Can Nigeria overcome extreme poverty? Can the emerging Inclusive Business approach provide a solution? If so, what role should the government and other key stakeholders play? This paper discusses Nigeria's troubling socioeconomic situation, focusing on ineffective intervention models and how the inclusive business approach can address these challenges. I will explore how to expand the inclusive business approach as a potential solution to Nigeria's extreme poverty.
Nigeria is in Trouble.
Contrary to popular belief, Nigeria is not an oil-rich country. It is important to start by dispelling this widely held notion. On the contrary, Nigeria is a poor,[1] underdeveloped,[2] fragile,[3] highly populated nation[4] with a sprinkling of crude oil.[5] If governments could share their proven oil reserves among their populations, each Nigerian would receive 168 barrels, valued at $14,500 (at today’s Brent Oil price). The average Kuwaiti would receive 23,249 barrels, valued at $2 million. Kuwait is an oil-rich nation. Nigeria is not.
This sustained erroneous image of Nigeria’s supposed wealth is central to its poverty challenge. The country’s leaders, old and new, behave like the spoilt brats of pseudo-affluent parents. Their followers, imbued by the same impressions, justify certain demands, given how their leaders spend like the nouveau riche.
Extreme poverty in Nigeria is worsening, with most Nigerians experiencing their worst economic conditions in a generation.[6] Six out of ten Nigerians live in multi-dimensional poverty, while four out of ten live on less than N137,430 per annum (or N375 daily). To put this figure in perspective, “Agege bread”, which some Nigerians once looked down upon, now costs N200 for the smallest loaf, more than half the financial resources available to the extremely poor.
Unfortunately, most of Nigeria's poor are invisible to those who should be solving their problems. For instance, roughly 80 per cent of Nigeria’s poor live in rural communities. Over 50 per cent of them are children. The International Monetary Fund is correct in asserting that the defining experiences of the poor include limited choices, voicelessness, and the inability to influence or control what happens to them. Those who should solve this extreme poverty challenge have seldom seen, touched, or smelled this poverty level. How can they solve what they don’t understand?
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Who is responsible for this level of deprivation? While it is convenient to blame whoever is the incumbent president, that analysis, at best, is lazy. Every Nigerian government, from the country’s independence in 1960 to date, enacted policies and funded programmes to grow the economy and eradicate poverty (See Figure 2). There is value in exploring why poverty persists (and continues to worsen) in Nigeria despite the proliferation of government policies and programmes.
Why Does Poverty Persist in Nigeria?
Poverty in Africa must be one of the most discussed questions in social science in the Global South. Scholars offer a comprehensive analysis of poverty in Nigeria, highlighting a complex interaction of historical legacies,[1] economic mismanagement,[2] political corruption,[3] social challenges,[4] insecurity,[5] and global economic dynamics.[6] Understanding these factors is essential for crafting effective policies to combat poverty in the country.
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Several salient reasons for Nigeria’s poverty merit further interrogation. For instance, low productivity is a significant reason for Nigeria’s inability to unburden itself from the poverty albatross. The country ranks 114th out of 140 countries on the Global Competitive Index, which measures the impact of infrastructure, macroeconomic stability, health, education, and the labour market on the nation’s competitiveness. Policy and programme design challenges continue to plague the country. Indeed, every Nigerian government promoted a long list of policies and programmes as their demonstrated intent to address the country’s developmental challenges. Their considerable efforts delivered less than remarkable results.
While Nigerians blame corruption for their country’s underdevelopment, incompetence may be the bigger culprit. Scholars show that countries with higher bureaucratic quality deliver better outcomes, irrespective of corruption levels.[1] Indeed, while corruption exerts a negative pull, a high-quality bureaucracy can mitigate its effects.[2] This point holds even going back to prehistoric times.[3]
Governments must focus on incentives to improve their batting average. Properly designed incentives can motivate stakeholders at all levels—policymakers, bureaucrats, and beneficiaries—to enhance policies and programmes' effectiveness. Conversely, poorly designed incentives can lead to inefficiencies, corruption, and poor development outcomes. This point is at the heart of many of Nigeria’s failed interventions. At best, the needs of the poor are tangential to addressing other political economy considerations.
Poverty is not a death sentence. Several countries have significantly reduced extreme poverty over the last generation: China, India, Vietnam, Indonesia, Bangladesh, Cambodia, Ethiopia, etc. A common feature of their successful poverty alleviation programmes is placing the beneficiary at the centre of the intervention designs. This practice aligns with scholarly evidence. For instance, Elinor Ostrom (1990) suggests that beneficiary engagement in the programme design and implementation is more likely to address their specific needs and ensure greater acceptance.[4] Amartya Sen (1999) suggests that the beneficiaries’ active participation in decision-making ensures the initiatives' success.[5] C.K. Prahalad (2004) argues that creating economic opportunities for the poor through market-based solutions can significantly improve their living standards.[6] Programmes that internalise these principles stand a higher chance of alleviating poverty. This point is central to the Inclusive Business approach.
Inclusive Business as Panacea?
What are Inclusive Businesses, and how are they different from the run-of-the-mill enterprises? They are commercially viable private sector businesses that provide innovative, scaled-up and systemic solutions to the relevant problems of the poor and low-income people. In essence, Inclusive Businesses (IBs) deliberately place the poor at the centre of their business strategy and provide relevant income or living standards solutions for those at the “Base of the Pyramid.”[7]
Inclusive Businesses have distinctive features that enable them to address extreme poverty. First, theyintentionally engage the Base of the Pyramid (BoP) in their value chains as staff, suppliers, consumers, distributors, labourers, shareholders, etc. However, simply engaging the poor in a company’s value chain is insufficient to qualify as IB. Mainstream companies often source from and sell to the poor but do not create scaled-up solutions for the BoP. Inclusive businesses must engage the BoP in ways that substantially increase their income (above the market rate) or provide relevant and affordable products and services. Second, Inclusive Businesses pursue financial viability. Third, they must have business models that can be scaled up. Fourth, they must measure and manage their impact.
Inclusive Businesses create value through the triple-win proposition. One, IBs create social impact by creating well-paying income opportunities and relevant and affordable goods and services for the poor. Thus, an enterprise is not an Inclusive Business if its staff remuneration perpetuates poverty. Similarly, an enterprise is only an IB if it consciously ensures its products are relevant and affordable to the poor. Two, IBs must be commercially profitable. This point clarifies that although charities and social enterprises are good for the poor, they will only be classified as Inclusive Businesses if they are commercially viable. Any enterprise that relies on grants or donations is not an IB. This point holds for corporate social responsibility initiatives. Three, IBs must contribute to economic growth, poverty reduction and socioeconomic transformation. It must be good for society, the economy and the government, and sometimes also improve the environment and climate.
Inclusive Businesses can address extreme poverty and raise living standards for the BOP. This is because IBs create income opportunities above the market rate. They have a strategic objective to develop solutions for the poor on a commercially viable basis. They do not trade off commercial viability for social impact. They ensure the poor realise the benefits directly instead of through intermediaries or trickle-down economics.
Inclusive businesses differ from mainstream businesses, social enterprises, and traditional corporate social responsibility (CSR) initiatives. While many companies work in the markets for the poor, Inclusive Businesses are more the exception than the rule. They differ from mainstream companies in their deliberate design for achieving direct and systemic social impact for the BoP, and they do not assume trickle-down effects. They differ from social enterprises through their commercial or profit orientation and the scale of real impact they achieve. They differ from corporate social responsibility (CSR) and philanthropic work for their core business and commercial orientation and in the emphasis on achieving significant and profound social impact.
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Federal Government of Nigeria, in collaboration with the Inclusive Business Action Network and with support from GIZ Nigeria, engaged Nextier to conduct a landscape study on Inclusive Businesses in Nigeria. The study evaluated companies for strategic Inclusive Business Intent (understanding the poor, deliberate intent to do good while doing well, and a business model focused on social impact and business return). It evaluated such businesses for commercial viability and innovation. The study found several actual and potential Inclusive Businesses. Most Nigerian Inclusive Businesses were in agriculture, manufacturing, health, and nutrition. Examples include Babban Gona (Maize), Falgates (rice and sorghum), L&G Farms (dairy), Silvex (rice), Tomato Jos (tomato paste), Infibranches (fintech), Solar Sisters (energy), etc.
Upscaling Inclusive Business Approach
The Government of Nigeria and its partners can promote Inclusive Business to address extreme poverty. The Inclusive Business Landscape Study highlighted eleven recommendations for building a better enabling environment for such businesses in Nigeria. While there are some roles for the federal and state governments, critical stakeholders (including many people in the room today) will accomplish several of the activities.
The core recommendations include the following:
1 Develop and approve an inclusive business strategy and ensure it is reflected in Nigeria’s national development plan, industry policy, and federal and state-level budgets. The Nigeria Investment Promotion Commission could lead this effort with the support of the Ministry of Finance and the Ministry of Budget and Economic Planning.
2 Establish a dedicated institutional framework for implementing inclusive business promotion under a multi-stakeholder approach. This initiative includes building awareness for a national inclusive business programme.
3 Form a transparent, inclusive business accreditation system to identify and brand such businesses. The government and business associations will jointly implement the accreditation process to ensure integrity and transparency.
4 Finance a dedicated inclusive business coaching and mentoring tool.
5 Create dedicated investment incentives for accredited inclusive businesses. The incentives could include preferential access to public procurement contracts, innovative infrastructure leasing arrangements, technology access, investment financing, tax rebates, etc.
6 Establish an inclusive business risk reduction and social innovation fund to crowd-in funding from impact investors.
7 Target budget lines in various sectors for potential inclusive business implementation.
8 Cost-sharing impact monitoring and reporting at company, sector, and national levels.
9 Create dedicated technical assistance facilities and a national inclusive business investment fund.
10 Champion regional exchange programmes on inclusive business and provide leadership on inclusive business promotion in Africa. Nextier took the lead on this recommendation by establishing AfricaIB.org as a platform for the regional exchange of IB information and toolkits.
11 Piloting the above strategic recommendations in a Nigerian state for upscaling at the national level.
Conclusion
In conclusion, for several reasons, today's stakeholders’ roundtable on upscaling inclusive business in Nigeria is remarkable. The meeting will review the progress in implementing the above-listed study recommendations in Kaduna State. The implementation programme is an impressive demonstration of the commitment of the Government of Nigeria, with support from the Investment Climate Reform (ICR) Facility, to take forward the study recommendations. Like you, I am eager to hear the report and join the discussion.
It is a welcome development as the Inclusive Business approach, focusing on fundamentally improving the lives of the poor while delivering commercial successes, presents a veritable route to ending Nigeria’s endemic poverty. It places the poor at the centre of policy planning and implementation. It recognises and supports enterprises that engage the poor as an integral part of their value chains (staff, suppliers, consumers, distributors, labourers, shareholders, etc.). These enterprises pay above-average market wages while remaining commercially viable entities. They create products and services that are relevant and affordable to the poor. Indeed, the poor are seen, and their problems can be addressed. Such entities demand all the support they require to ensure their continued success as they work with the government to address Nigeria’s endemic poverty.
Thank you for your attention.
July 11, 2024
[1] Evans, Peter, and James E. Rauch. "Bureaucratic Structure and Bureaucratic Performance in Less Developed Countries." Journal of Public Economics 75.1 (2000): 49-71.
[2] Mauro, Paolo. "Corruption and Growth." The Quarterly Journal of Economics 110.3 (1995): 681-712.
[3] Fukuyama, Francis. "The Origins of Political Order: From Prehuman Times to the French Revolution." Farrar, Straus and Giroux, 2011.
[4] Ostrom, Elinor. "Governing the Commons: The Evolution of Institutions for Collective Action." Cambridge University Press, 1990.
[5] Sen, Amartya. "Development as Freedom." Anchor Books, 1999.
[6] Prahalad, C. K. "The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits." Wharton School Publishing, 2004.
[7] The "Base of the Pyramid" (BoP) refers to the largest but poorest socio-economic group, typically comprising individuals who live on less than $2.50 a day. C.K. Prahalad introduced this concept in his book "The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits."
[1] Several scholars situate Nigeria’s current political economy on its colonial past. For instance, Walter Rodney in "How Europe Underdeveloped Africa", argues that colonialism distorted Nigeria's economic structures, focusing on the extraction and export of raw materials rather than building a self-sustaining economy. Chinweizu, in "The West and the Rest of Us", posits that the colonial administration's policies hindered indigenous economic development and created dependency.
[2] Similarly, several scholars situate Nigeria’s plight on its “Dutch Disease” or the apparent causal relationship between the presence of natural resources and the decline in economic activities in a country. For instance, in "The Bottom Billion," Paul Collier discusses the "resource curse" where resource-rich countries, like Nigeria with its oil wealth, often experience less economic growth and worse development outcomes due to mismanagement, corruption, and rent-seeking behaviours. Terry Lynn Karl, in "The Paradox of Plenty," examines how oil wealth in Nigeria has led to economic instability, corruption, and poor governance. In “Economic Diversification in Nigeria: The Politics of Building a Post-Oil Economy,” Zainab Usman emphatically argues that the resource curse argument results from faulty reasoning. Ngozi Okonjo-Iweala, in "Reforming the Unreformable," highlights how poor economic policies and lack of implementation have hindered growth.
[3] Peter Lewis argues in "Growing Apart: Oil, Politics, and Economic Change in Indonesia and Nigeria" that corruption and patronage politics are central to Nigeria's governance issues, leading to inefficient allocation of resources and stunted development. Furthermore, Richard Joseph's "Democracy and Prebendal Politics in Nigeria" investigates how Prebendalism, the utilization of state office for personal gain, has eroded democratic institutions and economic development.
[4] Several social factors may impact Nigeria’s socioeconomic development. Several scholars situate their causal link with social factors such as education, health, demography, and urbanisation. In "The Time-Travelling Economist," Charlie Robertson argues that three key factors –education, electricity, and fertility rates– explain why Nigeria cannot move beyond poverty. In “The End of Poverty", Jeffrey Sachs argues that inadequate health and education investment has hampered Nigeria’s human capital development, limiting economic opportunities and productivity. In "Urbanization in Africa," Deb discusses how rapid urbanisation without corresponding economic development and infrastructure has led to the proliferation of urban poverty in Nigerian cities.
[5] In "Boko Haram: Islamism, Politics, Security and the State in Nigeria," Marc-Antoine Pérouse de Montclos discusses how the terrorism in northeastern Nigeria has exacerbated poverty by disrupting economic activities, and displacing populations.
[6] In "World-Systems Theory," Immanuel Wallerstein argues that Nigeria’s peripheral position in the global economic order has limited its ability to develop economically, as it is largely dependent on exporting raw materials and importing finished goods.
[1] The World Bank projects that by the end of 2024, two out of five Nigerians (40.7 per cent) will live below the international poverty line. Until recently, Nigeria had the unfortunate moniker “Poverty Capital of the World.” Nigeria’s 2022 Multidimensional Poverty Index states that 63 per cent of the population (or 133 million people) are multidimensionally poor.
[2] With a Human Development Index (HDI) value of 0.548, Nigeria is a low human development category, positioning it at 161 out of 193 countries and territories.
[3] Nigeria is ranked 15th out of 179 states in the Fund for Peace Fragile States Index, 2024.
[4] At 5.14 births per woman, Nigeria has the 8th highest fertility rate in the world. It is higher than the average for Sub-Saharan Africa (4.53 births per woman) and the Least Developed Countries per United Nations classification (3.9 births per woman).
[5] This point deserves some elucidation. Granted, Nigeria is one of the top ten countries with proven crude oil reserves, but it is not oil-rich. With about 37.5 billion barrels of proven crude oil reserves, it accounts for 2.4 per cent of the world’s total. It is comparable to the United States of America, which has 47.7 billion barrels of crude oil reserves, accounting for about 3 per cent of the world’s total. Yet, the latter is never referred to as an oil-rich state. On the other hand, Kuwait is oil-rich as it has 101.5 billion barrels of proven crude oil reserves to serve 4.3 million people. Although it ranks sixth on the league table and accounts for only 6.5 per cent of the world’s total, its per capita oil reserve is 23,549 barrels compared to 168 barrels for Nigeria and 140 barrels for the United States of America.
[6] According to the 2022 Multidimensional Poverty Index (pg. 8), Nigeria’s economy declined per capita for seven years.