December 07, (THEWILL) — Nigeria’s oil-producing states are receiving their highest 13 percent derivation allocations in nearly a decade, with disbursements reaching N1.09 trillion between January and August 2025, a 34 percent increase compared to the N812.2 billion recorded in the same period in 2024.
The surge aligns with improved crude output, which rose from 1.28 million barrels per day in early 2024 to 1.51 million barrels per day in Q2 2025, boosting federation revenue as Nigerians continue to battle worsening economic conditions.
Figures for the latter part of the year further reinforce this uptrend, with September, October and November recording N134.95 billion, N141.35 billion and N141 billion respectively.
This compares sharply with the same periods in the preceding when the oil producing areas garnered N99.47 billion, N90.12 billion and N37.58 billion respectively.
Altogether, the oil-producing states received N227.17 billion across September–November 2024 from FAAC — far below the N417.3 billion shared in the same three months of 2025. The contrast underscores how sharply improved production and stronger remittances have lifted derivation inflows in 2025. The massive devaluation of the Naira from N467/$1 on June 13, 2023 to N1,450/$1 on Friday, December 5, 2025;
These allocations represent some of the highest monthly payouts in years and indicate that total derivation revenue for 2025 (January – December 2025) is set to substantially exceed full-year 2024 figures. Beyond higher production volumes, improved remittances to the Federation Account and firmer oil prices have supported the increase.
Paradox of realities
While the oil-producing states swim in cash, the paradox of economic realities has pushed them into walking a tight rope to cope with prevailing challenges.
Although the economy has witnessed improved foreign exchange inflows, there is remarkably significant macroeconomic stress domiciled in double-digit inflation high food prices and energy costs, driving the most severe cost-of-living pressures in over a decade.
Investment inflow reports by the National Bureau of Statistics (NBS) show that despite the huge oil and gas deposits in the oil-producing states, they rarely attract capital inflow to boost their economies.
The investment inflow drought among the states has been a source of concern to stakeholders in particular, and the Nigerian citizens in general, as it points to lack of strong developmental pace, especially among the oil and gas producing areas.
It also has implications with job creation and the states’ employment and unemployment status which impact on the quality of living, misery index, inflation and other economic indices in the areas.
Industry experts say the remarkable capital importation for the affected states signals a new phase of developmental challenges as the oil-rich state battles several socio-economic scourges that discourage investors from looking the way of the region.
A 2025 World Bank update reports that the economy grew 3.9 percent in the first half of the year, slightly above 3.5 percent in 2024. Growth was supported by non-oil sectors, agriculture, services, and improved oil output. Yet, the institution warns that poverty, food insecurity, and economic vulnerability remain entrenched as inflation erodes real incomes.
Outlook for 2026, beyond
The IMF projects inflation to average 26.5 percent in 2025 and could rise to around 37 percent in 2026 if global conditions worsen a risk that could significantly diminish the real value of derivation inflows. These put the fate of the oil producing states on a spate of uncertainty.
Industry experts, however, note that the historic rise in allocations offers both fiscal breathing room and long-term development potential if well managed. These are outlined in the following areas:
- Infrastructure investment: Capital for roads, electricity access, water systems, and transport networks.
- Environmental restoration & community support.
- Economic diversification: Funding for agriculture, SMEs, manufacturing, and human capital.
- Budgetary stability: Higher receipts can reduce borrowing needs and help plug fiscal gaps.
Risks and structural vulnerabilities also exist, as the gains are seen coming with significant challenges:
• Inflationary erosion of cash inflows.
• Oil price volatility and production risks.
• Governance and misuse concerns.
• Fiscal pressure from ongoing reforms.
If oil output holds steady and global prices remain favorable, derivation allocations could exceed N2 trillion in 2026. However, the real value of these funds may shrink if inflation accelerates as projected.
The key question is whether the states can convert temporary revenue spikes into lasting development gains through:
• Strategic capital investment
• Transparent fiscal management
• Diversification beyond oil
• Protection of revenues from inflation
Nigeria’s oil-producing states are entering 2026 with a revenue advantage not seen in years — yet set against some of the toughest economic conditions for households.
The record surge in 13 percent derivation inflows presents a rare opportunity to reset developmental priorities, strengthen local economies, and protect vulnerable communities. Whether this becomes a turning point or another missed opportunity will depend entirely on how state governments deploy these funds.
Ogochukwu Onwaeze
