RISK AND VULNERABILITY TO POVERTY  IN NIGERIA

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ABSTRACT

Recent empirical literature has shown that severalfactors can expose households  to risk, thereby making  them vulnerable  to poverty.  These  appear to be the major  challenges  many  households face  in developing economies.  This study  therefore  investigates  risk and vulnerability  to poverty in Nigeria  using  the  revised  General  Household post-harvest panel survey  for Nigeria.  One objective  is  to analyze  the types of risks  households face  and  to determine  if urban  and  rural households  are disproportionately exposed to all kinds of risks.  Other objectives are to ascertain how  various  types  of risks  affect  vulnerability   to poverty  and  the  impact  of household  and community  level characteristics  on vulnerability. In order to achieve  these objectives,  the study employed  the  three-step   Feasible   Generalized   Least   Square   (FGLS)  estimation.   The  cross sectional  analysis  and  the distribution  of risk  between  urban  and  rural population  were  also calculated.  The study found,  though  not surprisingly,  that urban  and rural  households  are not disproportionately  exposed to all kinds of risks.  However,  it revealed  that urban households  are significantly exposed to risks associated  with job loss,  income,  business failure, price increase in inputs, food items,  kidnapping,  robbery and hijacking.  While risks such as harvest failure due to fire, poor rain, flooding, pest,  livestock death, price decrease  in output and dwelling  demolition are  commonly  found  among  rural  households.   On  the  impact  of various  kinds   of risk  on vulnerability,  the result shows  a positive effect ofjob  loss,  important contact and harvest failure caused   by   rain,  flooding  and  pest  on  vulnerability.  Additionally,   the  study   revealed   that households   with   high  dependency  ratios  are  likely   to  be  poor  and  more  vulnerable   than households  with low dependency ratios.  These findings therefore have some policy implications. First, policies that enhance  increased farmers ‘  incentives  through  income  and agro  ecological extension package reduces  their vulnerability  and thus,  should  be adopted.  Secondly,  reduction in market risk such as price fluctuation,  wage variability  and unemployment are found to reduce vulnerability   and finally,  sponsored public  enlightenment  programmes  on family planning  is likely  to reduce household  size and their dependency.  These  therefore,  suggest  that government must re-examine  its policies toward these urgent issues in the effort to reduce poverty

CHAPTER ONE

1.1 Background to the Study

INTRODUCTION

Risk,  vulnerability  and poverty  appear  to be the major  challenges  many  households  face in developing  economies  especially  in  the  Sub-Saharan  Africa.  As  a result,  these  issues  have become  central in the policy  agenda not only in these countries but also in the international multilateral  institutions  such as the World Bank,  the International  Monetary  Fund (IMF),  the Food and Agricultural  Organisation  (FAO), among others. For example, these issues were the focus of the 2013 Annual World Bank Conference on Development Economics.  The reason for bringing the issue of risk,  vulnerability and poverty in policy debate recently is not far-fetched. Starting from the Asian Financial Crisis of the late 1990s,  the Tsunami of 2004,  the Financial Crisis of 2007 to 2009, and rise in world food prices due largely to drought in many parts of the world, many households have fallen deep into poverty while many others have become poor.

Exposure to risk may be seen as one of the many dimensions of poverty.  Poor households are typically more exposed to risk and least protected from it. This exposure has a direct bearing on wellbeing,  perhaps even more important is how risk exposure causes poverty  or increases the depth of poverty.  Risk and other factors may lead to unacceptable  outcome in well-being.  The manifestation  of risk  (as  a  shock)  also  leads  to  undesirable  welfare  outcomes  (Hoogereen, Tesliuc, and Vakis, 2004). A shock can push  an already income poor household  further into poverty,  or drive a non-poor household below the income poverty line.  These linkages between risk  and poverty  define  vulnerability.  In particular,  whereas poverty  reflects  an unacceptable level of well-being,  (risk related) vulnerability is seen as “the exposure to uninsured risk leading to a socially unacceptable level of well-being”. According to Chaudhuri (2003), poverty is an ex• post measure of a household’s well-being.  It reflects a current state of deprivation, of lacking the resources or capabilities to satisfy current needs. Vulnerability on the other hand, may be broadly construed as an ex- ante measure of well-being, reflecting not so much how well of a household currently is, but its future prospect are.  What distinguishes the two is the presence of risk – the fact that the level of future well-being is uncertain.  The uncertainty that households face about the future sterns from multiple sources of risk -harvest may fail,  food prices may rise, the main income earner of the household may become ill etc.

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Several factors can expose households to risk and hence make them vulnerable to poverty. These include natural disasters such as flooding,  impact of climate change,  crop failure,  and some are man made factors such as wars, communal clashes, kidnapping, etc.  According to Satterthwaite; Saleemuul;  and Mark;  (2007),  the scale of the devastation to urban populations  and economies caused by extreme weather  events in recent years highlights  their vulnerabilities.  Worldwide, there has been a rapid growth in the number of people killed or seriously impacted by storms and floods and also in the amount of economic damage caused;  a large and growing proportion  of these impacts are in urban areas in low- and middle-income  nations. According to Olorunfemi (2011 ),  flooding  affected  more than  three  million  people  in selected  urban  areas in Nigeria between 1983 and 2009. He argues that climate change is likely to have been a factor in much of this,  but even if it was not,  it is proof of the vulnerability  of urban populations  to floods and storms whose frequency and intensity climate change is likely to increase in most places.

Olorunfemi (2011) further stated that Nigeria is vulnerable to climate change impacts due to its geography, climate, vegetation, soils, economic structure, population and settlement, energy demands  and agricultural  activities.  The  location  and size of,  and the characteristic  relief in Nigeria give rise to a variety of climates ranging from tropical maritime climate characterized by the rainforest along the coastal and southern section to the tropical hinterland climate associated with  the  Sahel  in the  north  eastern  section  of the  country.  Currently  Nigeria  population  is approaching  170 million impacting on the physical environment through their various activities within an area of 923,000 square kilometres.  According to Gwary (2008),  sixty per cent of the people live directly on the natural resource base as farmers,  cattle rearers and fishermen while the informal sector constitutes the bulk of the economic activities in the urban areas. Technology adaptation is low and rudimentary leading to low output and high levels of poverty.

There are growing concerns  that poverty  is not reducing  due to lack of understanding  of its dynamic nature and vulnerability to poverty (Adepoju and Yusuf,  2012).  The authors argue that the inability of previous programmes and strategies to put a commensurate dent on the incidence of poverty  in Nigeria  suggests  that the major  issue  is not that households  are poor  but the probability that a household if currently poor, will remain in poverty or if currently non-poor will fall below the poverty line (that is, household vulnerability to poverty). To them, vulnerability to poverty is one of the factors that explain the ever-increasing level of poverty.

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1.2 Statement of the Problem

Poverty in Nigeria worsened since the 1980s  and became pervasive in the 1990s.  For example, the number of those in poverty increased from 27% in 1980 to 46% in 1985; it declined slightly to  42%  in  1992  and  increased  very  sharply  to  67%  in  1996  (Ogwumike,  2001).  This  has continued such that every measure of poverty ranks the country at the bottom list of nations.  The Core Welfare  Indicator  Questionnaire  (CWIQ)  survey  conducted  by the National  Bureau  of Statistics (NBS) 2006 revealed that over 67 percent or two-thirds of Nigerian’s rural population was poor. The Human Development  Index (HDI) of 0.423 ranks the country  142 out of 169 countries  in  2010  with  estimated  Gross  National  Income  (GNI)  per  capita  of $2156,  life expectancy at birth of 48.4 years, multidimensional poverty index (MPI) of 0.368 (UNDP, 2010) and more than half (54.4%) of the population below poverty line in 2004 of which 36.6% of the total population are living in extreme poverty (NBS,  2005).  The Human Development Index for

2012 ranks the country 153 of 186 countries and the NBS (2013) frightening statistics about 112 million of the 160 million Nigerians live below poverty line. By the figure it means 67 percent of entire population is finding it hard to eke out bare existence.  The HDI value for 2014 and 2015 of 0.514 placed Nigeria in low development category positioning it at 152  out of 188  countries and territories.

Poverty reduction  is one of the challenges  facing the country and the greatest obstacle in the pursuit of sustainable socio-economic  growth with the rural areas being worst affected. At the beginning, the National Consumer Survey (NCS) data set series were used in proffering answers to such questions according to Adewoye and Ekezie (2010) as: who are the poor (the vulnerable groups) and where are they located? Why are they poor and what are they doing? The NCS data series supported the production of poverty profile for Nigeria (1980 to 1996) which served as a benchmark for monitoring and evaluation of various government anti-poverty programmes  and policies.  Some of such programmes according to Osinubi (2003) include National Directorate of Employment (NDE), the Family Support Programme (FSP), National Agricultural Land Development Agency (NALDA), Directorate for Food, Roads and Rural Infrastructure (DFRRI), Family   Economic   Advancement   Programme   (FEAP)   and   National   Poverty   Eradication Programme  (NAPEP).  Although  other  attempts  have been  made  to increase  growth  through industrialization   and  reducing  poverty   severity  which  includes  the  Structural  Adjustment

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Programme  (SAP) that stressed greater realization of the need for policies and programmes  to alleviate poverty and provide safety nets for the poor. SAP failed because it had no human face in its implementation  and did not emphasize on human development which thereby aggravated socio-economic  problems  of income  inequalities,  unequal  access  to  food,  shelter,  education, health  and  other  necessities  of life.  Also  in  2004,  the  National  Economic  Empowerment Development  Strategies (NEEDS) was introduced as Poverty Reduction Strategy paper (PRSP) to anchor on a tripod:  Empowering people; promoting private enterprise and changing the way the government does its work (reform government and institution) and has its equivalent in the states and local government, the Millennium Development Goal (MDG) now proposed as Sustainable Development  Goal (SDG), the Vision 20:2020 and 7- Point Agenda. According to Anyanwu  (2011 ),  they  have  also been periodic  reviews  of salaries/wages  and tax rates  and allowances as well as pensions for increasing purchasing power of civil and public servants by successive  government  in reducing  poverty  (rural  and urban).  Despite  the initiation  of these programmes, the poverty profile has not made any remarkable impact in Nigeria.

The failure of these strategies and programmes  to minimize  or curb the poverty  incidence in Nigeria  is  a clear  indication  that  the  issue  of risk  and  vulnerability  has  not  been  properly addressed.  Previous  poverty  reduction  programmes   in  Nigeria  did  not  fully  achieve  their objectives and these raise two important issues (Alayande and Alayande,  2004).  Firstly,  it is not sure whether the country lacks sufficient capacity to mitigate the social risks faced by households and communities, or whether the country has not paid sufficient attention to the issues of risk and uncertainty that are important for the understanding  of the dynamics that often lead households to perpetual poverty.    Vulnerability is a probability that a household may be currently poor and will remain in poverty or if currently non-poor will fall below the poverty line.  If policy makers design poverty alleviation policies in the previous year,  “the poor” who receive income support may have already escaped from poverty  and the “non-poor”  who do not receive income  may have slipped into poverty due to various unanticipated  shocks (e.g.  increase in the relative price of food or an illness incapacitating the main bread winner) (Jha and Dang, 2009).

Reducing poverty  will not be possible  if risk and vulnerability  and their effects  on the poor people  are  not  accounted  for  and  neither  can  risk  and  vulnerability  be  stabilized  without

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acknowledging  that  ending  poverty  is  an utmost  priority.  According  to  World  Bank  Group (2016) Poor people are disproportionately affected not only because they are often more exposed and invariably  more vulnerable  to climate related  shocks but  also because  there have  fewer resources and receives less support from family, community, financial system, and even social safety nets  to prevent, cope and adapt.

Poverty  in Nigeria  contradicts  the  country’s  immense  wealth  and  has  been  described  as  a paradox ( Obadan,  2004) and as poverty  in the midst of plenty ( World Bank,  1996).  This is unarguably  because  it  contradicts  the  growth  theory.  With  the  country’s  growth  in  Gross Domestic Product (GDP) from 3.7 percent in 2004 to 7.8 percent in 2010 (World Bank, 2013), it is expected that the growth will reduce the poor segment of the population through trickle-down effect.

Adepoju and Yusuf (2012) argued “that sustained economic growth and development in Nigeria cannot be achieved without the alleviation of poverty.  To reduce poverty sustainably,  however, reducing household vulnerability through increased ability of government to identify,  assess and respond to potential  crisis situations and improve households’ ability to recover quickly when exposed to shocks are also necessary.  This has become imperative as policy makers only weigh the current poverty status of a household,  without taking into cognizance,  the possibility that a household  not  poor  now,  might  fall  into  poverty  in  the  future.”  This  ex post  measure  of development needs to be replaced by indicators that recognize that anti-poverty policies need to be forward-looking and incorporate the hazards affecting whether individuals or households are in poverty  or are likely to fall into poverty, that is their   vulnerability  (UNU,  2008).  In the absence of such information, it is extremely difficult for policy makers to enact relevant policies and programmes that can help in risk/vulnerability-led poverty reduction.

Irrespective  of the  importance  of risk  and  vulnerability  to promote  a  sustainable  campaign against poverty at all levels, previous efforts have always focused on the current poverty status of households, without recognizing the probability that a household not poor now, might fall into poverty in the future.  Some others have neglected the role of risk and vulnerability to poverty.

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These approaches require attention of expanding the focus to different quantitative dimensions of poverty beyond just income poverty and vulnerability headcount.

Previous efforts in analyzing the status of poverty in Nigeria namely,  FOS (1999);  Okojie et al. (2000);  Alayande and Alayande (2004);  Ogwumike et al (2006);  Okumadewa et al (2006);  Oni and Yusuf (2008);  Oyekale  and Oyekale  (2008);  and Adepoju  and Yusuf (2012);  and other studies by National  Bureau of Statistics neglected  other risks such as risks of exclusion  from informal support system, policy credibility and vulnerability reduction policies.  In order to have a comprehensive framework of poverty dynamics,  there is need to carry out analysis of risk and vulnerability  to poverty  in Nigeria  using  cross sectional  data as a second best solution  since panel data is not readily available in Nigeria for this kind of study.  Hence,  our study is different from existing studies in the sense that we adopted the framework proposed by Christiaensen and Subbarao  (2001)  and  Chaudhuri,  Jalan  and  Suryahadi  (2002)  to  estimate  vulnerability  as expected  poverty  using  cross  sectional  survey  to  conduct  an  in-depth  analysis  of risk  and vulnerability to poverty in Nigeria.

1.3 Research Questions

The study would therefore attempt to address the following research questions:

1.         What types of risks do household face in Nigeria?

11.           Are urban  and rural households  in Nigeria  disproportionately  exposed  to all kinds  of risks?

111.           What is the effect of various types of risks on household vulnerability to poverty?

IV.         How does household and community level characteristics impact on vulnerability?

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1.4 Objective of the Study

The broad  objective  of the  study is to relate risk  and vulnerability,  their  characteristics  and impact on  poverty in Nigeria

The specific objectives are to:

(i)        To analyze the types of risks households face in Nigeria.

(ii)       To determine if urban and rural households in Nigeria are disproportionately  exposed to all kinds ofrisks.

(iii)      To ascertain how various types of risks affect vulnerability to poverty.

(iv)      To   ascertain   the   impact   of  household   and   community   level   characteristics   on vulnerability.

1.5 Research Hypotheses

There are three testable hypotheses for this study derived from objectives 2 to 4. These are:

Hl:      Urban and rural households  are not disproportionately  exposed to all kinds of risks in

Nigeria.

H2:      The effect of risk on vulnerability to poverty is not significant.

H3:      Household  and  community  level  characteristics  do  not  significantly  determine  their vulnerability.

1.6  Significance of the Study

Programmes  and policies  initiated by the  government  such  as National  Poverty  Eradication Programme  (NAPEP), National  policy  on integrated  Rural  Development  (NPIRD),  National Emergency  Management  Agency  (NEMA)  with  its state counterpart  SEMA may have made some remarkable effort toward putting succour to flood prone areas. All of these seem necessary but may not be a sufficient condition to meet the Millennium Development Goals (MDGs) now sustainable Development Goals (SDG) in reducing poverty by the year 2015.

The outcome of this study will therefore:

(1) Provide  rural  household’s  farmers  engaged  in  agriculture  the  understanding  of the  risk related  to rainfall  and climate pattern  and mitigation  by choosing  to produce  lower risk output and diversify income sources.

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(2) Provide anti-poverty policies to address vulnerability in rural and urban areas where risks are boosted by lack of formal insurance, credit market imperfections and weak infrastructure.

(3) Risk and vulnerability  study of this kind will provide policy makers and government  with useful tools which will be used as guidelines for poverty eradication and policy design.

(4) Help  policy  makers  to  know  who  should  benefit  from  social  programmes   by  having information  on the most vulnerable  groups.   It will also help in the design of social safety nets and the characteristics  of households that need such interventions in order to minimize leakage rates and in the design of pro-poor macroeconomic policies.

1.7 Scope of the Study

This study is a cross sectional study and it is a household level analysis. The study covers all the zones, and,  in most cases, all the state of Nigeria since data is available.  The dataset is from the revised General Household Post-harvest survey for Nigeria conducted by the National Bureau of Statistics  in  2010.  The  structure  of the  data  is  explained  in  detail  under  data  sources.  We constructed  indicators  of vulnerability  and measurements  of poverty  based on the approaches discussed under conceptual part of the literature review.



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