Five ways Nigeria can boost revenue without hurting investors

Nigeria is grappling with a revenue crisis as its debt profile continues to widen, which has seen policymakers take decisions that many private sector stakeholders see as detrimental to businesses.

Speaking during the ministerial presentation of the 2023 budget recently, Zainab Ahmed, minister of finance, budget and national planning, said the federal government’s retained revenue as at November 2022 was N6.5 trillion, which is about 87 percent of the pro rata target of N7.48 trillion.

The actual expenditure of the government was N12.87 trillion, resulting in a deficit of N6.37 trillion that was financed mainly by borrowings.

“Fiscal risks are somewhat elevated, following weaker-than-expected domestic economic performance and structural issues adversely impacting the domestic economy,” Ahmed said.

Similarly, the 2023 budget (N21.83 trillion) has a deficit of N11.34 trillion which will also be financed mainly by borrowings from domestic sources (N7.04 trillion), foreign sources (N1.76 trillion), multilateral/bilateral loan drawdowns (N1.77 billion) and privatisation proceeds (N206.18 billion).

“We will intensify our revenue mobilisation efforts and intensify current efforts toward the realization of our crude oil production and export targets,” she said.

With a debt burden of N44 trillion as at September 2022, which may grow to N77 trillion by May 2023, economic experts have advised that the government must desist from more borrowing and rather boost investment inflow and widen tax nets to generate more revenue.

The World Bank, in its County Economic Memorandum for Nigeria tagged ‘Charting a new course’, outlined steps through which the government can generate more revenue without hurting investments and businesses in the country.

Increased trade and investment activities

The multilateral lender advised that Nigeria must increase its trade and investment activities regionally and globally, noting that they are key drivers of growth and poverty reduction.

According to the World Bank, Nigeria’s weak trade performance in recent years has been exacerbated by its protectionist policies and restrictive trade regime such as the FX restriction on certain imports by the Central Bank of Nigeria as well as bans imposed by the Nigeria Customs Service.

“Nigeria should not miss this critical time to take advantage of the continental momentum behind greater integration and to nurture the potential and dynamism of a growing number of highly innovative entrepreneurs and firms,” it said.

It noted that Nigeria has the least diversified economy apart from Angola, which has also limited its export profile with its major concentration on crude oil.

“Although Nigeria’s competitiveness has stalled overtime, even in areas of comparative advantage, there are emerging sectors in addition to services with potential for growth and diversification especially in agribusiness,” it added.

The World Bank advised that Nigeria must create a business friendly environment that will attract more investments, which will create growth enhancing jobs.

“A range of infrastructural, macroeconomic policy, and regulatory constraints has prevented the full potential of Nigeria’s private sector from being realised, infrastructure deficits have stifled private economic activity and hurt the competitiveness of Nigerian firms,” it said.

Subsidy removal

The World Bank, in its Nigeria Public Finance report, said Nigeria is the only country in the world that subsidises petrol and does not properly budget for it.

Alex Sienaert, chief economist at World Bank, Nigeria, projected recently at an economic event that Nigeria may spend as high as N4.8 trillion servicing fuel subsidy in 2022 which can increase to N5 trillion in 2023.

He said Nigeria spends a large share of its limited resources on untargeted and inefficient subsidies while social sectors like education and health suffer.

The bank said that although eliminating the petrol subsidy will be politically difficult, no other fiscal reform would have comparable fiscal benefits.

“There is no better policy than phasing out the petrol subsidy and using the savings to establish a compact with Nigerian citizens that deliver better development outcomes,” it said.

Tax system reforms

Tax revenues are necessary to ensure essential services, provide security to citizens, help tackle hunger and poverty and deliver basic services.

Nigeria has the lowest tax to GDP ratio, according to the World Bank.

It estimated that with the right reforms, Nigeria should be able to achieve a tax to GDP ratio comparable to Uganda at 12 percent and Kenya at 15 percent.

“There is potential for harvesting revenue-yielding sources such as increasing sin taxes, charging fees for electronic money transfers, and improving tax compliance by reinforcing revenue administration,” it said.

Safeguarding oil and gas revenues

As an oil-producing country, the multilateral lender recommends that Nigeria must safeguard its oil and gas revenues to improve its fiscal situation.

The country’s oil and gas sector is plagued by oil theft and pipeline vandalism, among other challenges, which have led to the exodus of international oil companies from the creeks, while some local operators have shut down production.

BusinessDay recently reported one of the criminal activities which involved small-scale oil thieves in small barges tapping flow lines in the Niger Delta and loading the stolen crude in barges. They go through riverine areas and smaller rivers to evade military presence and access vessels mooring offshore, depositing the crude in these vessels for sale in foreign countries, mostly in Asia.

In August 2022, Mele Kyari, group chief executive officer of Nigerian National Petroleum Company Limited, said the country was losing $1.9 billion monthly to crude oil theft, which made it unable to meet its OPEC quota.

The World Bank advised that the government needs to be more intentional about safeguarding revenue and assets to the oil and gas sector in order to ensure that the due earnings are received.

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Spending available resources more effectively and efficiently

According to the World Bank, Nigeria needs to utilise its available resources in a more efficient and effective way such as spending more on critical public services to achieve its social and economic development objectives.

“For years, a large share of Nigeria’s resources have financed inefficient and regressive subsidies for petrol, electricity, and foreign exchange; not all these subsidies are accounted for in the budget, which makes them difficult to track and scrutinise,” it said.

The bank said Nigeria must strengthen its fiscal rules and include sanctions for breach of fiscal and debt rules, strengthen debt management and transparency and also improve data foundations for fiscal management.

The World Bank advised that as Nigeria plies the recovery path, its revenue mobilisation needs to be more strategic.

“Due to the precarious nature of the global economic recovery, revenue-raising policies and administrative actions must be carefully chosen in order not to undermine an already weak growth recovery path for Nigeria,” it said.