Domestic resource mobilization for sustainable development in Nigeria

Nigeria is committed to poverty reduction and the sustainable development goals recently approved at the 2015 United Nations General Assembly. The 17 goals replaced the eight millennium development goals agreed on by world leaders in 2000. Although Nigeria performed poorly on the MDGs, the post2015 sustainable development era offers tremendous opportunities for the country to mobilize, appropriately allocate and efficiently utilize domestic and external resources to achieve sustainable development.  Weak tax policy and administration, illicit financial flows are critical challenges that limit resource mobilization for sustainable development in Nigeria.

Nigeria is Africa’s largest economy and most populous nation, a lower middle income country with a population of over 160million. Most of its populace are in the informal sector, who live in poor rural areas. Most of its revenue for public expenditure comes from oil although its economy shows resilience and has seen increased diversification. The economy has enjoyed sustained economic growth for a decade driven by the non-oil sector with annual real GDP rate of approximately 7%.

The recent rebasing of her gross domestic product from about $270 billion to $510 billion for 2013 significantly shifted its status from a poor needy country dependent on aid to a lower middle income country that is increasingly able to mobilize needed resources to reduce poverty and ensure shared prosperity, within leaving no one behind. With donor shifting priorities, the government must step up in this area to ensure continued provision of social services including comprehensive HIV, TB and malaria programs, that had hitherto being left in the hands of donors.

Although the fiscal space is negatively impacted based on slow recovery of the global economy and falling oil prices, there is ample opportunity for Nigeria to enhance her domestic resource mobilization and leverage her net official development assistance (ODA) to mobilize significant timely resources from all sources to achieve the sustainable development goals. Improved tax policies and administration, concerted efforts to reduce illicit financial flows can help raise more. Evidence shows that Africa loses $50-60billion a year to illicit financial flows and Nigeria loses approximately $1billion annually largely due to mispricing.

The IMF Tax Administration Diagnostic Assessment Tool is a useful tool that can be deployed in Nigeria to critically appraise the tax situation and identify potential sources of additional tax revenue. Its deployment will require capacity building for public finance and tax experts with alignment to national and subnational contexts. This will provide additional evidence for government at all levels to strengthen tax policy and administration. Lagos State significantly increased its internally generated revenue between 2000 and 2010, from N500million to more than N10billion naira monthly through successful engagement of the informal sector. Its public-private partnership in tax policy and administration is a viable model for other states in Nigeria, and other countries in sub-Saharan Africa.

The tax-to-GDP ratio in Nigeria is low, compared to members of the Organization for Economic Cooperation and Development. Tax compliance is low: only about a third of businesses pay taxes in Nigeria. Policy makers need to develop ingenious ways not only to improve tax compliance within the formal sector but particularly in the much larger informal sector. Effective stakeholder engagement is crucial to enhanced tax compliance across all sectors in all 36 states and the Federal Capital Territory. Recent announcement of the introduction of an Integrated Tax Administration System could also help to facilitate company filing and prompt tax payments. Public-private partnerships can be deployed for advocacy and communication, leveraging (but not limited to ) mass traditional media (TV and radio), digital and social media, and context-specific social and behavioral change communication tools to raise awareness about the need and value of tax payments as civic responsibility that can contribute to economic growth and national development.

The new government is committed to transparency and accountability in public financial management. The implementation of a treasury single account to receive revenues and monitor financial flows at the federal level, high level probe of government contracts and physical and forensic accreditation of staff to detect ghost workers are key ways that show the Muhammad Buhari-led government has demonstrate political will in this area. It is however too early to say how effective these measures will be to improve public financial management, for a 4-year tenure that has only lasted 9months! Improving tax policy and administration is inevitable to mobilize needed resources for the SDGs but that can only be sustainable with efficient public financial management with significant development progress in infrastructure, social services and job creation. Although it can be very controversial, reducing energy subsidies is also a viable way to raise revenue.

Despite the opportunity for domestic resource mobilization, the need for philantrophic aid and private sector investments (domestic and foreign) cannot be overemphasized. This however will work best in an atmosphere where the rule of law is respected and the investment climate is suitable for investors. As Africa rises, Nigeria must engage the private sector through consortia and partnership frameworks such as the Private Sector Health Alliance to leverage the sector’s expertise and resources for sustainable development. Improving tax policy and administration and efficient public sector financial management will provide needed resource climate for sustainable development of the giant of Africa.

Author: Abiodun Awosusi, submitted as final project (digital artifact) for the Financing for Development Course on Coursera.