Nigeria Not an Oil Economy, Says Adeosun

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By Ndubuisi Francis in Abuja

The Minister of Finance, Mrs. Kemi Adeosun, has declared that changing the Nigerian economic psyche is not an easy task, stating that the current tax drive of the President Muhammadu Buhari administration was not designed for short-term lure of political expediency.

In an article captioned: ‘All Change:  Nigeria is Not An Oil Economy,’ Adeosun said: By its nature, tax mobilisation risks the popularity of any government, but the present administration understands that the short-term lure of political expediency must give way to the long-term best interests of Africa’s largest economy.”

According to her, descriptions of Nigeria’s economy often include such phrases as ‘Africa’s largest oil producer’ and ‘the oil rich African nation.’

But she noted that oil economies are typically characterised by low population densities and abundant oil resources. 

Citing examples, the minister noted that Saudi Arabia with 10 million barrels of oil per day and 30 million people; Kuwait with 2.7 million barrels of oil per day and four million people and Qatar with 1.5 million barrels of oil per day and 2.5 million people are typical of such. 

She noted: “These economies pursued an economic model that was built around a large government dependent almost entirely on oil revenue for funding. Such economies could afford to have low or in some cases no domestic revenue mobilisation, in the form of taxes.

“Tax to Gross Domestic Product (GDP) ratios of less than 10% against the OECD average of 34.6% could be justified especially in the era of high oil prices.”

Adeosun stressed that for over three decades, Nigeria pursued this model, adding: “But things are changing, with the election of President Muhammadu Buhari in 2015, who was propelled into office under the mantra of ‘change’.”

 “That clamour for change in the areas of governance, security and economy,” she noted, “coincided with the collapse of global oil prices and a consequent huge deficit in government revenues.”

Adeosun pointed out that “these circumstances provided the ingredients for an overhaul of the entire economic model,” stressing that “the first and rather numbing conclusion of that exercise was that Nigeria is not actually an ‘oil economy.”

 According to her, with just two million barrels of oil per day and over 180 million people, “simple mathematics tells us that 90 Nigerians share a barrel of oil compared to three Saudis, 1.44 Kuwaitis and 1.69 Qataris.”

Continuing, she stated: “With oil at just 10 per cent of GDP, Nigeria simply does not fit into the mould of the traditional oil economies.”

The finance minister stressed: “Interestingly, even nations who did legitimately fit into this narrow mould of high oil revenues and low populations, are abandoning what is now considered to be a flawed model.

“Thus, the imperative for Nigeria was even more urgent. Nigeria recalibrated its target peer group from the oil economies to the ‘oil plus’ economies such as Mexico and Egypt.

“This new peer group have diversified economies and tax to GDP ratios of 20% and 16 per cent, respectively, compared to Nigeria’s six per cent. Consequently, the change mantra had to be urgently applied to revenue mobilisation.

“Analysis of the data suggests that revenue mobilisation is potentially the master key to unlocking Nigeria’s huge growth potential by funding its ailing infrastructure including roads, power and rail. 

“A cursory look at the effective tax rates paid by the huge multinational and local operators, as well as the data on illicit financial flows, indicates a pattern of systematic tax evasion at all levels.” 

She recalled that recent statistics released by her ministry showed that Nigeria has just 14 million active tax payers from an economically active base of 70 million.

Over 95 per cent of these, she said, are salary earners in the formal sector, with just 241 persons payiñg personal income taxes of N20 million (US$65,573.77) in 2016.  

“Taxing the high networth and Nigeria’s huge community of entrepreneurs constitutes a critical but yet attainable target. The statistics for corporate tax payment shows the debilitating effects of base erosion and profit shifting as well as abuse of an overly generous tax incentive and duty waiver system.

“The historical government apathy towards revenue mobilisation is one of the effects of the mistaken identity that saw Nigeria perceive itself as an oil economy. 

“This administration is determined to correct this identity crisis and all its concomitant effects,” she noted, adding that in that spirit, the government launched “an ongoing and well received, tax amnesty”, known as Voluntary Asset and Income Declaration Scheme’ (VAIDS).

“The initial signs suggest that Nigerians are responding positively to the new revenue narrative. Despite the emergence from a recession, tax revenues are showing early signs of growth.

“VAT shows 18.97 per cent year on year- improvement. Over 800,000, companies, including some Government contractors, that have never paid taxes have already been identified and are being audited. “This is an unprecedented initiative that entails cooperation between federal and state governments. The Federal Ministry of Finance has also commenced a database project that combines data from the various arms of government, including bank records, property and company ownership, and Customs records to create accurate profiles of those liable to pay taxes. “The ministry has also placed one of the world’s premier private investigation agencies on retainership to trace overseas assets,” she added

Adeosun observed that changing the Nigerian economic psyche is not an easy task.