A ‘Simple’ Plan To Reduce Poverty In Nigeria
Let us pretend for a few minutes that our government is not planning to spend a historically huge budget, to be financed mostly by debt, largely on maintaining a dysfunctional status quo. And that a confused central bank is not pursuing a destructive monetary policy that is impoverishing already poor people. How should a plan to drastically reduce poverty and raise standards of living in Nigeria look?
It’s hard not to think about this, partly because of the high incidence of extreme poverty in the country, but also because of recent developments like terrorism that has displaced more than 3 million people — most of who are poor.
Poverty is higher in rural areas than urban ones. The poverty gap, which is a mean shortfall from the national poverty line declined only by two percent in rural Nigeria between 2003 and 2009 compared with six percent in urban areas according to the World Bank. The thought of poor displaced Nigerians merely being resettled in places that are arid and still relatively unsafe, to eke out a harsh living should be unsettling to a reasonable mind. Many people, given the choice, want to move to places where they are secure and most of all, where they can earn a decent income to afford a good living.
I picked the example of the displaced people because the resettlement plan by the government would be a disturbing aberration in what is a larger and broader trend.
Urbanization in Africa is exploding, and Nigeria is certainly not exempt. Paul Romer and Brandon Fuller estimate that urban population in the developing world is likely to grow threefold in the next 100 years from about 2.6 billion people in 2010. This trend is irreversible and no amount of crackpot jingle by Sen. Ben Murray-Bruce about “returning to agriculture” will change it.
Leaving aside the implicit and misguided notion that the path to food security lies, not in industrial farming, but in every Nigerian household cultivating a farmland; what are the factors driving this urban “rush”? One generally agreed reason is that urbanization is strongly correlated with income (GDP per capita) growth. To quote economists Remi Jedwab and Dietrich Vollrath “Economic development both drives and is driven by urbanization”.
But this time, is different. Sub-Saharan Africa, unlike historically, is urbanizing at much lower income. The implication of this urbanization at lower income levels is that urban dwellers in places like Nigeria will not enjoy a rapid rise in living standards.
Cities of Growth: A New Structural Transformation
My preferred explanation for this quagmire is that the structural transformation that comes with urbanization is different for a resource exporter like Nigeria. The “push and pull” effects of productivity-driven excess labour in rural agricultural/resource sector and the expansion of urban non-tradable service sectors result in poor megacities like Lagos that do not create enough jobs to keep up with population growth.
The fix is simple; we need to build new cities, expand existing built areas and upgrade decrepit city infrastructures. Cities are appropriately scaled with the requisite economic networks necessary for widespread prosperity. As the population in cities grow, there will be demand for even more jobs, space and services. Despite the challenges, it is hard for me to imagine this as anything other than an opportunity for growth. With new and better cities, we will have modern transport systems, healthcare services, and IT infrastructures.
I anticipate two critiques of this idea. One is that it seems less targeted and arbitrary. It is not designed to help or provide “intervention” for any particular group. Secondly, it is expensive. Let me concede immediately that I do not have a good answer for the second critique. It just seems to me like this is a better way to spend the bulk of $30billion than conditional cash transfers (more on that in a later post) and Ajaokuta steel mill. The proceeds from the sale of this relic to an experienced global steel manufacturer can fund better road networks and cargo rails that connect Kogi State to the most important markets in that region. This will create jobs, raise output and spur competition; all of which will reduce poverty.
I believe I already answered the first critique. The answer lies in scale. Cities are the ideal size for the optimal interplay of the economic forces of integration, specialization, complexity and increasing returns. For example, one feature of the increasing returns model of trade is that a firm must have a large domestic market to become a net exporter. No one has showed me how micro-credit schemes for small businesses and entrepreneurial lotteries necessarily yield this outcome.
MegaProjects And Rules: The Housing Experience
So what guarantees of success exist? One can easily point to failed examples like Tinapa and take a pessimistic view of big projects. Bent Flyvbjerg estimated that nine out of ten megaprojects (projects that cost $1billion or more) have cost overruns. Railroad projects go over their costs by 44.7 percent and their demand overestimated by more than 50 percent. McKinsey says bridges and roads usually have cost overruns of 35 percent and 20 percent respectively. Cost overruns can be blamed on inadequate planning but they are almost unavoidable as there are always blind spots like inflation, exchange rate volatility or price volatility of commodities essential to the project.
But deploying this argument against big projects suffers from two flaws. One is that big projects have longer baselines and no researcher or consultant is that patient. The Commissioners’ Plan which oversaw the growth of urban densities in New York by sevenfold over multiple decades was completed in 1811! Secondly, they fail to appreciate the importance of institutions and policies in making big projects work. Policies, or to use Paul Romer’s term, rules, are the essential calibrators that make projects and ultimately, cities work.
Let us consider a basic need as housing. The deficit in Nigeria is estimated at around 17million. Successive bad housing policies and consequently misguided private investments over the years have done little to lower this deficit. It would, however, be foolish to conclude that these measures have overestimated the demand for housing from their outcomes. According to UN Habitat, 60 percent of urban migrants in sub-Sahara Africa are likely to settle in slums. What we are seeing in Nigeria’s housing market is the absence of good rules to manage the interaction between government’s long-term planning of new settlements and “spontaneous” demand by settlers and homeowners. Lagos, for example, is losing its densities largely because of misallocation of valuable lands and inadequately supply.
Hence, middle to low-income households are priced out and they move into poorly planned suburbia slums that are sometimes cut off from vital city networks. This is replicated all over the country as 15 percent of the total population now live in urban settlements of more than 1 million people, excluding megacities. So not only do we need City-wide slum upgrading in our megacities and other urban areas, we need better rules to manage issues like tenure and “spontaneous” demand. It just goes to show that megaprojects are less likely to “fail” with better rules.
My vision for Nigeria is for new and better cities that are municipal economic powerhouses competing for the best human capital we have. I believe this will end the episodic pro-cyclical fiscal crisis we always experience, agitations for derivation and resource control and maybe the cycle of perpetual dysfunction and violence that is threatening to ensure that majority of the country remain in poverty in my lifetime.
