Nigeria: Poverty in the Midst of Plenty: The Challenge of Growth with Inclusion

Nigeria has the largest population in Sub-Saharan Africa with 110 million people in 1995. It has a complex social and political history that has, for the most part, impacted adversely on the population and has worsened income distribution.

The exploitation of the nation's oil resources, and the management of oil windfalls, have dominated the progress and decline of Nigeria's economy over the past two decades, and have significantly influenced evolution and perception of poverty.

The economy is currently characterized by a large rural, mostly agricultural based, traditional sector, which comprises about two-thirds of the poor, and by a smaller urban capital intensive sector, which has benefited most from the exploitation of the country's resources and from the provision of services that successive governments have provided.

Poverty Profile

A poverty line of 395 naira (1985 prices) per annum per capita was selected as the poverty line that could consume minimum FAO recommended calories per person per day and a minimal basket of non-food items. This line resulted in 43 percent of poor in 1985 and 34 percent in 1992, showing a decline of 9 percentage points in headcount over a seven year period. However, due to high population growth rates this resulted only in one million less poor people.

There were significantly different trends in rural and urban areas; the number of poor in rural areas sharply fell from 26.3 million to 22.8 million, while urban poverty rose from 9.7 million to 11.9 million. Extreme poverty increased nationally from 10 million to 14 million, with a tripling of headcount in urban areas.

Income distribution also worsened. If not for worsening income distribution national poverty would have declined by 13.6 percent rather than 8.9 percent. Growth was not equally shared by different parts of the country; growth was fastest in southern and middle agroclimatic zones, with much slower growth in northern states. This resulted in the largest number of poor people in northern regions.

Apart from regional characteristics, poverty is strongly influenced by education, age and nature of employment. 79 percent of extreme urban poor and 95 percent of rural poor had only primary schooling or less. Participatory Poverty Assessment (PPA) indicates that poor children increasingly do not attend school as they consider quality of education weak and consider education increasing employment prospects minimal. Of all households, polygamous households experience the greatest depth of poverty, with majority of them in northern and middle zones. Majority of the poor in Nigeria are concentrated in poor communities rather than scattered around.

Incentive and Regulatory Framework

Many significant events before 1985 affected the economy in general and poverty situation in particular. The exceptionally high oil prices brought a huge inflow of oil revenues that drove the per capita income from $1,300 in 1972 to $2,900 in 1980. After 1980 oil revenues collapsed and real per capita income, expenditure, and consumption dropped precipitously. However, public expenditures on capital intensive projects continued -- increasingly financed by external borrowing -- to the detriment of investments in human capital. The modest overall changes in per capita private consumption during the past two decades suggest that the majority of Nigerians did not benefit from the dramatic changes in average per capita incomes over the period.

After 1980 other than falling oil prices, the slow and even negative growth in the economy and especially in agriculture, and adverse relative price changes encouraged imports and stifled non-oil production, all of which resulting in distorted policies and increasing poverty. Thus the mismanagement of oil resources accentuated the terms of trade disparities between the urban and rural sectors, increased poverty in the rural areas because of choked-off agricultural production, and also increased income disparities in urban areas, where those who could capture the benefits of distorted policies fared better than others.

Although oil revenues remained low and government debts accumulated after 1985, other sectors such as agriculture and domestic manufacturing that had languished during the oil boom years, began to grow again following the improvements in real effective exchange rate after the economic reform program in 1986. Hence in contrast to the average decline of 1.8 percent per annum between 1981-87, Nigeria's real GDP per capita grew by 5.4 percent per annum between 1986-92.

Events since 1992 have eroded many of the positive changes that took place. Real GDP and consumption per capita fell by 5 percent between 1992-94, and inflation increased from 49 percent in 1992 to 77 percent in 1994. Most Nigerians, therefore, feel and are worse off than three or four years ago. IT also needs to be recognized that despite all of the intervening changes, in real terms both per capita income and private consumption in 1995 were lower than in early 1970s, before the oil boom. Thus, the perception of many Nigerians today that poverty has been continuous and worsening is totally realistic.

Public Expenditures

Few public resources are devoted directly to providing social services to the poor. The problem is partly a lack of resources but also how these resources are allocated and managed. In 1990, estimated public expenditures on education and health services at all levels of government were about 15 percent of total government expenditures and 4.5 percent of GDP. Although these funds are not low compared with other developing countries, government funds have been erratic, fluctuating largely with oil revenues. More importantly resources have not been used efficiently, resulting in serious deterioration in the quantity and quality of services and minimized benefits to the poor.

Tertiary services absorb disproportionately large portion of government financing both in recurrent and capital budget in health and education. Also a very high proportion of recurrent budget is absorbed by personnel costs leaving very little for much needs inputs, such as drugs and books. There is also very little transparency and accountability for the use of funds for social services at all levels of government. The roles of different levels of government in the provision of services, overlapping responsibilities and constant shifts of functions between one level of government and another have further compounded fiscal inefficiencies and make it difficult to assess total expenditures in social sectors.

Safety Net

Currently there are very few successful safety net programs. So called safety nets are inefficiently managed and do not reach the intended beneficiaries. Also large overhead costs in administering them make then less desirable. Federally operated safety net programs have not been successful as they have failed to include intended beneficiary communities in the design and execution of the safety net programs. Large amounts of resources have been dissipated in ineffective safety net programs in the last two decades. Government can target the delivery of some services and resources to reach poor areas and communities building on existing community based organizations where possible.

Poverty Strategy

A successful poverty reducing strategy in Nigeria will require a strong and focused emphasis on regional aspects of economic growth, increased access to social services and adequate infrastructure and targeting. Nigeria faces three inter-related development challenges.

1. It has to establish a viable and stable macro economic framework and to streamline the incentive regime.
2. It needs to establish an enabling environment in the civil society that encourages delivery of quality services to the population. This will require emphasis on accountability and transparency.
3. It needs to adapt sectoral policies and rearrange priorities in public expenditures to meet needs identified in the PPA and promote efficient economic growth, increase productivity and target the poor.

These challenges point to the need for Nigeria to make a fundamental shift away from policies and institutional arrangements that compete with the private sector, and focus instead on policies, programs and institutions that promote efficient, sustainable, and broad based growth and job creation. The government needs to make a firm commitment to place poverty alleviation at the forefront of its development strategy, to provide effective resource management and policies that can support a stable and growing economy, thus enabling Nigeria to take its place in regional leadership.

Statistical System

The primary manifestation of poverty at household and individual level requires data at the same level. Unfortunately the socioeconomic data base in Nigeria is limited, some times unreliable and outdated. National Consumer Survey was the basis of poverty analysis in Nigeria. This data set is mainly designed to provide weights for updating the CPI. Hence the coverage of this data set is limited. For instance there is no information on agricultural activities, crop mix, quality of land, value of assets such as livestock, reliance on wage labor, which is a prerequisite for understanding the characteristics of poverty of 70 percent of the poor whose main activity is agriculture.

Based on the experience in preparing the poverty assessment it is recommended that a systematic study on user-oriented data needs for Nigeria should be conducted soon. The existing National Integrated Survey of Households needs to be updated based on user needs. Technical assistance should focus on strengthening current efforts to improve data quality and supply to users in a timely manner.