Thursday, 30th November 2023

How Nigeria can break from the poverty trap – Part 2

By Banji Oyelaran-Oyeyinka
13 September 2023   |   3:32 am
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%.

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.

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