Why Economic Growth cannot be a Sufficient Condition for Poverty Alleviation in Nigeria

Nigeria as the biggest economy in Africa is progressively playing more important role in the global economy, it has had constant high economic growth rate over the past decade. While these growths have led to significant reductions in poverty rate in the country, there are concerns if the growths were fairly spread across different population groups in the society.

Recent development in achieving sustainable growth and development has re-established the importance of inclusive growth in Nigeria specifically and in developing countries in general.

Even though, there seems not to be a common definition of the concept of inclusive growth. It is however, largely understood to be growth coupled with equal opportunities. Inclusive growth is an unbiased and equal opportunities growth that focuses on two main criteria one on process, in the sense that the actual growth involves the participation of people; two on the nature of the distribution of benefits of the growth, in that everyone has access.

Inclusive growth is economic growth generally based on inputs from and benefits to many people in the society, it aims at ensuring that economic opportunities created by growth are accessible to all, irrespective of ethnicity, specialty, political or religion affiliation to the maximum extent possible. Inclusive growth involves a long-term perspective and focuses on generating decent employment in order to increase the income of excluded groups.

It can be understood from the above that while economic growth forms the basis for inclusive development and prosperity in many countries like Nigeria it does not translate into automatic poverty reduction; neither does it ensure that the benefits of growth are equally distributed.

After several structural and institutional changes, the growth model and processes followed by successive governments in Nigeria over the past few decades have not generated enough good-quality jobs; and in addition, the social protection mechanisms put in place by government are either weak or inadequate. This makes it difficult for vulnerable groups to participate in the economic growth process and for the benefits of growth to be evenly distributed.

High poverty rate and poverty alleviation are undeniably two of the major challenges facing Nigeria today as a country amidst its great economic growth performance; inclusive growth is therefore the necessary strategy in fast-tracking the progress in poverty alleviation in Nigeria through the generation of productive employment opportunities, enhancement of equity in opportunities and active participation of the poor and redistribution of income.

Recent economic indicators and developments have raised concerns that the recent growth experienced in Nigeria might not have been inclusive and that more needs to be done to ensure that growth is broad-based and touching the lives of vulnerable populace in the society in a positive way.

For instance, the steady growth in agriculture sector’s contribution to GDP from N7, 488 billion to N8, 085 billion and N9, 719 billion were also accompanied with rising domestic food inflation from 3.90% in 2006 to 8.20% in 2007 and further to 18.0% in 2008 respectively. This food price shock alone pushed a few million below the food poverty threshold during the periods.

According to United Nation, the proportion of people living in extreme poverty ($1 per day) fell from 47 per cent in 1990 to 27 per cent in 2005 and 22 per cent in 2010. Despite this positive development, in many countries, particularly in Africa and LDCs, recent growth has also been associated with an increase in the absolute number of poor people.

The upward trends in income inequality across most developing economies of the world highlight the importance of enhancing equal opportunities and accessibility to economic growth benefits. For example, in sub-Saharan Africa the number of poor people rose from 289.7 million in 1990 to 413.8 million in 2010. This no doubt includes Nigeria which has economic growth rate hovering between 6.5 – 7.5 per cent in the last few years.

In the 2013 Millennium Development Goals (MDGs) Report in Nigeria, the quintile distribution of population by share of total national consumption expenditure shows that the poorest 20% of the population accounted for share of the national consumption expenditure of 5.90% in 2004 to 5.50% in 2010, while the richest 20% account for share of total national consumption expenditure of 47.20% to 50.40% in the same period.

The above means in other words that the poorest 20% of the population consumed only 5.9% or 5.5% of the total goods and services available for consumption in 2004 and 2010 respectively while the richest 20% of the population consumed 47.20% and 50.40% of the total goods and services offered for sales and consumption in the same periods. This indicates the wide income inequality in Nigeria.

What are are the likely causes of exclusive economic growth in Nigeria? To answer this question, we shall be analysing the nature of economic growth in Nigeria.

With high growth rate enjoyed by Nigeria over the past decade, the economy is yet to create sufficient jobs that can adequately address the rapidly growing unemployment rate in the labour market and thus leading to jobless growth.

For instance the real GDP growth rate of 7.0%, 7.90% and 7.40% was accompanied with an increasing 19.7%, 21.14% and 23.90% unemployment growth rate in 2009, 2010 and 2011 respectively. This may be because, the economy is yet to go through the process of genuine structural transformation, which is normally characterised with a shift from low to high productivity activities within and across sectors; and an increase in the share of manufacturing and modern services in GDP as incomes rise.

Rather, the structural transformation observed in Nigeria has been marked by an expansion of the services sector especially telecommunication sub-sector and without significant manufacturing sector development. Growth in the manufacturing sector has been dominated by low-productivity activities which mostly takes place in the informal sector. 

Given that the potential for employment creation is very high in manufacturing and a large percentage of the labour force in Nigeria is in agriculture, the increasing dominance of the services sector must have had a negative impact on employment in the country.

In addition to this, another reason why recent growth has not led to significant employment creation in Nigeria being a mineral and oil-rich country is the dominant role of the extractive industries in the production process. Since these industries are capital and not labour-intensive, they seem to operate in an enclave with very limited linkages to the local economy thereby limiting the potential for employment creation.

In summing all these, the available data suggest that robust economic growth in the past few years would not have generated perceptible gains in employment and wages nor resulted in inclusive growth and significant poverty alleviation.

The above is because, the combination of jobless growth which gives rise to incidence of poverty and income inequality and inflationary pressures on the economy could have jointly contributed significantly to the emergence of a more difficult economic, social and political disaster. How to reverse this current trend is a major policy challenge that the current Nigerian government should be more critical about.

Another factor that explains why growth has not been inclusive in Nigeria can be related to the lack of sufficient and effective mechanisms to distribute the benefits of economic growth. There is therefore the need for appropriate social inclusion policies in Nigeria.

Indeed, growth and social exclusion often co-exist, and growth has often led to an increasing existing inequality, jeopardizing social cohesion and political stability. Therefore, for the government to redistribute the benefits of economic growth, lower inequalities and poverty, and to ensure that vulnerable populace can actively take part in the growth process, there is need to implement well-designed schemes, which include social protection programmes.

These programmes can play crucial roles in reducing people’s exposure to uncertainties. They will enhance the capacity of individuals to protect themselves against loss of income and other events that can push people into poverty line. The social inclusion policies will particularly be useful in enhancing the participation of vulnerable groups such as women and children in the Nigeria economic growth process.

Social inclusiveness can be achieved by investing in education, health and other social services to enhance human capacities, promote economic and social justice and provision of social safety nets to prevent extreme deprivation of opportunities.

Even though they have been some poverty alleviation programmes and schemes implementation in Nigeria people seem to have inadequate access to these schemes that would enable them to cope with life uncertainties.

Tackling poverty is critical to sustainable economic growth and development in Nigeria. The persistent high poverty amidst better growth performance underscores some underlying structural and institutional weaknesses. As a result of this, addressing the issue of social inclusion should be the priority agenda of the Nigerian government, if they wish to build inclusive and sustainable economic growth and society in the long run.

The prospects for poverty reduction rest with a comprehensive and integrated approach to tackling intra-sector and inter-sector constraints and weaknesses. It is based on the above that we shall be discussing financial inclusion and economic growth and development in Nigeria in the next post.