Every government has the responsibility to provide public utilities, infrastructural services and determine policies that will enhance and cater for the welfare of the citizens. In other to achieve that, enormous resources must be attracted to cover the expenditures. In so doing, it is imperative to activate and ensure the optimal performances of the various sectors of the economy and develop new strategies of making them more viable. This entails ensuring productivity of those sectors to be able to generate the much needed revenue, strengthen and sustain the provision of the public utilities.

Unfortunately, in Nigeria, the economy has persistently run on a single oil revenue. Other sectors have not received the necessary attention and patronage to substantially support revenue generation as a viable alternative. Bade [1], succinctly stated that Nigeria revenue primarily depends on the earnings from oil which makes it susceptible to oil price instability globally. The sole reliance of the Nigerian economy on crude oil production vis-à-vis the need to satisfy the economic and social demands of the citizenry calls for diversification. Economic diversification is the deliberate attempt of government to widen its revenue generation frontiers. This means, the expansion of a country’s economic activities in order to generate revenue from other sources. Obadan [2], would opine that diversification is important especially for countries like Nigeria who largely depend on a single oil sector in order to reduce the level of her vulnerability to external financial stocks and support her resilience accordingly.

Diversification of economic base creates fiscal sustainability and enhances stability both in the economy and polity of the country [3] the nation’s non-oil sectors will necessarily receive attention and boost in the event that the economy is diversified. According to there will be consequential increase in the tax revenue and attendant employment generation in the event of economic diversification. Such decision will entail the exploitation of the sectors like agriculture, manufacturing and the service sectors. Thus, equally focus attention in the areas which hitherto has potentials to generate export earnings and contribute to employment generation, but were neglected.

As accounted by the World Bank (2015), Nigeria ranked one of the biggest economies in the sub-saharan Africa with over 180m persons with a land area of 923.763 square kilometers. The average population density of Nigeria is about 120 persons per square kilometers. This explains the necessity to pursue the development of other sectors, thereby, making diversification most expedient.

Statement of Problem

Nigeria has been identified as one of the naturally endowed countries of Africa. Its arable land, abundance mineral deposits, exposure to the ocean and dense population makes it imperative for other sectors of the economy beside oil and gas to thrive. While oil has enormously contributed to the economic fortune of the country, it has also been greatly exposed to the unpredictable global oil market thereby, creating imbalance in the economy. For instance, [3], noted that the sharp decline in oil prices witnessed around 2014 necessitated economic chaos and dysfunction in the country leading to budgetary constraints. It is needless to recount the country’s challenges arising from over dependence and reliance in oil economy. In the boom days when oil prices soar, the country experienced boom. Nevertheless, it suffers fiscal deficits, dwindling foreign reserves, huge foreign and domestic debts, etc. resulting from low price level of oil. The implication of this scenario resulting in conflicting economic planning, social disconnection, incontinent revenue generation and inability to provide appropriate critical infrastructure to drive development amongst others, cannot be estimated. This study is undertaken to consider the foregoing challenges and suggest the way out. It is believed that the outcome of the study will set the tone for the diversification of the economy and shore up the revenue base of the country. In so doing, engender growth and promote the welfare of the citizens. The study spanned from 1993-2023 and assesses the relationship between other sectors and revenue generation in the economy.

Conceptual Clarification

Government has the ability to employ strategies and systems through which it can reduce her dependence on a single sector for revenue generation. The spreading out of economic activity from one sector to include other sectors is regarded as economic diversification. Olaleye, Edun and Taiwo [4], describes diversification as the intensified efforts of government to improve upon the activities and operations of the non-oil sectors. They opined that diversification possesses the attributes of protecting the other sectors, enhances trade liberalization and promote export. Accordingly, notable policies of government such as the establishment of Nigerian export-import bank and export promotion council were attempts to encourage the development of other sectors. The 2023 United Nations Climate Change Conference in Nairobi, define Economic diversification as the process whereby, an economy is shifted away from a single income source to achieve a multiple sources by growing a range of sectors and markets. Diversification is intended to bring about strategic positive economic growth and development.

Dimensions for Diversification

According to Suberu, Ajala, Akande and Olure-Bank [5], diversification does not take place in a void. Nigeria being endowed in natural, human and material resources possesses key elements for which it can grow other sectors. Some of these potential sectors are:

Agricultural Sector:

Primary in the sector consist of crops production, livestocking and timbering. This sector utilizes the natural resources and other artificial inputs to produce crops, foods and raw materials. The raw materials are thus, for the industries. The sector demonstrates its importance in promoting food security and being a major income earner for domestic and export concern.

Industrial Sector:

Industrial sector include the manufacturing. The sector, in the opinion of Anyanwu, Oyefusi, Oaikhenam and Dimowo [6], refers to the array of business firm which produces in large quantity similar products. The process builds and stimulates the country’s capacity to transform raw materials to finished goods or other products that are raw materials for production. In other words, industrialization is very significant in building up the value chain and capacity in a nation. Industrial sector is sub-divided into other segments which include processing, mining, craft and manufacturing.

Service Sector:

The service sector is a heterogeneous compartment of activities which consist of varied services such as data processing, trade, finance, real estate, transportation, communication etc. Nigeria service sector has potentials for increased revenue generation coupled with the country dense population and vast area space. The expanse area will accordingly boost and necessitate haulage and transportation business. The service sector is also dichotomized into government services and non-government services. In all, Nigeria policy takers can drive the economy to be able to divert into any or all of these enumerated and very viable sectors.

Major Challenges of Nigeria

Economic Diversification:

• Political instability: Since independence, Nigeria has never had had a stable economy, several times the military had incursions into the polity of the country. In instances where democratic system was enthroned, parties have not been consistence with the programmes and agenda of government. This has created instability in such a manner that it becomes difficult not to solely rely on oil economy.
• Absence of Policy reforms: The heterogeneous ethnic interest and favouritism has made it difficult to have consistence policy in place. This phenomenon can give rise to economic stagnation. When policies are stagnant, there is every likelihood of obsolescence, lack of innovation and global isolation.
• Lack of technological development and infrastructure: Bad road network, erratic power supply, poor health care system, inadequate technological innovation makes it difficult for business to strive. This is the age of technology and it has come to stay, any nation that wants to grow its economy must invest in technology which is the heart beat of businesses and industrial growth. Nigeria is yet to find her feet in technological advancement thus become difficult to develop other sectors.
• Unstable power supply: Regular power supply is a fabric in business and industrial development. Heavy industrial equipment must be powered to achieve optimum productivity. Nigeria has been grappling with problems of regular power supply. This is a bane for our diversification. Nothing certainly can be achieved in any sector without the presence of power supply. This is lacked in Nigeria and it has become a hindrance for diversification.
• Dutch disease: A country’s reliance on a monolithic natural resource at the detriment of other resources is referred to Dutch disease. Dutch disease can also be described as the wealth not managed wisely or adaptation to new found wealth. Nigeria’s dependence on crude oil over and above other resources is the reason diversification of the economy is difficult. Until we are cured of this disease, it will be difficult to diversify.
• Corruption and resource mismanagement: The endemic nature of corruption which has eaten into the fabrics of the nation had made it difficult to sustain any policy that intends to diversify the economy. At any level of the nation’s policy, there are landmines of corrupt public officers and politicians who loots public funds thereby, making it difficult for policy of government to see the light of the day. These are orchestrated difficulties in sectoral diversification. The situation has stagnated the country economic and there is actually no hope insight for recovery [18].

Government Revenue Generation

At each tier of government, funds are required to cater for the needs of government whose responsibility is to provide for the citizens welfare, protect lives and property. This is processes by which government raise funds for governance is termed revenue generation. Revenue generation is derived from revenue which according to Aborisade, is the aggregate income earned by a government over a period of time. Hepworth would describe revenue as income raised by government to meet its expenditure. Typical revenue sources of government consist of the following; sale of goods or services, taxes and levies, fees and charges, investments and dividends grants and donations, licensing and royalties, advertising and sponsorships, public-private-partnerships. It is important that government generate funds in order to finance public services, provide for the social programmes, fund infrastructure and invest in economic growth.Revenue generation in Nigeria had had to contend with some challenges. Worthy of note of these include; tax evasion, tax administrative issues, conflicting legal positions, weak institution and guidelines, inconsistence tax assessment, favoritism, lack of will power, technological inadequacy, etc.

The Study is anchored on the Theory of Law of Increasing State Activity and Theory of Public Expenditure. Increasing State Activity Wagner [7], developed the theory of increasing state activity to explain the growth in the share of public expenditure wherein, he sub-divided the expenditures of the state into three broad categories; administration and defense, culture and welfare, and provision of direct services. He asserted that public service is the business of government and as per capita income of the citizen’s increases, the size of the public sector responds by increasing growth. [17]

In Wagners view, as industrialization sets in, the population of the country concentrates seemingly in the urban areas thereby, creating congestion problem. This calls for increase resources to address such problems, hence the need for economic diversification. The increase in state activities or public expenditures on education, recreation, health and other welfare services calls for commensurate revenue to cater for them. The theory however, has its odds. Notable among these odds are the fact that it is organic and not articulated against the framework of needs.

The position of the theorist on the increasing rise of public expenditure in Gross National Product on the premise of responding to increase of per capita income does not suffice. This is because, share of public expenditure may decrease despite an increase in per capita depending on government’s policy. The Theory is western, and may not be applicable to Nigeria, even though it buttressed Nigerian phenomenon. The business environment are not exactly the same so also are the legislation on state policies and public service delivery. Theory of Public Expenditure Wiseman and Peacock [8], theory of public expenditure adopted a political dimension to explain public expenditure determination. They asserts that government has interest in spending whereas citizen do not like to pay taxes. However, they admonishes that government should pay more attention to the aspirations of the citizens. The theory further explained the circular trend of government expenditure pattern in response to developments. The theory assumed displacement hypothesis` syndrome which defines government expenditure as growing in stepwise pattern. This step wise approach typifies the system of government budgetary process -building on the outcome of each event to be able to start another, ensuring that each step is completed before embarking on another. This according to the proponents enhances control, oversight, increases efficiency and productivity, thus simplifying complex tasks. The theorists believe that government expenditures is a function of taxation or revenue. Therefore, adequate revenue must be mobilized to be able to cater for the needs of the people [19].

Empirical Literature

Olaleye, Edun, Taiwo [4], investigated export diversification and economic growth. The scope of their research covered on the period 1982-2012. Granger casualty test among others was adopted in the study that disclosed output increase of the agricultural sector, revealing crucial advancement in the welfare of persons. This situation aligned with one of the theories of the studies. Recommendation was made to the effect that consideration should be given to sectoral diversification in agriculture given the output level exposed in the test of agricultural sector. Anyanwu and Ojima [9] studied the impact of non-oil export on economic growth in Nigeria. Their study scope was for the period from 1986-2018. They choosed time series data and deployed the Augumented Dickey Fuller, Unit root test and Johansen co-integration test to synthesize the relationship of the exploratory variables. Variables showed positive association with the dependent variables leading to the recommendation of the study. It was therefore recommended that government should take steps to improve on the technological and scientific growth of the country to give room for diversification of the economy. Owan, Ndibe and Anyanwu [9], examined diversification and economic growth in Nigeria for the period from 1981-2016. Econometric approach was employed on the data collected using the OLS. Result of the analyses shows a positive coefficient on the non-oil gross domestic product proxy for economic growth. Recommendation made based on the findings were the intensification of processes of diversification and increased sectoral allocation for the non-oil business activities. United Nations Conference on Trade and Development UNCTAD [10], studied the relationship between export diversification and income inequality. The study sampled 182 countries and for the period, 1998-2018. Fixed effect model was assumed to assess the interaction between inequality and diversification. They statistically established linear and positive co-efficient of income inequality and export diversification, cutting across commodity dependence groups. This indicates that diversification of exports creates a rising income of the people. It thus, recommended inclusive policies that will promote diversification. Jauili and Khemission took assessment of the impact of economic diversification on graduate’s employment from 2005-2016 in Saudi Arabia. Findings of the study indicate a successful economic diversification contribution to increase job availability and recommended the necessity for the government to support diversification of the economy in order to create job opportunities and better the lots of the citizens Afrogha and Afrogha [11], investigated the implication of economic diversification in Nigeria (1986-2016). It was to determine if diversification of the economy could impact the Nigeria economic growth. It assumed the use of inferential statistical approach on secondary data [20]. The study further applied regression to measure the agricultural produce, manufacturing, mining among other independent variables, whereas the GDP was proxy for growth. Positive association was established among the explanatory variables. The researchers therefore, recommended governments increased participation in other sectors of the economy to boost sustainable growth economic growth.

Research Design

The study employed the ex-post facto and quasi experimental design to establish the link between variables selected for the study.

Independent Variables

The independent variables deployed for the research are the agricultural output, manufacturing output and the service sector output, whereas the dependent variable is environment. Revenue is represented in the study as GRvt

Data Source

The study obtained the data deployed for test in the presentations or tables below from the secondary data. Specifically information was obtained from Central Bank of Nigeria Statistical Bulletin.

Model Specification

GRvt      =              σo + σ1AGOt + σ2MFOt + σ3SSOt + µ           (1)

Explained thus

GRvt      =              Government revenue

AGOt      =              Agricultural sector output

MFOt     =              Manufacturing sector output

SSOt       =              Service sector output

ut            =              error term

Government revenue is influenced by the sectoral output. Thus, government revenue (GRVt) is a function of agricultural sector, manufacturing sector (MFOt) and service sector (SSOt) output. This means that government revenue depends on the contribution made by the sectoral output. If there is successful and full diversion of economy, the relationship of the variables will be positive and statistically significant.

Table 1: Results and Findings.

Source: Authors computation using E-views (2024)

In table 1 above, the descriptive analysis shows the mean, median, standard deviation, skewness and the kurtosis of the variables applied in the study. It reveals large standard deviations, which means that they are far from true mean. The Jarque-Bera probability shows that the variables, but for MFO has normal distribution, thus shows the need for further analysis.

Table 2: Unit Root Test.

Source: Authors computation using E-views (2024)

The unit root test show the variables integrated at mixed order hence bound test which show long run positive relationship among the variables. The F-statistic approximately 4.57 is higher than the upper critical bound at 5% critical value. This means long run correlationship among the study variables.

Table 3: Bounds Test for Cointegration.

Source: Authors computation using E-views (2024)

The bound test suggests a long run association between the    variables. This is as a result of the computed f-statistic which shows 4.57 higher than the critical value at 5%.

Table 4: ARDL Estimation.

Source: Authors computation using E-views (2024)

From the table, government revenue suggests evidence of error correction. The deviation from the short term demonstrated in government revenue adjusts in the long run equilibrium. These disequilibria noted in were corrected at the rate of 132%. The R2 value of 0.589815 shows a good fit of the model hence, 59 percent variation in government revenue explained the systematic change in the independent variables.

Table 5: Granger Casuality test.

Pairwise Granger Causality Tests

Date: 10/23/23 Time: 13:06

Sample: 1990 2022

Lags: 2

Source: Authors computation using E-views (2024)

The casuality test explores casual association between some set of the variables. It also shows its direction. In the table, government revenue granger cause manufacturing output and service sector output assuming unidirectional which defined that manufacturing output and service sector output causes change in government revenue over the period of study.

Figure 1: Cusum Test.

The test monitors changes in the system. Here it reveals the trend line found with the bounds of 5% degree of freedom and confirms the model as excellent.

Our analysis shows that government revenue are influenced by agricultural, manufacturing and service sector output. The influence of the agricultural output is crucial and pivotal. This position is in consonance with the position of the studies of Etea and Obodoechi [12], Abubakar and Ibrahim [13], Ekine and Onu [14] and Ogunbadejo and Oladipo [15], wherein, they advocated for government diversification particularly, the agricultural sector. This advice is apt and ripe for implementation noting that Nigeria has vast arable land thus, naturally endowed for such sectoral pursuit.

Again, the manufacturing sector was found to be materially related to the generation of government revenue. This finding associates with that of Owan, Ndibe and Anyanwu [9]. The role of the manufacturing sector cannot be under estimated in the promotion of export trade, enhancing the employment of the citizen, thereby and promoting the welfare of the people. Service sector which is inclusive of the telecommunication industry was also identified as pivotal to government revenue generation process.

The service sector is a crucial auxiliary sector that drives the economy and enhances the financial viability. Nasko [16], will contend of the important contribution of the sector to promoting government revenue generation. The viability of the service sector both in catering for the need of the agricultural and manufacturing sector by rending services and in revenue generation is significant. For instance, the sector which includes banking, transportation, and telecommunication helps to promote the agriculture and manufacturing process. This is very crucial as no business activity can successfully operate without the enormous and vital contribution of the service sector.

The study analyses importance of diversification of the economy and its contribution in revenue generation of the country as opposed to the over reliance on the oil economy. This is crucial because of the volatility of the oil market and in recognition of the huge debt profile of the country as a result of occasional instability experienced over the years in crude oil sale. Data set obtained from the secondary source subjected to ordinary linear regression, short, long run and stability tests shows the need to diversify the economy if the nation is to make progress in economic growth. Above all, finding concludes that agricultural output, manufacturing and service sector have positive and significant link with government revenue and by extension, the growth of Nigerian economy.

Recommendations

In view of the results and findings of the study, the following recommendations are in evitable

1. Deliberate investments should be made in the agricultural sector to provoke export earnings, ensure food security and create employment opportunities for the teeming unemployed population
2. Review of the tax policies to encourage foreign direct investment to boost revenue generation and grow local industries
3. Government should encourage sectoral allocation of credit facilities to these sectors to lure investment into those areas.

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