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Nigeria Not an Oil Economy, Says Adeosun

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  • Nigeria Not an Oil Economy, Says Adeosun

The Minister of Finance, Mrs. Kemi Adeosun, has declared that changing the Nigerian economic psyche is not an easy task, stating that the current tax drive of the President Muhammadu Buhari administration was not designed for short-term lure of political expediency.

In an article captioned: ‘All Change: Nigeria is Not An Oil Economy,’ Adeosun said: By its nature, tax mobilisation risks the popularity of any government, but the present administration understands that the short-term lure of political expediency must give way to the long-term best interests of Africa’s largest economy.”

According to her, descriptions of Nigeria’s economy often include such phrases as ‘Africa’s largest oil producer’ and ‘the oil rich African nation.’

But she noted that oil economies are typically characterised by low population densities and abundant oil resources.

Citing examples, the minister noted that Saudi Arabia with 10 million barrels of oil per day and 30 million people; Kuwait with 2.7 million barrels of oil per day and four million people and Qatar with 1.5 million barrels of oil per day and 2.5 million people are typical of such.

She noted: “These economies pursued an economic model that was built around a large government dependent almost entirely on oil revenue for funding. Such economies could afford to have low or in some cases no domestic revenue mobilisation, in the form of taxes.

“Tax to Gross Domestic Product (GDP) ratios of less than 10% against the OECD average of 34.6% could be justified especially in the era of high oil prices.”

Adeosun stressed that for over three decades, Nigeria pursued this model, adding: “But things are changing, with the election of President Muhammadu Buhari in 2015, who was propelled into office under the mantra of ‘change’.”

“That clamour for change in the areas of governance, security and economy,” she noted, “coincided with the collapse of global oil prices and a consequent huge deficit in government revenues.”

Adeosun pointed out that “these circumstances provided the ingredients for an overhaul of the entire economic model,” stressing that “the first and rather numbing conclusion of that exercise was that Nigeria is not actually an ‘oil economy.”

According to her, with just two million barrels of oil per day and over 180 million people, “simple mathematics tells us that 90 Nigerians share a barrel of oil compared to three Saudis, 1.44 Kuwaitis and 1.69 Qataris.”

Continuing, she stated: “With oil at just 10 per cent of GDP, Nigeria simply does not fit into the mould of the traditional oil economies.”

The finance minister stressed: “Interestingly, even nations who did legitimately fit into this narrow mould of high oil revenues and low populations, are abandoning what is now considered to be a flawed model.

“Thus, the imperative for Nigeria was even more urgent. Nigeria recalibrated its target peer group from the oil economies to the ‘oil plus’ economies such as Mexico and Egypt.

“This new peer group have diversified economies and tax to GDP ratios of 20% and 16 per cent, respectively, compared to Nigeria’s six per cent. Consequently, the change mantra had to be urgently applied to revenue mobilisation.

“Analysis of the data suggests that revenue mobilisation is potentially the master key to unlocking Nigeria’s huge growth potential by funding its ailing infrastructure including roads, power and rail.

“A cursory look at the effective tax rates paid by the huge multinational and local operators, as well as the data on illicit financial flows, indicates a pattern of systematic tax evasion at all levels.”

She recalled that recent statistics released by her ministry showed that Nigeria has just 14 million active tax payers from an economically active base of 70 million.

Over 95 per cent of these, she said, are salary earners in the formal sector, with just 241 persons payiñg personal income taxes of N20 million (US$65,573.77) in 2016.

“Taxing the high networth and Nigeria’s huge community of entrepreneurs constitutes a critical but yet attainable target. The statistics for corporate tax payment shows the debilitating effects of base erosion and profit shifting as well as abuse of an overly generous tax incentive and duty waiver system.

“The historical government apathy towards revenue mobilisation is one of the effects of the mistaken identity that saw Nigeria perceive itself as an oil economy.

“This administration is determined to correct this identity crisis and all its concomitant effects,” she noted, adding that in that spirit, the government launched “an ongoing and well received, tax amnesty”, known as Voluntary Asset and Income Declaration Scheme’ (VAIDS).

“The initial signs suggest that Nigerians are responding positively to the new revenue narrative. Despite the emergence from a recession, tax revenues are showing early signs of growth.

“VAT shows 18.97 per cent year on year- improvement. Over 800,000, companies, including some Government contractors, that have never paid taxes have already been identified and are being audited. “This is an unprecedented initiative that entails cooperation between federal and state governments. The Federal Ministry of Finance has also commenced a database project that combines data from the various arms of government, including bank records, property and company ownership, and Customs records to create accurate profiles of those liable to pay taxes. “The ministry has also placed one of the world’s premier private investigation agencies on retainership to trace overseas assets,” she added

Adeosun observed that changing the Nigerian economic psyche is not an easy task.

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

Economy

President Tinubu Approves Concrete Redesign for Abuja-Kaduna Road Amid Contract Termination

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The Federal Government has announced plans to address the difficulties faced by road users on the Abuja-Kaduna-Zaria-Kano road with the redesign of the dual carriageway.

This announcement was made by the Minister of Works, David Umahi via a statement on Wednesday.

The Ministry revealed that the 127 kilometers project has been approved by President Bola Tinubu.

This development comes two days after the Ministry of Works announced the termination of its contract with Julius Berger for the Section I (Abuja-Kaduna) of the Abuja-Kaduna-Zaria-Kano Dual Carriageway project in FCT, Kaduna, and Kano States.

Investors King understands that the contract for the rehabilitation of the road was awarded to Messrs Julius Berger (Nig.) Plc on December 20, 2017.

The project, initially valued at N155.7 billion, with a 36-month completion period was further categorized into three sections.

However, only Section II (Kaduna-Zaria) has been completed and partially handed over.

Section III (Zaria-Kano) is partially finished while Section I remains in a severely deteriorated state.

A statement from the Ministry explained that the decision to terminate the contract with Berger was based on non-compliance with reviewed cost, scope, and terms, stoppage of work, and refusal to remobilise to site.

The ministry on Wednesday, November 6, confirmed that Section I has been redesigned and re-scoped.

The statement reads, “The President, His Excellency, Bola Ahmed Tinubu, GCFR has approved that the remaining 127 kilometres of the Rehabilitation of Abuja – Kaduna – Zaria – Kano Dual Carriageway, Section I (Abuja – Kaduna) be redesigned using continuously reinforced concrete pavement (CRCP) instead of the present asphaltic one.”  

“The contract, divided into three (3) sections, was awarded to Messrs Julius Berger (Nig.) PLC on 20th December 2017 at an initial sum of N155, 748,178,425.50 billion (one hundred and fifty-five billion, seven hundred and forty-eight million, one hundred and seventy-eight thousand, four hundred and twenty-five naira, fifty kobo) with a completion period of thirty-six (36) months.” 

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Tax Expert Warns Tinubu: VAT, PAYE Hikes Will Deepen Hardship for Nigerians

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Due to Nigeria’s economic situation, tax expert Adebisi Oderinde has urged President Bola Ahmed Tinubu to halt plans to increase the VAT and Pay-As-You-Earn (PAYE) tax rates.

Oderinde, who is also the CEO of AOC-Adebisi Oderinde & Co, made the statement during the inauguration of the company’s Head Office in the Kara area of Ogun State.

He said the country’s economic conditions are challenging and particularly unfavorable for SMEs and warned that implementing tax reform could destabilize many small businesses as inflation has already eroded purchasing power in Nigeria.

With over 28 years of experience as a tax consultant, Oderinde noted that new tax reforms would likely worsen hardship across the country.

“My advice is to make hay while the sun shines, as the journey of a thousand miles begins with a single step, and slow and steady wins the race. The country is hard! As a tax practitioner, I continue to pray for our President, but he must heed the advice of elders, especially when it concerns tax reform,” he said.

“This is not the right time to reform any tax, nor to adjust rates. Nigerians’ purchasing power is very low. While some may think of VAT reform as beneficial, it would have a negative impact, especially on Lagos State. One part of the reform aims to cancel the consumption tax, which would hit Lagos hard, as the state earns more from consumption tax than any other state in the federation,” he added.

Oderinde further advised northern Nigeria not to support the proposed policy, warning it could disproportionately affect the region.

“They also want to increase PAYE, and recent data from the NBS in 2023 shows that the total IGR from the 36 states plus the FCT is about N2.4tn, with PAYE accounting for about 63%. If PAYE is raised, it will impact many states significantly. Instead of focusing on VAT, the northern states should consider that an increase in PAYE would affect them even more than VAT,” he explained.

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Power Restored Hours After Lastest Grid Collapse

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Electricity has been restored in some parts of the states that were hitherto affected by the nation’s power grid collapse.

Investors King gathered that some states including Lagos, Osun, Federal Capital Territory among others now have light.

Recall that the Transmission Company of Nigeria (TCN) had on Tuesday announced the latest National Grid collapse.

Checks by Investors King, however, revealed that the last disruption was the tenth time Nigeria would be experiencing total blackout due to grid collapse in about nine months in 2024 alone.

The situation has been raising concerns from Nigerians and other stakeholders even as others alleged that the collapse has led to inferno in people’s homes among other property destruction.

The General Manager of TCN Public Affairs, Ndidi Mbah, had assured members of the public that the grid collapse which occurred at 1:52 pm on November 5 would be speedily fixed.

The GM revealed that the grid collapse was caused by line and generator trippings, adding that efforts were on to rectify it.

Mbah had disclosed how the national grid experienced a partial disturbance due to a series of line and generator trippings that caused instability in the grid and, consequently, the partial disturbance of the system.

Each time the disruption through citizens into darkness, businesses are affected as many Nigerians task the Federal Government to tackle the menace.

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