Lately I’ve been thinking Nigeria should be a little bit more like, of all places, Iran. Yes, Iran. And maybe Alaska. Here’s how.
Africa’s most populous nation has been a massive underperformer since independence. It’s earned hundreds of billions of dollars from petroleum exports, but the average Nigerian has little to show for it. At least three decades were lost; average incomes in the mid-2000s were the same as in the mid-1970s. More recently, the economic data has been brighter. And there is always hope that the country has finally turned a corner.
But Nigeria has had a rough start to 2012. Boko Haram has emerged as a serious domestic terrorist threat. The government’s attempt to remove regressive and budget-busting fuel subsidies was a debacle. And now this week, new statistics show that, despite high economic growth rates, the poverty rate actually climbed from 55% in 2004 to 61% in 2010. Yes, Nigeria lately has been earning some $50 billion per year from oil, but the number of Nigerians living hand-to-mouth on less than $1 a day has climbed to nearly 100 million. Yikes.
I’m still optimistic on Nigeria. In fact, the problems it faces today—inexcusable poverty, budget waste, and a desperate need for national unity—could all be alleviated by doing something like a 20-20-20 National Dividend, based on the following:
- 20% of government revenues sequestered into a special fund
- Every Nigerian up to age 20 would receive regular payments
- At a maximum of US$0.20/day or 20% of the poverty line (a similar level used for transfer programs in Latin America)
Based on these 20-20-20 parameters, some 90 million Nigerians would be eligible for payments totaling $50-75 per year at a cost of US$4.5bn-$6.8bn per year. The 20% of total revenue now equals nearly US$9 billion and would more than cover this level of benefit. Any excess funds could go into a savings pot for future years.
Sound implausible? India and Iran also ended fuel subsidies, but did so concurrently with the introduction of regular cash payments to poor families. Iran was especially clever about sequencing it, creating some 61 million bank accounts, depositing the cash, but also freezing the money until the subsidies were officially lifted. As a result, Iranians were clamoring for subsidy removal! (Read a fascinating account of it here.) In Nigeria, by contrast, the sudden policy move led to violent protests, strikes, and a partial government climb-down.
A National Dividend would be a highly visible and tangible benefit for citizens. It would also be an efficient investment: cash transfers are already showing to be highly effective at increasing schooling, nutrition, and other development outcomes (see terrific DFID meta-study here.) Mexico and Brazil are the most famous, but cash transfers are increasingly being tried in Africa too. Where implemented, they become hugely popular programs (ask Lula!), so it’s only a matter of time before African politicians get on board.
In a country with conflict in the Niger Delta, rising sectarian violence, and a history of division, a universal national dividend could also go a long way toward promoting national unity and equity. It could even go a long way toward creating incentives to deal with Nigeria’s notorious governance problems. A national dividend would likely create additional public demand for accountability of revenues and raise public expectations. Alaska’s permanent fund dividend, which has distributed the state’s sovereign wealth fund profits since 1982, was launched by Governor Jay Hammond primarily as a check on wasteful public spending.
We can think of many reasons a national dividend would be difficult. Yes, Nigeria desperately needs infrastructure. But the country’s investment record is abysmal (Ajaokuta Steel, anyone?) and it’s hard to convince average Nigerians that, after 50 years, the government really will do better this time—the subsidy riots are proof the government is going to need to do more than promises. Moreover 20% leaves plenty of fiscal space.
The biggest barrier is overcoming the political system built on doling out oil money rather than popular support. What Nigerian politician would just give money to citizens? Some rumblings from the highly respected central bank governor Lamido Sanusi, specifically citing Iran’s experience with subsidy removal, give some hope that this idea could be gaining traction. Arvind Subramanian and Xavier Sala-i-Martin floated this idea almost a decade ago, but the country wasn’t yet ready. Now may be just the right time to for a well-designed national dividend to help Nigeria repeal subsidies, deliver tangible development results, and even—the grand prize—build incentives for accountable government.