Income Disparity, Poverty in Nigeria Depict Defective Macroeconomic Structure

Widening income inequalities and growing poverty in Nigeria are not moving in tandem with the nation's Gross Domestic Product. This has forced economists to conclude that the disparate trend typifies the imperfections in the country's macroeconomic structure, reports Festus Akanbi

There's no doubt that the National Bureau of Statistics' report on the rising level of poverty in Nigeria, made public a fortnight ago, may have provided some insight into the growing frustration and the attendant rising wave of violence in some parts of the country in recent times. The report showed that 60.9 per cent of the Nigerian population or approximately 100 million people lived in abject poverty in 2010. It went further to state that this class of people lives on less than $1 or N160 a day.

Reacting to the NBS report, economists observed that what was more startling was that income inequalities were not in lockstep with the nation's growth rate of 7.87 per cent in 2010. In other words, the rich are getting richer and the poor are sinking deeper into poverty. The NBS data showed that the percentage of Nigerians living in abject poverty has increased from 54 percent in 2004 to 61 percent in 2010.

Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, in his analysis of the NBS data, said the document and trend raises two fundamental questions. One was why income disparities are increasing and the second was the consequences of this unhealthy trend?

However, just as Nigerians were absorbing the NBS data on the rate of poverty, the organisation in another report last week, released the inflation figure for the month of January, putting it at 12.6 per cent, as against 10.3 percent in December 2011.

Income Inequalities

According to the NBS report, a critical measure of poverty is the gini coefficient, which the London Head of Macroeconomics, Standard Chartered Bank, Ms. Razia Khan, described as a measure of income inequalities that is used in many places. According to her, if the gini coefficient in a country or region is high, as in South Africa, then it means that the income inequality is high. 

The latest data from NBS showed that in 2004, the gini coefficient was 0.4296 whereas in 2010 it was 0.4470, indicating that inequality increased by 4.1 percent nationally. The development, according to economic analysts, has created a stratified society and is capable of fueling distrust and hopelessness among the people in the disadvantaged regions of the country.

The data churned out by NBS also showed that despite the fact that the Nigerian economy was paradoxically growing, the proportion of Nigerians living in poverty was increasing every year. The proportion of the population living below the poverty line increased significantly from 1980 to 2004, indicated the NBS.

The report lent credence to a publication last year which suggested that the GDP per capita between the northern and southern parts of the country was widening. The report showed that the GDP per capita in the south was twice that of the north.

GDP per capita is the GDP (total income) of a country, divided by its population. It shows how much money people earn on average. So while GDP is the dollar value of all goods and services produced within a country, state or city's borders in a given year, when divided by the population in a given year, it gives the GDP per capita.

Given that Nigeria's 36 states have been regrouped into six geopolitical zones - north-central, north-east, north-west, south-east, south-south and the southwest - this arrangement is generally accepted and used by the political class to facilitate the balancing of the distribution of appointments and nominations within parties and governments, to reflect the federal character. However, the NBS's report showed clearly that while the standard of living fell alarmingly in the northern parts of the country, the situation was the opposite in the south.

Rewane explained that whenever income inequalities are an increasing function of time, it is usually as a result of fundamental imperfections in the macroeconomic structure of the country. He also blamed it on the consequences and fall out of state-owned monopolies, regime sponsored oligarchs, and an entrenched form of crony capitalism.
Drawing a parallel between rising inequalities and the wave of violence in certain parts of the country, Rewane said: “It is important to understand that the poverty is infinitely more intense in the northern parts of Nigeria. Sokoto State, for instance, has the highest poverty rate of 86.4 percent and Borno has 77.7 percent. There is therefore the likely correlation between poverty, anger and resentment of government in that region.”

Economic Distortions

The FDC boss stated that the CBN governor, Mallam Sanusi Lamido Sanusi was courageous enough to start this very important conversation and debate about the link between poverty and group anger. “This has not gone down well with some people. But what is wrong with a healthy debate, we don't have to agree on everything,” he noted.

He stressed the need to tackle unemployment by incentivising labour and capital intensive investments in the rural parts of Nigeria. The answer, according to him, is not in allocating more money to inefficient and corrupt state governments, adding that the January protests were more against corruption, leakages in the economy, lack of transparency, and inefficiencies, than against legitimacy.

“The government must now earn its credibility by identifying corruption and punishing high profile officials and culprits. It is only by a consistent, credible and pragmatic programme that goes to the structural causes of poverty that the government can get back the trust of the people,” he added.

When confronted with the fact that the spate of violence orchestrated largely by the Boko Haram sect in the north could deter investment in the area, Rewane said the Nigerian government cannot wait till eternity for the violence to stop before it puts in place adequate measures to increase prosperity in the area. He argued that government was able to negotiate with the Niger Delta militants, after which development was taken to the area, wondering why similar efforts cannot be made in the north.

He cited the Angola example, saying the area was in turmoil; yet, investors still found the place a haven. The FDC boss explained that what private investors need urgently was government backing, explaining that the situation will change for the better if investment is taken to the region. Rewane stated that mass poverty can lead to a class war especially in homogenous societies, citing France during the French revolution and Romania after the fall of Communism as examples.

“However in non-industrialised economies like Nigeria with ethnic and sectarian diversity, the class struggle could manifest itself in religious intolerance, ethnic xenophobia and threats to national security. Mass poverty and a future without hope leads to widespread resentment and a public backlash against the government, constituted authority and the elite.

“There are examples of how the resentment of the Niger Delta citizens transformed an environmental issue into a struggle for resource control and finally into militancy, kidnapping, bunkering, etc. We are witnessing the radicalisation of North-eastern Nigeria into religious intolerance and political brinkmanship. These threats to national security are probably the symptoms of long years of mass structural poverty in a society where hopelessness and despair are gradually displacing optimism and confidence.”

Similarly, a senior lecturer in the Department of Economics, University of Lagos, and Dr. Babatunde Adeoye, observed that political leaders in the north cannot be exempted from blame for their failure to impact positively on their environment. He maintained that increasing monthly revenue allocation to the states in the north will not make any difference unless there is a genuine determination of the ruling class to bring development to the people of the area.

One of the ways to bridge the gap between the south and the north, according to him, is to focus on education. He maintained that once the people in the north are educated, they will be in position to ask for their rights in a non-violent way.

Adeoye pointed out that the NBS data has corroborated the position of the United Nations Development Programme in 2011, which ranked Nigeria 142 out of 169 countries surveyed and categorised as a low human development economy in 2010.

According to him, the report further indicated that out of the total population in 2000-2010, 63.5 per cent were suffering from at least three deprivations as a measure of multi-dimensional poverty and the intensity of deprivation was estimated at 57.9 per cent; 42.4 per cent, 59.5 per cent and 72.1 per cent. These people were severely deprived in education, health and living standards respectively, while 64.4 per cent of the total population lived below the poverty line of $1.25 a day.

These indicators revealed that majority of Nigerians still suffered from high intensity of deprivation and a high incidence of multi-dimensional poverty prevalence rate, making it one of the poorest countries on the continent induced by a wide income distribution gap, lack of access to infrastructure facilities, high youth employment and low purchasing power eroded by inflationary pressure.

“However, I will state clearly that I disagree with the disaggregation of the poverty data on a zonal basis as reported by the NBS. For instance, I found it difficult to believe that the south-south geographical zone had lower poverty prevalence when compared to other zones like the north-west and north-east. We all know the current challenges those in south-south are facing such as poor infrastructure, lack of employment and lack of cultivable lands. How they (NBS) came about those figures need some further explanation,” he said.

Rising Inflation and Infrastructure Deficit

In his contribution, managing director, Renaissance Group, Mr. Rotimi Oyekanmi, who offered to speak on the rising rate of inflation, said the recent increase in the pump price of petrol was responsible for the rise in inflation. “We know the reason for the inflation figure jump - increase in the petrol price. This implies that we have a negative real policy rate being negative in January (-0.3%) for the first time since September. This is to be expected following the petrol price increase.”

He stressed the need to intensify efforts on the local production side of the equation to ensure that “we bring down prices of other items in the food basket.” Oyekanmi, who declined comment on the income disparity between the north and the south, said efficiency in production would be another major item for government focus.

“We have heard about plans to increase power generation which has the potential to reduce the cost of production. Also we have heard about plans by the agriculture ministry to increase production of commodities as well increase employment in the sector. Also we have heard about expanded capacity by Dangote Cement and Lafarge which would reduce importation of more expensive cement for local production leading to increase employment of the labour.

“Therefore while we see an increase in inflation, the implementation of the budget and the policies of the government to create the environment for reduced imports and increased local production would reduce the inflation rate,” he said.

In addition, analysts were concerned that infrastructure is collapsing nationwide and this was contributing to widening income disparities and the poverty index nationwide. For instance, they pointed out that power generation hovers between 1,000 to 3,500 megawatts, whereas Nigeria actually needs over 40,000 megawatts to power the economy.

Add to this the fact that out of over 160,000 kilometres of secondary and tertiary roads in Nigeria, with an average registered network of 4,000 kilometres per state, only about 10-15 per cent is paved. While a large proportion of this network remains in poor or very poor condition, with only 15 per cent of federal roads in good condition.

According to a university lecturer who did not want to be named, “It is sad to note that rural roads, which are statutorily referred to as local government roads which constitutes about 132,000 kilometres (67.7 per cent) of the entire road network in Nigeria is the worst hit by this state of disrepair.”