Nigeria is enjoying a sustained period of high oil prices and nine successive quarters of economic growth. That’s the good news. Lurking beneath that is arguably the most formidable economic challenge confronting Nigeria since the civil war-era depression. Simply put, the economy is on an unsustainable trajectory. Average income for Nigerians declined for four consecutive years. Poverty and unemployment are growing at alarming rates; and, despite high oil prices, external borrowing ballooned to a fiscal constricting level where debt servicing now surpasses capital expenditure. Arable land growth is not commensurate to population.
The structural problem: population is growing at a faster rate than economic output. Simultaneously, labour supply growth is outstripping job creation. This is happening within an economy already problematized by elevated unemployment(The World Bank estimates 40% of Nigerian youth are unemployed) and astronomical levels of extreme poverty in which almost half of Nigerians exist on less than a dollar a day.
To use a dark analogy, it is like a person who falls into a very deep well on a rainy day and sinks below the waterline. Rescuers throw the individual a rope and stop the descent. This is akin to halting a recession. But, if rain fills the well faster than the rescuers can pull out the victim, drowning will occur. Here, rainfall is population growth, the speed of ascent of the victim is GDP growth.
Malthusian Catastrophe
The classical economist Reverend Thomas Malthus in 1798 famously theorized that population will grow at a faster rate than food supply with calamitous consequences for society. Malthus advocated for “preventive” interventions through population control to avert “positive” corrections through catastrophes like war, famine, epidemics and natural disasters. While Malthusian theory has largely been “repudiated” by economic schools across the spectrum, current conditions in Nigeria might support its assertions.
Economic booms and recessions in Nigeria are intricately linked to the cadences and vicissitudes of the oil and gas markets. Experts such as XX opine that we are currently approaching the apogee of an oil boom. Unlike prior episodes, this boom has not translated to per capita income growth. Though GDP stopped contracting in 2017, growth oscillates between an inadequate 1.0 to 2.4 percent, according to NBS and World Bank data. Conversely, population growth remains between 2.6 and 3.1 percent, according to NBS and UNICEF. The implication: a sustained drop in average per capita income from $2,564 in 2015 to $2,396 in 2018. This decline is exacerbated by extant and worsening poverty. In 2018, 87 million Nigerians or 47 percent of the population, were living in extreme poverty – the worst of any country in the world according to World Data Lab, which created the World Poverty Clock.
Nigeria’s fundamental challenge resides in the dependence on oil and gas for foreign exchange, government revenue and essential goods & services production. Because oil is the linchpin of Nigeria’s economy, oil price volatility and Nigeria’s stagnant oil output leaves the economy vulnerable to external shocks. The situation is critically compounded by structural impediments to non-oil economic growth and diminishing resources.
Vanishing Resources
Nigeria is experiencing ominous declines in the ratio of petroleum and farmland resource per person.
Nigeria’s oil production peaked at 2.63 million barrels per day (bpd) in 2005 (US EIA figures) and thereafter remained within a 15percent band of 2 million BPD. In 1980, Nigeria produced one barrel of oil for every 36 people. In 2000, that figure declined to one barrel of oil daily for 56 people. In 2018, Nigeria produced one barrel of oil daily for 109 people! (interpolations based on US EIA and UN figures).
It is a similarly dire narrative with arable land. The average Nigerian in 1970 had more cultivated land than three Nigerians today. Massive urbanization and desertification have taken their toll on available land and water. From 0.6 hectares per person in 1970, we have 0.18 hectares per person in 2016. Meanwhile, total arable land plateaued at 34 mm hectares (modified world bank data). Population growth will worsen these figures. Already lethal conflicts have emerged between pastoralists and farmers over farmland with disruptive consequences for agricultural output. In hundreds of reported cases, violence led to destroyed and abandoned arms and livestock fatalities. The consequence: worsening food production.
Solutions
Progressive growth in food production and public policy interventions largely averted Malthusian catastrophes. Isome countries, policies such as food stamps and income redistribution circumscribed the scope of extreme poverty. Indeed, critics of Malthus’ theory point to the capacity of humans – through science and technology – to expand food resources, alter consumption, and moderate population growth. When confined to a single country, empirical evidence points to “positive” corrections from famines, wars and pandemics.
Nigeria requires bold interventions:
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rapidly transform the economy, and restrict population growth.
Economic Transformation
To transform the economy, policymakers must target sustained double-digit growth in GDP. Growth that is inclusive and resilient enough to endure future oil shocks and the impending debt crisis. A necessary policy portfolio for transformative growth will address government revenue, business growth, job creation, economic diversification and debt levels. To create fiscal space and increase business productivity:
Expand the tax collection net for corporates and individuals and eliminate leakages. Nigeria has less than one-third of Ghana’s 18 percent tax to GDP ratio (OECD figures) and The World Bank prescribes a minimum of 15 percent for poverty reduction.
Privatize and sell 51percent of NNPC and monetize saleable real estate and business assets to raise over $10 billion.
Grant concessions and licenses as a revenue generator and financing tool for infrastructure and utilities.
Reduce the cost of governance by exploiting efficiencies in operation and plugging financial loopholes.
Eliminate subsidies on imported oil products.
Merge the current multiple forex windows
Restructure the national debt to improve domestic access to credit for businesses currently crowded out by public debt.
Implement business enabling policies and friction reduction that translates to higher corporate profits, financial market activities and higher employment (taxable persons). PEBEC is in the right direction and should be further resourced and supported for scale.
Open the borders and avoid economic dampeners like higher value-added tax or taxes on cash deposits.
Support trade agreements that favour Nigerian exports and drive standardization of Nigerian produce.
Population Management
Multiple studies establish a causative link between female literacy/workforce participation and lower fertility ratios. Female illiteracy reached 47 percent in 2018, according to UNESCO data. An ambitious national scale four-year program that incorporates players in the education ecosystem– including large international donors, FG and State governments, epistemologists, religious and cultural leaders – can radically reduce the level of female illiteracy and ultimately fertility ratios.
A second palliative measure is to incentivize family planning with non-coercive methods. For example, policies linking the cost of some government benefits (cost of education or healthcare) to family size.
Nigeria is a graveyard of failed policies. For successful implementation, the first step is to articulate a cohesive and comprehensive program with clear implementation timelines, responsible persons, measurable metrics and precise definitions of success for each goal. The next step is leadership commitment that cascades from the highest echelon to the lowest nodes of implementation.
Time to Act
Nigeria faces strong economic and demographic challenges today. Yet it is capable of turning this impending demographic “bomb” into a window of opportunity. Nigeria’s large population implies large market potentials, massive available pools of human capital and entrepreneurial talent. Nigerians are a resilient people and – when given the opportunity – display creativity and excellence in many endeavours. One only has to observe Nigerians in the diaspora to recognize this. It is our collective responsibility (government, businesses and citizens) to confront the enormity of the problem and act.
Matthias is an economist, Chairperson of United Capital PLC and adjunct Professor at SAIS Johns Hopkins. He holds masters degrees from Harvard University, Johns Hopkins and American University
