Agglomeration economics, relocation of Nigeria’s federal agencies

Over time, every national policy demands rigorous scrutiny and an assessment of its fitness for purpose against a range of qualitative and or quantitative metrics. These criteria include whether it has met its original objectives, cost efficiency, performance effectiveness, health and security, value-for-money, dynamic adaptability to socio-economic climes, a sustainable legal rationale, political pragmatism et al.

The focus is the uber-centralisation of Nigerian federal government agencies, ministries and departments in Abuja, also known as the Federal Capital Territory (FCT), relative to the concept of agglomeration economics and the case for targeted relocation.

Historically, the country’s economic heartbeat capital, bounded by an Atlantic Ocean southern coastline, with a population of circa 20 million persons, and the largest national net VAT contributor at 55 per cent, is one out of 36 Nigerian states: Lagos State! It was established pursuant to the State (Creation and Transitional Provisions) Decree No.14 of 1967, which ousted constitutionally established regional government in Nigeria, and established 12 states, under the military era.

Hitherto, the municipality of Lagos was governed by the Federal Government, via the Federal Ministry of Lagos Affairs, as the regional agency. At the time, the Lagos City Council administered the City of Lagos, whilst the metropolitan districts of Agege, Badagry, Epe, Ikeja, Ikorodu and Mushin, fell within the jurisdiction of the Western Regional Government of Nigeria, with its capital at Ibadan.

The Western Regional Government traversed present-day Oyo, Ondo, Ogun, Edo, Delta states, and of course, Lagos State.
Effective April 11, 1968, Lagos State became the administrative entity with the island of Lagos, concurrently serving as the capital of Nigeria, and capital of Lagos State; until December 12, 1991; when Nigeria’s political capital was moved to the FCT, by the then military leader, General Ibrahim Babangida.

Contextually, the Justice Akinola Aguda panel, established in 1975, recommended the creation of a more geographically central Nigerian capital. That recommendation was accepted by the government and subsequently encoded in Decree No 6 of 1976, with the FCT as the designated capital.

The political dynamics of the era are important, because the country had experienced a bloody civil war (1967-1970), which claimed over a million lives. So, a new FCT, was conceived as one, which could give all Nigerians “a sense of belonging.” That decision never commanded the will of ordinary Nigerians because they never voted for it democratically. Still, the military was in charge, and governed by dictatorial power!

The FCT remains the seat of the national government; hosting a plethora of Federal Government Ministries, Departments and Agencies (MDAs), like the National Judicial Council; the National Universities’ Commission; the National Identity Management Commission; educational institutions, foreign missions, diverse businesses, non-governmental organisations, an international airport, military formations etc. The developmental and socio-economic benefits, in terms of direct and indirect employment, business formation, enhanced tax revenues etc, are incontestable given the proximity to the seat of power.

Nonetheless, 33 years after the move to the FCT, this piece assesses whether there remains, in fact, a compelling, and an overriding justification, for the retention of a huge quantum of MDAs’ there. This is distinguished from commercial ventures, which are private businesses, possessing the freedom to locate their firms wherever they choose, consistent with their strategic objectives. This assessment is undertaken from the pivot of agglomeration economies, and the realistic potential of cascading enduring socio-economic development opportunities across other parts of the country.

Agglomeration economics, also referred to as external economies of scale, are the benefits emanating from the co-location of firms and people in urban areas and industrial clusters. The logic of agglomeration economies is anchored upon the benefits derived from the economies of labour costs, transaction costs, and transportation costs; collaboration; innovation; and the positive multiplier effects of direct and indirect job creation.

For example, with agglomeration economies, the significant costs of air transportation across hundreds or thousands of miles, the adverse impacts of carbon footprints therein, are necessarily obviated by people not having to travel so far away, in order to access jobs.

Add one of the important dividends of technological innovation to that mix, better modes of communication via Artificial Intelligence, 5G, enhanced connectivity across diverse digital platforms, and the agglomeration logic is further enhanced. Silicon Valley, California, USA, highlights a classic example of agglomeration economies with the co-location of mega firms like Apple, Alphabet (Google), and Meta (Facebook), which combined, generated gross profits exceeding $369 billion in 2023. Plainly, the logic of urban agglomeration economies, in the latter example, can apply, in the context of targeted Nigerian MDAs.

The rationale for the targeted relocation of some Federal MDAs is predicated on several grounds. First, the aforementioned benefits of agglomeration economies will yield positive multiplier effects in other parts of the country. Second, and stemming from the preceding rationale, is the high probability of employment and indirect employment creation in other parts of the country. Counterbalanced against Statista’s 2024 10 per cent unemployment forecasts; the case for innovative thinking, and bold action, reinforces targeted relocation of some MDAs to optimise new employment opportunities.

Third, there are billions of naira of under-utilised, and therefore wasting, Federal Government landed assets within Lagos Island, with the potential for anti-social behaviour and criminality, absent robust security arrangements. These include, but are by no means limited to, the iconic Independence Building, which previously housed the Ministry of Labour in the 1960s/70s; and, in the 1980s, the Ministry of Defence; the former headquarters of the Federal Ministry of Communications, the old Federal Secretariat, and Federal Ministry of Justice on the Marina, Tafawa Balewa Square, the Central Bank of Nigeria etc.

Why should hundreds of millions of dollars, worth of prime real estate be rotting away, when they can be put to productive economic use, applying urban agglomeration economic principles? Surely, there can be no rational basis for such a monumental waste of resources, at a time when Nigeria is overburdened by crippling local and international debt servicing obligations totalling N87.91trillion ($114.35million); Q3, 2023. Fourth, tax earnings accruable to the government would be substantially enhanced, with a sharp reduction in domestic air travel for public officials.

According to the National Bureau of Statistics, between June 2022 and June 2023, price inflation hiked domestic air travel by 40 per cent, imposing additional liabilities upon the costs of governance. The propounded agglomeration logic in this context, accords with the philosophy of localism in modern statecraft, which seeks to afford people greater influence in policies that impact their lives and communities; insofar as people are given the option of relocating, based on operational requirements and their own personal preferences.

Besides, there is publicly available evidence highlighting significant health and safety concerns at some public organisations based in the FCT, which simply cannot be ignored. According to The Vanguard, in October 2023, at least two federal civil servants collapsed at the Integrated Personnel and Payroll Information System (IPPIS) verification exercise of 17,000 federal workers, whose salaries had been withheld by the government. A factor aggravated by overcrowding at the Public Service Institute of Nigeria (PSIN), Kubwa, FCT. Worse, some workers lost their lives travelling from Bauchi and Borno states for the exercise.

Critically, the desperate state of insecurity within, parts of the FCT justifies a policy overhaul. Take January 7, 2024. Terrorist abductors attacked Sagwari Estate in the Dutse/Kubwa precinct, kidnapping 10 residents. They demanded ransom payments exceeding N100 million ($100,000). Unfortunately, these sums could not be raised and four out of the 10 kidnap victims were gruesomely murdered by the terrorist abductors, including a 13-year- old student, Miss FolorunshoAriyo, and a university undergraduate, Nabeeya Al-Kadriya.

Finally, policy decisions on which geopolitical zones will, potentially, absorb the relocated federal government agencies, should be guided by strictly objective criteria, the natural competitive advantages therein, occupational health and safety considerations, the relative security of life and property, counterbalanced by growing insecurity across swathes of the country.

It is in that sense, that Lagos, the former federal capital, imperfections notwithstanding, springs to the fore because, it appears to meet all these factual criteria. Regarding balancing the geo-political spread, of a targeted relocation of federal MDAs, the FCT will, it is proposed, embrace sub-regional entities in the northern half of the country, whilst Lagos, will do likewise from the southern geo-political zone.  

This model is not novel as it works in different political configurations. In UK, although the Department of Transport HQ, its Secretary of State, and staff, are London capital based; its executive agency, the Driver and Vehicle Licencing Authority (DVLA), is Swansea-based, employing approximately 6,000 staff.

Again, although the U.S. Department of Health and Human Services HQ, Health Secretary, and staff are Washington DC based, its largest executive agency, the Centre for Disease Control, is Atlanta-based, employing roughly 8,000 workers. According to the Brookings Institute, there is no compelling reason for all federal workers to be based in the national capital, Washington DC. Both are practical examples of agglomeration economies and the cascading positive socio-economic development impacts outside national capitals.

To summarise, there is astrong case for relocating some MDAs outside Nigeria’s FCT, applying the logic of urban agglomeration economics. Lagos is worthy of real consideration given its natural competitive advantages as the economic pulse of the west African sub-region; the existence of wasting Federal Government landed assets, which can immediately be put to productive use, by extension, helping to reverse unemployment trends.

The question of whether the existing infrastructure is sufficient to cope with an increasing population is addressed in part by the active metro-links, improved rail, road and maritime connectivity, ditto, the on-boarding of the 4th mainland bridge in the near future. Other geopolitical regions ought, reasonably, to be considered too as the security climate and other objective criteria justifies.

Put simply, Nigeria’s dire financial straits demands innovative thinking, courage and political will. This treatise therefore contributes to the pivotal discourse on sustainable nation building, recognising that business-as-usual, is spineless statecraft.

Ojumu is the Principal Partner at Balliol Myers LP, a firm of legal practitioners and strategy consultants in Lagos, Nigeria, and the author of The Dynamic Intersections of Economics, Foreign Relations, Jurisprudence and National Development.