Revenue Sources and Economic Growth in Nigeria: An Appraisal



This paper appraises revenue sources in Nigeria; oil revenue, non-oil revenue and public debt decomposed into domestic and external debt with respect to its effect on economic growth in Nigeria. This analysis is contemporaneously imperative in the face of the global fall in oil prices and the impending danger of collapse of the Nigerian government’s ability to sustainably finance the economy due to over dependence on oil revenue. The Co-integration Test and granger causality test was conducted to appraise the long-run relationship between revenue sources and to examine direction of relationship between revenue sources and economic growth in Nigeria. Results shows that increase in OIL by one per cent increases GDP by 0.21%; same goes for NOIL increase by 0.25%; ED by 0.07% respectively except for DD by -0.26%. Then causation between revenue source and GDP portray that there is unidirectional relationship between GDP and OIL; bidirectional between NOIL and GDP; unidirectional relationship between GDP and DD and no causality between ED and GDP. To this effect, the paper recommends a review of revenue collection machinery, especially taxation, to ensure effectiveness and improved revenue remittances to government coffers. As a follow up, there is an urgent need to formulate economic policy to guarantee both domestic and external loans utilized in productive ventures for increased productivity.

Keywords:  Oil Revenue, Non-oil Revenue, Domestic Debt, External Debt and Economic Growth 



Policy makers and researchers have long been interested in how prospective changes to the revenue sources impact on the overall economic growth.  According to Kiabel and Nwokah (2009), within the last decade, the issue of domestic resource mobilization has attracted considerable attention in many developing countries due to debt difficulties coupled with domestic and external financial imbalances. An understanding of this relationship is critical in the formulation of a sound or excellent fiscal policy to prevent or reduce unsustainable fiscal deficit (Eita and Mbazima, 2008). It is also highly consequential in evaluating government’s role in the distribution of resources (Chang, 2009). Revenue generated through tax is a major source of government revenue all over the world. A critical challenge of tax administration in the 21st century is how to advance the frontiers of professionalism, accountability and awareness of the general public on the imperatives and benefits of taxation in our personal and business lives which include: promoting economic activity; facilitating savings and investment; and generating strategic competitive advantage (Kiabel and Nwokah, 2009). Government use tax proceeds to render their traditional functions, such as the provision of public goods, maintenance of law and order, defense against external aggression, regulation of trade and business to ensure social and economic maintenance (Azubike, 2009). 

Nigeria has been one of the most backward developing countries in terms of harnessing revenue owing to weak standard of good governance. In recent years, the most worrisome about Nigeria’s economy is that corruption and mismanagement prevented the strait of the country’s resources from taxation and other sources into lasting improvements in self-sustaining economy. Thus despite increasing revenue generation that supposedly have been plough into productive ventures, the economy is still characterized with high rate of unemployment of 21.4% and 23.9%, high rate of inflation of 11.8%, and 10.3%, high interest rate of 22.51% and 22.42%, low capacity utilization of oil industry of 24.33% and 24%, in 2010 and 2011 respectively (CBN, 2012). There also exist low investment, high level of corruption, weak institutions, low per capita income, poor infrastructure, deteriorating economic activities, accumulated debt, still prevail. It is with a great dismay that the poor indices stated above is lack of provision of public goods as enshrined in theory of public goods popularized by Samuelson in 1954. As stated by Sanni (2007), Nigeria’s fiscal operations over the years have resulted in varying degrees of deficit; financing of which has had tremendous implications for the economy. Hence the country is faced with increasing budget deficits year in year out creating an ever increasing gap between public expenditure and the revenue generated. Deficit financing remains high at N 117.2 billion, N 47.4 billion and N 810.0 billion in 2007, 2008, and 2009 respectively (CBN, 2010). Statistics shows that Nigeria’s oil GDP growth rate stood at 7.84% between 1986-1993, fell to 0.51% between 1994-1999, 4.75% between 2000-2002, and rose to 6.40% between 2003-2008 while non-oil GDP growth rate within the same period stood at 5.77%, 3.00%, 3.55% and 8.80% respectively with corresponding total GDP growth rate between 1986-1993 stood at 6.23%, 1994-1999 at rate of 2.33%, 2000-2002 at 4.75% and 2003-2008 at 6.40%.  It is pertinent to note that, total oil revenue generated between 2000 and 2009 amounted to N34.2 trillion while non-oil was N7.3 trillion, representing 82.36% and 17.64% respectively (CBN Statistical Bulletin, 2009).

Conceptual Framework


Revenue is defined as all amounts of money received by a government from external sources for example those originating from “outside the government” net of refunds and other correcting transactions, proceeds from issuance of debt, the sale of investments, agency or private trust transactions, and intra-governmental transfers ((Ahmed, 2010). Financial resources of government constitute the bulk of its revenue and this relate to monies mobilized or generated in the economy (Obiechina, 2010). 
The working definition of this study is in line with Asher (2001), Soyode and Kajola (2006) assertions
that options are available to governments for raising fund for bidding resources away from the other sectors of the economy and from other claimants to undertake their activities. Thus, revenue sources are not only limited to oil and non-oil sources but other means available to government in raising fund to financing their activities.
Hence, the study also captured  public debt. 
Public revenue consists of taxes, revenue from administrative activities like fines, fees, gifts and grants. Public revenue can be classified into two types including: tax and non-tax revenue (Illyas and Siddiqi, 2010). Taxes are the first and foremost sources of public revenue. Taxes are compulsory payments to government without expecting direct benefit or return by the tax payer. The government collects tax revenue by way of direct & indirect taxes. Direct taxes includes; Corporate tax; personal income tax capital gain tax and wealth tax. Indirect taxes include custom duty, central excise duty, Value Added Tax (VAT) and service tax (Chaudhry and Munir, 2010). Non-tax revenue refers to the revenue obtained by the government from sources other than tax. These include fees, fines and penalties, surplus from public enterprises, special assessment of betterment levy, grants and gifts and deficit financing.
However, according to Ihendinihu, Ebieri and Amaps Ibanichuka, (2014), two main sources of federal government revenue exist namely; oil and non-oil revenue. Oil revenue is the most important source of revenue to the federal account. Oil revenue are revenue from crude oil and gas exports, receipts from petroleum profits tax and royalties and, revenue from domestic crude oil sales while non oil revenue: This is the second category of revenue to the federal account. This include revenue that are not derived from or associated with oil. They include; companies income tax (CIT), Custom and Excise Duties, (CED), Valued Added Tax, Education Tax, Personal Income Tax (PIT), Levies, public debt, grants, aids amongst others..
Public debt are domestic and foreign borrowing including loans from domestic financial institution and multilateral institutions and foreign grants. According to Oyejide (1985), debt is the resource or money in use in an organization, which is not contributed by its owner and does not in any other way belong to them. Debt can also be referred to as liability represented by a financial instrument or other formal equivalents. When a government borrows, the debt is a public debt. Public debts can be either internal or external.
Domestic debts are debts instrument issues by the federal government and denominated in local currency Onyeiwu (2012). Nigeria’s domestic borrowing (debt) is aimed at escaping the dangers associated with external  borrowings occasioned by rising government expenditures vis-à-vis falling government revenues, supplement the internal savings for productive activities through infrastructural development as well as management of other macroeconomic conditions of the country (Gbosi, 1998; Ajayi, 1989; Adofu and Abula, 2010). Arnone et al (2005) defines external debt as that portion of a country’s debt that is acquired from foreign sources such as foreign corporations, government or financial institutions.