• Monday, July 15, 2024
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Unemployment rises for second time since method review

Digital transformation: A pathway to address Nigeria’s unemployment crisis

Nigeria’s unemployment rate rose for the second time in the third quarter of last year since the National Bureau of Statistics (NBS) adopted a new methodology for the country’s labour force.

The latest Nigeria Labour Force Survey published on Monday showed that the unemployment rate rose to 5.0 percent from 4.2 percent in Q2. It stood at 4.1 percent in Q1, down from 5.3 percent in Q4 of 2022.

The statistical agency defined the unemployment rate as the share of the labour force (the combination of unemployed and employed people) who are not employed but who are actively searching and are available for work.

“The unemployment rate increased significantly in Q3 at 5.0 percent. This is an increase of 0.8 percent from Q2. The rate of unemployment among persons with post-secondary education was 7.8 percent in Q3,” the report said.

It said the unemployment rate among youth aged (15-24 years) was 8.6 percent in Q3 from 7.2 percent in Q2 and that the unemployment rate in urban areas was 6.0 percent in Q3, a slight increase of 0.1 from Q2 2023.

The removal of petrol subsidy and naira devaluation in the second quarter of last year has increased inflationary pressures to record high, weakened the purchasing power of cash-strapped consumers and increased the cost of operations for businesses.

This has forced many small businesses to close shop, worsening the country’s unemployment situation.

“The high inflation rate in the country increased the unemployment rate. When there is inflation, the purchasing power and disposal income of people will decrease making businesses like manufacturers reduce their staff strength to reduce cost of production,” Femi Egbesola, national president of the Association of Small Business Owners of Nigeria (ASBON), said.

He said the issue of foreign exchange which has increased the cost of imported raw materials for many manufacturers made them also to reduce workers.

“The number of job losses will continue to increase until the government does something pragmatic about it. About 10 percent of businesses have shut down since the reforms were implemented.”

Israel Odubola, a Lagos-based research analyst, said the outlook for unemployment is grim. “In Q4 up till now, the business environment is facing a higher level of economic turbulence.”

According to the NBS, Nigeria’s headline inflation rate rose for the 13th consecutive time in January to 29.90 percent from 28.92 percent in the previous month.

Food inflation which constitutes 50 percent of the inflation rate rose to 35.41 percent from 33.93 percent.

The World Bank’s latest Nigeria Development Update report revealed that 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.

The domestic environment has been very tough and difficult coupled with external forces, said Adeola Adenikinju, president of the Nigerian Economic Society.

“The removal of the petrol subsidy which is a major factor and issues from insecurity that disputed agriculture in the north and impacted on trade and transportation, led to the increase in unemployment. There is a need to invest in social investment programs, to serve as a cushion effect of the reforms,” he added.

The NBS report also revealed that the labour force participation rate among the working-age population declined to 79.5 percent in Q3 compared to 80.4 percent in Q2.

“The employment-to-population ratio was 75.6 percent in Q3 with a decrease of 1.5 percent compared to a ratio of Q2. The combined rate of unemployment and time-related underemployment as a share of the labour force population increased to 17.3 percent in Q3 from 15.5 percent in Q2,” the report said.

It said about 87.3 percent of workers were self-employed in Q3 and that the proportion of workers in wage employment in Q3 was 12.7 percent.

“Informal employment rate in Q3 was 92.3 percent, while Q2 2023 was 92.7 percent. Percentage of youth not in employment, education or training (NEET Rate) was 13.7 percent in Q3,” it added.

In a seismic shift in the economic landscape, the Q3 has witnessed a substantial and unexpected increase in Nigerian unemployment rates, sending shockwaves through the labour market, according to analysts at Comercio Partners Research.

“The unemployment rate surged to 5.0 percent, marking a significant 0.8 percent rise from the second quarter. This multifaceted snapshot of the labour market underscores the urgent need for a comprehensive response from policymakers, businesses, and financial institutions,” they said in a note on Monday.

High inflationary pressures shrunk business activity four times far in 2023, according to the purchasing managers’ index (PMI).

Earlier last year, the Manufacturers Association of Nigeria projected that employment conditions for Q3 deteriorated below the 50 benchmark points to 46.6 points from 47.8 points in the previous quarter.

A further analysis shows that the employment conditions, which declined for the fourth straight quarter, fell to the lowest level compared to other indicators such as current business condition (48.9), current employment condition (50.2), business condition for the next three months (58) and production level for the next three months (59.8).

BusinessDay reported last week that uncertainty in Nigeria’s macroeconomic environment was 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.

A lot of instability and inconsistency in the currency coupled with insecurity creates a problem for many businesses, said George Onafowokan, managing director/chief executive officer at Coleman Technical Industries Limited.

“You will limit what you have been able to do or limit your exposure. The erosion of working capital for businesses, especially for manufacturers, is happening massively.”