The alarming plunge in Nigeria’s per capita income, dropping to a mere $877 in 2024, underscores a deepening productivity crisis within Africa’s largest economy. This decline reflects complex structural challenges that demand urgent reforms in policy, human capital development, and infrastructure investment to prevent further economic decline and poverty expansion.

Decline in Income and Rising Poverty Levels

The October 2024 World Economic Outlook by the International Monetary Fund (IMF) highlights that Nigeria’s per capita income has dropped from $3,223 in 2014 to its current level of $877, marking a drastic economic setback over the last decade. Economist and CEO of CFC Advisory, Tilewa Adebajo, emphasized in a recent conversation with the Nigerian Tribune that this trend points to a combination of sluggish economic growth, low productivity, and soaring unemployment, all of which are exacerbating Nigeria’s poverty crisis.

Adebajo highlighted that 135 million Nigerians, or over 60% of the population, are trapped in poverty, with the country’s unemployment rate standing at an overwhelming 40%. In his view, while Nigeria has the economic fundamentals to achieve growth, poor leadership and lack of strategic investment have hindered productivity and economic expansion.

Regional Insecurity’s Impact on Productivity

Insecurity has had a significant impact on Nigeria’s productivity, particularly in the northern and southeastern regions, where conflict and unrest have kept many farmers from accessing their land. This has resulted in reduced agricultural output, which directly affects Nigeria’s food security and overall economic stability. Agriculture remains a key sector for Nigeria, employing nearly 35% of the workforce, but productivity has lagged due to limited mechanization and unreliable agricultural practices. Adebajo noted that insecurity, combined with other structural challenges, has left the country in a state of “stagflation,” where inflation continues to rise while economic growth stagnates.

The Productivity Gap: Comparisons with Peer Nations

A 2023 report from the International Labour Organization (ILO) revealed that Nigeria’s productivity, measured by GDP per hour worked, stands at approximately $7. This is strikingly low compared to other African nations, such as Gabon ($26), Botswana ($21), and Egypt ($20). This discrepancy indicates the severity of Nigeria’s productivity issues and reflects its lack of technological advancement and adequate infrastructure.

According to Dr. Obiageli Ezekwesili, former Nigerian Minister of Solid Minerals, Nigeria’s low productivity is also the result of misguided policies from successive governments. In a recent post on X, Ezekwesili highlighted that Nigeria’s GDP per capita fell from $1,876 in 2007 to $1,688 in 2023, further demonstrating the detrimental effects of prolonged economic mismanagement.

Infrastructure Deficits as an Obstacle to Growth

One of the most significant obstacles to Nigeria’s productivity is its infrastructure deficit. The Nigerian Economic Summit Group (NESG) noted in a recent report that infrastructure constitutes only 35% of Nigeria’s GDP, well below the World Bank’s recommended 70%. This shortage hampers the productivity of critical sectors, such as manufacturing and agriculture, which rely heavily on reliable roads, power supply, and transportation networks.

For instance, only a few sectors in Nigeria, including mining, financial services, and waste management, reported double-digit growth rates in 2023. In contrast, manufacturing—vital to economic development—recorded a growth rate of just 1.45%. Poor infrastructure has not only stunted growth but has also driven many investors away, as the cost of doing business in Nigeria is significantly higher than in other African economies.

Human Capital Deficiencies and Underemployment

Nigeria’s labor force remains largely underutilized, with the National Bureau of Statistics (NBS) reporting that in early 2024, 84% of the workforce was self-employed, a slight decline from 87.3% in the previous quarter. However, many of these self-employed individuals are engaged in informal and low-paying jobs that fail to harness their skills or offer job security. Additionally, while unemployment figures may show a positive trend, the prevalence of underemployment suggests a serious issue in labor productivity.

A British-Nigerian healthcare entrepreneur, Dr. Ola Brown, pointed out that the low wages earned by Nigerian workers reflect their productivity constraints. She compared Nigeria’s average hourly wage of $3.24 with South Africa’s $19.68, Turkey’s $29.34, and the United States’ $69. This wage gap illustrates the productivity challenges Nigerian workers face, which are further exacerbated by unreliable electricity, inadequate internet connectivity, and the constant threat of insecurity.

Investment in Agriculture and Technological Innovation

Kalu Aja, a consultant at the ECOWAS Commission, argued that a focus on agricultural productivity could drive economic transformation in Nigeria. He compared the situation in Nigeria with that of the Netherlands, where advanced technology has enabled Dutch farmers to become major exporters of agricultural products. In contrast, Nigeria’s 10 million farmers struggle to meet domestic demand due to outdated tools, lack of mechanization, and dependence on inconsistent rainfall.

Aja criticized government spending, arguing that funds allocated to luxury items for politicians could be redirected to purchase tractors and other agricultural machinery for rural farmers. He believes that if Nigeria invested in agricultural infrastructure, it could address food insecurity, reduce poverty, and create sustainable wealth for rural populations.

Corruption and Its Impact on Workforce Productivity

Corruption remains a pervasive problem in Nigeria and is a significant barrier to productivity. Public affairs analyst Tochukwu Mana explained that political patronage and nepotism in employment practices have fostered an unmotivated and inefficient workforce. Moreover, the bureaucracy within many public and private institutions is laden with inefficiencies and a lack of accountability, further undermining service delivery.

Corruption extends to the allocation of government contracts, where political interests often override merit, resulting in poorly executed projects and inflated budgets. Experts believe that addressing corruption at all levels is essential to create an enabling environment that supports productivity and economic growth.

Nigeria’s Position in the Penn World Table and Global Rankings

Nigeria’s low productivity is further highlighted in the Penn World Table, a global productivity ranking from the University of California that places Nigeria among Africa’s least productive countries. The table, which measures human capital based on workforce knowledge, skills, and experience, shows that Nigeria significantly lags behind other African nations such as South Africa, Egypt, Kenya, and Morocco.

South Africa, for instance, has a human capital index score of 2.9%, while Nigeria’s score is notably lower, reflecting its limited investment in education, healthcare, and workforce development. This discrepancy underscores the importance of investing in human capital as a driver of economic growth.

The Role of Foreign Direct Investment and Potential Policy Reforms

For Nigeria to reverse its productivity crisis, experts suggest that attracting foreign direct investment (FDI) is essential. However, to make Nigeria an attractive destination for investors, the government must address issues such as unreliable power, poor road infrastructure, and bureaucratic delays. In recent years, FDI in Nigeria has declined due to these longstanding issues, coupled with foreign exchange shortages and unpredictable regulatory policies.

Economic analysts argue that policy reforms focused on improving the ease of doing business, stabilizing the currency, and promoting transparency would make Nigeria a more appealing investment destination. The government’s recent efforts to unify the exchange rate and improve business registration processes have been steps in the right direction, but much more is needed.

Moving Forward: Strategic Recommendations

As Nigeria faces a complex array of economic challenges, experts agree that addressing its productivity crisis requires a multifaceted approach:

1. Infrastructure Development: Prioritizing investments in power, roads, and digital connectivity is essential to support business and productivity. A robust infrastructure can reduce the cost of business operations, attract investors, and enhance the efficiency of the workforce.
2. Human Capital Investment: Expanding access to quality education and vocational training programs will equip Nigerians with the skills needed for a competitive workforce. Additionally, improvements in healthcare can increase productivity by ensuring a healthier workforce.
3. Agricultural Transformation: Mechanizing agriculture and reducing the reliance on subsistence farming can increase food production, generate employment, and drive economic growth.
4. Good Governance and Transparency: Ensuring accountability in public office, minimizing corruption, and promoting effective governance are necessary to build public trust and improve productivity.
5. Promotion of Digital Economy: Investments in digital infrastructure and initiatives to support tech innovation could open up new economic opportunities for Nigerian youth, as seen in countries like Kenya and South Africa.

Conclusion

Nigeria’s productivity crisis is symptomatic of larger structural issues that demand immediate action. Without strategic reforms in governance, infrastructure, and human capital, the economic prospects for Nigeria will remain bleak, and millions will continue to face poverty and underemployment. The road to recovery will be challenging, but with determined leadership and evidence-based policies, Nigeria has the potential to transform its economy and uplift its vast population toward a prosperous future.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

5th November, 2024