Some statements repeatedly find their way into public discourse. People hardly verify them, and no one questions them. In Nigeria, “70% of Nigeria’s government revenue comes from oil” is one of such statements. How true is that? To investigate, I looked at Nigeria’s revenue from the start of the current decade. Considering Nigeria’s loose federalism, it would be incorrect to only consider Federal Government (FG) revenue as Nigeria’s revenue. Many people make this mistake when comparing countries with Nigeria. So, I added the Internally Generated Revenue (IGR) of the states and local governments, using data from BudgIT and the Central Bank of Nigeria.

In nominal terms, Nigeria’s total revenue slipped from ₦11.34 trillion in 2011 to ₦8.15 trillion in 2017. Adjusting for exchange rates, revenue has shrunk from $72.75 billion in 2011 to $26.66 billion in 2017, a whopping 63% decline. Despite a naira devaluation in 2016 that should have boosted oil revenues (oil is sold in dollars), lower-for-longer oil prices have not helped. A Bloomberg op-ed suggested that oil prices are now controlled by three men—King Salman, Vladimir Putin, and Donald Trump, such is the fate of Nigeria. Oil prices may have found a short-term equilibrium of $60 per barrel, a level Putin stated satisfies him. Oil is no longer Nigeria’s saviour.

In my datasheet, it is clear that any increases in non-oil revenues up to 2017 have been weak, and primarily driven by rising Value Added Tax (VAT) receipts. Other non-oil revenue sources—company income taxes and customs levies—have remained at 2014 levels. One might casually accept that even the “non-oil revenue” classification might not tell the full story. As oil price and production swings have been critical to Nigeria's economic growth, foreign reserves and currency stability, non-oil revenue growth has also been strongly influenced by oil. It is evident that when oil revenue declined in 2016 due to the oil price slump, the growth of non-oil revenue marginally reversed. We see this in the change in Company Income Tax revenue—₦1.2 trillion in 2014, ₦1.0 trillion in 2015, ₦0.9 trillion in 2016, and back to ₦1.2 trillion in 2017.

How about the states? While most states have grown their IGR, Lagos alone is responsible for 25% of growth in states’ cumulative IGR between 2011 and 2017, and only 7 of 36 states (Lagos, Ogun, Rivers, Delta, Kano, Kaduna, Enugu) account for 70% of nominal growth in subnational IGR in Nigeria. Enduring poverty, short-termism, absent single identity systems and poor incentives due to the central distribution of revenues have weakened states’ ability to collect taxes in the country.

In the near term, Nigeria is probably looking at ₦5 trillion in gross oil revenues. Once we account for joint venture deductions, 13% derivations, etc., net oil revenue available for sharing would be under ₦4 trillion, which means that the Federal Government (52.68% share) might not be scratching much more than ₦2 trillion in oil revenues. With a proposed increase in minimum wage, university lecturers also demanding more, and the rise in police personnel costs, ₦2 trillion would not be enough to cover FG personnel costs for a year.

The only reasonable option is to find new growth poles that can increase the non-oil tax take, but there must be effective wealth creation through productivity before it is taxable. Nigeria can also accept that its expenditure is currently too high for its budget. It must cut waste such as fuel subsidies that consumed ₦800 billion in the first half of 2018 and accept that VAT of 5% is too low (and corporation tax of 30% may be too high). Add rising debt servicing costs, service wide payments and statutory transfers, and the federal government’s recurrent bill cannot be less than ₦4.5 trillion. With total FG non-oil revenues (including independent revenues from government agencies) below ₦1.5 trillion (₦1.2 trillion in 2017), the FG would have a gap of at least ₦1 trillion for its everyday expenses. In essence, Nigeria would have to keep borrowing to fund capital projects and recurrent expenses. Many states are even worse off as the current Federation framework does not incentivise growth of internally generated revenues.

However, Nigeria seems to be favouring other unreasonable options. One of which is gorging on Eurobonds—the FG has borrowed nearly $10 billion in two years—to pile up its external reserves and defend the naira. It can also sell assets such as part of its stake on oil Joint Ventures, but these would be one-off. Or it can continue to bank on the CBN to cover deficit (there is an unaccounted ₦1 trillion deficit from 2017 spending). Or it could keep milking oil by ramping up production from about 2 million barrels a day to 2.5 million barrels a day and even leverage a currency devaluation to bloat oil receipts. In the long-run, these would all be missteps that fail to solve the real issue.

Nigeria must face the reality that its spending plans have outstripped what oil revenues can support, given our domestic production capacity and the international oil market outlook. The only way to reform is to look away from oil and explore how to raise productivity, improve ease doing of business, and build a business case to attract foreign capital. Even Moody’s, an internationally recognised credit ratings agency, explained that Nigeria would be appraised on how expands its non-oil revenue base. This will take time, a luxury that the four-year thinking of current democratic systems may not allow, and will require a wholesale restructuring of the country, which the administration pays scant attention to and the opposition has not defined in detail.

Currently, Nigerian leaders are trying to appease every class with spending on social welfare, increases in wages, and higher capital spending, but we need to ask: where will the money come from? This might not be pleasing to tell during an election but whoever wins, it is essential for them to know: Nigeria is going broke as oil contribution to Nigeria’s revenue has effectively declined to 50%.

Nigeria’s revenue-to-GDP is down to 7%, and its tax-to-GDP is less than 5%. It is clear that the rent-seeking framework of oil would no longer work; Nigeria has to sweat its resources—human and physical and carve another narrative beyond oil to face the future that beckons. However, every day with the current government still rehashing old tales of how they were unfortunate not to be around when oil prices were high, it seems Nigeria is waiting for another miracle rather than rolling up their sleeves and doing the hard work required.

https://www.stearsng.com/article/oil-can-no-longer-sustain-nigeria

70% of foreign revenue not 70% of all revenues. It is probably more than 70% because cocoa exports is a distant second.

Guestlander:
70% of foreign revenue not 70% of all revenues. It is probably more than 70% because cocoa exports is a distant second.

What is the percent of others

It will be good that oil dries up and we all go back to the drawing board

And the dullard is busy wasting tax payers money to search for oil in the north

247Dior:

And the dullard is busy wasting tax payers money to search for oil in the north

That is the extent of cluelessness!

Omooba77
Nice article with a lot of important information and an absolutely accurate conclusion. There are however a few recommendations I personally do not agree with for a number of good reasons.

I do not agree that fuel subsidies should be removed and also that we need to seek out foreign investments. I know my view is not popular but give me your attention for a moment.

Your article focuses on the fall of federal revenue and the hardship it has brought and also the unsustainable path the federal government is towing.

Is Nigeria's issue the fall of revenue or is it the resulting hardship. Must these two events go side by side?

I think Nigeria's issues are the crazy levels of inequality between the rich and the poor. I think our lack of productivity is tied directly to the high rate of extreme poverty in this country. I think the biggest failings by governments is in not equitably using our oil revenues in ways that benefit all Nigerians.

Nigeria runs a trickle down economy where government workers and contractors take all the oil money. The rest of us earn our living by providing goods and services to these government workers. So basically, we get the crumbs that fall of their tables. What makes the matter worse is that Nigeria, like most nations, operates an open economy so once an iPhone, Samsung, a Mercedes, is bought by any individual in Nigeria, we have invariably exchanged our crude oil for the purchased item, thus reducing the number of crumbs that can get to the common man.

In the past, our leaders exchanged our people (resources) for mirrors cause they found their images amusing. Today, they exchange our resource (oil) to satisfy their vanity.

My issue with oil subsidy removal


in general, two things affect the local price of fuel: The price of crude oil and the value of the naira against the US dollar. between 2006 and 2007, crude oil prices were about 70 dollars as it is now, yet petrol was 75 naira per litre. the dollar was 130 something then as opposed to 360 now. the question we should all be asking is why has the naira fallen so badly? I guess more demand for iPhones, Samsungs and Benzs.

should a Barber, a Tailor, a carpenter, a plumber, a Farmer, an Electrician pay more for fuel because Nigerians want to use iPhones?

SOLUTION
As your article stated, an increase in our VAT to the continent's average will help. Yearly progressive taxation on houses and cars will also go a long way. This is how to eliminate subsidies by raising the value of the naira through decreased demand for dollars rather than simply raising prices of petrol all the time. We already have the highest number of people living in extreme poverty, yet we have the richest black woman in the world and the richest black man in Africa.

foreign investors do not have to be marketed to. investors look for profitability with the smallest amount of risk. rather than focusing on attracting them, we should make our country more productive by investing massively in public primary and secondary education. when we can produce our own iPhones, and live in peace and harmony, investors would naturally troop in. we need to look inwards. Our people are more important than mirrors and Benzs.

trillville:
Omooba77
Nice article with a lot of important information and an absolutely accurate conclusion. There are however a few recommendations I personally do not agree with for a number of good reasons.

I do not agree that fuel subsidies should be removed and also that we need to seek out foreign investments. I know my view is not popular but give me your attention for a moment.

Your article focuses on the fall of federal revenue and the hardship it has brought and also the unsustainable path the federal government is towing.

Is Nigeria's issue the fall of revenue or is it the resulting hardship. Must these two events go side by side?

I think Nigeria's issues are the crazy levels of inequality between the rich and the poor. I think our lack of productivity is tied directly to the high rate of extreme poverty in this country. I think the biggest failings by governments is in not equitably using our oil revenues in ways that benefit all Nigerians.

Nigeria runs a trickle down economy where government workers and contractors take all the oil money. The rest of us earn our living by providing goods and services to these government workers. So basically, we get the crumbs that fall of their tables. What makes the matter worse is that Nigeria, like most nations, operates an open economy so once an iPhone, Samsung, a Mercedes, is bought by any individual in Nigeria, we have invariably exchanged our crude oil for the purchased item, thus reducing the number of crumbs that can get to the common man.

In the past, our leaders exchanged our people (resources) for mirrors cause they found their images amusing. Today, they exchange our resource (oil) to satisfy their vanity.

My issue with oil subsidy removal


in general, two things affect the local price of fuel: The price of crude oil and the value of the naira against the US dollar. between 2006 and 2007, crude oil prices were about 70 dollars as it is now, yet petrol was 75 naira per litre. the dollar was 130 something then as opposed to 360 now. the question we should all be asking is why has the naira fallen so badly? I guess more demand for iPhones, Samsungs and Benzs.

should a Barber, a Tailor, a carpenter, a plumber, a Farmer, an Electrician pay more for fuel because Nigerians want to use iPhones?

SOLUTION
As your article stated, an increase in our VAT to the continent's average will help. Yearly progressive taxation on houses and cars will also go a long way. This is how to eliminate subsidies by raising the value of the naira through decreased demand for dollars rather than simply raising prices of petrol all the time. We already have the highest number of people living in extreme poverty, yet we have the richest black woman in the world and the richest black man in Africa.

foreign investors do not have to be marketed to. investors look for profitability with the smallest amount of risk. rather than focusing on attracting them, we should make our country more productive by investing massively in public primary and secondary education. when we can produce our own iPhones, and live in peace and harmony, investors would naturally troop in. we need to look inwards. Our people are more important than mirrors and Benzs.

Thanks sir, as long as subsidy is there, some dishonest people will be profiting from it. Let it be free flow economy determined by demand and supply

247Dior:

And the dullard is busy wasting tax payers money to search for oil in the north

Are u not more dull

Yes the oil we produce today can't sustain us but we should reach the maximum potentials we have e in the oil and gas... While trying to do same for other sector

Your salary is not enough... Do you resign and earn nothing or keep working while looking for bigger pay or way to combine the job with others

True, we are tending towards IT. Cars that can move without fuel are being made now, It's just a matter of time.

Omooba77:


Thanks sir, as long as subsidy is there, some dishonest people will be profiting from it. Let it be free flow economy determined by demand and supply

my post actually supports the removal of subsidies. it is how subsidies are to be removed that my view differs from the popular view. the price of petrol in Nigeria is affected by the demand and supply of crude oil in the international market and also the demand and supply of dollars within Nigeria. why the price of petrol today should be 210 naira without subsidies is not because of the international price of crude but the fall in the value of the naira. My point is that Nigeria can lower the price of petrol by lowering the demand for dollars through taxation. This invariably will eliminate subsidies without further impoverishing the masses.