• Monday, April 15, 2024
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Four charts show Nigeria is not a rich country

Economic crisis: Triple blow for Nigerian families

Gustavo Petro’s belief that ‘A developed country isn’t where the poor have cars but where the rich use public transportation’ resonates with Basit Shuaib’s statement that ‘A country is as rich as its citizens.’ Therefore, it’s evident that Nigeria is a poor nation.

The notion that natural resources alone bestow wealth upon a nation is increasingly challenged. While endowed with abundant resources, countries like Nigeria often find themselves grappling with the paradox of plenty.

Economists warn of the perils of the so-called “resource curse,” where the presence of vast resources fails to translate into widespread prosperity, instead fostering dependency, corruption, and economic instability.

Nigeria stands as a stark example of this phenomenon. Despite its rich endowment of resources, including oil and minerals, the nation struggles with staggering levels of poverty.

Recent data from the World Bank paints a sobering picture: out of a population exceeding 200 million, over 104 million Nigerians live below the poverty line. This jarring reality contradicts the narrative of national wealth based solely on resource abundance.

Basit Shuaib, an economist, aptly puts it: “A country is as rich as its citizens.” Yet, in Nigeria’s case, this principle appears to be inverted. The vast disparity between the nation’s resource wealth and the pervasive poverty experienced by its people underscores the urgent need for a reevaluation of economic policies and priorities.

Only by addressing the root causes of poverty and fostering inclusive growth can Nigeria truly harness its potential for prosperity. Basit added.

GDP-Per-capita Analysis

Adding to the complexity, Nigeria’s GDP per capita of $2,066 is notably lower than that of other nations, including South Africa ($7,055), the Philippines ($3,461), Vietnam ($3,756), Thailand ($7,066), and Poland ($18,000), underscoring the urgent need for economic reform to truly unlock its potential for prosperity.

This suggests that Nigeria’s GDP per capita is lower compared to other nations, indicating a lower standard of living for its citizens. This is supported by the recent publication by the World Bank that the poverty rate rose to 104 million from 89.8 million at the beginning of 2023.

Despite being Africa’s largest economy, Nigeria lags behind in terms of GDP per capita when compared to countries like South Africa, the Philippines, Vietnam, Thailand, and Poland.

This disparity highlights the need for Nigeria to address socio-economic challenges, improve productivity, and implement policies aimed at boosting economic growth and enhancing the well-being of its citizens.

Tax-to-GDP analysis

Nigeria’s tax-to-GDP ratio is far less than it should be, yet Africa’s largest economy of over 200 million people can’t seem to shake off the tag of a rich nation.

While the country’s tax-to-GDP ratio of 10.86 percent—the proportion of a nation’s economic output that is collected in taxes—shows that it is nowhere to be considered wealthy, many Nigerians, including policymakers, think otherwise.

Nigeria will have to improve on its tax returns at least two times to match up with South Africa and almost three times to match up with Morocco. While South Africa and North African Morocco have 21 and 27.1 as their tax-to-GDP ratios, respectively, Nigeria’s stood at 10.86, data from the National Bureau of Statistics show.

The stark disparity between Nigeria’s tax-to-GDP ratio and that of comparable African economies underscores a critical imperative: the urgent need for Nigeria to overhaul its tax collection mechanisms and fortify fiscal transparency and accountability measures.

This imperative isn’t just about balancing the books; it’s about unlocking the nation’s full economic potential and fostering sustainable development.

Enhancing tax collection efforts is more than just a fiscal strategy; it’s a pathway to empowering the Nigerian people and catalysing socio-economic transformation. By bolstering revenue streams through fair and efficient tax systems, Nigeria can fund essential public services, infrastructure projects, and social welfare programmes that are vital for lifting its citizens out of poverty.

Unfortunately, the recent economic reforms in the country, including subsidy removal and exchange rate unification, have plunged the economy into a state of comatoseness. Households are grappling with financial strain, while businesses are facing unprecedented challenges exacerbated by the volatile exchange rate. BusinessDay earlier report

Major corporations, such as P&G, GlaxoSmithKline, and Shell, have made the difficult decision to exit the country, and some have exited, citing the adverse effects of the exchange rate fluctuations. Those that remain operational are bearing the brunt of substantial losses due to these currency fluctuations, as disclosed by a source close to BusinessDay.

The ramifications of these developments are significant, particularly for government revenue projections. The relentless volatility in the exchange rate poses a formidable obstacle to tax revenue generation, further exacerbating the financial crisis gripping the country.

Budgetary analysis

That is not all. Nigeria, the most populous African nation, has a smaller national budget when compared to Algeria, Egypt, Morocco, and South Africa.

These African countries showcase a striking discrepancy in budget allocation per capita. Despite Nigeria’s sizable population, its budget allocation of $38.27 billion pales in comparison to that of South Africa. With a population nearly three times smaller at 61,020,221, South Africa spent a staggering $132.03 billion in 2023, according to data from Macrotrends.

Similarly, Algeria boasts a budget of $98 billion for its population of less than 50 million (46,032,505), while Morocco, with fewer than 40 million citizens (38,211,459) according to data from Macrotrends, allocated $62 billion according to the Moroccan finance ministry. Egypt, with a population of less than 115 million (114,484,252), according to Aljazeera, has a budget of $97.41 billion.

Budget differences in Africa reflect varied spending approaches. South Africa and Egypt have more investment potential due to higher budgets. Nigeria, Morocco, and Algeria face challenges with lower allocations, although Algeria and Morocco fare better compared to Nigeria.

Efficient resource use is crucial. Corruption, which is prevalent in Nigeria, can hinder the benefits derived from large budgets. According to the Corruption Perception Index (CPI), a metric used to measure the level of corruption in a country, out of 180 countries ranked, Nigeria stood at 145th position with a score of 25 percent, indicating a high level of corruption based on the metric.

Indonesia, similar in population to Nigeria, plans to spend $216 billion, highlighting disparities in fiscal priorities. This raises concerns about budget efficiency and fair resource distribution across African and Asian nations.

“There’s a stubborn myth among Nigerians that Nigeria is wealthy,” stated a government official, highlighting misconceptions about the country’s economic status.

Oil production analysis

According to data from OPEC, Saudi Arabia, Iraq, the UAE, Iran, and Kuwait have the highest oil production, with 9 million, 4.3 million, 3.3 million, 3.1 million, and 2.6 million barrels per day, respectively.

Nigeria is punching below its weight, producing at least five times less than Saudi Arabia, which has a staggering 35 million people to fend for.

As the world’s largest oil exporter, the Arab country can afford subsidies without falling into a socio-economic crisis. Meanwhile, Nigeria’s economy is on the brink after President Bola Tinubu announced the removal of petrol subsidies last May.

No less than 14 million Nigerians will have become poor in 2023, according to the latest Nigeria Development Update report by the World Bank, which implies that the number of poor people rose to 104 million from 89.8 million at the beginning of 2023.

Christopher Akinbobola, an oil and gas and tax practitioner, says, “Nigeria’s oil production falls far behind countries like Saudi Arabia, despite its significant reserves.

“This production gap hampers revenue generation and essential programme funding. The government must take actions hindering production to boost foreign currency earnings and address current economic challenges.”

“The staggering increase in poverty highlighted by the World Bank report is alarming and demands urgent attention from policymakers. Nigeria’s over-reliance on oil revenue has left the economy vulnerable to fluctuations in global oil prices, exacerbating poverty and inequality.

He added, It is imperative that the government diversifies the economy, invests in social welfare programmes, and fosters inclusive growth to uplift millions of Nigerians out of poverty.” Teslim Abass is an investment analyst.

Oluwatobi Ojabello, senior economic analyst at BusinessDay, holds a BSc and an MSc in Economics as well as a PhD (in view) in Economics (Covenant, Ota).

Wasiu Alli is a business and finance journalist at BusinessDay who writes about the economy, business trends, and politics. He holds a BA. Ed. and M. Ed. in English Language and Education.