How Nigeria Can Break From The Poverty Trap

 By Banji Oyelaran-Oyeyinka

The SDGs, among others seek to reduce poverty, improve access to health care and education, mitigate the effects of climate change and attain food security by 2030. We are not meeting the key Goals.

Africa is unable to feed itself. We found during COVID-19 that we cannot produce a large percentage of drugs we need. The region relies on imports for food and will remain so unless there is an urgent paradigmatic shift in the structures of African economies. Food imports cost Africa US$55 billion a year but this could double to $110 billion by 2030. Many African cities will double in size by 2050, increasing demand for food and other infrastructure and services.

The UN in a recent report estimates that around 735 million people are experiencing food insecurity globally, an increase of 122 million people since 2019. Nigeria and other fragile states, more so Africa, are now on the red alert of famine. This current condition means that we have experienced a development Regress rather than moving towards zero hunger by 2030. The world is in fact worse off than we were in 2015.

Many of you are familiar with the concept of the Middle-Income Trap. A middle-income trap is a scenario where the country’s economy is unable to transition from around $10,000 income per capita to the status of high per-capita income levels. As a rule, Low-income countries often tend to transition faster to middle-income levels, driven by low wages, cheap labour and basic technology catch-up.

Nigeria is classified as a Low-Middle Income, but it currently defies that categorization. Low-income economies like the predominantly Least Developed Countries (LDCs) suffer the most from external shocks because collectively, they are the world’s most vulnerable economies. These countries are characterised by low and weak levels of resilience, weak political and financial and institutions that could buffer external shocks such as the Russia-Ukraine war and subsisting climate change. Underpinning this economic condition is poor governance manifesting in weak service delivery.

We all know that Low-income countries continuously experience economic stagnation and sporadic growth that creates planning and investment nightmare. On the contrary Middle-income countries with strong manufacturing base experience sustainable economic growth. These economies have developed the productive capabilities for high value added and technologically complex goods. The same with High-income countries that engage in increasing returns economic activities with industrial market structures with significant innovate on capacity.

So why do we remain in the Poverty Trap? And what does a Poverty Trap look like? It is best described by the state of most African rural dwellers, mostly rural farmers and informal enterprises in the urban sprawls. Africa’s urban informal economies often glamorised by some is a drag on economic growth. In this state, nearly 70 percent of households make their living from subsistence agriculture in the case of rural dwellers.

It is a condition where humans have access to the barest the minimum of life such as food and shelter. Life here is at the fringes of impending famine and unsparing poverty.

The English philosopher Thomas Hobbes rightly put it in his book Leviathan that in the state of nature would be “solitary, poor, nasty, brutish, and short.”

For the most part, and in large swathes of Africa and Nigeria, a greater proportion of households derive their livelihoods from subsistence farming cultivating some important food crops. An important source of subsistence living is that the sector is characterized by low-yield staple food crops on small plots with a minimal use of technology and inputs such as fertilizer or high yielding seed varieties. These farms depend on rainwater, thus subjecting production to the vagaries of the weather. When rain fails, these people go hungry in a world where science makes rain possible in a desert place.

This low-income trap or Poverty Trap is a reality for most people. It is a condition which entraps people in perpetual poverty unless there are forces to break it. I call it a destitution equilibrium: this is a state in which opposing forces of income and expenditure are balanced. The balance of forces makes it so binding that it doesn’t allow the poor people to escape it. The people so trapped never have enough. When they are hungry, they beg or die. When their children fall sick, they die.

Those caught in this Trap live in urban slums or rural huts and cook with firewood; 90,000 of them mainly women and children, die annually from smoke and other complications. 70 percent of Nigeria’s population still depends solely on fuel wood in meeting their energy needs for cooking and heating.

The only way of escape from this debilitating condition is to deliberately plan the transition from a low-income economy to a middle-income economy through industrialisation. This takes place when an agrarian economy enters the early stages of industrialisation. This transition brings about significant changes to the form and contents of production even when labor-based activity remains unchanged. It takes the poor and needy to a different better income level; industrialisation lifts them out of poverty.

Where does it begin? It starts with raising agricultural productivity which equally depends on the industrial manufacturing sector, especially the capital goods subsector, which generates the requisite capital goods (machines and tractors for example). The pathway to industrialize agriculture lies in optimal deployment of the combination of skills, knowledge, and the use of productive inputs such as fertilizer, agro-chemicals, and new farming techniques, among others.

The role played by, and the evolution of a country’s economic structure, and how long this takes, fundamentally shapes economic performance. We must remember that all societies evolved from agrarian to industrial and services. How an economy succeeds in transforming itself and what economic structures (industry versus subsistence agriculture) predominate, explains the differences in economic development.

Take South Korea where the dominant sector is manufacturing. Its GDP is expected to be $1.7 trillion in 2023, 3.5 times that of Nigeria: $492 billion. In 2021, the revenue of the largest ten chaebols, which include Samsung and LG, made up about 60% of the country’s GDP.

To illustrate the binding power of the poverty trap, let me share with you four intertwining indicators of national economic performance. Nigeria’s Agricultural contribution to GDP has remained constant for 45 years at 22-25%.

Compare Tunisia (10%), Malaysia (9.6%), Thailand (8.5%), Netherlands (1.6%), UK (0.6%). Second indicator, Nigeria: the % of Agricultural employment in the population is 35%. S. Korea (5%), Ethiopia (65%), Malaysia (9.6%), Thailand (8.5%), Netherlands (2.3%), UK (0.7%).

The experience from every high-income country in the world shows that NO middle-or high-income countries in the world have more than 10 percent of their population, directly engaged in agriculture.

Third, Nigeria’s Manufacturing contribution to GDP has remained under 10% for 45 years. Look at S. Korea (25.5%), Malaysia (24%), an upper middle-income country; SA (12%).

Fourth, Nigeria’s Income per capita fluctuates around $2,000-2,450 for the last 45 years. Compare with S. Korea: 2022: ($32,420), SA ($6,776.5). Malaysia ($12,000).

What makes the difference? These countries systematically planned and transited from agrarian societies through structural transformation into industrial societies; at the heart of which was manufacturing. It is the reason their economies reduced agriculture contribution to GDP, while Manufacturing contribution rose over time. It is essentially a shift away from low-skill, low-productivity economic activities with diminishing returns.

The fundamental point to be made by these numbers is that the evolution into new sectors, more pointedly, from low-level agrarian agriculture to value-adding manufacturing including food processing, determines long-term economic development. It is why rich countries are described as “advanced Industrial nations”. Emphasis on Industrial manufacturing.

To make sustainable progress we must target Growth in agriculture (at least by 6% per year), we must foster creation of non-farm rural employment and rural industrialization, and the transformation of domestic (and access to), international markets. With these steps, we will dramatically change the face of rural Africa and Nigeria on the way to modernization.

We must transform the mainstay Low-level agri-food industry which is the Sahel’s largest economic sector, accounting for a third of its GDP and 75 percent of its employment into modern commercial enterprises. The subregion is a major producer of cotton, cereals, and livestock, with significant potential in horticultural products, oilseed crops, and nuts. All mostly unprocessed.

Another important issue to address is the situation where population growth is rising above economic growth. When we compare the growth in population and per capita income in Sub-Sahara Africa from 1981 to 2022, growth in population has been consistently higher and almost at the same level over the years between 2.40% to 2.90%. It is a recipe for poverty.

However, growth in the Per Capita Gross Domestic Product (per capita GDP) has been fluctuating over the years from -5.22% to 3.72%. For the most part, growth in population had been higher than growth in Per the low-level equilibrium Trap as they have not succeeded in generating a sufficient high-income growth rate to meet up the high rates of population.

This rapid population growth is fueling the demand for food especially in the urban areas. Between 2017 and 2050, the populations of 26 African countries are predicted to at least double in size, while the rural population of Sub-Saharan Africa is expected to rise by 53 per cent.

While some countries achieved significantly high growth over some years, there has been a lack of growth sustainability and persistence. The per capita income growth has not always grown for a sustainably long enough period; rather, short periods of rapid growth are punctuated by collapses and sometimes stagnation. Policies need to drive our economies to move into higher sustained growth to ensure that the rates of income growth outpace the rates of population growth.

To break the cycle of poverty, we must break the malady of underdevelopment: which we have diagnosed as a stable equilibrium level of per capita income at or close to subsistence requirements. It is a situation where only a small percentage, if any, of the economy’s income is directed toward net investment.

The remedy to the malady of countries caught in a Low Equilibrium Trap, which essentially is a Poverty Trap is faster economic growth and sectoral change.

The Transformation I propose is to shift Nigeria’s current agrarian condition to a modern industrialized agriculture-manufacturing sector which is defined by higher wage rates, higher marginal productivity, and a demand for more industrial workers. In addition, it will employ a capital-intensive production process. A key tool is sustainable intensification (SI) meaning getting higher yields on the same acre of land. Few countries ever achieved an industrial revolution without modernizing its agricultural and food system.

The industrial agenda will move the economy into a modern mechanized industrialized agriculture with increasing overall high productivity that raises living standards through incomes expansion. Poverty and hunger should not be considered normal in a continent with 65% of all uncultivated arable land in the world. In the words of the Zambian President at the Food Summit organized by the African Development Bank in Dakar, January 2023, we must wash away the shame of hunger amid abundance. Beyond food security we must process our raw materials and export to earn foreign exchange. All we need is the infrastructure to develop the right ecosystem for companies to thrive in.

*Professor Oyelaran-Oyeyinka is Senior Special Adviser to the President of the AfDB on Industrialisation.