The September 2022 Integrated National Financing Framework (INFF) says that subsidy costs and non-economic diversification are some of the key drivers of revenue loss in Nigeria. According to the report, subsidy costs are deducted from oil revenues accruing to the federation account by the limited liability company, Nigerian National Petroleum Corporation (NNPC) Limited.
The INFF was developed to map out a sustainable financing plan for Nigeria.
The Nigerian economy relies mostly on oil revenues, while other resources including human resources are mostly neglected. However, in the last decade, increased performance from sectors such as agriculture, telecommunications, finance, and some services, have driven growth.
The INFF Report was developed to present a framework to follow in order to make the Nigerian economy more productive.
Possible solutions to challenges
The government plans to improve Nigeria’s revenue base through some action plans according to the report. Some of these plans, as they relate to the energy sector, include;
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Curbing losses in the oil sector by setting up strict frameworks to capture any violations of regulations, illegal deduction of funds belonging to the government, and other oil revenue leakages, including bribery, misuse, and misappropriation of funds. Nairametrics had earlier reported that the chief financial officer of the NNPCL, Umar I. Ajiya revealed that the passage of the petroleum industry act (PIA) had tackled some challenges faced by the company.
Refining oil at the state level through modular refineries, and using government-owned enterprises (GOEs) to mine solid minerals and conduct natural resource management will provide additional revenue to the state, help create jobs and allow for improved value creation export products of high value. Increased autonomy for state revenue authorities will ensure they are capable, transparent, independent, and efficient in discharging their duties to promote accountability.
Adopting market-based pricing for utilities: utilities ought to be allowed to pursue market-based pricing, as the current operating model will not attract new capital.
Diversifying the Nigerian economy by making more sustainable investment decisions, reducing the heavy fiscal and economic reliance on oil and gas, providing sustainable jobs for a rapidly growing population, and addressing the already substantial infrastructure gap in order to make transformation possible.
Developing a climate policy framework anchored in carbon pricing would provide price signal incentives for the transformation of the Nigerian economy. Emissions reduction targets are another key policy framework. Establishing regulatory limits on GHG emissions would help guide the transformation in the Nigerian economy.
Issuing local government green bonds to mobilize green financing at the subnational level: These local government green bonds can generate positive environmental and/or climate benefits if they can be issued by subnational governments (SNGs) with adequate fiscal capacity to borrow. First, feasibility studies will be carried out to identify viable local government green bond projects across states, followed by strengthening states’ borrowing policy at the local level.
A blast from the past
Just before Nigerians headed to the polls in 2015, the catchphrase of the Buhari presidential campaign was economic diversification. Buhari was keen on the accelerated development of the non-oil sector. However, months before his handover ceremony, Nigeria is still heavily dependent on oil.
According to the INFF Report, oil revenue contributes a large proportion to the federal revenue base–accounting for over 41% of total revenue in 2020, despite the COVID-19-induced disruptions in the oil sector. Nonoil revenue, consisting of taxes, customs, and levies, contributed about 37% to total revenue in 2020.
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The plan was to diversify the economy by creating the enabling environment for the agricultural, energy, micro small, and medium enterprises (MSMEs), manufacturing and services sectors to thrive using science and technology.
However, implementation was not as strong as Nigerians expected and years later, we are still here. It is no longer a thing of hope. The country’s institutions will keep being weak if policy implementation is not taken as seriously as policy initiatives development.