Nigeria has set for itself an ambitious expenditure target for 2017, but the revenues to support that expenditure plan is not meeting up to its expectations. The only revenue source holding its ground is crude oil sales, but all other revenues streams are falling off their set targets.
Data published by the National Bureau of Statistics (NBS) last week shows that only crude oil sales have exceeded their set target for the year, which is expected, considering the higher than budgeted crude oil prices for the year. However, the downside is that, besides crude oil sales revenues, all other revenues that accrue to the government are falling.
Based on the 2017 budget, crude oil sales revenues are supposed to bring in an average of N1.68 trillion, which comes to average monthly revenue of N140 billion or cumulative revenues of N982 billion from January to July 2017. Data from the NBS shows that the cumulative revenues from crude oil sales between January and July 2017 was N1.07 trillion, about 8.8 percent higher than the set target for the period. Revenues from crude oil sales, therefore did not disappoint for the period. But all other revenue sources have been disappointing.
Total revenues expected from gas sales for 2017 is N545 billion, based on which the government expected to get to N318 billion in the first seven months of the year. As at July, revenues from gas sales were just N86 billion, representing a shortfall of N232 billion or 73 percent. Revenues from Royalties on oil and gas exploration have also been disappointing. While the government expected revenues of N525 billion to be earned from Royalties within the first seven months of the year, actual revenues that came in at the end of July stood at N263 billion, a shortfall of N262 billion or 50 percent.
The significant shortfall in gas revenues is worthy of note considering that Nigeria is largely considered a gas territory with some oil. This means that the country is very far away from monetising its huge oil resources. Gas revenues are just about a quarter of oil revenues for the seven months of the year. If Nigeria were fully exploiting its gas resources, gas revenues would not only match oil revenues but could easily have surpassed it.
Gas revenues are also falling off at a time crude oil is no longer seen as having a place in the future of energy resources. With many countries already turning away from premium motor spirit powered cars, gas is seen as Nigeria’s only other major export mineral product to replace the likely loss in market share that will come from oil. It would therefore be ominous if the country is already losing market share in gas as seen in the figures put out by NBS. However, it must also be acknowledged that gas exploration in the country has been plagued by the lack of a proper fiscal framework, which now needs to be urgently corrected.
The government also saw a shortfall in Petroleum Profit Tax (PPT) and Gas tax. While revenue expectations from PPT was N728 billion, actual revenues in the first seven months of the year was N524 billion, representing a shortfall of N204 billion or 28 percent.
The fall in other sources of crude oil revenues led to a N1.16 trillion or 37 percent shortfall in gross oil revenues in the first seven months of 2017. Expected oil revenues for the first seven months of the year was N3.11 trillion but actual gross oil revenues for the period was N1.95 trillion.
On the non-oil side, revenues are also suffering. Expected revenues from excise taxes and fees, import duty and other Customs revenue was N418 billion but actual revenues as at end of July stood at N349 billion, a 16 percent shortfall. Also expected revenues from Company Income Tax was N1.02 trillion but actual revenues as at end of July was N650 billion, a shortfall of N366 billion or 36 percent. The cumulative shortfall in non-oil revenues for the period was N436 billion. In the first seven months of the year, the total shortfall in net federation revenues was N1.98 trillion, which is 50 percent lower than N3.96 trillion that the government expected would come in within the period.
The Federal Government share of total revenues for the period was N1.04 trillion about 50 percent lower than the budgeted revenue expectation of N2.09 trillion in the period.
The picture that emerges from the NBS data is that of an oil dependent economy suffering from the after effect of the significant loss in crude oil production in 2016. While crude oil sales have recovered in 2017, the oil exploration companies are yet to fully recover from last year’s losses and this is showing in the revenues that the government is getting from them in terms and taxes and other levies.
Non-oil revenues are also taking a hit from last year’s recession. Many companies saw their profit drop or ran into losses in 2016. The post recession effect is seen in the drop in taxable income in 2017. Excise taxes and other customs duties have also largely dropped on the back of a decline in imports due to a weaker naira, increased local sourcing by companies and the foreign exchange scarcity that hit companies last year
Revenue authorities will definitely now be wondering how long the impact of the 2016 recession will be on corporate performances.
The big banks already look to have recovered fast but the smaller tier II banks are still struggling and will definitely need more time to recover.
Some of the big manufacturers are also recovering but may also need more time especially in the face of weaker consumer purchasing power. Many SME’s that went down with the recession will need even a longer period to come back into the system as many of them depend on the bigger players in the economy to thrive.
For the revenue authorities, this means the current revenue challenges will extend into 2018 and possibly late 2019 before the economy starts gathering steam again.
But the government can hasten that recovery with fundamental reforms in key economic sectors especially in power, oil and gas. But that is unlikely to happen now with election dates set. It is therefore not surprising that the government has taken the easier option of raising debts, a good portion of which is supporting recurrent expenditure largely due to the dwindling revenues which actually needs long term fix with critical reforms.