Diversifying Our Economy: Buhari is On the Clock -By Oluseun Onigbinde

Oluseun Onigbinde

At this point, it is important that the Federal and State Governments set up a joint commission of technocrats, to explore a scientific and detailed approach in reviewing the capacity of every state, revealing how each can build an export economy or even unearth unique products that stimulate demand. To truly diversify Nigeria’s revenue pool from oil will need visionary leadership with a matching eager interest from both sides of the spectrum – state governors and the president.

Recent and ongoing events in our country conspired to force me to write three pieces on the fiscal restructuring of Nigeria’s states and how to reposition them as truly independent entities. This mostly stems from the need for us – the leaders and the led – to acquire the ability to think and act our way out of Nigeria’s current situation, fast.

I have explained that the pervasive lack of interest in transparency and accountability, poor revenue management, an aversion for expenditure reforms, and short-term thinking limited to the duration of political office terms have mostly restricted the ability of Nigerian governors to expand the fiscal trough of their states. However, one must mention the place of the obsolete, obnoxious laws and conventions that still limit the powers of states to go cold turkey and severe their overdependence on oil revenue. Broadly speaking, most of these constitutional challenges are rooted in, and emanate from the over-centralisation of powers embedded, willy-nilly, within the folds of the Federal Government.

Re-examine tax exemptions and classifications

For starters, there’s the tax structure, which makes it imperative that Nigeria’s Federal Government (FG) hands off VAT collection and allows states to go ahead and maximise collection rates, as it gives states the incentive to adequately tax consumption within their boundaries. Although states currently take 85 percent of Value Added Tax (VAT) collected (including the share of local governments), there are still considerations.

At a tax-to-GDP ratio of 4 percent, it is still obvious that there are other chances for more uptake of tax by government; the average for its peers in Sub-Saharan Africa is 15 percent.

The FG should set a maximum cap for VAT only after considering the impact on general price levels and then allow states to adequately maximise their collections. The FG’s exclusion of items in a broad category, such as food, must be reconsidered. Agriculture accounts for over 25 percent of Nigeria’s output, yet almost the entire chain of this sector is untaxed – one of the glaring reasons why we need to reconsider our tax exemptions and classifications. As at 2013, the FG’s take from VAT stood at N107bn, an amount it can forfeit to unleash competitive dynamics among states. At a tax-to-GDP ratio of 4 percent, it is still obvious that there are other chances for more uptake of tax by government; the average for its peers in Sub-Saharan Africa is 15 percent.

A quick look at the GDP, classified according to expenditure, shows that Nigerians consumed goods and services worth about N63.6tn in 2014. Assuming VAT was collected at all levels including on school fees, house rent, and food items, VAT receipts should be close to N3.18tn. In 2014, Revenue from VAT collection was N824.6bn, which is about 26 percent of optimum take.

Lessen the grip on solid minerals – no, not just via privatisation

Another obvious revenue terminal for states is the solid minerals sector. For years, the Federal Government has made this sector its exclusive preserve and her unceasing fixation on oil has grossly neglected and underdeveloped the sector. All taxes and royalties from mining accrue to the FG purse, not to the states and communities that bear the brunt of mining activities. Many impoverished states lie on top of gold mines, limestone deposits and other minerals that need rapid exploration, but without giving states the incentive to maximise revenues from these deposits, the FG is not showing a sense of support or an interest in helping states earn greater fiscal independence.

So long as the 1999 Constitution continues to restrict mining operations to the Exclusive List, rather than the Concurrent Legislative List, we can expect privatisation to give us a more developed minerals sector, but alongside all the problems that brought…“resource curse”…

And while the solid minerals sector may improve due to the broader privatisation scheme President Muhammadu Buhari announced in Washington, the basics remain the same and the consequences will equally continue to escalate to become the contentious subject that oil exploration has become for communities in the Niger Delta.

This is mainly because states cannot venture into solid minerals extraction until Nigeria’s constitution is amended. Under the current arrangement, state governors may remain outsiders invited to get a share of taxes at best, which is a continuum of the handout culture, and privatisation alone will never wholly benefit states and by extension the people. So long as the 1999 Constitution continues to restrict mining operations to the Exclusive List, rather than the Concurrent Legislative List, we can expect privatisation to give us a more developed minerals sector, but alongside all the problems that brought the phrase “resource curse” into English language usage.

Cut the red tape

There have also been cases in which the Federal Government dropped the ball, such as in port reforms, which need speedy support to take off and catch on. One example is the Calabar Port, the sub-optimal development of which was one of the key factors that wrecked the Tinapa Free Trade Zone project. If there is no synergy and buy-in between states and the FG, and if both parties base working decisions along party lines as seen throughout prior administrations, then states will continue to run with grandiose ideas only to find themselves in a debt trap.

Together we can, as a nation, explore tourism, agricultural production, the agro-allied industry, technology, solid minerals, energy, manufacturing, outsourcing, aviation and other proven levers of diversified revenue growth.

It is a known fact that many grand infrastructural projects with significant national relevance have either been stopped or sabotaged, or embarked on without long-term planning due to political differences or favouritism respectively. The Federal Government must, more than ever, act as a unifying force to enable each state realise its individual potential, for the collective prosperity of the country. The FG needs to take the lead in deepening the states’ capacity in tax collection and classification of goods which have been exempted all along.

At this point, it is important that the Federal and State Governments set up a joint commission of technocrats, to explore a scientific and detailed approach in reviewing the capacity of every state, revealing how each can build an export economy or even unearth unique products that stimulate demand. To truly diversify Nigeria’s revenue pool from oil will need visionary leadership with a matching eager interest from both sides of the spectrum – state governors and the president. Together we can, as a nation, explore tourism, agricultural production, the agro-allied industry, technology, solid minerals, energy, manufacturing, outsourcing, aviation and other proven levers of diversified revenue growth. It is instructive to note that the President’s party, the All Progressive Congress, promised a N300bn regional fund in its manifesto. There is no faster way to kickstart and sustain competitiveness than to begin developing a roadmap for this Fund, which if managed well, can ensure a return back to the 1960s, when Nigeria ran a truly diversified economy.

At the nexus of diversification lies the need to bring in foreign investors, stimulate support from local banks, define optimum product standards and also expand our markets beyond Nigeria. As previously said, this is not a decision hinged on a four-year election cycle exigency.

Simultaneously, a lot of challenges perpetuate our lack of competitiveness, including poor trained labour, energy shortages, a cumbersome export process, and complex business registration and tax codes, as defined by the Global Competitiveness Report. All this forms a clear message that the current situation is unsustainable, and an overhaul of our operating environment is mandatory, to truly build the post-oil economy we want. This can only start – and pick up pace – with visionary leadership from the very top.

At the nexus of diversification lies the need to bring in foreign investors, stimulate support from local banks, define optimum product standards and also expand our markets beyond Nigeria. As previously said, this is not a decision hinged on a four-year election cycle exigency. To continue in this loop whereby oil decides the destiny of our public finances will lead to devastating consequences for Africa’s most populous nation.

Therefore, President Buhari, your time starts now.

Oluseun Onigbinde is the Lead Partner of BudgIT, a civic organisation pushing transparency and accountability in Nigeria.