Nigeria must implement fiscal reforms and improve tax collection to boost revenue—Adelekan

Adeyinka Adelekan is the managing director of Agusto & Co. In an exclusive interview with Josephine Okojie-Okeiyi, she shares key perspectives on economic reforms, taxation, and Nigeria’s financial resilience. Excerpt…

How does your role as managing director of Agusto & Co. help you shape conversations around economic reforms and financial sustainability in Nigeria?

As the managing director of the first rating agency in Nigeria, Agusto & Co. Ltd., my role in shaping conversations around economic reforms and financial sustainability is hinged on what we do.

At Agusto & Co, for us to carry out our role as a rating agency, we have an approach of macro to micro, which looks at how industries and, in turn, businesses are affected by macro policies and other socio-economic issues.

This inside knowledge gives us a seat at the table of any macroeconomic discourse. We have firsthand knowledge of how macro issues affect industries and, in turn, their players.

In addition, for over thirty-two years, we have also produced reports on over 30 sectors of the Nigerian economy as well as in Kenya and Ghana to some extent, and what this means is that we also have a helicopter view on how government policies and enabling environments have impacted industries and businesses. So, in this capacity, we are able to proffer solutions and shape discourse around economic reforms that will help businesses thrive.

The financial landscape is evolving rapidly with geographical shifts, sustainability concerns, and tech innovations intersecting. How can businesses adapt to these changes to remain competitive?

Businesses can adapt to these economic changes and remain competitive by embracing technology and using data analytics to determine changing customer preferences. Businesses need to be ahead of the curve, to be agile in the face of a changing landscape.

Artificial intelligence and machine learning will change the way we do things in the near term, and companies such as ours must embrace this to ensure that we stay nimble and efficient.

Despite these changes in my view, great companies still need to be guided by the basic finance principles, which are to grow revenue sustainably while keeping costs low.

With global economic shifts and digital transformations disrupting traditional financial models, what innovations do you see shaping the future of credit rating and risk management in Nigeria?

As Nigeria’s financial landscape continues to evolve, artificial intelligence will play a pivotal role in transforming the credit rating industry. By training machine-learning models on historical data, incorporating both quantitative metrics and qualitative factors, these systems could assign implied ratings to new rating issuances.

AI can also analyse vast amounts of data to identify patterns that may not be immediately apparent to humans. AI models can scrutinise repayment histories to detect early warning signs of potential defaults. By doing so, investors can make more informed decisions.

The 2025 economic roundtable was dedicated to the legacy of Olabode Agusto. Could you share some insights into his impact on the organisation and the broader financial sector?

Bode Agusto, our founder, made a great impact on Agusto & Co. Limited, as a pan African rating agency with a presence in over four African nations, including Nigeria, Kenya, Ghana, and Rwanda. We have assigned over 4,000 ratings to date.

Agusto was a trailblazer in Nigeria’s financial industry, known for his integrity, commitment to excellence, and knowledge growth. He pioneered credit rating in the country, promoted financial transparency, and influenced key economic policies, shaping the credibility of the debt market and fostering investors’ confidence.

He served as the director-general and special adviser on budget matters to President Obasanjo from 2003 to 2007, influencing national budget policies.

As a member of the Monetary Policy Committee of the Central Bank of Nigeria, he helped shape the country’s monetary policies.

Through his pioneering roles at the National Pension Commission (PenCom) and technical and governance support he provided to different market players, he contributed to the stability and growth of the pension sector.

In 2002, he was honoured as a Member of the Order of the Federal Republic (MFR) for his contributions to the Nigerian economy.

What are the key takeaways from the conversations at your recently concluded event themed ‘Nigeria’s Current Tax Reforms: The Impact on Households, Businesses, and the Country.’?

The shift towards a more competitive and equitable tax system will attract investment through measures such as VAT refunds, tax credits, and favourable tax regimes for investors. Additionally, it will ease the tax burden on the poor and middle class by implementing zero VAT on essential goods, exemptions on transport and rent, and a progressive tax structure.

The reforms aim to stop taxing poverty and allow low-income earners enough to take care of their basic needs without the burden of taxation.

Acknowledging the prevailing economic hardship, the government is introducing relief measures, including tax deductions, transport subsidies, and food import tax waivers. There is also a strong focus on supporting small businesses and startups through tax exemptions, deductions, and policies that encourage remote work.

Fiscal responsibility and efficient spending remain key priorities in our view, with an emphasis on disciplined financial management, privatisation of underperforming assets, and ensuring that expenditures are outcome-driven.

Public engagement and awareness are essential to the success of these reforms, ensuring Nigerians understand the changes and the impact on their everyday life. Despite the challenges, there is optimism and confidence that these reforms will lead to a more stable and prosperous economic future for all Nigerians if well implemented.

What are the challenges and opportunities identified for businesses and households in light of the current tax reforms?

Some of the opportunities for businesses include the reduction in corporate income tax to 25 percent by 2026 and the introduction of VAT credits, which offer businesses significant savings, encourage reinvestment, and potentially lower consumer prices to stimulate economic growth.

There is also a relief to households by exempting lower-income earners, such as N800,000 earners, from income tax, implementing zero VAT on essentials, and stabilising the Child Tax Credit and Earned Income Tax Credit, providing significant relief to low-income Nigerians, but its impact depends on effective implementation via digital ID systems.

We see some challenges, which include the 2024 Tax Reform Bills exempting small businesses with annual turnovers below N50 million but excluding professional services, and disadvantages knowledge-based sectors like law firms and consultancies.

Additionally, mandatory tax ID requirements, stricter filing protocols, and heavy penalties for non-compliance could burden small enterprises, potentially hindering innovation and formalisation in Nigeria’s critical employment sector.

While income tax exemptions for earnings below N800,000 offer some relief, inflation undermines real savings, especially for low-income groups who spend most of their income on essentials.

The removal of VAT on essentials is beneficial, but inflation on non-exempt goods and challenges in integrating informal sector workers into the tax system limit the reforms’ effectiveness for vulnerable groups.

Nigeria’s credit rating landscape is evolving, influenced by domestic and global economic factors. What trends should investors and businesses be aware of?

Looking at the changes in Nigeria’s credit rating landscape, investors and businesses should be aware of fiscal consolidation and debt sustainability with a focus on improving non-oil tax collection, controlling government spending, and reducing the portion of revenue allocated to debt servicing.

Inflation management and monetary policy effectiveness play a significant role, as the Central Bank of Nigeria’s ability to control inflation and maintain exchange rate stability will positively impact the sovereign’s credit ratings.

Economic diversification and growth resilience are also essential for long-term creditworthiness, with efforts to grow non-oil sectors, invest in infrastructure, and improve the ease of doing business.

Additionally, political stability and governance reforms are fundamental, as improvements in transparency, accountability, and security strengthen investor confidence. Global economic conditions and external shocks, such as fluctuations in oil prices and global financial conditions, also shape Nigeria’s credit rating, with lower oil prices potentially easing domestic costs but reducing the government’s revenue.

How can Nigeria enhance its financial resilience and attract sustainable investments?

To enhance Nigeria’s financial resilience and attract sustainable investments, it is essential to strengthen the implementation of fiscal reforms and improve tax collection to boost revenue generation.

Diversifying the economy beyond oil by expanding key sectors such as agriculture, manufacturing, and technology will reduce dependency on oil revenues and create a more balanced economic structure. Effective debt management strategies must be adopted as well to ensure fiscal sustainability and prevent excessive borrowing.

As of 2023, Nigeria’s tax-to-GDP ratio was approximately 9.4 percent, placing it among the lowest globally. In contrast, the average tax-to-GDP ratio for 36 African countries was 16.0 percent in 2022.

This indicates that Nigeria’s tax revenue as a percentage of GDP is significantly below the African average. To address this disparity, the Nigerian government has set a target to increase the tax-to-GDP ratio to at least 18 percent within the next three years. We believe that it is imperative we achieve this to sustain government revenue and reduce dependence on borrowing and promote fiscal sustainability.

Additionally, enhancing infrastructure investment will drive economic growth and improve investor confidence, while improving the business environment by streamlining regulations and reducing bureaucratic hurdles will foster ease of doing business.

Strengthening monetary policy and ensuring exchange rate stability will promote price predictability and financial stability. By implementing these measures, Nigeria can build a more resilient economy and attract long-term, sustainable investments.