All Fingers Are Not Equal, But How Unequal Should They Be? -By Alex Otti

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Alex Otti

 

Nigeria has the unenviable position of being at the bottom of the Commitment to Reducing Inequality (CRI) Index. Its social spending (on health, education and social protection) is shamefully low, reflected in very poor social outcomes for its citizens.

More than 10 million children in Nigeria do not go to school and 1 in 10 children do not reach their fifth birthday. The Africa Progress Panel has demonstrated that despite Nigeria’s positive economic growth for many years, poverty has increased, and the proceeds of growth have gone almost entirely to the top 10% of the population. The CRI Index shows that while Nigeria collects significant tax revenues from oil, there is huge potential for it to raise more tax, for example on personal incomes, and so it scores very badly on this aspect too. Finally, Nigeria’s treatment of workers and women in the workplace also puts it near the bottom of the rankings.”

Above is the verdict of the Development Finance International and Oxfam in their research report published just last month, July 2017. In 2015, some 193 countries, including Nigeria, came together and reached an agreement to reduce inequality in line with the understanding that poverty can only be tackled with reduction in inequality as per the Sustainable Development Goals (SDGs). CRI is the first index designed to measure the commitment of countries to reduce the gap between the rich and the poor and was created by Development Finance International and Oxfam. In measuring the first set of countries numbering 152, the duo of Development Finance International and Oxfam relied on data that measures government action on social spending, tax and worker’s rights amongst other indicators to determine how committed countries are in reducing inequality. The first report published, which they admit is subject to adjustments, revealed that while Sweden came first, Nigeria, came first if you count from the rear in commitment to reduce inequality. We were actually number 152 out of the 152 countries measured.

The same Oxfam in May this year presented a shocking revelation of the level of inequality in the country. According to the report, 5 Nigerians that are worth almost $30billion could end extreme poverty in Nigeria. It claims that 112million Nigerians, representing more than 65% of the population, live in abject poverty. This report which is part of the “Even it up” campaign aimed at bridging the gap between the rich and the poor, also focussed on how the benefits of economic growth in Nigeria have been exclusively appropriated by the wealthy few at the expense of the majority of ordinary people. The report also shows that the wealthiest man in Nigeria earns 8000 times more in one day than an ordinary Nigerian will spend on basic needs in a year. The report goes further to highlight that quite unlike most other countries in the world, Nigeria was one of the exceptional cases where the number of people living in poverty increased from 69 million in 2004 to 112million, 6 years later. This represents close to 70% growth. On the hand, the number of millionaires increased by 44% over the same period.

Everything that has been said above points to the fact that inequality is a major factor in the level of poverty that the country’s population experiences. According to Index Mundi, a statistical and information portal for measuring countries, Nigeria has the 6th largest proportion of its population living below poverty line. This report goes further to state that Nigeria with 70% of its population living below poverty line, is only better than Chad, Haiti and Liberia at 80%, DRC at 71%, and Sierra Leone at 70.2% out of the 152 countries ranked. As we had stated elsewhere in our intervention, the World Bank has defined poverty line as that amount of money below which people are not expected to lead a decent life. The threshold has recently been reviewed from $1.25 to the current $1.90 per day.

That figure translates to less than N600 per day at today’s exchange rate or N18, 000 monthly. The number of people living below this amount relative to the total population is said to live below poverty line. To move many more people out of poverty and begin to report better numbers in the poverty line index, we must drastically attack inequality and reduce the gap between the haves and the have nots. Inequality is not good for anyone whether poor or rich. It has been linked with crime and insecurity, lower economic growth, poor healthcare delivery and hunger. While the impact on the poor people can be very severe, the rich would also not be able to sleep well. There is this popular saying that the poor cannot sleep because they are hungry and the rich cannot sleep because the poor is awake. How can they when the society is bedeviled by violent crimes including armed robbery, kidnapping, terrorist activities and outright brigandage?

Can something be done about this? The answer is yes. We are aware of the several humanitarian programs set up by the the wealthy to assuage poverty and assist the indigent. While this is commendable and should be encouraged, there is only so much these palliatives can do to solve the inequality scourge and pull people out of poverty. Given the number of people who have been counted as living below poverty line, it is obvious that more concerted efforts need to be put in place to address extreme poverty and this can only be done by government through policy. It is interesting that Nigeria is one of the signatories of the 2015 agreement to reduce inequality. The solution lies not in reducing the wealth available to the richest few. That kind of thinking is not practicable and has never worked anywhere.

The solution that will work is for government to engage in massive social spending. Government spending on healthcare, education and social protection is one sure way of reducing inequality. How does it work? When government spends on healthcare delivery and education, those facilities are made available to the rest of the society and access helps in elevating them from a state where those facilities were either not available or could only be accessed at unaffordable costs. Just think of what will happen if every community has a well equipped hospital built by government and probably managed by experts who would ensure that the service is provided at affordable rates to the people of the community.

The same thing goes for education about which we had written extensively. These facilities would not only provide service, but would also generate jobs for those in the catchment area, thereby reducing unemployment which is another fallout of inequality. To buttress this point, the report that we had quoted earlier had pointed out that a recent study of 13 developing countries that had drastically reduced their overall inequality level, found that 69% of the reduction of inequality was because of investment in public services. Social spending is almost always progressive because it helps reduce existing levels of inequality. Despite this, in many countries, social spending could be far more progressive and pro-poor and can play a key role in reducing the amount of unpaid care work that women do by redistributing child and elder care, healthcare and other domestic labour.

Beyond government spending is the issue of progressive taxation. We had demonstrated in this column in the past that the inability of government to efficiently collect tax has hampered its ability to deliver service to the citizens. Nigeria’s tax to GDP ratio is an abysmal 6%, the lowest in Africa. The real issue is that those who are in a position to pay tax, (and anyone who earns income should be in a position to pay tax), do not pay tax. As oil revenue continues to dwindle and as oil’s imminent collapse approaches, (in view of developed countries’ announcements of phase-out dates of gasoline vehicles), government must pay attention to improving its tax collection strategies. Why this is important is that progressive taxation is a sure way to redistribute income in favour of the poor and reducing inequality. The second point is that it is also a veritable way to raise funding for social spending. I know a lot of people would have been worried about where the funding of the spending we had earlier proposed was going to come from. Of course taxation is one way of funding government expenditure.

Continuous upward adjustment of wages is critical to reducing inequality and eradicating poverty. At a minimum wage of N18, 000.00 monthly, it will be difficult to reduce poverty as that amount is presently the threshold for poverty line. It is therefore a good thing that the issue of minimum wage has recently come to the front burner of discussions. These discussions should be encouraged if we truly want to bridge the gap between the rich and the poor. I know all the arguments against increase in wages which includes the unemployment argument and the fact that employers are struggling in a challenged economy, but I have always submitted that if you pay peanuts, you can only attract monkeys. There is a strong direct correlation between pay and productivity.

The government needs to pay attention to an inclusive growth model that will bring minorities and women into the economic equation. To achieve this, efforts must be made to empower women, pay them appropriately for their roles, (most of them are not paid for at the moment) and ensure that they are included in economic activities. This becomes very important given their numbers. Any serious effort to reduce inequality without addressing the gender issue is dead on arrival. This is also true of other excluded segments of the society including the youth.

Government can also do a lot by spending massively on infrastructure in terms of power, roads, rail, seaports and airports. This is very useful in bridging the gap between the rich and the poor in more ways than one. In the first instance, availability of infrastructure will create jobs and take a lot of the economically weak out of poverty. It will also reduce the cost of living, though, for everyone including the rich, but the poor will feel the impact more.

It will reduce the cost of doing business and encourage more people to get into economic activities and reduce tension in the polity. It is, however, instructive to emphasise here that the ability of government to engage in social and infrastructural spending is limited not only by the resources available to it, but that part of the resources earmarked for capital expenditure in the annual budget. It bears repeating that beyond the political will and commitment to reduce inequality, the government has been ambivalent with the budgeting process over the years. As a result we budget N7 out of every N10 spend on payment of salaries, servicing of debt and day to day running of the government, leaving only N3 to spend on capital projects. In many cases, by the time the year comes to an end, we would have actually spent more than N7 out of N10 on government overheads.

The solution, therefore is to force a rejig of the budget numbers so that we can have enough for social and infrastructural spending. It can be argued that because this is not being done that we battle with all sorts of insurrection and crimes. We may choose to allocate more money to fighting crimes or to address the root cause of the crimes a chunk of which is inequality. Any choice we make has both short term and long term consequences. One of the longer term consequences is that our democracy which we all know is not working may eventually implode and those that survive it will be forced to learn from the lessons of the past and do the right thing.

As highlighted by the CRI research report, many decades ago, a US Supreme Court Justice Louis Brandeis succinctly said “you can either have extreme inequality or you can have democracy – you cannot have both”. Across the world, faced with growing gaps between elites and the rest of society, politicians are clamping down on democratic rights and closing the space for civil society. Inclusive policy making processes which respect the rights and voice of all people are important as an end in themselves – but also to secure the best policies. Conversely, policy making processes dominated by elites undermine democracy and have been shown to result in policies which predominantly benefit those elites. The result is obvious, extreme poverty, hunger, disease, squalor, which in turn are not unconnected with violence, crime, terrorism and instability. We must all act now as tomorrow may be too late.

 

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