HUMAN CAPITAL INVESTMENT AND POVERTY REDUCTION NEXUS IN NIGERIA

HUMAN CAPITAL INVESTMENT AND POVERTY REDUCTION NEXUS IN NIGERIA

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CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Ever since the initiation of the United Nation Millennium Project (2005) there has been more emphases on the need for a ‘big push’ strategy in human capital investment to help poor countries break out of their poverty trap and meet the MDG challenge. The report argues that, to enable all countries to achieve the MDGs, there should be identification of priority human capital investments to empower poor people, and these should be built into MDG-based strategies that anchor the scaling-up of human capital investments, capacity-building, resource mobilization, and official development assistance. Seven main investment-and-policy clusters are identified in the areas of rural development; urban development; health systems; education; gender equality; environment; science and technology and innovation. Dramatic increases in external aid flows, to the tune of 0.54% of rich countries’ gross domestic product (GDP) by 2015, are seen as the inevitable source of the necessary finance, given the lack of domestic resources in many countries.

This ‘big push’ strategy is designed to set low-income economies on a growth path that will become self-sustainable, as core investments in infrastructure and human capital will enable poor people to join the global economy and establish the basis for private-sector-led diversified exports and welfare state. However, in Nigeria, the contribution of human capital investment to poverty reduction has not always been as positive or as significant as one might expect. Nigeria is a country with a population of over 167 million people according to the latest NBS report, where over 60% of Nigerians living in rural areas are poor. This is because in rural areas, social services and infrastructure are limited or nonexistent. Nigeria is the most populous black African country where about 70% of the population live under two dollar per day and as a result, has been classified as a poor nation. (NISER:2003)

In Nigeria, majority of those living in rural areas are poor and depend on agriculture for food and income. Small scale farmers who cultivate tiny plots of land and depend on rainfall rather than irrigation system produce about 90% of the country's food. Women play a major role in the production, processing and marketing of food crops. The poorest group go on subsistence living but are often short of food, particularly during the pre-harvest period. Many poor Nigerians suffer from malnutrition and other diseases related to poor nutrition such as acute

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necrotizing, ulcerative, gingivitis. The HIV/AIDS pandemic has also taken a heavy toll on the rural population and could be considered an emerging public health problem.

Despite the massive campaign for human capital investment, extreme poverty in Nigeria is still very outrageous. The outrage is not just avoidable deprivation, or suffering and death are intolerable; it is also that these situations coexist with affluence. Corruption is endemic in Nigeria and this has impoverished the nation. Intergenerational poverty exists in the country. Fight against poverty is necessary to reduce intergenerational transfer of poverty in Nigeria because most Nigerian children are born into poverty. With this outrageous poverty rate in Nigeria with the means of massive human capital investment such as education, health care; fight against inequality etc., one may whether what actually is the nexus between human capital investment and poverty.

The role of human capital investment in poverty reduction of an economy has been underscored in many studies. Education and viable health care, as key components of human capital investment are recognized as being vital in increasing the productive capacity of people. Education in particular, especially at the higher level, contributes directly to poverty reduction and economic growth by making individual workers more productive and indirectly by leading to the creation of knowledge, ideas, and technological innovation (Larocque, 2008). An investment in human capital is very beneficial in the society poverty problems, both at the micro level as well as macro level and it affects the system both directly and indirectly. Increase in individual’s wage is a direct effect while the increasing externalities associated to education are an indirect effect (Dahlin 2005, Klenow 2001 and Michaelowa, 2000). Education is basic to development, and also regarded as the only instrument through which the society can be transformed from poor to rich. As a salient factor in transition program, education equips human resources with the needed knowledge, skills and competencies, which would make them functional, and contribute to the all-round development of the nation. It does not only help to supply the essential human capital which is a necessary condition for poverty reduction but also for a sustained economic growth but it is a key to poverty reduction and vehicle for promoting equity, fairness and social justice(Okojie, 1995; Yesufu, 2000; Todaro, 2007).

The growing evidence on the nexus of human capital investment and poverty reduction and the importance of human capital investment, especially education investment in the

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development process has made social sector investment an important component of national strategies for poverty reduction strategies and sustained growth and development. In Nigeria, in terms of budget estimates, the ratio of public expenditure on social and community services to total public expenditure averaged 2.2 percent between 1977 and 2007. Out of this amount, about 6.5 percent has been directed to education during the same period. Nevertheless, a major trend in education in Nigeria is that investment on the sector has not been encouraging. Public expenditure on education as a percentage of the gross national product was 1.5percent (1960); 1.7percent (1985-87) and 0.7percent (1995). This compares very unfavorably with other developing countries such as Jamaica 4.9percent (1985-87),

7.5percent (1995-97) and Malawi 3.5percent (1985-87), 5.4percent (1995-97). (UNDP, 2003: 313). In recent times, the percentage of the annual federal government budget to education in Nigeria for the periods 2005-2007 was 6.3%, 7.8%, 8.7% in 2005, 2006, and 2007 respectively instead of 26.0 percent as recommended by the United Nations Educational Scientific and Cultural Organization (UNESCO). Evidently, there is still a significant shortfall in educational investment necessary for the realization of poverty reduction and sustainable growth and development in the country.

The future direction of the macroeconomic policy of investing in human capital in Nigeria is uncertain. This uncertainty may be attributed to the existence of macroeconomic disequilibrium in financial allocation and unsatisfactory performance of the country’s economy in recent times. A review of Nigeria’s economic development between 2000 to date revealed that overall macroeconomic policies and development strategies have failed to provide an enabling environment that could alter the structure of production and consumption activities in order to diversify the economic base that would improve the welfare state of the citizenry. The country has continued to be a mono-cultural economy, depending on oil, indicating that the export base is yet to be diversified. Widening saving investment gap, high rates of inflation, chronic balance of payment problems and underutilization of resources have continued to be the order of the day. Poverty and inequality is wide spread with about 71 million Nigerians living below $1 a day and the gini coefficient of 0.49. Socio statistics such as infant mortality under 5years, and maternal mortality rate as well as unemployment rate are higher than the averages for developing countries (Fakiyesi and Ajakaiye, 2009).

In the light of Nigeria’s current economic problems, and particularly its poverty situation and the rate of human capital investment and unimpressive rates of economic growth, this study

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takes the position of ascertaining the nexus between human capital investment and poverty reduction in Nigeria. Since a healthy and well-educated people make an economy more productive, it is apparent that capacity building through investment in human capital will enhance welfare by alleviating poverty and protect the Nigerian economy from further distortions. Accordingly, there is however, a need to critically examine the relationship between investment in human capital and poverty reduction in Nigeria, with a view to deriving implications for policy direction. This indeed constitutes the major focus of this study

1.2 Statement of the Study

Poverty is a multifaceted concept, which manifests itself in different forms depending on the nature and extent of human deprivation. In absolute terms, poverty suggests insufficient or the total lack of basic necessities like food, housing and medical cares. It embraces the inadequacy of education, health care and environmental services, consumer goods, recreational opportunities, neighborhood amenities and transport facilities. In relative terms, people are poverty-stricken when their incomes fall radically below the community average (World Bank 2000). This implies that such people cannot have what the larger society regard as the minimum necessity for a decent living. In precision terms, the poor can be defined as;

(i)   individuals and households lacking access to basic services, political contacts and other forms of support; (ii) households whose nutritional needs are not met adequately; (iii) ethnic minorities who are marginalized, deprived and persecuted economically, socially, morally, and politically; and (iv) individuals and households below the poverty line whose incomes are insufficient to provide for their basic needs (World Bank 2001).

One important consensus in the literature on poverty is that, poverty is a rural phenomenon (World Bank, 1990; Fields, 2000). By this, it is acknowledged that rural communities are the worst hit by poverty. Unfortunately, the importance of the rural poor is not always understood, partly because the urban poor are more visible and more vocal than their rural counterparts. Incidentally, the rural sector is the predominant sector in the Nigerian economy. It plays some fundamental roles, which include job creation at relatively low unit costs, and thus remains the most important growth priority of the country. This specifically makes it necessary to investigate human capital investment and poverty further.

The quantitative as well as qualitative welfare measurements in Nigeria attest to the growing incidence and depth of poverty in the country. This situation however, presents a paradox

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considering the vast human and physical resources that the country is endowed with. It is even more disturbing that despite the huge human and material resources that have been devoted to poverty reduction by successive governments in Nigeria, no noticeable success has been achieved in this direction. The Human Development Report (UNDP, 1996) reveals that Nigeria is one of the poorest among the poor countries of the world. Nigeria ranks 54th with respect to the human poverty index (HPI) - making it the 20th poorest country in the world. It is also ranked 30th in gender related development index (GDI) while occupying 40th position from below in its human development index (HD1).

This evidence was collaborated in (Okonjo Iweala, Soludo and Muhtar, 2003; and the Punch Newspaper, 2009:14) which unanimously reported that poverty is deep and pervasive in Nigeria, with about 70 percent of the population living in absolute poverty. According to these reports, the ballooning poverty situation notwithstanding, Nigeria is blessed with abundant resources, both natural and human resources (Chukwuemeka; 2009:405), but in the first four decades of its independence, the potentials remained largely untapped and even mismanaged (see also Omotola, 2008:497). Putting the problem in proper perspective, (Nwaobi; 2003:5) asserts that Nigeria presents a paradox. The country is rich but the people are poor.

This lack of capabilities to human capital services such as education, health and nutrition has threatens to make poverty dynastic, with descendants also becoming poor (World Bank, 2000). Statistics has revealed that poverty level increased from 42.3% in 1985 to 46.7% in 1992. It rose sharply to 65.8% of the population in 1996 (FOS, 1998). However, in absolute terms the population of the poor Nigerians increased four-fold between 1980 and 2007. The moderate poor rose from 28.9%, in 1992 to 36.3% in 1996, while the percentage of the core poor more than doubled from 13.9% in 1992 to 29.3% in 1996. Nigerians in terms of physical quality of life index (PPLI) scored 38% in 1991. The Human Development Index (HDI) was 0.391 in 1998 ranking the country as 142 out of the 174 countries surveyed. In the year 2000, the HDI score for Nigeria was 0.439 which ranked Nigeria in the 151st position among 174 countries surveyed (UNDP; 2000). In 2002, the HDI score was 0.466 which categorized Nigeria in the low human capital development countries in the 151st ranking among 177 countries (UNDP; 2004).

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Therefore, since educational and health status affects the individual participation in economic activities and consequen


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