Paradox of Nigerias Economic Growth and Poverty Levels

March 22, 2012 / Proshare

The significant divergence between the Nigerian economic indicators, macro economics variables and the reality presents a source of concern. The growing disconnect between the improving macro economic indicators and the growing descent into poverty of over 100 million Nigerians clearly has both short term and long term implications. Statistics appear to grossly under-estimate the immensity of poverty that define Nigerias paradox of rich country with poor masses. More than 90% of Nigerians are poor and exist largely at the mercy of fate. These realities are much more obvious in rural areas and slums. In these places people die because they cannot afford N500 to purchase needed medication or basic public healthcare. Worse still, people around may not be able to help as they too may not be able to collectively raise that amount of money. It is a very obvious reality in todays Nigeria! As strange as it may sound, this is going on side-by-side with ostentatious living by the 1%! A factual indicator is the results of the harmonized Nigeria Living Standards Survey (HNLSS) conducted by the non-partisan National Bureau of Statistics (NBS) which puts the Nigerian poverty profile at 69% - this indicates that poverty and income inequality in the country have increased since 2003/2004. Accordingly, the NBS estimated that this trend may rise further if the potential positive impact of several anti-poverty and employment generation intervention programmes of government fall through. Since poverty and unemployment in Africa strongly correlate, it will not be surprising to assume that the unemployment rate is in excess of 40%. The official figure is nevertheless about 20% which analysts consider a gross under-estimation. But be that as it may, what is true is that we have a crisis which historically has been a platform for the creation of, and dynamic sustenance of other crises. Yet, if the January strikes provided any lesson, it must be the fact that the inequalities and fundamental imperfections in the macro-economic structure of Nigeria is unsustainable; and that our politics cannot crowd out the implosion that would ensue from this unaddressed problem. It is a trite fact that unemployment economically translates to low purchasing power leading to lesser consumption of goods and services. This in turn impacts on businesses who then have to lower production outputs (or seek new markets, an irony when we have the largest market in Africa). These cyclical behaviour ultimately impacts economic growth in the long term. It is this basic, and perhaps simplistic understanding that makes the touting of a continued growth in GDP curious; as it suggests we had more production in the country. Yet if total output was so impressive, the question must be asked as to why this is not reflected positively in the unemployment, poverty and income figures for the majority of its people. Further, it is curious how what should be our distinct advantage our 160million population size is now a burden on the sovereigns resources. Could it have something to do with the economic model that positions Nigeria as an input provider and an import dependent economy? Is it not possible that our policy of selling all our agricultural produces and mineral resources (cassava, cocoa, cashew, oil etc) as inputs to developed nations who has invested in PROCESSING/PRODUCTION and exports same back to us to consume is the underbelly of all our problems? Questions and more questions continue to agitate the mind. Yet, it is clear that we cannot continue to pretend about this reality anymore. Until we pursue a growth inclusive economic

model, we would continue to manage an economy that pushes the productive capacity of this country into irrelevance, and the people far into desperation. Shedding some light on the impending crisis, CBN Governor Mallam Sanusi Lamido Sanusi described the level of poverty as unacceptable because of the risk it poses to economic growth. According to Lamido ..at the heart of the problem is the governments economic policy which needs to change. The economy since SAP is one that supports imported consumption and not local production, perpetuating dependency, non inclusive growth and insecurity. Why is it that the economy is growing at 7pct annually but the people are getting poorer? The answer is simply because growth gains are not evenly distributed. Personal income is skewed towards people in the oil industry, Telecoms, high finance, stock market, real estate and yes civil servants and politicians who feed on corruption. We produce crude oil but import petroleum products (today the UKs highest exports to Nigeria are petroleum based products). We have a large cotton belt but import textiles from China (thus keeping their subsidized factories open and jobs in china). We are the world's number one producer of cassava but import cassava starch from Europe. We have a huge tomato belt in Kadawa, Jigawa and Chad Basin but are the world's largest importer of tomato paste - from China and Italy. We can produce rice but we import rice from Thailand and India-most of it from grain reserves that have been in stock for over 5 years. Today Promasidor imports powdered milk from New Zealand and packages in Nigeria using our foreign exchange while we have cattle. WAMCO imports milk from the UK and adds water and tins it and calls it "production" of Peak milk. We use our Forex to import petroleum products and keep refineries and jobs open in Europe. We don't create any value-added jobs as the only real production is peasant farming. Oil, Telecoms, finance and real estate are not employment intensive. So everyone becomes a civil servant as the economy cannot create jobs. In the 2012 budget, out of a total N1.8tr recurrent expenditure for the executive arm N1.6tr is on personnel costs not overheads. To reduce this you have to cut salaries or pensions or retrench civil servants. This is the classic trajectory of underdevelopment, de-development and de-industrialisation The most pitiable attribute of Nigeria society today is that majority of its members are living in a state of penury while the remaining relatively insignificant minority, are living in affluence. These distorted economic relations do not reflect the geographic spread of resource endowment; rather it is a product of class greed, injustice and poor leadership. GDP which quantifies the output of an economy has three main components which constitute it and they are Agriculture, Industry and Services. In Nigerias GDP computation, the economy is broken in two broad groups namely: Oil and Non-oil Sectors. Despite oil being the major source of revenue for the country, the non-oil sector continued to be a major driver of the Nigerian economy. In Q3 and Q4 2011, the sector grew at 8.81% and 9.07% respectively. The Q4 2011 growth was largely driven by improved activities in the telecommunications, Building & construction, Hotel & Restaurant, Business services and other sectors. In February 2012, the national bureau of statistics (NBS) said despite strong growth in Nigeria, Africa's second largest economy, the level of absolute poverty rose to 60.9 percent of the population in 2010 from 54.7 percent in 2004. The agency further said poverty is likely to worsen this year as wealth inequality continues to widen. Absolute poverty, which is measured by the number of people who can afford only the bare essentials

of shelter, food and clothing, showed that almost 112 million people in Nigeria were living on less than $1 a day in 2010, 61.2 percent of the population, compared with 51.6 percent in 2004. Contrast this with the statement by the NBS that Nigerias vision to be among the 20 largest economies in the world by the year 2020 which is measured by GDP remained on track as only 2 countries (Mongolia at 14.9% and China at 8.9%) out of the 46 that had released their Q4 GDP estimates at the time of this report grew faster than Nigeria and only one of the two, China is ahead of Nigeria in current GDP rankings. How does one explain away this paradox?
GDP Outlook Across the Globe Country
2011 Q4 2011 Q3 2011 Q2 2011 Q1 2010 Q4 2010 Q3 2010 Q2 2010 Q1 2009 Q4 2009 Q3

Australia Austria Belgium Brazil Bulgaria Canada China Czech Republic Denmark Egypt Estonia Euro Area Finland France Germany Greece Hong Kong Hungary Iceland India Indonesia Israel Italy Japan Latvia Lithuania Malaysia Mexico Netherlands Nigeria Norway Peru Philippines Poland Portugal Romania Singapore Slovakia Slovenia South Africa South Korea Spain

2.30 1.20 1.00 1.40 1.60 2.20 8.90 0.60 0.70 0.40 4.50 0.70 1.40 1.41 1.50 -7.50 3.00 1.40 2.70 6.10 6.50 3.90 -0.40 -0.60 5.70 4.30 5.20 3.70 -0.70 7.68 1.50 5.50 3.70 4.30 -2.80 1.90 3.60 3.30 -2.80 2.90 3.40 0.30

2.50 2.50 1.60 2.10 1.30 2.60 9.10 1.20 0.00 0.20 8.50 1.30 2.70 1.55 2.60 -5.00 4.30 1.40 3.80 6.90 6.50 4.70 0.20 -0.40 6.60 6.70 5.80 4.50 1.10 7.40 4.00 6.70 3.60 4.20 -1.90 2.60 6.00 3.00 -0.50 3.10 3.50 0.80

1.10 3.90 2.20 3.30 2.00 2.10 9.50 2.20 1.70 0.40 8.40 1.60 2.90 1.67 3.00 -7.30 5.00 1.50 1.80 7.70 6.50 5.00 0.80 -1.70 5.60 6.50 4.30 3.20 1.60 7.72 -0.40 6.90 3.10 4.30 -1.10 0.30 0.90 3.30 0.70 3.00 3.40 0.70

1.20 4.20 2.90 4.20 1.50 2.90 9.70 2.80 1.70 -4.20 8.50 2.40 5.50 2.10 4.70 -8.00 7.50 2.40 3.80 7.80 6.50 5.70 0.80 -0.30 3.50 5.90 4.90 4.50 2.80 7.69 0.90 8.80 4.60 4.40 -0.60 0.30 9.10 3.50 2.10 3.50 4.20 0.80

3.00 3.20 2.10 5.30 3.10 3.30 9.80 2.70 2.90 3.80 6.80 1.90 5.50 1.40 3.80 -8.60 6.40 1.90 -0.10 8.30 6.90 5.70 1.60 3.10 3.60 4.80 4.80 4.40 2.30 8.36 1.30 9.20 6.10 4.50 1.00 -0.60 12.00 3.50 2.10 3.80 4.70 0.60

2.70 2.60 2.00 6.90 0.30 3.80 9.60 2.60 3.43 5.50 5.40 2.00 3.10 1.70 3.90 -4.60 6.90 1.70 -3.20 8.90 5.80 5.10 1.50 5.40 2.80 0.80 5.30 5.10 1.80 7.86 -1.10 9.60 7.30 4.20 1.30 -2.20 10.50 3.80 1.70 2.70 4.40 0.20

3.30 2.40 2.70 8.80 1.00 3.60 10.30 2.34 2.83 5.10 3.10 2.00 4.70 1.60 4.30 -0.70 6.70 1.00 -6.20 9.30 6.17 4.80 1.60 4.40 -2.60 0.90 9.00 7.60 2.10 7.69 1.80 10.02 8.90 3.40 1.70 -0.40 19.40 4.20 2.10 3.10 7.50 0.00

2.70 0.20 1.70 9.30 -4.80 2.10 11.90 1.20 -0.91 5.80 -2.60 0.60 -0.50 1.20 2.50 0.40 8.00 0.10 -6.60 9.40 5.69 3.80 1.00 4.80 -6.10 -0.90 10.10 4.50 0.50 7.36 -0.70 6.16 8.40 3.00 1.70 -2.20 16.40 4.70 -1.20 1.70 8.50 -1.40

2.80 -0.90 -0.10 5.30 -7.60 -1.40 10.70 -3.23 -3.08 5.00 -9.00 -2.10 -5.50 -0.50 -1.30 -0.80 2.50 -4.30 -8.60 7.30 5.43 1.80 -2.90 -0.50 -16.80 -15.30 4.60 -2.00 -2.00 7.67 -1.20 3.44 1.40 3.20 -1.50 -6.50 4.60 -3.60 -5.70 -0.60 6.30 -3.00

0.90 -3.60 -2.70 -1.50 -5.00 -3.50 9.10 -4.41 -6.04 4.60 -15.30 -4.10 -8.30 -2.60 -4.40 -3.50 -2.40 -6.74 -6.50 8.60 4.16 0.11 -4.60 -5.60 -19.10 -14.40 -1.20 -5.50 -3.30 7.30 -1.30 -0.59 0.50 1.70 -2.50 -7.10 2.10 -5.00 -8.80 -2.10 1.00 -3.90

Sweden 1.10 4.60 Switzerland 1.30 1.60 Taiwan 1.90 3.37 Ukraine 4.60 6.60 United 0.80 0.50 Kingdom United States 1.60 1.50 Venezuela 4.90 4.20 Vietnam 6.10 6.07 Source: Trading Economics/Proshare

4.90 2.30 5.02 3.80 0.60 1.60 2.50 5.68

6.40 2.50 6.16 5.30 1.60 2.20 4.80 5.57

7.70 3.10 7.13 3.30 1.50 3.10 0.60 7.34

6.60 2.60 10.69 3.60 2.70 3.50 -0.30 7.18

4.50 2.60 12.86 5.50 1.60 3.30 -2.00 6.40

2.80 1.94 13.59 4.80 -0.20 2.20 -5.10 5.83

-1.80 0.30 9.24 -6.70 -2.90 -0.50 -5.90 6.90

-6.40 -1.70 -1.21 -15.70 -5.30 -3.70 -4.60 6.09

References:

1. Revenue Allocation, Insecurity & Poverty in Northern Nigeria 2. Nigerian Poverty Profile Report 2010 - NBS 3. Surprise! Surprise!! Nigerias Inflation Eases to 11.9% in February - FDC Economic Bulletin - March 4. Nigeria: An African emerging economy with prospects. 5. Nigerias consumer inflation drops to 11.9% in Feb as against 12.6% in Jan 2012 6. Business and Economic Review for February 2012 - RTC 7. FDC Monthly Economic Review for March 2012 8. Nigeria economy picks up on non-oil sector growth 9. Poverty, Anger & Instability in Nigeria - An Appraisal 10. Sanusi predicts increase in Nigerias poverty level 11. The Distribution of Nigerias Wealth amongst the States of the Federation: 2008 - 2010 12. Subsidy Removal In our Best Interest! DISCLAIMER/ADVICE TO READERS:
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Olufemi AWOYEMI, FCA, ACIT is a thought-led analyst/consultant.