DEVELOPMENT ECONOMICS NOTES II

(ECN 309)
Department of Economics, Faculty of Social Sciences,
Kaduna State University

1. SOCIAL PROTECTION AND SOCIAL INCLUSION

1.1 Poverty and Vulnerability
Nigeria’s extreme poverty rate is high and increasing. Despite its middle-income
status, almost four out of ten Nigerians lived below the national poverty line in 2016.3
Measured at international poverty line of US$ 1.90 per day, Nigeria is home to the largest
number of extremely poor people according to multidimensional poverty index 2022 of about
133 million. In recent years, Nigeria has been experiencing an upward trend in poverty.
According to findings from the three waves of General Household Surveys, about half of
households fell into poverty at some point during 2011–2020, reflecting the high degree of
vulnerability of the population. During this period, 17% were chronically poor in all three
waves of the survey, 55% of the population was in poverty at least once while 45% were
never poor.

Multidimensional Poverty and Conflict

Nigeria fares poorly in multi-dimensional poverty measures, with high inequality across
regions. Based on a 2021 report by the Oxford Poverty and Human Development Initiative
(OPHI), 53.3% of Nigerians are categorized as multi-dimensionally poor. The
Multidimensional Poverty Index (MPI) uses 10 indicators to measure poverty in three
dimensions: education (years of schooling and school attendance), health (child mortality and
nutrition) and living standards (electricity, sanitation, drinking water, floor, cooking fuel, and
assets). Nigeria’s multi-dimensionally poor are disproportionately concentrated in the
Northern regions of the country. Seven out of the thirteen states in the Northern regions have
an MPI score of 0.5 or worse, and eleven out of thirteen have an MPI score of 0.3 or worse.
Nigerians in the lowest quintile bear most the brunt of depravity relating to several indicators
of multidimensional poverty. A recent report from the World Bank found that 71% of the
households in the lowest wealth quintile lack access to improved water and poor children are
about four times more likely to get diarrheal disease.
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 Rising food insecurity and vulnerability to economic shocks highlight emerging needs
in the country. Three rounds of the General Household Panel Surveys and shows that both the
percentage of households experiencing food insecurity as well as percentage of households
experiencing economic shocks have increased in the last decade. The percentage of
households experiencing food insecurity in Nigeria has increased from 26% in 2016 to 40%
in 2021. The percentage of households facing economic shocks increased from 30% in 2016
to 42% in 2021 before decreasing to 32% in 2022. Economic shocks induce households to
deplete their human and physical assets, for example, by selling their livestock or pulling
their children out of school. The effects are felt the most by the poorest people. Similarly,
food insecurity during early years could have a devastating effect on children and their ability
to grow up as healthy, productive adults. These relates to rising levels of poverty in the
country and make investments in people through social protection programs of paramount
importance.
Disasters and conflict have displaced many Nigerians, especially in the Northeast and
Northwest. According to estimates provided by the International Displacement Monitoring
Center, there were more than 3 million Internally Displaced Persons (IDPs) in Nigeria as of
31 December 2020. In 2020 alone, more than 1,200,000 Nigerians were displaced due to
natural disasters and more than 1,540,000 were displaced due to conflict and violence. In the
Northeast, the emergence of the militant Islamist group Boko Haram since 2014 has not only
caused large scaled displacement, but also several incidences of kidnapping, death, and
injuries, and the erosion of social contract due to widespread perception of a failed political
promise. Poverty and deprivation have played a central role in fostering a social divide. The
youth used by Boko Haram to partake in the conflict are jobless, without skills, or trades, and
are easily susceptible to radicalization. Besides conflict, climate related factors have caused
additional displacement in the North and the Middle Belt regions of the country. In 2018-
2022, flooding affected 80% of the country and triggered more than 1.300,000 new
displacements. The social protection measures in the country are neither well-suited to
respond to conflict, nor well-placed to anticipate and mitigate the risks of natural disasters
caused by climate change. Determinants of Poverty
Poverty remains high in Nigeria due to its dire social service delivery outcomes and
lack of basic infrastructure. Nigeria has the highest number of out of school children of
primary school age in the world with over 10 million children out of school. Slow poverty
reduction rate in Nigeria is directly linked to the weak resilience and high vulnerability of
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livelihoods, particularly in the agriculture sector. Half of all Nigerians work in the agriculture
sector, where growth of 2% per annum since 2010 has barely kept up with the population
growth. Stagnating production and productivity in the farm sector, where half of the
population works, is a key reason for continued high poverty levels. Half of the people
working in agriculture belong to the poorest 40% of the population.
The weak labor market integration of youth from poor homes, as they transition from
education to work, is aggravated by an inefficient skills development system, especially in
the informal sector. Nigeria suffers from a segmented labor market for youth.
Underprivileged youth from rural areas and the Northern regions of the country start work
early and face premature transition to work, while youth with more education and from
wealthier families are more likely to hold out for a “good” job, compared to those with
limited education and from poorer families. Both these mismatches generate a loss of human
capital. For unemployed and underemployed youth in the informal sector, given their early
entry into work, there is a specific need to support productivity of household enterprises and
apprenticeships.
Nigerians affected by conflict, climate change, and forced displacement need
protection and assistance to rebuild their livelihoods. Between 2010 and 2020, overall levels
of conflict rose in Nigeria, with 49% of households in the North East experiencing at least
one event of conflict or violence against a household member. Climate change is affecting
poor agricultural households who rely on low-technology, rainfed farming and are dependent
on weather conditions for their daily bread. Only a small minority of conflict-affected
households received any type of assistance in support of their recovery. High seasonality of
employment patterns, particularly in agriculture, contributes to high poverty in Nigeria.
Nigerians experience significant seasonality in their employment patterns given the high
dependence on farm work, but they do not shift significantly between jobs.
In summary, lack of basic infrastructure, poor social service delivery outcomes, weak
resilience in the agriculture sector, stagnating productivity in the farm and non-farm sectors,
mismatches between youth aspirations and employment opportunities available in the
economy, poor education and health services utilization, weak governance, climate change,
and conflict have contributed significantly to the poverty situation in the country. Both
location and the demographic structure of the household also play a significant role in
defining a person’s poverty status. The risk of being poor is higher in the north irrespective of
individual or household characteristics, perhaps indicative of fewer economic opportunities.
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Individuals with higher education have significantly lower chances of being poor, which
reflects higher household incomes. Persons living in households with more children and
elderly persons are also more likely to be poor because the earnings of the few working-age
adults are needed to support the many dependents. Larger household size and dependency
ratio, and exposure to flood and pest infestation increased transitory poverty.

Inequality
Nigeria experiences high inequality along geographic lines, with poverty mostly concentrated
in the North and in rural areas. Income inequality has been worsening over time with rising
income polarization. The Gini coefficient in Nigeria increased from 0.36 in 2011 to 0.42 in
2021. Compared to its lower-middle income peers, inequality in Nigeria is high. More
worryingly, incomes are converging at the upper and lower ends rather than in the middle of
the income distribution while the size of the middle class has stagnated at 21% of the total
population between 2016 and 2021. Wide income polarization is associated with increased
risk of social conflict and tension. In Nigeria, income polarization also has a regional
dimension because incomes in the north and south are converging, respectively, toward a
lower and a higher average income.
Nigeria suffers from very poor human capital outcomes, particularly among the poor.
Data from the Human Capital Index (HCI), which measures the amount of human capital a
child born today can expect to attain by the age of 18-36, shows that a child born in Nigeria
today can expect to be only 34% as productive when she grows up compared to if she
enjoyed complete education and full health. Nigeria’s HCI is lower than the average for its
region and income group, and lower than what would be predicted for its income level.
Nigeria’s poor human capital outcomes dim the prospects of sustained growth and poverty
reduction in the country, with some studies suggesting that between 10 and 30% of per capita
income differences between countries can be attributed to human capital.
More worryingly, there are stark differences in the level of human capital outcomes
across wealth quintiles, as the poorest suffer from the worst health, education, and nutrition
outcomes. 63% of children in the poorest quintile are stunted compared to 18% in the richest
quintile. The Under-5 Mortality rate is 158 per 1,000 live births in the poorest quintile and 56
per 1,000 live births in the richest quintile.40.19 % of children aged 12-23 months have any
evidence of vaccination against polio at birth in the poorest quintile compared to 80% in the
richest quintile. On educational outcomes, 78% of children aged 36-59 months attend early
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childhood education in the richest quintile compared to 8% in the poorest quintile. Only 29%
of primary school age children from the poorest quintile are in school (adjusting for
attendance) compared to 89% from the richest quintile. Regionally, the North lags far behind
the South in every human capital outcome.
In summary, not only does Nigeria have low level of human capital outcomes in
general, but it also has the poor lagging far behind the rich in human capital indicators.
Despite this, Nigeria has the lowest public spending level of any regional or income peers on
social protection, meeting only a fraction of the needs of poor and vulnerable households
through targeted programs.
Nigeria needs to create another 40 to 50 million jobs by 2030 to create employment to
population ratio at current levels. Despite benefitting from economic and political reforms in
the past decades that resulted in relatively high and stable economic growth until the recent
recession, those reforms did not manage to reduce poverty levels sufficiently, largely due to
lack of diversification of the sources of labor income for most of its population. The jobless
and the inactive population differ markedly in demographic and other characteristics. Youth,
especially in rural areas, also shift between employment and inactivity, with limited options
for mobility between jobs. There is evidence that poverty reduction can be more closely
linked to rural diversification of poorer households out of agriculture and urbanization to
secondary towns, as urban areas are already feeling significant pressures on land, public
services, and jobs market.

Social Protection
The social protection agenda in Nigeria is its nascent stages and emerging in terms of policies
and implementation framework. Despite existence of many programs that are classified under
social protection, their overall coverage and effect on welfare is either minimal or unknown.
The limiting factors of social protection intervention impacts include high fragmentation,
narrow fiscal space, lack of clearly defined roles for participating stakeholders, and narrow
focus in terms of risks and targeted groups. Social protection programs are still largely public
sector driven. In 2015, the World Bank assessed the status of social protection in Nigeria
through the Nigerian Social Protection Status Report, which classified interventions in the
country according to the UNICEF transformational approach and the types of risks that they
address (Table 1).

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Table 1: Classification of Social Protection Policies and Programs in Nigeria Type
Classification/Type Poverty-focused Social Types of Instruments
Protection Intervention
Protective Social assistance Cash transfers, food transfers,
fee waivers for social services,
school subsidies, school
feeding
Preventive Social insurance Health insurance, premium
waivers, subsidized risk-
pooling mechanisms -
cooperatives, community
basic services provision.
Transformative Social equity measures Equal rights/social justice
legislation, affirmative action
policies, asset protection

Informal social protection provided through social networks also exist and are important in
Nigeria, as households that face idiosyncratic shocks usually rely on informal social
arrangements where formal arrangements are weak or non-existent. However, these informal
social protection mechanisms, as in several economies with high degree of informality, are
not properly understood. Given their clear importance in covering a large section of the poor
population who do not have access to any form of formal social protection require urgent and
deliberate government effort to implement social protection programs to meet the needs of
more people in the society who are marginalised.

Social Protection in Nigeria

Social Protection and Jobs programs conventionally consist of a range of instruments for
achieving three core objectives: resilience, equity, and opportunity.
Programs to strengthen resilience usually consist of social insurance schemes for
workers, which protect program participants against loss of income due to illness,
unemployment, old age, disability, or death of income earners.
Programs to improve equity consist of safety nets or social assistance programs,
which are non-contributory transfers that are targeted to poor or vulnerable members of the
society.

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 These programs consist of targeted cash or in-kind transfers, price subsidies for food
or energy, labor intensive public works schemes, fee waivers for health care, education,
utilities or transport, and disaster relief schemes.
These programs are designed to help poor individuals and households to cushion them
against negative shocks and to ensure that they can meet their basic needs.
Finally, programs to promote opportunity consist of active labor market programs that
provide better income earning opportunities by upgrading worker skills or facilitating
mobility as well as labor policies and regulations that protect workers.
Social protection programs provide households with the income support to fight
poverty and invest in the human capital of their members. Social protection programs have
been effective in helping countries reduce poverty, increase food consumption, improve
dietary diversity, increase the use of preventive health services, and increase school
enrolment. Social protection supports poor families from the very early years and through the
entire life-cycle.
Besides addressing poverty, boosting human capital outcomes, mitigating against
negative income shocks, and promoting equality of opportunities, social protection programs
supports policies to generate more, better jobs, and ensure access to jobs.

Social Exclusion and Social Inclusion

The new global development agenda recognises that development will only be sustainable if
it is not inclusive. The international human rights law applied the principle of non-
discrimination and governments are legally obliged to respect, protect and fulfil human
rights. Nevertheless, discrimination is still widespread and there are groups of people who are
systematically disadvantaged because they are discriminated against on various grounds, such
as sex, disability, religion, ethnicity, caste, class, sexual orientation, gender identity and more.
Discrimination can take various forms ranging from explicitly discriminatory policies to
more subtle, unconscious forms like omitting taking into account the special needs of some
groups (like barrier-free institutions for people with disabilities). Discrimination often leads
to social exclusion.
Frequently, the disadvantages vulnerable groups experience reinforce one another;
lowers levels of health and education go hand in hand to higher level of poverty and
unemployment, as well as less political and civic life. Vulnerable groups often do not have
equal access to services, resources and opportunities available to other people as they lack the
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resources, skills or knowledge to do so. Women and girls are in many countries the largest
group, which is discriminated and socially excluded. A widespread phenomenon related to
gender inequality (sexual and gender-based violence). It is estimated that 35% of women
worldwide have experienced either physical and/or sexual violence at some point in their
lives. Gender inequality also concerns men and boys as in many contexts they are very
vulnerable, face violence or discriminatory gender norms.

Social exclusion, social inclusion, poverty and inequality

Social exclusion is a process in which an individual or a group of people in a community or
society are not allowed full participation in the activities of the community or society
especially as it concerns them. An individual or a group of people is said to be socially
excluded from a society if they cannot be involved in the activities of the community where
they live despite their willingness to participate in such activities. Berafe (2017) observed that
social exclusion is a practice by which people are systematically disadvantaged because they
are discriminated against on the basis of their ethnicity, gender, employment status, health
status, race, caste, sexual orientation, religion, age, disability, migrant status or where they
live.
Social exclusion arises as a result of residents of a particular community being denied
some social rights or all of it in the community due to reasons beyond their control. It can be
likened to discrimination against the less privileged that occurs in public institutions such as
health services, education, legal systems and also social institutions. It is a process through
which people or a group is excluded wholly or in part from participating fully in the society
where they live. The concept of social exclusion is multi-dimensional and it takes place at
every level of the society where people can be excluded from economic, political and social
activities by landlords, political groups, labour unions.
Social exclusion is societal deprivation of residents of a community. The individuals
excluded are helpless since the circumstance is beyond their control and this is perpetual and
two sided as it is passed from society to individual and individual back to society. Social
exclusion affects the society negatively as it perpetuates poverty and underdevelopment in an
economy through segregation and division. It puts a knife into what holds a people together
leading to unhealthy competition, violent conflicts, poor public cooperation, and unequal
opportunity especially in the area of education, employment and health care services. Social
exclusion is a key factor for poverty severity which results to a vicious circle of poverty that
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runs from generation to generation which trickles down to the masses in form of extreme
hunger, absolute poverty, deprivation of capabilities and poor standard of living.
Poverty on the other hand connotes lack and the inability of an individual or
household to acquire the basic needs of life which makes it impossible or difficult for them to
live the life they want. Mustapha (2014) described poverty as a situation in which an
individual is incapable as a result of economic, social, political and psychological
incapacitation, to provide himself and his household the simplest basic requirements of life.
Berafe (2017) described poverty as being much more than inadequate income, it includes a
sense of exhaustion, powerlessness and also being excluded from decision making. World
Bank (2019) defined poor on basis of his or her income level which falls below some
minimum level ($1.90 a day) necessary to meet basic needs. However, one can be poor
without being socially excluded while one can be socially excluded without being poor.

Social inclusion
The effects of social exclusion in a society can be eliminated if policy measures
targeted at social inclusion is implemented. Social inclusion is the end of social exclusion. It
is all about becoming a part of a society. A social inclusive society is a society for all. It is a
society where the rights and responsibilities of every individual or resident are realized, and
individuals play active roles in matters affecting them.
Social inclusion is a process that enables citizens to participate in decision making
activities on matters that affect their livelihood, it ensures reduction in inequality, eliminates
exclusion in any form, reduces discrimination, and promotes social justice and unity. Social
inclusion is a process in which those that are at risk of poverty and social exclusion gain the
opportunities and resources required for a full participation in societal activities and in the
process, employment and adequate income are treated as key factors to tackling social
exclusion, poverty and inequality.
Social inclusion is about being a member of a society that is supportive and protective
of good health and well-being of its members. A social inclusive society is a society where all
members have a feeling of being valued, differences are respected and basic needs are
provided so that members can live in dignity. It is a community where every member is
provided with an equal opportunity for resources and power sharing, where members meet
their needs and reach out to others to help them meet their own needs too. People participate
in a society through markets (labour, land and housing), services (electricity, health,
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education, water) and spaces (political, cultural, physical, social) and an improvement in the
terms of people’s participation in a society means an enhancement in their ability, dignity,
and opportunity.

2. POVERTY, INEQUALITY, INCOME DISTRIBUTION AND

DEVELOPMENT
2.1 Measuring Inequality
There are two principal measures of inequality. These are the personal or size distribution of
income and the functional or distributive factor share distribution of income.
(i) Size distribution:
The personal or size distribution of income is the measure most commonly used by
economists. It deals with individual persons or households and the total incomes they receive.
The way in which the income was received is not considered, what matters is how much each
earns irrespective of whether the income was derived solely from employment or other
sources like interest, profits, rents, gift or inheritance.

Lorenz Curve
The Lorenz curve shows the actual quantitative relationship between the percentage
of income recipients and the percentage of the total income they did received at a specific
time. A common way to analyse personal income statistics is to construct what is referred to
as Lorenz curve. For example, in figure 2, below the numbers of income recipients are plotted
on the horizontal axis (cumulative percentages), while the vertical axis shows the share of
total income received by each percentage of population. It is also a cumulative of 100%. At
every point on the diagonal, the percentage of income received is exactly equal to the
percentage of income recipients. The more the Lorenz line curves away from the diagonal
(perfect equality), the greater the degree of inequality represented.

Figure: The Lorenz Curve

(ii) Functional distribution: It attempts to explain the share of total national income that
each of the factors of production (land, labour, and capital) receives. Functional distribution
inquires into the percentage share of labour or capital compared with the total income
distributed in the form of rent, interest, and profit.
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(iii) Economic problem of inequality
(a) Extreme income inequality leads to economic inefficiency and inefficient allocation
of resources.
(b) Extreme income disparities undermine social stability and solidarity.
(c) It is unfair or unjust and hampers growth.

2.2 Poverty
Poverty is widely regarded as the common measure of development. It is one of the
major problem of developing economies and also a threat to their development effort. Poverty
can be measured in absolute and relative terms.
Absolute poverty can be defined as the number of people who are unable to command
sufficient resources to satisfy basic needs. It can be measured in different ways. Namely:
They include number of people living below a specified minimum level of real income, i.e.
an international poverty line as used by World Bank specification of those living below
US$1.
Headcount measure describes poverty in terms of those whose incomes fall below the
absolute poverty line referred to as headcount index (H/N) (where H is the number of poor
household and N is total population).
Total Poverty gap (TPG) measures the total amount of income necessary to raise
everyone who is below the poverty line.

TPG = Σ(Yp - Yi) (where Yi is income of the household and Yp is poverty line)

Foster-Greer-Thorbecke (FGT) index is given by

Pα = 1 Σ(Yp - Yi)α
N Yp

Human poverty index (HPI) developed by UNDP, where poverty is measured in terms
of three hey deprivations of life i.e. life expectancy, basic education, and overall economic
provisions.

(ii) Economic problems of poverty:

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(a) It creates conditions in which poor have no access to resources.
(b) The poor have low income levels, low levels of living and investment leads to poor
health or education which can lower their economic productivity and affect growth rate.
(c) It affects domestic consumption because of inefficient demand (the rich are known to
have low marginal propensity to consume (MPC) while the poor have high rate MPC for
domestic product).
(d) It destroys material and psychological incentive for widespread participation in
growth and development process.
(e) Prevalence of hidden economic activities and social vices.

Sustainable Development Goals

Poverty eradication is the greatest global challenge facing the world today and an
indispensable requirement for sustainable development. Poverty eradication, changing
unsustainable and promoting sustainable patterns of consumption and production and
protecting and managing the natural resource base of economic and social development are
the overarching objectives of and essential requirements for sustainable development. People
are at the centre of sustainable development, thus the need to strive for a world that is just,
equitable and inclusive and the commitment was made to work together to promote sustained
and inclusive economic growth, social development and environmental protection and
thereby to benefit all, in particular the children of the world, youth and future generations of
the world, without distinction of any kind such as age, sex, disability, culture, race, ethnicity,
origin, migratory status, religion, economic or other status.
The goals and targets integrate economic, social and environmental aspects and recognize
their interlinkages in achieving sustainable development in all its dimensions.

3. ENVIRONMENT AND DEVELOPMENT

Economists have become increasingly aware of the important implications of
environmental issues for the success of development efforts. The interaction between poverty
and environmental degradation can lead to a self-perpetuating process in which out of
ignorance or economic necessity, people may inadvertently destroy or exhaust the resources
on which they depend on survival. It can also detract from the pace of economic development

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by imposing high costs on developing countries through health related expenses and reduced
productivity of resources.
Seven issues define the environment of development. These are:

(i) Sustainable Development and Environmental Accounting

The term sustainability is use in an attempt to clarify the desired balance between
economic growth and environmental preservation. Basically, sustainability refers to ‘meeting
the needs of the present generation without compromising the needs of the future
generations’. Future growth and overall quality of life are critically dependent on the quality
of the environment. The natural resource base of a country, the quality of its air, water, and
land present a common heritage for all generations. To destroy the natural endowment
indiscriminately in the pursuit of short term economic goals penalises both present and
especially future generations. Overall, capital assets include physical assets (machines,
factories, roads, etc), human capital (knowledge, skills, experience, etc) and environmental
capital (forests, soil quality, lands, etc).

(ii) Population, Resources and the Environment

Population growth is of concern to resource and environmental managers. Rapid
growing population have led to land, water and fuel wood shortages in some localities and
urban health crisis stemming from lack of sanitation and clean water. Mush of the concern
over environmental issues stems from the perception that we may reach a limit to the number
of people whose needs can be made by the earth finite resources though technology may help
to address some of them. In many of the poor regions of the world (Nigeria, Bangladesh,
India or China) increasing population density has contributed to severe and accelerating
degradation of the very resources that these growing population depend on for survival.

(iii) Poverty and the Environment

Poverty has been identified as one of the factors influencing environmental
degradation. The poor depends so much on the environment for their survival and in the
process affect the quality of the environment. Environmental destruction and high fertility
goes hand in hand. It has been observed that preventing environmental degradation is a
matter of providing institutional support to the poor. For environmental policies to succeed in
developing countries, the issues of landlessness, poverty and lack of access to institutional
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resources must be addressed. Insecure land tenure rights, lack of credit and inputs and
absence of information often prevent the poor from making resource-augmenting investments
that would help preserved the environmental assets from which they derive their livelihood.

(iv) Growth and the Environment

Economic growth affects the environment in two ways. Increasing the economic
status of the poorest group of people would provide an environmental windfall. However, as
the income and consumption levels of everyone else in the economy rise, there is likely to be
a net increase in environmental destruction. Evidence suggest that the worst perpetrators of
environmental destruction are the billion richest and billions poorest people on earth.
Therefore, meeting increasing consumption demand while keeping environmental
degradation at a minimum will be no small tasks.

(v) Rural Development and the Environment

The increased accessibility of agricultural inputs to small farmers and the introduction
of sustainable methods of farming will help create attractive alternatives to current
environmentally destructive patterns of resource use. Land in many areas of the developing
world is being unsustainably over exploited by existing population and to meet the food
production target will require radical changes in the distribution, use and quantity of
resources available to the agricultural sector. Land-augmenting investments can greatly
increase the yields from cultivated land and help ensure future food self-sufficiency.

(vi) Urban Development and the Environment

Congestions, vehicular and industrial emissions, and poorly ventilated household
stoves inflate the high environmental costs of urban crowding. Low productivity of ill or
diseased workers, contamination of existing water resources and destruction of infrastructure,
in addition to increased fuel expenses incurred by people’s having to boil unsafe water are
some of the example associated with poor urban conditions. The resulting environmental ills
pose extreme health hazards (due to poor urban water supplies and sanitation facilities) for
the growing number of people exposed to them. These conditions are reinforced by fast
growing number of urban slumps and squatters.

(vii) The Global Environment

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 The world population tend to be growing along with income levels, in which net
global environmental degradation is likely to worsen. Some trade-offs will be necessary to
achieve sustainable world development and by using resources more efficiently, a number of
environmental changes will actually provide economic savings. However, because many
essential changes will require substantial investment in pollution abatement technology and
resource management significant trade-offs between output and environmental improvement
will often be necessary.
Generally, the most pressing environmental challenges in developing countries will be
caused by poverty. These include, health hazards caused by lack of access to clean water and
sanitation, indoor air pollution from biomass, and deforestation and severe soil degradation.
These are common features of households that lack economic alternatives to sustainable
patterns of living.

4. TRADE POLICY DEBATE: EXPORT PROMOTION, IMPORT

SUBSTITUTION AND ECONOMIC INTEGRATION
The desire for an appropriate trade policy has engaged two schools of thought (inward-
looking and outward-looking) since 1950s. The debate is between the free traders who
advocate outward-looking export promotion strategies of industrialization and the
protectionists who are proponents of inward-looking import substitution strategies.

4.1 Import Substitution

Import substitution (IS) is an inward-looking development policy in which developing
countries evolve their own styles of development and to control their own destiny. It implies
policies to encourage indigenous “learning by doing” in manufacturing and the development
of indigenous technologies appropriate to a country’s resource endowments. According to
proponents of inward-looking trade policies, greater self- reliance can be achieved only if a
country restricts trade, the movement of people and communications and if you keep out the
MNCs with their wrong products, wrong want-stimulation and wrong technology.
The advocates of IS believe that developing countries should initially substitute
domestic production of previously imported simple consumer goods (first stage) and then
substitute through domestic production for a wider range of more sophisticated manufactured
items (second stage) all behind the protection of high tariffs, and quotas on imports. In the
long run there will be domestic industrial diversification and exports of manufactured goods.
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 The inward looking argument can be said to focus on three basic areas: (i) the limited
growth of demand for primary exports, (ii) the deterioration in the terms of trade for primary
producing nations, and (iii) the rise of new protectionism against exports of developing
countries manufactured and agricultural goods. Also, developing countries exports growth
slowly because of shift in developed countries from low technology, material intensive goods
to high technology and skill intensive products that reduce demand for raw materials;
increased efficiency in industrial use of raw materials; the substitution of synthetics for
natural raw materials like rubber, copper and cotton; the low income elasticity of demand for
primary products.

4.2 Export Promotion

The outward-looking development policies (export-led growth) encourage not only
free trade but also free movement of capital, labour, enterprises (MNCs). Advocate of export
promotion (EP) of both primary and manufactured goods emphasized the efficiency and
growth benefits of free trade and competition, the importance of substituting large world
markets for narrow domestic markets, the distorting price and cost effects of protection and
the tremendous success of the East Asian export oriented economies of South Korea, Taiwan,
Singapore, and Hong Kong or China. They stressed that firm in these economies have learned
a great deal from the firms in USA or Japan that have been their long term customers.
Trade liberalization as a component of export promotion generates rapid export and
economic growth through (i) promotion of competition and efficient allocation of resources;
(ii) increase efficiency and technical change; (iii) generates needed foreign exchange, attracts
foreign capital and expertise; (iv) eliminates economic distortions caused by government
interventions; (v) it accelerates overall economic growth.

4.3 Economic Integration

Economic integration occurs whenever a group of nations in the same region join
together to form an economic union or regional trading bloc by raising a common tariff wall
against the product on non-member countries while freeing internal trade among members.
However, nations that levy common external tariffs while freeing internal trade are said to
have formed a custom union. It external tariffs against outside countries differ among
member nations while internal trade is free, the nations are said to have formed a free trade

16
area. While a common market possesses all the attributes of a customs union plus free
movement of labour and capital among the partner states.
The basic economic rationale for the gradual integration of developing countries is it
long term dynamic importance. It provides the opportunity for industries that have not yet
been established as well as for those that need to take advantage of economies of large scale
production made possible by expanded markets. It is a mechanism to encourage rational
division of labour among a group of countries.
By removing the barriers to trade among members state, the possibility of coordinated
industrial strategy is created especially in industries where economies of scale are likely to
exist. Example of regional integration is ECOWAS

Economic Community of West African States (ECOWAS)

The 15 members of the Economic Community of West African States (ECOWAS) are Benin,
Burkina Faso, Cabo Verde, Cote d’Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau,
Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo. The main goal of ECOWAS
is to promote economic cooperation among member states in order to raise living standards
and promote economic development. ECOWAS has also worked to address some security
issues by developing a peacekeeping force for conflicts in the region. ECOWAS established
its free trade area in 1990 and adopted a common external tariff in January 2015.

Aims and Objectives

A. The aims of the Community are to promote cooperation and integration, leading to the
establishment of an economic union in West Africa in order to raise the living standards of its
peoples, and to maintain and enhance economic stability, foster relations among Member
States and contribute to the progress and development of the African Continent.
B. In order to achieve the aims set out in the paragraph above, and in accordance with
the relevant provisions of this Treaty, the Community shall, by stages, ensure;
(a) the harmonization and coordination of national policies and the promotion of integration
programmes, projects and activities, particularly in food, agriculture and natural resources,
industry, transport and communications, energy, trade, money and finance, taxation,
economic reform policies, human resources, education, information, culture, science,
technology, services, health, tourism, legal matters;
(b) the harmonization and coordination of policies for the protection of the environment;
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(c) the promotion of the establishment of joint production enterprises;
(d) the establishment of a common market through:
(i) the liberalization of trade by the abolition, among Member States, of customs duties levied
on imports and exports, and the abolition among Member States, of non-tariff barriers in
order to establish a free trade area at the Community level;
(ii) the adoption of a common external tariff and, a common trade policy vis-à-vis third
countries;
(iii) the removal, between Member States, of obstacles to the free movement of persons,
goods, service and capital, and to the right of residence and establishment.
(e) the establishment of an economic union through the adoption of common policies in the
economic, financial social and cultural sectors, and the creation of a monetary union;
(f) the promotion of joint ventures by private sectors enterprises and other economic
operators, in particular through the adoption of a regional agreement on cross-border
investments;
(g) the adoption of measures for the integration of the private sectors, particularly the creation
of an enabling environment to promote small and medium scale enterprises;
(h) the establishment of an enabling legal environment;
(i) the harmonization of national investment codes leading to the adoption of a single
Community investment code;
(j) the harmonization of standards and measures;
(k) the promotion of balanced development of the region, paying attention to the special
problems of each Member State particularly those of land-locked and small island Member
States;
(l) the encouragement and strengthening of relations and the promotion of the flow of
information particularly among rural populations, women and youth organizations and socio
professional organizations such as associations of the media, business men and women,
workers, and trade unions;
(m) the adoption of a Community population policy which takes into account the need for a
balance between demographic factors and socio economic development;
(n) the establishment of a fund for cooperation, compensation and development; and
(o) any other activity that Member States may decide to undertake jointly with a view to
attaining Community objectives.

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General Undertakings
i. Member States undertake to create favourable conditions for the attainment of the
objectives of the Community, and particularly to take all necessary measures to harmonize
their strategies and policies, and to refrain from any action that may hinder the attainment of
the said objectives.
ii. Each Member State shall, in accordance with its constitutional procedures, take all
necessary measures to ensure the enactment and dissemination of such legislative and
statutory texts as may be necessary for the implementation of the provisions of this Treaty.
iii. Each Member State undertakes to honour its obligations under this Treaty and to abide by
the decisions and regulations of the Community.

5. FOREIGN FINANCE, AID AND INVESTMENT

5.1 Foreign Finance
Foreign finance or international flow of financial resources takes two main forms: (i)
Private Foreign Direct Investment which consist of foreign direct investment (FDI) by large
multinational (MNCs) (or transnational corporations) usually with headquarters in developed
countries (eg Shell, Total, MTN, etc) and Foreign Portfolio Investment (eg. Stocks, bond,
notes) in developing countries’ emerging credit and equity markets by private institutions
(banks, mutual funds, corporations) and individuals.
The second is the Public and Private Development Assistance (Foreign Aid) which
can come from an individual national governments and multinational donor agencies and
increasingly, private non-governmental organizations most of whom are working directly
with developing nations at the local level.
Foreign direct investment has been prescribed as a channel through which developing
countries can improve their balance of payment challenges. This is through the role of FDI in
capital transfer, technology transfer, managerial and employment generation. Two central
characteristic of MNCs are their large size and the control of their operations and activities
centrally by parent companies. We need to recognize therefore, that MNCs are not in the
development business but maximize their return on capital.

Argument in Favour of Private Foreign Direct Investment

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(i) Filling savings-investment gap: Foreign direct investment is widely supported by
the neoclassical growth theory analysis (eg. Harrod-Dormar, Solow). The FDI is
typically seen as a way of filling in gaps between the domestic available savings. The
most important contribution of private foreign investment to national development
and locally mobilized savings.
(ii) Foreign exchange gap: FDI contribute to fill the gap between targeted foreign
exchange requirements and those derived from net export earnings in addition to
public foreign aid. This is the so called foreign exchange or trade-gap.
(iii) Revenue gap: FDI has the potential capacity to fill targeted governmental tax
revenues and locally raised taxes. By taxing MNCs profits, developing countries
government are thought to be better able to mobilize public financial resources for
development projects.
(iv) Management gap: There is a gap in management, entrepreneurial, technology and
skilled presumed to be partly or wholly filled by the local operations of private
foreign firms

Argument Against Private Foreign Direct Investment

The two arguments against FDI are economic and philosophical or ideological. On the
economic side the arguments in favour are countered. For example;
(i) Although MNCs provide capital, they may lower domestic savings and investment
rates by stifling competition through exclusive production agreements with host
government, failing to reinvest much of their profits, inhibiting the expansion of
indigenous firms that may supply them with intermediate products by instead
importing these goods from overseas affiliates. MNCs also raise their capital locally
in the developing country itself, and this may lead to crowding out investment of
local firms.
(ii) Though the initial impact of MNCs investment is to improve the foreign exchange
position of the recipient nation, its long run impact may be to reduce foreign
exchange earnings on both current and capital accounts. The current account may
depreciate as a result of substantial importation of intermediate products and capital
goods and the capital account may worsen because of the overseas repatriation of
profits, interest, royalties, management fees and other funds.

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(iii) Though MNCs do contribute to public revenue in the form of corporate taxes, their
contribution is considerably, less than it should be as a result of liberal taxes,
concessions, the practice of transfer pricing, excessive investment allowances, public
subsidies, and tariff protection by the host government.
(iv) The management, entrepreneurial skills, ideas, technology, and overseas contacts
provided by MNCs may have little impact on developing local sources of these skills
and resources and may in fact inhibit their development by stifling the growth of
indigenous entrepreneurship as a result of the MNCs dominance of local markets.

The philosophical or ideological arguments include MNCs activities reinforce

dualistic economic structures; produce inappropriate products and stimulate inappropriate
consumption pattern (monopolistic power); local resources tend to be allocated of socially
undesirable projects; use their power to influence government policies (at all levels); may
damage host economies by suppressing local entrepreneurs.

5.2 Foreign Aid

Foreign aid can be define as any flow of capital to developing countries that meet two
criteria: (i) its objective should be non-commercial from the point of view of the donor; and
(ii) it should be characterized by concessional terms, ie. The interest rate and repayment
period for borrowed capital should be softer than commercial terms.
The major reason why donor countries give aid is because it is their political, strategic
or economic self-interest to do so. Some development assistance may be motivated by moral
or humanitarian desires to assist the less fortunate. Majorly foreign aid motivated by political
and economic considerations.
The economic motivations are the same with reasons for FDI. That is, fill saving-
investment gap, foreign exchange gap, revenue gap, and management gap. The political
motive for aid has been the most important for aid granting nations like USA.

6. LEADERSHIP STYLE AND DEVELOPMENT

6.1 Leadership in Africa/Nigeria
Ineffective leadership has been identified as one of the most critical problems
facing Africa, including Nigeria. Leadership in African countries tends to be Marxist in
ideology and authoritarian in method. Leninist tactics and ideology of class struggle were
21
imported into Africa during the colonial period. The leadership tendencies emerge naturally
from traditional practices of social and political control, in which the leader does not tolerate
opposition. Development is as much a domestic as an international issue, and that change
requires understanding the leadership and governance structures within developing countries.
Military intervention has dominated the African political landscape since
independence.
In Nigeria, lack of good leadership has accounted for the depression, the directionless
drift and the general purposelessness in Nigeria (Hollander, 1984). Arguably, post
independence Nigerian presidents have lacked good leadership qualities and virtues, because
of the emergence of an insidious culture of intolerance, corruption, mismanagement,
ineptness, embezzlement, human rights abuse, and allurements (Ekeocha, 1989). Frustrated
with the increasing political instability, many Nigerians are anxious for competent leadership
to lift Nigeria out of social, economic and political problems.
To the dismay of Nigerians, governmental authoritarianism and dictatorship have
flourished in post-independence Nigeria, underscored by the series of military government
overthrows. Abacha, the 10th Nigerian president, dissolved every Nigerian civilian
egalitarian institution at both national and state levels, and reinstated government and
selected officials with military backgrounds during his regime. The hopes and aspirations of
many Nigerians are hinged on the need for capable and competent leaders imbued with a high
sense of nationalism, collectivism, foresight, dedication, integrity, patience, accommodation
and friendliness. The capabilities of responding to problematic situations with appropriate
task and relational behaviours, including nurturance, assertiveness, courage, empathy,
confidence, and sensitivity can be attributed to good leadership. The third world has suffered
from development driven by capitalist motives. Development has been driven by improving
ideologies that benefit those with capital and very little has been suited to the needs of the
populace or of the environment. Consequently, the poorest one-third of the inhabitants of the
earth ends up getting poorer.
Post-independence Nigerian presidents have demonstrated several types of leadership
including dictatorial, authoritative, servant, transactional and transformational.
transformational and transactional leaders. He argued that while transactional leaders
motivate by appealing to Maslow’s lower order needs (such as food, shelter, safety, and
affiliation), transformational leaders motivate by focusing on the higher-order needs (like
esteem, self-fulfilment, and self-actualization).
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 Whetstone (2002) maintained that sustenance of development, for countries like
Nigeria, requires instituting a balanced mix of both transactional and transformational
leadership. Proponents of servant leadership, emphasized that servant leadership would
augment the positive values of transactional and transformational leadership. The movement
to transformational leadership typically require a shift in organizational culture based on
empowerment, visioning, and ethics.
Authoritative leadership has tended to be the dominant leadership style of the
Nigerian military presidents. Their dominance seems to have perpetuated corruption, evident
in the leaders’ insatiable desire to embezzle, which continues to cripple the society. For
example, Abacha has been portrayed as the fourth most corrupt leader in recent history by
Transparency International.
Godwin’s (2004) leadership model for developing countries provides a useful
framework for analyzing leadership in a developing country like Nigeria. This leadership
model provides an opportunity for developing countries to view leadership from inside out
where their views and preferences as to how they want to be led originate from within their
societies and culture. Godwin’s leadership model therefore, provides a framework for
analyzing leadership comprehensively, using Nigerians’ views and preferences about how
they want to be led given their societies and culture. Social change is often a function of
change in leadership in a country, particularly in developing nations characterized by coups,
counter coups, corruption, instability and military, political and religious conflicts.
Fundamental assumptions of the Godwin’s leadership model for developing countries by
Igein that were used in analyzing leadership characteristics include the following:
Several major encumbrances inhibit stable, capable, and credible leadership in
developing countries, including: (a) insufficient, inadequate, or limited viable leadership role
models; (b) knowledge, skill, and or educational gaps of the leader and the leader’s
associates; (c) poor, inadequate, or insufficient leadership preparation; and (d) factors related
to emotional, experiential, and personality of potential leaders created or exacerbated by
revenge, war, and famine.
i. Unstable leadership impedes economic and social development as it: (a) creates
uncertainty, (b) makes foreign investors reluctant to take risks (c) generates low expectations
of citizens, and (d) leads to limited outcomes to meet the needs to influence economic
choices.

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ii. Leadership theories geared toward helping developing countries must recognize their
unique cultures and ways of thinking. These theories must ask such questions as: (a) where
does the process of leadership mirror the country’s cultural mind frame? (b) how does the
process of leadership influence cultural views of other cultures? (c) does the cultural mind
frame drive collaborative, cooperative, and communal work ethics? (d) what are the positives
and negatives of how business is conducted?
iii. Some leadership models are universal; however, leadership theories geared toward
developing nations have limitations and potential consequences if they do not originate from
within each nation’s culture.
iv. Economic development can reflect an unbalanced approach to national development
and change; thus, cultural capital should be applied to build national capital.
v. Some developing countries inadvertently mismanage foreign aid as currently
structured, which breeds national co-dependency, not independence or interdependence.
These cycles tend to repeat themselves.
vi. Most developing countries received foreign aid for many years; however, for some,
insignificant evidence of advancement has been shown.
vii. Economic gains have been fractured or negated by social, economic, or political
conflicts.
viii. Most leaders of developing countries can become more effective, efficient, and
humanitarian leaders when they have experienced mentors, training, education, and role
models.
ix. Many leaders can become more efficient and effective in managing their countries’
economic resources and foreign aid when they have solution-focused feedback and guidance,
adequate resources and accountability, a morale code, specific social and financial goals, and
the internalized will to change their thought paradigms and governance.
x. Most countries whose leaders have capable mentors can enjoy a higher level of
national, communal, cultural, and economic prosperity and sustained stability in leadership.
xi. Leaders who have fully capable, responsible, and dedicated mentors will have less
chance of being overthrown.

6.2 Locke’s four keys to Successful Leadership

Successful leadership characteristics consist of four key parts including vision, implementing
the vision, motives and traits, and knowledge skills and abilities. Vision includes the capacity
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to: (a) define what organization/constituents should strive to be and to do, (b) articulate the
vision succinctly, (c) formulate a strategic vision that specifies the means by which the vision
will be attained, and (d) promote commitment from followers by communicating in a manner
that is both clear and compelling.
Implementation of the vision is a requirement for successful leadership. A vision that
is not implemented remains only a dream. The effective leader takes steps to ensure that a
vision is translated into specific actions. This is usually accomplished with the help of
managers and their subordinates. Effective implementation of actions includes: (a)
structuring; (b) selection, training and acculturation of personnel; (c) motivating; (d)
managing information; (e) team building; and (f) promoting change.
Motives and traits attributes include: drive, energy and ambition; tenacity and the pro-
active pursuit of goals; the desire to lead, and craving for power not to dominate others, but to
achieve overarching goals; creativity; strategic flexibility; charisma; honesty and integrity;
and a high degree of self-confidence .
These attributes enable leaders to not only undertake grave responsibilities and
generate confidence in others, but to also manage many potentially stressful situations with
equanimity. Knowledge, skills, and ability attributes include: (a) extensive knowledge of the
discipline, technology, and the organizational work environment; (b) a variety of skills
including listening, communication, network building, conflict management, and assessment
of self and others; (c) problem solving and decision-making skills; and (d) cognitive ability,
especially the intelligence to process a large amount of information, and to integrate and draw
logical conclusions from it (Ali, 2004; Locke, 2003).

Authoritarianism / Dictatorship
Dickerson and Flanagan (2006) defined authoritarianism as a system of government in which
leaders are not put through the test of liberated election, but wherein leaders are
unconditionally totalitarian and dictatorial and are usually not restricted by laws or
opposition. The term ‘authoritarian’ refers to a state that enforces tough and occasionally
tyrannical measures against the populace, usually exclusive of endeavours at gaining the
sanction of the people.

Transformational leadership

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Burns (1978) conceptualized transformational leadership as a result of conducting studies on
political leaders. Burns contended that transformational leadership is a reciprocal process
between leaders and their followers. The leaders can raise the consciousness of their
subordinates to influence their behaviours. A transformational leader is the one who
motivates followers to do more than was originally expected of them. In transformational
leadership construct, leaders and followers elevate one another to higher levels of
performance through appeals to higher moral values, such as justice and equality. Leaders at
all levels can motivate employees to develop and make self-sacrifices that contribute to the
objectives of the organization. Therefore, transformational leadership plays an integral role in
ensuring that the employees remain committed to the organization.
Bass and Avolio (1993) observed that transformational leaders can integrate creative
insight, persistence and energy. Transformational leaders possess the intuitive ability and the
sensitivity to others’ needs required to forge strategy-culture alloy. Wofford, Whittingham
and Goodwin (2001) found a positive correlation between transformational leadership and
effective outcomes. Charismatic/transformational leadership had positive effects on the
organizations, institutions and followers. Transformational leadership is based on the
relationship between the leader and his or her subordinates.
Transformational leaders display four distinct characteristics, which they termed the
four I’s including: (a) idealized influence (charismatic), (b) inspirational motivation, (c)
intellectual stimulation, and (d) individualized consideration. These are discussed next.

Idealized Influence (Charismatic).

Yin and Lee (2004) defined idealized influence as the role modeling of personal values.
Charismatic individuals had extraordinary gifts and that authority was vested in the
individual’s personal gifts and abilities. Weber thought that charismatic leaders were
individuals with prophetic visions, or visions of the future. Bass (1990) defined charisma as
providing vision and a sense of mission, instilling pride, and ultimately gaining the respect
and trust of followers. Today, charismatic leadership has become increasingly topical,
perhaps because of the increase in the number of charismatic leaders over the last two
decades (e.g. Bill Clinton, Ronald Reagan, Nelson Mandela, and Michael Manley).
Charismatic leadership has been described as involving exemplary acts that followers
interpret as involving extraordinary abilities, determination, and confidence (Waldman, Bass
& Yammarino, 1990). Leadership described as genocidal or promoting incessant civil unrest,
26
as in the east African countries like Uganda, Rwanda and Burundi in the 1990s, is not worthy
of emulation.

Transactional Leadership
Transactional leadership entails the exchange of material, social and psychological benefits.
Bass (1990) said that in a “transactional process, leaders and followers reinforce each other’s
behavior with either reward or punishment, preferably reward that is contingent on fulfilling
the transacted role arrangement. The exchange may be less rewarding when it involves
management by exception. Leaders practice management by exception when they take
corrective action and intervene when failures and deviations occur. Transactional leaders
view the leader-follower relationship as a process of social exchange based on the use of
contingent rewards and punishments for performance, i.e., contingent reinforcement.
Transactional leaders tend to gain compliance by offering rewards for performance and
compliance, or aggressive reprimand for non-performance and non-compliance.

Servant leadership
The servant leadership proponents advocate for leaders to choose serving before leading as a
way of escalating service to individuals and institutions. Whetstone (2002) maintained that
servant leaders make serving others, including employees, customers, community and the
country, their first priority. Servant leadership emphasizes increased service to others, is a
holistic approach to work, and promotes a sense of community and the sharing of power in
decision-making. He argued that servant leadership promotes collaboration, trust, foresight,
listening, and the ethical use of power and empowerment. However, Whetstone pointed that
the words servant and leader are opposites, and when these opposites merge in a resourceful
and significant way, a contradiction surfaces. Followers would often try to take advantage of
what they deem weakness on the part of the leader, and that servant leaders can inadvertently
become subject to manipulation by followers.
When a problem appears, the servant leader first addresses the manner in which the
problem may have originated within, then invents and develops solutions without ideological
bias or preconception. Whetstone emphasized that success in servant leadership is measured
by growth in the people served, and the positive effects on the least privileged in society.
Transformational and servant leadership, have become the dominant framework for
appreciating the leadership theme in the postmodern social sciences (Avolio & Bass, 1991).
27
The fundamentals of transformational, servant and transactional leadership styles lie in the
leader’s postulation of what motivates followers in the organizational context. Greenleaf
(2002) advocated servant leadership as an enhanced approach, where leaders serve first
before leading.

Area of focus for exams:

 Understand social protection, social exclusion and social inclusion and relationship
among them.
 Understand transactional leadership, servant leadership, transformational and
charismatic leadership. Which one do you thing can fast tract Nigeria’s growth and
development?
 Relationship between poverty and environment.
 How can Nigeria take advantage of export promotion strategies for growth and
development of Nigerian economy?
 Rationale for implementing social protection programs and challenges.
 The benefit or otherwise of foreign capital inflow in Nigeria

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