A Paper Presented by Dr. Adedoyin Olumide, Registrar/Chief Executive
Chartered Institute of Treasury Management (CITM)
During the Fifth National Treasury Workshop with the theme "Nigeria's Revenue Challenges and the Way Forward: Exploring Non-Oil Alternatives”.
1. Introduction
Nigeria, Africa’s largest economy and most populous nation, faces persistent fiscal challenges and remains paradoxically fragile due to its monolithic revenue structure with oil and gas accounting for 90% of export earnings and over 60% of government revenue (National Bureau of Statistics, 2023), inefficient budgeting practices, and underutilization of alternative revenue streams. This has created a “resource Curse” that stifles innovation, industrialisation and Equitable growth. The volatility of oil prices, the increasing burden of debt servicing (N8.25 trillion – 24% in 2024 budget compare to N5.35trillion – 15% capital projects according to Budget office of the Federation, 2024), and structural inefficiencies in public financial management system have underscored the need for a more diversified and sustainable revenue base. Recurrent expenditure dominates annual budgets, leaving critical sectors like infrastructure, education, technology, and healthcare underfunded. This imbalance underscores the urgency for systemic reforms.
This paper explores best practices in revenue diversification and budgeting strategies essential for fostering long-term economic stability in Nigeria. It highlights the challenges confronting the current revenue structure and provides actionable recommendations to ensure that budgeting aligns with sustainable economic development goals.
2. Nigeria’s Current Revenue Structure: A Diagnosis
Nigeria's revenue generation is largely dependent on oil, which contributes around 70% of government revenue and nearly 90% of foreign exchange earnings. However, the vulnerabilities associated with oil dependency have been evident in times of price fluctuations, global economic downturns, and domestic production disruptions caused by insecurity in the Niger Delta.Nigeria lost $50 Billion in potential oil revenue between 2020-2023 due to price crashes and production shortfalls (NNPC, 2023). Foreign Direct Investment in oil also fell by 62% post-2014, while non-oil sectors attracted only $1.2 billion annually (CBN, 2023)
Beyond oil, the non-oil revenue sector, comprising taxation, customs duties, agriculture, manufacturing, and services, remains largely untapped due to systemic inefficiencies, weak enforcement mechanisms, and a limited tax base. Other factors hindering revenue mobilization include:
• Debt to GDP Ratio: is estimated at 45-48% at the close of 2024 based on current fiscal trends, borrowing patterns and economic projections, exceeding the 25% threshold recommended by the IMF for emerging economies.
• Budget Deficits: Since 2020, budget deficit has been progressively increasing #5.6 trillion, #5.62 trillion in 2021 and progressively to #9.8 trillion for 2023 and 2024 respectively; financed through costly domestic borrowing, (Government Treasury Bills, and Promissory Notes) others include External Borrowing (Multilateral Loans, Eurobonds and Bilateral Loans) (CBN, 2023)
• Poverty Incidence: remain entrenched at 63% for multidimensional poor and 46% in extreme poverty (World Bank, 2023) UNHCR Nigeria Displacement Report (2024)
• Unemployment: 33.3% (NBS, Q4 2023), with youth unemployment at 42.5% (under the old definition, while youth underemployment stood at 21.3% (reflecting widespread informal, low paying jobs)
• Low Tax-to-GDP Ratio: Nigeria’s tax revenue as a percentage of GDP is among the lowest in the world (about 11%) compared to the global average of 15-20%. The implication of this is as follows: fiscal deficit, underfunded public services, debt servicing crisis and vulnerability to oil shocks.
• Revenue Leakages and Corruption: Weak institutional frameworks, loopholes in tax laws, and administrative inefficiencies allow revenue losses through tax evasion and corruption.
• Inefficient Budget Implementation: The country struggles with poor budget performance due to unrealistic revenue projections, high recurrent expenditure, and inadequate capital investment.
3. The Case for Revenue Diversification
Revenue diversification is critical to ensuring financial resilience and macroeconomic stability. A robust diversification strategy should prioritize:
3.1 Expanding Non-Oil Revenue Streams
• Agriculture: Contributes 23% of GDP but suffers from low mechanization. Doubling agro-processing could generate $20 billion annually (AFDB, 2022).
• Solid Minerals: Nigeria’s untapped mineral deposits (gold. Lithium, bitumen, rubber) are valued at 700 billion (NEITI, 2023) present contribution of the sector to the GDP is a miserly 0.3-0.5% we have Gold: 1 million ounces in Osun, Niger, and Zamfara. Lithium: high grade deposits in Nassarawa, Kaduna, and Kogi (critical for EV batteries) Limestone: 3 billion metric tonnes+ (used for cement), the policy priority of government currently should be to fast-track Nigerian Mining Corporation Bill to consolidate oversight and boost sector transparency.
• Broadening the Tax Net: Nigeria must integrate the informal sector into the tax system, as over 65% of economic activities occur in the informal space and only 12% of Nigeria’s 40 million SMEs pay taxes (FIRS, 2023). The introduction of a simplified tax regime for small and medium-sized enterprises (SMEs) can encourage voluntary compliance. (it is anticipated that the Tax Reform Bill will do the needful in this area)
• Strengthening Tax Administration: Leveraging technology for tax collection through digital payment systems, biometric verification, and e-filing can minimize tax evasion and improve compliance. (ongoing reform on this is encapsulated in the Tax Reform Bill currently undergoing legislative processes)
• Property and Consumption Taxation: Increasing property tax collection and optimizing Value Added Tax (VAT) rates (currently at 7.5%) can generate substantial revenue without overburdening businesses.
• Introduce luxury/eco-taxes: Target high-net-worth individuals (HNWIs) and carbon-intensive industries will increase tax revenue.
3.2 Strengthening Non-Oil Export Sectors
• Agriculture: The sector contributes about 25% of Nigeria’s GDP but remains underfunded. Strategic investments in mechanization, value-chain development, and agro-processing can boost foreign exchange earnings.
• Manufacturing and Industrialization: Nigeria’s industrial capacity utilization remains low. Policies that promote local content, enhance export-driven production, and encourage foreign direct investment (FDI) in manufacturing will enhance revenue.
• Solid Minerals Development: Nigeria is endowed with over 44 mineral resources, yet mining contributes less than 1% to GDP. A structured regulatory framework, licensing reforms, and private sector participation can unlock billions in revenue. (the ongoing reform by the hon. minister for Solid Minerals Development should be encouraged and further deepened).
3.3 Optimizing State and Local Government Revenues
• Fiscal Federalism and Internal Revenue Generation:Subnational governments depend excessively on federal allocations (over 85% in many states). Encouraging internally generated revenue (IGR) through investment-friendly policies, land use reforms, and business-friendly taxation will enhance state fiscal autonomy.
• Public-Private Partnerships (PPPs): Mobilizing private capital for infrastructure projects such as toll roads, rail transport, and renewable energy can ease fiscal pressures while driving economic expansion.
4. Best Practices in Budgeting for Sustainable Development
A well-structured budgeting system is essential for optimizing resource allocation and ensuring fiscal discipline. The following best practices should be integrated into Nigeria’s budgeting framework:
4.1 Performance-Based Budgeting (PBB)
Nigeria must transition from an input-driven budget system to a performance-based budgeting framework that links allocations to measurable outputs and outcomes. This ensures that government spending delivers tangible results in economic development.
4.2 Zero-Based Budgeting (ZBB)
Unlike the traditional incremental budgeting system, Zero-Based Budgeting requires every expenditure to be justified from scratch, preventing wasteful spending and prioritizing high-impact projects.
4.3 Medium-Term Expenditure Framework (MTEF)
Nigeria’s fiscal policy should be anchored on an MTEF that aligns revenue projections with multi-year development plans. This enhances predictability, prevents budget shortfalls, and ensures continuity in capital projects.
4.4 Realistic Revenue Forecasting
Overly optimistic revenue assumptions often result in budget deficits. The government must adopt conservative revenue projections based on empirical data, economic trends, and global market conditions to ensure budget credibility.
4.5 Digitalization of Budget Processes
Implementing e-budgeting systems will enhance transparency, facilitate real-time budget tracking, and minimize corruption, ambitious and wasteful expenditure and localizing training workshops and discouraging jamboree training trips where such could be done locally in public financial management.
5. Challenges to Revenue Diversification and Effective Budgeting
Several structural and institutional obstacles hinder revenue diversification and efficient budgeting in Nigeria, including:
• Weak Institutional Capacity: Inefficiencies in revenue collection agencies such as the Federal Inland Revenue Service (FIRS) and Nigerian Customs Service result in revenue losses.
• Corruption and Fiscal Leakages: Illicit financial flows, tax evasion by multinationals, and mismanagement of public funds continue to undermine fiscal sustainability.
• Political Interference: Budget processes are often influenced by political interests rather than economic priorities, leading to misplaced spending and abandoned projects.
• Poor Data Management: The absence of reliable data on economic activities, tax compliance, and revenue performance makes policy formulation ineffective.
• Overreliance on Debt Financing: Total public debt as at March 2024, stood at #121.67 trillion (approximately $91 billion USD), as per information gleaned from DebtManagement Office (DMO) Nigeria’s rising Debt-to-GDP ratio (currently 46%) that is #121.67trillion/#267trillion=45.6% (as of Q12024) this grossly limit the fiscal space for developmental projects, as debt servicing consumes a significant portion of revenue.The federal government borrowed #7.71 trillion in Q1 2024 alone to fund its budget deficit, while additional debt includes #4.9 trillion from the “securitization” of outstanding Ways and Means advances (central bank loans to the government)
• Low Revenue: Nigeria’s revenue to GDP ratio remains below 10%, forcing reliance on borrowing to fund public spending; while Debt Servicing consumed 98% of federal revenue in Q12024 (per the Budget Office).
• Economic Pressures: inflation hit 33.7% in April 2024, reducing real GDP growth and worsening debt sustainability. Oil production struggled as at 2024 at (1.4million barrels per day vs 1.78 million target) limiting export earnings.
OBSERVATION
Thresholds: while the Debt to GDP ratio is currently 45.6%, the self-imposed limit is 55%, we may all conclude that the debt ratio is still sustainable, note, however, that the ratio is rising rapidly (from 37% in 2023) the critical risk inherent in this area; interest payments on Debt Servicing could consume about 53-55% of federal revenue taking into cognizance the Exchange Rate Volatility arising from further Naira depreciation and the Fiscal Deficit of the 2024 budget of #9.8 trillion (3.9% of GDP) requiring more borrowing.
6. Policy Recommendations and the Way Forward
To enhance revenue mobilization and sustainable budgeting, Nigeria must implement the following policy actions:
• Merging Revenue Agencies: should all revenue collecting agencies be merged? While we may look at the Cost Efficiency, Simplified Compliance, Improved Data Sharing, Enhanced Accountability and Global Precedence; we need to equally take into consideration the following; Federalism Challenges, Loss of Specialisation, Implementation Risks, and Scale Challenges. We could as a matter of urgency give a thought to a Middle Ground Approach like partial integration: that is, merge FIRS, NCS, NUPRC, NMDPRA, NIMASA, DPR, and all other fragmented collection agencies into a Federal Revenue Authority, while the states retain SIRS. This initiative will entail Harmonized Systems, creation of a Central Oversight Body and State Level Collaboration. Getting this off the table would however, involve Legal Reforms leading to Constitutional Amendments, Technology Investment, Stakeholders Buy-in and Phase Implementation. The Oronsaye Report (2012) is still relevant and implementation in this regard demands holistic and sustained implementation.
• Debt Management: Prioritising concessional loans over commercial borrowing and external debt maturities. I am aware that the Debt Management Office is currently going in this direction; more sustainable action is needed.
• Petroleum Industry Act (PIA): Targeted reforms and strategic implementation are critical; these are currently lacking. The following suggestions may very well be the catalyst needed. 80% of the funding requirement desired by the Tax Reform and Fiscal Policy Committee to power the economy is domiciled in this Act; let us take a moment to do a synopsis.
1. Optimise Fiscal Terms & Revenue Capture
Review Royalty Rates
• Tiered Royalties: Link royalty rates to oil prices (e.g., higher rates when prices exceed $80/barrel) to capture windfall profits. For example, Angola’s sliding-scale royalties generate up to 20% more revenue during price spikes.
• Gas-Specific Royalties: Impose higher royalties on gas exports (currently 2.5–5%) to reflect global demand for cleaner energy.
Close Fiscal Loopholes:
• Limit deductible costs (e.g., restrict "production allowances" for deepwater projects) to ensure companies pay fair taxes.
• Enforce Hydrocarbon Tax compliance and eliminate exemptions for legacy projects.
2. Enhance Cost Efficiency & Transparency
Strict Cost Control
• Mandate Joint Venture (JV) Audits to curb inflated operational expenses (e.g., Nigeria lost $15 billion to inflated costs in 2015–2020).
• Cap deductible operating expenses at 50% of revenue, as seen in Ghana’s Petroleum Revenue Management Act.
Public Disclosure:
• Publish all oil contracts (via NEITI and NUPRC) to deter corruption and build investor’s confidence.
3. Boost Gas Monetisation & Penalise Flaring
• Gas Commercialisation:
• - Incentivize gas-to-power and LNG projects through tax holidays for investments in processing infrastructure.
• - Link gas flaring penalties to global carbon prices (e.g., $3.50 per 1,000 scf is too low; raise to $10+).
Carbon Credits:
• - Integrate gas utilisation projects into carbon credit markets (e.g., TotalEnergies’ Ubeta project) to generate additional revenue.
4. Strengthen Governance & Institutions
Empower Regulators:
• - Fund NUPRC and NMDPRA adequately to enforce compliance and attract technical expertise.
• - Introduce performance benchmarks for regulators (e.g., Norway’s Petroleum Directorate model).
Anti-Corruption Measures:
• - Deploy blockchain for real-time tracking of production and exports (e.g., Aiteo’s adoption of blockchain in 2023 reduced theft by 30%).
5. Address Oil Theft & Infrastructure Sabotage
Community-Based Security:
• - Expand the Pipeline Surveillance Contracts model (e.g., Tompolo’s Tantita Security reduced theft by 80% in Delta State).
• - Invest in AI-powered pipeline monitoring systems. Saudi Aramco model to the rescue; no single drop of hydro-carbon is extracted without metering and commensurate remittance.
Legal Reforms:
• - Criminalize crude oil theft as a "terrorism-financing" offense with harsher penalties.
6. Promote Local Content & Value Addition
Refining & Petrochemicals:
• - Enforce stricter penalties for non-compliance with Nigerian Content Development and Monitoring Board (NCDMB) quotas.
• - Incentivise modular refineries to reduce reliance on imported fuel (e.g., Dangote Refinery’s 650,000 bpd capacity).
7. Attract Investment with Stable Policies
Clarify Divestment Rules:
• - Streamline approval processes for asset sales (e.g., Shell’s stalled $2.4 billion divestment) to unlock capital.
• - Guarantee fiscal stability for new investors (e.g., binding 10-year tax terms).
Gas-to-Industry Incentives:
• - Offer discounted gas prices to domestic industries (e.g., cement, steel) to spur industrialisation and tax revenue.
8. Leverage Energy Transition Opportunities
Carbon Taxation:
• - Introduce a $5/ton carbon tax on upstream emissions, aligning with global trends (e.g., Canada’s model).
• - Use proceeds to fund renewable energy projects (e.g., solar mini-grids in oil-producing communities).
9. Resolve Host Community Tensions
• - Host Communities Development Trust (HCDT):
• - Ensure timely funding (3% of operating expenses) and community-led projects to reduce unrest and production disruptions.
• - Link HCDT payouts to production volumes to align interests.
10. Align with Global Best Practices
Adopt Norway’s Sovereign Wealth Model:
• - Mandate 50% of oil revenue savings in the Nigeria Sovereign Investment Authority (NSIA) for future generations.
Legacy Contracts:
• - Update outdated Production Sharing Contracts (PSCs) to reflect current fiscal terms (e.g., deepwater projects like Bonga).
Expected Outcomes
• Revenue Boost: Up to $5 billion/year from improved royalties, reduced theft, and gas monetisation.
• Investment Surge: Policy stability could attract $10–15 billion in new upstream investments by 2030.
• Debt Relief: Higher oil revenues would reduce borrowing needs, easing Nigeria’s debt-to-GDP pressures
The PIA has laid a foundation, but Nigeria must act decisively to close loopholes, modernize governance, and align with global energy shifts. By prioritising transparency, gas utilisation, and cost efficiency, the PIA can transform the petroleum sector into a sustainable revenue engine.
• SME Fund: Launch a N500 billion SME Development Fund to formalize informal sectors. This could create additional 10million jobs by 2030, harmonise all the intervention funds and leverage on the experiences of other nations who have made tremendous success in this regard; while strengthening capacity building, a comprehensive paper would be made available with verifiable case studies to the secretariat and the Tax Reform and Fiscal Committee if so required.
• Tax Reform and Compliance Enhancement: Enforce stricter tax laws, improve taxpayer education, and introduce digital tax collection systems to boost compliance.
• Diversification of Economic Base: Invest in key non-oil sectors such as agriculture, mining, and technology to drive economic growth and enhance revenue generation.
• Budget Transparency and Accountability: Establish strong monitoring mechanisms by adopting blockchain technology for real time budget tracking (e.g., Ukraine’s “spending” portal), conduct periodic audits, and ensure citizen participation in the budget process.
• Debt Management Strategy: Prioritise revenue-driven infrastructure financing over excessive borrowing, and explore concessional financing options.
• Public Financial Management Reform: Strengthen the Office of the Accountant General and fiscal policy units to ensure budget credibility and fiscal discipline.
7. Conclusion
Nigeria’s economic sustainability depends on breaking free from oil dependency, implementation of robust revenue diversification strategies and effective budgeting frameworks. While challenges persist, global best practices indicate that with the right policy mix—tax reform, sectoral diversification, performance-based budgeting, and strong governance—Nigeria can achieve long-term economic resilience.
By aligning revenue generation with fiscal prudence and developmental priorities, the nation can unlock its full economic potential, reduce dependency on oil, and build a prosperous future.
Call to Action
Stakeholders, including the government, private sector, and civil society, must work collaboratively to implement these recommendations. The time to act is now—Nigeria’s future depends on it.