The dire need for Nigeria to further diversify its economy away from crude oil has been brought to the fore as tax revenue from non-oil sector which has remained above oil sector revenue since 2015 seems to be showing the way to go.
In the last four years, tax revenue from the non-oil sector has consistently surpassed revenue from oil sector, BusinessDay checks of figures from the Federal Inland Revenue Service (FIRS) show.
The FIRS recorded tax revenue of N5.3 trillion in 2018, accounting for 58 percent of the total national expenditure for the year. This also represents the highest tax revenue the country has ever remitted. Out of this, 54 percent was collection from the non-oil sector, as against the 46 percent from the oil sector.
The trend was the same in 2017, 2016, 2015 and through to 2010 when BusinessDay started tracking the data from the FIRS figures.
“The case has always been made to diversify the economy away from oil. Increased tax revenue is just one of the many potential gains from doing so,” Rafiq Raji, chief economist at Macroafricaintel, said.
Further analysis of the tax figures from the tax agency revealed that before the 2018 tax revenue record, the highest revenue figures ever attained by FIRS was N5.07 trillion, in 2012, when oil price hovered around $100-$120 per barrel.
Foreign earnings from crude oil distracted the development of Nigeria’s agriculture and tourism sector as “many sectors became victims in Nigeria when there was oil boom”, Hamat Bah, Gambia’s minister of Tourism and Culture, told BusinessDay in Banjul recently.
“It was only about three-four years ago that Nigeria started thinking about really diversifying the economy. It should have been done long time ago,” Bah said.
Nigeria’s reliance on crude oil export as its main source of foreign earnings exposes the nation’s economy to shock from the instability in oil prices, Raji said.
Faltering crude oil prices directly affect the nation’s local currency, its ability to implement budget and, therefore, determines the country’s economic growth rate.
In 2016, Nigeria entered its first recession in 25 years, largely caused by low oil prices and militant attacks on energy facilities, but exited after five consecutive quarters of contraction in Q2 2017.
Since then, the country’s economy has maintained a sluggish growth rate as it closed the year 2018 with 1.93 percent, compared to its 0.82 percent in rate in 2017, National Bureau of Statistics (NBS) date show.
Tajudeen Ibrahim, head of Research at Chapel Hill Denham Securities, said the direction for Nigeria should be non-oil.
“Nigeria needs to go back to the days when its main export was agricultural products. It needs to aggressively invest in it and ensure we have maximum output that will generate income for the government like it did in the 1970s,” he said.
Analysis of the Q4 2018 GDP report by NBS revealed that the oil sector contracted by 1.62 percent year-on-year in the fourth quarter, a worrying performance for an economy that continues to rely heavily on the oil sector.
The annual growth rate for the sector stood at 1.14 percent, much less than the 4.69 percent growth recorded in 2017. The growth rate in 2018 was lower than the previous year despite higher oil prices and production.
Oil prices averaged $71.62 per barrel in 2018, a 30 percent jump from 2017’s average price of $54.67/b, thanks to the movement in US crude inventories, sanctions on Iran, supply outages in Venezuela, Libya and Angola, as well as increased demand-supported price level.
Checks by BusinessDay revealed that from Q3 2017, the non-oil sector maintained a positive GDP growth through to Q4 2018 where it reported the highest rate of 2.70 percent. The oil sector on the other hand remained in contraction mode from Q2 2018 through to Q4 of the same year, although the -1.62 percent reported for the sector in Q4 represented the least contraction in the review quarters.
On year-on-year comparison, the oil sector has remained in contraction mode since 2012, except for 2017 and 2018 when it reported 4.69 percent and 1.14 percent, respectively.
Meanwhile, oil sector contribution to Nigeria’s GDP has remained in the one-digit margin, as its all-time highest was in Q3 2017, when it reported 9.84 percent as against non-oil sector contribution of 91.47 percent in Q1 2017, as compiled from the available data on the NBS website.
A further analysis of the NBS data revealed that in the last two quarters of 2018, non-oil sector contribution to Nigeria’s GDP was at an ascending rate from 90.62 percent in Q3 2018 to 92.94 percent. It was, however, the reverse for the non-oil sector, which reported 9.38 percent and 7.06 percent contribution to GDP in Q3 and Q4 2018, respectively.
Nigeria depends on crude oil exports for about 90 percent of its foreign exchange earnings.
“In terms of economic activities, agricultural sector contributes about 27 percent to Nigeria’s GDP,” said Ayo Akinwunmi, head of research, FSDH Merchant Bank. The sector employs more labour than the oil sector, “but it does not generate revenue and cash flow like the oil sector as it accounts for about 84 percent of total exports”, he added.
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