Nigeria is pushing an ambitious revenue target analysts say would require the government’s blood, sweat and tears if it must be achieved. BusinessDay, in a February 10 publication, quoted Zainab Ahmed, Nigeria’s minister of finance, budget and national planning, to have said the government was targeting to grow income earned as a fraction of total economic output – revenue as a percentage of GDP to 15 percent by 2023.
The new set target, according to the minister, would be achievable following strict implementation of a raft of policies in a new Strategic Growth Revenue Initiative (SGRI) 2.0, alongside the Finance Act, that will help in diversifying the country’s revenue sources away from oil.
While an abrupt increase in Nigeria’s revenue as a percentage of GDP would set Africa’s biggest economy on a strong fundamental by gradually reducing widening deficits, and give the government some legroom to meet growing fiscal obligations, the task appears herculean, leaving analysts scratching their heads on how the country hopes to achieve this, especially given the country’s long history of failing to meet revenue targets.
Africa’s biggest economy is expecting the total monetary value of goods and services (nominal GDP) to rise to N151.5 trillion in 2023, according to figures obtained from the Budget Office of the Federation. This is after the pandemic halted revenue and threw the economy into its worst recession since the 80s.
A 15-percent revenue to GDP of that size would mean Africa’s most populous nation would need to rake in over N22.7 trillion gross revenue in 2023 alone, according to BusinessDay analysis of data.
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That is more than the entire gross federally collected revenue for the year 2018 and 2019 combined; and an increase by 700 basis points from Nigeria’s 7 percent revenue-to-GDP ratio in 2019.
Nigeria could only muster in a total of N9.44 trillion and N10.2 trillion in the 2018 and 2019 fiscal year, which was around 7 percent and nearly 8 percent of GDP.
“Revenue is a function of economic activities,” said Joachim MacEbong, senior analyst at SBM Intelligence. “To generate more revenue Nigeria needs to grow above 7 percent. Our average growth rate of 2 percent below population will not take us anywhere, and you can’t achieve it via wishes.”
According to MacEbong, if doing business in a country becomes too difficult it will cripple investment and halt economic activities that would have created jobs.
“As such there won’t be income in the hands of people for you to tax or Company Income Tax (CIT); hence, a fall in revenue. You cannot tax poverty,” he said.
“I do not think 15 percent revenue to GDP by 2023 will be possible given that the Nigerian economy is not diversified,” noted Boboye Olaolu, sub-Saharan Africa economist at securities trading firm, CSL Stockbrokers.
“Most sectors in Nigeria are not very efficient and productive; hence the possibility of them attracting investments in the near term is very slim. Secondly, our tax base is very low compared to other country’s hence we will continue to see lower revenues,” Olaolu said.
At current levels, Nigeria’s revenue-to-GDP ratio is one of the lowest in the continent. Official data given by the minister show that Nigeria’s 8 percent revenue-to- GDP ratio in 2018 looked pale when compared with Ethiopia’s (13%), Ghana (14%), Uganda (16%), Cameroon (16%), and Kenya (18%).
It is also nowhere compared to Zambia (19%), Cote d’Ivoire (20%), Egypt (21%), Angola (22%), Tunisia (22%), Morocco (26%), South Africa (29%), and Algeria (33%).
Even with Nigeria’s ambitious revenue-to-GDP target of 15 percent by 2023, it still falls below sub-Saharan average of 18 percent and also lower than the 20 percent average set for the entire African continent.
A long year of being a mono-product economy has continued to mean the chances of Nigeria attracting higher revenues depending on developments of the oil sector have been a waste.
Oil sector, which accounts for less than 10 percent of GDP and employs only about 5 percent of the workforce, is Nigeria’s biggest export earner, raking in over 85 percent of foreign exchange; and the susceptibility of this sector has continued to hurt Nigeria’s balance of payment.
The International Monetary Fund in its Article IV recommendations to Nigeria urged the government to diversify its revenue sources, and build a more resilient economy away oil by improving tax administration and compliance to widen the tax net.
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