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How to rebound nation’s economy, by experts

By Olawunmi Ojo, News Editor
11 September 2022   |   4:30 am
Economists have said that Nigeria must begin to make deliberate efforts to address its challenge of over-dependence on oil revenue as a critical step to reducing its rising public debt profile.

• Nigeria’s Financial Situation Requires Exploration Of Alternative Revenue Sources — Faleke
• Fiscal Condition Of Almost All States Unhealthy — Report
• Focus On Manufacturing, Agric, Exportation To Rejig Economy — Economists
• ‘With Funding, Contribution From Minerals Exploration May Surpass Oil Earnings’

Economists have said that Nigeria must begin to make deliberate efforts to address its challenge of over-dependence on oil revenue as a critical step to reducing its rising public debt profile.

Amid a number of socio-economic challenges including unemployment, double-digit inflation, slow-paced economic growth and widespread insecurity, crashing revenue and the need to meet financial obligations on a multiplicity of fronts continue to push the federal government to resort to borrowing.

Disturbed by the nation’s rising debt profile, however, the President Muhammadu Buhari’s administration has been advised to ponder and vigorously activate other revenue sources for the nation, to remain an economically viable state.

This came on the heels of FG’s recent disclosure that it had plans afoot to borrow over N11 trillion as well as sell some national assets to finance budget deficit next year.

Minister of Finance, Zainab Ahmed, made the disclosure ahead of the 2023 budget presentation, while appearing before the House of Representatives Committee on Finance in Abuja, to defend the 2023-2025 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP).

Revealing that petroleum subsidy would remain in place until mid-2023, the Minister said government was proposing an aggregate expenditure of N19.76 trillion for the 2023 financial year, a 15.37 per cent increase from the amount earmarked in the 2022 budget, with a projected deficit of N11.30 trillion, 54 per cent higher than the previous budget’s estimated deficit.

She added that FG was projecting N8.46 trillion as revenue, out of which N1.9 trillion is expected to come from oil-related sources, while the remaining will come from non-oil sources.

The projected deficit would, expectedly, be financed through new borrowings from local and international sources. This would include a total of N9.32 trillion in new borrowings, comprising N7.4 trillion from domestic sources and N1.8 trillion from foreign sources. The government is expected to generate N206.1 billion from privatisation proceeds and N1.7 trillion in multilateral project-tied loans.

With a budget deficit far above the stipulated threshold in the Fiscal Responsibility Act, which must not exceed three per cent of the GDP, and with the possibility of jumping higher if the petrol subsidy is not terminated by mid-2023 as planned by the FG, chairman of House Committee on Finance, James Faleke, stressed that the current financial situation of the country required that all revenue sources are explored as government was short of revenue.

More disturbing is the fact that the low revenue challenge is not peculiar to the federal government but also obtains across state governments. A report by SBM Intelligence revealed that between 2017 and 2020, Lagos and Ogun were the only states out of the 36 in the country that made more Internally Generated Revenue (IGR) than the allocations received from the Federal Government.

An analysis of the IGR generated by the 36 states showed that in the four years under review, all the states, with the exception of Lagos and Ogun, generated less revenue than what they received from the federal government as allocation. The implication is that their survival through the four years was largely dependent on allocations from the Federation Account Allocation Committee (FAAC).

With oil revenues decreasing and most states largely dependent on FAAC, fears are also heightening that the states may be thrown into precarious situations, which might result in inability to meet their basic obligations — payment of salaries, wages, pensions, and even providing other important social services and infrastructures in their respective states.

A chief economist at the Development Bank of Nigeria, Joseph Nnana, speaking on the need to tinker with economy, said that lack of diversification often leads to increased vulnerability and shocks that could undermine prospects of long term economic growth. According to him, diversification of production and trade structure is a very important tool for the well being of any economy.

Another economist and founder, B. Adedipe Associates Limited, Dr. Biodun Adedipe, noted that the current economic structure is hostile to inclusive growth. Adedipe, while stressing the need to begin thinking outside the crude-oil box, said that an admixture of policy options must be adopted to break the jinx and position the economy for sustainable growth.

Adedipe observed that Nigeria remained about the only commodity economy that has not leveraged its resources to support and build other sectors. He warned that Nigeria could not carry on without deliberate efforts to diversify, and canvassed an export-led economy as well as focus on the manufacturing and agriculture sector.

He said, “If you look at economies that have evolved over time, there has been pattern hinged on a very solid base on which they build services overtime for services to become a bigger part of the economy. But we have that aberration of structure in the Nigerian Economy. It means we have to focus on two critical sectors – manufacturing and agriculture and ensure that we produce more of what we consume.”

The chief executive officer, Economic Associates, Ayo Teriba, on his part, said Nigeria needed legislations to aid economic diversification and growth. He urged the National Assembly (NASS) to get more proactive in passing legislations that unlocks revenues for the economy.

He suggested that NASS could, for instance, pass legislations to mandate government enterprises to get listed on the stock exchange. “That puts some automatic adjustments in motion; as companies approach the stock exchange, they put on the A games. They recruit the best people to become more efficient. That would in turn generate more for government,” he said.

Zainab Usman, a senior fellow and director of the Africa Program at the Carnegie Endowment for International Peace in Washington, D.C. in her view, said Nigeria’s strong economic growth would be well driven largely by policy reforms in non-oil sectors.

“Nigeria’s major development challenge is anchored on achieving economic diversification beyond oil, subsistence agriculture, informal activities, and across its subnational entities.”

Usman argued that Nigeria’s challenge of economic diversification is situated within the political setting of an unstable distribution of power among individual, group, and institutional actors.

“To diversify Nigeria’s economy, successive governments must reorient towards a consistent focus on pro-productivity and pro-poor policies, alongside comprehensive civil service and security sector overhaul. These policy priorities, the ruling elite are belatedly acknowledging, are crucial to achieving economic transformation; a policy shift that requires a confrontation with the roots of perpetual political crisis, and an attempt to stabilise the balance of power towards equity and inclusion,” she added.

Amid calls for diversification from being a mono-resource economy, Nigeria is believed to have a huge reserve of extractable minerals, which has remained largely untapped.

Prof. Akinade Olatunji of the Geology Department, University of Ibadan, said the evidence of this abounds in the various activities of artisanal mining activities ongoing in several parts of the country.

To make the solid mineral sector a major and, indeed, alternative revenue source for the nation, he said the country had adopted a roadmap for the mining sector as a Policy Document geared at achieving massive development of the sector and maximising the potential from the sector.

“The roadmap was a product of rigorous works from various stakeholders in the industry. Presently, the roadmap is being implemented and if not for the global economic challenges, much more positive results would have been seen. As it is now, the sector is witnessing unprecedented activities and the sector’s contribution to the earnings of the nation’s coffers is in the right trajectory. The records are there to confirm.”

Speaking on available data to establish the quantum of mineral resources Nigeria sits on and how well the economy could be supported by the sector, in relation to the oil and gas sector, Prof. Olatunji noted that the FG through the NIMEP project, supervised by the Nigerian Geological Survey Agency (NGSA) had attempted to do holistic exploration of certain minerals to generate appropriate data that would be made available to intending investors such that the investors will know what they stand to gain.

He said: “Active data gathering is also being undertaken by the NGSA as well as various Departments of Geology in Nigerian Universities to further improve on the knowledge of the mineral potential. But there cannot be too much data. Data gathering in the mineral sector is capital intensive and there is need to continue to put the right resources into exploration activities through the various government agencies and support to the Academic institutions. With continuous funding of the exploration activities, the sector may be able to surpass the contributions from the oil industry.”

A VAT report recently released by the National Bureau of Statistics (NBS), underscores Prof. Olatunji’s assertions, as it indicated that the manufacturing, ICT and mining sectors led the list of sectors in Nigeria with the highest remittances in the first half of 2022, jointly accounting for 62.2% of the total VAT revenue generated by the Federal Inland Revenue Service (FIRS) between January and June 2022. A further breakdown of the report showed that N703.17 billion was generated as local non-import VAT, while N229.12 billion was from foreign non-import VAT.

Prof Olatunji highlighted proliferation of artisanal/illegal miners across states of the federation as a major global problem, noting that there were several international initiatives being undertaken to address it. He added that Nigeria had keyed into the global initiative.

He, however, stated that Illegal mining was a criminal offence and the Ministry of Mines and Steel Development had intensified monitoring through the Mines Inspectorate Division of the Ministry. “Several enforcement activities are going on across the country. But this can be better and made regular. Also, the cooperation of other stakeholders is required. These minerals being mined illegally, are taken across the Nigerian boarders, so, the Customs service also have roles to play.

“Above all, the communities are also culpable. Most of the illegal mining activities are actively encouraged by communities. Just like you have with the oil sector, it is a similar criminal activity. And there must be severe consequences for anyone caught engaging in illegal mining.”

Governor of the Central Bank of Nigeria, Godwin Emefiele, had recently admitted that Nigeria depended largely on the oil sector for revenue generation over the past four decades and that the sustained decline in production has continued to undermine economic performance, necessitating the drive to diversify to other non-oil sectors.

“It is important that we work to create an economy that will enable us to feed ourselves, create jobs for our teeming youths and improve the standard of living of our people,” he said.

As such, he said the quest for building a more sophisticated economy was anchored on agriculture, micro, small and medium enterprises (MSMEs), while industrial and manufacturing exploits have become the major components of the bank’s price stability policy thrusts.