The Federal Republic of Nigeria is one of Africa’s most resource rich countries. She has the highest population in Africa with over 160 million people, is Africa’s largest crude oil producer and eight in the world, and her natural gas reserves is the seventh largest in the world. With the discovery of oil in 1956, independence in 1960, the Nigerian economy looked very promising at the time. However, beginning with the coup d'états in 1966, the civil war of the late 1960s, the neglect of the agricultural and manufacturing sector with greater dependence on crude oil, a series of unfavourable
18 See section 4.3.1 below for a discussion of poverty measures in Nigeria, and Table 4.4 for evidence of growing poverty rates
19 The licensing of MfBs or MFIs by the CBN positions these institutions as formal financial institutions under the regulation of the CBN. Acquiring an MfB license involves higher minimum requirements including higher capitalization compared to MFIs. While all MfBs must be regulated, the majority of the MFIs in Nigeria still operate in the informal sector.
economic and political events have stalled her economic growth. Despite the oil boom in the 1970s which fuelled double digit growth rates on the average, Nigeria in the 1980s was characterized by sharp decline in crude oil prices, continued military rule, and economic mismanagement. Falling crude oil prices was accompanied by a 4.8 percent decline in GNP per capita per annum from 1980 to 1987 (Obadan, 2003).
By 1986, the IMF/World Bank prescribed structural adjustment programme (SAP) was adopted by the Nigerian government as part of the conditions for economic assistance and as a tool towards economic recovery. The SAP package was designed to restructure the economy by reducing the dependence on oil and the unproductive investments in the public sector, expanding the productive capacity of the private sector and thus, increasing the productive base and laying the foundation for non- inflationary growth (Ayadi et al., 2008). Key features of the programme include the commercialization, privatization of the public sector and removal of subsidies; adoption of market prices in all sectors; and trade liberalization with the commitment to pursue a realistic exchange rate. Although this opened the path for privatization and liberalisation of the Nigerian economy, SAP was heavily criticized for its perceived negative impact on welfare as it led to a collapse of social services and basic infrastructure, high inflation, drastic collapse in the exchange rate and was abandoned in the mid-1990s. Other factors that continue to stall economic development include corruption, poor implementation and continuation of development plans (Obadan, 2003; Okojie, 2002; and Olomola, 2000).
However, more recent economic and financial reforms in the past decade has placed the country back on track, with average economic growth rate of 7 per cent in the last decade as shown in figure 4.1 below. Some of these reforms include the privatisation of the telecommunications sector in 2000/01, consolidation of the banking sector in 2005 as well as the payment of the external debt achieved through 60 percent waver of the debt by the Paris club in 2005. These reforms among other factors strengthened the resilience of the Nigerian economy to economic shocks during the recent global financial crisis, allowing it to maintain economic growth rates above 6 percent per annum. With the recent rebased nominal GDP figures announced by the National Bureau of Statistics (NBS) in April 2014, the Nigerian economy is currently ranked the largest in Africa and 26th in the world. Yet the GDP per capita is only $2,700 which is less than half that of South Africa which currently ranks second in Africa; meaning that South Africans are ‘more than twice as rich’ (The Economist, 2014).
Hence, despite this high economic growth rates, ‘living standards’ and ‘poverty rates’ remain important issues of concern for the Nigerian government and its people.
Figure 4.1: Economic Growth measured by GDP Growth (1961-2012)
Data Source: World Bank (2012)
Additionally, key socio-economic indicators do not look very promising as discussed below. Unemployment20 rate in Nigeria has remained relatively high as shown in Table 4.1 below. The high rate of unemployment and heavy bureaucracy in the formal sector has driven a large portion of the population to operate in the informal sector (Anyanwu, 2004). This is reflected in the large size of the Nigerian informal sector which comprises of over 17 million enterprises (NBS, 2014). This sector is largely dominated by microenterprises21 constituting about 61.4 percent of the economy (Anyanwu, 2004). These businesses are mainly involved in retail and wholesale trading, hotels and restaurants; and are faced with limited access to finance (Udry, 1993). Due to the absence of safe facilities to place deposits and accumulate savings, enterprises in this sector are stricken by poor liquidity management (Osthoff, 2005 and Pagura, 2003). The growth of the Nigerian informal financial sector reflects the
20 The unemployment rate in Nigeria is measured as ‘the proportion of those who were looking for work but could not find work for at least 40 hours during the reference period to the total currently active (labour force) population’ (Federal Ministry of Justice, 2014:36). The high number of unpaid family labour in Nigeria remains a potential cause for the underestimation of unemployment or underemployment in Nigeria. This constitutes a constraint to economic progress with possible more damaging effects than those of unemployment (Raheem, 1993). In all, underemployment remains particularly high and contributes considerably to the widening gap between the actual and reported unemployment rates in Nigeria.
21 According to the Nigerian classification, ‘Microenterprises are enterprises with less than 10 employees with a total asset of less than N5 million (excluding land and buildings) and operated by sole proprietor (NBS, 2010)’. -20 -15 -10 -5 0 5 10 15 20 25 30 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 GDP growth (annual %)
financial exclusion of a large proportion of the ‘economically active’ population. This large number of informal microenterprises sets the stage for microfinance to thrive.
Table 4.1: Socio-Economic Indicators of Nigeria (2005-2012)
Source: World Bank (2012)
The table also shows relatively low domestic credit to the private sector as well as high lending rates, which have curtailed private sector investment activities that could help to create employment and reduce poverty. Double digit inflation rates, with an annual average inflation rate of 11.4 percent between 2005 and 2012 are also capable of eroding the savings capability of households. Particularly, the growing population rate has been followed by rapid urban migration. This continues to exert a downward pressure on the deteriorating and fragile infrastructure (water, health facilities, light, road, etc.), social services, and bleak formal labour market in both urban and rural areas (Pagura, 2003). However, the socio-economic indicators of health show steady improvement over this period. One possible reason for this is the increasing allocation of official development assistance (ODA) to the health sector – 24.1 percent, 46.6 percent and 56.8 percent in 2007, 2008 and 2009 respectively (NBS, 2012). Nevertheless, the next section shows that poverty remains a major challenge for majority of the Nigerian population.
Indicator Name 2005 2006 2007 2008 2009 2010 2011 2012
Unemployment … … 12.7 14.9 19.7 21.4 23.9 …
Labour force participation (% of total
population ages 15-64) 54.9 55.0 55.2 55.4 55.5 55.7 55.9 56.0
Labour force, female (% of
total labour force) 42.9 42.9 42.8 42.7 42.7 42.6 42.5 42.5
Domestic credit provided by
banking sector (% of GDP) 8.6 4.9 16.6 24.9 37.8 30.0 35.8 35.6
Domestic credit to
private sector (% of GDP) 13.2 13.2 25.2 33.8 38.5 24.8 20.9 20.9
Inflation, consumer prices (annual %) 17.9 8.2 5.4 11.6 11.5 13.7 10.8 12.2
Money and quasi money (M2)
as % of GDP 17.7 19.0 28.0 36.4 40.8 32.8 33.7 36.5
Lending interest rate (%) 17.9 16.9 16.9 15.5 18.4 17.6 16.0 16.8
GDP growth (annual %) 3.4 8.2 6.8 6.3 6.9 7.8 6.8 6.5
GDP per capita growth (annual %) 0.8 5.4 4.0 3.4 4.1 4.9 3.9 3.6
Population (Total in millions) 139.6 143.3 147.2 151.2 155.4 159.7 164.2 168.8
Population growth (annual %) 2.6 2.6 2.7 2.7 2.7 2.7 2.8 2.8
Rural population (% of total population) 54.3 53.6 52.9 52.3 51.6 51.0 50.4 49.8
Urban population (% of total) 45.8 46.4 47.1 47.7 48.4 49.0 49.6 50.2
Life expectancy at birth, total (years) 48.7 49.2 49.8 50.3 50.8 51.3 51.7 …
Birth rate, crude (per 1,000 people) 42.5 42.4 42.3 42.2 42.1 41.9 41.8 …
Death rate, crude (per 1,000 people) 16.0 15.6 15.1 14.7 14.4 14.1 13.8 …
Mortality rate, infant (per 1,000 live
births) 96.7 93.6 90.7 87.8 85.1 82.6 80.1 77.8