Nigeria's new president faces uphill task of making economic growth benefit all

The Nigerian economy grew at an average of 6.8% a year over the past decade, placing it among the fastest growing countries globally. But only about 25% of Nigerians have benefited from this growth.

Why, despite this spectacular economic growth, are millions of underemployed young people and adults barely surviving on low productivity activities in the informal sector?

Nigeria’s lack of inclusive growth also manifests itself in unequal access to basic services and social programs.

Most Nigerians don’t have regular supply of electricity. A very small percentage are able to purchase generators for around-the-clock supply of electricity.

Those who can afford it buy water from private sources and seek medical treatment abroad. They avoid Nigeria’s crumbling public schools by sending their children abroad.

For some economists none of this is surprising. Stellar economic growth is almost always accompanied by inequality in developing countries. Others argue that inequality is ephemeral and will eventually dissipate with time.

The gap is widening

Inequality has indeed worsened in Nigeria. And it will abate only if the government takes proactive measures to ensure inclusivity in the growth process.

While there are no current data on Nigeria’s Gini index, the standard measure of inequality, the symptoms of growing inequality can be seen everywhere: restive young people in the oil-rich Niger Delta destroying oil pipelines, Boko Haram in the north committing atrocities, ransom kidnappersin the southeast, and drug peddlers who want to enjoy the benefits of economic growth and have no legitimate opportunities to realize their dreams.

Public-sector workers across the country have recently joined the fray, protesting months of unpaid salaries, benefits and pensions.

When these workers ride on crowded and stuffy rickety buses to work every morning, they pass through gigantic mansions and posh automobiles owned by the same top government officials responsible for the non-payment of their salaries.

This fuels anger and deepens their sense of deprivation. It not only demoralises them, but also reduces their productivity and hurts economic growth. Matters were not helped by the revelation last year that $20 billion of oil revenue could not be accounted for by the state-owned company, the Nigerian National Petroleum Corporation.

One might also add that the yearning for inclusive growth by Nigerians played a major role in the defeat of the administration of President Goodluck Jonathan, marking the first defeat of a sitting president by an opposition candidate in the country’s chequered political history.

Nigeria’s ins and outs: President Muhammadu Buhari (right) shakes hands with his predecessor Goodluck Jonathan.Reuters/Afolabi Sotunde

New government has its work cut out

As a new government takes over power in Nigeria, one of its top priorities should be to redress the country’s non-inclusive economic growth. New President Muhammadu Buhari has vowed to fight corruption, which many believe is mainly to blame.

But lack of inclusive growth is attributable not just to corruption. The way the Nigerian economy is constituted in terms of contribution to output, trade, incomes and employment plays a big part too. The structure of the economy makes it virtually impossible for growth to be inclusive, regardless of whether or not there is the political will to do so.

About 90% of the country’s revenue comes from oil exports. This revenue is distributed among the three tiers of government – federal, state and local. These in turn use the allocated funds to undertake recurrent and capital projects.

More than 70% of the funds received by the three tiers of government goes to recurrent expenditures, the biggest of which are civil service salaries, with very little invested in capital projects. The little that goes into capital projects is further dissipated by corruption, mainly through contract inflation and abandoned projects. Thus, there are no mechanisms or conduits within the economy to ensure that oil revenue filters into the real sector of the economy.

If you are not employed in the oil sector, the public sector or in banking (where oil revenue is domiciled), then, as Nigerians would say, you’re on your own. Or you would have to rely on your social capital - family, friends, church, and luck.

Where have all the factories gone?

One aspect of the Nigerian economy that has contributed to non-inclusive growth is the desperate state of the country’s manufacturing sector. The sector, which would have employed the teeming number of jobless young people, accounts for only 12% of employment. This is down from a high of over 30% in the 1980s.

During its heyday in the 1970s and 1980s the Nigerian textile industry alone employed almost one million workers. Today it employs about 20,000 and that number is decreasing by the day.

Contrast Nigeria with China whose vibrant manufacturing sector absorbed millions of poor peasants at higher wages than in agriculture. It is no surprise, then, that China’s poverty rate is around 5%, while Nigeria’s is above 70%.

Safety nets, then new growth drivers

The situation is exacerbated by the fact that there are no safety nets for the poor. Nigeria is one of the few oil-rich countries in the world without them. Even poor and less-endowed countries like Liberia, Sierra Leone, Mali, Benin Republic, Lesotho, and Malawi have safety nets.

These don’t have to be outright handouts. One example is China’s policy of employing poor households in public-work projects in exchange for food and other essential items.

Poverty and inequality in Nigeria cannot be solved overnight. Nor will anti-corruption measures alone foster inclusive growth. It requires the development of new growth drivers that harness the country’s abundant supply of human capital.

The structure of the country’s oil and gas sector and the way in which oil revenue is recycled exacerbate inequality. But developing non-oil growth drivers will take time, perseverance and good economic policies. In the meantime there is an urgent need for safety nets that add value to the economy and also bring much-needed succour to millions of poor Nigerians.

Stephen Onyeiwu does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.