By Obinna Chima
The recently released Central Bank of Nigeria’s (CBN) Financial Stability Report for December 2016 had shown that the federal government’s retained revenue for the second half of 2016 increased to N2.558 trillion, above the levels of N1.898 trillion recorded in the first half of 2016 and the half- year budget estimate of N2.025 trillion for 2016. The increase in the retained revenue relative to the first half was mainly attributed to increase in non-oil receipts.Â
With this, the federal government has signaled its move away from oil as it plans to reduce its stake in its oil assets.
The development is clearly in line with the federal government’s quest for economic diversification from oil to the non-oil sectors, given the volatility of crude oil prices.
The dwindling oil revenue provided the nation a painful but indispensable opportunity to look inwards in a bid to trigger economic growth, just as experts have continued to stress the need for Nigerians to appreciate locally manufactured goods such as fabrics, saying that patronising such goods would make local industries thrive and boost economy.
Nigeria has the potential to become a major player in the global economy by virtue of its human and natural resource endowments. However, this potential has remained relatively untapped over the years.
After a shift from agriculture to crude oil and gas in the late 1960s, Nigeriaâ€™s growth has continued to be driven by consumption and high oil prices. Oil accounts for more than 95 per cent of exports and foreign exchange earnings while the manufacturing sector accounts for less than one percent of total exports.
This was one of the reasons that led to the development of the Economic Recovery and Growth Plan (ERGP). The ERGP is also consistent with the aspirations of the Sustainable Development Goals (SDGs), given that the initiatives address its three dimensions of economic, social and environmental sustainability issues.
Nigeria aspires to have a rapidly growing economy with diversified sources of growth, increased opportunities for its people, and a socially inclusive economy that reduces poverty and creates jobs for the millions of young people entering the labour market annually.
To achieve this, the government will increase the tax base. It will also conduct a broad audit campaign to identify under-filing tax payers; improve tax compliance by engaging non-compliant taxpayers and making them comply; and formalise businesses in the informal sector. The government said it will also review key incentives such as the automobile, export expansion grant, mining and hotel incentives.
Nevertheless, it will focus on agriculture as a priority area, which it plans to grow by 6.9 per cent per year, and the non-oil sector. The government plans for Nigeria to become a net exporter of rice, tomatoes, vegetable oil, cashew nuts, groundnuts, cassava, poultry, fish and livestock. It wants the nation to become self-sufficient in tomato paste by 2017, rice by 2018, and wheat by 2020.
The ERGP was developed through a consultative process comprising retreats, seminars and round tables with a cross-section of Nigerians.Â The plan aims to restore sustained economic growth while promoting social inclusion and laying the foundations for long-term structural change. It will focus on providing macroeconomic stability, stimulating priority sectors and tackling critical constraints to long-term growth.
The International Monetary Fund (IMF) which recently endorsed the ERGP 2017- 2020, applauded it as â€œhow fiscal policy should be thought in developing countries.â€ The Fundâ€™s Director, Fiscal Affairs Department, Mr. Vitor Gaspar said he had the privilege of visiting Nigeria some months ago and was very happy to understand that for the Nigerian government, fiscal policies in general and tax policy in particular were part of the strategy for development.
Also, IMFâ€™s Assistant Director/Head, Fiscal Policy and Surveillance, Catherine Pattillo, welcomed the countryâ€™s ERGP, saying its focus on diversification and attention to some of the problems facing the economy were steps in the right direction.
According to Pattillo, â€œWe very much welcome the ERGP. As you are aware, Nigeria went into recession last year, there have been forecasted recovery, but still very fragile this year and the need to address the fiscal situation is urgent. Our recommendation is for the continued fiscal consolidation.
â€œOne striking statistics I think is the fact that over the past years, the ratio of interest payment to tax revenue has doubled to 66 per cent in Nigeria. So, two-thirds of all tax revenue is going into interest payment, illustrating the need to raise tax revenue. That would allow the government to implement the social and growth-friendly policies that are part of the objectives of the ERGP.
The Minister of Finance, Mrs. Kemi Adeosun lamented that with a tax to Gross Domestic Product (GDP) ratio of six per cent, the country is rated one of the lowest in the world. To this end, Adeosun stressed that in line with the focus on non-oil revenue, the government has a lot of work to do. But the minister pointed out that the government would require the support of all stakeholders to achieve its objective of increasing non-oil revenue.
â€œWe have the tax to GDP ratio of six per cent, one of the lowest in the world. And with all the cooperation of encouraging companies to pay tax, it will support what we are doing to increase our GDP, improve amount of debt to take and improve our ability to fund our projects and get our economy going.
â€œThe money that has left our country either through tax evasion or through money laundering, we need them back in Nigeria and what we are working on is a revenue initiative that would bring a lot of this money back so we can fund our infrastructure,â€ she explained.
But the Minister of Industry, Trade and Investment, Dr. Okechukwu Enelamah, pointed out that implementing realistically the ERGP by the federal government would help get the economy on track. He pointed out that the ERGP captures the essence and key priorities of the federal government for the medium term 2017-2020.
â€œWe believe if implemented, it will get the economy on track. Even the greatest critiques of Nigeria agree that what we need to do is to diversify our economy from a mono-product economy that depends on oil for most of its foreign exchange and revenue, to other sources. The key is how do you do that? This ERGP captures in essence how you do that.
â€œSome of the highlights of the plan include the focus on agriculture, food processing and agro-businesses, which is a key contributor to our Gross Domestic Product, but one that requires more investments; focus on infrastructure, particularly energy and focus on industrialisation. We think that by implementing the strategies in that plan, we would definitely get the economy to where it ought to be.
“First there is a plan and then there is execution. But I think it is important to point to the fact that the plan is reasonably clear. There has to be focus on some key areas which include agriculture, infrastructure, transportation and industrialisation. The country has to get it right over the long run. What we are trying to do is to build on the fundamentals so that the growth can continue,” he explained.
Also, the Minister of Mines and Steel Development, Dr. Kayode Fayemi noted that: “There have been a lot of talks in the past about diversifying away from oil. Basically, a fall in the oil price is what becames the wake-up call for the areas the country has neglected for a long time such as agriculture, mining industry and are now getting the attention of the government.
“Yes, that has always been the trigger. When oil falls, what sector offers an opportunity for substitution? Mineral resources. Look at what we have done with cement. The limestone has helped us to produce the largest cement industry in Africa to the extent we are now a net exporter of cement.”
The foregoing clearly shows that there is need for the federal government to aggressively drive the implementation of the ERGP which among other things, aims to reduce unemployment and underemployment, especially among the youth. The ERGP accordingly prioritises job creation through the adoption of a jobs and skills programme for Nigeria including deepening existing N-Power programmes, and launching other public works programmes. The partnership with the private sector and sub-national governments for job creation will also focus on the policies required to support growth and diversification of the economy by placing emphasis on Made-in-Nigeria, public procurement which takes account of local content and labour intensive production processes.