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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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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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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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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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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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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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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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 in Nigeria