Nigeria’s Search for Alternative Black Gold Mine: The Abundance amidst Scarcity

The economic standpoint of Nigeria, Africa’s largest economy appears gloomy as the result of the current record fall in international oil prices with little or no indication of a rapid bounce back in the nearest future.

The present unpalatable economic circumstance Nigeria finds itself now, in my opinion is not due to the decline in oil price (superficially, it may seem so).

Rather, the issue is that, high oil prices have always covered the main problem now bringing the country to the verge of economic collapse.

Nigeria as we all know is heavenly depended on revenue from oil and gas sector in the form of petroleum profit tax and proceeds from exported crude.

The situation is so grave to the extent that, the former formed over 80% of the total tax revenue in the country.

As we may recall, Nigerian economy have enjoyed several economic prosperities resulting from oil booms in the 1970s, 1980s and even recently in 2014 when bent crude was sold for USD 110 per barrel.

It must be noted also that, the current oil price slump is not an entirely new experience to Nigeria as the country have been through similar situation in the past.

In 2008, oil prices fell to as low as USD 38 and USD 40 per barrel. Brent crude price declined by over 40% from June USD 110 and floated around USD 65 per barrel in 2014. The fall continued through 2015 to where we are today with the price hovering USD 30.

The real problem as we have seen is that, due to reason(s) unclear, the Nigerian government and policies makers lack long-term memories which have probably diminished their ability to learn from history (of course, I don’t know what other problem should have been responsible for the persistent short-sightedness).

This has thus led to the “unsuccessful” economic diversification efforts of the country expanding more than five decades.

Are there enough reasons to panic amidst the oil price fall in Nigeria? The answer is yes and no.

Yes, if we refused to learn from history. We may refuse or forget the current economic challenge facing the country (which may probably last for a longer time).

It is good to be reminded that change is permanent and cycles in the international oil market will remind us some day in the future if we are able to pass through this successfully (I pray we do).

There will not be need to panic; if on the other hand we take the right steps now. The current episode of oil glut may well be a blessing in disguise.

While the next few years are likely to be challenging, I believe that the Nigerian economy as well as Nigerian companies are resilient enough to weather the challenge.

I am confident that the country and the economy would ultimately benefit from the current drop in oil prices especially as it presents an opportunity for real economic diversification.

When I said economic diversification, I don’t mean the widely suggested diversification into agriculture, financial, industrial, manufacturing, tourism sector etc.

Sure, these were the appropriate possible areas to diversify Nigerian monoculture economy before the present harsh economy climate. The same is though not impossible; it will be very hard given the present economic situation.

It is imperative in light of the above for the government to intensify more effort than before in mobilizing revenue internally.

In the face of insufficient fund availability to the government due to reduction in Petroleum Profit Tax and crude export revenue, it will be wise for the government to quickly resort to raising funds from other sources like taxes.

It is with regards to this that I am suggesting diversifying the economy through taxation. This is the quickest way to fix the economic problem of the country.

It is one of the hard choices we have to make if our economy is to survive the current economic uncertainty.

Most developed countries around the world have no abundant natural resources while most countries with natural resources are underdeveloped.

This is proof that not only can Nigeria reposition and develop it economy through proper tax revenue mobilization strategies; it can diversify the economy, create jobs and promote social well-being of it citizens.

Moving forward along this line, as a matter of necessity will benefit the country in exploring the long existing and underutilized alternative to black gold mine for the country’s economy growth and development.

Advocating for tax revenue mobilization takes more than luxury tax as popularly held opinion in plugging the hole, though it is an option.

We need to simplify the tax system, broaden our tax base to reduce the over dependence on few sectors (especially oil) for revenue generation as a matter of urgency.

While the introduction of new taxes is another option for increasing tax revenues, more could in fact be generated through ensuring increase compliance with the existing tax laws.

I endorse measures that will make the present tax system more efficient and easier to monitor and thereby increasing voluntary compliance of tax law.

Government also must cut back on wasteful spending and the tax authorities must become administratively more efficient to reduce the cost of tax collection and management.

This is why the present Treasury Single Account (TSA) policy is a welcome idea.

The high level of tax evasion in Nigeria should be addressed with all seriousness. Companies or individuals who fail to meet their tax obligations should be subjected to penalty according to the law. This will serve as a warning to others.

Companies, especially, should be stimulated to adopt automated business solutions that will prepare them for a tough tax regime.

Over the last decade, Nigeria’s elites have grown amazingly wealthy. With a record number of billionaires and millionaires, the country has become a top destination for, luxury cars, private jets, champagne and a host of other luxuries enjoyed by global elites.

I am not saying it is crime to spend your hard earned money on what pleases you (Nigeria subscribes to a free market economy system), but spending at the expense of the economy is inappropriate.

Nigeria’s wealth is concentrated in the hands of few. In fact, a study indicated that the top riches 20% of the population in Nigeria made 50% of the total expenditure while the poorest 20% made less than 6% of the total expenditure in 2010.

Nigeria’s elites enjoy 3% tax rate, one of the lowest on the planet in contrast with other economically successful countries where the elites pay on average of 13% or more of their earnings and assets in taxes.

A new tax regime should therefore be put in place to mandate the elites in the society to pay more taxes because of their deep pockets and expensive lifestyle.

Doing so will help prevent further devaluation of the Naira, and more importantly prevent inflicting austerity measures on Nigeria’s masses.

Nigerians should understand that despite the on-going economic uproar in the rest of the world, Nigeria can avoid an economic crisis through proper reactive measures.

Further devaluation of the naira is not necessary, successful outcome from floating naira is uncertain and austerity measures which will reduce funding to social services are also unnecessary.

The success of any policy is dependent on the implementation. As it stands today, compliance with Nigeria’s existing tax laws are very limited.

More effort thus needs to be made to ensure the full potential of tax revenue mobilization in the country.

Unlike monetary policy, fiscal policy takes time to yield results so this will not be a quick fix as such but it is the only way to abundance in the midst of scarcity.