Nigeria, You Are Not Rich

Start a policy discussion with most Nigerians and, soon enough, someone would blurt out that increasingly irritating axiom; that Nigeria is a rich country. This is unequivocally incorrect. Nigeria is a poor country by most acceptable measures. It has become necessary to disabuse Nigerians of this fallacy because wrong diagnosis leads to wrong prescriptions.

Try this for fun. Push back the next time you hear that statement and you would find the proponent reeling out facts to prove their point. They usually find justification in Nigeria’s immense oil reserves and the size of its population. However, these two points do not hold up under scrutiny.

The incontrovertible fact is that Nigeria is on the Top-15 League Table of countries with the world’s largest oil reserves. But this vaulted position does not translate to Nigeria being a rich country. Let’s do some bukka-level analysis. Assume that Nigerians were told to come to Abuja (sorry, the Niger Delta) to collect their share of Nigeria’s oil reserves. Each Nigerian would get about 194 barrels of crude oil or $13,580 at the prevailing market rate of $70 per barrel. This may seem like a lot of money until you compare it to other countries on the same league table. Kuwaitis would each receive 24,537 barrels (or $1.72 million) while Emiratis would each receive 10,404 barrels (or $0.73 million).

But this per capita analysis is not a good explanation of the absolute or drivers of wealth of nations. Take Venezuela, for instance. It has the world’s highest proven reserves of crude oil (and in our earlier analysis, each citizen would receive 9,409 barrels or $0.66 million), yet, is a basket case. It is going through one of the worst economic crisis in its history where the economy contracted by about 18.6 percent in 2016 and a recent study of living conditions found nearly 75 percent of the population had lost an average of at least 8.7 kg in weight due to a lack of proper nutrition. On the flip side, in the United States of America (which is also on the Top-15 League Table), each citizen would receive only 121 barrels of crude oil (or $8,463); yet, it is the largest economy in the world. This economy is driven mostly by services (knowledge). China is also on this league table with 18 barrels of crude oil (or $1,272) for each citizen; yet, it is the second largest economy in the world; driven mostly by products (manufacturing).

Our protagonist may balk at the above arguments and seek strength from the fact that Nigeria has a population of 190.9 million people; making it one of the most populous country in the world. Depending on how you react to this point, the argument may be extended to include that this population presents a huge market for products and services; hence the influx of foreign investors in Nigeria. Do not allow yourself to be distracted by this flurry of points. Dispatch them quickly as follows. While Nigeria has the population numbers, it does not have the purchasing power which is what investors look at to determine whether to set up shop. On the basis of purchasing power parity, Nigeria’s economy is equivalent to that of seven states in the United States of America: the geographic area known as New England (consisting of six states) plus West Virginia.

It is also not true that investors are falling over themselves to get to Nigeria. According to UNCTAD, Nigeria attracted Foreign Direct Investment (FDI) of only $4.7 billion in 2014 which was less than what went to Congo ($5.5 billion) or South Africa ($5.7 billion). Do not even bother presenting the FDI inflows for the BRIC countries which should be Nigeria’s benchmark countries. But put this data in your back-pocket, just in case: Brazil ($62.5 billion), Russia ($20.95 billion), India ($34.4 billion), and China ($128.5 billion).

Quickly return to the subject of the population which is a more interesting discussion. Going forward, wealth of nations would be increasingly dependent on the quality of its people: its human capital. Charles Bean, in his seminal work, “Independent Review of U.K. Economic Statistics”, defines human capital as knowledge and skills embodied in individuals that enable them to create economic value. Theodore W. Schultz, in his 1961 paper, “Investment in Human Capital”, suggested that human capital can be calculated as the education and skills of the population. Therefore, while size matters, ability is more important; no pun intended.

The United Nations has computed human capital for 130 countries in the world and Nigeria did better than three countries: Chad, Yemen, and Mauritania. The UN 2016 Human Capital Index evaluates countries based on the levels of education, skills, and employment available. This assessment, which is done over five distinct age groups, starting from 15 years to over 65 years, aims to assess how past and present investments in human capital will impact a country’s talent base in the future. This is based on a realisation that it is knowledge, and not necessarily natural resources, that will offer the competitive advantage for the future. In case you need proof of this fact, each of the top five tech companies (Apple, Google, Facebook, Amazon, and Microsoft) are each worth about half a trillion dollars. Nigeria’s GDP was in that range back in 2013 when it was rebased to $510 billion. The 2017 recession has seen it drop to about $300.6 billion in 2017. Global Justice Now — a non-governmental organisation — ranks world’s companies against government revenues and publishes a list of the World’s Top 100 Biggest Economic Entities. With 69 corporations and only 31 countries, Nigeria did not make the list. If Apple Inc. were a country, its earnings would make it the 25th biggest economy and this company is based on knowledge. Human capital.

There are not many Nigerians who would argue that the country produces top quality human capital. It has been evident for a long time that the education system in the country has basically collapsed. The curriculum are outdated. The incentive structure fails to extract professionalism and commitment from the teachers. The students realise that the economy is not producing enough jobs and the few available ones go to those who have political connections. As a consequence, students have lost the motivation to work hard. A number of firms have positions to fill but can’t find good quality talent to recruit so businesses do not grow and more jobs are not created. Most artisans learnt poor skills and work ethics from craftsmen who also learnt poor skills and work ethics. It is, therefore, no surprise that the few vocational jobs available go to artisans from neighbouring countries. In fact, some of the foreign investors resort to bringing artisans from their countries. Nigeria has graduated from exporting non-value added raw materials to now exporting its scarce jobs.

Depending of his or her obstinacy, the protagonist may come back with an argument built around Nigeria’s Gross Domestic Product (GDP). By this measure, Nigeria is the largest economy in Africa. But recent evidence shows that GDP is a poor measure of the wealth of a nation. GDP values the flow of goods and services and not the stock of the assets of a country. According to The Economist, a British newspaper, “gauging an economy by its GDP is like judging a company by its quarterly profits, without ever peeking at its balance-sheet”. Although Nigeria is the 28th largest economy in the world with a 2017 Nominal GDP of $300.6 billion, GDP per capita is US$5,900 and places the country at 164 out of 229 countries and territories. Not good.

To make matters worse, Nigeria has extreme income inequality; that is the difference between the richest and poorest Nigerian. This difference is measured by a Gini coefficient of 0.48. A Gini coefficient of 1.0 means that all the citizens have the same amount of money while the closer to zero a country’s Gini coefficient is, the wider the gap between the richest and poorest person. According to a 2017 report by Oxfam, an international non-governmental organisation, the combined wealth of five of the richest Nigerians is about $29.9 billion and could end extreme poverty at a national level; yet, 5 million Nigerians face hunger and more than 112 million Nigerians live in poverty. To make this fact more graphic, Oxfam calculates that the richest Nigerian has to spend $1 million (N360 million) every day for 42 years to exhaust his fortune. Furthermore, the amount this same richest Nigerian can earn annually from his wealth is sufficient to lift 2 million Nigerians out of poverty in one year.

Nigeria can become a rich country but it must first acknowledge that the world has left her behind. According to the 2016 U.N. Human Capital Index, Nigeria has the second lowest primary school enrolment rate of all the 130 countries on the index. The 2017 Oxfam reports states that over three-quarters of the poorest women in Nigeria have never been to school and 94 percent of them are illiterate. Obviously, this is not the human capital Nigeria intends to use to compete in a knowledge-based world. Nigeria did not catch up with the world when the prevalent technology was steam engine; only a quantum leap can help the country catch up in the age of Artificial Intelligence. The incrementalism promised by our political leaders cannot suffice. Nigeria needs a massive disruption of (almost) everything.

Nigeria needs to declare a national emergency; a call for massive investment in human capital development. As a matter of urgency, Nigeria needs a detailed strategy on how to improve its stock of human beings.

This strategy would require significant resources to conceive and implement. The most feasible source of these resources is the proceed from sale of Nigeria’s crude oil. This means that as a matter of national emergency Nigeria must plug the leakages in its oil assets. Not lip-service. Real action. For a decade, Nigeria Extractive Industry Transparency Initiative has published reports outlining the various points of leakages and mismanagement of Nigeria’s petroleum assets and also outlined pragmatic steps to plug the leakages. No government in Nigeria, including the current one, has shown sufficient interest or commitment to implement the measures. Hopefully, Nigerians would realise that the gathering clouds are not for a drizzle but of a cataclysmic downpour. May be the resulting action from the people will provide the impetus for the political class to address these issues.

Nigeria is not a not a rich country; indeed, it is a very poor country. This is an important assertion. A full realisation of how precariously we tether on the brink of calamity could make the leaders and followers to take a different posture when it comes to the future of the country. The thought process is usually at a different level of engagement when one realises that there is no pot of wealth to inherit from a parent. Nigeria needs to jolt itself awake from the complacency that this faulty self-image has induced, and get into the battle stance of a hustler bent on survival. The time to hustle was yesterday. Today could be the next best time to start.