Should Nigerian Universities Move to Performance-Based Funding? Lessons from Global Practice
The question, therefore, is not whether Nigeria should adopt performance-based funding simply because other countries have done so. It is whether elements of the model can be adapted to Nigeria’s higher education system in ways that strengthen accountability, improve outcomes and support national development without compromising equity or institutional diversity.
Nigeria’s public universities are financed through three principal sources. The first is annual government appropriations, which provide the bulk of recurrent and capital expenditure through the federal budget. The second is intervention funding from the Tertiary Education Trust Fund (TETFund), established under the Tertiary Education Trust Fund Act, 2011, to provide supplementary funding for public tertiary institutions through revenue generated from the education tax paid by eligible companies. The third is internally generated revenue, including fees, consultancy services, commercial ventures, endowments and donations, which universities use to supplement public allocations and meet operational needs.
Over the past two decades, however, an increasing number of countries have introduced performance-based funding (PBF) models. Rather than replacing baseline government support, these models allocate a proportion of public funding using indicators such as student progression, graduation rates, research quality, graduate employability, innovation, knowledge transfer and engagement with industry (OECD, Resourcing Higher Education, 2020; European Commission, Performance-Based Funding of Universities in Europe, 2018).
These reforms reflect a broader shift in how governments view the role of universities. Higher education institutions are now expected not only to educate students and produce research but also to drive innovation, strengthen workforce productivity, support industry, contribute to regional development and address national priorities.
Why the Debate Matters for Nigeria Higher Education System
Nigeria’s higher education sector faces persistent challenges:
Low public investment relative to demand.
Overcrowded classrooms and aging infrastructure.
Limited research funding.
Weak university-industry collaboration.
Graduate unemployment and skills mismatch.
Low global university rankings.
The National Universities Commission (2023) acknowledges many of these challenges, while TETFund (2023) reports that its interventions have significantly improved research grants and infrastructure across public tertiary institutions. As government resources become increasingly constrained, policymakers are exploring ways to ensure that every naira invested produces measurable value.
The question, therefore, is not whether Nigeria should adopt performance-based funding simply because other countries have done so. It is whether elements of the model can be adapted to Nigeria’s higher education system in ways that strengthen accountability, improve outcomes and support national development without compromising equity or institutional diversity.
Answering that question requires looking beyond theory. It requires examining how performance-based funding works in practice, what indicators countries use to measure university performance, where these reforms have succeeded, where they have fallen short, and what lessons Nigeria should and should not borrow.
What Can Nigeria Learn from Global Practice?
One of the biggest misconceptions about performance-based funding is that every country measures university performance in the same way. In reality, there is no universal model. Governments select indicators that reflect their national priorities, the maturity of their higher education systems and the outcomes they expect universities to deliver.
In Denmark, for example, part of university funding is linked to the number of students who successfully complete their programmes, encouraging institutions to improve retention and reduce dropout rates. Finland adopts a broader funding model that considers factors such as degrees awarded, research output, doctoral training, graduate employment and internationalisation. The United Kingdom takes a different approach through the Research Excellence Framework (REF), which assesses the quality and real-world impact of research rather than simply counting publications. These examples demonstrate that performance-based funding is about aligning public investment with clearly defined national objectives (OECD, Resourcing Higher Education, 2020; Research Excellence Framework, 2021).
Some of the Indicators used to Access PBF
The indicators most frequently used in performance-based funding systems include graduation rates, research output, graduate employability and innovation. Each has merit, but each also presents important limitations.
Graduation rates provide insight into how effectively universities support students to complete their programmes. High dropout rates represent a loss for both students and government investment. However, if funding is tied too heavily to completion rates, universities may feel pressured to lower academic standards or become more selective in admissions to improve their performance. Institutions serving disadvantaged populations could also be unfairly penalised despite making significant contributions to widening access.
Research performance is another widely used indicator, particularly in research-intensive universities. Rewarding high-quality research can encourage greater investment in scientific discovery, attract external funding and improve international competitiveness. Yet measuring research solely by publication numbers risks encouraging quantity over quality. A more balanced approach would consider research impact, patents, policy influence, industry collaboration and solutions to national challenges alongside traditional academic outputs.
Graduate employability has gained increasing attention because universities are expected to prepare students for the labour market. Employment outcomes can provide useful evidence of programme relevance and skills development. Nevertheless, graduate employment is influenced by broader economic conditions, labour market demand and government policies, factors that universities cannot control independently. Using employability as one of several indicators, rather than the dominant measure, provides a fairer assessment of institutional performance.
Innovation may be the area with the greatest relevance for Nigeria. A funding model that rewards patents, technology transfer, industry-funded research and start-up creation could encourage universities to move beyond knowledge generation towards knowledge application. Such incentives would also support Nigeria’s ambition to build a more diversified and knowledge-driven economy.
Nigeria must also recognise the diversity of its university system. A university specialising in agriculture, education or health sciences serves a different purpose from a comprehensive research university. Expecting all institutions to excel against identical performance measures would ignore these differences and risk discouraging mission-specific excellence. Any future funding reform should therefore recognise institutional diversity by adopting differentiated indicators that reflect the unique roles universities play within the national higher education system.
Should Nigeria then move towards performance-based funding?
The evidence suggests that the answer is yes, but cautiously.
Rather than replacing the existing funding architecture, Nigeria should consider introducing a modest performance-based component alongside baseline government funding. Such an approach would preserve financial stability while encouraging universities to improve in areas that align with national priorities. Performance indicators should reward progress over time rather than absolute performance alone, allowing newer institutions to benefit from continuous improvement instead of competing directly with universities that have accumulated decades of institutional advantage.
Equally important is the choice of indicators. Nigeria should avoid adopting another country’s model wholesale. Instead, any performance framework should reflect the country’s development priorities by placing greater emphasis on research that addresses national challenges, innovation and commercialisation, meaningful industry partnerships, graduate outcomes, teaching quality and community impact. Reliable higher education data systems, transparent reporting frameworks and independent evaluation would also be essential before performance indicators influence public funding.
In conclusion, Performance-based funding is not a silver bullet, nor is it a policy that should be dismissed outright. If carefully designed, supported by reliable data and implemented gradually, it could become an important mechanism for strengthening accountability, improving institutional performance and ensuring that public investment in higher education delivers greater value for students, industry and society.
