India has just recently overtaken Nigeria as the country with the largest number of people living in extreme poverty.
It’s estimated that almost half of Nigeria’s population of about 200 million lives below the threshold of US$1.90 (792 Naira) daily.
Nigeria accounts for about 14% of the world’s poor. The African continent as a whole accounts for about two-thirds of the world’s poor and the figure is projected to rise.
Calls have been growing for the urgent need to tackle extreme global poverty and boost shared prosperity. The continued attention isn’t solely linked to altruistic motives. Poverty has implications for global growth, peace and development.
The crucial question is how can poverty be reduced?
Evidence is clear that fast-paced inclusive growth driven by value-added productivity and strong institutions ensure a decent level of wealth re-distribution.
In his paper “From Flying Geese to Leading Dragons”, Justin Yifu Lin points out new opportunities and strategies for structural transformation in developing economies.
In this article, I corroborate his arguments based on my research, teaching and policy experiences on economic growth and development in developing countries, particularly in the sub-Saharan Africa region.
I posit that while technology has meant that countries can leap in advancement, through imitation, there is no alternative evidence to sequential structural change for poverty reduction. This requires changes to both the structure of the economy and labour moving in tandem, especially in high population countries like Nigeria.
I draw insights from three of my recent studies: (i) Capital Flows and Economic Growth: Does the Role of State Fragility Really Matter (ii) Interrogating the Political Economy of Africa Rising (iii) From the Narrative of “Africa Rising” to “How Africa Can Arise”.
Changing face of global poverty
The aim of the first Millennium Development Goal – to see a halving of the world population living in extreme poverty by 2015 – was met five years early. The rate fell to an estimated 21% in 2010, from 43% in 1990.
A huge chunk of this success can be attributed to China, and to a lesser extent India. Between them they were responsible for three-quarters of the reduction in the world’s poor witnessed over the period 2005 – 2015.
These trends contributed to the changing face of global poverty. Asia’s share of global poverty fell from about two-thirds to one-third. For its part Africa’s share more than doubled from 28% to 60%.
Poverty has gradually become an African problem, despite the rapid growth in the continent over the last decade. In addition, poverty is no longer concentrated in low-income countries. Large chunks of the world’s poor are now located in the recently upgraded middle income countries with significant clusters in the fragile ones. Nigeria is one of them.
This dire situation calls for urgent concern. But accelerating economic growth without increased effort at sharing prosperity and wealth redistribution is not enough to end poverty.
In 2014, the International Monetary Fund presented new evidence on a global scale supporting the arguments of the Nobel economist Joseph Stiglitz that inequality can also make growth more volatile and create the unstable conditions for abrupt slowdown in GDP growth.
In essence, inequality can be a drag within national contexts.
Structural transformation for Inclusive Growth
There is broad recognition that continuous structural transformation prompted by industrialisation, technological innovation, and diversification are essential features of rapid and sustained growth.
Structural transformation is the reallocation of economic activity away from the least productive sectors of the economy to more productive ones.
As at 2015, about half of the world’s 736 million extreme poor lived in just five countries.
The five countries with the highest number of extreme poor are (in descending order): India, Nigeria, Democratic Republic of Congo, Ethiopia, and Bangladesh. They also happen to be some of the most populous countries of South Asia and Sub-Saharan Africa, the two regions that together account for 85% (629 million) of the world’s poor.
Both Nigeria and India have over the years experienced some form of structural transformation. For example in both the service sector now contributes significantly to gross domestic product. But unemployment persists, hence, their high poverty numbers.
Nigeria re-based its GDP in 2013/2014, to account for new sectors. The re-basing exercise saw an almost doubling effect on Nigeria’s GDP.
The exercise was carried out largely to find evidence of structural transformation. The review showed changes in the sectoral composition of the economy, but this shift doesn’t mean that citizen’s welfare suddenly improved.
A noticeable trend was that the services sector had become the single largest component of the economy (accounting for over 50% percent of total GDP). For their parts the agriculture and manufacturing sectors had not improved significantly.
As at 2011 almost 40% of the GDP was contributed by the agricultural sector. Current figures suggest that almost 53% of GDP is accounted for by services, 26% by agriculture and 21% by industry.
Indeed, the basic starting point for structural transformation is a gradual progression out of crude agriculture to more sophisticated sectors of value addition. But the change in the sectoral contribution to GDP needs to be accompanied by changes in the allocation of labour.
There are significant implications for sustaining growth, and for reducing poverty, if this doesn’t happen.
In Nigeria there was no corresponding movement in the sectoral share of the labour force on the back of the rise in the service sector’s share of GDP and a shrinkage in the shares of industry and agriculture. Agriculture still accounts for between 60% to 70% of labour in Nigeria.
There are those who argue against sequential structural transformation. But I think the evidence supporting this remains scanty, particularly for countries with large population, high unemployment and poverty.
Manufacturing exports have been an important source of growth for the ‘miracle’ economies of the late 20th and early 21st centuries.
In addition, the export promotion ideologies of countries such as the Asian Tigers, and more recently China, corroborates the need to industrialise along the lines of a country’s endowment.
New challenges
Nigeria needs to achieve and sustain fast-paced economic growth driven by productivity and an export-oriented policy of industrialisation. It also needs to decompose its growth structure in a way that creates jobs and adds value to its factor endowments.
Nigeria has enormous areas of arable land with different climatic conditions. These can support the cultivation of various cash crops. Other endowments include natural resources such as crude oil, and various other solid minerals.
The ability to harness and add value to these before trading would therefore create jobs and reduce poverty.
It also needs to realign its labour force. To achieve this will require a shift from crude agriculture to a mechanised one that frees up labour as a factor of production to work in value chain that transforms primary products to intermediate or finished products. This will reduce the skewness of labour away from the agriculture sector towards industries and services.
Also, its high youth population would imply availability of cheap labour as an endowment that can work in factories at low wages and produce for competitive export.
To achieve this will require skills acquisition and capacity development to work in industries and services, away from the crude agricultural skills. This can be done by reviewing the education curriculum at compulsory levels to significantly reflect technological skills needed in the 21st century.
It will also require concerted efforts aimed at institutional strengthening, to attract and encourage both domestic and foreign investors.
Institutional strengthening will include improved level of enforcement of court orders, improved ease of doing business, increased supply of accountability by the political class and government officials and an efficient and progressive taxation regime, to facilitate wealth re-distribution.
A combination of these factors will help Nigeria achieve a more sustainable growth and equitable redistribution of wealth.