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Lifting 100m Nigerians out of poverty:Lessons from Brazil, India, China, Indonesia

However, the gains achieved by some countries with similar demographic and developmental levels (as at the 1980s) point to how Africa’s largest economy could lift almost 100 million inhabitants out of poverty.

Concerns on poverty levels heightened in Nigeria in May 2018 after a report by the Brookings Institution revealed that the country took the baton from India to become home to the highest number of people living in extreme poverty in the world.

At that time, Nigeria had 87 million people living in extreme poverty compared to 73 million in India. The figures worsened to over 93 million in June 2019 in Nigeria, thereby accounting for 47.7 percent of the country’s population.

President Muhammadu Buhari, while addressing Nigerians at the maiden June 12 Democracy Day celebration this year, expressed optimism that the country has the potential to lift a large number of people out of extreme poverty.

“With leadership and sense of purpose, we can lift 100 million Nigerians out of poverty in 10 years,” Buhari said.

Plans by the Federal Government to disburse N5,000 to the poor through the social intervention programme (SIP) would translate to N465 billion for each month. This means the government would spend N5.58 trillion to cater for the poor in a year.

For a country challenged with revenue inflows as its major source of income has come under pressure owing to developments in the international market, the move could further worsen the nation’s current debt stock and make its plan to reduce poverty counter-productive.

To ascertain the feasibility of the government’s goal to lift 100 million out of extreme poverty in the next 10 years, an international comparison of countries like Brazil, India, China, and Indonesia with remarkable wins against extreme poverty in the last few decades would help.

Brazil is an upper middle-income country, and just like Nigeria, is the largest country in South America, with an estimated population of over 200 million people.

The country has achieved some successes in complementing market-oriented reforms with progressive social policies which have helped it achieve a significant growth rate, bring more people into the economy, and create jobs to meet the growing demand and expectations of an expanding labour force.

The new policy by the Brazilian government from the 1990s similar to the “Washington Consensus” include far-reaching reforms on macroeconomic stability, and privatisation of some state-owned enterprises thereby opening the country up for capital inflows to revive moribund state’s assets.

Also implemented were fiscally prudent policies through a low government borrowing strategy.

The idea was to discourage it from having high fiscal deficits relative to GDP, diversion of public spending from subsidies to important long-term growth supporting sectors like primary education, primary healthcare, and infrastructure, implementing tax reform policies to broaden the tax base and adopting moderate marginal tax rates.

Part of the trade reforms adopted include selecting interest rates that are determined by the market, encouraging competitive exchange rates through freely-floating currency exchange, adoption of free trade policies.

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Currently, lawmakers in Brazil are debating the government’s pension reform bill, which aims to generate savings of around 1 trillion reais ($262 billion) over the next decade, shore up the public finances and stimulate investment and economic growth in the country.

Also, India, the world’s second-most populous country, with the majority of poor people living in villages and rural communities, has halved its poverty rate in 10 years from 55 percent in 2005/06 to 28 percent in 2015/16. As of June 2019, less than 3 percent of Indians are below the poverty line, according to the World Poverty Clock.

Until the first quarter of 2019 when the country recorded a sluggish growth rate of 5.8 percent, the Indian economy was the fastest growing major economy in the world ahead of China. This made the nation achieve a significant reduction in its poverty rate.

The achievement came on the back of improved living standards through investments in human capital, better sanitation, and increased household assets propping up the country’s per capita GDP, a measure of a country’s wealth relative to each individual, from less than $400 in 1990 to $2,036 in 2018, according to the International Monetary Fund.

Although there had been some efforts by India in the 1980s to create jobs and shore up its economy, the major factors that trigger poverty reduction in any economy, India’s reforms and policies for an inclusive economic growth started in early 1991.

In 1991, India had an economic crisis owing to its external debt, rendering its government incapacitated to make the payments for the borrowings it had made from the foreign countries.

This led the government to adopt new policy reforms to reposition the economy.

The reforms were geared towards supporting the private sector players which eventually opened up the Indian economy to foreign investment, even as some other reforms focussed on restructuring the public sector.

Major steps were taken in trade and industrial policy. These include a reduction in import tariffs, deregulation of markets, and reduction of taxes, making the country record increased foreign investment.

As a result, foreign direct investment into the country began to increase, rising from less than $10 billion in 2005-06 to $42 billion in 2018 on the back of robust inflows into manufacturing, communication, financial services and cross-border merger and acquisition activities, according to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2019.

This placed the country as the 10th highest recipient of FDI inflows in the world.

Growth in cross-border merger and acquisitions in India grew to $33 billion in 2018 compared with $23 billion recorded a year earlier, this was driven by $16 billion worth of transactions in retail trade which includes e-commerce and telecommunication ($13 billion).

Consequently, the size of the nation’s economy spiked from $1.3 trillion in 2009 to $2.6 trillion in 2017.

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China’s rise from a poor developing country to a major economic powerhouse has been spectacular. Since opening up its economy to foreign trade and investment and implementing free-market reforms, the Asian giant has been among the world’s fastest growing economies, with an average annual growth of 8 percent in the decade between 2001 and 2010.

China’s growth miracle is buoyed by open-door economic policy and market-oriented reforms implemented. The Chinese government established several zones for foreign investment, including special economic zones, open coastal cities, the economic and technology development zones and high-tech development zones among others. The creation of these zones provided the trigger for massive inflows of foreign direct investment (FDI), particularly from companies in Taiwan and Hong-Kong.

Additional reforms, which followed in stages, sought to decentralize economic policymaking in several sectors, especially trade. Economic control of various enterprises were given to provincial and local governments, which were allowed to operate and compete on free market principles, rather than state planning control.

China’s trade and investment reforms led to a surge in FDI. Such flows have been a major source of China’s productivity gains and rapid economic and trade growth, with inflows rising from $3.5 billion in 1990 to $136.2 billion in 2017, making the Asian nation the third-largest recipient of FDI worldwide.

There has been a consensus that productivity gains (increased efficiency) have been another major factor in China’s rapid economic growth. The improvements to productivity were caused largely by a reallocation of resources to more productive uses, especially in sectors that were formerly heavily controlled by the central government, such as agriculture, trade, and services.

Agricultural reforms boosted production, freeing workers to pursue employment in the more productive manufacturing sector. China’s decentralization of the economy led to the rise of non-state enterprises (such as private firms), which tended to pursue more productive activities than the centrally controlled enterprises and were more market-oriented and more efficient. Additionally, a greater share of the economy (mainly the export sector) was exposed to competitive forces.

Local and provincial governments were allowed to establish and operate various enterprises without interference from the government. In addition, FDI in China brought with it new technology and processes that boosted efficiency.

The Indonesian economy is the largest in South East Asia and simultaneously the 16th biggest global economy by nominal Gross Domestic Product. Its economy expanded some 5.2 percent in 2018.

Indonesia’s poverty elimination success has seen the percentage of the country’s population living below $1.9 per day plunge between 1999 and 2017, falling from 41.7 percent to 5.7 percent according to World Bank figures.

According to the world poverty clock, 5.6 Indonesians escape poverty every minute. This is above the target escape rate of 1.9 people per minute. Whereas Nigeria has 4.5 people fall into absolute poverty every minute, completely missing its target of lifting 15.5 people out of the poverty trap every minute.

Indonesia’s economic reform started when it began liberalizing its economy and shifted its economy to a non-oil export oriented one with an increased focus on a broad-based economic growth that had at its center, rural development.

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The government focused its attention on raising productivity (of rural areas especially) by focusing on agriculture, education and transport infrastructure with little emphasis on direct transfer programs, consumer subsidies, and public employment.

The government spent about a third of its development budget on improving agriculture especially rice farming in the period. The government also committed 49 percent of its oil windfall to creating social and physical infrastructure and a result, Indonesia was able to cut down the number of people in absolute poverty to 40 percent by 1976.

Indonesia also embarked on a currency devaluation by the late 1970s which resulted in increased competitiveness and improved exports of non-oil commodities.

The rupiah was allowed to float from late 1966 to the end of 1968, during which time it depreciated from Rp 85 per U.S. dollar to Rp 326.

The move reduced the incidence of export smuggling and increased its export receipts as well as boosting the confidence of potential aid donors and of foreign investors and residents, who repatriated capital that had previously been in flight.

As a result by the late 1980s, Indonesia was able to stand on equal footing with Nigeria given its export-oriented and labor-intensive growth that increased employment and private investment.

Indonesia also passed into law two policies to encourage foreign investment.

In addition, rural development strategy of improved spending on education, health and water hygiene proved to be a success as rural areas where most of the poor lived, grew at a faster rate than in urban centers.

The current national framework for poverty reduction Rencana Pembangunan Jangka Panjang Nasional (RPJMN) which started in 2015 and is expected to end in 2019 focuses on reducing poverty by making economic growth more inclusive.

The plan anchors on job creation and improving the business environment to increase investment in labor-intensive industries and small enterprise. The government also outlined plans to develop basic infrastructure which would support economic activities as well as aid rural settlements and hinterlands.

In addition, the government noted it would improve on the delivery of basic social services including education and health to the poor as well as roll out more comprehensive and better targeted social protection programs.

The plan outlines an ambition to reduce income disparity between income group.

Source: businessdayng

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