Why Nigeria’s development remains stunted
Nigeria is a federation by necessity, given its size and ethnic and geographic diversity. To keep the country in one piece, the system uses a matrix of quotas to try to keep all groups and regions together. This design, however, tends to impede the development of the country.
In a nutshell
- Nigeria does not realize its economic and social potential
- Its centralized and federalist solutions are unbalanced
- A bad governance scheme and poor leadership stunt growth
This new series of GIS reports examines how effectively countries are ruled and the consequences of governing systems for economies, societies and nations’ development prospects.
Nigeria has a lot going for it. It is Africa’s powerhouse; it has the largest population – an estimated 196 million – and an economy accounting for nearly 20 percent of the continent’s gross domestic product (GDP). The country is endowed with significant resources, and it is Africa’s leading producer of hydrocarbons. It is also advantageously located on the continent, which makes it an important player in regional political and security dynamics.
However, Nigeria’s “hybrid” federal system and overall poor leadership are impediments to development as the country continues to experience rapid demographic growth combined with economic stagnation.
This magnitude of flaws and challenges suggests that Nigeria will not be able to reap the benefits of the demographic dividend within the next two decades.
Disunity in diversity
The contradictions and limitations of the Nigerian federal model stem from the country’s history. Federalism, as the Nigerian state itself, began as a colonial construct when, in 1914, the protectorates of Northern and Southern Nigeria were merged and converted into a single political unit. The first federal arrangement was decentralized and based on a tripartite division of three states and three majority ethnic groups: the Hausa-Fulani, the Yoruba, and the Igbo, which together account for approximately two-thirds of Nigeria’s population. Later, in 1954 and as independence drew nearer, federalism was expanded as an attempt to improve governance and accommodate better ethnic, regional, and religious differences.
The over-centralized federal setup has created multiple problems and is under increasing criticism.
Following Nigeria’s proclamation of independence on October 1, 1960, the political practice of the former British colony was shaped by coups and countercoups, civil war and almost 30 years of military rule, under which centralizing tendencies often prevailed. In 1999, a sustainable transition to civilian leadership took place. Democratic elections were held and the country adopted a new constitutional framework meant to accommodate Nigeria’s diversity – more than 250 ethnic groups divided along regional and religious lines – through a more decentralized approach.
Presently, Nigeria’s federal system comprises 36 states and 774 local government areas. The initial tripartite and ethnic and regional solution has made way for a territorial and administrative fragmentation of the major ethnic groups.
Federalism has been widely seen as the best – if not the only possible – model to accommodate the country’s diversity without endangering a much-needed sense of national unity.
‘Feeding bottle federalism’
In practice, however, the over-centralized federal setup has created multiple problems and is under increasing criticism. With a gradual erosion of fiscal federalism – especially of the derivation principle according to which there was a proportionality between state contributions and allocated funds – the federal government has gained control of most of the country’s revenue. Its revenue share stands at 52.68 percent under the current formula, while the states and local governments receive 26.70 percent and 20.60 percent, respectively.
The states’ resources and management are hardly reflected in this distribution scheme; all that matters is equalization and demographic criteria. Consequently, states remain heavily dependent on transfers from the federal government.
Another characteristic feature of Nigerian federalism is the central role of the so-called “federal character principle.”
Facts & figures
To prevent the crystallization of dominant political blocks based on ethnic and regional criteria, this system buttresses Nigeria’s federal character with a matrix of quotas on all levels of government and in the army and education system. In practice, however, the principle has been poorly implemented and often instrumentalized for political purposes. In addition, as a collateral effect, it has reinforced ethnic and regional factors as determinant aspects in the competition for power and opportunities, to the detriment of merit and efficiency.
While this overly centralized federal system has succeeded in keeping the country in one piece, it has also become a significant obstacle to stability, economic growth and social development.
Erosion of political legitimacy is one ailment that this political setup produces. The federal government that manages most of the revenue has proven largely inefficient when it comes to the provision of basic services and functions, such as the protection of life and property, the implementation of sound health and education policies, or the construction of adequate infrastructures.
The north is stuck in chronic poverty, in sharp contrast to the more resource-rich and industrialized south.
In a remarkably diverse nation-state, where ethnic and regional factors often determine political allegiances, loyalties and conflicts, such state inefficiency breeds instability. Perceptions of marginalization and deprivation intensify the erosion of state legitimacy. In some regions, it has led to political contestation, extremism and armed rebellion. Furthermore, rigidly implemented affirmative action policies have created a performance-insensitive bureaucracy.
In economic terms, Nigeria’s overdependence on the federal government has created a relational system in which distribution criteria are more relevant than growth – which weakens incentives for economic diversification and competition among states. This aspect of the system has become a source of deep resentment and conflict in the country’s oil-producing regions.
Despite the “equalizing” principle, however, economic asymmetries remain extremely high geographically. The north is stuck in chronic poverty, in sharp contrast to the more resource-rich and industrialized south. Nigeria’s National Bureau of Statistics states: “[B]ased on 2017 revenue figures … the total revenue (i.e., internally generated plus federal account allocations) in only two of 17 southern states – Rivers and Lagos – is 1.03 times the size of the combined total revenue of 14 of the 19 northern states.”
These asymmetries explain the coexistence of two very distinct narratives around Nigeria. The city-state of Lagos, the most populous urban center in sub-Saharan Africa, has a nominal per-capita income that is more than double the national average and accounts for 30 percent of the total revenue collected in the states. Lagos is a financial and industrial powerhouse, attracting substantial investment inflows. The State of Zamfara in northwestern Nigeria, on the other hand, features a poverty rate estimated at more than 90 percent, rising violent crime and illegal mining activities. This state’s revenue in 2017 was 55 times lower than that of Lagos.
The absence of efficient political leadership in Nigeria has also been a significant impediment to growth and development.
A persisting combination of poverty, poor governance and perceived marginalization often lead to instability. In states such as Borno or Yobe, the increasing number of children enrolled in Almajiri Quranic schools, many of which are connected to Islamist terror group Boko Haram, is a chilling signal of social radicalization. In Biafra, the revival of separatist aspirations is linked to long-standing feelings of political and economic marginalization. In the oil-rich Niger Delta, where grand-scale corruption and armed militancy have compromised growth, local leaders accuse Nigerian President Muhammadu Buhari of siphoning local resources to develop other regions.
Finally, in the Middle Belt region, the federal government has largely failed to address the escalating violence between nomadic herders and settled farmers. The conflict, which in 2018 claimed more lives than Boko Haram, is intimately connected with power and ethnic tensions, as most herders are from Fulani origins and farmers from other groups.
The absence of efficient political leadership in Nigeria has also been a significant impediment to its stability, growth and development.
The main root of poor political performance is pervasive corruption. The fight against corruption was the grand banner of President Buhari’s first election campaign. Despite some initial achievements, his strategy was undermined by what was perceived as a partisan approach to corruption scandals. According to the 2018 Corruption Perceptions Index, Nigeria ranked 144 out of the 180 countries and territories surveyed. The problem remains widespread. It includes both grand and petty graft assuming multiple forms, from plain-vanilla contract frauds to multilayered briberies and extortion schemes.
Corruption in Nigeria has been a major growth inhibitor, adding costs and risks for both local entrepreneurs and investors. Moreover, it has also contributed to a culture that does not value merit, disincentivizes innovation and initiative, and lowers workforce productivity.
Drivers of poverty
Ever since the country fell into a recession in 2016, Nigeria’s economic growth has been feeble, particularly in non-oil sectors. Almost half of the population (around 94 million people) live on less than $1.90 a day, giving Nigeria the dubious distinction of world leader in extreme poverty concentration. Over the last two years, its per-capita GDP has shrunk and in the third quarter of 2018, unemployment stood at an estimated 23.1 percent. Despite some recent improvements, Nigeria’s business environment remains shoddy, with the country ranking 131 out of 190, according to the World Bank Doing Business 2020 Report.
This poor rating reflects persistent protectionist instincts, excessive and mostly inefficient bureaucracy, and high corruption levels. The lack of an adequate legal framework, high market-entrance barriers and overregulation have also conspired to keep thousands of local businesses outside the formal economy. As it stands today, the Nigerian system is deprived of growth and transformational drivers.
The picture is not rosy either in terms of social development. Nigeria ranks 152 out of 157 countries in the World Bank Human Capital Index. A child born there today is expected to reach only 34 percent of its productivity potential in adulthood due to malnutrition and poor access to education and health services. According to the United Nations Children’s Fund (UNICEF), the country has the world’s second-highest prevalence of stunted children, estimated at 32 percent among those under five years of age. Nigeria is also among the countries with the most children out of school, with only 61 percent of those aged between six and 11 regularly attending primary school.
Nigeria’s employment picture, schooling length and attendance failed to improve during the years of booming exports.
The problem is more profound than access: according to the World Bank Human Capital Index, Nigerian students are ill-prepared, scoring on average 325 on a scale where 625 represents advanced attainment and 300 represents minimum attainment.
With a population approaching 200 million, of which 60 percent are under 25 years of age, Nigeria could be home to 400 million people by 2050, according to UN projections. While the country went through a spurt of accelerated economic growth (above 5 percent per year) between 2000 and 2011 as a result of a global commodities boom, the period of relative prosperity brought few new jobs and was not transformational. Nigeria’s employment picture, years of schooling and school attendance have failed to improve. Since these factors impact poverty directly, the country’s prospects for reaping the benefits of a demographic dividend do not look good in the years ahead.
Short to medium term, political restructuring and security concerns will dominate the country’s national agenda. Ever since Nigeria’s Senate rejected a power devolution bill and a proposal for affirmative action for women in 2017, pressure from political and civil society actors has mounted. However, even if there is political will on the federal level, the process will likely be protracted, as different states and political actors have distinct and sometimes irreconcilable views about what should be the aim of such a restructuring.
On the economic front, in view of President Buhari’s protectionist and centralizing instincts – reflected, for example, in his reluctance to sign the African Free Trade Area Agreement or, more recently, the decision to close the country’s land borders to the movement of goods – no major reforms are expected to occur before 2023, when his current term is supposed to end.
Thus regional inequalities will persist. Administrative inefficiency, combined with insecurity and widespread poverty, will continue to compromise the development of human capital in some of Nigeria’s states. Education and health services, as well as job creation, will not keep up with demographic growth. In the long term, overall poverty will likely increase. In several states, tensions are expected to remain or even escalate, amid an intensified competition for resources.
Nigeria is not expected to join the ranks of Africa’s economic miracles or development success stories. It is likely to remain a hapless giant, unable to use its demographic and security weight and immense economic potential to the advantage of its people.
Despite the downsides, Nigeria, as Africa’s largest market, will continue to attract investors. In the more affluent southern states, recent business environment improvements, the introduction of less restrictive trade regimes and economy-diversification efforts (undertaken after the 2014 oil prices drop) will likely have some positive impact. Even in those more vigorous states, growth and job creation may not keep up with the demographic expansion. However, the region’s healthier economy and better security conditions will represent a window of opportunity. In time, these states’ example might inspire changes, including in the governance system, that are evidently necessary for improving the rest of Nigeria.