Published Mar 2012 - Updated Apr 2013
Why is Nigeria poor?
Poverty in Nigeria has been a problem for more than 50% of the population in the past 10 years, with surges over 60%.
In 1980 however a little less than
30% of Nigerians were living below the poverty line.
I fact it seems there has been no real change in Nigerians’ living standards, while living standards worldwide have been increasing, thus including goods that are vital for social inclusion (access to radio, TV, telecommunications).
A Nigerian study points out that considering its income per capita only, nothing has changed since 1970. Nevertheless at the same time the country has become richer and richer thanks to the exploitation of its oil resources.
So despite being the 3rd biggest economy in Africa,
Nigeria ranks around 160th out of 177 countries on the scale of the
Human Development Index (HDI).
Poverty in Nigeria is essentially a rural issue. Therefore experts usually consider access to banking and micro-credit services crucial to help local farmers invest in agriculture, be it for crops, machines, transport vehicles and so forth.
Given the country's high unemployment rate, this means that entrepreneurship is key to reducing poverty in Nigeria and that obstacles to business creation - such as corruption - are barring the country from its right to development.
Nigeria is a rather large country with a population of more than 140
million, making it the most populous country in Africa. Unlike East
African countries, in the West many regions such as Nigeria benefit from
a tropical climate with lush vegetation and a diverse range of crops
that grow all year round. This highlights just how important agriculture
is to reducing poverty in Nigeria.
The country should be part of the biggest exporters of a variety of products, and a much larger proportion of Nigerians should reap the fruits of this trade. In general, whenever the country experiences periods of economic growth, they match improvements in agriculture. It provides tons of food, jobs, raw material for other sectors (e.g. cattle) and higher income. Even today as the service sector is taking off; agriculture remains an important aspect in the country’s economy.
Several studies confirmed what was obvious to everyone: people with larger farm land, those with access to loans (e.g. micro-credit) or production assets, as well as people closer to local markets all showed much lower poverty rates than the rest.
Integrating thousands of households into local markets and teaching more advanced agricultural techniques are also essential aspects to reducing poverty in Nigeria. In many ways this implies more government intervention, at least to invest in basic infrastructure such as roads and cheap public transportation so that people are given the opportunity to go to town and sell their crops.
Nigeria is another good example of how poverty and macroeconomic
shocks are related. It has been just as relevant to the recent global
economic crisis as it has been to the previous crises in the 1980s.
Back then it led to a massive surge in poverty - from 20% to 40% - with unemployment, inflation, debt and a fiscal deficit. Despite the oil money that started flowing in... where did that money go?
Macroeconomy and rural poverty
Nigeria is part of that group of African countries that has no real reason to account for its perpetually high poverty rates. No other reason than corruption or incompetence, perhaps. After many attempts to stabilize their economy, macroeconomic reforms in the 1980s finally worked well. Surprisingly their positive effects on the economy did not trickle down (as the theory would have) to the rest of the population. No, it's a joke: it's not a surprise. The same has happened in many countries, and on the contrary, poverty increased instead.
As said before, poverty in Nigeria is mostly rural. Macroeconomic shocks tend to affect rural areas much more than cities. Poverty, for example, is expected to decline by more than 40% in cities, but it is to increase by over 7% in rural areas.
It is usually the case - as with most other African countries - that the larger a family is, the smaller is its income. It's the age-old traditional pension system. Amass enough children so that a significant number of them survives and pay for your old days. Things are still this way because child mortality is still far too high and due to limited access to education, overall income remains low.
In the eyes of many experts, the best way to increase income is to help local businesses flourish. In other words, spur entrepreneurship. But even then, considering that almost 40% of entrepreneurs in Nigeria have secondary education, you would still need to help with access to schools and further education. It also means that institutions should also focus on practical skills training as well. Likewise, many advocacy groups argue that the 9 years of compulsory education should be extended to 12 years.
Most of these issues also call for a real investment in infrastructure, be it in education & schools, roads or the market economy. This would then lead to the creation of a great deal of jobs which would not only raise the income of the population, but also increase its human capital as people are able to work and improve their skills. From that, more human capital would mean more income and ultimately… less poverty.
Among other barriers to entrepreneurs are the high prices of agricultural input and the lack of capital to expand their businesses. This shows how important it is for government to stop or limit speculating on food prices in stock markets and that there might be a need to regulate these basic prices for developing countries, just as China used to do and still does to a lesser extent. Reducing rural poverty in Nigeria needs targeted development programs rather than nationwide ones. This is critical, as there are especially high poverty rates in oil-producing provinces, showing a complete lack of redistribution of resources and wealth.
Amongst the factors that most feed the cycle of poverty in Nigeria and
other West African countries are mass unemployment and lack of
productivity. Unemployment causes the huge human waste you are all
familiar with, and includes issues of income, well-being and diseases
that can all be attributed to this. A lack in productivity means a lack
of supply in goods and services in the country.
A study of women entrepreneurs in Nigeria revealed very interesting aspects that can help with poverty in Nigeria. For a majority of women, what drove them to entrepreneurship was mostly the ideal of gaining control of their lives and/or make more money. But for a third of them, it was also because they had no other choice since no there was no job to be found around town. But the main discovery was about cultural differences in the way entrepreneurship is perceived.
While in the West entrepreneurship is often viewed as a male domain, the studies reveals that in Nigeria (and possibly other West African countries), a great majority of women saw opportunities to become entrepreneurs as available to both men and women. Most of these women were married, often had children, and relied on family members or friends as role models. This shows how family and social dynamics are important to improve the conditions of women, and thus family income and poverty in Nigeria.
The main problems remained those of entry barriers into the market. Namely the difficulties in setting up a business (legally and administratively speaking) and issues with women's access to credit. In this regard, microfinance is a major driver of female entrepreneurship in the country and continued access to credit is key to continuing this trend.
Because of the importance given to banks and financial services, a system of community banking was established early on in the 1990s. These banks were expected to provide micro-finance services but also basic banking services such as deposits and savings, all while encouraging investment. If most of the Nigerian government has been trying to help local farmers excluded from markets, banks have on the contrary been granting loans mostly to trade-related activities, which imply short term gains.
This was pretty much the opposite of what they were expected to do since
experts were mostly counting on community banking to develop the
country’s agriculture and manufacture. But these are more long term
goals and represent gains that haven't been very attractive to new
bankers. That’s why more and more experts have been recently arguing
that the state is usually among the best investors (or bankers) for
developing countries because it’s somewhat more able to keep in sight
the long term development goals (see the examples of Japan, South Korea,
China… but also almost every Western country during the industrial
revolution). The biggest problem in Nigeria however remains that of
corruption and the lack of political will to develop the country.
This is mostly the reason why private and/or foreign microfinance initiatives have been expanding so well. But the government still has a role to play in building a proper legal environment for the development of rural finance. Without the right legal framework, people (and businesses) are often more exposed to corruption and scams of all kinds. As they exist now in Nigeria, community banks are not suited to the poor. They should focus on opportunities to create more jobs in agriculture, help women create businesses, and provide services more adapted to the needs of the poor (in terms of loan sizes, repayment mechanisms etc).
Corruption in Nigeria and to a greater extent in Africa remains the most
important obstacle, if not nuisance, to economic and social
development. It threatens the achievement of the MDGs (Millennium
Development Goals) and the existence of the Nigerian state itself. Corruption in Nigeria affects ethnic groups in different ways, often
creating privileged groups and excluded ones.
So far, all attempts to tackle corruption in the country have failed for many reasons. First, politics are openly deemed the best way to become rich (before any political agenda whatsoever). Secondly, and as a consequence of this, there is no true political will to fight corruption. On the contrary this would affect politicians’ businesses. Thirdly the great ethnic diversity in Nigeria contributes to the lack of national cohesion and opposition to the problem of corruption.
What is frustrating is that Nigeria does have the financial resources to fight corruption and develop proper law enforcement agencies. Hell, the government must have enough money to solve a huge part of poverty in Nigeria on its own. If waste and corruption were overcome, money could finally go to the country’s infrastructure: hospitals, running water, education system, etc… Corruption remains the main cause of systematic waste of the country’s resources, and therefore the main cause of poverty in Nigeria. On the bright side, since President Jonathan - and despite the many controversies and recent terrorist bombings under his presidency - the pace of reforms has been a lot faster and Nigeria has enjoyed a GDP growth around 7%. Not enough to meet the MDGs, but still somewhat substantial.