We all know that the FGN’s total spending is low because its revenue collection is poor and because it is fiscally responsible. The fiscal stimulus in this year’s budget, finally signed off last week, is not great. Total spending is projected at N7.44trn, equivalent to 6.7% of forecast GDP for the year. This would support the recovery from recession this year, and probably be the largest single element in the process, but would not amount to take-off.
Federally collected revenue last year of N5.68trn represented 5.6% of GDP. This was a decline of N1.23trn on the previous year, for which sabotage in the Niger Delta was largely responsible. Within a regional context, the performance was pitiful. The country data for 2016 in the African Economic Outlook 2017 shows grants, which we take to be “free” donor support, and revenue as a percentage of GDP. Nigeria’s 9.0 per cent compares with 18.7 per cent in Kenya, 20.1 per cent in Ghana and 21.2 per cent for the continent as a whole.
Perhaps the most telling figure is a ratio of 24.0 per cent for Angola, an economy with a non-oil sector a fraction of the size of Nigeria’s. Could it be that the oil majors are getting a rather better deal than they let on? (The outlook is a joint publication of the African Development Bank, the UN Development Programme and the OECD. As these publications go, it is clearly written and relatively free of impenetrable jargon.)
Our focus is on non-oil revenue collection because it is inseparable from the policy of economic diversification. While it yielded more revenue than the oil economy last year (N2.99trn vs N2.69trn) because of the pick-up in sabotage, it is very low. The take represented 2.9 per cent of GDP. The non-oil economy accounted for 93.6 per cent of GDP at current basic prices in 2015 according to the National Bureau of Statistics. Even when we allow for the informal sector, which the bureau estimated at 41.4 per cent of GDP, we have a sizeable mismatch between the productive, tax-paying non-oil base of the economy and the collection of revenue from it.
Gregory Kronsten
Head, Macroeconomic & Fixed Income Research
Source: Business Day, 19 June, 2017.
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