Labour-intensive sectors’ slow growth means no relief for Nigeria’s jobless

Until Nigeria’s economic growth outpaces population growth rate or at least labour-intensive sectors grow at a faster pace, there is no relief in sight for unemployment in Africa’s most populous nation.

Nigeria produces people at an average of 2.6 percent annually, leaving the country’s 0.51 percent GDP growth in the first quarter of 2021, anything but desirable. The Q1 2021 growth rate was slower than the 1.87 percent growth rate recorded in Q1 2020 but higher than 0.11 percent recorded in Q4 2020, indicative of a slow but continuous recovery.

A high unemployment rate in a country like Nigeria whose economy is described as one that is stagflated (a blend of high inflation rate and slow growth) means poor Nigerians will become poorer in real terms, and the middle class will get thinned out.

Since 2017 when oil-dependent Nigeria emerged from its first economic recession in five years (exited its second in 2020), not only has the country’s economic growth been sluggish but only a few sectors triggered the expansion, further undermining the country’s capacity to create enough jobs to meet the growing number of labour market entrants.

While the sectors of the Nigerian economy that requires less labour have been growing at a pace faster than their peers, the labour-intensive sectors with the potential to reduce the country’s 33.3 percent unemployment rate in the fourth quarter of 2020 have either been in recession or growing at a sluggish rate.

“The sectors which significant growth use very little labour,” Presidential Economic Advisory Council (PEAC) said at the 6th Regular Meeting.

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Analysis of the NBS Q1 2021 GDP report shows that sectors like Metal Ores, Water supply, sewerage, waste management and remediation and Telecommunications reported some of the highest growth in the review quarter with an expansion rate of 28.8 percent, 14.75 percent and 7.69 percent, respectively.

These three sectors do not need as much labour as agric and manufacturing whose growth rates has been similar to that of the macroeconomy.

Since the third quarter of 2020, the pace at which Nigeria’s agriculture sector has been expanding has been on the decline. From 1.39 percent GDP growth in the nine months to September of last year, the sector growth dropped to 2.28 percent in the first quarter of 2021, 3.51 percentage points lower than the 2.20 percent growth recorded in the comparable quarter of 2020.

Giving employment to about 35 percent of Nigeria’s working population, Agriculture sector growth has been largely affected by insecurity challenges, ranging from terrorism, banditry to herdsmen attacks that put farmers and their investments in peril. As a result, the sector’s contribution to the Nigerian economy dropped to its lowest levels in almost a year at 22.35 percent in Q1 2021.

The insecurity challenges in most of the food-producing states in Africa’s largest economy is one of the reasons why food prices accelerated to more than two decades high in March 2021.

While 1 in every 3 Nigerians is unemployed, those that have been able to pin a job spend ~65 percent of their income on food, the main driver of the country’s inflation rate (18.17 percent in March). Food prices accelerated to the highest level in 15 years at 22.95 percent in March but slowed in April to 22.72 percent.

Nigeria’s food inflation is the main driver of the country’s headline inflation. Inflation has been accelerating since September 2019. However, it slowed in April to 18.12 percent from 18.17 percent in March 2021.

With a low earning capacity that is far below the rising cost of living, Nigeria’s misery index, an indicator that is used to determine how economically well off the citizens of a country are, jumped to 50.48 percent in March 2021 from 14.75 percent in 2015.

“Climbing misery index implies declining economic activity and reduced consumption,” Charles Akinbobola, an analyst at Sofidam Capital said.

Before covid-19 about 80m of Nigeria’s 200m people lived on less than the equivalent of $1.90 a day. The pandemic and population growth could see that figure rise to almost 100m by 2023, says the World Bank.

While the impact of COVID-19 is easily blamed for the recent economic woes in Nigeria, an evaluation of the country’s macro-economic indicators before the pandemic exposes how the pandemic only made what was already a bad situation worse.

Long before the pandemic started spreading across the globe late last year; Nigeria’s economy had been gasping for breath for five years.

Economic growth in Africa’s most populous nation averaged 1.2 percent between 2015 and 2020. The problem with that is the population grew two times faster at an average of 2.6 percent per year.

Those five years were a painful squeeze for Nigerians who grew progressively poorer, as economic growth was too slow to create sufficient opportunities for a rapidly rising population.

Nigeria retains a long list of economic reforms that can unlock economic growth and reduce poverty but have been stuck. Decrepit infrastructure and the lack of a functional rail system means Apapa, which houses Nigeria’s main post, remains a crying shame.

When transporting imported goods from the warehouse in Nigeria’s busiest seaport, businesses spend an average cost of $2,050, according to a research firm, SBM Intelligence. This is nearly ten times the $208 it cost to transport containers from Durban Harbour to the South African warehouse. In Ghana, it cost $285 to transport containers to a local warehouse.

Implementation of structural policies that tackles issue around petrol subsidy, insecurity and exchange rate volatility are top of the list of recommendation by analysts on how Nigeria can reform its way out the current economic woes.