- Tax-to-GDP ratio to reach 17 per cent by 2026
- MOFI asset boost liquidity
CEM REPORT, ENERGY | The Bola Ahmed Tinubu led administration has expressed the desire to shit energy source from petrol to compressed natural gas (CNG).
The administration also said it intends to implement reforms that will shoot Nigeria’s revenue to Gross Domestic Product (GDP) ratio to 17 per cent in three years.
Speaking at the launch of Afrinvest’s 2023 Nigerian banking sector report, Minister of Finance and Coordinating Minister for the Economy, Wale Edun, noted that restoring macroeconomic stability is a critical foundation for setting the country on the path to rapid and sustained inclusive economic growth.
He continued that the reforms implemented by the federal government will increase that nation’s tax-to-GDP ratio from the present 10 per cent to 18 per cent by 2026.
He noted that the government is looking into substitution programmes such as the campaign for substitution of PMS for CNG, noting that CNG costs are half of the petrol costs in Nigeria.
Edun, who was represented by the Managing Director of the Ministry of Finance Incorporated, Armstrong Takang, said the government is investing in conversion kits, and refuelling stations, amongst other key areas.
“I do not know if any of you have been watching the campaign on the substitution of premium motor spirit (PMS) for CNG. It is an early step that we are taking. When you look at the price of CNG versus PMS, it ranges from half of it and sometimes it comes down to a quarter of what it costs to run on PMS.
“We are taking steps in that direction. You will be seeing some announcements in due course in terms of steps that are being taken to trigger a demand in that value chain. There is a lot of investment that has to be done in terms of conversion kits, refuelling stations, and in terms of midstream in terms of transportation of infrastructure and upstream.
He continued that switching dependency to gas from fuel holds several benefits for the economy and will create more partnerships with the private sector.
“We believe that given that we are a gas nation and gas is cleaner than PMS, if we aggressively move in that direction, it can have a significant impact on the cost of not only fueling our vehicles, but mass transit, as well as factories that run on fuel and diesel.
“A lot of investment needs to go into that. We believe that it provides an opportunity for the private sector to partner.”
In terms of unlocking liquidity, he said, “The right times when you have assets, especially oil and gas assets that are depleting in value over time, I believe that we can unlock liquidity by putting in some of those assets and creating liquidity now, while not necessarily losing those assets. The second thing around that liquidity is to attract international capital flows in advance using funding arrangements.”
He noted that “MOFI has assets that are worth 10s of trillions of naira. Unfortunately, most of those assets over time we have not leveraged on it. Anybody in finance knows the value of leverage.
“A lot of those assets represent our equity. We have not used that equity to leverage debt and other capital flows. We’re beginning to use some of that.
“We believe that those assets represent significant opportunities for us to be able to unlock liquidity by putting some of those upfront, and in most cases, the cost of that liquidity is a lot cheaper when you use assets you want at the moment rather than unsecured debt for using sovereign debts,” he said.
Edun however noted that bold action to implement reforms anchored in the Renewed Hope Agenda has not been without pains, but the government continues to implement intervention programmes, as interim palliatives.
He said part of the ongoing reforms have led to increased revenue through the removal of petrol subsidy, establishing a fiscal policy and tax reforms committee, eliminating smuggling and theft, as well as the rigorous application of existing rules.
Edun added that attracting international investments through foreign direct investments (FDI) and foreign portfolio investments (FPI) is part of the ongoing domestic reforms to grow Nigeria’s economy.