After many years of strategic policies geared towards the diversification of the economy, the government for the first time earned more revenue from the non-oil sector than the oil sector in 2020.
Analysis of budget performance data obtained from the Budget Office last week showed that the revenue generated from the business activities in the non-oil sector in 2020 exceeded oil sector revenue by N52.85 billion.
This brings the total revenue generated from both oil and non-oil sectors in 2020 to N7.67 trillion.
Nigeria’s economy had solely been reliant on proceeds from oil export after the discovery of crude oil in commercial quantities, leading to the neglect of agriculture, and other productive sectors.
Further analysis showed that Nigeria’s oil revenue had been steadily declining in the past three years.
The data showed that in 2018, Nigeria earned N5.55 trillion from the oil industry. This declined to N4.60 trillion in 2019 and further slumped to N3.81 trillion in 2020.
However, earnings from the non-oil sector have been rising steadily from N3.23 trillion in 2018 to N3.55 trillion in 2019 and N3.86 trillion in 2020.
The decline in oil revenue in the period under review also led to an actual reduction in total earnings from N8.77 trillion in 2018 to N8.15 trillion in 2019 and to N7.67 trillion in 2020.
The budget deficit is being funded by borrowings from both domestic and external sources.
The volatility in global oil price in 2020 due to the coronavirus pandemic affected Nigeria revenue projections and earnings from the oil industry last year.
Demand for oil slumped last year starting from March, leading to a crash in global oil prices by as much as 15 per cent to a three-month low since the outbreak.
This led to a disruption in Nigeria’s revenue projection from the sales of crude oil which was initially pegged at $57 per barrel.
In June last year, Nigeria’s government was forced to revise the 2020 budget oil benchmark from $57 per barrel to $28 per barrel while production output was also revised downwards from approximately 2.1 million barrels to 1.7 million per day.
Nigeria’s Debt Burden
The nation has recorded a huge debt of N33.1 trillion since President Muhammadu Buhari came into power, according to data from the Debt Management Office (DMO).
Buhari became Nigeria’s president on May 29, 2015 but between July 2015 and December 2020, Nigeria’s debt had increased by about N20.8 trillion.
The Minister of Finance, Budget and National Planning, Zainab Ahmed, had said the inability to generate enough revenue to fund its expenditure had led to borrowing.
However, she insisted that Nigeria does not have a debt problem.
According to her, what the government needs to do is to increase its revenue-generating capacity in order to boost revenue to about 50 per cent of Nigeria’s Gross Domestic Product (GDP).
She said, “Nigeria does not have a debt problem. What we have is a revenue problem.
“Our revenue to GDP is still one of the lowest among countries that are comparable to us. It’s about 19 percent of GDP and what the World Bank and IMF recommended is about 50 per cent of GDP for countries that are our size. We are not there yet. What we have is a revenue problem.”
How Nigerian Can Increase Non-Oil Revenue – World Bank
The World Bank last month identified how Nigerian government could increase non-oil revenue and earn an additional N10 trillion in the next three years.
A Senior Public Sector Specialist at the World Bank, Mr. Rajul Awasthi, advised the government to enhance excise rates; implement the electronic money transfer levy in the Finance Act; rationalise tax expenditures; and reform key federal tax statutes.
He stated that the nation had one of the lowest rates on alcohol and cigarette, saying that Nigeria’s excise duty on cigarettes is even lower than the ECOWAS average.
Awasthi urged the government to improve revenue from cross-border transactions and other international tax measures and also enhance internally generated revenue.
He also advised both the state and the federal governments to embark on property tax reforms by updating or completing property records.
He said, “You cannot increase again, the rate of Value Added Tax (VAT) and Company Income Tax (CIT). Those kinds of reforms are out of the question. But there is a lot of potential in Nigeria for what we call low-hanging revenue yielding fruits.
“The Finance Act 2020 provided for a levy on electronic transfer that hasn’t yet been implemented. There is a revenue potential there. There is also a need to rationalise tax expenditure.
“That means evaluating the tax expenditure to see which of them are actually fulfilling the policy objectives for which they were put in place. If they are not, then you get rid of them because they are only draining revenues.
Awasthi added, “According to our analysis, you can double non-oil revenues with minimum disruption of the economy. We (the World Bank and IMF) are working with the tax administration agencies to strengthen capacity and improve the ability to enforce compliance.
“In terms of property tax reform, we are working with the states to ensure that property registers are updated, laying a strong foundation for them, so as to improve revenues from property taxation. Obviously, this will not impact the poor because they do not have large properties.”