Engineering a new growth strategy in Nigeria
Amid faltering economic growth across sub-Saharan Africa due to low commodity prices, reduced foreign direct investment and other challenges, the International Monetary Fund (IMF) released its Regional Economic Outlook in May, urging strong macroeconomic policies to unlock the region's growth potential. In the report, titled Restarting the Growth Engine, the IMF said individual country's policies must include measures that support “selfsustaining sources of growth.”
The GDP of Nigeria, the largest economy in the region, contracted by 1.5% in 2016, its worst performance in over two decades. Average GDP growth rate in the preceding five years was 4.7% annually. However, this impressive 'growth episode' was always susceptible to wide swings in oil prices. In its latest report, the IMF advanced several policies to enable countries like Nigeria to engineer new growth strategies for sustained growth. These policies are to be complemented by investment in the development of human capital, increased diversification of exports, greater technology adoption, among other measures.
While there are a number of factors that contribute to economic growth, empirical evidence shows direct contribution of human capital accumulation to long-term output growth. There is a positive correlation between the development of human capital, measured by increase in educational attainment and skills, and technological adoption and innovation. According to the Asian Development Bank, improvements in human capital have played an important role in the structural transformation of the Chinese and Indian economies. Therefore, achieving the economic diversification agenda of the Nigerian government will not be possible without an improvement in the skilled workforce required to move the economy up the value chain.
Human capital is also an integral element of human development, an area where Nigeria is consistently ranked poorly. The Human Development Index (HDI) of the UNDP measures average achievement in three basic dimensions of human development, namely knowledge, decent standard of living, and long and healthy life. Countries with more inclusive and better human development outcomes have higher literacy rates and longer years of schooling, consistent with higher income per capita and relatively longer life expectancies.
The low level of educational outcome and skills in Nigeria is one of the major constraints to the country's economic development. The government invests more in the exploration and extraction of natural resources than it does in developing skilled human resources. The percentage of government expenditure on education, as a share of GDP, is less than 0.5% in Nigeria. In contrast, government spending on education in the United States and Britain – where a lot of Nigerians with means educate their children – is more than 5% of the countries' GDP. The South African and Ghanaian governments invest about 7% and 6% of their respective GDP on education, according to the UNDP 2016 Human Development Report.
An interesting dimension about investment in human capital is stated in a 1990 research by American economists Gary Becker, Kevin Murphy and Robert Tamura. The authors demonstrated that when human capital is abundant, rates of return on human capital investments continue to rise. This high rate of return does not result in a demand for large families. On the contrary, societies with abundant human capital have small families, while concentrating on growing human and physical capital. Perhaps, theoretically, human capital development in Nigeria could provide the unintended positive effect of reducing the high fertility rate of the country.
Of course, sustained economic growth over the long run requires prudent macroeconomic policies, market reforms, improvement in the business environment, cohesive outward-oriented policies, etc. However, the main engine of Nigeria's future economic growth is human capital. A well-educated and trained stock of human capital is needed to facilitate the transition to an industrialised and knowledge economy. A better trained labour force, coupled with increased adaptation of technology, will improve the productive capacity of the economy and put Nigeria on the path to competing with the fast-industrialising Asian economies.
A brief engagement with the Nigerian labour market often reveals the fact that there is a severe shortage of skilled workforce. Although we have an abundance of university and polytechnic graduates, employability of the vast majority is in question. Under these circumstances, local companies are constrained in terms of productivity and innovation, limiting their competitiveness. Indeed, higher-quality technical and vocational education is needed to train and enhance the skills of the horde of virile young people so that they can reach their full potential and be ready for the 21st century job market.
Some of the social welfare intervention programmes of the Muhammadu Buhari administration have been designed to address this challenge. For instance, the government is providing tuition for about 100,000 Science, Technology, Engineering and Maths (STEM) students in tertiary institutions in the country. But it is still unclear how successfully the scheme is being implemented, and the outlook for upscaling it.
The Buhari administration has come forward with the Economic Recovery and Growth Plan (ERGP). The plan broadly aims at economic growth rebound, investing in the Nigerian people, and building a globally competitive economy. These themes are quite general. They can mean all or nothing. Already, doubts about commitment to the implementation of the ERGP are rising. Beyond the exigencies that spun the new plan, Nigeria needs to rethink its economic growth strategy, prioritising human capital development to relaunch sustainable economic and human development.