By Emmanuel Olorunfemi
Decomposing sources of inequality in Nigeria
One thing that is common where you have a group of people is their differences, which is often seen by people in the group as unique character of those individuals. In a like manner, inequality is something that different people experience in various dimensions. But still the Law of Nigeria for example, sees every person as equal before the law and economics science tries to see income or any type of inequalities as injustice. In essence, inequality is responsible for a number of segregation in human societies like Nigeria.
Inequality is the reason for some people to travel on air while others travel on road; it is equally the reason why some people have ten cars but others have none. Inequality is also the reason why some parents train their children in foreign advanced universities, like most politicians, while others can’t afford to train their children in public universities, such as peasant farmers.
It is what makes some homes to eat the same meal through the week but other homes not to repeat a meal in a week. Inequality is the same reason why more men own more property than their women counterparts in an economy, just because of entitlement status of men in many cases.
There are countless examples that illustrate inequality in Nigeria and these dimensions are fundamentally responsible for much of the development issues we are facing.
NBS Inequality Report
On this backdrop, on 10th of this month, the National Bureau of Statistics (NBS) published a report titled “Inequality snapshot 2003, 2004, 2016” Though the report shows progress in the country’s path to an egalitarian society; NBS needs to do more by decomposing sources of inequality so policymakers can design appropriate policy to reduce poverty and inequality in Nigeria.
As reported, there is improvement in Nigeria towards equal society in term of income distribution or consumption share. For our simple understanding, an increase in Gini or Theil index indicates worsen inequality while a reduction in either of the index signifies improved inequality. Thus, Nigerian inequality gap widens (increases) between 2004 and 2013 but closes (reduces) between 2013 and 2016.
First, comparing 2004 and 2013 income distribution favour the rich in the society; conversely in 2016 there was little improvement for middle class against other two classes as shown in the table below. Therefore, Nigeria inequality index worsen between 2004 and 2013 but it improved between 2013 and 2016. However, the improvement is not to the lower class that needs it most but to the middle class who are only facing relative poverty. In essence, exclusion continues to get worse in Nigeria.
Second, the amount of goods and services consume by Nigerian households and individuals also show the level of inequality. Though the year on year shows improvement between 2013 and 2016, the share of consumption shows a worsen inequality for the lower classes; their consumption drop by 0.08 per cent within the same period.
Third, using the 2016 nominal gross domestic product (GDP) for Nigeria, which stood at ₦101.59 trillion, the tenth richest Nigerians consume ₦31.6 trillion while the tenth poorest Nigerians consume ₦2.71 trillion. Meanwhile, we all know according to United Nations figure that the number of people below poverty line in Nigeria is 62.6 per cent; that is about 105 million Nigerians who consume just 8.6 per cent of what tenth (probably less than two thousand Nigerians) richest Nigerians consume.
Decomposing sources of inequality
It is obvious from the above that Nigeria remains one of the most unequal countries in the world. As staggering as this difference between the super-rich and the poor of the poors might seem, if analyses are done further to decompose the population by poverty line, for instance, more evidence of inequality will surface.
In order to understand dynamics of overall inequality, there is greater need to decompose sources of inequality in Nigeria. Decomposing sources of inequality indexes by income, rural-urban factors, population cohorts, among other sources; means exploring the structure of inequality, which helps in disaggregation of overall inequality in relevant factors.
Therefore, the 2016 inequality indexes of 0.391 (Gini) and 0.310 (Theil) do not tell the whole story of inequality. Because, they do not state the sources of income that earn most and income that earn least to determine causes of inequality. Sources of income do contribute to inequality in different measures. Just a casual observation of Nigerian income distribution suggests earned income in oil, communication, public and banking sectors cause the majority of inequality. However, agricultural income and women earned income cause less inequality in Nigeria.
Another way to decompose overall inequality is by population cohorts. We know in this country that the women and youth bear the brunt of economic hardship most. It will be good to know Nigerian demographic inequality so that the group with most need can be identified and prioritized.
In the same vein, gender inequality does not only exist in Nigeria but also the income inequality of Nigerian woman is disturbing. Most women with equal qualification and skill with their men counterparts are paid below what men earn. Decomposing the overall inequality in Nigeria with respect to gender equality will provide interest group with fact and figure to establish solution to the wide gender gap.
In addition, education is another factor for decomposition. Public and private universities for example, could be compared to bring to bear the differences in their graduates gaining employment, which will in turn show where the burden of inequality lies among the graduate. In real sense, knowing the overall inequality in Nigeria has little relevance in analysing the problem of inequality, it will be better if the NBS disaggregate the overall inequality data for improve policy analysis.
Decomposing enhance policy making process
In consonance with decomposition of overall inequality indexes in Nigeria by identifying the sources of inequality. This will enhance chances of policy making success, which is a necessary step for NBS to take. No policymaker can proffer a relevant solution to a problem that the cause is not well diagnosed. Likewise, private businesses need decomposition of sources of inequality for them to meet their clients’ or customers’ needs accurately and efficiently.
One of the area a decomposed inequality index can enhance policy formation is in rural population. Though there is a projection by United Nations (2014) that up to 67 per cent of Nigerians will be living in cities by 2050; however, majority of Nigeria population still live in rural areas. Instead of waiting until these rural-urban migrants become victims of urban slum and urban poverty. Programs that focus on rural farmers with little means of production could be accurately designed to lift them out of poverty and increase their disposable incomes. This can be achieved by disaggregation of rural population by their occupation and their income classes.
Additionally, issue with gender inequality in Nigeria is a disturbing one and it is evident that both government agencies and civil society organisations are not given it the needed attention. And for people who want to get involve in gender equality advocacy often lack adequate data to prove their agitations for better treatment of women. Decomposing sources of inequality through gender factors will enhance the advocacy and policy that bring about closing the gender gap in Nigeria. For instance, if the inequality index tells us about plight of women farmers who made up almost 50 per cent of Nigeria agricultural workforce; development practitioners will be in position to direct their efforts in this sector more accurately.
Furthermore, there are studies in some parts of the world that have linked unemployment of university graduates to where they earned their degrees. In Nigeria, we need to know the ratio of employability of graduates who study abroad to graduates who study at home. In the same manner, we need to know the ratio of employability among graduates from federal, state and private universities; these ratios will enable us to know if degree awarding institutions are contributing to unemployment and inequality. Hence, response to correct any gap in our education sector are administered.
All of these indexes expand our understanding of sources of inequality, which make tackling issue of poverty and inequality possible by all partners in development process.
Inequality indexes as published by NBS is a necessary tool for development analyst but overall inequality index is too limited to make any significant diagnosis of development issues and to proffer good solutions to factors that constraint development in Nigeria. Though it seems there is improvement in inequality index between 2013 and 2016; however, when decomposed, it will be obvious to us if indeed there is improvement or no improvement. There will only be improvement if it is inclusive, that is if the fabric of the society that is worse-off gains the most not the middle class as shown in the above table. Therefore, NBS needs to expand its scope on inequality index so it will help in designing remotely programs to tackle challenges to our sustainable development.