Nigeria’s Federation Account Records Growth in Q3 2024 Driven by Non-Oil Revenue
Nigeria’s federation account, the central repository for government revenue, witnessed a notable increase in receipts during the third quarter of 2024. According to the Central Bank of Nigeria’s (CBN) Economic Report, the account accrued N6.86 trillion, a 7.48% rise compared to the previous quarter. This growth, however, fell short of the projected benchmark by 23.71%. The surge in revenue was primarily attributed to a significant boost in non-oil revenue components, particularly corporate tax and value-added tax (VAT). Corporate tax, levied on profits of companies operating within Nigeria, and VAT, imposed on the consumption of goods and services, played a pivotal role in bolstering the nation’s revenue stream.
Non-Oil Revenue Dominates Federation Account Receipts
Non-oil revenue continued to be the mainstay of the federation account, contributing N5.56 trillion, which represents 81% of the total revenue generated. This figure surpassed the preceding quarter’s collection by 19.48% and exceeded the set target by a remarkable 50.36%. The robust performance of non-oil revenue underscores the increasing significance of this sector in Nigeria’s overall fiscal landscape. The substantial increase compared to the previous quarter and the successful outperformance of the quarterly targets highlight improved efficiency in revenue collection and a positive alignment with budgetary expectations. This robust performance of the non-oil sector suggests a growing reliance on these revenue streams and potentially reflects government efforts to diversify the economy away from oil dependence.
Oil Revenue Experiences Decline Amidst Operational Challenges
Despite the positive trajectory of non-oil revenue, oil revenue experienced a decline during the third quarter of 2024. The CBN report indicates a 24.72% drop in oil revenue to N1.30 trillion compared to the second quarter of the same year. This decrease was primarily attributed to lower receipts from petroleum profit tax and royalties. Additionally, oil revenue fell significantly short of the quarterly target by 75.39%. This shortfall was largely due to operational challenges, including shut-ins resulting from the aging infrastructure of oil pipelines and installations. These challenges highlight the need for sustained investment in maintaining and upgrading Nigeria’s oil infrastructure to ensure stable production and revenue generation.
Revenue Distribution to Federal, State, and Local Governments
From the total federally collected revenue of N6.87 trillion, approximately N3.92 trillion was distributed among the three tiers of government. The federal government received N1.27 trillion, while state governments received a slightly larger share of N1.36 trillion. Local governments received N0.99 trillion. In addition, N0.30 trillion was allocated to the 13% Derivation Fund, which is specifically designated for oil-producing states. This distribution mechanism reflects the revenue sharing formula in Nigeria, aimed at ensuring equitable distribution of resources amongst the different levels of government.
Implications and Future Outlook
The mixed performance of revenue streams in the third quarter of 2024 presents a nuanced picture of Nigeria’s fiscal health. While the growth in non-oil revenue provides a positive signal, the decline in oil revenue raises concerns. The continued reliance on oil revenue, despite its volatility, underscores the need for accelerated diversification of the Nigerian economy. Investing in infrastructure, improving tax administration, and fostering a conducive environment for businesses are crucial steps towards enhancing non-oil revenue generation.
Strategies for Sustainable Revenue Growth
Addressing the challenges in the oil sector, such as aging infrastructure and operational inefficiencies, is equally critical. Modernizing oil facilities, promoting transparency in revenue management, and curbing illegal activities are essential for optimizing oil revenue collection. The government’s commitment to fiscal discipline, prudent resource management, and strategic investments across various sectors will be vital in achieving sustainable economic growth and development. Moving forward, achieving a balanced revenue portfolio, where non-oil sources contribute significantly, will be crucial for Nigeria’s long-term fiscal stability and resilience.
