Olajide Olutuyi, Founding Partner, Greentouch Consulting Inc., Canada

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Subjects of Interest

  • Frontier and Emerging Markets
  • Private Sector Development
  • Sustainable Development

Social investment has higher returns than infrastructure 03 Jul 2018

In March 2018, principal founder of Microsoft and co-chair of the Bill and Melinda Gates Foundation, Bill Gates, was in Nigeria. He came into the country quietly but he did not leave without stirring up a hornet's nest. While speaking at the Expanded National Economic Council meeting in Abuja on March 22, Gates had some home truths for the ruling class. Armed with charts – including a modelling of Nigeria's economic growth since 2000, prepared by a research institute at University of Washington – Gates did not mince words in his presentation at the meeting.
    
Gates admonished the council, saying the most important choice the government needed to make now was to maximize Nigeria's greatest resource, which is the people. In his words, “If you invest in their health, education, and opportunities – the “human capital” we are talking about today – then they will lay the foundation for sustained prosperity. If you don't, however, then it is very important to recognize that there will be a sharp limit on how much the country can grow.”

With references to available data, he posited that much of Nigeria still looks like a low-income country. According to him, “In upper middle-income countries, the average life expectancy is 75 years. In lower middle-income countries, it's 68. In low-income countries, it's 62. In Nigeria, it is lower still: just 53 years.”

But the comment that generated so much uproar was the Microsoft billionaire's damning verdict on the administration's Economic Recovery and Growth Plan (ERGP). In his opinion, the economic plan prioritizes investment in physical capital over human capital. Whether the government will heed Gates' advice remains to be seen.

Be that as it may, it should be noted that what Gates said is not news in Nigeria. It is something we are confronted with on a daily basis at different levels. It is a reality that is captured and presented to us in the Human Development Index (HDI) report published yearly by the United Nations Development Programme (UNDP). Inclusive of the two areas Gates hammered on, the HDI measures the average achievement in a country in health, education and income. The index consists of composite statistics used to rank countries by levels of human development.

The search for an alternative to the conventional assessment of development based on metrics such as Gross Domestic Product (GDP) led to the introduction of HDI. It was first published in 1990, under the supervision of Mahbub ul Haq, a former finance Minister of Pakistan, with technical assistance from the Nobel Laureate economist, Amartya Sen.  The HDI has, since inception, been measuring human development under three basic dimensions, namely: a long and healthy life, knowledge, and a decent standard of living.

However, since 2010, the index has been using four components to measure those three dimensions. The HDI components are: life expectancy at birth (used to measure attainment of long and healthy life); mean years of schooling received by people aged 25 and above (measuring ability to acquire knowledge); expected years of schooling for children (measuring ability to acquire knowledge); and Gross National Income (GNI) per capita using purchasing power parity (PPP) (measuring achievements of decent living standards). From the foregoing, one could see that the knowledge dimension has two components while the other dimensions have one each.

Responding to Bill Gates's observations, the Vice President, Professor Yemi Osinbajo, reeled out the government's efforts with regard to investment in the Nigerian people. He mentioned the Social Investment Programme (SIP) launched in 2016. The SIP comprises of a scheme to provide jobs for unemployed graduates; a school feeding programme; a micro-credit scheme for small businesses; and a cash-transfer scheme for our poorest and most vulnerable. The SIP is a key component of the ERGP.

Although there have been criticisms surrounding the school feeding programme, there is evidence that it has achieved some success. Notably, it has reportedly increased primary school enrollment by 30%. It currently caters for about seven million children in 22 states across the country. The jobs scheme has provided 200,000 jobs to previously unemployed graduates. According to the government, about 300,000 will soon be employed under the N-Power programme. Meanwhile, about 300,000 households have been recipients of the conditional cash transfer initiative.

Looking at these numbers, one doesn't need a special analytical skill to conclude that the achievement of the SIP thus far is unremarkable. Approximately 83.5 million Nigerians are living in extreme poverty, as the socio-economic conditions of the country deteriorate. Over 16 million people are unemployed. Moreover, the government's spending does not focus on the actual components of human development.

The 2016 HDI report ranks Nigeria in the 152nd position out of 188 countries. The country, which simply retained its ranking in the 2015 report, was closely followed by Cameroon in the 153rd position and Zimbabwe in the 154th position.

What the Nigerian government is facing is not even a chicken-and-egg problem. The evidence across the development world suggests that investment in human capital and human development must take place before investment in physical capital can boost productivity. But the Nigerian ruling class seems to be unaware of this basic fact as seen in the misallocation of huge proportions of national budgets to infrastructure.

For Nigeria to transit from low human development to medium or high human development, the federal and state governments must begin to increase spending in quality health care, as well as accessible, affordable and quality education. The government must also provide a conducive environment for businesses to thrive and income levels to increase. There must be a credible and strategic development plan geared towards poverty alleviation and improvement in the standard of living of the people.

To improve the country's standing in terms of expected years of schooling, adults who missed the opportunity to have an education while they were young should be encouraged to go to school or participate in a semi-formal education programme that is no less engaging. Average number of years of education in Nigeria – currently six, compared to 13.3 years in Britain –  can be enhanced by making higher education programmes more affordable and accessible. For instance, online learning and after-work education programmes should be promoted.

In a PWC report, titled: “The Future of Nigeria: Three critical levers for improving HDI,” it was argued that the national polices should be guided not just by improvements in GDP but also a broader measure of development such as the HDI. The report lists some areas in which Nigeria must improve to move up on the HDI rankings. These areas include the ease of doing business; labour productivity (from the current $3.61/hour to about $12.05/hour in 2030); and anticorruption.

China is the only country, since 1990, to emerge from being in the low human development segment of the HDI to high human development. It ranked 90 out of 188 countries in the 2016 HDI report, with a GNI per capita of $13,345 and life expectancy of 76 years. Nigeria's GNI per capita is less than half of China's (at $5,443) and life expectancy in Africa's largest economy is 53.1 years. In India, there have been arguments that the rise in incomes has not translated into higher quality of life for many Indian citizens. The country ranks 131 on the 2016 HDI with life expectancy of 68.3 years, GNI per capita of $5,663 and 6.3 average schooling years.   

From the foregoing, we can deduce that high GDP growth rates or economic development (rising income levels) alone does not always translate to high human development. It is important that policymakers focus on social investment policies that improve employment, education and healthcare.

The primary objective of government should be to improve the quality of life of its people by putting in place economic and social programmes that promote investment in people. Outcomes of such policies would be measurable not only in terms of how many people are lifted above the poverty line but also have sustainable means of livelihoods.

The HDI has its limitations. Some critics have wondered why it doesn't capture many aspects of the human life such as social and political freedom, protection against violence, insecurity and discrimination, among others. Nevertheless, the index is still considered an important step in the domain of measuring human development.  

Bill Gates did not only challenge the economic policy of the current administration; he also provided possible solutions backed up with analysis of historical data. Perhaps the Microsoft founder has earned the right to make his policy recommendation, having committed about $1.6 billion in Nigeria mostly in the fight against deadly diseases. The ball is now in the government's court.



Olajide Olutuyi, a Financial Nigeria Guest Writer, is a graduate in Management from the University of Lethbridge, Canada. He is Founding Partner, Greentouch Consulting Inc. Canada, Co-Founder/CEO Top-Olax Energy Ltd. He is on the Board of Calgary Quest School, Canada. Email: Ola.olutuyi@greentouchconsulting.com. Twitter: @jideolutuyi