The Economics of Insecurity: Nigeria’s Rough Patch

May 5, 2022

The Economics of Insecurity: Nigeria’s Rough Patch

Introduction

Nigeria’s insecurity challenge has grown beyond the activities of Boko Haram (the extremist terrorist group) into what is now a hydra-headed monster that is chronic in many areas and exacerbated by rising inflation and worsening unemployment (estimated at 33% as at Q4 2020). Nigeria is currently dealing with a variety of security issues, including banditry, kidnapping, farmer-herder clashes, livestock rustling, separatist agitations and the continuous insurgency of Boko Haram. Since 2017, the situation has deteriorated substantially, with the majority of the incidents occurring in the middle belt and northern Nigeria, which represent the country’s farming belt.

Thousands of Nigerians are abducted each year by heavily armed men known as bandits, and dozens of children in the North East are kidnapped from schools for ransom. According to SBM intelligence, in the first six months of 2021, 2,371 (FY 2020: 2,860) Nigerians were reportedly kidnapped while 10,366 (2020: 7,063) Nigerians were killed in 2021. Over the last five years (2016 – 2021), it is estimated that over ₦5 billion was paid as ransom to kidnappers, indicating that the country’s kidnapping industry is witnessing a boom. According to the 2022 Global Terrorism Index, Nigeria ranks third in the list of countries most impacted by terrorism in Sub-Saharan Africa and is the sixth most impacted country in the world. This backdrop also creates uncertainty for the much-needed but unpopular economic and fiscal reforms – like the delay in fuel subsidy removal which the government fears could spark civil unrest reminiscent of the END SARS crisis of October 2020.

Figure 1: Nigeria’s Insecurity Map

Source: Africa Center for Strategic Studies
Source: Africa Center for Strategic Studies

 

Source: unsplash
Source: unsplash

Causes of Insecurity in Nigeria

Rising poverty, inequality, and inadequacy of employment opportunities, particularly among the youth, are at the centre of Nigeria’s insecurity problem. Thus, increased insecurity in Nigeria has coincided with rising poverty levels, with an estimated 83 million people which is 39% of the total population, living in extreme poverty (less than $2 per day) as at April 2022. This is a significant 18% increase from 70 million people recorded in 2016.

In Nigeria, religious and ethnic intolerance is a major driver of insecurity which has led to many attacks and clashes that have intensified over the years leaving many citizens in perpetual fear daily. There have been increased terrorist attacks, including attempted attacks on the Kaduna airport, an attack on a Kaduna-bound train on the Kaduna-Abuja rail line, and destruction of assets of the election umpire across the country, as well as other criminal activities. In the South East, Mondays are known for attacks on citizens that violate the sit-at-home directive of the Indigenous People of Biafra (IPOB) secessionist group –These attacks are exacerbated by the country’s porous borders as a large influx of arms and weapons are smuggled from neighbouring countries. Unfortunately, the poor security infrastructure and equipment have rendered the various strategies deployed to tackle the challenge ineffective.

The seeming inability of security operatives to contain the problem has emboldened even more insurgents, bandits and kidnappers. In addition, a system that has been proven to reward repentant terrorists disproportionately creates a perverse incentive for many young people currently faced with poverty and destitution.

Impact of Insecurity on Economic Performance

The importance of security in ensuring sustainable long-term economic growth cannot be overemphasised. As a result, Nigeria’s economic stability is closely tied to its national security. The widespread insecurity in the country has led to the disruption of agricultural activities which is the largest employer of labour and the largest economic sector in the country (25.9% of GDP in 2021). Agriculture also provides input for various manufacturing companies. Nigeria’s high food inflation rate, which stood at 17.2% in March 2022, is largely attributed to the increasing scourge of insecurity in the country’s Northern region. Communal clashes and banditry, in addition to the farmer-herder disputes, have raged unabated throughout Nigeria’s North-Central zone, spreading to neighbouring states including the South-West zone.

Insecurity has constrained the ability of many farmers to access their farmlands while some are forced to pay terrorist groups to gain access to their farmlands for planting and harvesting. This translates to suboptimal agricultural output, scarcity and higher food prices. This eventually impedes our ability to attain self-sufficiency in food production which is fueling increased food importation and piling on the pressure on the external reserves.

In addition, the rising level of insecurity constitutes a major drag on investor confidence which is negative for foreign direct investment (FDI) inflows. Nigeria recorded $699 million in FDI inflows in 2021, the lowest level since 2013. The country’s level of insecurity, and the implication for business activity, cannot be overstated. Heightened uncertainty and instability hinder business operations including production, marketing, and distribution. In many cases, the country’s security situation has resulted in the suspension of commercial operations and expansion plans, thereby increasing unemployment and poverty levels. Lower-income earners are more vulnerable to reductions in power purchasing power, job losses, and a lack of access to basic financial services that can help mitigate disruptions during periods of conflict. Security concerns in the country have also hampered access to raw materials in certain locations thus disrupting production cycles and driving up costs. Many transportation and logistics providers are charging higher fees to specific regions, as security risks are being factored into the fares. According to the NBS, the average air fare charged for specified routes is up 28.26% in the last year while the average charge for intercity bus journeys is up 35.65% within the same period.

Source: unsplash

Figure 2: Nigeria’s Unemployment Rate

Source: National Bureau of Statistics

 

The country’s security challenges have halted the education of over 1.3 million students in 2021. According to the United Nations International Children’s Emergency Fund (UNICEF), a surge in school kidnappings in 2021 forced over 11,536 schools across the country to shut down, causing many students to stay at home idle. Thus, the large number of unemployed people and out-of-school children is likely to have a corresponding effect on insecurity in the short to medium term, which is also likely to result in lower investment and output in the medium to long term.

As a result of the ravaging insecurity of life and property, Nigerians are fleeing the country for safer, relatively more prosperous, socially inclusive cities. According to data from the United Nations World Population Prospects, Nigeria had a net migration rate (per 1,000 population) of -0.3 between 2015 and 2020. This translates to three in every 10,000 Nigerians emigrating annually within the period. The loss of lives and livelihoods, as well as an increase in the number of internally displaced persons, is leading to a massive influx of people to relatively safer parts of the country and putting a strain on public resources. Another major consequence of insecurity has been the near decimation of the tourism sector, particularly in Northern Nigeria. Some of Nigeria’s most attractive tourist sites are located in the Plateau, Bauchi, Adamawa, Taraba and Kaduna States where insecurity is now rife. The ripple effect on the local economies has been devastating, especially on jobs and consumer demand. This, in itself, is likely to further fuel insecurity.

Our Recommendations and Conclusions

Terrorism is one of the most obvious causes of insecurity in Nigeria today, with religious and ethnic extremism and intolerance serving as its primary underpinnings. Efforts to combat insecurity have been ongoing for over a decade and have produced mixed results. Their success is crucial to putting Nigeria firmly on a path of sustainable growth.

The Nigerian military and police need major reforms and restructuring because the existing security structure has shown little progress. Therefore, in our opinion, an expansion in anti-terror capabilities, as well as improvements in reconnaissance and surveillance, are crucial to identifying and blocking funding channels for terrorists. Intelligence gathering in addition to improving the relationship between the citizens and security agencies is also critical in resolving the current quagmire.

Tackling poverty and unemployment from their root causes is crucial to winning the war against terror. While pro-poor growth strategies and social welfare are crucial to assuaging poverty, strengthening institutions and investing in infrastructure are key to stimulating investments that would support long-term economic growth and stimulate job creation.

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