The Boko Haram Economy

How a country’s fortunes can change in a matter of several months. Nigeria started 2014 ready to celebrate becoming Africa’s largest economy, albeit by updating (rebasing) the standard measure of economic size, GDP. Unfortunately, the festivities were short-lived. In the ensuing months, the rapidly escalating Boko Haram insurgency exposed to all the country’s many weaknesses and deep dysfunction that had been partially obscured in recent years by surging oil revenues. While seemingly separate events, the announcement of Nigeria’s newly acquired economic status and the stepped-up insurgency are intimately related.

Upon release of the new economic figures, the Nigerian government was taken aback by the popular backlash. It is rare that an arcane statistical exercise such as the rebasing of official output statistics stirs up so much popular attention. Simply put, a nation rebases its GDP statistics to provide as up-to-date a picture of its economy as possible. Rebasing incorporates into the GDP new activities undertaken since the previous base year. The new calculations also account for shifts in the composition of output resulting from differing rates of growth among economic sectors.

The last time Nigeria undertook a base-year exercise was in 1990. Its new 2014 base year now includes previously neglected industries like telecoms, information technology, music, online sales, airlines, film production, and a whole spectrum of related services in its GDP statistics. The new calculations put Nigeria’s 2013 GDP at $510 billion, as opposed to $264 billion before rebasing.

But did anything really change? The simple answer is no. The Nigerian economy has not grown by 80 percent overnight. Nigerians are no richer than they were before the GDP figures were revised. Rebasing is simply a realignment of the figures to reflect the present reality.

Nigeria’s growth performance under trying circumstances over the last decade might have been expected to win accolades for the government. And, in fact, the prestigious international publication the Economist observed that "Nigeria now looks like an economy to take seriously." But for most Nigerians, the new figures simply do not mesh with day-to-day economic realities. For them, the country’s great infrastructure and inequality gaps continue, as in the past, to act as brakes on growth.

Another telling sign is Nigeria’s ranking in the 2013 Positive Peace Index (PPI), which measures "the strength of the attitudes of 126 nations to determine their capacity to create and maintain a peaceful society," and which ranked Nigeria 122th among 126 countries. (To investors, the new growth figures highlight the lack of diversification of government revenues — which could elevate sovereign risk.)

Former French President Nicolas Sarkozy once warned that "nothing is more destructive than the gap between people’s perceptions of their own day-to-day economic well-being and what politicians and statisticians are telling them about the economy." If anything, the new base figures bring home the unpleasant truth that Nigeria, for all its wealth, has done little to improve living standards for the majority of its population.

Living in the largest economy in Africa means little to the tens of millions struggling with routine power cuts, recurring fuel shortages, persistent unemployment, and rising inequality. An estimated 60 percent of Nigerians live on less than $1 a day, compared with 20 percent of South Africans. The United Nations Development Program ranked Nigeria 80th of 108 developing nations in a poverty survey that focused on severe deprivation. The country scored below resource-poor economies like Rwanda and Malawi in the survey, which examined not just income destitution, but also education, access to health care, standards of living, and life expectancy. The implication is clear: Nigeria has grown rapidly in recent years, but the country has not developed.

Even before the rebasing exercise, Nigeria’s social spending ranked among the lowest in the world. In 2011, health spending represented barely 2 percent of GDP. After rebasing, the figure falls to less than 1 percent. Rebasing also highlights the weakness of Nigeria’s tax system, with tax mobilization accounting for only 10 percent of GDP — one of the lowest rates in the world. Furthermore, while Nigeria has an extremely energetic and talented entrepreneurial class, most never have a chance to start a business. In a World Bank report on the ease of doing business, Nigeria scored 147th of 189 countries, while South Africa came in at an impressive 41st.

Nigeria’s patterns of governance are consistent with the growth-without-development thesis. And, in fact, the country is notorious for its level of corruption. Shortly before the rebasing exercise, President Goodluck Jonathan fired the respected head of the central bank, Lamido Sanusi, who was trying to track down $20 billion in oil revenue that went missing from the treasury. Sanusi’s dismissal reinforced public suspicions that politicians and their supporters have been helping themselves to the country’s oil largess.

Nigeria’s deficient governance may be the key factor preventing the country from moving up the development ladder. Typically, as countries develop and their economies become more sophisticated and resilient, there is a steady improvement in governance scores. However, progress in Nigeria has been minimal since the restoration of democracy in 1999. According to the World Bank’s 2012 Governance Indicators, Nigeria ranked in the 10.4th percentile (that is, approximately 90 percent of countries ranked higher) for rule of law, compared to South Africa’s 57.8th percentile. In terms of government effectiveness, Nigeria ranked in the 15.8th percentile, compared to South Africa’s 57.8th percentile. The gap in corruption was of a similar magnitude, with Nigeria in the 11th percentile versus 53.6th for South Africa. Perhaps most ironically, after becoming a democracy, Nigeria’s voice and accountability ranking fell from 30.3 percent in 2000 to 27.5 percent in 2012.

Rightly or wrongly, the rebasing results combined with reports of "lost" oil money confirm most Nigerians’ worst suspicions: The system is rigged to provide gains for the elites at the expense of the general populace. With 63 percent of the population under 25 and youth unemployment at around 37 percent, this theme has struck a chord with the country’s young, marginalized workers. This pool of marginalized youth is larger in the economically depressed north than in the more prosperous south and is the backbone of Nigeria’s Islamic insurgency movement, Boko Haram.

The northeastern states of Adawama, Yobe, and Borno, where Boko Haram thrives and carries out its terrorist activities with increasing brutality, once had a thriving economy comprised of textiles and palm oil industries. These economic activities went into decline in the 1970s, when the focus of investment shifted towards the southern oil industry, and fell even further in the mid-1990s, when globalization began flooding the country with cheap imports.

Today, Adawama and Yobe are among the poorest states in Nigeria, with poverty rates between 60 and 70 percent and unemployment at 35 percent. In Borno state, the birthplace of Boko Haram, only 2 percent of children under two are vaccinated, 83 percent of young people are illiterate, and 48.5 percent of children do not go to school. While unemployment, illiteracy, and marginalization may not directly cause youth violence or insurgency, these factors created a receptive audience for Boko Haram’s fundamentalist Islamic ideology.

Boko Haram can be loosely translated as "Western education is sin." Boko Haram teaches that false, corrupt Muslims control northern Nigeria and that the establishment of an Islamic state with strict adherence to sharia law is the only way to remedy the situation. The group’s deep hostility toward Western education stems from its perception that the relatively few educated Nigerians have misused their training for their personal gain, becoming politicians or power brokers who rob and oppress the masses. It also reflects Boko Haram’s fundamentalist Muslim antipathy toward female education, as evidenced by the group’s recent abduction of over 200 schoolgirls.

Boko Haram’s founder, the charismatic cleric Mohammed Yusuf, initially tried to advance the group’s agenda in a nonviolent manner, largely through providing a non-Western alternative education to male students to counter the government’s Westernized primary and secondary schools. Ultimately, a series of clashes between Boko Haram members and police escalated into an armed insurrection in 2009. Government troops crushed the rebellion, killing hundreds of Boko Haram followers and destroying the group’s principal mosque. Mohammed Yusuf was captured, handed over to the police, and shortly thereafter killed in an incident captured on video and posted on the Internet.

Boko Haram went underground. A year later, the group reemerged under the militant leader Abubakar Shekau, to revenge the killings of Yusuf and his followers by launching attacks on police officers, police stations, and military barracks. Violence has since escalated into wholesale terrorism, often involving women and children. The insurrection has resulted in more than 10,000 deaths, displaced close to half a million people, destroyed hundreds of schools and government buildings, and devastated the already ravaged economy of the north.

Boko Haram attracts local support by tapping into the very real governance, corruption, and underdevelopment grievances shared by most people in northern Nigeria, creating a vicious circle whereby violence and destruction create additional unemployment and, thereby, new recruits. To break this cycle, Nigeria’s finance minister, Ngozi Okonjo-Iweala, recently announced that the government was working to obtain donor backing for a special development plan for the northeast, acknowledging that, "… this is an inclusion problem … the fact that the human development indicators in that part of the country are among the lowest."

Nigeria is at a turning point, and its future may well depend on the strength of the government’s commitment to this and similar programs aimed at more equitably distributing the country’s oil wealth through investment in broad-based development. While Nigeria is currently the largest economy in Africa, its growth will be increasingly constrained if its poor governance structures continue to go unaddressed. If the government instead continues using oil revenues to produce pockets of wealth and short-term spurts of growth, the Boko Haram insurgency will almost certainly spread and pull the economy down with it. To defeat Boko Haram, the government must undermine its support by both improving governance and addressing the grievances of the marginalized. Ironically, it is this same strategy that would enable Nigeria to become not just Africa’s largest economy, but its most prosperous.