By Stephen Onyeiwu, The Conversation, June 27, 2021
Nigerians have been justifiably confused by conflicting poverty data presented by the Muhammadu Buhari administration and the World Bank.
According to Buhari, his administration has lifted 10.5 million Nigerians out of poverty within the past two years. But no sooner had he made the statement than the World Bank asserted that inflation has plunged seven million Nigerians into poverty.
These statements might seem to be contradictory to non-economists. But closer analysis suggests that Buhari and the World Bank are right – depending on how poverty is measured.
The first is income or monetary measure of poverty, what economists refer to as the ‘headcount index’. It measures the proportion of the population that is poor based on a minimum personal income – for example $1.90 per day. This minimum amount is deemed adequate to maintain an acceptable living standard, given the cost of living in a given country.
Based on this measure, Buhari is right to claim that – by transferring cash to 12 million households during the past five years – a majority of these Nigerians have exceeded the income threshold. Therefore, they have escaped poverty.
The other measure is known as the multidimensional poverty measure. It measures poverty by income, and by the access people have to health, education and living standard indicators. These include sanitation, drinking water, electricity, and housing. It is therefore possible for someone to be regarded as non-poor under Buhari’s calculations, but poor when this measure is used.
This is the measure the World Bank appears to be applying. By this measure 47.3% Nigerians, or 98 million people, live in multidimensional poverty. Most of them are located in northern Nigeria. This poverty rate does not include Borno State, where insurgency has prevented data collection.
Aware of this, the Buhari administration has set the very ambitious goal of lifting 100 million Nigerians out of poverty by 2030. This is a tall order, considering that another five million more Nigerians are expected to become poor as a result of COVID-19 in 2020.
The administration’s cash transfer programme is commendable. But Buhari should turn his focus more on promoting structural transformation. This would move millions of poor Nigerians from low-productivity agricultural and informal-sector activities to high-productivity sectors such as manufacturing, agro-processing, as well as information and communication technologies.
What is poverty?
Poverty is an amorphous and subjective concept, which is influenced by what people consider to be more valuable in life. Those who value more money in their pocket would prefer a monetary measure of poverty. But Nigerians who care more about the healthcare, food, education, electricity, transportation, and security their money can buy would regard the World Bank’s figures as a more useful indicator.
Some economists have proposed the notion of a ’Happy Planet Index’ as a better measure of poverty. It measures poverty based on three indicators. These are average subjective life satisfaction, life-expectancy at birth, and ecological footprint.
An illiterate 80-year-old woman who lives on less than $1.90 per day but reports she has been happy all her life; lives in a small hut with no access to electricity; has never visited a hospital or seen a doctor, and consumes mainly organic products grown on her farm, would not be regarded as poor under the Happy Planet Index definition. But she would be poor under the headcount index and multidimension poverty measure. This means poverty is in the eye of the beholder.
Some analysts perceive the stylised conceptualisations of poverty as Eurocentric. They claim that such reflect Western values and marginalise non-Western conceptions of a ‘good life’.
High food prices
One reason for the World Bank’s assertion that seven million Nigerians have been driven into poverty is the 22% increase in the price of food. Food prices contributed about 60% to Nigeria’s inflation rate of 18%. Rising food prices exacerbate poverty because it reduces the real purchasing power of households, and shifts expenditures away from essential items such as health, education and housing.
An average Nigerian household spends about 56% of income on food, the highest in the world. Countries like US, UK, Canada, and Australia spend 6.4%, 8.2%, 9.1%, and 9.8%. Nigeria’s high expenditure on food implies that a slight increase in food prices would push more people into multidimensional poverty.
Food prices have been rising in Nigeria and pushing more people into poverty for a few reasons. First, the depreciation in the value of the Naira has resulted in steep increases in the prices of imported food items, such as rice, sugar, milk, beverages, and frozen food. The Naira has depreciated by about 13% during the past year.
Second, because of Nigeria’s rapid population growth, food supply in the country may be lagging demand. Nigeria’s population has been growing by about 2.6% per annum, while agriculture value added has been growing at 2%.
This means that agricultural output is barely keeping pace with consumption. Supply shortfalls have been exacerbated by instability, banditry, terrorist attacks, poor infrastructure and climate change. Also, the exodus of farmers to urban centres in search of illusive opportunities.
Regardless of who is right, Nigeria’s poverty profile is grim and embarrassing for a country endowed with humongous human and natural resources. The Nigerian National Bureau of Statistics said in 2020 that 40% or 83 million Nigerians live in poverty. Although Nigeria’s poverty profile for 2021 has not yet been released, it is estimated that the number of poor people will increase to 90 million, or 45% of the population, in 2022.
If the World Bank’s income poverty threshold of $3.20 per day is used, Nigeria’s poverty rate is 71%. Compared to lower rates for some oil-producing developing countries like Brazil (9.1%), Mexico (6.5%), Ecuador (9.7%) and Iran (3.1%), this is grim.
The Nigerian National Bureau of Statistics data suggest that the number of poor Nigerians exceeds the total population of South Africa, Namibia, Botswana, Lesotho, Mauritius and Eswatini combined.
What Nigeria needs
Nigeria needs more industrial production, foreign and domestic investment, not just handouts.
There has been too much emphasis on cash transfers, and less on building the capacities of Nigerians to transition into the sectors and jobs of the future.
Cash transfers alone are inadequate and not pervasive enough for extricating a significant number of Nigerians from extreme poverty. Those who received cash payments under the national social investment programme risk falling back into poverty at the end of the programme. But structural transformation is more enduring, as it enables Nigerians to acquire and utilise productive capacities for permanently escaping poverty.
Stephen Onyeiwu is Professor and Chair of the Economics Department, Allegheny College