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Rich nation, poor citizens:
The Missing Links for Increasing Output and Alleviating Poverty in Nigeria

By Sa’idu Sulaiman
Economics Department
Sa’adatu Rimi College of Education, Kano
Email: saisulaiman@yahoo.com

Introduction   

 

Poverty in the midst of abundance is a popular paradox characterizing the Nigerian economy. Nigeria is a nation blessed with abundant human and natural resources. It is ranked as the sixth largest exporter of petroleum in the world.  Nigeria is the largest black nation on earth thus having great potential for human resources. Foreign exchange inflow and outflow through the Central Bank of Nigeria (CBN) in July, 2006, amounted to US$3.25 billion and US$1.16 billion, respectively, resulting in a net inflow of S$2.09 billion. Cumulative inflows and outflows through Nigerian economy in the first seven months of 2006 stood at US$34.98 billion and US$12.50 billion, respectively, compared with US$26.42 billion and US$9.98 billion in the corresponding period of 2005 (CBN, Monthly Report July 2006).

Despite all these Nigerian citizens suffer from wide spread poverty, the economic output  is low in both the private and the public sector due to corruption, inefficiency, erratic power supply, poor infrastructure and unrealistic policies. Several attempts have been made to reverse this trend but to no avail. The austerity measures of the early 1980s, the Structural Adjustment Programme introduced in 1986 and even the current economic reforms, have yielded unsatisfactory results as per as the conditions of the common man are concerned, in fact the conditions are becoming worse every day.

This paper begins with explanation of relevant macroeconomic concepts for the benefit of laymen, and then depicts the level of productivity and poverty in Nigeria in terms of the country’s poor achievement in these areas as contained in the 2005 UNDP report on human development index. Finally, the paper attempts to supply the missing links required to increase the output in the Nigerian economy and minimize poverty among Nigerians.

Explanation of Key Concepts

Ignorance and general misconceptions about concepts and issues related to economic development and social welfare contribute to the failure of governments and philanthropists in their bid to attack mass poverty, unemployment, crime, drug addiction, illiteracy, disease, environmental degradation and low productivity, which are manifestations of under-development.

For the benefit of policy makers and executives who operate the machinery government at the local, state and federal levels but lack sufficient knowledge of economics, an explanation of key concepts related to macroeconomic policies becomes necessary. These people have the power to change things for the better but may be working on the basis of ignorance, shallow understanding of economic          theories or insincere advice coming from some advisers on economic matters.                                                                                              

Let’s begin with the concept of macroeconomics; it refers to the study of the aggregate economic behaviour of consumers and producers and of fundamental economic phenomenon such as inflation, depression and unemployment with a view to achieving certain desired economic goals. These goals include price stability, economic growth and development, obtaining a favourable balance of payment, controlling exchange rates, curtailing unemployment, etc. With the ever increasing influences of globalization on the economies of nations, macroeconomic variables such as inflation rate, interest rate, level of unemployment, growth rate, etc, in one nation can have influence or be influenced by similar variables in other nations. It is therefore naïve to formulate macroeconomic policies for a single nation without due consideration to what obtains in other nations. As globalization advances, macroeconomics is increasingly becoming irrelevant, it needs to be replaced with globoeconomics, that is “the study of macro-economic variables and policies of a nation, region or the entire globe as they influence or are influenced by macroeconomic variables and policies of other nations or regions as a result of globalization” (Sulaiman, 2005a).                                                                                                                

 Output (productivity) is one of the indicators of economic growth and development; it refers to number of goods or amount of work or service produced by an individual, an organization or a nation as a whole. Productivity is considered high or low in relation to the amount of resources such money, labour and time used. The total output of an economy is termed the Gross Domestic Product (GDP).

Poverty can be described as dearth of the means of meeting the basic and customary needs of people, which include good shelter, diet, clothing, security, health care, education and freedom to participate in social activities and lawful undertakings. As Zango (2002) rightly observes, there is usually a distinction between absolute and relative poverty:

Absolute poverty refers to a state in which an individual or household lacks the resources necessary for subsistence. This is usually measured in terms of the earnings of individuals and the price index in the society. On the other hand, relative poverty is individual’s or group’s lack of resources in comparison to members of another society.

 Bannock, Baxter and Davis (1998) provide good definitions to the terms business cycle, stabilization policy, inflation, recession, and reflation, which are also relevant to this write-up. Business cycle refers to fluctuations in the level of national income. For the monetarist economists such as Milton friedman, business cycle is caused by the amount of money in circulation, for the neo-Keynesian economists, by the aggregate demand for goods and services. Other causes of business cycle are shocks to the economy from changes in technology and from consumers’ taste. The invention of computers, for instance, will cause shock in a nation that depends on the production and sale of manual typewriters.

Government uses stabilization policies in order to address a business cycle. A stabilization policy refers to government action geared at reducing fluctuations in national income by, for instance, expanding demand when unemployment exists or reducing it when inflation persists.

Both inflation and recession are undesirable in an economy. Inflation refers to a persistent rise in the general level of prices. It can be caused by excess demand, high cost of production and increase in money supply. It can also be imported into a country through the exchange rate. That is why the exchange rate is seen as an effective means stabilising a monetary policy. It is better for nations with many speculators and irrational people to let the exchange rate to fluctuate between given limits such as + 3.25% against any other currency than adopting a freely floating exchange rate system.

Recession refers to a sharp slowdown in the rate of economic growth. It is less severe than depression which is a downturn in the business cycles in which high level of unemployment persists.

Reflation is a measure employed by governments to deal with recession, depression and even stagflation, the simultaneous existence of inflation and unemployment. It is about increasing aggregate demand in an economy with a view to reducing unemployment. It can be executed through printing of money by the central bank or through public sector borrowing (government borrowing from the private sector). Printing money leads to a rise in prices, increases in demand for goods and services and employment of more workers. Public sector borrowing leads to a rise in interest rate and subsequently stifles private investment in an economy.

The Central Bank of Nigeria (CBN) explains money supply and its relationship with output in the Nigerian context. The CBN in its Monetary Policy Series defines money supply in two ways: narrow and broad money. “Narrow money (M1) is defined to include currency in circulation plus current account deposits with commercial banks. Broad money measures the total volume of money supply in the economy and is defined as narrow money plus savings and time deposits with banks including foreign denominated deposits”. Base money is made up of currency and coins outside the banking system plus the deposits of banks with the central bank. (CBN/MPD/Series/02/2006)

On the important relationship between money supply and output in an economy, and the measures for controlling the former, the CBN explains that

There is excess money supply when the amount of money in circulation is higher than the level of total output of the economy. When money supply exceeds the level the economy can efficiently absorb, it dislodges the stability of the price system, leading to inflation or higher prices of goods.  When the CBN changes the level of money supply, it does so through the control of the base money. If the central bank perceives that there is too much money in circulation and prices are rising (or there is potential pressure for prices to rise), it may reduce money supply by reducing the base money (CBN/MPD/Series/02/2006).

The Level of Output and Poverty in Nigeria

The human development index contained in the 2005 UNDP HDI Report is used as the basis for depicting the levels of poverty and productivity in Nigeria and for comparison with other nations. The human development index (HDI) is a composite index that measures the average achievements in a country in three basic dimensions of human development: a long and healthy life, as measured by life expectancy at birth; knowledge, as measured by the adult literacy rate and the combined gross enrolment ratio for primary, secondary and tertiary schools; and a decent standard of living, as measured by GDP per capita in purchasing power parity (PPP) US dollars.

 Selected Human Development Indicators for Selected Countries from the 2005 UNDP HDI Report 

Countries

Hdi ranking for 177 nations

Hdi value

Economic performance gdp in us & billions for 2003

Government expenditure on health % of 2002 gdp

physicians per 100,000 people 1991-2004

Education index

Egypt

119

0.659

82.4

1.8

212

0.62

India

127

0.602

600.6

1.3

51

0.61

Nigeria

158

0.453

58.4

1.2

27

0.66

Norway

1

0.963

220.9

8.0

356

0.99

Pakistan

135

0.527

82.3

1.1

66

0.44

Rwanda

159

0.450

1.6

2.4

2

0.61

Russian federation

62

0.795

432.9

3.5

417

0.96

Saudi Arabia

77

0.772

214.7

3.3

140

0.72

Senegal

157

0.458

6.5

2.3

8

0.39

South Africa

120

0.658

159.9

3.5

69

0.81

Spain

21

0.928

838.7

5.4

320

0.97

United states

10

0.944

10,948.5

6.6

549

0.97

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Extracts from the following tables in the 2005 undp h.d.i report:

Table 1: human development index (h.d.i)

Table 6: commitment to health

Table 14: economic performance

The HDI in the 2005 Report refers to 2003. The table shows how Nigeria fared in the human development index. It got the 158th position among the 177 countries, thus beating Rwanda. But Nigeria was beaten by Senegal, south Africa, Egypt and the rest. The hdi values obtained by these nations formed the basis for the ranking.

The figures for the numbers of physicians (doctors) per 100,000 people as well as the education index also indicate achievement in human development. While the United States and Norway have 549 and 356 physicians per a population of 100,000 people respectively, Nigeria has only 27. south Africa beats Nigeria in the education index with 15 points (0.81-0.66). The table also indicates that the economic performance of Nigeria (58.4) is lower than those of egypt (82.4), Saudi Arabia (214.7), Pakistan (82.3) and south Africa (159.9).

The Missing Links

 The following measures that should be taken by government to increase output ant alleviate poverty constitute the missing links required to do away with the popular paradox characterizing the Nigerian economy: poverty in the midst of abundance.

i) Seeing the Population as an Asset

The expansion of population of Nigeria should not be viewed as a curse. A large population adds to wealth and economic activities by providing human capital and sufficient market for goods and services. But this is possible when government spends money in providing education to the populace. Sound education turns population from a liability into an asset.

It is not the population of Nigeria that causes poverty or lowers output; in fact a large population provides market and opportunities for jobs and trade.  Maigari (2002) also testifies to this fact by saying increased population density under favourable condition,

 facilitates opportunities for trade and specialization, stimulates surplus production and economies of scale in infrastructural development. Higher population density in several cases leads to efficiencies in the production of wood fuels, better land use practices, improved technologies, reformed land tenure systems and more efficient markets.  Empirical studies in Kano Closed Settled Zones (Mortimore, 1989; Main, 1991; Cline-Cole, 1990; etc.) have confirmed these claims.

The fact that China and India, the two countries with largest populations on earth, have the fastest growing economies in the world is another evidence that the size of the population of a country is not a major the cause of suffering and poverty. Poverty and suffering are essentially caused by natural calamities, war, laziness, inefficient use of resources due to ignorance or selfishness, injustice in the distribution national wealth and bad governance.

ii) Provision of Necessary Infrastructure through Fiscal and Monetary Policies

A fiscal policy (government spending and tax policies) combined with an increase in the supply of money is required for the provision of infrastructure in Nigeria. Ibn Khaldun (1332-1406) rightly argues that government spending has to be kept high because businesses would slump when government reduces spending (Sulaiman, 2005b).

There is a difference between what can be done with earnings in foreign currencies and what can be done with local currency. It may be unnecessary to tie down, for instance, the funding of a project that can be executed with local resources to foreign earnings. As dams for irrigation, roads for transportation and buildings for schools and hospitals are mainly made with local resources (rocks, sands, soil, labour, woods, iron, cement, etc) found in Nigeria, the naira can be used or printed , when the economy require reflation, to buy these abundant resources from Nigerians. This policy would increase economic activities and reduce poverty among many Nigerians through the multiplier effect. It will also provide the infrastructure required for boosting productivity.  Earnings in foreign currencies are used on foreign goods and services.

 iii) Avoiding the Error of Equating Money with Wealth

The grave error of equating money with wealth should be corrected. Nigeria is endowed with wealth in terms of human and material resources but instead of using expansionary monetary policies to stimulate demand, create economic activities and boost employment, Nigerians are made suffer under the pretext that there is no money for this and that. Money is simply a devised means of exchange and a store and measure of value. It is possible for a country to print billions of it’s a currency in a couple of weeks but it cannot create wealth (human capital, mineral resources, climate and other assets) in the same way. Nigeria is endowed with wealth but lacks leaders who could devise effective means of exploiting, managing and utilising the wealth to reduce poverty and increase output.  Introduction of cosmetic poverty alleviation measures under different names has not provided the required result; it only benefited very few people.

iv)                  Avoiding Undue Emphasis on Low Inflation Rate as a Performance Target

To an average Nigerian, inability to purchase goods to meet one’s needs seems to be always attributed to inflation, even if the inflation rate is low and businesses record low sales; and the best way to enhance or sustain consumers’ purchasing power is to refrain from increasing workers salaries. Other causes of inflation and other means of enhancing the income, and subsequently, the purchasing power of people are disregarded while undue emphasis is put on low inflation rate as a performance target. Having a low inflation rate in a depressed economy that suffers from low sales, widespread poverty and mass unemployment is not an achievement because it is its ‘natural’ characteristic. What a depressed economy requires is reflation in form of supplying or printing more money and spending it with a view to stimulating demand and subsequently increasing output and employment opportunities in the economy. Government can reflate the economy through construction of roads, dams, houses, etc; increase in workers’ salaries and students’ scholarships and allowances; subsidizing farming and providing loans to cooperative societies to establish small scale businesses. With this demand for goods and labour will rise and people who do not directly get the benefit of the policy will do so through the multiplier effect, for instance, traders will record more sales and earn more profit.

The monetary policies of the CBN pay more attention to controlling inflation through reduction in money supply than to stimulating demand and employment and productivity.

If the central bank perceives that there is too much money in circulation and prices are rising (or there is potential pressure for prices to rise), it may reduce money supply by reducing the base money (CBN/MPD/Series/02/2006).

Level of output is used to determine the required level of money supply in order to curtail inflation The question is how comprehensive and realistic are the estimates of the national output so that they could be used as basis for knowing how much money should be injected into  the economy to enable it to recover from its prolonged paralysis? An increase in money supply is a double-edge sword, it can cause inflation, it can as well cause rises in demand, productivity and employment. When money supply is increased for the purposes of financing education with a view to boosting human capital, providing electricity, security and infrastructure, and for subsidising the acquisition of machinery and tools by local manufacturers, it will lead to increase in output.   But when money supply is increased for the purposes of ceremonies and unnecessary projects, or when the additional money supplied ends in banks as savings and in our homes as idle cash, output will be low and inflation rate may rise.

 It is better for economies to set their performance targets not only in terms of low inflation rates but also in terms human development, efficiency, productivity, and low exchange and interest rates. The narrow exchange rate band of +/- 3.0% used by CBN during the course of 2005, which was intended to anchor expectations, enable investors and end-users of forex to plan and to minimize transaction costs and to  discourage the destabilizing practices of speculation, hoarding and carrying of large inventories by businessmen was a good policy. Similar narrow band should be set by the CBN for interest rates in order to lower cost of borrowing and subsequently boost the real sector (agriculture, mining and manufacture) of the Nigerian economy. One may notice that low interest rates operate in the developed world, the developing nations like Nigeria need low interest rates more than the developed nations in order to discourage wealthy people from saving money that should have been invested in the real sector of the economy with a view to generating income and increasing employment opportunities.                                              

iv)  Boosting Efficiency and Productivity

The problems of inefficiency, bribery and corruption, which characterize the public sector of the Nigerian economy, need to be addressed through a number of measures that include the inculcation of true self-discipline and fear of God though religious teachings and exemplary behaviour from leaders. Other measures are periodic and timely review of salaries and wages in line with prevailing cost of living to discourage workers from supplementing legal but unrealistic income with illegal income, and the involvement of consultants to run public enterprises or perform certain functions on behalf of government instead of privatization of everything owned or done by government. However, privatization and the use of private consultants may become necessary when corruption and inefficiencies persist in the public sector.

 The good thing that had happened to the telephone communication sub- sector of the Nigerian economy within last 3-4 years shows the benefits of privatization and competition: easy access to products and services, increased efficiency and lower prices. The energy sector of the economy also deserves private sector participation (not wholesale privatization) and competition in order to boost productivity. Oil refineries, for instance, can be run by the private hands. Electric power generation, distribution and supply should be decentralised  and handled by the private sector but the ownership of the corporate bodies should include states, foreign partners, where necessary,  and local investors. Instead of one large corporation, the Power Holding Corporation of Nigeria (PHCN), six or more fully independent corporations should be established and assigned to a group of states or regions on the basis of their nearness to available means power generation and other logistics. The properties of the PHCN should then be handed over to states or regions in which they exist. The monetary values of the properties should be determined and translated into ordinary shares in the independent corporations. Other investors should provide the remaining capital and mange the corporations. Competition among the independent corporations will lead to efficiency and reasonable pricing of electricity, regions that are not satisfied with the service of a corporation should be allowed to invite another partner to takeover from the inefficient corporation.  The fear that privatization will make goods and service unaffordable to the common man, has been debunked by what happens to the telecommunication in Nigeria.

We should stop working with ridiculous ratios if we want to attack unemployment, poverty and low productivity. The teacher – student ratio in the educational sector, doctor- patient ratio in the health sector, police- citizen ratio, etc are ridiculous when compared to our abundant human and material resources. We can never be efficient unless we adopt ratios that are at least close to what developed nations use. In the HDI report stated above, Nigeria has 27 doctors per a population of 100,000 people  but Egypt and south Africa have 212 and 69 doctors respectively  per 100,000 people.   Our primary schools contain 100-150 pupils in a class depending on where they are located. Ridiculous ratios indicate that workers are over-worked, resources over- stretched; and there is artificial unemployment in the midst of a lot of vacancies in the economy. When we reverse this trend, efficiency and productivity will increase.

v) Reforming the Nation’s Currency System      

   

There is a need for reform in the nation’s currency system. A number of reforms were carried out in the nation’s currency system for a number of reasons as stated below:

The decimal currency denominations, Naira and Kobo, were introduced in 1973 in order to move to the metric system, which simplifies transactions. In 1976, a higher denomination note - N20 was introduced into the currency profile. In 1984, a currency exchange was carried out whereby, the colors of existing currencies were swapped in order to discourage currency hoarding and forestall counterfeiting. In 1991, a currency reform was carried out which brought about the phasing out of ½ kobo (half kobo) and 5 kobo coins, while the 1k, 10k and 25k coins were redesigned. In addition, the 50k and N1 notes were coined, while the N50 note was introduced into circulation. In the quest to enhance the payments system and substantially reduce the volume and cost of production of legal tender notes, the N100 and N200 notes were introduced in December 1999 and November 2000, respectively. Similarly, the N500 note was introduced in 2001 while the N1, 000 note was introduced in October 2005  ) .                                                          www.cenbank.org/MPC Mandate.htm(.                                    

There is still the need for enhancing the payments system and reducing the volume and cost of production of legal tender notes especially if government will accept to reflate the economy. The Kobo does not exist in reality; it has outlived its relevance as it cannot be used to purchase any commodity. There is a need for its replacement with the Naira and the introduction of another unit to replace the Naira before it assumes the position of the Ghanian Cedi. Peto, derived from petroleum, the nation’s most important means of foreign earnings, can be adopted as a new unit in the currency system where 100 Naira will make 1 Peto.  The US Dollar will be equivalent to about 1.28 Peto. This reform will reduce the cost of printing the currencies, the space they occupy in our pockets and in the banks’ strong rooms, and the number of digits written on financial statements, receipts and other documents. The CBN should also change the physical features of the currencies by improving their quality to make them durable, they should be reduced to the sizes of the US Dollar or the Saudi Riyal to make them portable.

Conclusion

 

One may notice that state and local governments have no power to implement the above measures. It is the federal government through its relevant agencies like the CBN that can do this. However, local government chairmen, state governors and the legislative arm of government at the state and federal levels have the power to convince or put pressure on the federal government to take the suggested measures in order to turn Nigeria into a nation with high human development index and output, and with low poverty, unemployment and crime rates. Individuals that have acquired riches but oppose reforms aimed at alleviating poverty should realise that though people can never be equal, certain basic things need to be obtained by the common man in order to live in a dignified manner, and to empower him to patronise businesses so that investors amongst the rich can generate more sales and employ more workers.

 

References

Ahmed, Maigari I. (2002) Population and Development” in Leading Issues in Economic Development Social Welfare edited by Musa Abdullahi and Sa’idu Sulaiman (Kano: Samarib Publishers)

Bannock, Graham; Baxter, R.E and Davis, Evan (1998) The Penguin Dictionary of Economics (6th edition), (London: Penguin Books Ltd.)

CBN, Monthly Report July 2006 available at www.cenbank.org

CBN (2006) MPC Mandate available at www.cenbank.org/MPCmandate.htm

CBN (2006) How Does the Monetary Policy Decisions of the Central Bank of Nigeria Affect You? Part One CBN/MPD/Series/02/2006 available at www.cenbank.org

Mohammed, Ismaila Z. (2002) “The Concepts of Economic Growth and Development” in Leading Issues in Economic Development Social Welfare edited by Musa Abdullahi and Sa’idu Sulaiman, (Kano: Samarib Publishers)

Sa’idu Sulaiman (2005a) Globalization and National Development: The Need for Globoeconomics 

                                                                                                                                                              Available at http://people.lulu.com/blogs/view_post.php?post _id=14500  

    

Sulaiman, Sa’idu (2005b) The Making of Economics: An Introduction to the History of Economic Thought (Kano: Samarib Publishers)

The 2005 undp human development index report

                                                              

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