When Nigerians can earn more: Can the government make it possible?

In recent times, many Nigerians have felt the pinch of rising costs, particularly with current fuel prices soaring over 1,000 Naira per liter. Peter Drucker has said, “The best way to predict the future is to create it”. This paper looks into how the Nigerian government can help citizens earn more, the relationship between average income and buying power, and the role of businesses and startups in this equation. It further considers case studies like the United States and Singapore juxtaposed with the Nigerian case in view and draws a conclusion based on best practices to create a sustainable future in such trying times as these. It is my way of helping someone find some meaningful cause to pursue while not discounting the overall effect of our combined effort.

1. Understanding the Current Landscape: Buying Power vs. Disposable Income

As of October 2024, the average price of petrol in Nigeria soared to over 1,000 Naira per liter, representing a staggering increase of nearly 300% over the past year. This surge in fuel prices has strained household budgets but has also triggered a wave of inflation, with food prices rising by over 50%, squeezing the purchasing power of millions of Nigerians.

Buying power is an important economic concept that reflects an individual’s or household’s ability to purchase goods and services. It is directly influenced by various factors, including income levels, inflation rates, and living costs in a given region. Higher-income typically translates to greater buying power, allowing individuals to afford more. Conversely, when inflation outpaces wage growth, buying power diminishes, meaning that individuals can purchase fewer items for the same amount of money. Additionally, the cost of living varies significantly across different areas, which can further impact how much individuals can actually buy with their income. For example, someone earning the same salary in Lagos may have a different purchasing capacity than someone in a rural area due to differences in local prices and living expenses.

Disposable income is seen as the amount of money that households have left after taxes have been deducted from their gross income. This “net income” is helps us understand a household’s financial health, as it represents the funds available for spending and saving. The formula for calculating disposable income is direct: Disposable Income = Gross Income – Taxes. This income is vital for discretionary spending, which encompasses non-essential items such as entertainment, vacations, and luxury goods. The level of disposable income is a notable indicator of economic well-being, as it affects consumer spending patterns and overall economic activity. When disposable income rises, it often leads to increased spending, benefiting businesses and stimulating economic growth.

However, the primary distinction between buying power and disposable income lies in their scope and implications. Buying power encompasses a broader perspective, focusing on purchasing ability relative to prices, while disposable income zeroes in on the post-tax income available for spending. A rise in disposable income does not necessarily equate to an increase in buying power, especially in times of high inflation or when the prices of goods and services rise more rapidly than wages (like what is happening with the rising cost of petrol, PMS). For instance, if disposable income increases but inflation leads to higher prices, consumers may find their buying power effectively eroded. Understanding these differences is essential for analyzing consumer behavior, economic conditions, and the overall financial landscape, enabling policymakers and businesses to make informed decisions that address the needs of consumers.

Disposable income plays a jugular role in shaping consumer spending, which is an important driver of Gross Domestic Product (GDP). Understanding the relationship between these two concepts is vital for grasping the dynamics of economic activity. We will now try to address what could be done to improve the buying power of people.

2. Improving Buying Power: Strategies for Nigeria, considering the United States, and Singapore

Inflation erodes buying power by increasing the prices of goods and services faster than wages can keep up. For instance, with the recent spike in fuel prices to over 1,000 Naira per liter, transportation costs have surged, leading to higher prices for essential commodities. As a result, households find that the same amount of money buys measurably less than it did a year ago. For example, a family that could previously purchase a month’s worth of groceries for 20,000 Naira now faces prices closer to 80,000 Naira. This highlights how rising costs directly impact everyday life and the ability to afford basic needs.

Enhancing people’s buying power is basic for stimulating economic growth and improving overall quality of life. We here look at how Nigeria, juxtaposed with the United States, and Singapore in how we can implement targeted strategies to boost buying power and their relationships to GDP.

Nigeria

Increase Minimum Wage: Raising the minimum wage is a direct way to increase disposable income for lower-income households. This increase allows these families to spend more on essential goods and services, thereby improving their purchasing power.

Subsidize Essential Goods: Implementing government subsidies for food, fuel, and basic necessities can also notably lower living costs. By reducing prices on essential items, the government can help improve the overall purchasing power of its citizens.

Investing in Education and Skills Development: Promoting education and vocational training initiatives can elevate employability and increase wages over time. A more skilled workforce tends to command higher salaries, leading to improved disposable income and buying power. Sometimes, what is needed to create new narratives for the skilled worker is their ability to serve customers in different climes – can you teach pupils over Zoom in home-coaching (parents abroad need teachers for their kids).

Improving Infrastructure: Investments in infrastructure, like transportation, energy, and communication, can lower operational costs for businesses. Reduced costs can translate to lower prices for consumers, further enhancing purchasing power.

Impact on GDP: The above strategies can lead to increased consumer spending, which drives demand for goods and services (and production by extension). As purchasing power rises, it can stimulate economic activity, positively impacting GDP.

United States

Tax Reforms: The US implements tax cuts, especially for the middle class, which can notably increase disposable income. When households have more money after taxes, they are more likely to spend it, thereby boosting economic activity.

Healthcare Access: Expanding access to affordable healthcare reduces out-of-pocket expenses for families, allowing them to allocate more of their income toward discretionary spending. This increased disposable income can improve consumer spending.

Minimum Wage Adjustments: Raising the federal minimum wage can help lift many workers out of poverty, improving their buying power. Higher wages generally lead to greater consumer spending, which is essential for economic growth.

Impact on GDP: In the U.S., higher disposable income has translated into greater consumer spending, significantly impacting GDP, as consumption constitutes about 70% of the economy.

Singapore

Progressive Taxation: Implementing a more progressive tax system can improve disposable income for lower- and middle-income households. This approach ensures that those with greater financial means contribute a fairer share, allowing for increased spending power among those in need.

Housing and Living Costs: Providing affordable housing solutions can alleviate financial burdens on families, increasing their disposable income. By ensuring that housing costs are manageable, residents can direct more funds toward other areas of consumption.

Support for Startups and Innovation: Encouraging entrepreneurship can create job opportunities and increase income levels. Government support for startups and innovation can stimulate economic activity, leading to higher overall wages and buying power.

Impact on GDP: By increasing buying power through these strategies, consumer spending can rise, driving economic growth. Singapore’s economy relies heavily on consumption and services, making this relationship particularly major.

3. The Role of Business Owners and Startups

Small businesses are the backbone of our economy and the cornerstones of our communities, says Karen Mills. She served as the Administrator of the U.S. Small Business Administration (SBA) from 2009 to 2013 under President Barack Obama. Some of what business owners can do include:

Job Creation: Business owners and startups are vital engines of job creation in any economy. By establishing new enterprises, they provide essential employment opportunities that enable individuals and families to earn income, thereby increasing disposable income and overall buying power. For instance, in the United States, small businesses account for about 50% of all private-sector jobs, highlighting their significant role in the labor market. This employment generation not only supports families but also stimulates local economies, as employed individuals have more money to spend on goods and services, further driving economic growth.

Innovation and Competition: Startups are often at the forefront of innovation, introducing new products and services that can transform industries. This innovation promotes competition, which can lead to lower prices and enhanced quality, ultimately benefiting consumers and boosting their purchasing power. In Singapore, a robust startup ecosystem encourages technological advancements across various sectors, from fintech to healthcare. These advancements help streamline processes, reduce costs, and improve the consumer experience, making goods and services more accessible and affordable.

Local Economic Growth: Business owners play a vital role in stimulating local economic growth by reinvesting profits into their communities. This reinvestment supports local suppliers and service providers, creating a ripple effect that bolsters the entire economy. In Nigeria, for instance, local businesses are necessary to address unique market needs and develop supply chains that benefit other local enterprises. This interconnectedness improves economic development and contributes to overall GDP growth, as businesses thrive together within a supportive ecosystem.

Tax Contributions: Successful businesses contribute notably to government revenues through various taxes, including corporate taxes and employee income taxes. These revenues are crucial for funding public services, infrastructure projects, and subsidies that can improve buying power. In the U.S., for example, corporate taxes support social programs that help improve overall disposable income for citizens. By contributing to the tax base, businesses enable governments to invest in initiatives that promote economic stability and growth, creating a healthier environment for all.

Consumer Demand Generation: Small businesses are important in generating consumer demand through innovative products and services. As these businesses grow and succeed, they instill confidence in consumers, often leading to increased spending. This consumer confidence is vital for economic activity, as higher spending drives demand across various sectors. In Nigeria, the U.S., and Singapore, successful startups can create trends that inspire consumer interest, further amplifying economic growth and improving GDP.

Training and Skill Development: Business owners also play a significant role in investing in the training and development of their employees. Improving skills and productivity can lead to higher wages and better job prospects for the workforce. In Nigeria, for example, tech-focused startups can contribute to developing a skilled workforce that meets the demands of a modern economy. This investment benefits the employees and improves overall buying power, as individuals with better skills may be able to command higher salaries.

4. Local Success Stories of Nigerian Startups

Nigeria’s startup ecosystem has seen remarkable growth in recent years, with numerous innovative companies making significant strides across various sectors. These success stories not only demonstrate the potential of entrepreneurship but also inspire optimism for the country’s economic future.

Fintech Revolution: One of the standout sectors in Nigeria is fintech, where companies like Flutterwave and Paystack have drastically changed the payment landscape. Flutterwave, founded in 2016, has facilitated over $3 billion in payments across Africa, enabling businesses to thrive in the digital economy. Paystack, which was acquired by Stripe in 2020, has made it easier for Nigerian merchants to accept online payments, thereby expanding their customer base and driving economic activity.

Agritech Innovations: The agriculture sector is another area witnessing innovation. FarmCrowdy, Nigeria’s first digital agriculture platform, connects farmers with investors, providing them with the necessary resources to boost production. By leveraging technology to improve agricultural output and supply chain efficiency, FarmCrowdy is addressing food security issues while also generating income for farmers.

Healthtech Solutions: In the health sector, startups like MediCab are making waves by providing on-demand healthcare services. MediCab connects patients with healthcare professionals through a mobile app, offering convenience and accessibility to medical services. This innovation is crucial in a country where access to quality healthcare can be a challenge.
4. E-commerce Growth: The e-commerce space has also seen significant advancements, with companies like Jumia leading the charge. Jumia offers a platform for various local sellers to reach customers nationwide, thereby fostering local entrepreneurship and creating jobs. The convenience of online shopping has gained traction, particularly during and after the pandemic, showcasing the potential for e-commerce to thrive in Nigeria.

 Tech Education and Skills Development: Startups such as Andela are addressing the skills gap in the tech industry by training software developers and connecting them with global companies. This model not only empowers young Nigerians with valuable skills but also helps companies find talented professionals, contributing to the local economy.

5. Strategies for Government Support of Startups and Existing Businesses

Governments play a pivotal role in nurturing an environment that supports startups and existing businesses, improving buying power and contributing to GDP growth. Some effective strategies they can implement include:

Access to Funding: Providing access to capital is critical for the growth of startups and small businesses. Governments can offer grants, low-interest loans, or microfinance options, which can help businesses secure the necessary funding to launch or expand their operations. Additionally, incentivizing private investment through tax benefits for venture capitalists can stimulate more investment in startups, enabling them to innovate and scale effectively.

Tax incentives can alleviate financial burdens on small businesses, allowing them to reinvest in growth and job creation. By offering tax breaks or credits, governments can provide major relief, especially for startups. Also, research and development (R&D) tax credits can encourage innovation by helping businesses offset the costs associated with developing new products or services, encouraging a culture of creativity and technological advancement.

Simplified Regulations: Streamlining regulations and reducing bureaucratic hurdles can ease the process of starting and running a business. Simplified registration processes and business-friendly policies, such as flexible labor laws and reduced compliance costs, can lower barriers to entry for entrepreneurs. This supportive regulatory environment enables more individuals to enter the market and contribute to economic growth.

Training and Support Programs: Establishing business incubators and accelerators can provide startups with invaluable resources, mentorship, and networking opportunities. Additionally, offering skill development programs aligns the workforce’s capabilities with industry needs, enhancing productivity. Such initiatives empower businesses to thrive by equipping them with the necessary skills and knowledge to compete effectively in the market.

Market Access and Promotion: Facilitating access to international markets through trade agreements can open new avenues for local businesses, reducing barriers to export. Furthermore, initiatives promoting locally made products encourage consumers to support homegrown businesses, strengthening the local economy. By increasing market access and consumer support, governments can enhance the competitiveness of domestic businesses.

Infrastructure Development: Investing in essential infrastructure, like transportation, utilities, and digital technology, is vital for improving business operations. Efficient infrastructure reduces operational costs, making it easier for businesses to thrive. Promoting technology adoption through grants or subsidies can also help businesses leverage digital tools to improve their efficiency and reach.

Networking Opportunities: Promoting collaboration among businesses, universities, and research institutions can drive innovation and knowledge sharing. By creating industry partnerships and business networks, governments can facilitate connections that lead to new ideas and collaborations. These networks help businesses share best practices and build supportive ecosystems that encourage growth.

Access to Information and Resources: Providing businesses with access to market research and data can help them make informed decisions. Advisory services offering guidance on legal, financial, and marketing matters can also support startups in navigating the complexities of running a business. I am an advocate of the setup of the Nigerian Small Business Administration (SBA). Such resources equip entrepreneurs with the knowledge required to succeed and adapt to market demands.

In conclusion, “Alone we can do so little; together we can do so much.” Says Helen Keller. The interplay between government support, business initiatives, and consumer buying power is essential for promoting economic growth in Nigeria, just as we saw in the United States, and Singapore. By implementing strategies that improve access to funding, provide tax incentives, simplify regulations, and promote innovation, governments can create a robust environment where startups and existing businesses thrive. This, in turn, leads to job creation, increased disposable income, and a stronger consumer base, all of which measurably contribute to GDP growth. Ultimately, a collaborative approach that empowers businesses stimulates economic activity while improving the overall quality of life for citizens, driving sustainable development for the future.

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