Nigeria - Income Distribution

More about the Economy of Nigeria.

Income distribution

The reliability of Nigeria's national income statistics was limited by meager industry-wide information (especially for domestically consumed commodities), the questionable validity of data, and quantification based on subjective judgments by state officials. Despite deficiencies in aggregate economic statistics, a few general tendencies concerning growth, income distribution, prices, wages, and the employment rate could be discerned. The Office of Statistics indicated that GDP grew 6.0 percent annually (adjusted for inflation) between FY (fiscal year) 1959 and FY 1967. GDP shrank at an inflation-adjusted annual rate of 1.1 percent between FY 1967 (which ended two months before the secession of the Eastern Region) and FY 1970 (which ended three months after the war). However, because capital destruction such as occurs during wartime is not reflected in annual measures of GDP, the decline in net domestic production was probably severely understated.

Annual population growth estimates very considerably, but it is generally held that growth was roughly 2 percent in the late 1950s and early 1960s, 2.5 to 3.0 percent from the mid-1960s to the late 1970s, and 3.0 to 3.5 percent in the 1980s. Accordingly, annual GDP growth per person can be estimated at 4.0 percent in the late 1950s and early 1960s, 3.0 to 3.5 percent in the mid 1960s, -3.5 to -4.0 percent during the civil war, roughly 7 percent in the early to late 1970s, -6.0 percent from the late 1970s to the early 1980s, and -2.5 percent for the balance of the 1980s.

Nigeria's decline in real GNP per capita by 1988, to US$290, relegated the nation to low-income status below India, Pakistan, and Ghana. Other indicators of development--life expectancy, for which Nigeria ranked 155th out of the world's 177 countries, and infant mortality, for which Nigeria ranked 148th among 173 countries--were consistent with Nigeria's low ranking in income per capita.

The authors of the first plan had argued that a "very good case can be made that premature preoccupation with equity problems will backfire and prevent any development from taking place." Thus, Nigeria's first plan stressed production and profitability, not distribution. Yet people who already own property, hold influential positions, and have good educations are best situated to profit once growth begins. Thus, a society with initial income inequality that begins to expand economically is likely to remain unequal, or even become more so.

Although wealth appeared to be highly concentrated in Nigeria, the government had no comprehensive income-distribution estimates. From 1960 to 1978, the number of rural poor remained constant, but the rural poverty rate declined. During the same period, the urban poor roughly doubled in number, although the rate of urban poverty also probably declined. Federal civil service studies indicating a substantial increase in income concentration from 1969 to 1976 may have reflected a trend toward overall income inequality, exacerbated perhaps by the large raises given to high-ranking administrators by the Udoji Commission on wages and salaries in 1975. But this inequality probably eased from 1976 to the end of the decade, thanks to increased salaries for low-income workers, the abolition of subsidized automobile allowances for the wealthy, and a decline in economic activity, especially in the oil sector.

During the 1960s and 1970s, Nigeria's degree of income concentration was average for sub-Saharan Africa, which, after Latin America, had the highest income inequality of any region in the world. Income concentration in Nigeria was probably higher than in Niger or Ivory Coast, about the same as in Tanzania, and lower than in Kenya and Cameroon.

Because the rural masses were politically weak, official income distribution policies focused on interurban redistribution. More than 80 percent of Nigeria's second plan (1970-74) investment was in urban areas. The third plan (1975-80) emphasized more even distribution, but did not mention urbanrural imbalances.

The ratio of industrial to agricultural labor productivity, 2.5:1 in 1966, increased to 2.7:1 in 1970 and 7.2:1 in 1975. (Urban-rural per capita income ratios showed greater differentials for succeeding years, largely because incomes from capital, property, and entrepreneurial activity were far larger for city dwellers than for rural residents.) The sharp rise in industrial productivity between 1970 and 1975 was due largely to phenomenal increases in oil output, prices, and tax revenues rather than to technical changes or improved skills. Without oil, 1975's labor productivity ratio would have been 3.0:1, as the terms of trade shifted away from agriculture. Moreover, emigration drained the rural areas of the most able young people, attracted by the Udoji commission's doubling of government minimum wages. The loss of the superior education and skills of these rural-to-urban migrants resulted in a decline in inflationadjusted agricultural productivity between 1970 and 1975. Average rural income was so low by 1975 that the richest rural quartile was poor by urban standards.

Rising debt and falling average income in the 1980s had a particularly severe effect on the poor. Consumption per capita fell 7 percent annually during that decade, material standards of living were lower in the mid-1980s than in the 1950s, and calorie and protein intake per capita were no greater in 1985 than in 1952. In effect, the economic crisis of the 1980s canceled out the progress of the previous two decades.

Urban real wages fell rapidly between 1982 and 1989 as a result of a minimum wage freeze in the formal sector. Rural real wages also fell, but more slowly because few employers had previously paid as much as the minimum wage on the farm. Beginning in 1986, the liberalizing effect of the SAP on agricultural prices and the exchange rate also redistributed income from urban to rural areas, especially in the agricultural export sector. In the 1980s, the urban self-employed, a group which included many in the low-income informal sector (e.g., cottage industries, crafts, petty trade, and repair work), had lower incomes than urban wage earners. Even the rural selfemployed (smallholder farmers, sharecroppers, and tenants, as well as a few commercial farmers) had lower incomes than rural wage earners, who ranged from unskilled, landless workers to plantation workers.

During the 1980s, the urban-rural gap narrowed--a result of rising urban poverty rather than of growing rural affluence. A World Bank/International Finance Corporation study estimated that 64 percent of urban households and 61 percent of rural households were in poverty in FY 1984. Because 70 percent of Nigeria's population was rural, most of the poor were to be found in rural areas. By the late 1980s, with structural adjustment and agricultural price decontrol, the average income of all rural households exceeded the average for urban households. Ironically, rural household income levels in the late 1980s only improved relative to levels for city households, as real income in both urban and rural areas had fallen throughout the 1980s. The result was that, for the first time since independence, more Nigerians migrated to the country than to urban areas.

Rapid inflation, 20 percent yearly between 1973 and 1980 and more than 20 percent per year between 1980 and 1984 (as measured by the consumer price index), dropped to 5.5 percent in 1985, 5.4 percent in 1986 (years of good harvests), and 10.2 percent in 1987, before rising to 38.3 percent in 1988 and 47.5 percent in 1989. Under a World Bank SAP, 1986 and 1987 were years of tightmoney financial policy. But a poor harvest in 1987 put pressure on 1988 food prices, and authorities lifted the wage freeze and eased fiscal policies in 1988 in the face of rising political opposition to austerity. Inflation abated somewhat in late 1989, as food supplies grew and the Central Bank of Nigeria tightened monetary policy.

Real wages fell significantly in the l980s following a statutory wage freeze (1982-88), salary cuts in the public sector in 1985, and a constant nominal minimum wage that started in 1981. From 1986 to 1989, real wages fell almost 60 percent.

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