India has just overtaken Nigeria as the country with the highest number of people living in extreme poverty.
It is estimated that nearly half of Nigeria’s population of around 200 million lives below the threshold of US$1.90 (792 naira) per day.
Nigeria has about 14% of the world’s poor. The African continent as a whole accounts for about two thirds of the world’s poor and this figure is expected to increase.
Calls for the urgent need to tackle extreme poverty around the world and boost shared prosperity have multiplied. Continuous attention is not only related to altruistic motives. Poverty has implications for global growth, peace and development.
The crucial question is how to reduce poverty?
It is clear that rapid inclusive growth, driven by value-added productivity and strong institutions, ensures a decent level of wealth redistribution.
In his article “From Flying Geese to Leading Dragons”, Justin Yifu Lin highlights new opportunities and strategies for structural transformation in developing economies.
In this article, I substantiate his arguments based on my research, teaching, and policy experiences on economic growth and development in developing countries, particularly in the sub-Saharan African region.
I posit that if technology has enabled countries to progress rapidly, by imitation, there is no evidence other than sequential structural change for poverty reduction. This requires changes in both the structure of the economy and the workforce, especially in countries with large populations like Nigeria.
I draw lessons from three of my recent studies: (i) Capital flows and economic growth: does the role of state fragility really matter? (ii) Questioning the political economy of Africa’s rise (iii) How Africa can arise”.
The Changing Face of Global Poverty
The target of the first Millennium Development Goal – to halve the world’s population living in extreme poverty by 2015 – has been achieved five years early. The rate fell to about 21% in 2010 from 43% in 1990.
Much of this success can be attributed to China and, to a lesser extent, India. Between them, they were responsible for three quarters of the reduction in the world’s poor observed during the period 2005 – 2015.
These trends have contributed to the evolution of global poverty. Asia’s share of global poverty has fallen from around two-thirds to one-third. For its part, Africa’s share has more than doubled, from 28% to 60%.
Poverty has gradually become an African problem, despite the continent’s rapid growth over the past decade. Moreover, poverty is no longer concentrated in low-income countries. A large proportion of the world’s poor are now found in newly improved middle-income countries, with significant groups in fragile countries. Nigeria is one of them.
This dire situation calls for urgent concern. But accelerating economic growth without increased efforts to share prosperity and redistribute wealth is not enough to end poverty.
In 2014, the International Monetary Fund presented new global evidence supporting Nobel economist Joseph Stiglitz’s arguments that inequality can also make growth more volatile and create the unstable conditions for a sharp slowdown in growth. GDP growth.
Essentially, inequality can be a drag in national contexts.
Structural transformation for inclusive growth
It is widely recognized that continuous structural transformation driven by industrialization, technological innovation and diversification are essential characteristics of rapid and sustained growth.
Structural transformation is the reallocation of economic activity from the less productive sectors of the economy to the more productive ones.
In 2015, about half of the world’s 736 million extremely poor people lived in just five countries.
The five countries with the highest number of extremely poor people are (in descending order): India, Nigeria, Democratic Republic of Congo, Ethiopia and Bangladesh. They also happen to be among the most populous countries in South Asia and sub-Saharan Africa, the two regions that together account for 85% (629 million) of the world’s poor.
Both Nigeria and India have experienced some form of structural transformation over the years. For example, in both cases, the service sector now contributes significantly to gross domestic product. But unemployment persists, hence their high poverty rate.
Nigeria rebased its GDP in 2013/2014, to take account of new sectors. The rebasing exercise saw an almost doubling effect on Nigeria’s GDP.
The exercise was conducted largely to find evidence of structural transformation. The review showed changes in the sectoral composition of the economy, but this change does not mean that the well-being of citizens has suddenly improved.
A notable trend was that the service sector had become the largest component of the economy (accounting for over 50% of total GDP). For their part, the agricultural and manufacturing sectors had not improved significantly.
In 2011, nearly 40% of GDP came from the agricultural sector. Current figures suggest that almost 53% of GDP is represented by services, 26% by agriculture and 21% by industry.
Indeed, the fundamental starting point for structural transformation is a gradual progression from rudimentary agriculture to more sophisticated value-added sectors. But the evolution of the sectoral contribution to GDP must be accompanied by changes in the allocation of labour.
There are important implications for sustaining growth and for reducing poverty if this does not happen.
In Nigeria, there was no corresponding movement in the sectoral share of the labor force due to the increase in the service sector’s share of GDP and a contraction in the shares of the industry and agriculture. Agriculture still represents between 60% and 70% of the workforce in Nigeria.
Some object to sequential structural transformation. But I think the evidence to support this remains sparse, especially for countries with large populations, high unemployment and poverty.
Manufacturing exports were an important source of growth for the “miracle” economies of the late 20th and early 21st centuries.
Moreover, the export-promoting ideologies of countries such as the Asian Tigers, and more recently China, support the need to industrialize according to a country’s endowment.
Nigeria must achieve and sustain rapid economic growth driven by productivity and an export-oriented industrialization policy. It must also decompose its growth structure in ways that create jobs and add value to its factor endowments.
Nigeria has huge areas of arable land with different climatic conditions. These can support the cultivation of various cash crops. Other endowments include natural resources such as crude oil and various other solid minerals.
The ability to exploit them and add value to them before marketing them would therefore create jobs and reduce poverty.
It must also realign its workforce. Achieving this will require a shift from crude agriculture to mechanized agriculture that frees labor as a factor of production to work in the value chain that transforms primary products into intermediate or finished products. This will reduce the asymmetry of labor from the agricultural sector towards industries and services.
Also, its large youth population would imply the availability of cheap labor as an endowment that can work in low-wage factories and produce for competitive export.
Achieving this will require acquiring skills and developing capacities to work in industries and services, away from rudimentary agricultural skills. This can be done by revising the curriculum at compulsory levels to meaningfully reflect the technological skills needed in the 21st century.
It will also require concerted efforts to strengthen institutions to attract and encourage both domestic and foreign investors.
Institutional strengthening will include a better level of enforcement of court decisions, greater ease of doing business, greater accountability of politicians and government officials and an effective and progressive tax system, to facilitate the redistribution of wealth .
A combination of these factors will help Nigeria achieve more sustainable growth and an equitable redistribution of wealth.