How to remain poor

The poverty of a nation, much like its wealth, is a matter of choice. Consider China.

When China had a population of 1.2 billion people in the year 2000, the poverty rate was 50%, meaning 600 million Chinese—or a population three times the size of today’s Nigeria in one country—lived in extreme poverty, defined by the simple measure living on less than $1.9 a day.

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Today, less than 1% of its 1.4 billion people remain poor.

In other words, in just twenty-one years, China has almost wiped off extreme poverty. This rate of development is unparalleled, no doubt. And of course their efforts at eliminating mass poverty started much earlier, since around 1981, when about 90 out of every 100 Chinese lived in poverty. But the Chinese success is still a matter of choice. After all, during the same period, extreme poverty in Nigeria may have in fact increased to the extent that we are now presumed to lead the pack of the poorest nations in the world. And that too is a choice.

The saying that life is what we make it is truer for countries than for individuals. A person born poor will find it difficult to escape it, since poverty, like wealth, is an inheritance often passed across generations. So the family a person is born into, the education and healthcare they receive, the network of friends, relatives and personal relations they have, the opportunities for employment available to them and the sets of societal norms and rules governing all of these are institutional structures that can keep a person poor for most of his/her lifetime.

None of these needs to be true for a country, however. For sure, a country rising from poverty to posterity must encounter and learn to survive the vagaries of the international political economy, and often may depend not only on its own strengths but on the fortunes—and misfortunes—of other countries, near or far. Still, a country, unlike an individual, has a lot of room for maneuver, particularly one with the size and potentials of Nigeria. A national government has power to mobilize human and material resources in ways that are not available for any individual, company or group within the country.

So why does Nigeria still have the largest number of people living in extreme poverty in the world? There are many reasons. First, there are simply not enough people in jobs relative to the total workforce in the country. Unemployment is in fact currently at an all-time high of 33% of the workforce, or 23 million unemployed Nigerians, according to recent estimates by the National Bureau of Statistics (NBS). That means for every three Nigerians who are able and willing to work, one of them is without a job, or a country nearly the size of Cameroon—all of them without jobs. Add to that over 15 million Nigerians who are ‘underemployed’, or another country about the size of Senegal.

Although not all of the 23 million Nigerians who are unemployed will be poor, high unemployment figures have devastating effects on poverty, not to talk of tax revenues, since unemployed people must necessarily depend on other people who are in jobs. But if those in jobs must share their income, one way or another, with a large percentage of those who are unemployed in the context of zero unemployment benefits, then the income which those in jobs can use for themselves and their immediate dependents will also necessarily reduce.

This scenario, in turn, has a direct consequence on tax revenues that governments at all levels can collect. And low tax revenues in turn exacerbate poverty. Still, the often repeated claim that “Nigerians don’t pay enough tax” is both true and false. It is true because personal income tax rates are indeed low for most people in jobs, since most salaries are also low. But it is false because Nigerians actually pay tax, quite a lot of it in fact, not to governments, local or national, but to friends, relatives and so on.

And then there is the problem of a large informal sector, currently at about 65 percent of the economy. Because the formal sector of the economy is just about half of the informal sector, a majority of Nigerians in jobs actually work either for themselves such as market women, small shop owners, Okada riders and taxi drivers and so on. So while a graduate who works in a bank or a company in the formal sector, will have her N150,000 monthly salary taxed as she earns it, a taxi or truck driver who probably earns just as much pays no tax because his income is received through channels that are difficult for any government to tax.

This is precisely one reason why states and local governments struggle to receive any significant locally generated revenues, and why most of them resort to levies and daily charges of very small sums. All of these worsen the poverty situation in the country because government will not have enough to redistribute to safety net areas such as quality public education, healthcare, low-cost housing and so on. Above all, it is also a staggering form of injustice because you end up with a situation where one citizen pays tax from her income, and another who earns much the same income pays almost nothing. As a society we have overlooked this injustice entirely.

And then, there is the problem of poor pay. This is perhaps the biggest cause of poverty in Nigeria, more than unemployment or low tax revenues. Indeed, it is a direct cause of both. Many people choose not to work simply because the pay is so poor it would not make much difference if they did. Even those who work in the formal sector, that is, in the public and organized private sectors receive much less than their labour is due. Of course, ‘work’ has its own problems in Nigeria, since many ‘employed’ people, particularly those in the public sector, simply don’t do any work at all.

But overall, labour is simply too cheap in Nigeria. One direct consequence of that is poor purchasing power for most workers, especially in light of high food and energy prices. Our hypothetical bank employee who earns N150,000 monthly for working full time would struggle in today’s Nigerian economy, wherever she lives. Yet, most government jobs pay even less, and many jobs in the private sector much less. And worse than that, there are millions who work without any security of even the small incomes they receive. Or those who work for the same federal government but receive very different pay or benefits. And many such situations.

So how could a country like Nigeria get out of poverty? What sort of policies are required to reduce mass poverty and shed us of the ignoble garb of the country with the most number of people living in extreme poverty? The answers are not that difficult, but they are not the ones advocated for Nigeria or the ones more often implemented by our governments.