In a recent report on inequality in Nigeria the UK-based charity Oxfam made the incredible claim that the combined wealth of the five richest Nigerians could end extreme poverty in the country. The organisation explained that the wealth owned by the five totalled $29.9 billion in 2016 whereas only $24 billion was required to lift the 112 million Nigerians living on less than $1.90 a day from severe poverty for one year. This presentation makes eradicating poverty seem easy. All the government has to do is confiscate the wealth of five individuals and spread it among the poor masses.
Of course this is fantasy thinking. Oxfam, which earlier made another headline-grabbing claim that in 2015 just 62 people had as much wealth as the poorest half of humanity, has a faulty understanding of wealth and poverty. For a start the $30 billion worth of assets owned by five tycoons, led by Africa’s richest man, Aliko Dangote, is unlikely to exchange into any amount near $30 billion in cash that can be given to the poor. Most of the wealth Oxfam is eying is in the form of equity holdings. Once the government or any other enforcer puts the confiscated shares on the market their value will most likely fall. This is what tends to happen when large quantities of shares are dumped on markets.
The fact is that equity wealth is volatile. At the point Oxfam made its calculations Mr Dangote was reckoned by Forbes to be worth $14.4 billion, but his net worth has since dropped to $11.9 billion as at May 2017. According to Bloomberg Billionaire Index Dangote’s net worth has plummeted from a high of $25.7bn in July 2014 to $9.89 billion in May 2017.
If for the sake of argument we assume the assets of the five billionaires can be liquidated without much loss in value and the proceeds go to boost the consumption of the poor for a year, what happens the year after? Does Oxfam believe that having vanquished poverty for one year it will not return after the extra cash is spent?
Furthermore, increasing the incomes of millions of people without increasing the output of the goods and services they will demand will likely fuel inflation and thereby erase some of the gains from the redistribution exercise. Also, while more money will allow low-income households greater access to markets for some items, such as food, it does little to address the lack of roads, schools, hospitals, electricity, etc. – long-term issues that also constitute the condition of poverty
The wealthiest 0.01% of Nigerians undoubtedly comprise very prosperous people by both local and global standards, but redistributing their riches will not end poverty. It is also mistaken to think that the prosperity of the few is responsible for the poverty of the many. Oxfam is right to contend that high-level corruption has widened inequality in Nigeria. It is also the case that most of the country’s tycoons owe much of the wealth to crony capitalism, including benefiting from undeserved awards of lucrative government contracts and concessions and protectionist policies that favour the elite. But cronyism, as despicable as it is, is not the cause of poverty. The businesses owned by the Nigerian billionaires are wealth creating. The cement, sugar, flour and other concerns owned by Dangote provide employment to thousands of people. Mike Adenuga, the second richest Nigerian, runs a telecom company with over 25 million mobile phone subscribers.
The growth in the number of super-rich in society is not necessarily an indication of worsening poverty. No country has reduced incidences of poverty without creating millionaires and billionaires. China has in recent decades achieved remarkable success in reducing poverty and also seen spectacular growth in its count of millionaires and billionaires. The fast growing Asian giant now has more billionaires than the United States, according to its latest annual rich list – and the gap is widening. There is some truth in the saying “To get rich is glorious” ascribed to China’s former leader Deng Xiaoping, who opened his country to global markets.
Wealth and income inequalities are not in themselves problems for societies. What is wrong are individuals using coercion or fraud to enrich themselves, which is always at the expense of others. It is also unfair for the state to dictate or manipulate the choices of citizens to promote and enrich local capitalists. But when individuals amass wealth from profits gained through free exchange – creating value for others – their successes is not only harmless but can contribute to poverty reduction. Poverty is not due to wealth creation but the lack of it. The vast majority of people who live in poverty produce goods or services that generate little income for them. This is not to say that they are lazy or at fault. A farmer who spends long hours toiling under the burning sun to harvest a quantity of a commodity that fetches him $2 a day is poor because of the circumstances of his economy. He is not poor because a city factory owner is racking in thousands of dollars a day from a business that makes large quantities of a product that people want to buy. Closing the factory will not make the farmer better off. What will make him richer is changing his production system to produce larger quantities – perhaps by using more efficient equipment – or by producing a different commodity with higher market value.
By suggesting that what amounts to less than a third of the wealth of Bill Gates can end extreme poverty in Africa’s most populous nation Oxfam is not championing the cause of Nigeria’s impoverished masses.