Nigeria shifts from oil dependence to tax-driven economy - Report
By Nduka Chiejina (Assistant Editor) A new report has shown that Nigeria is gradually moving away from its long-standing dependence on crude oil, with taxes now becoming the main source
By Nduka Chiejina (Assistant Editor)
A new report has shown that Nigeria is gradually moving away from its long-standing dependence on crude oil, with taxes now becoming the main source of government revenue.
The report, titled “Nigeria Unshackled: Inside the Steady Rise of a Fiscal State” and released in March 2026 by Quartus Economics, examined the country’s economic performance between 2010 and 2025. It found that Nigeria has made steady progress in shifting from an oil-driven economy to one supported largely by tax revenues.
For many years, Nigeria depended heavily on oil exports to fund government spending and earn foreign exchange. This made the country vulnerable to changes in global oil prices. According to the report, this structure began to change after a major drop in oil prices in 2014 exposed the system's weakness.
The report explained that between 2000 and 2014, Nigeria enjoyed strong economic growth due to high oil prices. During this period, the economy expanded at an average rate of 6.1 per cent annually, while public debt remained low. However, it noted that the growth was not built on a strong foundation, as key sectors like manufacturing remained weak and infrastructure gaps persisted.
Trouble began in mid-2014 when global oil prices fell sharply from about $110 per barrel to $43.8 by 2016. This led to a significant drop in government earnings. Oil revenues fell by 41 per cent between 2015 and 2019 compared to the previous five years. As a result, economic growth slowed to an average of 1.2 per cent per year.
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The impact on Nigerians was severe. The report stated that by 2024, income per person had dropped sharply, while millions more people fell into poverty.
Following this crisis, the government began to focus more on raising revenue through taxes and improving collection systems. The report described this as a “definitive shift” in Nigeria’s fiscal structure.
It showed that in 2010, oil accounted for nearly 74 per cent of government revenue. By 2024, this had dropped to about 26 per cent. At the same time, non-oil revenue increased to nearly 75 per cent, meaning taxes and other sources now provide the bulk of government income.
One of the most notable changes is the rise in tax collection. The report stated that tax revenue increased significantly from N10.18 trillion in 2022 to N28.29 trillion in 2025. It added that about 86 per cent of this growth came from non-oil sectors of the economy.
The report linked this improvement to several factors, including changes in tax policies, better enforcement, and wider economic activity outside the oil sector. It pointed to the increase in Value Added Tax from 5 per cent to 7.5 per cent and improved administrative measures such as centralised revenue collection in the oil sector.
It also noted that the non-oil sector now accounts for more than 70 per cent of total tax revenue, showing a growing level of diversification in the economy.
Despite these gains, the report raised concerns about the rising level of public debt. It explained that Nigeria borrowed heavily after the 2014 oil crash to support spending and fund infrastructure projects.
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According to the report, the country’s debt-to-GDP ratio rose from about 12 per cent in 2014 to nearly 39 per cent in 2024. Debt servicing costs have also increased sharply over the years, taking a larger share of government revenue.
The report stated that in 2012, only about 6 per cent of government revenue was used to service debt, but this figure rose to about 38.5 per cent by 2024. It also noted that external debt now makes up a larger share of total debt, partly due to the weakening of the naira.
Even with these figures, the report said Nigeria’s debt level is still within acceptable limits when compared with global standards. However, it warned that the country has not seen strong economic growth to match the increase in borrowing.
Another major issue identified in the report is fuel subsidy spending. It described petrol subsidy as a major drain on public finances, noting that the government spent about N23.75 trillion on subsidies over 15 years. A large portion of this spending occurred between 2021 and 2024.
The report said subsidy costs reached N7.1 trillion in 2024 alone, making it unsustainable for the government to continue. It added that removing the subsidy was a difficult but necessary step to stabilise the economy.
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Looking ahead, the report stressed that Nigeria’s shift to a tax-based system comes with higher expectations from citizens. As more people and businesses pay taxes, there will be greater demand for transparency and accountability in how public funds are used.
The report concluded that while Nigeria has made progress in reducing its dependence on oil, more work is needed to achieve real economic growth. The report advised that the government should focus on investing in sectors that create jobs, such as agriculture and manufacturing.
It warned that without careful management, the benefits of higher revenue and increased borrowing may not translate into better living conditions for Nigerians.
The report stated, “Nigeria has broken away from its dependence on oil, but the next challenge is to ensure that this progress leads to real improvements in productivity, employment and living standards.”
It also added that the country must use its remaining borrowing capacity wisely to support growth and deliver meaningful results for its citizens. Nigeria, the report concluded, has taken an important step forward, but must now ensure that the gains are sustained and shared across the population.
