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Hustle economy: Nigeria’s largest source of employment slows

Hustle economy: Nigeria’s largest source of employment slows

The share of self-employed people in Nigeria dropped for the first time since the National Bureau of Statistics (NBS) adopted a new methodology for the country’s labour force.

The latest Nigeria Labour Force Survey shows that the percentage of self-employed Nigerians declined to 87.3 percent in the third quarter of 2023 from 88.0 percent in the previous quarter. Wage employment rose to 12.7 percent from 12.0 percent.

“Informal employment in Nigeria and other developing countries seems to be very high when compared to the developed countries. The share of employed persons in informal employment was 92.3 percent in Q3, a reduction of0.4 percent when compared to 92.7 percent in the previous quarter,” the report said.

It said that the unemployment rate rose for the second straight time in Q3 to 5.0 percent from 4.2 percent in Q2.

Read also: Unemployment rises for second time since method review

Experts say the decline in self-employment in Nigeria, also known as a ‘hustle economy’, shows that businesses are shutting down, thereby threatening the country’s entrepreneurship growth and development.

“The reduction in self-employment is an indication that more businesses are going down, particularly the micro and nano ones which are run as self-employment as a result of harsh economic realities,” Femi Egbesola, national president of the Association of Small Business Owners of Nigeria, said.

Read also: Nigeria plans to unveil circular economy roadmap for sustainable future

He added that it is becoming increasingly difficult to do business in the country and that the ease of business has dropped drastically.

“Inflation is on the high side and their working capital has been eroded.”

Olamide Adeyeye, a Lagos-based human development researcher, said it is tough to keep a surviving enterprise at this time.

“The model of a surviving business is to engage in business transactions that the profit is enough to keep the business owner’s sustenance for the day. But in an economy where inflation alone is almost 30 percent, profit margins will gradually become unsustainable for-profit survival,” he said.

He added that cost pressures reduce the capital gains of those surviving businesses where a bulk of them are self-employed. “So, they will die a natural death. And if that continues, people will lose their goal, which is survival.”

Last year, the World Bank revealed that Nigeria and other countries in the Sub-Saharan Africa (SSA) region have the highest rates of self-employment and unpaid family employment in the world.

Read also: Nigeria’s unemployment rate rises to 5% in Q3 – NBS

In its latest Africa’s Pulse report, the bank said the ranking is leading to depressed worker productivity and limiting workers’ earnings for their skills.

“The urgent need for job creation is a pressing concern in the region. In SSA, only one in six workers has a wage job, compared to one in two in high-income countries,” it said.

The multilateral lender added that the lack of quantity contributes to poor job quality, as defined by unstable employment, inefficient use of skills, lack of appropriate equipment, or inhumane working conditions.

“This in turn is reflected in high levels of involuntary self-employment and the prevalence of informality.”

A 2021 survey by the NBS and World Bank highlighted the impact of the COVID-19 pandemic on the labour market. It showed that the most common dream job among the different subgroups of youth, such as by sex or consumption quintile, was trader or businessperson.

“When asked what their dream job is, the most commonly reported was trader or businessperson (22 percent). Other common dream jobs reported were doctor (17 percent), engineer (eight percent), and tailor (seven percent),” the survey said.

Over the past eight years, Africa’s most populous nation has slumped into two recessions owing to the collapse of oil prices, disruptions caused by the pandemic and an inability of the government to reform the economy.

Then President Bola Tinubu’s reforms including the removal of petrol subsidy and naira devaluation which was meant to improve the welfare of the citizens accelerated inflation to a record high.

Rising inflationary pressures have weakened the purchasing power of consumers, even as businesses grapple with higher operating costs. According to the NBS, the headline inflation rate rose for the 13th consecutive time in January to 29.90 percent from 28.92 percent in the previous month.

In 2023, the economy grew at the slowest pace in three years as its Gross Domestic Product growth fell to 2.74 percent from 3.10 percent in 2022.

Rising inflation and sluggish growth in Africa’s biggest economy increased the number of poor people to 104 million in 2023 from 89.8 million at the start of the year, according to the World Bank.

“Companies are shutting down and the little ones that are still existing are finding it difficult to survive,” Ayodeji Ebo, managing director/chief business officer at Optimus by Afrinvest Limited, said.

The country’s struggling economy slowed the growth of major job-creating sectors of the economy such as agriculture, manufacturing, trade, construction and transportation.

According to the NBS GDP report, the agric sector slowed to 1.88 percent last year from 2.13 percent in 2022. The manufacturing sector grew by 1.40 percent, down from 2.45 percent; while trade’s growth slowed to 1.66 percent from 5.13 percent.

The growth of the construction sector also slowed to 3.57 percent from 4.54 percent, and transportation and storage contracted to 30.17 percent as against 15.20 percent.

“The job-creating capacity of the informal sector is declining as the demand for their goods is dropping or their businesses is somewhat constrained,” Israel Odubola, a Lagos-based research economist, said.

He said the decline in self-employment shows that entrepreneurship is not thriving as much as it did a few years back and that the macroeconomic headwinds from the high cost of production to low purchasing power, and foreign exchange issues are threatening entrepreneurship growth and development in Nigeria.

“Most times people move to entrepreneurship to make ends meet. That is why the Micro, Small and Medium Enterprises (MSMEs) ecosystem is contributing almost half to the GDP in Nigeria but the value generation in that system is very low,” Odubola added.

In Nigeria, the MSME sector contributes 50 percent of the GDP and has provided over 48 percent of all employment opportunities in the country, according to the United Nations Industrial Development Organisation.

But small business operators in Nigeria have been grappling with a combination of issues, including poor power supply, rising borrowing costs, soaring inflation, restrictive economic policies, foreign exchange volatility, and tax multiplicity.

According to the Small and Medium Scale Enterprises Development Agency of Nigeria in Nigeria, 80 percent of SMEs fail before their fifth anniversary due to harsh economic environments, lack of access to capital, and poor business practices, which have stunted the growth and transition of micro-businesses.

People go into the informal sector deliberately, but they don’t become survival enterprises deliberately, said Adeyeye, the human development researcher.

BusinessDay reported two weeks ago that the rise in uncertainty in Nigeria’s macroeconomic environment is on course to further dampen business activities, with some more firms seen closing up shop this year.

Unstable macroeconomic indicators have affected the medium and long-term plans of many businesses, a situation experts said could drive down profitability, lead to more job losses, and low tax revenue, threaten the survival rate of many businesses, or trigger more exits of multinationals.