Nigeria's quest for a tax driven economy
The shift to non-oil revenue must be a properly managed paradigm shift and not the exchange of one extreme dependence for another
The need to diversify Nigeria's economy (with its consequential implication for expanding the nation's foreign exchange earning base) has been a clear, present and recurrent theme for many years. However, it has taken a sustained slump in crude oil prices to trigger a frantic and desperate rethink of Nigeria's economic and fiscal planning approach. Diverse reasons can be adduced for the continuing slump in crude oil prices. These would include but not limited to growth in the global supply of crude oil and the resulting glut due to:
- shale oil production from the US notably;
- fall in Chinese's growth projections;
- lifting of economic sanctions against Iran; and
- the continued flooding of the market by the Middle Eastern members of Organisation of Petroleum Exporting Countries (OPEC) to stifle production assets under terrorist control
In the end, the buck for poor forward thinking or planning to mitigate the country's exposure to harsh economic realities must definitely rest somewhere. Presently, the price of crude oil is down by about 50% from $115 per barrel (pb) in June 2014 to $50.54 pb in November 2015. According to the Q2 report issued by the National Bureau of Statistic (NBS), there was reduction in oil production by 7.3% (at 2.05 million barrels per day (mbpd)) in 2015 when compared with corresponding quarter in 2014 (2.21mbpd). Consequently, oil and gas sector's contribution to the country's gross domestic product (GDP) dropped by 0.96% to 9.80% (2014:10.76%).
The determination of the present administration to be transparent on the state of Nigeria's treasury is therefore understandable and probably has compelled the admission that Nigeria is broke. Indicative evidence of response by the Federal Government is the introduction of some monetary and structural policy measures such as recovery of misappropriated funds, implementation of treasury single account (TSA) for receiving all monies accruable to the Federation and control of foreign currency denominated transactions in the economy, among others. These measures are geared towards ensuring that the Federal Government becomes more liquid.