Continued from yesterday THE constraint of an almost empty treasury is also due in part to fiscal leakages. Prior to the economy being buffeted by a permanent oil prices shock, which declined from $115 to below $50 in six months, it has been estimated that of the $100 per barrel earned, half is wasted or lost through fraud.

According to the IMF, the ratio of oil revenue to the market value of oil lifting declined from 47.2% in 2011 to 39.5% in 2014 due to quantity theft, secular decline in oil investment and production, and lower yield from NNPC Joint Venture (JV) lifting arrangements. It is estimated that about 100,000 barrels of oil per day is lost, amounting to $5 billion or N1 trillion per annum.

Restructuring the NNPC and passing immediately the Petroleum Industry Bill (PIB) will seek to ensure equitable management and allocation of oil resources. The sharp decline in oil prices exposed the paucity of non-oil fiscal revenue, which is about 4.0% of non-oil GDP, three times lower than in peer economies and 10 times lower than in some OECD countries.

According to estimates, increasing non-oil fiscal revenue to 10% of GDP will yield about N9.5 trillion, compared to N3.4 trillion in 2014, and close to gross federally collected projected revenue of N9.8 trillion in 2015 budget. Doubling VAT rate from 5%, one of the lowest in Africa, and improving collections efficiency by a third by tightening exemptions and increasing compliance, VAT revenue could triple to N3 trillion.

Our Corporate Income Tax rate is comparable to peers, but its revenue as a ratio of GDP is half of peers due also to low tax collections efficiency and abuse of tax holidays. Nigeria will also face revenue constraint arising from harmonization of customs and excise tax within ECOWAS.

All revenue generating and collection agencies including the FIRS, Customs and NNPC should remit their entire revenues to the Federation Account.

Raising non-oil revenues will require increasing tax rates as well as broadening the tax base of non-oil GDP through an enhanced tax administration reform of collections, compliance and enforcement. The burden of taxation should, however, fall more on the wealthy with an enhanced progressive tax structure.

Efficiency Over the long-term, improving the efficiency of productive resources will be needed to growing a dynamic market economy capable of sustaining the welfare of a majority of the people within a social democratic state. The incoming administration is targeting GDP growth-rate of 10-12% annually, nearly three times the most recent growth rate.

It is difficult to achieve this with a capital expenditure of 10% of GDP, the lowest among the BRIC and MINT countries and compared to over 30% in Indonesia and 45% in China. Inadequate infrastructure alone cuts economic growth by more than 2%, while electricity shortage increases business costs by over 15%.

The administration plans an infrastructure spending programme of N18 trillion to construct 5,000 km of super-highway and up to 6,800 km of modern railway; and N5 trillion for electricity; and N100 billion for petroleum refinery.

In addition, N16 trillion will be required for a National Mortgage Scheme. Of immediate priority is reviving the petroleum refinery to perform to optimum capacity. Financing the infrastructure programmes requires an investment of over N5 trillion a year.

As public sector investment alone is not sufficient, public private partnership, commercialization, and privatizations, Diaspora Infrastructure bonds, and long-term external financing from multilateral and bilateral sources will be crucial to meeting the financing requirements.

While economic diversification is underway with services sector contributing half of GDP, premature de-industrialization is manifested in the farm-to-factory move being by-passed for hawking and informal retail trade services in cities. Nigeria has the smallest share of manufacturing to GDP among the BRICS and MINT countries.

It is essential to boost agriculture productivity and triple the share of manufacturing, especially from small scale enterprises, value added to GDP from about 7% to over 20% by enhancing synergies with metals and mineral processing, agri-business, food processing, and petro-chemical processing through appropriate investment climate incentives and industrial vocational skills.

The APC plans to tackle economic diversification and ensure labour-intensive manufacturing and agro-processing with and SMEs Loan Guarantee of N10 trillion or $50 billion and Agriculture commodity trade board of N250 billion or $1.25 billion.

Prioritization The vision of a social-democratic welfare state with a dynamic market economy is a noble one. The immediate social inclusion equity programmes for achieving it partly work through fiscal stimulus to consumption and aggregate demand, Keynesian economics style.

On the other hand, the efficiency related programmes are geared towards removing long-term supply side constraints to the economy through structural reforms for competitiveness and enhancing infrastructure investment-led productive growth. Buhari faces a quadrilemma in trying to achieve equity, efficiency and effectiveness in a slowing economy.

As the administration faces difficult short-to-medium term policy choices and opportunity costs requiring trade-offs with long-term consequences, prioritization and sequencing of its policies and programmes are in order. • Concluded • Dr. Oshikoya is CEO of Nextnomics Advisory.