Poverty, Growth and Inequality in Nigeria : A Case Study

Poverty, Growth and Inequality in Nigeria : A Case

Study

By Ben E. Aigbokhan

Publication : 2000

4 pages

EXECUTIVE SUMMARY

Context

Poverty can be defined as the inability to achieve a certain minimal standard of living. With

the severe economic shocks that rocked the Nigerian economy during the early 1980s came

real and perceived increases in the level of poverty in the country. Among the factors

contributing to the shocks were declining prices of oil, the country's main export, and rises in

real international interest rates that compounded the external debt. The major underlying

reason, however, was domestic policy mistakes. Economic reforms were introduced by the

government of Nigeria in mid 1986 in a structural adjustment programme that included

exchange rate devaluation, trade and financial reforms, and budgetary and monetary

contraction. These reforms were expected to revitalize the economy's growth. In turn, growth

was expected to contribute noticeably to improved equity in the country.

What is the problem?

Following the reforms the real growth rate became positive after 1988, leading to the

widespread view that the reforms had produced positive results. The question is whether and

to what extent structural adjustment reforms alleviated poverty in Nigeria. It is not enough to

know whether inequality increased or declined during the reform period. It is more helpful to

know if such a change resulted polarization, or the widening gap between the poor and the

non-poor. If there is polarization, the resultant social tension may have implications for the

sustainability of the reform measures. While some studies suggested that poverty did decline

in the first seven years of the reforms, there has been little agreement about the actual impact

of the reforms. To try to find a more definitive answer this study investigated inequality and

poverty in Nigeria using data from national household income surveys. The main idea was to

examine how far poverty has been reduced by the policies introduced during the period, and

particularly the pattern of growth these policies engendered. The widening gulf between the

poor and the rich, termed polarization and characterized by the disappearance of the middle

class, was of particular interest. The study used the food energy intake method, a variant of

the absolute poverty approach.

Measuring poverty

Linking aggregate macroeconomic variables to the micro-level distribution of income and

poverty poses a problem. There are several methods for measuring the linkage. One

approach analyses the effects of exchange rate devaluation and its impact on real wages.

Since wage income is generally more equally distributed than return to capital, a devaluation

would improve income distribution and thus poverty. Other approaches seek to measure the

standard of living by establishing a poverty line that delineates the poor from the non-poor.

One method uses an absolute poverty definition based on some minimum nutritional standard

that is converted into minimum food expenses to which is added certain expenditures for

clothing and shelter. A household is defined as poor if its income or consumption level is

below this minimum. Another set of methods takes a portion of mean income as the poverty

line.

There are several methods for estimating the poverty line under the absolute poverty

approach. The most popular are the food energy intake (FEI) approach and the cost of basic

needs (CBN) approach. Both methods are anchored on estimating the cost or attaining a

predetermined level of food energy or calorie intake. Once the basic measurement is

determined it is necessary to express overall poverty in a single index; the most common of

these is the head-count ratio, which is the proportion of the population that is poor. (This ratio

has been criticized as being more concerned with the numbers of the poor than the severity of

poverty; that is, it treats all the poor equally, whereas not all the poor are equally poor. ) Other

indexes measure the incidence, depth and severity of poverty.

Study findings

Using the head-count index, the study found that an increasing number of Nigerians were

living in absolute poverty over the study periods: 38% in 1985,43% in 1992 and 47% in 1996.

Poverty is higher in rural areas than in urban areas. The corresponding numbers are 38%,

35% and 37% in urban areas, and 41 %, 49% and 51% in rural areas.

The gender distribution of poverty is consistent with the evidence from earlier studies that

suggests that poverty is more pronounced among male-headed households. It is also

observed that male-headed households slipped deeper into poverty between 1985 and 1996,

while female-headed households fared slightly