How poverty, insecurity crippling Nigeria’s economy and businesses

Last week, the Economist Intelligence Unit (EIU) said Nigeria’s debt service-to-revenue ratio has become the highest in the world, as the amount spent by the Federal Government on servicing debts exceeded what it earned in the first four months of this year. “The debt service/revenue ratio of 118.9 percent in January-April is the world’s worst and underlines unsustainable fiscal policy,” note the analysts at the EIU.

According to the report, Nigeria’s Federal Government debt service payments in the first four months of 2022 totalled N1.9 trillion, which was greater than its total revenue of N1.6 trillion, according to the 2023‑2025 Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) draft presented by the Ministry of Finance, Budget and National Planning, on July 21.

This did not come as a surprise as experts have warned the government on the level of borrowing. Personally, I have argued that Debt-to-GDP ratio is misleading, it is only logical to borrow against your revenue.

Also, in May 2022, Nigeria’s oil production dropped to an average of 1.02 million barrels per day (bpd) from 1.22 million in April. Nigeria’s gross oil and gas federation revenue for the first four months of the year was projected at N3.12 trillion but as at April 30, only N1.23 trillion was realised, representing a mere 39 percent performance.

Nigeria is on crutches economically, Nigerians and businesses are struggling to say the least. Apart from the poor economy, the rate of insecurity in the country in recent times is a serious source of worry.

Nigeria is presently plagued by heightened insecurity crisis manifesting in the form of internal terrorism such as armed banditry, farmers-herdsmen clashes, kidnapping, local crimes, burglary, and insurgency. Unfortunately, while this is resulting in desperate loss of lives in their numbers, it is equally taking a toll on businesses and the country’s economy at large.

At the root of the insecurity is the ever-increasing poverty rate. There is a relationship between poverty and insecurity, prosperity and security, as long as people remain poor, security will remain a mirage.

A recent World Bank report noted that the number of poor persons in Nigeria will rise to 95.1 million in 2022 from 89.0 million in 2020. In the same vein, the unemployment rate in Nigeria is estimated to reach 33 percent in 2022, with the unemployment rate for people aged 25 to 34 at 37.2 percent. And Nigeria already has the highest number of out-of-school children in the world.

To worsen the already bad case, the naira experienced its worse drop in value last week when it exchanged at N710 to a dollar in the parallel market. With this development, small businesses that depend on imported materials or foreign exchange for production are automatically on their way out of business.

According to the National Bureau of Statistics (NBS), small and medium enterprises (SMEs) contributed 48 percent of GDP, accounted for 84 percent of employment and 96 percent of businesses within the last 5 years (2015-2020).

As well, data from SBM Intelligence show that between January and November 2020, there were 142 incidents of Boko Haram insurgency in the North-East region of Nigeria, with the exclusion of crimes in other parts of the country. The Global Terrorism Index puts Nigeria as the third most terrorised country in the world.

Now, we understand that the business value-chain is a balanced string of intricate processes that obey the laws of demand and supply, extending from producers to consumers. And this cycle must not be broken if we must achieve a stable economy. Thus, it is expedient to explore how insecurity has disrupted this delicate balance in Nigeria in recent years.

Firstly, many raw materials for food production obtained from the northern parts of the country are now in scarcity due to the high rates of insurgency, which leaves the lands bare and sees a mass exodus of farmers and traders alike seeking safety for their dear lives and what is left of their families.

The mindless destruction of lives and properties has greatly hampered the growth of businesses and hindered seamless communication due to the destruction of communication masts and other infrastructure, and destroyed acquired wealth which is itself the principal means by which businesses are developed.

Furthermore, the insecurity-related displacement of people also affects the mental wellbeing of business-minded individuals. Ideas and innovation are only possible on a higher or stable level of living, but the incessant rate of insecurity in most parts of the country has reduced many indigenes to levels of safety and survival – at which no entrepreneurial innovative thinking can happen.

Read also: Eradicating poverty in Africa through inclusion

Human capital is a powerful force in any business process. With a population of over 200 million people, Nigeria ranks as the most populous African country, above Ethiopia and Egypt; however, there is an imbalance in the spread of labour. Many Nigerians are concentrated in relatively economically stable and safe states, most of which are located in the Southern and Western regions.

But with the levels of available jobs being barely sufficient to meet up with the existing labour pool, how can those states satisfy the ever-increasing influx of people? It is therefore no surprise that the unemployed resort to vices that threaten peace and further increase the rate of insecurity. This is indeed a hydra-headed situation.

According to BusinessDay, experts say that firms spend more money on security and logistics than they do on other business processes. Isn’t that very interesting? But then, how does this affect businesses in Nigeria?

Following the laws of demand and supply, if the supply chain is cut or crippled, there will be less supply to satisfy the high rates of demand, leading to an increase in price. In addition, in a bid to mitigate the risk of loss, companies have to increase the price of their products and/or services in response to the increased cost of production. Is it then any surprise that inflation rates have been skyrocketing in recent times?

As consumers, the need for a peaceful and stable society is important for life. People need to earn a living to cover their basic physiological needs of food, clothing and shelter, as well as other comfort needs, but a dilemma ensues in times of crisis and uncertainty.

Income that has originally been budgeted for basic living will in turn be used to protect and guard against insecurity, further reducing standard of living. On a larger scale, this reduction in demand due to low per capita income will disrupt the demand-supply balance.

Finally, and to conclude, Nigeria is at a cul-de-sac, the nation is fighting two existential wars, terrorism and economic. To win either of the wars, Nigeria must be deliberate about lifting at least half of its population out of poverty and also focus on local production beyond crude oil to increase revenue. As the entrepreneurial professor, Ndubuisi Ekekwe would say, “Only the factories can save the naira, not CBN.”