The relationship between poverty and economic growth in Nigeria

The relationship between poverty and economic growth in Nigeria

Background of the study

Poverty is a global threat, plaguing both developed and developing nations. It has a devastating effect on developing nations generally but sub-Saharan Africa in particular (Addae-Korankye 2014). Poverty has become pervasive in Nigeria in the last four decades despite the economic boom of the 1970s (Anyanwu 1997; Mohammed-Hashim 2008; Obi 2007). Similarly, it was discovered that about 60% of Nigerians live in poverty despite the country’s enormous oil wealth (Sadiq 2007). It can be argued that poverty varies from one subgroup to another such that poverty is seen in all its manifestations and its magnifications as antithetic to economic growth (Rodrigues 2009).

Globally, poverty has been recognised as a major blemish in developing economies ever since economists began to take interest in the third world (Killick 1981). On the whole, the Nigerian economy depends so much on the exportation of oil that nearly all its budgetary revenues come from oil earnings sold in the international market. In 1973, most economic indicators such as real per capita income, real wages and private consumption were positively impacted by the first oil shock, which caused a dramatic increase and sharp rise in them. Similarly, income inequalities between urban and rural areas increased sharply, primarily because of the oil boom and its spin-offs (Anusionwu & Diejomoah 1981). However, the international price of oil decreased or fell constantly between 1980 and 1985 and brought about worsening economic conditions; there was a sharp fall in the standard of living and the biting hand of poverty was ushered in as a leading problem in Nigeria (Okunmadewa 1996). To this end, the oil boom was recognised to have contributed immensely to the large appreciation of the Nigerian naira, which subsequently caused adverse effects to agriculture as a non-oil tradable that had been the mainstay of the Nigerian economy.

In Nigeria, the nature of the determinants of poverty can be traced to low or declining level of economic growth, income inequalities, unemployment, corruption, bad governance, diversion of funds into non-developmental projects, fund embezzlement, inappropriate macroeconomic policies, inadequate endowment of human capital, debt or borrowing, labour market deficiencies that were caused by limited growth in job creation, low productivity, low wages in the informal sector and poor development of human resources. Poverty can also arise through structural deficiencies such as environmental degradation, worker retrenchment, frequent and increasing crime rates and violence, decrease in the real value of safety nets, structural changes in the family as well as the neglect of the agricultural sector, non-development of infrastructural facilities, lack of enabling environment for infant industries, epileptic power supply, depreciation of the Nigerian currency (naira) and the military government’s inability to properly manage the Nigerian economy (Ajakaiye & Adeyeye 2001; NPC 2004; Ogwumike 2001).

Poverty became prevalent in Nigeria beginning in 1985 and was seen as an obstacle or limitation to economic growth because poverty was measured based on the world standard of $1 per day and $2 per day. International prices were adjusted for local currency such that purchasing power parity conversion factors were employed to compute the depth of poverty as well as its prevalence in Nigeria (Obadan & Odusola 2001). The poverty gap calculated on the basis of $1 and $2 per day as the mean shortfall below the poverty line indicated that 70.2% and 90.8% of Nigerians, respectively, earned income that put them below the poverty line in a survey conducted in 1992–1993. During the same period, the poverty gap computed at $1 and $2 per day was 34.9% and 59.0%, respectively (Mohammed-Hashim 2008; World Bank 2001). In 2010, the World Bank defined or readjusted the international poverty line of $1 equivalent in 2001 to a new international poverty line of $1.25 per day in US prices (World Bank 2011). Generally, poverty brings about impaired access to resources, reducing the capability of individuals to enjoy an improved quality of life, which might have been converted from available productive resources (Adeyeye 1999; Ogwumike 2001; Sen 1997). On the other hand, poverty persists as a result of inefficient employment of common resources, occurring because of a weak policy environment and inadequate infrastructure, as well as a lack of access to improved technology. Other causes include the non-availability of credit instruments and exclusion of ‘problem groups’ from participating in the democratic process. Thus, widespread poverty and an over-reliance on earnings from oil might have hindered economic growth in Nigeria.

In spite of the strong growth rate in Africa’s second largest economy, poverty has kept rising in Nigeria to the extent that about 100 million of her citizens live below the poverty line of $1 per day (Daniel 2011). The proportion of Nigerians who were absolutely poor rose from 54.7% in 2004 to 69.9% in 2010 (National Bureau of Statistics [NBS] 2011; Omoniyi 2016). Nigeria’s economy is projected to continue to grow, but poverty is likely to get worse as the gap between the rich and poor continues to widen on a daily basis. This is why Kale (2012) considers poverty to be a paradox in which a higher proportion of Nigerians continue to live in poverty in spite of the continued enormous growth in the Nigerian economy year by year. To this end, the NBS (2010) reported that 112 518 507 million lived in relative poverty while it put Nigeria’s population at 163 million. It went further to compare this figure with Uganda, where only 28 million were poor; this is an indication that there are about four times as many people living in poverty in Nigeria as in Uganda. This shows that Nigeria has failed using all standards of poverty measurement including the relative poverty index. The various poverty measures in Nigeria pose different profiles; for instance absolute poverty puts it at 60.9%, 61.2% for $1 per day, 93.9% for the subjective measure while a recent survey conducted by Harmonized National Living Standard put the poverty profile at 69.0%. The much-celebrated gross domestic product (GDP) growth rate that averaged 7.4% in the last 10 years becomes questionable. Additionally, Nigeria’s Gini coefficient was 0.268 in 1980, 0.295 in 1990, 0.430 in 2004, 0.490 in 2009 and 0.834 in 2012 (Nwagwu 2014; UNDP 2009; World Bank 2014a). Similarly, the Human Development Index for Nigeria during the same period was 0.46 in 2004; it increased to 0.49 in 2009 and further increased to 0.51 in 2012 (UNDP 2011; 2013; World Bank 2014b; World Data Atlas 2015). These figures show that income inequality and human capital development increased in Nigeria during the period covered by this article.

This succinctly shows that there is a sharp disconnect between poverty and growth because the majority became poorer through exclusion. It is therefore necessary to mention that what is needed to fight the biting hand of poverty and ensure that poverty is banished, is a holistic attempt. This can only come through the adoption of macroeconomic policies of all-inclusive growth nationwide, to which it seem no adequate attention has been given by previous studies. The objectives of this article are to examine the relationship between poverty and economic growth, to analyse the determinants of economic growth and to establish the causes or determinants of poverty in Nigeria.

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