International credit ratings agency, Standard & Poor’s (S&P), announced last Thursday that it was leaving its rating on Nigeria unchanged at B, with a stable outlook.
A “B” rating is two levels below investment grade, and is where S&P has put Nigeria since 2016.
The rating is the same as the one assigned by the other big two ratings agency, Fitch and Moody’s, who have B+ and B2 ratings, respectively, on Africa’s largest oil producer.
It comes as a surprise that Nigeria hasn’t earned a credit upgrade despite the country’s improving macro-economic indicators. GDP growth has swung positive since 2016’s contraction, oil prices and production are up some 20 percent and the country’s external reserves have almost doubled. Inflation is also down to 11 percent from as high as 18 percent.
For S&P, however, the biggest macro-economic indicator is GDP per capita and there has been no improvement since a contraction in 2016. That’s because economic growth has been too slow to match population growth rate. There’s no relief in sight for Nigeria, which Moody’s said last month was stuck in a “low growth cycle”, and the IMF expects GDP per capita to shrink for the fourth straight year in 2019 and four more years after.
“Nigeria would need to see stronger GDP per capita growth and overall GDP growth in the range of 5-6 percent before we consider an upgrade,” said Gardner Rusike, associate director, sovereign ratings at S&P.
“Public finances would also need to improve and we must get a strong sense that the economy is well on the path of diversification away from its over-reliance on hydrocarbons,” Rusike told BusinessDay on the sidelines of the S&P Nigeria conference last Thursday.
Nigeria’s economy would probably expand 2.5 percent in 2019, according to consensus estimates. The Federal Government expects growth will be even stronger going by its 2.7 percent target.
However, both estimates are hardly enough to cheer because it means the economy will still grow at a rate too little to absorb a rapidly growing population this year.
Nigeria’s average annual population growth rate of 2.6 percent means on average some 5.2 million Nigerians are born every year or 14,246 daily, each one needing hard and soft infrastructure from power to education and healthcare.
Economic growth in the region of 2 percent is hardly enough to cater to those needs, paving the way for more Nigerians to slip below the poverty line. Shrinking GDP per capita means the economy is not growing fast enough to create economic opportunities like jobs for its people and that is a recipe for poverty.
In 2018, the Brookings Institution published a report that said Nigeria had beat India to become the poverty capital of the world, despite being less than a quarter of India’s population. Nigeria wrested the crown from India by having a little short of 100 million people living below the poverty line.
To put the numbers in context, that’s only 10 percent short of the population of Ethiopia, Africa’s second-most populous country, and is equal to the population of South Africa (the 6th most populous in Africa) and Kenya (7th) combined.
It also means if Nigeria’s poor people came together to form a nation, it would be the fourth most populous nation in Africa. The large number of Nigeria’s poor people and the threat of a socio-economic implosion make poverty reduction a key target for Nigerian policymakers, who have their work cut out, as they must seek to achieve economic growth of around 7 percent.
Some can argue that a socio-economic implosion is already happening, given the rising crime rate and kidnapping in the country.
This makes it all the more imperative for Nigeria to act quickly by borrowing a leaf from the playbook of countries that have succeeded in reducing poverty and averting a socio-economic crisis.
There’s no scarcity of country case studies pointing the way for how Nigeria can curtail rampant poverty.
The common thread in all those case studies is that economic growth is the most powerful instrument for reducing poverty and improving the quality of life in developing countries.
Growth can generate virtuous circles of prosperity and opportunity. Strong growth and employment opportunities improve incentives for parents to invest in their children’s education by sending them to school. This may lead to the emergence of a strong and growing group of entrepreneurs, which should generate pressure for improved governance.
Strong economic growth therefore advances human development, which, in turn, promotes economic growth.
It is why a successful strategy of poverty reduction must have at its core measures to promote rapid and sustained economic growth. Asian countries provide overwhelming evidence of that.
Take China, which has contributed over 70 percent of the poverty reduced across the world, according to the United Nations, making itself a country with the most people lifted out of poverty globally.
According to the $1.9 poverty line, from 1981 to 2015, China lifted 850 million people out of poverty, with the percentage of people living in extreme poverty falling from 88 percent to 0.7 percent.
Since the start of far-reaching economic reforms in the late 1970s, growth has fuelled a remarkable increase in per-capita income.
China’s per capita income has increased fivefold between 1990 and 2000, from $200 to $1,000. Between 2000 and 2010, per capita income also rose by the same rate, from $1,000 to $5,000, moving China into the ranks of middle-income countries, a target Nigeria’s Vice President Yemi Osinbajo says he has set for Nigeria.
Beijing’s success was delivered by reforms that were a combination of a rapidly expanding labour market, driven by a protracted period of economic growth, and a series of government transfers such as an urban subsidy, and the introduction of a rural pension.
The whole reform programme is often referred to in brief as the “open door policy”. True to the name of the reform programme, China pursued trade liberalisation and opened up to foreign direct investment. It also improved its human capital, opened up to foreign trade and investment, and created a better investment climate for the private sector.
The Chinese government also worked hard to reduce the inequality of health and education outcomes. The Chinese government shifted its policy in recent years to encourage urban migration, fund education, health, and transportation infrastructure for poor areas and poor households.
China’s poverty reduction also involved reforming land laws and allowing farmers, who formed the bulk of its poor people, to keep more of their profits.
In November 2013, the World Bank and China launched a knowledge hub to spread knowledge of China’s successes in reducing poverty both at home and in other countries. It is a virtual platform with seminars and studies held in various places.
“Demand is growing among other developing countries to learn from this (China) remarkable progress,” former World Bank Group President Jim Yong-kim said at the time.
Today, the knowledge hub has helped other Asian countries reduce poverty. One such example is India.
If Nigeria were to embrace the idea of using economic growth as a tool to get 100 million people, about half of the country’s population, out of poverty, 10 economists polled in a BusinessDay survey say the government must aim to at least double GDP per capita.
For Nigeria, a ratings upgrade would be the least benefit from boosting GDP per capita.
LOLADE AKINMURELE
