Friday, July 06, 2018 / 04:00 PM / Proshare Research
According to the World Bank, an individual or person who lives or earn below $1.9 per day is considered to be extremely poor. In line with this, the bank asserted that Nigeria currently has the highest number of extreme poor individuals (thus overtaking India) following results from the World Poverty Clock which showed that 86.99 million Nigerians fell within the extreme poor category in 2017. Most importantly, it brought to bear the dire position of the nation’s social well-being, as its dependency ratio continues to grow.
With the present population dynamic, 45.7% of the Nigerian population is considered to be extremely poor far higher than the sub Saharan average ratio of 30 and worse off than Somalia!!
Certainly, such statements reverberated across the Nigerian society, thus this edition of the Proshare Confidential Report sought to trace the trajectory of extreme poverty as far back as 1985 to present day. In doing this, a liner interpolation was carried out which showed that in 1985, 60 million Nigerians were considered to be extremely poor, while it declined in subsequent periods.
The slump in the figure after 1985 was largely felt at the beginning of 2000 when income policies fused with the adequate pre-condition for growth were in place. Some of these pre-conditions for growth include eliminating price discriminatory elements inherent in exchange rate, providing a fiscal rule, liberalizing sectors earlier dominated by government, debt relief and the recapitalization of bank. For the record, the recapitalization of banks addressed the repression experienced in the banking system and further widened the scope of the capital market. This further boosted the private sector and deepened financial intermediation. Following the decline in poverty in this period, the middle class grew in 2009.
As at the beginning of the new decade policy summersaults, rising tension in the Niger Delta, rising population growth and the in ability to follow through with reforms made GDP growth more disconnected with the Human Development Index (HDI), thus earlier gains made in reversing poverty began to unwind and about 53.5 million Nigerians were considered extremely poor.
Furthermore, the inability to fully go through with reforms in critical sectors such as the Power and Energy sectors affected the nations competitiveness, thus making foreign direct investment experience an under heat. It then became harder to address the nation’s export concentration; and at the wake of 2014 when oil price ran nervy, GDP growth fell below population growth and the naira began to lose its slow biasness.
Subsequently, per capital income started to slide. By the time the cycle concluded an anti-clock wise movement in 2016, Poverty had taken new heights to about 83.69 million Nigerians been considered extremely poor while the weakness in qualitative indicators became more accentuated than ever.
In attempt to provide measures on how best to address poverty, the study considered Ethiopia’s broad based approach and gradual transition to a private sector led economy.
Certainly, the implication of dampening in social well-being have come with dire consequences, as it further weakens the nation’s ability to improve its income drive. More so, the growing dependency ratio, crime and widening inequality put the socio-economic fabric of this country under severe pressure. At the same time, the dynamic forces the fiscal authority in a position to take on social intervention programs, thereby widening the fiscal deficit.
Thus, there is a need to address factors that hold back private capital formation, improve trade openness and open sectors currently under the government’s full control. In reality pro-poor policies are palliatives that complement structural reform, since they cannot on their own provide long term solutions.
More than ever before there is a need to address the growing structural distortions. The drawback from the Lua da Silva reform where pro poor polices took the front row ahead of structural reforms dented Brazil’s potential output. This we must avoid.
The study also provides a macroeconomic outlook for the Nigerian economy. Based on our model in retrospect, we expect a 1.82% growth for the second quarter of 2018 on the heel of fiscal lags and ongoing shocks in the Agricultural sector, especially in the food belt region of the country. While we take this into account as a relative risk on to the economy, we are of the opinion that output will experience an under heat moving forward.
We take a mildly upbeat position moving into the other half of the year; forecasting 1.86% and 1.88% GDP growth for Q3 and Q4 2018 respectively.
As regards price movements, we see headline inflation dampening to 10.7% in June 2018 and 9.8% in August 2018; thus reaching the Central Bank’s sweet spot which is a dial back of price movement to a single digit. In our Adjusted ARIMA model, money supply is projected to remain mute while the indirect relationship between oil price and inflation is vivid; thus supporting a further decline in inflation till September 2018.
As inflation dwindles, the real interest rate is bolstered and inflation premium will keep declining. The expected short rate on treasury bills will cave inwards and liquidity premium would remain constant, as the slope remains largely steep, even though the coefficient between tenor and rate stands at 0.93. On the contrary, OMO bills will still rise steeply as liquidity largely increases with maturity.
Economy Desk, Proshare Research
July 03, 2018
Previous Proshare Confidential Report (s)
1. POCKET Economics: Addressing Income Inequality – May 2018
3. – Mar 2018
4. – Feb 2018
8. States and the Rising Weight of Debt – Oct 2017
9. Money Supply: Reeling from Policy Response – Sep 2017
11. Too Big Government: The Hysteria of Developmental Quagmire – Jul 2017
13. Article IV vs. ERGP - The Third Way – May 2017
14. Lifting The Veil off The Financial Sector – Apr 2017