Revenue Collection Increase Off A Very Low Base

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Monday, November 04, 2019 /10:15 AM / By FBNQuest Research / Header Image Credit: Crimson Marketing

                                                                                    

Federally collected revenue in Q3 2019 amounted to N2.70trn. This was the highest take since Q3 2014 of gross revenue (ie before distribution to the three tiers of government). It was achieved due to the steady growth of non-oil revenue, which reached 18.6% q/q in Q2 and 27.9% in Q3. 

The trend is consistent with periodic statements by FGN ministers and the revenue collection agencies. Increases in collection allow the FGN to boost its capital releases and reduce its dependence on external partners. This journey has only just started, however.   

Collection tends to peak in the third quarter, which brings the peak of payments of companies' income tax (CIT). That said, the take from CIT in Q3 2019 was also 27.4% higher than in the year-earlier period (and the economy cannot be said to have taken off over the 12 months).

The broader picture is that gross collection is far short of Nigeria's needs for infrastructure and other public capital investment. It represented 6.2% of GDP in 2017 and 7.5% last year according to the CBN. In January-September 2019, it was 3.3% higher than in the same period of 2018.

This GDP ratio lags peer EMs by a wide margin. Even without the contribution from oil, a comparable figure would be at least 15%, and closer to 20% of GDP.

 

Federally collected revenue (gross; N bn)

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Sources: CBN; FBNQuest Capital Research

 

The difficulty lies not in the budgets, which have been consistently aggressive under the Buhari administration, but in delivery. Submitting the 2020 FGN budget proposals to the National Assembly last month, the president noted that aggregate revenue of N2.04trn in H1 2019 represented just 58% of the target. Among contributory factors for the shortfall, he highlighted lower-than projected oil production (1.86mbpd vs 2.30mbpd), the failure to set new fiscal terms for the oil industry and the disruption of the elections.

 

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