Households hurt as income contracts for second consecutive year

Average incomes in Nigeria contracted for the first time in 7 years in 2015, and may have stretched to negative 3 percent this year, pushing more households deeper into a poverty hole.

GDP per-capita income, which measures the average income earned per a person in a given area,  fell 17.57 percent to $2,640 per annum in 2015, from $3,203 in 2014, according to the World Bank, as a slump in economic output albeit steady population growth rate saw per-capita income slump into negative territory.

Factoring Nigeria’s economic contraction in the first three quarters of 2016, divided by a population growing at an average of 3 percent (185 million, according to World Bank), per-capita income dropped 3 percent to $2,599 in 2016 from $2,640 in 2015, in line with a survey assumption of a 3 percent decline this year.

The average forecast of 20 economists polled in a BusinessDay survey, was for a contraction in average income by 3 percent in 2016, as Nigeria heads for its first full year contraction in 25 years.

Average incomes in Africa’s largest economy compares poorly with the second and third largest, South-Africa and Egypt’s at $5,691 and $3,614 respectively.

To ease the pressure of negative per-capita income on households in the interim, Muda Yusuf, the director-general of the Lagos Chamber of Commerce and Industry (LCCI) suggests government could exempt certain consumer goods from taxes.

“Government can target those goods which households consume the most and reduce the tax levied on them so that the goods become cheaper,” Yusuf said by phone. “By doing this, the real income of households would rise, consumption would increase and their standard of living can also improve.”

Yusuf also observed that improving the lot of Nigerians would also mean building a system that allows for equal distribution of wealth.

Economic growth has been slowing since oil prices fell by more than 50 percent between 2014 and 2015, while militant attacks on oil pipelines in 2016 have driven oil production to less than 1.7 million barrels per day from a high of 2.2 mbpd, putting a strain on government finances.

The International Monetary Fund sees growth contracting by 1.7 percent, while Standard Chartered Bank forecasts a 2 percent contraction.

Asides Nigeria’s oil troubles, the naira devaluation, which led to higher production costs in the import-dependent country, also contributed to the fall in per-capital income, according to Ayo Teriba, an economist and CEO of Economic Associates.

Teriba, who has often been linked with an economic recovery plan through which the Nigerian government intends to stimulate growth and pull per-capita income from negative territory, said “the plan is still been fashioned out and any short term response would only be palliatives and are not sustainable,” Teriba said by phone.

The naira has shed over a third of its value since the big devaluation in June, and it traded at N315/$ as at 2pm in Lagos, on Friday, according to Bloomberg data. The weak naira has translated to higher input costs for the manufacturing sector which hitherto relied on imports for 80 percent of production inputs.

Unemployment and a cost-push inflation have also combined to hurt households this year.

Unemployment was at a five-year high of 13.3 percent in the second quarter of 2016, while inflation accelerated to an 11-year high of 18.3 percent in October, according to the NBS, driven by higher food and energy costs as well as imported inflation.

Nigeria is one of the poorest and unequal nations in the world, according to the United Nations, with over 80 million of its population living below poverty line, and falling income is adding to the woes of these Nigerians who are already reeling from an economic recession, rising inflation and growing unemployment rate, and the worst is not even here yet.

Nigeria’s economy where growth had averaged 8 percent per annum between 1999 and 2014 saw growth slowing to 2.84 percent year-on-year in the third quarter of 2015; lower than the 6.23 percent achieved in the corresponding period of 2014.

 

LOLADE AKINMURELE