My last column was about jobs, a topic that needs no introduction. In that column I made a very simple argument; to create the volume of jobs that Nigeria needs to reduce unemployment, we need significant growth in sectors that are labour intensive and that primarily employ low-skilled labour. Given the current level of poverty and the fact that poor people generally have weak demand for most products outside basic goods, the focus needs to be on sectors with capacity for exports.The obvious next question is “what sectors”?
Two things before we get to that. First, what exactly are labour-intensive sectors? Consider a simple example where you are given N100,000 to manufacture a product. If you spend N80,000 of that on labour in the process of manufacturing that product then it is labour intensive. If, on the other hand, you spend N90,000 renting machinery and only N10,000 on labour in manufacturing that product, then it is not labour intensive. The key point here is not that capital-intensive activities don’t create jobs, they do. But that the spending is skewed towards things other than labour.
For example, the oil industry, including crude oil refining, is considered capital intensive not because it does not create jobs, but because the amount of spending on machinery and equipment and so on is so large relative to the amount of labour it employs. In Q3 of 2017 the mining industry, which is dominated by crude oil, accounted for just over 11 percent of all economic activity in Nigeria but only accounted for 0.17 percent of the employed labour force. That is less that twentieth of a percent. Industries like vehicle assembly plants which we like to focus on are also not labour intensive. It was reported in the news a couple of days ago that Honda was shutting down a plant in the UK which employed about 3500 people. That plant produced an average of 150,000 cars a year, almost ten times the number of new cars sold in Nigeria in 2018. Produced by just 3500 people. For these kinds of sectors, the size of output that would need to be created to make a significant dent in our unemployment numbers are so large that they do not seem achievable.
Secondly, before we get to what sectors are labour-intensive, it is useful to dispel a popular misconception about where or how value is created. When you pick up a pair of jeans that is labelled “Made in Bangladesh” does it actually meanthe entire jeans from cotton to zipper were made in Bangladesh? Probably not. The cotton may have been grown somewhere, the cotton woven into fabric somewhere else, the zippers, and buttons produced somewhere else, and the whole thing brought together somewhere else. Maybe even by an entity that is based somewhere else. The question then, is not if this sector or that sector is labour intensive, but what part of the value addition process is labour intensive.
So, what are these labour-intensive sectors with capacity for exports? The obvious first candidate is agriculture. The caveat here is that almost 50 percent of currently employed people in Nigeria already work in agriculture, and there is a very strong association between agriculture and poverty. If you add the fact that increasing yields in agriculture typically involve getting people out of the farms and the use of more machinery and technology, then it is difficult to imagine agriculture as the path to job creation.
A popular industry that checks all the boxes in terms of labour-intensiveness and exports is the clothing industry: textiles, leather, and shoe manufacturing. This is one of those sectors, that due to the way it is currently structured requires lots of labour. In Bangladesh, which is a big participant in the global textiles, the industry exported about $18bn worth of clothing and textile products employing over four million people directlyin 2012. The statistics in terms of the employment output ratio are similar in other clothing sector powerhouses like Mauritius and Vietnam. Some other light manufacturing of things like toys, bicycles, machinery for metallurgy and so on have also been demonstrated to be relatively labour-intensive.
Services exports are also an essential part of the labour-intensive story. Because not all value created has to be with physical goods. The classic example of labour-intensive services exports arethrough businesses like call centres and data entry services, and other monotonous service jobs which still require human interaction but do not really require much skilled labour.
No doubt there are a plethora of other industries and services which fulfil the labour-intensive export potential criteria. If the focus is on creating jobs and reducing unemployment, then the policy focus has to be on sectors that pass that minimum criteria. Of course, the next question is how? How do you begin to build a clothing industry that can compete internationally? How do you organize so that international call centres can set up shop in your country? More on that next week.
Nonso Obikili
Dr. Nonso Obikili is chief economist at Business Day.
