That Nigerian government needs to make revenue diversification a reality is no longer news. For more than three decades, oil has been the linchpin of the Nigerian economy, accounting for more than 80 percent of export earnings and 60 percent of total government revenue.
Nigeria, Africa’s second-biggest economy behind South Africa in dollar terms, is susceptible to oil price shocks as it relies on proceeds from the product. In Q2 2016, Nigeria experienced its first economic slump in a quarter of a century buoyed by falling oil prices to as low as $36/barrel. Although the economy exited recession in Q2 2017, growth still crawls.
Data sourced from the Central Bank of Nigeria Statistical Bulletin showed that oil revenue has been contributing more than half to aggregate federally collected revenue in Nigeria since as far back as 1972, except in 2016 when it accounted for 47 percent given that oil price slowed in that year.
The government has talked so much about diversification of the economy but its behaviour has shown the opposite. For instance, the share of oil revenue in the total amount available for the Federal Government budget increased from 42 percent in 2018 (passed budget) to 53 percent in the 2019 proposed budget.
Economists and stakeholders agree that the challenges of lower revenue in the country can be resolved by diversifying the economy to critical non-oil sectors. Economic development cannot be realised by being monolithic (dependence on one source of revenue), said Emmanuel Noko, lead economist at M&C Research Institute.
Financial Derivatives Company (FDC), a Lagos-based advisory and consulting firm, in its latest monthly Economic Update highlighted key areas government and its agencies should focus to make a tangible impact on revenue generation.
Enhance tax administration
The fraction of tax revenue in total government revenue is below 15 percent, a reflection that Nigeria is yet to leverage tax to augment revenue. The Federal Inland Revenue Services (FIRS) generated N5.32 billion in 2018, the highest so far, and targets N8.3 billion in 2019.
“Tax is less than 12 percent of Federal Government revenue, which is a reflection of the leakages in the tax administration system,” FDC said in its latest monthly Economic Update.
“To guard the loopholes and curb the effect of oil shocks on government revenue, avenues for higher tax income such as improving tax compliance, employing necessary and appropriate technology, introducing other indirect taxes to capture a greater share of the non-formal economy and increasing the effective tax rate for the elites through VAT on luxury goods should be put in place,” it said.
Sales and leasing of public assets
Nigeria can emulate some developed countries like Australia and the United Kingdom by selling and leasing some government assets. The government can rake in billions by privatising state-owned enterprises and securitising minority equity holdings in Joint Ventures and commercialising idle lands and buildings, among others.
Investment in power and infrastructure
Operational capacity in Nigeria’s power sector is less than 40 percent of installed capacity of 12,522MW. Although there has been an improvement in power generated in the past few years, FDC said large challenges remain in all phases of the power value chain.
“Therefore, substantial funding is required to improve the efficiency and effectiveness of this sector. Also, good roads should be built and existing ones should be properly maintained. This would facilitate inter-state commerce and mobility, attract investments and encourage industrialisation. Subsequently, the internally generated revenue would increase,” FDC said.
“The impact of the price of oil on the Nigerian economy is reflected in high inflation, an unstable economy, a weak naira and the loss of jobs. The prevailing decline in crude oil prices has been moderated by OPEC’s oil production cuts. However, there is an urgent need for the government to initiate tailored policies to save the Nigerian economy. Revenue diversification is fundamental to economic sustainability both now and when crude oil prices inevitably decline again,” it said.
Encourage the production of semi-processed commodities
Nigeria has a comparative advantage in some food items such as tomatoes, rice and groundnut. Taking advantage of investments in these commodities will not only make them sufficient for local consumption but also enough to generate export earnings.
The agriculture sector grew 2.12 percent in 2018, outperforming the macro-economy (1.93 percent). The sector has the capacity to elevate its share in government revenue, boost exports, generate more jobs for the unemployed youths and pare dependence on imported commodities.
Harnessing untapped solid minerals
Solid minerals industry accounts for less than 2 percent in the industrial sector over the years. Africa’s most populous country has endowments in solid minerals but little out of them is currently mined. These unexploited resources will generate revenue and also create wealth for the populace.
The President Muhammadu Buhari-led administration should focus on more policies that would expand the revenue streams of the country. This can be achieved through revenue diversification as it makes an economy immune to external shocks.
ISRAEL ODUBOLA
