Breaking Nigeria’s over-dependence on oil revenue

Since the collapse of oil prices and the inception of the current administration, we have been regaled with talk about reducing the country’s dependence on oil revenues and shoring up non-oil revenues. Top government officials never waste any opportunity to remind Nigerians that the plan of this administration is to focus on growing non-oil revenues.

This time last year, the Chairman of Federal Inland Revenue Service (FIRS), Tunde Fowler, said with earnings from oil declining, the federal government was now ready to fund annual revenues from non-oil revenue sources.  The federal government in February also rolled out an economic blueprint detailing bold plans to boost non-oil revenues and to rely less on petrodollars.

The finance minister, on her part, earlier this year affirmed that the administration plans to get us out of recession by boosting non-oil revenues and cracking down on corruption.

However, despite these lofty promises and the various attempts to shore up non-oil revenue payments and collections, the reality remains that the country has not made any progress in breaking or whittling down its heavy dependence on oil revenues while government’s non-oil revenue projections remain overambitious.

Data from the Central Bank of Nigeria shows that oil revenues still remains the country’s dominant source of income in the first five months of 2017. Despite the huge decline in oil prices, oil revenue receipts for the five month period was N1.35 trillion while non-oil revenue receipts stood at N1.13 trillion, N220 billion or 16 percent less that oil revenue. Sadly, it is just half the size of the N2.2 trillion five-month target set by the government for non-oil revenue in 2017.

The biggest slippages in non-oil revenue compared to the government’s projection came from a 64 percent low than planned corporate tax take and a 62.8 percent underperformance in independent revenues. Corporate tax collectibles was just a miserly N260 billion within the said five month against a budget prediction of N725 billion. Independent revenues totalled N125.3 billion, against N336.5 billion

Value Added Tax (VAT) of N385 billion also underperformed by 48.7 percent as against the budgeted N750 billion. Customs and excise duties collectibles were N241.2 billion, as against N2.256.5 billion. ‘Others’ totalled N117.3 billion, as against N157.3 billion.

Sadly, this is the second year consecutively that non-oil revenue has failed to live up to government’s projections to overtake oil revenues. In 2o16 also, oil revenues came out tops, amounting to N1.03 trillion, while non-oil revenues were only N952 billion.

Like most analysts have opined, some key strategies to shore up revenues and reduce dependence on petrodollars in Nigeria will necessarily involve improving the ease of doing business in Nigeria and an aggressive move to boost both domestic and foreign investments. As can be seen from the sharp decline in revenues from corporate tax, when the business environment is inclement, it impacts negatively on companies and their ability to make profit and consequently pay tax.

Also, to attract both domestic and foreign investments, the government must implement market-driven reforms that will boost investor confidence in the country. A key part of that reform is the creation of a market-determined exchange rate, where all rates are harmonised.

Current efforts by both the government and the CBN to improve the ease of doing business and improve liquidity in the system are commendable. But more sustained and aggressive actions are needed. The existence o multiple exchange rates with significant variances poses serious risks to investment and the CBN needs to work more to create a single, harmonised market-determined rate.