Why Nigerians are Poor! (1)

There can be no controversy about the hypothesis implied in this topic-the Nigerian economy is not working for the vast majority of our people! And most Nigerians are Poor!!! The economy is not working for the poor; the rural dweller; the young and vulnerable; the senior citizens; the unemployed. Research from the strategy, business, economy and policy consultancy company I head, RTC Advisory Services Ltd based on NBS data shows that poverty rose from just 27.2% in 1980 to 46.3% by 1985, just five years later; 60% by 1995 and has progressively risen to 69% in 2010, and 71.5% in 2011! Over the same time period, 1980 to 2012, unemployment rose from just 6.4% to 27.4% in spite of consistent GDP growth rate averaging more than 7.5%; Human Development Index (HDI) has barely risen between 1990 (0.411) and 2012 (0.471); and average life expectancy in spite of our enormous resources remains stuck at 52.3years in 2012 while the equivalent figure in the developed world averages over 70 years. Why is this so and what can be done to ameliorate this situation? First there are four critical problems with the structure of our economy-the dominance of GDP by only three sectors-agriculture, wholesale and retail trade and crude petroleum and natural gas; the dominance of government spending on recurrent expenses of a public service which employs only a small percentage of Nigerians; the dominance of our oil and gas sector (and until recently power) by an inefficient and corrupt public sector; and the structure of our financial sector which excludes Small, Medium and Micro Enterprises from financing and has been unable to provide mortgages and housing for the middle class. By end 2012, the three sectors I referred to above made up 73% of Nigeria’s GDP-agriculture almost 40%; wholesale and retail trade about 20% and crude oil and gas about 13%. Certain problems with the structure of the three-agriculture is sub-modern, dominated by small holders and insufficiently linked with domestic processing, agro-allied and manufacturing; wholesale and retail trade is largely in imported products; and the oil export is of crude, unprocessed oil without a local refining sector and no domestic value-added (meaning no domestic jobs and productivity!) The implication is that the three have severely limited domestic linkages and minimally affect poverty and unemployment!!! In addition, any one conversant with our GDP sectoral growth rates will notice the pattern in which sectors with a potential for huge employment (manufacturing, solid minerals, building and construction, real estate etc.) are either very small in size or have very low growth rates, while sectors like telecommunications which are fast growing do not employ large numbers (though on the positive side with multiple domestic linkages). The structure of government consistently spending between 60-75% of its expenditure on salaries, emoluments, pensions and overheads of about 3 million Nigerians engaged in the public sector at federal, state and local governments including political appointees, is compounded by the fact that the limited sums appropriated for capital projects and social services are subject to rampant corruption which severely diminishes the value received by ordinary Nigerians from government expenditure. This structural deficiency of what government spends its resources on and who are the real beneficiaries thereof, is worsened by another structural problem-the structure of Nigeria’s pseudo-federation with one overwhelmingly large and not surprisingly wasteful and inefficient federal governments; 36 handicapped states; and 774 utterly useless local governments which are now de facto area offices of the handicapped states and therefore doubly-disabled and dysfunctional. Nigeria has moved between independence in 1960 and today from three, later four strong and viable regions to a prebendal system of handouts from a federal government (which in the first place forcefully stole resources from the regions/states and now purports to handout pittances therefrom) to its now dependent states. The consequence is a shift in focus from production and development though competition to distribution and stagnation through prebendalism. The other consequence, as we have seen is the multiplication of recurrent costs of governance as resources which should otherwise have been channeled into areas of public need are expended paying and maintaining civil servants and political office holders. As an illustration, the Nigerian nation budgeted only N7billion for the capital and recurrent costs of maintaining the National Assembly in 1999 when we returned to civil rule. While the number of Senators and Members of the House of Representatives has stayed the same, their annual budget is now around N150billion!!! So far I have identified problems with our economic structure which perpetuate poverty, unemployment, inequality and social exclusion in Nigeria-with the pattern of domestic production (otherwise called GDP), government spending, exclusion of MSMEs from financial sector lending and dominance of oil of gas by the public sector through an un-restructured NNPC. The careful and observant reader will note some positive trends which (in the interest of fair analysis) suggest some awareness (though I will argue yet insufficient emphasis) by policy makers of the problems-agricultural reform is attempting to improve domestic value-added and productivity; the inauguration off the Nigerian Mortgage Refinancing Corporation may improve the outlook for mortgage and housing; power privatisation reduces the stranglehold of the public sector on the critical energy sector (leaving oil and gas as deserving of reforms); some trade reforms (automobiles, cement, rice, wheat etc.) seek to encourage local production vis-à-vis imported consumption. On the other hand the aborted Oronsanye Committee’s and so far failed attempts to reduce recurrent expenditure mean our collective wealth and taxes are spent on only a few. By: Opeyemi Agbaje