The recently released Nigeria Development Update (NDU) report by the World Bank for December 2023 has brought to light a potential breakthrough in poverty alleviation in Nigeria.
The report, titled ‘Turning The Corner (from Reforms and Renewed Hope to Results), which was read on Wednesday, forecasts that the removal of import restrictions within the country has the potential to lift around 1.3 million individuals out of poverty, addressing the disproportionate impact these limitations have on the most vulnerable households.
Lead Economist for Nigeria at the World Bank, Alex Sienaert, highlighted the significance of this move, stating, “Import restrictions disproportionately affect goods that are consumed more by the poorer households. Recent World Bank estimates show that removing import restrictions could lower the prices of affected items by 4.7 percent.”
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Sienaert further elaborated, “This would lead to an overall increase in purchasing power which, in turn, would lift about 1.3 million people (around 0.6 percent of the population) out of poverty.”
The report highlighted the critical role played by staple items, such as rice, in the lives of Nigerian households, emphasizing that these commodities have been subject to price escalations due to import restrictions. With the removal of such limitations, the World Bank anticipates a marked reduction in the cost of these essential items, thereby directly benefiting the poorer sections of society.
In commending recent policy shifts, particularly the Central Bank of Nigeria’s (CBN) action to lift foreign exchange prohibitions on key items like rice, fertilizer, and cement, the World Bank emphasized the positive impact on consumer welfare.
“Recent reforms, such as the lifting of foreign exchange prohibitions, are seen as pro-poor measures that enhance consumer welfare,” Sienaert noted.
However, the report also highlighted regional disparities in the impact of this policy change. States like Kaduna, Ekiti, Enugu, FCT, Kwara, Anambra, Adamawa, Cross River, and Kebbi are projected as major beneficiaries, while others like Rivers, Akwa Ibom, Ondo, Abia, Imo, and Ebonyi may experience a smaller-scale impact.
Moreover, the report addressed the challenging trends in poverty over the past five years, with approximately 24 million Nigerians slipping below the poverty line between 2018 and 2023. The World Bank anticipates that ongoing reforms will gradually reverse this trend from 2024 onward.
“The number of poor rose from 79 million in 2018 to 104 million in 2023, with urban poor—more exposed to inflation—increasing from 13 to 20 million, while the number of poor people in rural areas increased from 67 to 84 million.
“In the medium term, the reforms will reverse this trend through higher growth and lower inflation, but to a limited extent, with poverty rates decreasing from 46 per cent in 2024 to 44 percent in 2026,” the world financial body wrote.
Additionally, Sienaert highlighted concerns regarding fuel pricing during the presentation, suggesting that the Nigerian government is still paying fuel subsidy even after announcing its total removal in May.
“If we estimate what is the cost reflective of retail PMS price of the would-be and assume that importation is done at the official FX rate, it does seem that petrol prices are not fully adjusting to market conditions so that hints at the partial return of the subsidy,” Sienaert said.
“Of course, the liberalization is happening with the parallel rates, the main supplier. The price would be even higher. These are just estimates to give you a sense of what cost-reflective pricing most likely looks like.
“We think the petrol price should be around N750 per liter more than the N650 per liter currently paid by Nigerians.”