Re: President Buhari’s N5,000 Social Welfare promise

By Dr. Ahmed Adamu

Dr. Ahmed Adamu

During the 2015 elections campaign, President Buhari and his party APC clearly promised to pay N5,000 stipend to 25 million unemployed and vulnerable citizens monthly, and this was highlighted during the last Presidential media chat. Considering the enormity of this undertaking, in November 2015, the wife of the President, Hajiya Aisha Buhari appealed to her husband to keep to this promise in her response to the prompt withdrawal of a startling motion proposing the payment of monthly N5000 to unemployed youth by the opposition party in the National Assembly, who have no obligation to such responsibility. Surprisingly, the APC Senators, whose party made the pledge rejected the proposal. Recently, while in Saudi Arabia, President Buhari himself declared his resolve to not implement this campaign promise.  No doubt, many young people were tempted by the N5,000 promise and will definitely be disappointed by Mr President’s recent proclamation. As such I decided to write this little piece to convince the disappointed young people on why Mr President is right on his position.

First, I would like to remind us that we are only human, and we can never be perfect. There is difference between expectation and reality, and experience make one adjust and do things better.  There is a popular saying that, it is better to teach people how to catch fish than to give them fish. Similarly, Sociologists argued that welfare programmes are responsible for encouraging and supporting claimants into welfare dependency, and I believe that systems that disburse money in ways that are not compatible with producing social utility can create pathological cultures of dependency. Welfare programmes lead to negative incentive to not work and thus sustains poverty.

All welfare programmes are meant to address poverty, but the question is how many people will really get out poverty by receiving N5,000 a month? Relying on the N5,000 a month will mean N166 expenditure a day, which still won’t take the beneficiary out of poverty, and the cost on the government will still be huge. And if 25 million beneficiaries are to be selected, the government will be spending N125 Billion every single month trying to fight poverty, but instead, it will be encouraging or sustaining the poverty.  In addition, how many months would a person needs to benefit from this package to get out of poverty? It is not likely for any individual to get out of poverty by collecting N5,000 a month in the wake of 8% inflation rate. Even government workers that receive N45, 000 remain poor. Without access to free or affordable housing scheme, and without access to education, healthcare, energy, transport systems, one has to provide for himself all these and yet feed himself and his family. Then, how will N5,000 make a difference?

If at all social welfare system is to be considered in this country (sooner or later), I will recommend to go for quality not quantity, instead of investing the N125 billion a month on 25 million people, it is better to spend the money on only 12,500 people, so that each individual will receive N10 million once and for all, and in one year, you will have around 150,000 people receiving N10 million each. This is the sure way of getting people out of poverty if at all social welfare programme is to be implemented in the country.

So, it is clear that N5,000 cannot improve the standard of living of the poor, and if the beneficiary will risk migrating artificially to a higher social class for collecting this package, then he/she risks poverty traps. It was observed that, especially young people engage in extra spending upon receipt of social welfare or poverty interventions funds, and thereby making them enlarge their expenditure basket, and once they stop receiving such intervention, they will go back to being poor. They can even engage in crime to enable them get the free money that they have been used to, in order to sustain their upgraded social classes. Another inadequacy of the social welfare is that many people who may not necessarily need it, will pretend to be poor so as to benefit from the programme and thereby denying others a chance.

Therefore, it is not about giving the money, but how do they use the money. Some scholars believe that, some poor people are poor in managing resources, and if you give them money they will mismanage it. So, investment shall be channeled toward educating people to be good managers of resources so that with little resources they can access, they can make it count. Giving out money without corresponding economic value or output is an economic leakage. Even though, it might trigger expenditure, but that is not the optimal option, as the value addition is lost.

Many people would have been rich if basic infrastructures and provisions are provided, but now they are poor, because large proportion of their income is spent on providing such basic requirements, and yet not sufficient. So, it is a clever move to channel resources toward improving infrastructures and provisions in the real sectors of the economy, so that with little earnings, people can attain the required standard of living. This will also facilitate other economic activity, and any serious individual will take the advantage of this and become productive. If any money is intended to be spent for this purpose, it should then be channeled toward subsidizing education and health, being the basic requirements to prepare the labour force of the country. Therefore, Mr President is right to redirect resources toward providing an enabling environment and provisions for the productive sectors, so that people can catch their own fish.

Ahmed Adamu, PhD, is a Petroleum Economist, Development Expert and Pioneer Global Chairperson of the Commonwealth Youth Council. He is a lecturer with Department of Economics, Umaru Musa Yar'adua University. 

Why Poverty traps in Nigeria?

Dr. Ahmed Adamu during the paper presentation on poverty
traps in Nigeria, University of Abuja. More photos below.

Today(26/2/2016), I presented a paper on why poverty traps in Nigeria at a research conference organised by International institute for Policy Review and Development Strategy, which took place in University of  Abuja, Gwagwalada, Nigeria. This is one of many other papers we compiled with my co-authors. I am inspired by this paper to write the following piece. 

There were many poverty alleviation programmes initiated in Nigeria since 1960, and as a result, trillions of Naira were spent, yet close to 80% of Nigerians live below $1.90 a day without adequate access to other basic infrastructures and amenities required for a standard of living, making many trapped in poverty. The world have been pretending to fight poverty, yet 50% of the world wealth is possessed by only 1% of the world population. The rich class has wealth growth rate higher than the middle class by 10 or more times. In four years, there were $600 billion increase of wealth for the wealthiest (Oxfam 2015).

In Nigeria, the story is not different, and you could even have more share of the wealth possessed by the 1%. If you are to share the combined wealth of all the people in Nigeria among the country's population, every Nigerian is likely to get N7 million. This figure include children and old people, and if you are to share it among only the working adult population, you will have not less than N13 million per head, and if this happens, many will not be poor, may be never again. So, some sociologist hold that greediness of the wealthiest caused poverty, but the question you ask is how do the rich become rich? why were they not prevented by the then wealthiest?.

Some also believe that income is the only indicator to poverty, but it is not, other factors are in play. Some think that poverty propensity is more attached to certain tribes or cultures, which is not, as no civilization started rich, they all started poor. There are also people who are hardworking, energetic, skillful and educated, but yet poor. It is necessary to first comprehend what causes poverty and what does not causes poverty, and how these factors correlates. This is the first prerequisite for any effective poverty alleviation programme, which many of the poverty alleviation programmes failed to identify.

Many literature and indices have proved the ineffectiveness of the poverty alleviation programmes in the country. From our experiences, we identified that many young people that benefited from the poverty programmes eventually returns to poverty, and we are keen to develop new theory that explains what have been missing in the fight against poverty and how it can be effective.

Our experiences have shown that psychology, perception and action of the beneficiaries in response to any intervention against poverty play significant role in determining the success of the poverty programmes. Some of the poverty programmes capitalized on provision of only money. For example, YouWin programme, even though proposals were requested but, young people were motivated to get the money and they can temporary develop business idea and get a proposal and pass the exams, but they might lack the interest in the business (may be the business of their interest cannot be eligible for the programme), so the aim was to acquire the money by enduring the enforced business type criteria. After acquiring the money, many of the beneficiaries of these prorgammes might want to immediately upgrade their standard of living and engage in extra spending that were not possible before, and sometimes engage in liability expenditure to maintain the new social class they claimed for themselves. All these couple with inadequate access to facilities and infrastructures, will make the agent stretch his savings to maintain social status, and eventually return to poverty, and making him poverty trapped. This could be repeated in the same pattern over time.

There are external and internal factors responsible for poverty traps: the societal unnecessary celebration and recognition of wealth motivate ostentation to acquire social recognition. Inadequate access to basic infrastructures and provisions make individuals to spend higher to sustain a higher social class, making it easy to exhaust one's additional income. Wealth and status competition in society propel unnecessary extra and unproductive expenditures. The internal factors include the tendency of one thinking and believing he is poor and he can never be rich, and this is possible by believing in some of he mentioned myth about poverty. The dependency culture is common among young people, that is why we believe continuous social welfare might make some lazy. The quest for getting rich quick and thinking of only now are also responsible for poverty traps. Blaming government for poverty will always make one wait for the government to make it up for them, and not willing to act by themselves.  Therefore, training and knowledge development programmes should be designed to address some of the external and largely internal mechanisms that  trapped people in poverty.

Another recommendation is to avoid enforcing the choice of areas of productivity or investment for the beneficiaries, first, all poverty programmes should be able to identify individuals personal interest, and then develop such interest productively to provide economic benefit and then link the benefits to the immediate society and beyond. There are also choice and leverage points, where people trapped in poverty can be made to separate between the external factors and internal factors, and then strategic training and guidance provided to them to surmount the internal factors. People trapped in poverty might have idols whom they listen and respect highly either politically, socially or economically, and such goodwill shall be leveraged in promoting positive perception and attitudes toward exiting poverty traps. This will not require direct monetary involvement, but will help fight at least the internal factors. For example, President Buhari, can use his popularity and command of followerships to engage in repeated advocacy for self determinations and best practices toward exiting poverty traps. This will help reform individual psychology and perceptions, and enhance their productivity more than what the proposed N5000 social welfare package could produce.

This could be through repeated advocacy to suppress unnecessary quest for social class and importance, and promotion of productive investment rather than immediate asset possessions. People can only get out of poverty alone only if they think they can. Many individuals became rich without participating in poverty programmes, yet many remain poor after benefiting from these programmes. It is also recommended that, the targets of these prorgammes should not be the number of beneficiaries, but the number of people that the programme can actually take out of poverty traps forever. And this has to be inclusive and responsive to the beneficiaries' already developed interest. Poverty prorgammes should not be decentralized,  it should be local, it will then be easier to track and more accessible. People trapped in poverty are encouraged to reinvest every extra income in productive venture, and do not artificially migrate to a higher social status.

This is an ongoing research and the contributions from the participants at the conference were highly appreciated.

Dr. Ahmed Adamu

More Photos from the event

Should Northern Nigeria Explore Oil and Gas?

By Dr. Ahmed Adamu

Dr. Ahmed Adamu

The Nigerian government plans to spend N39.4 Billion to undertake geological and geophysical surveys in an effort to explore the prospect of oil and gas deposits in the Inland-Basin of Lake Chad and upper Benue Trough. This is provided in the proposed 2016 budget, presently awaiting National Assembly’s approval, and have so far provoked political reactions from some politicians. However, none have professionally react to it.

This is a ticklish issue as it involves investing huge amount of scarce resource on uncertain venture, and at a time when the oil and gas prices are below economic benchmarks. It will cost up to $15 million to drill a single exploration well, and you will need a number of them depending on the reserve spread. This investment will have to be recouped after development and production. What determines when to explore and recovery of investment cost is largely the oil price. Recently, Genel Energy PLC requested for extension of its exploration licence in Ethiopia, so as to put off the exploration drilling and save some cash due to the dwindling oil and gas prices, which makes the exploration unviable at the prevailing oil price.

This tells us that, it is not the right time to start new exploration, and Nigeria being heavily reliant on oil revenue would of course want to reduce the supply to help push the oil price up. Similarly, with the growing poverty and scarcity within the economy, the Nigerian government does not need to spend a single dollar to explore new reserves. The oil companies shall be able to cover the prospect risk and pay for the exploration costs. This is practiced in many countries, where oil companies fund the exploration cost as part of the joint venture agreement. So, in the joint venture or service agreements, if no commercial oil is found, the loss falls entirely on the oil company, and the government does not lose anything.

 Similarly, the global energy investments are projected and recommended to be channelled toward efficient energy resources to achieve the ambitious goal of keeping global warming below 2 degree Celsius and zero anthropogenic green gas emissions. This will mean that Nigeria will have to diversify energy investment toward renewable energies. With abundance of solar and wind energy, Nigeria would have radically invest and subsidise the use of these renewable energies especially in residential, transport and commercial sectors of the economy. It will help create jobs and reduce cost of production in the real sector of the economy. So the opportunity cost is the 156 MW capacity wind farm that can be installed using the same amount.

 Even though, there is still a promising future for the fossil fuels across the world, and in countries like Nigeria, it will continue to dominate the energy mix up to 50 years to come. Therefore, careful decision has to be made on what, where, how and for whom to produce the oil and gas resources. The oil dependence made Nigeria to currently suffer from Dutch disease, and investment has to be redirected toward the manufacturing, industrial, agricultural and technological sectors to offset the demand gap in the currency market and boost productivity and investment. 

It is not the right time to spend on uncertain explorations especially of a volatile resources, and the fact that oil exploration wells may not clearly provide exact estimate of commercial quantity of the deposits, which questions the oil investment viability. The market conditions may not be as expected, because oil prices are known to be extremely volatile, and new discoveries from the shale reserves have already saturated the market. Any further discovery will push the supply curve outward, which may not be good for the poor oil producing countries. Similarly, due to the long lead time in petroleum exploration and development, when an oil field is brought online for production, the oil price may be lower than expected. On the other hand, the costs could be higher than expected because of inflation in engineering and procurement of raw materials and equipment, which explains the cost run-up in the past several years. So, even if the Nigerian government will have to explore and produce more oil resources, it should not take the prospect and commercial risks absolutely, and should not explore at any oil price below $40 per barrel. The money should be redirected for diversification incentive, infrastructural development, and social welfare for the development of the real sector of the economy.  

Ahmed Adamu, Ph.D., is a Development and Petroleum Economist and the Chairperson of the Commonwealth Youth Council (CYC). 

2016 budget: How not to borrow

By Dr. Ahmed Adamu

Dr. Ahmed Adamu

Nigeria’s 2016 budget christened budget of change is critical to the country’s real economic transition and it is the framework that will define the real change citizens of the country have long clamoured for.

There is no better time to get the economic policies and direction right than now, and that is why the President needs to be well informed.

The Nigerian people have unprecedented hope on President Muhammadu Buhari to steer the country out of the woods. It does appear he is unlucky to come at a time when the price of crude oil-which Nigeria’s economy is hugely dependent- has crashed to lowest level in a decade.

The crude oil prices (hovering around $30 per barrel early this year) is still lower than the budget benchmark price of $38 per barrel, which means at this level, there is going to be around 22% reduction in the expected oil revenue.

Despite this apparent shortfall of expected oil revenue, the 2016 budget which is before the national assembly has a deficit of 36%, meaning that 36% of the money expected to finance the budget will come from borrowing.

The implication is that more than 50% of the revenue expected to fund the 2016 budget are not going to be readily available or obtainable. In other words, only N3 trillion (out of the N6.08 trillion budgeted) is likely to be available to implement the 2016 budget (without borrowing), which will come from non-oil taxes and independent revenue, and partly from the shrinking oil revenue.

Now the question is why should the government be so ambitious just to keep its political promises for now? If you are a worker, would you keep spending more than you earn? Or would you adjust to the level of your income? Sometimes, it might be good to spend more, even if it means to borrow, so as to provide and help the family members, so that they can be productive and earn more. But this has to be strategically thought out and decide when to spend more and when not to, and when to borrow and when not to.

The current Nigerian debt with World Bank’s International Development Association (IDB) stands at $11.8 billion as principal with obligation of around $6 billion (World Bank 2015). This means for this particular loan, the average ratio of the obligation is 0.51, meaning that for every $1 borrowed; $0.51 has to be paid as interest or as debt service cost. This analysis only accounts for the IDB’s credits to Nigeria. It does not account for other international and national lenders to Nigeria, which if put together, the current Nigerian debt stock (including those from states) stand at $64 billion (Debt Management Office 2015). This equals to N13 trillion.

The decision Buhari will have to make is to either reduce the spending and not to borrow, or borrow now and spend more. Each decision will have its economic effects. If he borrows now, it means there will be increase in aggregate demand and development in infrastructure necessary for economic growth. However, this will mean these spending must attract equivalent or even higher return to be able to pay back the total cost of the debt. It will mean there will be less money available for the more efficient private sector, as government has to collect money from the private sector to fund its expenditure, which the government might not be able to efficiently manage compare to the private sector.

It will also mean that the debt stock and cost of debt will increase, which may likely undermine future development, leading to future decline in government services and increased in taxes. It will make the economy fragile and independent due to external obligations.

Now, President Buhari intends to borrow $2.5 billion from World Bank, $1 billion from African Development Bank (ADB) and N984 billion internally. If he collects these debts, it means Nigeria has to fulfil the International Monetary Fund (IMF) conditions, one of which is to further devalue the country’s currency, which the president himself is not ready to do. This will further devastate the economy of course if he does so.

The Western world would at all cost collect back their oil dollars by making the poor oil rich countries devalue their currencies and granting them loans with expensive service costs. Already, Nigerians sensed this when Managing Director of the IMF, Ms Lagarde visited the country early this year.

So, I strongly disagree with respected economist Prof. Pat Utomi for suggesting that the naira should be devalued.

Our economy must pick up by itself, it needs to be strong, and investment promotion and diversification are the key priorities here. Many external spending (both private and public) must be reduced drastically; this may include reduction in unnecessary foreign scholarships and personal spending, so as to shift the currency supply curve inward. So, Mr President is perfectly right on the restrictions of foreign spending. However, we have to suffer for our failure to establish our independent economy, but scarcity brings about innovations and improvements. If the manufacturing sector is viable, cheap foreign investment due to Naira depreciation would have resort the currency market to equilibrium. Unfortunately, the manufacturing and non-oil sector is not viable in the country.

If Buhari chooses not to borrow, he will then have to reduce the spending and will reduce the interest rate, and by extension increasing investment, which will create more jobs and address the issues of unemployment and poverty. This will then create more chances for collecting taxes and independent revenues. He will then have the option of imposing proportionate tax systems, which will increase the government revenue to develop lagging infrastructure. This will not affect the future performance of governance, and will make the economy more independent and resist any external shock. It will enhance resilience, independence and productivity of the economy.

The appropriate balance has to be maintained, optimal government spending or budget deficit increases economic growth, but when it becomes constant or continues, it brings about reduction in economic growth. Nigeria had budget deficit for eight years in the last ten years, and the government was supposed to wait and see the effects and returns of the injections and provisions made so far through the government spending. If the government keep spending, the aggregate demand will continue to increase, thereby causing inflation. It will then reduce the purchasing power of the currency. It will also lead to higher interest rate which reduces investment (deficit hawks).

In my earlier piece, I advised Mr President not to borrow for the next four years at least. The easy way to go about it is to drastically reduce government spending, and reduction in the recurrent expenditures is the starting point. The recurrent expenditure constitutes 70% of the expected government spending in the 2016 budget. The involvement of private sector is critical in building the economy. We have to migrate from a government driven economy to private sector-driven economy.

The government should be responsible for policy and regulations. Most of the capital and recurrent expenditures can efficiently be delivered through private-public partnerships. The government would then concentrate on security, healthcare, and social welfare. I will advise the federal government to privatise primary and secondary schools, and government should use the savings to support parents that cannot afford to pay the regulated school fees. This will relieve the government of huge financial responsibilities and improve quality education (I will do a separate write-up on this). Private investment in non-oil sector has to be prioritised; the government cannot do it all alone. So, this is not the right time to borrow, it is time to control the spending and explore opportunities for generating revenue internally.


Ahmed Adamu, Ph.D., is a Development and Petroleum Economist and the Chairperson of the Commonwealth Youth Council (CYC).

UAE appoints 22-year-old Shamma Al Mazrui as minister

Shamma Al Mazrui, 22-year-old

Doha: Sheikh Mohammed bin Rashid Al Maktoum, Prime Minister and Vice-President of UAE has appointed a youth minister in the new cabinet. He had earlier tweeted that UAE will be appointing someone under 25 in the cabinet and he has picked Shamma Al Mazrui as the Minister of Youth Affairs.

Shamma is 22 years old and hold a Master’s degree from Oxford University and a Bachelor’s degree from New York University. She will also be the President of the Youth Council which will “represent the aspirations and affairs of the youth before the government”, The National newspaper, published from UAE, reported.

Sheikh Mohammed said: “We will give the council prerogatives and we expect true achievements from her and her council.”

In earlier tweets he had said: “Youth represents some half of our Arab societies, so it is only logical to give them a voice and role in governing the nation.”

“Youth have hopes and dreams, issues and challenges; they are the reason why societies prosper or fail. They are our hope for the future. Our young country was built by the hands and achievements of youth. Youth is our strength and speed and is our treasure for the future.”

Culled from The Peninsula