The Economics of Poverty in Nigeria

 

A future of poverty?

Poverty is a major challenge facing Nigeria. Despite being one of the largest economies in Africa, Nigeria still has a high poverty rate. In this article, let us explore the economics of poverty in Nigeria, its causes, and its impact on the country's economy.

Abraham Maslow was an American Psychologist, who proposed the hierarchy of needs theory in the 1940s. This classic depiction of human motivation assumed that there was a hierarchy of five (5) needs within every individual:

1. Physiological needs: These are the basic needs of air, water, food, clothing and shelter. In other words, physiological needs are the needs for basic amenities of life.
2. Safety needs: Safety needs include physical, environmental and emotional safety and protection. For instance- Job security, financial security, protection from animals, family security, health security, etc.
3. Social needs: Social needs include the need for love, affection, care, belongingness, and friendship.
4. Esteem needs: Esteem needs are of two types: internal esteem needs (self- respect, confidence, competence, achievement and freedom) and external esteem needs (recognition, power, status, attention and admiration).
5. Self-actualization need: This includes the urge to become what you are capable of becoming/what you have the potential to become.

Against this backdrop, it is evident that extreme poverty deprives human beings of the most basic needs for survival and creates a petri dish for numerous socio-economic problems.

The rise of poverty

There has always been poverty in Nigeria but the alarming scale at which it has affected the majority of the population in recent times is a serious cause for concern and an indictment on the country's leadership. The percentage of people living in extreme poverty has increased dramatically, with Nigeria being given the embarrassing title of "Poverty Capital of the World" in 2021, with India a close 2nd. This is despite India having a population of about 1.4 billion (about 7 times that of Nigeria!).

Nigeria has implemented various economic policies over the years, such as the Structural Adjustment Program (SAP), the National Economic Empowerment and Development Strategy (NEEDS), and the Vision 2020. However, despite the implementation of these policies, the poverty rate in Nigeria continues to rise.

Multidimensional Poverty

One of the main causes of poverty in Nigeria is the lack of economic opportunities. There are not enough jobs to go around, and many people are unable to find meaningful work. This means that people are unable to earn a decent income and are forced to live in poverty. Nigeria's current unemployment figures, as reported by the National Bureau of Statistics, stands at over 33%. This figure is exacerbated when we consider the underemployment figures - that is those that are employed but not in jobs that utilize their full capacity i.e. low-skilled, low-paying jobs. It is no coincidence that the regions in Nigeria with the lowest figures for economic activity also have the highest percentage of people living in abject poverty. The inability of successive governments to create an enabling environment for business to thrive has largely contributed to the current socio-economic malaise.

According to recent statistics from the 2022 World Inequality Report, 42.7% of the average income in Nigeria is earned by the top 10% of the population. The bottom 50% of the population earn a miserly 15.5% of the average income in Nigeria.

Another cause of poverty in Nigeria is inequality. The gap between the rich and the poor is wide, and this means that many people are unable to access the resources they need to escape poverty. Inequality also means that those who are already wealthy are better placed to take advantage of economic opportunities, leaving those who are less well-off behind. A case in point, when affordable housing developments are created, they are often bought up by those that have the liquidity and put up for rent or resold at higher prices that make them unaffordable to the already struggling average Nigerian. This also plays out in access to financial services (specifically credit). The stringent requirements imposed by banks and other financial institutions for accessing credit facilities often mean that those that need it the most (individuals and small businesses) are often disenfranchised due to not being able to meet up with requirements e.g. collateral or cashflow requirements. The banks, however still need to lend as the major part of their business so end up mainly lending to the high net-worth individuals and major corporates.

Poverty has a negative impact on the Nigerian economy. When people are living in poverty, they are unable to contribute to the economy in meaningful ways. They are unproductive and may resort to crime and other illicit activities to survive, which negatively impacts the business environment. They are unable to buy goods and services, which means that businesses are unable to sell their products. This can lead to decreased economic activity, (which is evident by our crippled MSME sector) and lower economic growth. The supposed largest economy in Africa has failed to grow by more than 3% in almost 10 years, yet has an annual birth rate of almost 4%! Tick. Tick.. Tick... That is the ticking timebomb of the major socio-economic challenges brewing if these issues are not addressed. Criminality and insecurity are doing press ups!

Hunger Games

Poverty also has a negative impact on health and education. When people are living in poverty, they are more likely to be malnourished and less likely to access healthcare. This means that they are less productive and less able to participate in the economy. Additionally, when children are unable to access education, they are less likely to reach their full potential, which can limit their future economic opportunities. If the children are the future, what sort of future are they going to encounter?!

To address the problem of poverty in Nigeria, there needs to be a focus on creating economic opportunities. This can be done through the creation of jobs and the provision of training and education. Nigeria should be the production hub for the entire West (or even sub-Saharan) African region! The African Continental Free Trade Area (AfCFTA) provides a wonderful opportunity to achieve this but there must be caution. With the over 200m+ population, Nigeria needs to be a major producer, or will end up as a major consumer (i.e. import focused) of all the goods in Africa to the detriment of the economy once again.

There also needs to be a focus on reducing inequality, through policies that redistribute resources and provide access to opportunities for all. Consequently, this would provide a better environment for the wealthy to become even wealthier! How so? Well, a population that has been able to fulfill some of its basic needs on Maslow's hierarchy, will tend to be more productive, more innovative, more protective of its environment. A more stable environment creates a better opportunity for development and wealth enhancement. It is no coincidence that the majority of the world's billionaires emerge from politically and socio-economically stable countries.

Investment in infrastructure is also important for reducing poverty in Nigeria. When there is good infrastructure, businesses are more likely to invest, which can create jobs and stimulate economic growth. Additionally, access to basic services such as water, electricity, and healthcare can help to improve the quality of life of those living in poverty.

The richest man in Africa is Nigerian

To sum up, poverty is a major challenge facing Nigeria. It has a negative impact on the economy, health, and education. Poverty has been politicized and weaponized to suit the needs of the very few to the detriment of the majority. It speak volumes that in a country with a population of over 200 million, Nigeria has the most poverty per capita, yet has the richest African (according to Forbes sha!). To address the problem of poverty, there needs to be a focus on creating economic opportunities (mass industrialization), reducing inequality (equitable fiscal & monetary policies), and investing in infrastructure (productive capital expenditure). By doing so, Nigeria can become a more prosperous and inclusive country, with a higher standard of living for all its citizens... And eventually more global billionaires!

Thanks for taking time out to read this article. Please feel free to send me a message or comment on the article. I am always happy to discuss other perspectives and explore different philosophies.