Inequality in Nigeria – Exploring The Drivers

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Sunday, July 21, 2019  / 07:00PM / By OXFAM/ Header Image Credit: OXFAM

 

Despite the prevailing recession Nigeria is still seen as Africa’s largest economy and one of the fastest-growing in the world. Yet, more than half of the Nigerian population still grapples with extreme poverty, while a small group of elites enjoys ever-growing wealth. This report provides a picture of the current state of poverty and economic inequality in Nigeria, identifies the main drivers of this situation and presents some policy solutions. 

Over the past 40 years, the gap between the rich and the poor has been growing in developed and developing countries alike.  In 2015, just 62 people had as much wealth as the poorest half of humanity, and the richest one percent owned more wealth than the rest of the world combined.  At the same time, the poorest people are being denied their fair share: since the turn of the century, the poorest half of the world’s population has received just one percent of the total increase in global wealth. 

In Nigeria the scale of economic inequality has reached extreme levels, and it finds expression in the daily struggles of the majority of the population in the face of accumulation of obscene amounts of wealth by a small number of individuals. While more than 112 million people were living in poverty in 2010,  The richest Nigerian man will take 42 years to spend all of his wealth at 1 million per day. 

According to Oxfam’s calculations, the amount of money that the richest Nigerian man can earn annually from his wealth is sufficient to lift 2 million people out of poverty for one year. Lifting all Nigerian people living below the extreme poverty line of $1.90 out of poverty for one year will cost about $24 billion. This amount of money is just lower than the total wealth owned overall by the five richest Nigerians in 2016, which was equal to $29.9 billion. 

Poverty in Nigeria is particularly outrageous because it has been growing in the context of an expanding economy where the benefits have been reaped by a minority of people, and have bypassed the majority of the population. Annual 8 economic growth averaged over 7% in the 2000s, and yet Nigeria is one of the few African countries where both the number and the share of people living below the national poverty line over that period, increased from 69 million in 2004 to 112 in 2010, equivalent to 69% of the population. In the same period the number of millionaires increased by approximately 44%. Income inequality, as measured by the Gini Index, grew from 40% in 2003 to 43% in 2009. 

Regional inequality is high in Nigeria, and it translates into higher rates of poverty in the north-western states of the country. For example, in Sokoto State, 81% of the population is poor, while poverty incidence is much lower, at 34%, in Niger. 

Economic and gender inequality are interconnected and reinforce each other. The life of Nigerian women is affected by a myriad of discriminatory traditional and socio-cultural practices that put them at disadvantage in a number of areas compared to men. For example, the majority of women are employed in casual, low-skilled, low-paid informal jobs; women are less likely than men to own land and 75.8% of the poorest women have never been to school, compared to 28% of richest men. 

In Jigawa State, 94% of women (against 42% of men) are illiterate.  As a result of these disadvantages, women are more likely to be poor than men, and keep being excluded from full participation in the country’s economic, social and political life.


 

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Poverty and inequality in Nigeria are not due to lack of resources, but to the ill-use, misallocation and misappropriation of such resources. At the root there is a culture of corruption and rent-seeking combined with a political elite out of touch with the daily struggles of  average Nigerians. 

The overlap between political and economic power bends the allocation of opportunities, income and wealth to vested interests, and biases policy-making in favour of the rich. A first consequence is the astronomical cost of governance. Nigerian lawmakers are one of the best paid in the world: the average annual salary is $118,000, equivalent to 63 times the country's GDP per capita (in 2013).  Costs of maintaining the machinery of government are also inflated by the excessive staff numbers, inflated salaries and benefits, arbitrary increase in the number of government agencies and committees, hidden allowances and oversized retirement packages. The high cost of governance reinforces inequality because it means that few resources are left to provide basic essential services for the wider, growing Nigerian population. 

Public resource management is subject to elite capture, corruption and rentseeking, and as such contributes to reproducing inequality and compromises opportunities for inclusive growth. According to the Economic and Financial Crimes Commission (EFCC), between 1960 and 2005, about $20 trillion was stolen from the treasury by public office holders. This amount is larger than the GDP of United States  in 2012 (about $18 trillion). 

The tax system is largely regressive: the burden of taxation mostly falls on poorer companies and individuals. On one side, big multinationals receive questionable tax waivers and tax holidays, and utilise loopholes in tax laws to shift huge profits generated in the country to low tax jurisdictions. In some cases, these tax waivers have been captured by the economic and political elite and used expressly to garner political patronage. 

It has been estimated that every year Nigeria loses $2.9 billion of potential revenues to questionable tax incentives. This is equal to about three times the country’s total health budget in 2015. Other revenues are lost because some companies shift profits to shell offices in tax havens and countries with low tax rates. A recent investigation found that between 2010 and 2013 a major telecom company had transferred N37.6bn (about $119 million) of profits generated in Nigeria to its Dubai office where it had very negligible operations, to avoid appropriate tax aligned to profit levels made from the country. 

On the other side, to meet their revenue generation targets, the government – especially at the state level – opts for aggressive taxation of the informal sector, sometimes imposing erratic taxes according to needs. As a consequence, small and medium enterprises and men and women in the informal sector face multiple taxation, accompanied in some cases by human rights violations. 

Further, the public resources that the government manages to collect are often spent in an unfair and inefficient way. This translates into lack of access to basic services for the majority of the population and poor outcomes in human development. The shares of government budget allocated to education, health and social protection are among the lowest in the region. For example, in 2012, 6.5% of the budget was allocated to education, 3.5% to health and 6.7% to social protection  (in 2010). 

By comparison, in Ghana these shares were, respectively, 18.5% (in 2015), 13.8% (in 2015) and 9.1% (in 2010). Public institutions have been unable to use the limited resources available in an effective way. For example, 57 million of Nigeria's estimated population of 170 million people lack access to safe water, and over 130 million citizens are without access to adequate sanitation. Nigeria is also at the top of the list of countries with the highest number of children out of school.  

Elite capture of public sector policies and resources undermines the productivity of the most important sectors of the economy and prevents the fair distribution of the benefits of growth. This is especially notable in agriculture and in the oil sector. Agriculture is the main source of non-oil exports and employs almost half of the Nigerian population. 

However, unfavourable policies have prevented small, poor farmers from benefiting from agricultural growth. For example, import quotas introduced to encourage investments in the rice value chain and meant for investors with rice-milling capacity were instead issued to cronies, who in turn sold them to larger traders and corporations. This pushed down the market price of rice, harming millers and rice farm owners whom the measure was originally meant to favour. 

The oil sector provides 80% of the Nigerian government’s revenue, but its performance is not efficient, and its contribution to the economy is not equitable. According to Nigerian National Petroleum Corporation, between 2013 and 2015, $3.9bn (N858bn) was lost to pipeline vandalisation and grand crude oil theft. Further, Nigeria continues to spend huge amounts of scarce foreign exchange importing refined petroleum, because domestic capacity is insufficient to meet demand. 

Allegations are that government resources allocated for refineries maintenance are captured by the political elite. Misappropriation of resources is evident in the case of the oil-rich Niger Delta region. Despite the allocation of large amounts of funds from multiple sources for the region’s development since 1999, the local communities still live in dire conditions, including environmental pollution and degradation, gas flaring, acid rain, lack of infrastructure low levels of human development. 

Another consequence of the mismanagement of the nation’s resources is the high rate of unemployment, especially among the young. In 2016, between 12.1% and 21.5% of Nigeria’s youth were without a job, and rates of underemployment are even higher. The inability of the economy to generate enough jobs results from the insufficient allocation of resources to the creation of new economic opportunities, combined with a difficult business environment, which disincentivises domestic investment and induces capital flight. 

The situation of the unemployed  reached desperate levels when on 15th of March 2014, 6.5 million people visited recruitment centres to apply for 4000 vacant positions in the Nigeria Immigration Service. At least 16 people died in the stampede that ensued during the process. In Nigeria and all over world over, economic inequality is a catalyst for social tensions within communities, with citizen frustrations manifesting in increased crime rates and violence in various forms, including communal, domestic, electoral, religious and inter-tribal violence. Inequality also perpetuates corruption because politics is perceived as the only route to earning opportunities. 

 

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The rising level of inequality in Nigeria poses a growing threat to Nigeria’s unity and stability and to its ability to eradicate poverty. However, deliberate policy interventions and political commitment, backed by an active, vibrant civil society and enlightened, proactive citizens can break the cycle.

 

Oxfam urges the government to take the following actions:

 

• Strengthen policies and laws for the economic empowerment of women, ensure the implementation of two key recently-adopted provisions: the National Gender Policy 2014 and the Violence against Persons Prohibition (VAPP) Act 2015, while also ensuring the Gender and Equal Opportunity Bill is passed as soon as possible.
 
• Make the tax system more progressive, close the loopholes in Nigeria's tax laws that allow for tax avoidance and tax dodging, eliminate unfair, unnecessary tax waivers and tax holidays, reform the allocation of tax incentives.
 
• Bring down the astronomical and indefensible high cost of governance and introduce measure to safeguard the policy-making process from capture by elites or vested interests.
 
• Increase the amount of public resources allocated to the provision of public goods and services, chiefly health, education, social protection, energy and safe water. Resources for adequate provision to all do exist in the country, as long as misappropriation and inefficient implementation are put to an end.
 
• Active citizenship holds the key to Nigeria’s inclusive development. Adequate resources should be given to schools to promote civic education, and citizen participation should be encouraged.
 
• Urgent measures are needed to address the youth unemployment crisis and revive the Nigerian private sector. Interventions to improve the business environment, reverse the brain drain and revive local manufacturing are especially important to unlocking the country’s potential. 

 

• Increased support to small-scale agriculture is essential to addressing poverty and inequality. Increased investment, review of government incentives, elimination of bottlenecks and corrupt practices and strengthening of agricultural insurance and credit schemes are critical to achieving more inclusive agricultural growth. 

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