• Saturday, April 20, 2024
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Nigeria’s revenue slumps most among emerging country peers  


Declining petrodollars and sinking tax revenues have left Nigeria tailing emerging country peers in terms of government finances. The emerging country peers include Mexico, Indonesia and Turkey, which together with Nigeria were classified as “MINT” to identify their growth potential.

The term “MINT” was coined in 2001 by Goldman Sachs economist, Jim O’Neill for emerging economic giants and was used to describe the economies of Mexico, Indonesia, Nigeria and Turkey.

Despite having the largest government revenue to GDP of MINT peers in 2000, Nigeria’s rate slumped to an all-time low of 5.7 percent in 2016, according to data compiled by BusinessDay.

This compares with Mexico’s 22.5 percent, Indonesia’s 14.0 percent and Turkey’s 36.5 percent.

Although the GDP rebasing exercise of 2013 trimmed revenues to GDP, low crude oil prices and below trend production volumes inflicted by militant attacks on oil infrastructure are mainly to blame for declining government revenue as a percentage of GDP.

Crude oil prices may have risen in 2017, trading above $53 per barrel, but this remains 50 percent less than early 2014, when a barrel sold for $110. In 2014, Nigeria’s revenue as a percentage of GDP was 10.5 percent.

Given that Nigeria has little or no control over global oil prices, growing tax revenue is tipped to suffice as an alternative buffer for ailing government finances.

To grow taxes, however, unfriendly policies that crimp company profits must make way, according to Taiwo Oyedele, head of tax and regulatory services, at consulting firm, PriceWaterhouseCoopers.

“There must be a strategy that encompasses free market policies, improved ease of doing business and increased dollar supply. This way, companies can be profitable and the more profit they make, the higher taxes paid to government,” Oyedele said by phone.

Nigeria expects total revenue of N4.9 trillion in 2017, 28.9 percent higher in naira terms, than 2016’s N3.8 trillion estimates.

Oil revenue was revised upwards by 140 percent to N2 trillion this year from N820 billion, to reflect higher oil prices.

The country however revised down its independent revenue projection for full year 2017, which at N807 billion is almost half that projected for 2016. Non-oil revenues, largely comprising Companies Income Tax, Value Added Tax, Customs and Excise duties, and Federation Account levies, are estimated to contribute N1.373 trillion, five percent lower than 2016’s forecast.

Ayo Teriba, CEO of consulting firm, Economic Associates, says ramping up non-oil and value added exports would come in handy to shore up declining revenues.

“Relying on oil in the long-term is not sustainable amid an increasing shift to renewable energy sources which will dampen oil demand and hurt prices” said Teriba. “Therefore, Nigeria must reposition to generate more revenue from exports of value-added products rather than raw commodities.”

For Pascal Dozie, chairman of MTN Nigeria, policies that attract foreign direct and portfolio investments must be looked at.

“We need to harness private capital to deliver on infrastructure needs, as government spending alone is no panacea to the country’s economic downturn,” Dozie said in an interview on CNBC Africa.

Nigeria is hoping an expansionary N7.2 trillion budget will lift economic activity this year.

However, the challenges that bedevilled revenue projections last time out, are likely to pose a threat.

Actual revenues generated in 2016, consistently fell below predications on a pro-rata basis, due to oil production shut-ins and sinking company profits.

For instance, the Federal Government raked in N180.46 billion in the month of October, according to the office of the Accountant-General of the Federation, 56 percent below the pro-rata full-year estimate of N321.6 billion for 2016. In September, it was off-target by 25 percent.

The pro-rata estimate is a breakdown of how much the Federal Government must earn in one month to achieve its full-year revenue target and is calculated by dividing the full-year forecast by 12.

Between January and November, actual revenues have never met this forecast, and Yvonne Mhango, ‎Sub-Saharan Africa Economist at investment bank, Renaissance Capital says it is difficult to see how the Federal Government will meet its 2017 projection.

To achieve 2017’s revenue projection of N4.94 trillion, Nigeria must earn N411.66 billion monthly.