Endemic Poverty and Institutional Weakness in Nigeria
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Transcript of Endemic Poverty and Institutional Weakness in Nigeria
RUNNING HEAD: ENDEMIC POVERTY AND INSTITUTIONAL WEAKNESS
Endemic Poverty and Institutional Weakness in Nigeria
Lindsay M. April
Virginia Commonwealth University
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ENDEMIC POVERTY AND INSTITUTIONAL WEAKNESS
Endemic Povery and Institutional Weakness in Nigeria
The Nigerian economy has grown beyond its former dependency on oil. The nation has
diversified its post-colonial economy to the tune of a six to eight percent annual economic
growth rate and the title of Africa's largest economy as of 2014 (Nigeria, 2015). Over the course
of thirty years, Nigeria has created over 300 billion US dollars in revenue from oil sources alone
(Akanbi & Toit, 2010). According to Akanbi and Toit (2010), Nigeria was classified as one of
the top fifty richest countries in the early 1970s. In the years since, Nigeria has slipped into a far
less prestigious position despite its consistent trade surplus and economic growth. Accounting
for the social indicators used to evaluate wealth and poverty, Nigeria is presently considered
amongst the twenty five poorest nations in the world (Akanbi & Toit, 2010). It is hard to account
for the discrepancy in the nation's economic success and the severe poverty confronted by 62%
of Nigerians (Nigeria, 2015). The nation's wealth has succeeded in making few very rich, while
generally failing to benefit the bulk of the immense Nigerian population. To evaluate and begin
to understand the underlying causes of large scale economic disparity experienced amongst
Nigerians, its helpful to look at the country's institutions. Post-colonial institutional legacies,
corruption, the patrimonial model of resource distribution and governance, the exploitation of oil
resources by elites, and the implementation of structural adjustment programs account for the
institutional weaknesses in Nigeria that have created and perpetuated economic disparities.
Moreover, the pervasive poverty and the poor living conditions in the most populous country in
Africa can in part be explained by inadequate and poorly organized economic, political, and
social institutions.
The origins of many of Nigeria's institutional weaknesses can be traced back to its
colonial past. Because British domination in Nigeria was based in policies of indirect rule, the
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country's economic system failed to develop in a manner consistent with the needs of the country
and its people. Rather, the British presence in Nigeria merely fostered the growth of a political
system largely based on incentives and opportunism amongst a small and elite group of Nigerian
political figureheads (Kalu, 2010, p.1375). The legacy of this pathological opportunism amongst
Nigerian elites is longstanding and detectable in the large scale corruption in governance in the
time since independence. Furthermore, the British had largely succeeded in shaping the Nigerian
economy to the sole benefit of the west. The production infrastructure in Nigeria was a means to
British accumulation of wealth and further African exploitation. Therefore, the significant lack of
infrastructure and means of production often meant a lack of employment opportunities for
Nigerians post-independence (Ikpe, 2009, p. 694). In the absence of an applicable model of
economic growth and development for Nigeria in the wake of colonialism, economic disparity
and unemployment was probable if not certain. The creation of the institutions themselves were
removed from the hands of Nigerians preceding independence; the constitution, upon which the
new state of independent Nigeria would theoretically operate, was designed in the United
Kingdom (Kalu, 2010, p. 1377.) Without a significant hand in the creation of their own system of
governance, post-colonial Nigeria was not inclined to hold much esteem in their newfound
western-imposed institutions. Kalu cites a strong Nigerian nationalism and identity as a factor
that could have curbed corruption and opportunism among politicians early on in Nigerian
independence (2010). For lack of this sort of commitment, nationalism, and genuine esteem in
the nation's present and future amongst Nigerian elites, Kalu's claim is that Nigeria is "yet to
evolve stable political structures that are imbued with a sense of national commitment and
notions of social justice, around which the loyalties of the masses could be mobilized" (as cited
in Ajayi, 1982, p. 6). Had Nigerians played a more significant and meaningful role in their own
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institution building, the corruption that plagues Nigerian institutions and upholds social
inequities might have been mitigated at independence.
Among colonial legacies in African governance is the predisposition towards corruption
seen historically in Nigerian elites. Examples of the types of corruption that characterize
Nigerian high and low level governments alike include bribe taking, falsifications of public
works records, and misuse and accumulation of government resources and capital for personal
use, and failure of the judiciary and police to fairly execute justice (Okobule, 2006, p. 94).
Corruption is in part driven by government officials' and civil servants' preference for personal
wealth accumulation over national development. The former Head of State Sani Abancha is an
insidious example of the reaches of corruption in Nigeria; Okobule has included in his report that
Abancha extracted over 4 billion dollars and dispersed it among various foreign banks (as cited
in Ogunsanwo, 2004b). A recurring argument in the literature surrounding Nigeria's endemic
levels of corruption is that the money taken illegally by opportunist politicians isn't incorporated
back into the Nigerian economy at any point. Rather, corrupt elites purchase goods abroad, rather
than using ill-gotten wealth to stimulate the domestic economy (Kalu, 2010, p. 1370). Kalu
argues that the investment of stolen wealth back into the Nigerian economy (even in the way of
purchasing goods for their personal use) could have curbed the huge impacts of corruption in
terms of economic infrastructure and development, promoting job growth and thus mitigating
poverty (2010). There is no lack of research substantiating Kalu's linkage of poverty and
corruption. A study in 2010 presented a defined causal relationship between corruption in
poverty, suggesting that poverty in Nigeria can be curbed in the presence of good governance
(Negin, Abd. Rashid, and Nikopour, 2010). More recent research from 2014 elaborates on the
work of Negin et al. (2010) by adding in a third component specific to Nigeria: steady economic
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growth (Yusuf, Malarvizhi, Mazumder, & Su, 2014, p. 96). The study of Yusuf et al. (2010)
found significant causal links between the three variables of poverty, economic growth, and
levels of corruption. The study found that growth enhancing policies and good governance
initiatives were likely to reduce poverty nationwide as well as corruption. From Yusuf et al.
(2010):
"The consensus argument is that corruption constraints economic growth by hindering
both internal and external productive investment, through tax and discouraging
entrepreneur manpower development which will, in turn, reduce economic growth and
decline in economic growth leads to more poverty. In another way, corruption reduces
the quality of social infrastructures such as roads, electricity, housing, and water supply
(p. 97)."
Corrupt government institutions also deter foreign investment into Nigerian economies and
infrastructure. If these same institutions could have been deemed stable and productive,
investment could have heightened production capacities of the nation and created substantial job
growth (Okobule, 2006, p. 93) Nigerian governments are not solely to blame for ineffective use
of aid money; outside institutions responsible for distributing aid to developing nations also
make missteps in distributing aid with significant consequence. One African NGO speaks to the
futility of British aid, due to poor decision making in both the British Department of Foreign
Investment and among corrupt Nigerian elites:
"Our NGO's experience is that DFID's aid will not include substantial assistance to
enable proven NGOs as ours to equip themselves in the skills necessary to facilitate
technical training, management skills, information dissemination and the like among very
backward and corrupt LGAs and impoverished semi-literate or largely illiterate village
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ENDEMIC POVERTY AND INSTITUTIONAL WEAKNESS
communities. So will annual expenditure result in more costly curtains for more DFID
expatriate managers' mansions? and more black tinted glass four-wheel drives for senior
expatriate officials (Ifeka, 2001, p. 462)?"
Ifeka's piece suggests that international as well as domestic institutions allow corruption to play
an undeniable role throughout the post-colonial Nigerian experience. Moreover, institutional
weakness in the presence of corruption in governance has a long-term detrimental effect on
economic growth and poverty. There is a dire need for new policies with the desired effect of
mitigating corruption within governmental institutions.
Inextricable from the corruption in Nigerian institutions is patrimonialism, which
corresponds with high socio-economic disparity. The saliency of patrimonialism is primarily due
to the central government's inability to secure for its people the resources necessary to thrive,
argued by U. Ukiwo in his study of ethnicity in Nigeria (2005, p. 16). Ikpe (2009) has written
that the strict conceptual separation of ethnic identities and interests was encouraged by colonial
powers as a way to prevent mobilization of interethnic groups against British colonial rule (as
cited in Campbell 1997, p. 62). Ikpe argues that politicians during the colonial time and beyond
independence have been known to create and reinforce ethnic denominations, due to the potential
benefits of mobilizing a large ethnic group in return for support (as cited in Edie, 2003, p. 84)
Moreover, it's in the interests of contemporary Nigerian politicians to maintain ethnic divisions;
political parties are often formed around a central ethnic identity, and in turn, cater to the
Nigerians that comprise that ethnic group. By pandering to specific ethnic identities, politicians
are able to garner the support of groups without having to create meaningful campaign platforms
or promulgate ideology. The aforementioned politicization of ethnicity creates disparities in
economic opportunities across ethnic groups. (Ikpe, 2009, p. 679). Furthermore, Ikpe suggests
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ENDEMIC POVERTY AND INSTITUTIONAL WEAKNESS
that recurring military regimes have facilitated the prevalence of ethnically-driven
patrimonialism in the following way:
"Ethnic patrons lead their groups in the contests against other ethnic groups. They
are important in all regimes, democratic or military, but appear to be more
important in military regimes because of the absence of formal institutions of
political participation and representation (2009, p. 685)."
Having experienced numerous coups and long-standing military regimes, Nigeria characterizes
the political climate brought on by military intervention in place of institutional development,
resulting in a reliance on patrimonialism to secure support and resources amongst the population.
The huge economic disparity patrimonialism propagates is in part due to the fact that not all
ethnic groups in Nigeria have powerful patrons capable of securing resources for them, which is
often a major impetus for ethnic conflict amongst different groups (Ikpe, 2009, p. 687). Due to
the poorly developed distributary and economic institutions in Nigeria, as well as the lack of
productive forces that could offer more jobs and job security, patrimonialism becomes a primary
means for accumulating resources and wealth among both the rich and the poor. Through
investment into production and infrastructure, the creation of wealth could occur outside of the
rent-seeking behavior that characterizes patrimonialism and be of benefit to all; however, the
lack of this sort of investment means a continued reliance of the Nigerian people on the elites in
the country who are theoretically capable of providing them scarce resources. Thus, the problem
of patrimonialism has its roots in poorly developed economic and social institutions that could
provide for the Nigerian population without catering to specific ethnic identities.
Both patrimonialism and poor governance in Nigeria are thought by scholars to be by-
products of the nation's tremendous oil wealth (Idemudia, 2012, p. 183). Idemudia points to
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ENDEMIC POVERTY AND INSTITUTIONAL WEAKNESS
jarring statistics around the fall of the nation's per capita income since the discovery and
manufacturing of oil (Idemudia, 2012, p. 184). In a convincing display of the detrimental effects
of the resource curse bestowed upon Nigeria, Idemudia has stated that the number of Nigerians
sustaining themselves on less than one dollar a day rose from 36% to over 70% over the years
between 1970 and 2010 (as cited in Watts, 2007). Additionally, 1% of the Nigerian population
reaped the benefits of 90% of oil revenue, confirming the misallocation of funds resulting from
the nation's oil wealth (as cited in HRW, 2007.) The statistics suggest that the federal
government is incapable of addressing issues of corruption and disparity due to massive natural
resources. Therefore, the solution lies in the strengthening of institutions responsible for
allocating oil wealth and the decentralizing the industry, which stands to be of more benefit to
the country than diversifying the economy (Idemudia, 2012, p. 184.) Kolstad has written much
about the sort of political context in which the resource curse, very much at play in Nigeria, is
inhibiting to development:
"High institutional quality leads to an equilibrium where all entrepreneurs are producers;
low institutional quality leads to an equilibrium where a portion of entrepreneurs are rent-
seekers (or grabbers, to use their term). More natural resources in turn lower national
income only in the latter state (2009, p. 439)."
In Kolstad's paradigm, Nigeria can be classified as the latter; production is low, and patronage is
almost an institution unto itself. According to Akinola, the communities where oil is extracted
are especially impoverished, lacking in social resources, with track records of human rights
abuses (as cited in Naneen, 1995). Alonola argues for the creation of new self-governing
institutions comprised of non-elites living in oil producing communities; even if larger structures
of government had a meaningful interest in bettering the welfare of its people at the expense of
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ENDEMIC POVERTY AND INSTITUTIONAL WEAKNESS
the wealth taken in by elites, grassroots institutions are integral in developing socioeconomic
arrangements that work for the people (Akinola, 2008, p. 92).
The introduction of Structural Adjustment Programs in the 1980s further compounded the
negative effects of oil wealth on the nation's poor. Introduced by the International Monetary
Fund and the World Bank, the primary objective of the SAP was to deregulate the Nigerian
economy and integrate it into the global capitalist market (Azmat & Olutayo, 2009, p. 243) The
explosion of the number of financial institutions in response to Structural Adjustment did not
translate into increased financial resources for all Nigerians (Louis & Stein, 1997, p. 7). Rather,
the institutions themselves served as rent-seeking vehicles for those involved in the newly
expanded private sector. The presence of former military elites in many of these institutions
explains the relatively little trouble banks had in getting approval from government to enter the
market (Louis & Stein, 1997, p. 7); this unto itself suggests the malleability of liberalization
policies to serve the interests of an elite few. Relative to the number of financial institutions
entering the private sector, very few were open for public use. On the contrary, most served as
vehicles for foreign exchange, enabling those involved to allocate foreign funds in their desired
fashion (Louis & Stein, 1997, 9). Therefore, the policy shifts due to structural adjustment-
devaluation of the Naira, austerity measures in the state's welfare functions, limits on the growth
of wages, and elimination of the oil subsidy formerly allowed to the Nigerian people (Azmat &
Olutayo, 2009, p. 243)- were not balanced by an increase of capital resources to Nigerians via
the private sector. According to Azhmat & Olutayo:
"...removing the entire subsidy without increasing nominal wages demonstrated the
inhuman face of Nigerian SAP. SAP is simply a capitalist and neo- colonialist adventure
which led to the collapse of the foundation and structures of socio- political welfarism;
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ENDEMIC POVERTY AND INSTITUTIONAL WEAKNESS
leading to full-blown capitalist entity and economic hardship. By the end of the twentieth
century, it became glaring that SAP has worsened the socio-economic and political
situation in Nigeria, like its most African counterparts. The current wave of general
efforts towards development is the Millennium Development Goals (MDGs) which were
set in 2000. By 2007, it was clear that poverty was still endemic and that most nations
would not meet the target set in the MDGs. (2009, p. 243)."
Moreover, the adoption of structural adjustment programs in Nigeria (at the behest of
international financial institutions) represented another phase in which economic policy
benefited elites while creating additional poverty. The financial institutions that arose out of the
SAP were often corrupt in their allocation of foreign capital, failing to extend credit to potential
Nigerian entrepreneurs and producers, all the while reinforcing ethnic separation and
patrimonialist tendencies (Louis & Stein, 1997, p. 9). These opportunities for accumulation for
the rich came at the expense of Nigeria's public sector, which was severely inhibited in its ability
to carry out welfare services to the poor.
The failure of the Nigerian state in developing impactful service delivery mechanisms
and institutions is critical in understanding the widespread conditions of poverty in the nation.
Such conditions include uncollected garbage, constant power and water failures, poor public
transit, poor public education, inadequate sanitation services, and unaffordable health care in
cities such as Lagos, the nation's former capital (Omar, 2009, p. 72). Each of the aforementioned
conditions has implications for the rate of poverty in the country. For example, poor public
transit impedes the ability of the unemployed to get jobs that would require vehicular
transportation. Lack of accessible quality education perpetuates cycles of poverty within low
income areas by failing to provide avenues for upward mobility, such as university and other
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ENDEMIC POVERTY AND INSTITUTIONAL WEAKNESS
forms of networking. The government's failure to solve these problems is often due to a failure in
accountability in the three levels of government (Omar, 2009, p. 74). While many of these
structural issues should be addressed by city and state governments, the federal government is
not absolved of responsibility to their people in this capacity (Omar, 2009, p. 74). Omar argues
that the squandering of state resources, which have been considerable given the continual
economic surpluses in the country, by local and federal authorities has largely contributed to the
widespread conditions of poverty in urbanized cities such as Lagos, Kano, Enugo, Jos and
Kaduna (2009, p. 74-75). He also makes the case that the financial incompetence of city officials
is also to blame for failed or ineffective city planning policies, noting the mere 38% of planned
infrastructural projects that were actually carried out by local governments (as cited in Alex
1997). Because service delivery in Nigeria is very weak, subsidized social services, such as
healthcare, are also weak; those seeking health care and other important services are forced to
pay extraordinarily high costs to acquire medical services (Omar, 2009, p. 75). High costs aren't
often feasible for economically disadvantaged Nigerians in urbanized city centers, which could
shed light on high infant mortality rate (the tenth highest in the world) and relatively low life
expectancy of 52 for adults. Poor sanitation services contribute to high rates of infectious
diseases, illustrating the necessity of decent and affordable health care (Nigeria, 2015). Given the
lack of efficient institutions, capable of rendering effective services for urban Nigerians, the poor
are further marginalized.
The political and economic landscape in Nigeria very well characterizes the "poverty
trap" model, in which countries with endemic levels of poverty and underdevelopment develop
"ineffective institutions and policies, and will thus transform into an unfavourable pattern of
growth (Matsuyama 2008; Akanbi & Toit 2010)." This model would place pervasive poverty as
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ENDEMIC POVERTY AND INSTITUTIONAL WEAKNESS
both a cause and effect of poor economic development. The poverty trap theory would account
for the failure of good governance and policies to materialize in Nigeria, despite attempts at
implementation (Akanbi & Toit, 2010, p. 336). This model therefore substantiates the causal
relationship between poverty and low quality institutions in both directions, suggesting that the
initial thesis of this paper could alternatively argue that poverty is responsible for the
development of ineffective governance and institutional weakness. Regardless, the primary
argument within this paper- that poverty in Nigeria despite the nation's resource wealth is based
in ineffective political, economic, and social institutions- is supported by the corruption and
patrimonialism in governing institutions, poor allocation of oil wealth, perverse financial
institutions created by the Nigerian structural adjustment program, and ineffectual service-
providing institutions. The solution to endemic levels of poverty is therefore multifaceted and
would require the overhaul of entire institutions, including those created in the wake of structural
adjustment, that have thus far failed to create meaningful change in policies that would benefit
the people. Enhanced regulation of economic institutions would also spare some Nigerians from
the effects of capitalism in a country with an underdeveloped productive capacity and incapable
of providing much needed employment. Furthermore, full accountability in governing
institutions could potentially force officials to work for the people. Over a half a century since
independence, it would be long overdue.
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ENDEMIC POVERTY AND INSTITUTIONAL WEAKNESS
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