Update: This week, African officials, businesspeople, and non-profit organizations are gathered in Abuja for the Africa World Economic Forum. Several of the formal discussion sessions will focus on ways to diversify sources of development finance, including through improved domestic resource mobilization (e.g., tax policy and efficiency).
Following its recent 90 percent GDP adjustment, Nigeria is now a solidly middle-income country. With an income per capita of $2,700, it now stands alongside countries like the Philippines and Morocco. Not exactly a rich country per se, but with a GDP of roughly $500 billion, it’s far from an impoverished one in terms of national resources. With donors providing $2 billion a year in aid to Nigeria, this raises the natural question: If Nigeria is significantly wealthier than previously thought, then should we still be providing large-scale assistance there?
This is a big question – not just for Nigeria, but other countries like Pakistan that have sizable pockets of poverty but abysmal local tax collection rates. In these countries, the US and other donors should be focusing much more on helping to unlock vast domestic resources than continuing to finance the direct delivery of social services.
Here are two figures that highlight the untapped potential in Nigeria:
(1) An additional $67 billion could have been mobilized last year, if the Nigerian government’s revenue ratios matched its African peers.
According to IMF estimates, the median African country had a revenue-to-GDP ratio of just under 25 percent in 2013. By comparison, Nigeria’s ratio was a paltry 10 percent of revised GDP figures (down from 15 percent the previous year). Only the Central African Republic has a lower ratio. If its tax collection efforts yielded the same as the median Sub-Saharan country in relative terms, then an additional $67 billion could have entered the Nigerian government’s coffers. That is an eye-popping 33 times greater than donors’ total aid disbursements to Nigeria in 2012.
(2) An additional $11 billion could have been mobilized for life saving programs if Nigeria matched its African peers’ revenue ratios and met its own health spending commitments.
In 2001, the Nigerian government – along with other African nations – committed to spend 15 percent of its budget to combat HIV/AIDS, malaria, and other pressing health needs. This was the African Union’s Abuja Declaration. According to the World Health Organization, the Nigerian government spent roughly $4.5 billion on health in 2012, or nearly 7 percent of its total budget. If it met its own Abuja commitments, then an additional $5 billion would have been mobilized for the fight against HIV/AIDS, child and maternal mortality, and other pressing needs. This is more than 5 times greater than donors’ total health disbursements that year. Now, if Nigeria mobilized the same comparable level of revenues as the median Africa country and met its Abuja spending commitments, then it would have spent $11 billion more on health priorities. That is 12 times greater than donors’ total health assistance to Nigeria in 2012.
The tremendous untapped resources aren’t lost on the Nigerian government either. Finance minister Ngozi Okonjo-Iweala has stated that closing gaps in non-oil tax collection present “significant opportunities for raising revenues for development financing.” Moreover, she welcomes greater outside help through support for audits that show who’s not paying their taxes and for Nigeria’s under-resourced Federal Inland Revenue Service.
So, has the US been helping? Not especially. Out of the $3.3 billion in total US aid disbursements to Nigeria over the last decade, only $2 million focused on improving its public finance management (which includes tax policy and administration). Instead, the US has continued a near singular focus on social sector spending, particularly on combatting HIV/AIDS – despite the fact that helping the Nigerian government raise more revenue could increase total health spending by an order of magnitude. USAID hopes to do more in this area, but will need greater support and flexibility from Congress.
It’s time for more US policymakers and development advocates to start championing this agenda. Improving tax collection and efficiency isn’t sexy, but it does present the biggest opportunity to mobilize greater resources for development priorities – whether it’s the fight against HIV/AIDS and malaria, providing quality education, or improving infrastructure. It’s the tide that could lift all boats, which should excite every development constituency in Washington.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.