As Nigeria continues to strive to enhance its key economic indicators, a report has pointed out that economic growth alone will be insufficient in tackling absolute poverty in the country.
In fact, the report noted poverty eradication requires more fundamental issues being addressed, even as it cited access to cheap credit by the rural poor as a major factor.
The Financial Derivatives Company Limited stated this in its latest monthly economic report dated December 10, 2013.
It stressed that formal sector banking, informal lending, government intervention through micro-credit, or cooperative societies have all had little success in the country.
The financial advisory firm argued that Nigeria was in dire need of rural credit reforms, adding that in such a reform process, the microfinance sub-sector would be required to play an integral role.
In addition, it stated the role of the government in the formulation and implementation process was pertinent for success.
“An economic growth strategy that adopts a microfinance model similar to that of the SHGs Bank Linkage Programme of rural India should be designed and adapted to suit the rural credit needs of Nigeria. This combines the best qualities of both formal and informal forms of credit to overcome the challenges of the rural micro-credit landscape.
“Such a strategy has the propensity to significantly improve the rural poor‘s access to formal financial services, increase their borrowing options and alleviate poverty. This would achieve some measure of financial inclusion as well as open doors to the untapped growth potential of the rural areas.
“When Nigeria‘s growth is broad-based, equitable, and allows the poor to actively participate and benefit from the growth process, only then can it be said to be pro-poor,” it maintained.
However, commenting on the plan to rebase the country’s Gross Domestic Product (GDP), the report stated that the exercise would take the country closer to its Vision 20:2020 goal.
The GDP rebasing will change the country’s mode of calculating growth in output and using a more recent base year of 2010 from 1990 prices. This is meant to portray a better picture of the size and composition of the economy, by taking into account new sectors such as telecoms and the movie industry that have emerged over the years. A feat done by several countries (e.g. Ghana, South Africa and Malaysia), GDP rebasing has significant implications on the structure of an economy.
With a five-year average annual growth rate of seven per cent, the federal government has been using a 1990 base year to calculate the growth of its real GDP.
In nominal terms, this is estimated to be $283 billion in 2013, according to the Economist Intelligence Unit (EIU). Nigeria has a young and growing populace, estimated at 170 million, who have a per capita annual income of $1,624. Based on the above, Nigeria can be classified as a low-income economy that is heavily dependent on oil.
“Just like a child attempts to wear high heels to appear taller, the same way Nigeria will appear larger with a rebased GDP. According to some estimates, Nigeria may record an approximate 40 per cent leap in nominal GDP to about $400 billion, putting it ahead of the giant of Africa: South Africa (with a nominal GDP of $384 billion).
“However, the real rate of growth may decline to an average of five per cent from seven per cent. Since GDP is the most frequently used index of comparison to other factors, other indicators will appear smaller with a larger nominal GDP.
“The threshold for fiscal deficit as a percentage of GDP is three per cent; with a rebased GDP, the threshold widens, portraying an illusion that Nigeria can increase its borrowing (three per cent of $400 billion is higher than three per cent of $283 billion),” it added.