I have just read an interesting paper by Todd Moss of CGD titled ‘Oil to Cash: Fighting the Resource Curse through Cash Transfers’.
The paper proposes that countries seeking to manage new resource wealth should consider distributing income equally and directly to citizens in the form of cash transfers. This policy option may be beneficial to Nigeria particularly for the Niger Delta citizens whom are most affected by the extraction of oil in their region. It may help to curb the Niger Delta crises as the militants from that area might have some sense of ownership of the natural resources if they receive regular income from the oil revenues. This may stop the blowing up of oil fields or the disruption of oil production by the Niger Delta militants. However I have some doubts on the likely benefits this would have in improving Nigeria’s governance.
Todd Moss states the following:
“Incentives to tax. After giving cash to its citizens, the state would treat it like normal income and tax it accordingly—thus forcing the state to collect tax revenues and build tax administration, rather than simply bypassing the taxpayers by relying solely on rents. Although this initially sounds like an unnecessary step (why give something away that you are going to partly take back?), creating incentives for tax collection and administration is perhaps the most important potential benefit of this scheme (Devarajan, Le, and Raballand 2010). Because the government must tax the oil revenue to recover some of it for public spending, the social contract is strengthened rather than broken by natural resource revenues. Governments will be forced to depend on the citizens for income, and consequently, citizens will have increased leverage and incentives to exert pressure on public policy.
I don’t agree that distributing natural resource revenues directly to citizens strengthens the social contract just because the government can tax the income. I don’t think that taxing ‘free money’ will create any additional incentives for citizens to exert pressure on government. Taxation on incomes that people have worked for will possibly yield such results but not taxation on these types of benefits. Also, I don’t quite see how the government will be forced to depend on the citizens for income through this initiative. If this income were to be taxed, the government would almost certainly withhold the tax at source before giving any money out. The tax collection in this case would just be a transfer between one government bank account to another. Citizens will not have any leverage on the government as the government controls the finance.
There is no doubt that distributing natural resource revenues directly to citizens will have a positive impact on the poor as evident in the success of cash transfers. However I doubt if it will make a significant impact on improving governance in terms of increasing citizen’s voice to demand for the provision of public services. Nigeria could explore the option of providing a proportion of the oil revenues as cash transfers. Giving some of the country’s oil revenue directly to citizens could encourage the government to focus more on generating revenue from non-oil sources in order to meet up with other budget needs.
We should not over-estimate the impact of sharing Nigeria’s oil wealth. Even dividing the 2009 total oil revenues of N 2,777 billion by the Nigerian population of about 154 million, would only give each Nigerian about N18, 000 per year (about US$120). It may be necessary to think about whether it is viable to equally share a percentage of oil revenues amongst all Nigerian citizens or just pay a proportion directly to citizens in the Niger Delta region.
There would also be huge implementation issues. To be able to successfully achieve this in Nigeria, it would be necessary to strengthen the National Identity Management Commission (NIMC) to ensure that there is an accurate database of all Nigerians. It would also require a constitutional change which would be very challenging. It would be a hard sell to any Nigerian government.
