The federal government has been urged to diversify its sources of revenue in order to achieve development and growth. The Chairman of Lead Capital Group, Mr. Abimbola Olashore , made the call while speaking at the members forum organised by the Association of Investment Advisers and Portfolio Managers.
Speaking on the theme: “Revenue Diversification – the Bedrock of Sustainable Economic Growth, Olashore noted that recent events in the oil sector have led to renewed calls for the diversification of government revenue.
According to him, both past and present Nigerian governments have failed to leverage on the ease with which they pulled revenue from the sake of crude oil to explore other revenue steams
“The government takes about 80 per cent of all revenue from crude oil sales while the balance goes for operational and other costs. The Nigerian economy is well diversified in terms of contribution to Gross Domestic Product (GDP). But what is not diversified is the sources of government revenue. We have a situation where that largest contributor to GDP contributes next to nothing to government revenue while we have a sector that contributed about 10% to GDP contributes over 70 per cent to government revenue,” he said.
Olashore said forward looking emerging economies have been remarkably successful in diversifying their economies and their export structures.
“The most prominent change has been the shift towards industry. In the 1960’s, some 80 per cent of developing country exports were primary commodities. Today, almost 80 per cent are industrial products,” he said.
Olashore cited China, Malaysia, Indonesia, Chile, Singapore and South Africa as some of the countries that successfully transformed their economies through diversification.
He explained that Malaysia, a middle-income country, has transformed itself from a producer of raw materials into an emerging multi-sector economy by making massive investments in land development and replanting schemes to expand and modernise the production of rubber and palm oil.
“Malaysia also made heavy investments in technology and infrastructure, especially in the areas of energy, communications and transport. Malaysia did start out on a protectionist path in the 1960s, in 1973-74 it shifted to an extensive export promotion drive based on cheap manufacturing,” he said.
He added that Indonesia showed the importance of using active policies to encourage agriculture in the face of a booming oil sector.
“These included very large investments of oil income to develop natural gas resources, both for export to Japan and as an input to fertilizer production.Infrastructure, particularly in the rural areas absorbed one quarter of public investment during the oil boom,” he said.
Speaking on the South Africa example, Olashore said its economic success is based in part on its extraordinary mineral wealth.
“Now, South Africa has a well-established manufacturing base, which was developed in the early 20th century and is strongly linked to traditional sectors such as agriculture and mining. In general, this manufacturing base is a key driver of economic growth and diversification. This is illustrated by the presence of industries such as agro processing, metals and leather, as well as construction and engineering specifically geared for mining, geological projects, and financial services that also often specialize in local sectors,” he said.
According to him, for Nigeria to successfully diversify, it needs to get some economy-wide basics right.