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 

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 158^th 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 polic