Nigeria’s Diminishing Middle Class
Ø Introduction
The modern definition of the middle class is relative to the field of inquiry. While a historian might give you one definition, a sociologist might provide you with a separate seemingly opposite description. Though both may be correct, we are to explore the meanings behind the term “middle class” through the lens of an economist.
Traditionally, economists measure middle class from the income perspective. According to the AfDB 2011, the middle class is usually defined as individuals with annual income exceeding $3,900 in purchasing power parity (PPP) terms or with daily per capita expenditure between $2 to $20.
The middle class is divided further into 3 sub-categories, the first sub-category is that of the “floating class” with per capita consumption levels of between $2-$4 per day. Individuals at this level are only slightly above the World Bank’s extreme poverty line definition of $1.9 per person per day used in some studies. This subset of the population remains vulnerable to slipping back into poverty in the event of any market volatility. The second sub-category is that of the “lower-middle” class with per capita consumption levels of $4-$10 per day. This group lives above the subsistence level and is able to save and consume non-essential goods. The third sub-category is the “uppermiddle class” with per capita consumption levels of $10-$20 per day.
Description of daily income and assets to formulate an idea of middle class
An accurate representation of the middle class extends to more than just their income. An increasing number of economists are utilizing a combination of metrics such as asset acquisition, socio-economic characteristics, vulnerability to poverty in addition to income per capita to frame a much more nuanced picture. A middle class according to the context of this study is defined as a subset of the population with a set of assets and socio-economic characteristics that would reduce their vulnerability to poverty.
A middle-class group profile has significantly different characteristics compared with other vulnerable groups. Higher education, better employment opportunities, possession of relevant assets, and residence in urban areas all increase the chances of being part of the middle-class group compared to the vulnerable and poor groups.
Ø Background
Relationship between a strong middle class and prosperous economy
Nigeria’s new middle class has emerged along with expansion of the private sector in industries like banking, telecommunications and services, centered in urban areas.
Countries that have higher levels of educational attainment, improved health and human development in general tend to have larger middle class populations than those that do not. Similarly, countries with much more developed infrastructure tend to have larger middle class populations. Many studies like (Easterly, 2001); (Pressman, 2010); (Kharas, 2010); (Chun, Hasan, & Ulubasoglu, 2011); and (Martinez & Parent, 2012) also highlighted the importance of middle class as having a stabilizing effect and a prerequisite for stronger more sustainable economic growth.
The middle-class consumer is one who may be willing to pay a little extra for quality. In this view, their demand for quality consumer goods feeds investment in production and marketing, which in turn raises income levels for everyone (Murphy, Shleifer, and Vishny, 1989). It seems clear that the middle class pursues what is conventionally known as better “quality of life” — better health care for the family and more expensive education for the children, as well as more and better housing, more expensive eatables and more entertainment, tobacco, and alcohol.
This implies a pattern observed by Engel (1895), which is the share of the budget spent on food falls with increases in the standard of living. As incomes rise, some of the resources freed up by the lower share of income going towards food are spent on entertainment. Similarly, as incomes rise, there is also a very sharp increase in the fraction of households that own a television.
Growth of the Nigerian economy and its slow poverty decline
Empirical evidence shows that growth of the middle class is associated with better governance, economic growth and poverty reduction. Despite a stable and sustained real growth of nearly 6 percent per year for almost a decade from 2003, reduction in official poverty rate in Nigeria has not been up to general expectations. While poverty seems to have declined faster in the coastal South and around the Federal Capital, Abuja, a large belt of North-eastern states appears to have experienced a significant increase in poverty.
In the last two decades there have been two different narratives on Sub- Saharan Africa. The first paints a picture of an emerging continent where middle classes are expanding and prosperity is reaching large swaths of the population (African Development Bank, 2011; Fine et al., 2012). The other narrative acknowledges the relatively robust growth in the past two decades, but points to slow reduction in poverty. According to this second narrative, the lack of faster reduction in poverty may be due, in part, to increasing disparities.
In income-polarized societies people cluster around group means and tend to be far from the mean/median of the overall distribution, which results in the inability of the middle class to consolidate its position. This has several economic consequences for a country but may also be the underlying cause of growing political instability seen in recent years in many middle-income countries. Though the economy grew on average by above 6% through the last decade, increasing poverty and inequality show clearly that growth has not been inclusive of large segments of the population.
Ø Main Body
Are the present set of middle class worse off compared to the past
According to The Dynamics of Poverty and Income Distribution, the middle class is a more dynamic concept than initially thought, whose meaning is derived from the economic conditions of a given period. Several socio-economic factors are associated with the emergence of a middle class. This leads to a classic chicken and egg problem, is it the emergence of the middle class that brings about a reduction in poverty that allows people climb up the socio-economic ladder or is it the policy decisions by government and an investment friendly environment which contributes to a stable economy where a burgeoning middle class may thrive (a distributive kind of growth).
The lowest poverty rate of about 27.2% was recorded in 1980; and since then, the economy has witnessed persistent rising poverty and inequality, from about 46.3% in 1985 to 42.8% and 65.6% in 1992 and 1996 respectively. There was a very sharp decline in 2004 to about 54.4% but rose astronomically again in 2010 and 2011. The NBS report shows that about 112.6 million Nigerians out of the estimated population of 163 million live in relative poverty, a staggering 69% which is 15% higher than 54 4% estimated in 2004.
Over this period the distribution of social resources also worsened Income inequality measured by the Gini index also rose consistently. From 38.7% in 1985, the Gini index increased to 46.5% in 1996 and to 58% in 2007. Currently, prevalence of income inequality is about 45% from 43% in 2004 (NES, 2011).
Considering the trends in economic and welfare indicators such as misery index (cost of living), exchange rate, consumer price index, unemployment, income, inequality and poverty the 1996 and 2004 middle class were better off relative to the current middle class. Furthermore, the level of vulnerability of the present middle class is such that they share almost the same characteristics with the poor, hence any slightest negative shocks in the economy could force them down the poverty line.
The Economics of Migration
The economy created relatively few jobs, thereby preventing people from benefiting from growth. The main channel for escaping poverty and entering the middle class is through gainful employment, that is, a job that pays a living wage and allows individuals to support their families. Between 2011 and 2016, the labor force grew by 20 percent, but there was not a commensurate increase in employment opportunities. This adversely affected the poor and even the middle class because these groups are dependent on jobs for their livelihoods.
According to Aderanti Adepoju in his work titled “Nigeria: Youth and migration dynamics” the youth seem united in feelings of uncertainty related to their future. Initially localized among secondary school leavers, the pool of unemployed persons has gradually stretched to graduates of tertiary institutions. Unemployment is one of these major factors driving migration, as it is most prevalent amongst young people, who represent more than half of Nigeria’s population.
Nigeria’s growth is dependent on proper management of its vast natural reserves. A range of skillsets dependent on a middleclass population of highly skilled professionals, however the general loss of confidence has motivated many youths towards cross border migration in search of greener pastures. An emigration that started in trickles in the mid-80s has become a stream as Nigerians relocate to Europe, America, Canada, Australia, Asia and the Middle East.
Highly skilled Nigerians who had been trained in the country go to work abroad. In the United States and Europe, highly skilled Nigerians represent a large proportion of the total immigrant population. The OECD Database reveals that the largest number of Nigerians — 23 % of about 40,000 workers, was employed in the health-care sector, a vital industry which is one of the preconditions for a productive workforce in the early stages of economic development.
In 2014–2017 net remittances transferred by Nigerian migrants to the country exceeded significantly foreign direct investment, foreign portfolio investment flows to Nigeria and accounted for 3.68–5.85 % of GDP for respective years. These remittance figures fail to represent the loss of human capital which have now become engines of growth and innovation for western economies.
Income Polarization leads to ethnic conflict
An important aspect of the income polarization analysis is that it is concerned with the disappearance or non-consolidation — in the case of Nigeria — of the middle class.
As noted earlier, GDP and per capita income have steadily grown in the last decade and yet there are clear signs of a limited consolidation of a national middle class. Moreover, the country is increasingly affected by sub-regional conflicts driven to a large extent by disaffected (alienated) groups. One of the earliest studies is that of Aigbokhan (2000), who showed that polarization in Nigeria increased between 1985 and 1992 but declined in rural areas.
The available data and the relative distribution methodology (Handcock and Morris, 1998, 1999) presents new results on polarization. The findings confirm the sharp increase of polarization. Compared to 2003, the distribution of consumption has become more concentrated in upper and lower deciles in 2013, while the middle deciles have thinned, the South-South and South-West regions contribute mainly to polarization in the upper tail, households in the North East and North West zones — the conflict-stricken areas — are more likely to fall in the lower national deciles.
Ø Conclusion
A weakening middle class may lead to further inequality between social classes. Prolonged economic disparity between class structures may lead to income polarization and consequently social tensions which may give rise to ethnic conflicts. This has several economic consequences for a country but may also be the underlying cause of growing political instability seen in recent years in many middle income countries.
The analysis reveals significant changes in the consumption distribution. We find a clear rise in polarization, meaning that the distributional movements observed between 2003/2004 and 2012/2013 hollowed out the middle of the Nigerian household consumption distribution and increased concentration of the mass toward higher and lower deciles. The overall impact was a generalized hollowing out of the center and a further accentuation of the North-South divide already characterizing the country.
