Debunking Economic Myths: Economic growth doesn’t always reduce poverty rates

By Oluwatobi Ojabello and Wasiu Alli

In the realm of economics, the quest for prosperity and the fight against poverty dance together, their steps intricate and intertwined. Yet, in developing economies, this dance often stumbles, with economic growth failing to lead the charge against poverty as expected.

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The narrative seems simple enough: as economies burgeon, so too should job opportunities, rises in income, and the safety nets that catch those in need. But reality, as always, is a more complex canvas.

Q: “Economic growth, while a beacon of hope, often casts shadows where poverty stubbornly persists. In developing nations, where inequality runs deep and safety nets are thin, the path from prosperity to poverty alleviation is fraught with obstacles.”

Economic growth, while a beacon of hope, often casts shadows where poverty stubbornly persists. In developing nations, where inequality runs deep and safety nets are thin, the path from prosperity to poverty alleviation is fraught with obstacles.

Structural inequalities, job scarcity, inadequate infrastructure—these are the dragons that haunt the journey towards prosperity. Despite the swells of economic growth, these challenges loom large, casting shadows on the promise of a better tomorrow.

In these corners of the globe, prosperity is a privilege enjoyed by the few, while poverty remains the silent companion of the many. The cracks in the system widen, and the marginalised are left behind, their voices drowned out by the roar of progress.

Nigeria, Africa’s largest economy, serves as a poignant case study in the discourse on economic prosperity and poverty reduction. Endowed with vast natural resources, yet 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.

Nigeria’s economic narrative in the past five years has been a journey of twists and turns, marked by resilience in the face of challenges and aspirations for progress.

According to data from the World Bank, OECD, and Statista, the story of Nigeria’s growth and poverty reduction efforts unfolds with both triumphs and trials.

In 2019, Nigeria set sail with a growth rate of 2.2 percent, signalling stability and hope for economic advancement. Yet, despite this promising start, a significant portion of the population continued to grapple with extreme poverty, with a rate of 38.3 percent reported by Statista. The dichotomy between growth and poverty underscored the complexities of Nigeria’s development journey.

The year 2020 brought unprecedented disruption as the COVID-19 pandemic swept across the globe, plunging economies into turmoil. Nigeria was not spared, experiencing a sharp contraction of -1.8 percent in GDP growth. This economic downturn coincided with a slight increase in the extreme poverty rate, reaching 40.7 percent, according to Statista, as vulnerable populations bore the brunt of the pandemic’s impact.

However, amidst the adversity, 2021 emerged as a year of resilience and recovery for Nigeria. With a robust growth rate of 3.6 percent, the nation charted a course towards economic revitalization. Despite this progress, the extreme poverty rate remained persistently high, hovering around 40.61 percent, highlighting the entrenched nature of socio-economic challenges.

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As Nigeria ventured into 2022, the momentum of recovery continued, with a growth rate of 3.3 percent signalling sustained progress. Yet, the battle against extreme poverty remained uphill, with the poverty rate stubbornly persistent at 40.5 percent. The data painted a sobering picture of the enduring inequalities that plagued Nigerian society.

In 2023, Nigeria navigated a landscape of moderate growth, with a growth rate of 2.74 percent, although it was lower than the previous year’s 3.3 percent in 2022. While the economy continued to move forward, the extreme poverty rate remained largely unchanged at 40.3 percent. Despite concerted efforts and incremental gains, the challenge of lifting millions out of poverty loomed large on the nation’s agenda.

Some experts and professionals echoed that the poverty level in Nigeria can be attributed to corruption and economic instability, which aligns with the corruption perspective index. 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.

At this critical juncture, it is imperative for President Bola Ahmed Tinubu to ensure he gets it right in Nigeria. Thus, among the things that will entail getting it right is to remember that prosperity, while a noble pursuit, is only meaningful when it reaches every corner of society. Until then, the dance between prosperity and poverty will continue, with a delicate balance teetering on the edge of a more equitable future.

This piece serves as a clarion call, emphasising that true prosperity extends beyond mere economic figures or statistics. It’s about ensuring that every citizen has a fair chance at a better life, regardless of their circumstances. The era of figures without translating to a better life is gone; the pains are too much. While economic growth is a vital component, it’s just one piece of the puzzle.

In navigating the complexities of governance, President Tinubu must prioritise policies that uplift the most vulnerable, bridge the gap between rich and poor, and create opportunities for all. This means investing in education, healthcare, infrastructure, and social welfare programmes that reach every corner of society.

The path to prosperity is paved with inclusivity and fairness. It’s about empowering individuals to thrive, not just survive. President Tinubu’s legacy will be defined not by GDP growth alone but by the tangible improvements in the lives of ordinary Nigerians.

As we stand at this pivotal moment in Nigeria’s history, let us remember that the journey towards prosperity is ongoing. It requires bold leadership, unwavering dedication, and a steadfast commitment to justice and equality for all. Only then can we truly tip the scales in favour of a brighter, more equitable future for Nigeria.

Beyond Nigeria, similar dynamics can be observed in other developing economies grappling with the paradox of economic prosperity and entrenched poverty. Countries like Egypt, Indonesia, and Mexico offer compelling case studies of the complexities inherent in poverty reduction efforts amid rapid economic growth.

Egypt

In Egypt, the interplay between economic growth and poverty reduction reveals a complex socio-economic landscape. While fluctuating over the past five years, it has not consistently led to a significant reduction in poverty. Despite periods of robust growth, extreme poverty rates have remained relatively high, demonstrating that economic prosperity has not directly translated into improved living standards for all segments of the population.

For instance, data from Statista in 2019 shows that Egypt experienced a robust growth rate of 5.55 percent, yet a significant portion of the population remained entrenched in extreme poverty, with a rate of 29.2 percent. This trend persisted in 2020, with a growth rate of 3.57 percent and an extreme poverty rate of 31.9 percent. However, in 2022, a resurgence in growth contributed to a decline in extreme poverty, which decreased to 27.9 percent. By 2023, this trajectory continued, with a growth rate of 4.16 percent and extreme poverty dropping to 27.31 percent. This journey emphasises the importance of comprehensive strategies to foster sustainable development and uplift marginalised communities.

Indonesia

Indonesia has the world’s largest Muslim population, which is approximately 231 million people, more than Pakistan and India, at 200.4 million and 200 million people, respectively, as reported by the Pew Research Centre.

The interplay between economic growth and poverty reduction reveals a complex socio-economic landscape. While fluctuating over the past five years, economic growth has not consistently led to a significant reduction in poverty. Despite periods of both expansion and contraction in the economy, extreme poverty rates have remained relatively stable, indicating that economic progress has not uniformly translated into improved living conditions for all segments of the population.

For instance, in 2019, Indonesia recorded a robust growth rate of 5.02 percent, yet a notable portion of the population continued to grapple with extreme poverty, with a rate of 9.4 percent. This trend persisted into 2020, with a contraction in the economy (-2.07 percent) accompanied by a slight increase in extreme poverty to 9.8 percent. However, in 2021, despite a rebound in economic growth to 3.7 percent, extreme poverty saw a marginal increase to 10.1 percent.

Nevertheless, in 2022, a resurgence in economic growth contributed to a decline in extreme poverty, which decreased to 9.5 percent. By 2023, despite a slight moderation in growth to 4.97 percent, extreme poverty remained stable at 9.0 percent.

Mexico

Mexico’s economy has grown steadily in recent years, but poverty rates remain stubbornly high, particularly in rural areas and among indigenous communities. Income inequality is a significant barrier to poverty reduction, with disparities between rich and poor widening in urban centres and industrial regions.

In 2019, Mexico experienced a slight contraction in its growth rate, recording -0.28 percent, while the extreme poverty rate stood at 31.8 percent. The following year, in 2020, the economic downturn deepened significantly, with a growth rate plummeting to -8.65 percent and extreme poverty rising to 32.5 percent.

However, in 2021, Mexico rebounded with a robust growth rate of 5.84 percent, although this growth was accompanied by a further increase in extreme poverty, reaching 34.4 percent. In 2022, the growth rate moderated to 3.9 percent, yet extreme poverty continued to escalate, reaching 36.3 percent.

By 2023, Mexico saw a slight increase in its growth rate to 3.18 percent, but extreme poverty continued its upward trend, reaching 37.8 percent. This data suggests a concerning trend where economic growth has not translated into a reduction in extreme poverty, highlighting the need for targeted poverty alleviation measures.

It is noteworthy that the data presented underscores the intricate relationship between economic growth and poverty reduction in developing economies like Nigeria, Egypt, Indonesia, and Mexico. Despite periods of economic expansion, the persistence of extreme poverty rates reveals the limitations of relying solely on GDP growth as a measure of prosperity.

Oluwafemi Olapade, an economist, emphasised, “It’s evident that addressing entrenched poverty requires more than just economic policies aimed at boosting growth. It necessitates a holistic approach that prioritises social welfare programmes, investments in education and healthcare, and targeted interventions to uplift marginalised communities.”

He added, President Bola Ahmed Tinubu and leaders across these nations and other developing economies must recognise that sustainable development is achieved not only through economic progress but also through inclusive policies that ensure prosperity reaches every corner of society. Only then can we truly overcome the paradox of economic growth coexisting with persistent poverty and pave the way for a more equitable future for all.

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.