strengthen civic engagement (OECD, 2008).
A key measure of governance is the quality and availability of
essential services such as healthcare and primary education.
Services comprise a core element of the social contract. Public
access to good services indicates that a society is well-governed
and enables the political leadership to draw continued support for
its programme. (Collier and Hoeffler, 2004).

89. 89
The governance perspective helps counteract the tendency to
view essential services as akin to industrial outputs-that is,
results of purely technical processes in which resources (tax
revenues or aid funds) are converted into health care, policing,
etc. The treatment of service delivery in the most advanced
nations contributes to this impression. But experience in
international development shows services to be something more;
an outcome of the cooperative and hierarchical management of
political aims (IECD, 2008).
The quality and availability of essential services, such as health
care and primary education, are a key measure of governance.
Public services underpin the social contract between states and
citizens and, as such, are an indicator of the health of a society.
Grossly inadequate service delivery signals fragility (Collier and
Hoeffler, 2004). Governments everywhere deliver services
effectively when there is accountability between citizens and their
leaders. Accountability emerges as a complex chain of
relationships linking users, policy makers and service providers.
Services reach the public in a two-step process: - policy makers
allocate and providers produce the services (OECD, 2008).

90. 90
Different groups in society will have different visions about what
makes “good” service delivery. In the education sector, clients
(parents/learners) want low-cost, easy-to-access, safe, high-
quality schooling that improves their children’s/their life chances.
Policy makers and political leaders want to deliver social benefits
at low cost, with high propaganda value and political rewards.
The providers (teachers) care about technically sound curricula,
high salaries, respect and safety. Thus, the effectiveness of
service delivery-and in turn, the legitimacy of the political order-
depends on addressing competing goals and expectations in ways
that satisfy the stakeholders. The result may or may not involve
the local government providing services directly, as long as the
services are in fact delivered.
2.5.1 THE POLITICAL ECONOMY OF SERVICES
The local government (or more precisely, the governing regime)
plays a political “game” when it struggles to secure power; its
success in doing so depends on, among other things, legitimacy.
The source of legitimacy might be the leaders’ ability to deliver
economic growth, national prestige, or public services.
Alternatively (a more partial) legitimacy might derive from
signals of special allegiance to certain traditions or ethnic groups.

91. 91
Thus, legitimacy may or may not relate to equitable service
delivery. Even well-established states can fail to provide services
capably and equitably.
Public investments in services are always constrained by a range
of influences reflecting a given state’s social and historical
context. These include limits on voter’s knowledge and
information, polarization of the electorate and (especially) the
credibility of political commitments. Such constraints have the
strongest effect in low-income countries like Nigeria and
particularly in fragile states: accountability is weak, as
government does not “listen to the people”.
Where credibility is low (the case of Nigeria), instead of making
broadly beneficial policy commitments, politicians may focus their
attention on specific localities or individuals, and devise special
projects and patronage jobs. This pattern, clientelism, thus
sacrifices collective benefit-at times going so far as to create
public ills-in the service of favouritism (Keefer and Khemani,
2003).

92. 92
The economy itself may have a broad or a narrow base. A
broader base will have a narrower scope for government
monopoly and exploitative regulation. A narrowly based economy
enables the regime to extract benefit or “rents” from its control
over natural resource exports, industrial monopolies, or strategic
infrastructure (canals, military bases). The state is then free to
ignore the non-strategic regions and populations in favour of
narrow interests. A broader economic base forces the
government to exert that much greater an effort to maintain
effectiveness and legitimacy.
2.5.2 THE CENTRAL ROLE OF ACCOUNTABILITY
Service delivery is not only a technical task but also a
governance process. Adequate service delivery rests on a four-
part relationship of accountability between the citizens and their
leaders.
a. Citizens elect political leaders, who are evaluated based
(in part) on their policies regarding services.
b. The policy makers choose a package of services and
allocate them to beneficiary groups.
c. The policy maker selects agents to implement (produce)
the services in the package. (These agents may be units

93. 93
of the public administration or, alternatively non-state
providers).
d. The policy maker sets standards for the expected level
and quality of performance, monitors the outputs and
rewards or sanctions the implementers as appropriate.
Services reach the public in a two-step process allocation (by
policy makers) and production (by service
providers/implementers). Accountability between the policy
maker and the implementer is defined by a compact, which
includes services delivery standards, monitoring methods,
rewards and sanctions. This service compact cannot fully specify
outcomes, especially for services that are inherently transaction-
intensive and hard to monitor (such as classroom education).
Moreover, the user of the services the client- is not a party to the
service compact.
Users have two potential routes of accountability for securing
essential services; a long route, via the policy makers; and a
short route, directly to the producers, as shown in the figure
below;

94. 94
Accountability Triangle
Short Route of Accountability
Source: World Bank, 2003
The long route of political accountability is the more visible of the
two. Whether the services are produced by a Local Government
agency or contracted out to a private provider, the state has an
irreducible role in choosing, designing, allocating and often
regulating essential services such as education, health care and
water sanitation. The long-route can also be referred to as voice,
defined as the expression of citizen satisfaction or dissatisfaction
through political, administrative, legal and media channels.
Policy Makers
(Allocation)
Services
Voice
Citizens
(prayers/clients)
Client Power
Providers
(Production)
Component
Long Route of
Accountability

95. 95
There is also an informational dimension to accountability. Policy
makers must be informed of citizen’s preferences and citizens
must have information on policy decisions and service quality.
Where government is willing but lacks capacity, information flows
may be impeded; weak communications and transport links can
result in impaired public accountability.
In these situations, the local government (and the long route of
accountability) may not be a viable channel. Service delivery is
therefore likely to depend on short-route accountability i.e. from
service providers (producers) directly to users. Service producers
may be local governments, private or NGO entities, or even
dissident political movements or rebel groups (OECD, 2008).
Where short route accountability is effective, clients can help
tailor the package of services to their own needs and monitor the
producers. (World Bank, 2003).

96. 96
2.5.3 DEVELOPING THE CAPACITY OF THE CENTRE TO
ENABLE THE LOCAL
Donor and academic literatures suggest that among the main
benefits of decentralized service delivery are that local officials
have greater knowledge of and are more responsive to their
citizens’ preferences in designing services and allocating
resources. It is also argued that the proximity of citizens to local
government enhances their ability to articulate their demands
and to hold officials to account, and that cost savings can result
from efficiency gains arising from decentralization. These
arguments are based on the following assumptions:
- Higher levels of government will be willing to devolve
power and responsibility for services to the sub-national
levels, whilst also taking on important roles in creating
policy frameworks and support systems.
- Higher levels of governments will ensure that sub-
national governments have adequate financial resources
for service provision.
- Administrative capacity at all levels of government will
be adequate to take on their roles in service delivery.
(UNDP, 2010).

97. 97
However, these conditions are rarely in place, and there is little
empirical evidence to support the theory that decentralization
improves service delivery (see Robinson 2007, Conyers 2007).
Local governments frequently complain of excessive control from
central units, onerous accountability mechanisms, inadequate
resourcing and political interference, all ultimately undermining
the decentralization of power. Nevertheless, central government
does have to retain a degree of involvement in local affairs to
ensure adequate accountability, proper use of resources and
broadly equitable service accessibility across the national
territory.
How can this problem be addressed? Designing accountability
and coordination mechanisms to ensure balanced central/local
relations is a dimension of capacity development that has often
been overlooked, but is absolutely critical to improving efficiency
and effectiveness (UNDP, 2010).
Capacity development for local service delivery requires
interventions and approaches that also focus on the central level.
While there is little evidence that service delivery is improved by