Unemployment and investment nexus in Nigeria
Nigeria is blessed with abundant arable land and mineral resources, but it also faces significant macroeconomic problems that limit its capacity to attract the necessary investment.
According to Keynes, investment is a real venture that adds to actual capital equipment by boosting the production and purchase of capital goods, which increases output and income.
It is the second component of aggregate demand, which is a crucial source of employment both directly and indirectly through its multiplier effects.
Even though the country’s labour force rose steadily from over 32 million in 1980 to 62.2 million in 2020, the economy faces a high unemployment rate. This implies that the number of people willing and able to work is also increasing; however, the available jobs are not enough to accommodate the labour force, making the unemployment rate in the country rise even before the pandemic.
The expert, however, suggested that an estimate of over 40 million new jobs must be available in the country by 2030 to absorb the new labour market entrants.
Despite the rising population and labour force growth experienced, the World Bank indicators on employment in industry as a percentage of total employment indicate that there has not been a significant change in the share of total employment in the industrial sector over the years.
Industry employment constituted only about 13.42 percent of the total employment in 1991, with an annual marginal decline to 10.15 percent in 2011. A slight increase was observed from 2012 to 2019 when the sector employed 12 percent of the total labour force. The observed decline in industrial employment may result from non-competitiveness with foreign goods, exchange rates, tariffs, and other policies that promote import at the expense of local products and the technological and financial constraints faced by industrialists.
Also, the service sector only employed 36.01 percent of the total employment in 1991, and it consistently increased to 53.03 percent in 2019. The service sector had overtaken the agricultural industry. While the sector’s contribution to GDP was 50.79 percent in 2010, it declined to approximately 48 percent in 2019.
Aside from inconsistent government policies, which affect investment, one of the challenges of investment in Nigeria is the problem of social-economic infrastructure, which also aggravates the unemployment rate in the country, even though Nigeria has the most talented and highly educated human resources in Africa.
The country’s unemployment rate has risen and will continue to rise. This is because most businesses will be forced to close due to incapacity to function and grow in a country like Nigeria.
Currently, the country lacks the electrical generation capacity required to support significant growth of the investment. Nigeria appears to have a more severe power outage problem than other countries, resulting in higher losses, a higher proportion of businesses using generators, and ultimately higher electricity and fuel costs.
In addition, a good transportation network is also crucial for any investment to thrive. The country’s transportation system (rail, road, and air) lacks adequate maintenance and discourages prospective investors due to the dilapidating structure. The 2022 budgeted estimate for the Ministry of Works and Housing is N481.964bn, which may be highly insignificant to produce a noticeable change in the transport networks within the country.
Furthermore, while Nigeria has tremendous mining potential, with undeveloped gold, iron ore, lithium reserves, and other natural resources, luring international and domestic investors may be complex. This is because the country’s national infrastructure network is now unfit to support massive industrial operations.
Also, several industries, such as textiles, steel rolling mills, and, to a significant extent, agriculture, would have provided thousands of employment if they had technologically driven them.
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Nigeria faces the critical challenge of the heightened level of insecurity in the country. This has discouraged both local and international investors from investing in the country. The increase in the rate of kidnapping, banditry, insurgency, and bombing, among others, scares prospective investors despite the abundance of resources available in the country. Several small and medium-scale companies had to fold up due to the inability to cope with economic challenges.
Financial problems are also a critical challenge to investment in the country. Investors, especially small and medium-scale companies, often complain of inadequate capital to operate efficiently and effectively. Smaller firms are more concerned with access to finance, while large firms report tax rates and tax administration as severe obstacles to their investment.
Other challenges to investment include corruption, regulatory bottleneck (tough to navigate), policy uncertainty, and government bureaucratic measures.
Finally, Nigeria has never lacked policies and programmes that would have helped expand our economy and provide jobs for our burgeoning youth population. Instead, we have failed to implement strategic development strategies to foster a technologically driven economy and increase our industrial base.
In conclusion, the government should provide an enabling environment for investment to thrive by giving adequate socio-economic infrastructural facilities, giving access to loans, eradicating corruption or reducing it to the barest minimum, and improving the security situation in the country, which is currently alarming. There should be consistent government policies in favour of domestic investment. Also, the government should enhance the exchange rate management to attract and retain the required private investment for employment.
Busayo Aderounmu is an economist and researcher.