Nigeria has a demographic advantage that some other countries would wish for, just ask China.
China will allow all couples to have a third child, local media reported Monday, a move aimed at slowing the nation’s declining birth rate as risks to the economy’s long-term prospects mount because of a rapidly aging population.
China has been gradually reforming its stringent birth policy that for decades limited most families to only having a single child, with a second child allowed since 2016. However, that reform did little to reverse the declining birth rate.
Nigeria on the other hand has no such problem with a youthful population that is the largest in the world.
According to population projections by the United Nations for 2020, about 43 percent of the Nigerian population comprised children 0-14 years, 19 percent age 15-24 years and about 62 percent are below age 25 years. By contrast, less than 5 percent is aged 60 years and above
This makes Nigeria a youthful population with a median age of about 18 years, which is lower than African and world estimates of 20 and 29 respectively.
While China desperately seeks to arrest the economic downside of a fast-aging population, Nigeria is reaping nowhere near the full advantage if its demographic dividend, with the government barely investing in human capital.
The government will splash the cash on rehabilitating a decrepit public refinery ($1.5 billion) or burn $294 million monthly to keep petrol cheap, at a time of dwindling revenues, but not to develop its human capital.
Consider the country’s Human Development Index (HDI) score that is one of the lowest in sub-Saharan Africa, never mind emerging and frontier market peers, and talk of why Nigeria’s population may be a time bomb becomes clearer.
Nigeria’s HDI value for 2019 was 0.539— which put the country in the low human development category— positioning it at 161 out of 189 countries and at the level of countries like Niger, South Sudan and Congo.
The HDI is a summary measure for assessing long-term progress in three basic dimensions of human development: a long and healthy life, access to knowledge and a decent standard of living. A long and healthy life is measured by life expectancy. Knowledge level is measured by mean years of schooling among the adult population, which is the average number of years of schooling received in a life-time by people aged 25 years and older; and access to learning and knowledge by expected years of schooling for children of school-entry age, which is the total number of years of schooling a child of school-entry age can expect to receive if prevailing patterns of age-specific enrolment rates stay the same throughout the child’s life. Standard of living is measured by Gross National Income (GNI) per capita expressed in constant 2017 international dollars converted using purchasing power parity (PPP) conversion rates.
The final HDI is a value between 0 and 1 with countries grouped into four categories depending on the value, very high for HDI of 0.800 and above, high from 0.700 to 0.799, medium from 0.550 to 0.699 and low below 0.550.
In Africa, Mauritius boasts the highest HDI score of 0.804. South Africa, which vies with Nigeria has the continent’s biggest economy has a score of 0.709.
In Asia, Hong Kong leads with 0.949 but even India which is categorised in the low HDI cadre in Asia has a higher score than Nigeria at 0.645.
Those numbers are likely to have worsened in 2020 with the pandemic further exposing Nigeria’s ill-prepared health and education systems.
The minimal investment in human capital by the Nigerian government has been much to the detriment of an economy that has not grown in per capita terms since 2015.
The country’s weak revenues have often let it down but there are numbers to show that even the little it earns and the billions in debt that has been accrued since 2015 have not been well spent and has had minimal impact on the economy.
While the country’s debt stock has more than doubled since 2015, the economy has not grown above 2.5 percent- a rate well below the population growth rate.
Nigeria’s total labour productivity has also been declining, an indication that the government needs to invest more in infrastructure to improve productivity and lower cost of business as well as invest in education to give workers opportunities to upgrade their skills.
As at the end of 2016, when the National Bureau of Statistics (NBS) last published data on the subject, Nigeria’s labour productivity in dollar terms was down to $2.2, a 38.8 percent decline compared to $3.65 in 2015. The numbers may have worsened on the back of rising unemployment.
Bismarck Rewane, an economist and CEO of Financial Derivatives Ltd, said the government needs to invest in ventures that can help improve labour productivity and unlock the economy.
“Nigeria’s labour productivity is negative, the things government invest in must have a way of unlocking and accurately de-shackling Nigeria’s constrained economic output,” Rewane said.
“If you are going to be borrowing to pay for the Lagos, Ibadan rail all the way to Abuja to Kano, and you’re going to be paying for the completion of certain roads, those things should actually increase productivity and once productivity increases, output increases, then your income per capita begins to get better, and hopefully, the economic insecurity which is leading to political misunderstanding and conflict will actually reduce,” Rewane said during a television interview.
Labour productivity measures the hourly output of a country’s economy. Specifically, it charts the amount of real gross domestic product (GDP) produced by an hour of labour. Growth in labour productivity depends on three main factors: saving and investment in infrastructure, new technology, and human capital.
The Vietnam example
If Nigeria would only look at a country like Vietnam, there are lessons to be learnt on how investing in human capital can transform an economy in doldrums.
Vietnam went from being one of the poorest countries only 30 years ago to becoming one of the stars of the emerging markets universe.
Its average economic growth of 6-7 percent rivals China, and it exports are worth as much as the total value of its GDP.
Exports as a percentage of GDP was 105.83 percent in 2017, according to the World Bank. That compares with Nigeria’s 15 percent.
Anything from Nike sportswear to Samsung smartphones are manufactured in this ASEAN nation.
According to analysts from the World Bank and the think tank Brookings, Viet Nam’s economic rise can be explained by three main factors: “First, it has embraced trade liberalization with gusto. Second, it has complemented external liberalization with domestic reforms through deregulation and lowering the cost of doing business. Finally, Viet Nam has invested heavily in human and physical capital, predominantly through public investments.”
Regarding the first factor, the analysts point to the various free trade agreements Vietnam has signed in the last 20 years. In 1995, Viet Nam joined the ASEAN free trade area. In 2000, it signed a free trade agreement with the US, and in 2007 it joined the World Trade Organisation. Since then, further ASEAN agreements followed with China, India, Japan and Korea, and just this year, the amended Trans-Pacific Partnership went into effect – albeit without the US.
The cumulative effect of all these agreements was to gradually lower the tariffs imposed on both imports and exports to and from Viet Nam.
The government’s drive towards an open economy also included domestic reforms. In 1986 the country created its first Law on Foreign Investment, enabling foreign companies to enter Viet Nam. Since then, the law has been revised a number of times, mainly to adopt a more pro-investor approach while aiming to reduce administrative bureaucracy and better facilitate foreign investment into Viet Nam.
Finally, Vietnam invested a lot in its human capital and infrastructure. Facing a rapidly growing population – it stands at 95 million today, half of whom are under 35, and up from 60 million in 1986 – Vietnam made large public investments in primary education. This was necessary, as a growing population also means a growing need for jobs. But Vietnam also invested heavily in infrastructure, ensuring cheap mass access to the internet. The Fourth Industrial Revolution is knocking on Southeast Asia’s door, and having a sound IT infrastructure in place is essential preparation.
Those investments paid off. Armed with the necessary infrastructure and with market-friendly policies in place, Viet Nam became a hub for foreign investment and manufacturing in Southeast Asia. Japanese and Korean electronics companies like Samsung, LG, Olympus and Pioneer and countless European and American apparel makers set up shop in the country. By 2017, Viet Nam had become the largest exporter of clothing in the region and the seconder largest exporter of electronics (after Singapore).
Economic growth followed suit. Since 2010, Vietnam’s GDP growth has been at least 5% per year, and in 2017 it peaked at 6.8%. With such rapid economic growth, the country grew from one of the poorest countries in the world to a comfortably middle-income one. Whereas its GDP per capita was barely $230 in 1985, it was more than ten times that in 2017 ($2,343).
Importantly, the economic growth was fairly inclusive. According to the World Economic Forum’s Inclusive Development Index, Vietnam is part of a group of economies that have done particularly well at making their growth processes more inclusive and sustainable. Women too, fared better. Their employment rate is within 10% of that of men, notes the World Bank, and women-led households are less likely than those led by men to be poor, although inequalities remain.
Rather than commit to investing in human capital, Africa’s largest oil producer spends four times more money subsidizing fuel than building new schools, health centers and equipping new science labs.
A comparative analysis of the NNPC data on subsidy and the Federal Government budget from 2015 to 2019 showed that while the administration has sunk over N2 trillion into fuel subsidy, the sum of N219.03 billon was committed for the capital component of education and N215.45 billion as the capital budget for health in four years.
This implies that the cost incurred to subsidise petrol was four times the amount spent on health and education in four years.
