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NIGERIA............Revenue diversification has gone nowhere, data shows

Nigeria’s revenue diversification has gone nowhere, data shows 

…PWC urges country to seek investment-led growth

Nigeria’s effort to break a three decade-old dependence on oil revenue has gone nowhere, data sourced from the Central Bank shows.

The country’s non-oil revenue, expected to relieve oil as the government’s dominant source of cash, came in at N1.13 trillion in the first five months of 2017.

That is N22 billion or 16 percent less than its oil counterpart which came in at N1.35 trillion in the period. It is also half the size of a 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 lower than planned corporate tax take and a 62.8 percent underperformance in independent revenues (See Fig.1).

Corporate taxes came in at N260 billion within the said five month period, against a budget predication of N725 billion. Independent revenues totalled N125.3 billion, against N336.5 billion.

Value Added Tax (VAT) receipts also underperformed by 48.7 percent, while customs and excise duties flunked the set target by 5.9 percent. “Others” also missed the set target by 25 percent.

VAT collection came to N385 billion as against a budgeted N750 billion. Customs and excise duties amounted to N241.2 billion, as against N256.5 billion. “Others” totalled N117.3 billion, as against N157.3 billion.

Non-oil revenue has failed to live up to its billing to overtake oil revenues this year, as was the case in 2016, when the latter managed to outpace non-oil revenues, despite low prices and production shut-ins.

In the comparable period of 2016, oil revenues amounted to N1.03 trillion, while non-oil revenues were only N952 billion.

Africa’s largest economy is scratching its head to diversify its revenue base, after a plunge in global oil prices crimped public earnings and tipped the economy into its first recession in a quarter of a century in 2016.

An economic blueprint released in February outlines bold plans to boost non-oil revenues and rely less on petrodollars. But not much has changed and recovering oil prices and production, threaten to roll-back days when the economy gorged itself on petrodollars.

“The fiscal narrative is unchanged as lower for longer oil price means that traditional sources of financing for Nigeria’s budgetary needs will remain stretched,” said Andrew S. Nevin, Partner & Chief Economist and Adedayo Akinbiyi, senior manager and economist at PwC Nigeria.

“To deliver sustainable growth with per capita gains, Nigeria will need to aggressively boost domestic and foreign investments over the next decade,” Nevin and Akinbiyi noted in a July 17 report.

Between 2007 and 2016, Nigeria’s investment share of GDP declined from 18.7% to 12.6%, reaching the lowest level in the past two decades.

In comparison to peers, Nigeria’s investment rate lags the average of 23.3% recorded for sub-Saharan African countries, and 28.9% for the BRICS (Brazil, Russia, India, China, and South Africa).

Nevin and Akinbiyi reckon that Nigeria, forecast to grow by 0.8 percent this year by the IMF, requires at least an investment of 20 percent of GDP per annum, to achieve meaningful growth.

This translates to an investment of N20 trillion (USD 55 billion), reflecting that Nigeria would have to nearly double its current investment level.

Attracting private capital as a means of weaning the economy off oil will require market-driven reforms that would boost investor confidence, analysts say.

“While foreign exchange liquidity has improved in recent times, as the Central Bank of Nigeria (CBN) allows for more flexibility in the foreign exchange market, the existence of multiple exchange rates with significant variances poses a risk to investment.

“In our view, a market-determined exchange rate, where all rates are harmonised, is fundamental to boosting domestic and foreign investments,” Nevin and Akinbiyi added.

Taiwo Oyedele, a partner and head of tax and regulatory services, also at consulting firm, Price Waterhouse Coopers (PWC) Nigeria, says “In the long term, it is also important that the country grows its tax to GDP ratio by expanding the tax net and enforcing better compliance to boost government revenue and reduce the over reliance on oil.

Nigeria’s tax to GDP ratio is one of the lowest globally, at 6 percent. This compares poorly with the country’s continental neighbour Ghana’s 16 percent and within a third of South-Africa’s 27 percent.

It is also deplorable, compared to MSCI frontier market peers, Vietnam and Thailand, who boast of 19 percent and 16.5 percent respectively.

The government has however unveiled a new tax scheme, which is targeted at taking Nigeria’s tax to GDP ratio from six percent to 15 percent by 2020.

The scheme, called the Voluntary Asset and Income Declaration Scheme (VAIDS), encourages individuals and companies to clear unpaid tax liabilities before the end of 2017- and was launched by Nigeria’s acting president, Yemi Osinbajo.

Boosting non-oil revenue will prove the litmus test for the FGN’s economic policy agenda, according to Gregory Kronsten and Chinwe Egwim, analysts at the investment arm of tier-one lender (First Bank), FBN Quest.

But at this point, Kronsten and Egwim said, “the omens are not good and the likely loser will be the FGN’s ambitious plans for capital spending this year.”

In 2016, Nigeria’s economy slowed markedly, falling into a recession for the first time since 1991.

Real GDP contracted 1.5%y/y, a reflection of the two and a half year decline in oil export earnings, and fall in government revenues which impacted consumer spending and investments. Foreign Direct Investment also declined to an 11-year low.


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