Widening economic inequality seen impacting Nigeria retail market growth

by | February 1, 2018 1:05 am

Nigeria’s widening economic and social inequalities are seen adversely impacting retail market growth as economic recovery and macroeconomic indicators improve.

Gross Domestic Product (GDP) growth picked up pace in the third quarter of 2017due to faster growth in the oil sector, however, the rest of the economy performed sluggishly. Available data for the fourth quarter suggests that the economy is gaining traction. The Purchasing Managers Index (PMI) rose to a multi-year high in December and higher oil prices throughout the quarter bode well for oil production revenues.

However, GDP growth and PMI readings do not always translate into better economic well-being for individuals. Although there was slight improvement in Nigeria’s inequality profile it has remained a source of concern for over a decade, signalling worsening economic well-being for individuals, which will impact purchasing power.

Economic inequality is the difference found in various measures of economic well-being among individuals in a group, among groups in a population, or among countries. This sometimes refers to income inequality, wealth inequality, or the wealth gap.

Inequality in Nigeria worsened between 2004 and 2013 but improved in 2016 using either the Gini coefficient or Theil. Inequality as measured by the Gini worsened from 0.356 in 2004 to 0.41 in 2013 but improves to 0.391 in 2016, according to the National Bureau of Statistics in a recent report titled Snapshot of Inequality in Nigeria.

Using Thiel, inequality worsened from 0.217 in 2003 to 0.395 in 2013 but improved to 0.31 in 2016.

With respect to consumption shares (and using consumption as a proxy for income), in 2004, the bottom 10 percent (poorest of the poor) of the population consumed 2.56 percent of goods and services, while the top 10 percent (super rich) consumed 26.59 percent of all goods and services. The richest 10 percebt were responsible for 26.59 percent of national expenditure or income in 2016. This increased to 33.72 percent in 2013 but decreased to 31.09 percent in 2016.

The top 20 percent were responsible for 42.40 percent of national income/expenditure in 2004. This increased to 48.28 percent in 2013 but declined to 46.63 percent in 2016.

According Proshare, a Lagos-based online economic and business information website, statistics appear to grossly under-estimate the immensity of poverty that defines Nigeria’s paradox of ‘rich country with poor masses’.  More than 90 percent of Nigerians are poor and exist largely at the mercy of fate.

These realities are much more obvious in rural areas and slums. In these places people die because they cannot afford N500 to purchase needed medication or basic public healthcare. Sometimes people around may not be able to help as they too may not be able to collectively raise that amount of money. It is a very obvious reality in today’s Nigeria. As strange as it may sound, this is going on side-by-side with ostentatious living by the 1 percent.

The inequality profile discussed implies that in the coming years, most of the increase in consumer spending in Nigeria will likely come from relatively upper-income households. On average, lower- to middle-income households are not likely to have the means to significantly increase their spending.

Hence, their behaviour is likely to change. They are likely to become more price sensitive, more prone to shop for bargains, and less prone to purchase big-ticket items. Moreover, as they are likely to be less active in the housing market, fewer of their purchases will be related to housing market activity. Such purchases include furniture, appliances, electronics and home improvement products and services.

Yet the absence of income gains for lower- and middle-income households will not necessarily erase the fact that people often conduct their spending in reference to those with more. Thus, a significant degree of frustration could develop. The spending implication is that people are likely to demand products and services that help to satisfy the desire for minor luxuries while not breaking the bank.