Economic development is both a policy objective and a means to achieving other policy goals, such as full employment, poverty alleviation, egalitarianism, and social progress.
One way to grasp the meaning of economic development is to understand what it is not. To begin with, economic development, though closely related to, is not identical with economic growth. Growth in real GDP or GNP is a necessary but not a sufficient condition for development.
An economy may register a sound growth rate but may still fall well short of development. An obvious example is Nigeria, whose GDP grew at a very healthy rate in 1960s and then in 1970s but the economy never approached the level of development.
Nor is a high per capita income an essential indicator of development. There are, for example, many oil producing Arab countries with a remarkably high per capita income but lacking in the elements that constitute development.
It is also important not to equate development with egalitarianism. Doubtlessly, narrowing of economic equalities is both a component of the development process and its goal. However, it is possible for underdevelopment and egalitarianism to co-exist as in the case of primitive societies. Conversely, a highly developed economy may have gross inequalities, which for Karl Marx is the common fate of all capitalist economies.
Then what is economic development? Economic development is growth in GDP accompanied by relevant social and institutional changes by which that growth can be sustained.
These changes include reduction in absolute poverty, a better quality of life, high literacy level, improved productivity of labour and other factors of production, sophisticated techniques of production, development of physical and commercial infrastructure, higher savings, increase in employment opportunities, a positive attitude towards life and work, and a stable political system.
Having defined economic development, let’s discuss the factors underlying it. The foremost factor lying at the bottom of development is economic growth. Economic development is possible only if the real GDP grows at a fast pace over a long period.
The engine of GDP growth is investment or capital formation. Most developing countries are characterised by deficiency of capital due to low level of investment.
Investment has both supply and demand sides. On supply side, investment requires savings. Whenever savings are low, as in case of most developing countries, investment falls short of the desired level. But why savings are low? Savings depend on several factors such as interest rates, inflation, the consumption habits of the people, and taxes. Higher interest rates, for instance, encourage savings.
On the contrary, when there is inflation, the currency loses its value and people want to get rid of it quickly, thus consumption increases and savings fall. However, the single most important factor behind savings is real income. Savings tend to be higher among high-income people and vice versa.
In developing countries, the primary reason for low savings and thus low investment is the low incomes. As incomes are low in these economies, there is little left after meeting essential consumption needs.
On demand side, investment depends on potential or estimated demand for output. Despite the availability of savings, businesses will step up their investment only if they see higher demand for their output.
Conversely, if potential demand falls, firms will cut back on their output and investment. As in case of savings, the demand for output depends on several factors, such as price, customer preferences and tastes, and the marketing tools used by firms.
However, the single most important factor bearing upon demand is again income. Demand goes up if income goes up and vice versa. It follows that in case of developing countries, the most powerful factor underlying deficiency of investment is low incomes.
Lower incomes restrict investment and hence output and employment, which in turn obstruct efforts to raise the income level. This is a catch-22 situation for several developing countries.
If employment opportunities are to increase, investment must increase. However, investment cannot increase if income level does not go up. And income level cannot go up if employment opportunities do not increase.
There are two ways out of this predicament: increase in government spending, and provision of foreign capital. By stepping up its spending, the government can increase the productive capacity of the economy provided the increased spending is invested in producing capital goods.
The enhanced government spending also creates demand for businesses, goods and services. Businesses respond by increasing output and hiring more labour. The income earned by the workers is partly saved and partly consumed thus adding to total savings and demand in the economy.
Increase in government spending, however, is not without problems. The stepped up government expenditure can be financed by levying more taxes, borrowing or printing money.
Increase in taxes is not advisable, as it will negatively affect already low business activity. Borrowing will add to public debt. The easiest option for the government is to print money.
This however will cause inflation. A moderate degree of inflation is acceptable. But a high degree of inflation is not only politically dangerous but may also cause the breakdown of the monetary system.
In view of the problems associated with increase in government spending, developing countries have to look for external capital, which can be in the form of aid or investment. It is were today, most developing countries are not only deficient in capital, but they also have a very slow rate of capital formation.
They also have a very high capital-output ratio. Both to increase the rate of capital formation and narrow capital-output ratio, technology are essential. Technology increases the productivity of both labour and capital.
In the absence of technological improvement, the marginal productivity of capital falls, which squeezes profits. In such situation, the inducement to invest is negatively affected.
That is why technology is called the catalyst of economic development. Technology is another weak area in case of developing countries. They are deficient in both the “brains” and the “resources” necessary for technological development.
Many developing countries are beset with superstitions, and there is lack of the spirit of free enquiry and scepticism, which is so important for scientific progress. The choice of the right technology is also very important.
Capital intensive or labour-saving techniques may increase output but may also increase unemployment and poverty. Labour intensive techniques, by contrast, may increase employment but may have a limited effect on increasing output.
The third important factor is human resource development. Some economists believe that human resource development is the most important factor in economic development. Human resource development is a broad concept encompassing moral, economic, political and cultural rights.
It is about giving people access to the resources essential for a decent standard of living and participating in communal life. It aims at creating an environment in which people can realize their potentials to the best and become more productive.
The main indicators of human development are a high literacy level, decline in poverty, access to safe drinking water and sanitation, a high life expectancy level and ability to make decisions that affect oneself.
Unfortunately, while developed countries have, by and large a high level of human resource development, developing countries are characterised by a low level of human resource development. Majority of sub-Saharan African countries have a low human development indicators (HDI) ranking.
Traditionally, land or natural resources have been regarded as essential for economic development. Classical economists like Adam Smith placed great emphasis on the role of land in economic development.
It is true that land played an important role in the development of countries like the USA and Denmark among several others. However, in present times, it is believed that natural resources, though important, are not as essential for economic development. Development of countries like Japan, South Korea and Singapore shows that an economy can develop even if it is not rich in natural resources.
Having discussed the basic components of economic development, let’s turn to Nigeria and see what has hindered its development. The example of Nigeria is also important because it shows that economic growth may not be translated into development.
Nigeria has an estimated population of about 206 million, making it the seventh most populous country in the world. The country’s population is projected to increase to 263 million in 2030 and 401 million in 2050 when it will become the third most populous country in the world. This is because the country’s population continues to grow at a high rate of 2.6%. The global population growth is 1.05% per year.
Since the independence of Nigeria in 1960, the average growth rate of its per capita GDP has been 1.7 percent per year. The stability of the country’s economic growth is an indication that the country is very close to its long-run steady state balanced growth path. This evidently shows in the absence of trends in its capital-output ratio and its real interest rates. The average real GDP per capita was about US$ 1222 between 1950 and 1959. The amount rose to US$1477 under the regime of the country’s first president. The GDP per capita reached a peak of about US$1804 on average between 1976 and 1979 during the military period of Olusegun Obasanjo. After the Obasanjo’s military regime, the declining trend of average real GDP per capita was observed. Prior to the adoption of 1986 Structural Adjustment Programme (SAP) in the country, the average per capita was almost US$ 1544 between 1960 and 1985. However, a decline in real GDP per capita was experienced after the SAP era. The real GDP per capita on average stood at US$1446 when the country was under the military regime. Since the adoption of a democratic system in the country, there was an improvement in the real GDP per capita. This might reflect the positive effect of democracy on the economic growth identified in academic literature. Also, the highest annual growth rate of Nigeria’s GDP per capita was observed between 1999 and 2007.
In the same vein, the rate of GDP per capita growth in the post-SAP era was higher compared to the pre-SAP era. Under the Gowon administration, the country witnessed the highest growth rate of economic growth but its real GDP per capita had the highest during the military administration of Olusegun Obasanjo. The drastic fall in the growth rate of per capita GDP was noticeable when Shehu Shagari controlled the affairs of the country. However, the country’s average annual GDP per capita since its independence was US$1627.59 compared to US$1222.48 between 1950 and 1959. This indicates that Nigeria was able to contribute about US$405(33% increase) to its pre-independence per capita income for more than 62 years of her independence.
If the country’s economic history is any guide, a healthy growth rate may not get translated into development if concomitant changes are not effected, particularly with regard to human resource development, technological up gradation and capital formation.
The following socio-economic indicators bring out that a lot of ground has yet to be covered before the country can embark on the road to economic development. In the 2021 Human Development Index (HDI) ranking by UNDP, which measures the long and healthy life, access to knowledge, and a decent standard of living. Nigeria is placed 163 at among 191 countries.
Nigeria’s position is among the lowest in sub-Saharan Africa. And this is not surprising. Life expectancy in Nigeria is 61.33 years, which is even less than the world average of 67 years. Infant mortality rate is 56.86 (per 1000 births), higher than the world average of 55. Under five mortality rate is 117-again higher than the world average of 81.
Judged by the recent multidimensional poverty report released by the National Bureau of Statistics (NBS), about 133 million Nigerians, representing about 63% of the country’s population are poor. Poverty is a serious obstacle to Nigeria’s economic development: Poverty means low incomes, low savings or even dis-savings, high birth rates, and low literacy level, which hamper development efforts.
Literacy level is 62.02 per cent. Granted that this official figure is not exaggerated, the literacy level is still very low. A major cause of low literacy level is meagre expenditure on education, which is less than five per cent of GDP.
According to a 2022 UNESCO report, Nigeria has about 20 million out-of-school children the highest in the world. From the report, one can observe that the figures in Nigeria have oscillated between 10.5 million and around 15 million for more than a decade, with the situation growing worse due to the degenerating security situation especially in the norther part of the the country, which unfortunately is also the poorest.
Besides, there is a strong link between education and income level as only 25 per cent of the poorest individuals are literate. The total public expenditure on health is only 0.8 per cent of GDP and less than three per cent of the total expenditure of federal and state governments on health
Even according to official figures, unemployment level in Nigeria is 33 per cent, which implies that the country’s economy is operating below its potential.
Nigeria lags far behind in the field of technology. Share of scientists and engineers in the labour force is only 0.2 per cent. Obviously, it is extremely difficult for development efforts to succeed in the face low level of technology.