federation account
The Federation Account is where Nigeria's shared revenue is pooled before being divided between the federal, state and local governments.
In plain English
Nigeria earns money from oil, taxes and customs, and most of it does not belong to any single tier of government. It belongs to all of them, and it is pooled in the Federation Account.
From there it is shared, according to a formula, between the federal government, the states and the local governments. The body that does this sharing meets monthly, and the allocation it announces is watched closely, because for many states it is the overwhelming majority of their income.
That last point is the one worth understanding, and it explains a great deal about Nigeria.
Most Nigerian states generate very little revenue internally. They depend on the monthly allocation, which depends heavily on oil. Which means when the oil price falls, or production falls, salaries in a state hundreds of miles from any oil well suddenly cannot be paid.
A teacher in Sokoto is paid, in effect, from a barrel of crude in the Delta and a decision taken in Vienna.
This is what an undiversified economy actually means. It is not a phrase in a report. It is a salary that does not arrive.
The oil price falls sharply. The monthly federation allocation shrinks. A state that generates little revenue of its own cannot pay salaries, and teachers hundreds of miles from any oil field go unpaid for months.
Questions people ask
What is FAAC?
The Federation Account Allocation Committee, which meets monthly to share pooled revenue between the federal, state and local governments.
Why do states depend on it so heavily?
Because most Nigerian states generate very little internal revenue. The monthly allocation is the bulk of their income, which makes them highly exposed to oil.
What is internally generated revenue?
Money a state raises itself, through taxes and levies. States with strong internally generated revenue are far less exposed when allocations fall.
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