IMPACT OF FEDERAL GOVERNMENT REVENUE GENERATION ON INFRASTRUCTURAL DEVELOPMENT IN NIGERIA (2007 – 2016)

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IMPACT OF FEDERAL GOVERNMENT REVENUE GENERATION ON INFRASTRUCTURAL DEVELOPMENT IN NIGERIA (2007 – 2016) 

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Impact of Federal Government Revenue Generation on Infrastructural Development in Nigeria

Abstract

The revenue generation make up of Nigeria had maintained the ratio of 7:3 for oil and non-oil revenues for more than two decades now. This ratio started declining in recent years due to the volatility of oil resource and now stands at 47% to 53% in 2016 for oil and non-oil revenues respectively. The main objective of this study is to investigate the impact of this decline in oil revenue and the corresponding increase in non-oil revenue on infrastructural development in Nigeria. Time series data ranging from 2007-2016 of oil revenue, non-oil revenue, retained earnings and capital expenditure were collected from Central Bank of Nigeria (CBN) Statistical Bulletin, federal ministry of finance and the publications of national bureau of statistics. Ordinary least Square (OLS) Regression method, ARDL model for short-run Error Correction Method (ECM), the ARDL Bound model for Co-integration and Granger Causality Test were used to analyze the data. Unit Root Test was conducted using Augmented Dickey-Fuller unit Root Test to avoid spurious results. The findings were that oil revenue has a positive and significant relationship with infrastructural development in Nigeria while non-oil revenue has a positive but non-significant relationship with infrastructural development in Nigeria. It also shows a causal relationship between governments retained earnings and infrastructural development in Nigeria and finally a long-run relationship between federally generated revenue and infrastructural development in Nigeria. The study recommends that government should intensify efforts towards diverting its main revenue source to non-oil revenue since it is less prone to volatility and will boost the revenue generation of the country, ensure stability in oil producing communities and increase capital expenditure for robust infrastructural development.

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Impact of Federal Government Revenue Generation on Infrastructural Development in Nigeria

INTRODUCTION

Revenue generation of the Federal Government of Nigeria can be broadly categorized into oil revenue and non-oil revenue. The federal government of Nigeria performs its arduous tasks of forestalling anarchy and social disorder as well as improving the living conditions of the people by the provisions of a variety of services via the utilization of the revenue generated from these two major sources or sometimes through borrowing.

On the other hand, the structure of the Nigerian government expenditure can be categorized into capital and recurrent expenditure (Mutilala, 2011). The recurrent expenditure is basically government expenses on administration such as usages, salaries, interest on loans, maintenance cost etc.

However, the expenses on capital projects like roads, airports, education, telecommunication, electricity generation etc are generally referred to as capital expenditure (Maritala, 2011).

In Nigeria, huge amount of revenue have been received by various governments, and its usage in improving the level of socio-economic and infrastructural development in the country is still an issue of debate among the academia, policy makers, politicians etc (Obiechina, 2010).

According to Loto and Nkaogu (2012), the growth of a nation is no doubt dependent on the availability of functional infrastructure such as energy, roads, rail ways, water supply education and a host of other amenities that converge to provide the conducive environment for the free flow of goods and services across the length and breadth of the country.

Infrastructure contributes to economic development by increasing productivity and providing amenities which enhance the quality of life. The high cost of doing business in Nigeria due to poor infrastructure has impacted negatively on the nation’s economy as investors seeking greener pastures have been relocating to neighboring countries even as mortality rate for industries, especially small and Medium Scale Enterprises (SMEs) has been on the increase in the last few years.

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The amount of revenue generated by the federal government of Nigeria is currently dwindling due to the reduction in the quantity of oil produced as well as the fall in the price of oil in the international market. The activities of the Niger-Delta Militants in the creek who have continued to bomb oil facilities and installation have no doubt adversely affected our production hence our revenue.

Revenue from oil is of grave importance to Nigeria infrastructural development because until 2015, oil revenue contributes about 83.0 percent of the total federally collected revenue, while the non-oil sector contributes only 17.0 percent. Hitherto, non-oil revenue has received little attention from the federal government of Nigeria.

It has been proved that non-oil revenue is the most certain of the two major sources of government revenue enumerated above. Non-oil revenue of government is mainly generated from taxation and non-oil export. According to Olaoye (2008), tax is a compulsory levy imposed by government on individual and companies for the various legitimate function of the state.

The objective of taxation can be summarized as raising of revenue to finance government expenditure, redistribution of wealth and income to promote the welfare and equality of the citizens, and regulation of the economy thereby creating enabling environment for business to thrive (Nightingale, 2002, Lyme & Oats 2010).

For the mere fact that the federal government of Nigeria had not been accountable to its citizens on the amount of money realized from the sale of oil, they lacked the moral justification to adequately enforce the tax laws. On mismanagement of Nigeria’s oil revenue, Oshionebo2017, stated that:

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“Although Nigeria is blessed with abundant reserves of oil and gas, Nigeria has persistently suffered economic hardship as a result of the gross mismanagement of her oil revenues. In an attempt to reverse this trend, the government of Nigeria established a sovereign wealth fund, the Nigerian Sovereign Investment Authority (NSIA), in 2011. The NSIA has three objectives; saving of excess revenues accruing from oil exploration, fiscal stabilization in times of economic stress and development and social infrastructure” (P.1).

It is instructive to note that the oil industry found to be so ill-managed is largely responsible for the fiscal health of all tiers of government in the present day Nigeria. This had caused many Nigerians to ponder on whether the discovery of oil in Nigeria was“a curse or a blessing”. It is germane to posit that as the total federally generated revenue of government increases, the amount allocated to capital expenditure which in turn translates to infrastructural development should also increase.

 

Impact of Federal Government Revenue Generation on Infrastructural Development in Nigeria

 


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