NIGERIA’S revenue-to-gross domestic product (GDP) ratio has fallen to about 5% over the last year making one of the lowest on the planet according to a recent report just published by the World Bank.
Speaking during a panel session at a virtual public sector seminar with the theme Nigeria in challenging times: Imperatives for a cohesive national development agenda’ organised by the Lagos Business School, Dr Shubham Chaudhuri, the World Bank’s Nigeria country director unveiled the statistics. He then stressed the need for private investment for Nigeria to realise its potential, saying the private sector in the country is struggling to breathe.
Mr Chaudhuri added: “In Nigeria, I think the basic economic agenda is about diversification away from oil because oil has really been like resource curse on multiple dimensions. Nigeria is a country with tremendous potential and if you look at the synopsis for this panel, it suggests that Nigeria is at a critical juncture, almost at the moment of crisis.
“Despite all of that, Nigeria is still the largest economy in Africa. So, just think about the potential that Nigeria has because of its natural resources but more than that because of its dynamism and all of its population as Nigerians are more entrepreneurial by nature.
“No country has become prosperous and realised its potential, eliminated poverty without doing two simple things. Investing in its people and unleashing the power of the private sector in creating jobs by investing and growing business and then, of course, the basic function of the state is to provide security and law and order.”
According to Mr Chaudhuri, to invest in people entails basic services, basic education, primary healthcare and nutrition, among others. He added that on this, Nigeria at the moment ranks sixth from the bottom in terms of the human capital index that the World Bank produces every year.
Mr Chaudhuri said: “So, obviously, there is a huge agenda in terms of investing in human capital. Nigeria spends more on premium motor spirit subsidy than it does on primary healthcare in a year and we know who the subsidy is benefitting.
“So, we see as priorities investments in human capital but for that, one needs revenues. And there again, Nigeria unfortunately has the distinction of having about the lowest revenue-to-GDP ratio in the world.
“The standard rule of thumb is that for government to provide the basic services and law and order, it needs between 15% to 20% of GDP as being revenue and this will be both at the federal and state levels combined. In Nigeria, it was 8% in 2019 but in 2020, in the middle of the Covid-19 crisis and with the fall in oil prices, that went down to about between 5% and 6%.
“So, domestic revenue mobilisation is huge and then the third is enabling the space for private investment. You have to fix the power problem as power is like the oxygen of an economy and in Nigeria, the private sector is struggling to breathe.”
Finance minister Zainab Ahmed, who also spoke at the event, described the country’s revenue situation as very weak. Also speaking, Laoye Jaiyeola, the chief executive of the Nigerian Economic Summit Group, said the government’s expenditure had grown by 105% since 2015, while revenue had only grown by 15%.