How to fix Nigeria’s growth problem

Many people in my generation have a story.

Mine was an uncharacteristically cool August night in a mid-size theatre at the London School of Economics. The lecture was titled “Africa Rising”,—a term coined to explain the rapid economic growth in Sub-Saharan Africa after the year 2000 and the inevitability of its continuation. After decades of slow growth, the belief was that African countries had a real chance to follow in the footsteps of Asia.
 

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The chart above shows why this optimism was needed. Countries on the African and Asian continents shared similar histories of colonialism. We have used Indonesia and Nigeria to represent Asia and Africa here. The 1960s saw a poorer Indonesian population compared to Nigeria. By 1990, this gap had closed as Indonesia caught up, and by 2010, it had become six times richer than its 1960 days.

Meanwhile, Nigeria experienced stagnating incomes in the 1970s, which declined in the 1980s and continued to grow weakly moving forward. The promise of the early 2000s was the hope that Africa would soon replicate the Growth Miracle Experience in Asia. A commodity boom, rising young population, and a growing manufacturing base buoyed the enthusiasm.

Nigeria, in particular, hailed as the “Giant of Africa”, was expected to deliver much of these gains.

All of that quickly went away as Nigeria’s oil production suffered.

And young people struggled to find jobs.

As a result, our growth has been sluggish over the years and has struggled to keep up with population growth rates.

This Twitter user amusingly captures the disappointment about the bust in the Africa Rising narrative. Spoiler: the author offers a quip about his premature move back to Nigeria. As far as Nigeria was concerned, there was no “Africa Rising”. By nearly all economic indicators, the Nigerian economy has become increasingly incapable of taking care of its citizens.

According to the recently published National Multidimensional Poverty Index (MPI), two out of three Nigerians are deprived of more than one essential need.

That’s 133 million Nigerians—60% of the population.

In short, Nigeria’s growth problem is long-standing and getting worse. So what to do? Well, one useful starting point is productivity.

Stagnation nation

When we focus on productivity, we accept that we want to improve our ability to produce more with less. That’s all that really matters for raising living standards, making it a far better strategy than just focusing on GDP growth.

Don’t get me wrong, GDP growth is good.

If you imagine the entire Nigerian economy as a cake, then GDP growth helps to increase how much we can eat of the cake. One well-known policy to achieve this is to increase government spending. According to the World Bank, the Nigerian government only spends $220 per Nigerian per year. That comes to just 12% of GDP, one of the world’s lowest spending levels. If the Nigerian government increases its spending in a meaningful way, that should create jobs, which will boost consumer spending and business activity. 

Basically, we eat more of the cake. 

But real long-term and sustainable growth is more than just getting us to eat more of the cake. We need to grow it. If not, we end up eating many slices of the same (or sometimes smaller) cake. That’s where productivity comes in. You want policies that will 10x the amount of products that Nigerian farmers can produce. Over the last decade, Nigeria’s tomato yields have remained very low at an average of 5.47 tonnes per hectare, relative to the world average yield of 38.1 tonnes per hectare. Even Kenya, which has less arable land than Nigeria for producing tomatoes has an average yield of 21.8 tonnes per hectare. Basically, Kenya is more productive at producing tomatoes than we are. If we were to boost our productivity to match Kenya’s, we could go from producing 7,000kg of tomatoes on one hectare of land, to 20,000kg on the same plot. That’s how you grow the cake.

So far, we have looked at the different development outcomes that come from prioritising a productive economy over one that just grows for the sake of growth. This has been set within the context of the disappointing turn of events following the Africa Rising narrative, compared to the success of Asian countries. We now focus on the main reason we should care about productivity—it affects how much you earn.

Solving the productivity puzzle is good news for wages

According to standard economic theory, productivity determines wages. That’s because wage rates are not based on the number of hours you work but on the output you produce within a given time. The value you produce and not just the time you spend determines how much you would be paid.

Again, I’ll go back to my tomato production example. While the agriculture sector is Nigeria's largest employer of labour, wages remain low. A survey of smallholder farmers by the CGAP (Consultative Group to Assist the Poor) showed that only 27% of the farmers surveyed live above the poverty line ($2.50 a day).

More than 50% live on about $1.25 to $2.50 a day, while the remaining 27%, who are extremely poor, live on less than $1.25. All of this indicates the agriculture sector’s low productivity levels. Essentially, we don’t do a good job of turning our inputs into output. That’s why our peers like Kenya (who don’t have as much land resources as we do) can still produce more products than we can. What’s even more dire is that our increasing population rate only means more workers (farmers) will keep trooping into the agriculture sector, which will only continue to depress wages and output over time.

It’s not just agriculture as well. I have previously argued that Nigeria’s less productive market affects the wages that tech workers can earn compared to their counterparts abroad. This is key, given the record amounts of funding that Nigerian startups have been raising over the years. Unfortunately for Nigerian workers, the additional value they create for their companies is constrained by how small our local markets are. In the US, GDP per capita is $24,342, while in Nigeria, it’s about $2,000. What does this mean? An app developer in Nigeria might generate $100,000 for his company, while a developer building the same app in a country like America could easily generate $1 million for his firm. The gains of being in a more lucrative and productive market are obvious here.

It goes without saying that the ability for workers to earn well matters for the overall health of any economy. The trend in the japa wave indicates that Nigeria needs to get better at producing the kinds of meaningful jobs that can pay well. Currently, too many Nigerians suffer from in-work poverty, which has forced our young and growing workforce to seek better opportunities elsewhere. So if you want to reverse the trend of Nigerians flocking abroad, you need to start by fixing productivity.

There’s also the fact that our unproductive agriculture sector feeds into rising food prices. So far, Nigeria’s inflation this year has averaged 18.2%, the highest since 1997. If we can’t produce enough to meet demand (because we are unproductive), that leads to shortages, leaving the market to do its thing by setting higher prices. Add to that the fact that prices are sticky downwards—likely to keep increasing unless there’s a deliberate effort to bring them back down. So with more people facing higher prices and wages that can’t keep up, it’s no wonder that the country continues to tackle its worst security challenges in years.

Unfortunately, there are few easy answers

It is easy to zero in on specific issues when solving Nigeria’s problems.

When you zoom out a bit to take everything together, you can see the immediate issues facing an enfeebled government: from cracks in security to a rising cost of living. Zoom out further still, and the big picture that fills the screen is the country’s low productivity levels, making it even more difficult for Nigerians to earn enough. A healthier economy would raise people’s living standards by accumulating capital and technology. This creates a virtuous cycle that leads to more jobs and higher wages, which lifts more people into the middle class. This new middle class then spends and saves more, which allows companies to earn more. Before you know it, you have a larger cake.

It is clear that Nigeria’s growth problem requires policies aimed at driving long-run productivity. This will require deep reform. Governments should create an enabling environment for businesses so the real economy can thrive. Making tax collection more efficient and honest to minimise disruption to business activity is one quick win here. There should be a focus on helping small-scale farmers to become large-scale producers who export and tap into richer and larger markets. Ultimately, the goal is to make Nigerian farmers better at doing more with less. Ethiopia offers lessons here. Since 2007, Ethiopia’s food production has grown by over 50%. Through data-based technologies, Ethiopian farmers ensure they manage their inputs (fertiliser, sunlight, etc.) to generate maximum harvest. This saves time and effort.

If we ever hope to revive a true Africa Rising decade in Nigeria, productivity is the place to start.