Labour Day Celebrations; NBS 2018 Figures Reveal A Coming Job Market Distress

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Wednesday, May 01, 2019 / 07.00AM / By Teslim Shitta-Bey, Managing Editor, and Glory Okutue /Proshare research / Header Image Credit: @NLCHeadquarters


 

Workers will go out as usual today May 1, 2019 in symbolic solidarity with counterparts across the world, but while workers in other parts of the globe mount rostrums to talk about the improvement of workers welfare, Nigerian workers will be staring into a dark tunnel trying to make sense of the recent national unemployment figures released by the National Bureau of Statistics (NBS). Beyond rhetoric Nigeria’s jobless rate is a ticking bomb ready to go off.


 

Highlights of NBS Unemployment Report Q3 2018

 

Nigeria’s unemployment figures are bitter realities with the following key features:

 

  • The overall jobless rate is 23.1% or what amounts to a fourth of those that are able and willing to work but are unable to find jobs (60% of this category of Nigerians fall within the age range of between 18 and 35 years of age)
  • Nigeria’s underemployment rate (or the rate of underemployment for those that work for less than eight (8) hours a day) is 20.1% or a fifth of those that work at jobs for periods less than a third of the total number of hours in a day.
  • The highest unemployment rate is in Akwa Ibom at 37.7%
  • The lowest unemployment rate is in Osun State at 10.1%
  • The region with the lowest average unemployment rate is the South West at 14.3%
  • Region with the highest average unemployment rate is the South South at 31.29%
  • The South East has an average unemployment rate of 23.41%
  • North West has an average unemployment rate of 23.29%
  • North Central has an average unemployment rate of 23.34

 

Regions In Unemployment Crunch; Where Cometh the Jobs?

 

The average unemployment rate for the South East, North West and North Central regions currently hover slightly above the national unemployment average of 23.1%; but the unemployment rate in the South South scales past the national average by a hefty 8% while unemployment in the South West (led by Osun State at 10.1%) is 9% below the national average. 

 

 

 

Chart 1 Unemployment Rate By Region 2018

 

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Source: Nigerian Bureau of Statistics (NBS)


 

Other NBS figures lay bare Nigeria’s fiscal imbalance:

  • The State with the highest VAT per head is Lagos State  with a VAT revenue per capita of N8,103.32 in Q3 2018 which is about 81% higher than its closest counterpart capita State
  • Surprisingly because of its small population (2.3m, 2016 figures) Bayelsa State comes second with VAT revenue per head at N4,484.03 while;
  • The State with the least VAT revenue per head is (equally surprising) Kano State with a VAT per capita revenue in Q3 2018 of N1,654.73. In other words Kano is one of the least revenue productive States in the federation. Its relatively low internally generated revenue (IGR) is smothered by its oversized population.  

 

This is interesting at different levels:

 

  • Lagos State is the most commercial of all states in the federation; it is also the most densely populated state per square kilometer and naturally contributes the largest amount of indirect tax revenues to the federal pool. Lagos State’s VAT revenue is two times the closest contributor of VAT per population, Bayelsa State, which contributes roughly N4, 500 per citizen.


  • In absolute terms Bayelsa is the not the second largest VAT contributor to the federal pool, this goes to Kano State, but because (at least on paper) Kano State has approximately the same population as Lagos State, the effect of a larger population has been to reduce its revenue per head. In the first three quarters of 2018 Kano State generated N19.7bn in VAT revenue as against Lagos State’s N98bn. In other words, Lagos State in 2018 generated five (5) times more VAT income than Kano State. Bayelsa State generated a relatively low N9.9bn in VAT income but its population of 2.3m people (2016 population forecast) gave it a high VAT to population ratio, a distant second only to that of Lagos State. 


  • Kano generates the lowest VAT per head in the country despite its highly commercial nature and its central location in the Northern part of the country with an illustrious trading history that dates back centuries.

 

 

 

What do the numbers mean?

 

  • Lagos State generates the largest volume of commercial activity in the country, but this needs to change. While Lagos first mover advantage gives it a solid pace setter gain, it does not give it revenue generation exclusivity. Other states have been indolent. In 1999, Lagos State’s revenue generation capabilities was not significantly different from other states and like other states of the federation it depended heavily on federation account (FAAC) sources of funding. Today Lagos State generates just under N100bn in VAT. This has been accomplished with still relatively low tax compliance.


  • States like Kano State have been suboptimal in fiscal revenue generation. As one of the most cosmopolitan states in the North, Kano State’s low VAT per capita is an embarrassment. Granted that because of its strict Islamic code the state cannot generate revenue through tax on alcohol consumption ( an issue that has raised technical concern among states that generate so-called ‘sin taxes’), the state can raise further VAT revenue from the large commercial activities that take place in Kano city. Fiscal analysts have noted that it is inequitable to take money from states that generate taxes from alcohol, cigarette, and hospitality activities and use it to fund states that have chosen not to generate revenue from these resources. Economists call this the, “free rider” concept of marker failure, which relates to people getting something for nothing because they do not bear the cost of the provision of a service. In this case, states that do not generate certain kinds of VAT taxes still benefit from the proceeds of such revenue generation by other states.

  • States of the North like Kano State, Kaduna State and Nassarawa State (the state with the lowest VAT contribution of N9.6bn in 2018) should be able to increase VAT revenues significantly. This would increase the size of the federal tax coffers and provide larger revenue to meet the requirements of capital and recurrent expenditure at both federal and state levels. If these states improve VAT earnings then the larger distributable fiscal incomes will enable the country as a whole grow at a faster pace than its most recent 1.93%, a growth rate that is well behind current estimated population growth of 2.6%.  

  • Across the country indirect tax collection has been weak. This has left many states technically insolvent and if they were not supported by the federation account allocation (FAAC) they would have fiscally collapsed, as recurrent expenditure persistently runs ahead of IGR.

 

 

IGR And the Unemployment Challenge

 

Internally Generated Revenue (IGR) is the trump card to increasing the ability of states to create jobs. It does appear that the higher the IGR the lower the unemployment in the state or region. The poor performance of states in generating internal revenue explains the unsatisfactory jobless rates across the country. The jobless rate across regions and among states, according to NBS statistics, is instructive and revealing. The state with the largest IGR in the country, Lagos State, also has one of the lowest unemployment rate. The same also seems to be true on a regional basis; regions with the lowest IGR also have the highest unemployment rates:


 

Chart 2 Regional Unemployment Rate Relative to National Average 2018

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Source: National Bureau of Statistics (NBS)



  • Lagos State in the South West region had an IGR of 283.5bn in 9 months 2018, and an unemployment rate of 14.6% or slightly higher than the regional unemployment rate of 14.3%. The total IGR per capita for the region over the period was N 44,521.92.

 

Chart 3 Nigeria: South West Unemployment Rate 2018

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Source: National Bureau of Statistics (NBS)

 


  • Akwa Ibom had an IGR of N18.5bn in 9 months 2018, and an unemployment rate of 37.7% or 6% higher than the South South’s regional average rate of 31.29%. The total IGR per capita for the South South region between Q1 and Q3 2018 was N36, 426.43. With about 50% of the amount coming from two states: Rivers and Imo States.

 

Chart 4 Nigeria: South South Unemployment Rate 2018

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Source: National Bureau of Statistics (NBS)

 

  • Kano State, in the North West, pulled an IGR of N25.6bn in the first 9 months of 2018 while unemployment in the state settled at 31.3% or 8% above the regions average rate of 23.34%. The total IGR per capita of the region over the period was N11, 275.21. Kano’s large population has a high dependency ratio (a large number of very young and very old people relative to the states total population) resulting in a relatively low state GDP and internal revenue. Besides, IGR effort in Kano State has not optimized the potential of the state by formalizing the consumer retail sector in such a manner that it can enhance VAT and other tax collections. Kano as a huge intra-ECOWAS market should be able to at least double its IGR N50bn over a period of four years. This should bring unemployment down by at least a third or close to the current national average.

 

Chart 5 Nigeria: North West Unemployment Rate 2018

 

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Source: National Bureau of Statistics (NBS)


  •  Intermittent crisis in the North East as a result of conflicts between cattle breeders and farmers and incessant attacks by local insurgency group, Boko Haram, has taken a hard toll on the regions economy. The North East has the lowest IGR per capita of all regions in the country; IGR per capita in 2018 was N 6,517.84. The low IGR has been naturally accompanied by high unemployment. Unemployment at 31.4% in Borno State was 8% higher than the national average in 2018. The lowest unemployment rate in the region was in Taraba State with an unemployment rate of 19% or 4% lower than the national mean of 23.1%. 

 

Chart 6 Nigeria: North East Unemployment Rate 2018

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Source: National Bureau of Statistics (NBS)

 

  • The North Central region zone has had less challenge than the North East but unemployment rate is still high and IGR low. The Federal Capital Territory (FCT) represents a slight regional anomaly. IGR in the FCT is N15, 767.51 (comparable to States in the South West) but unemployment is 24.4% (consistent with the high rate of the region). Average unemployment in the region was 23.34% or o.20% above the national average in Q3 2018.  Plateau State, which was once the nation’s tourism crown jewel, is jaded and presently has the highest rate of unemployment for the region at 29.8%. The lowest unemployment rate for the region was recorded by Kogi State at 19.7% roughly 10% higher than Osun State’s 10.1%. 

 

Chart 7 Nigeria: North Central Unemployment Rate 2018

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Source: National Bureau of Statistics (NBS)

 

  • Average unemployment in the South East was better than the South South but fell short of the low rates in the South West. Average unemployment rate for the region was 23.41% with Abia State surprisingly leading the jobless numbers in the East with an unemployment rate of 31.6%. Imo State equally counter intuitively came second with an unemployment rate of 28.9% and Ebonyi came third at 21.1%. The Industrial machine of the East seems to have been busted and has failed to create jobs for a well-educated and young Eastern population. The region has not optimized the potentials of places like, Aba, Nnewi, Onitsha and Abakaliki, although the current governor of Ebonyi State has made efforts to ignite the agricultural sector in the State through massive rice cultivation. Reflecting the high unemployment in the region is the regions low IGR which came to a total of N12,267.28 per capita in 2018; only slightly better than the North West at 11,275.21 per capita over the period.

The negative correlation between low IGR and high state unemployment is compelling suggesting that to reduce unemployment in the States each State must think creatively and strategically to find practical ways of increasing IGR in both the short and medium term by at least 100% over the next four (4) years. 

 

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Labour and the Minimum Wage Triumph

Labour has shown excitement about its getting the government to raise the national minimum wage by 67% from N18, 000 per month to N30, 000 per month; on the face of it, this is a major achievement by labour but subterranean dangers lay ahead. They include

  • In the face of a slow moving economy (less than 2%) a higher wage rate will lead to a rise in labour unemployment; labour substitution becomes more practical as the opportunity cost of replacing labour with machines becomes higher. In other words higher labour costs encourage employers to look for cheaper non-labour substitutes
  • With relatively low IGRs and heavy debts few States will be in a position to meet salary increases and the rise in overall public sector wage bills without increasing public sector service charges, fines, fees and other revenue tariffs.
  • The rise in wages will feed into short term “money illusion” with people spending under the impression that they are significantly better, over the period of twelve months commodity prices and other service charges (such as bus fares, rents and retail commodity prices) will rise to meet the increased cash in people’s pockets, thereby bringing real wages crashing down.  Labour’s little victory may come at bigger costs by 2020.
  • Labour’s recent battle cry for more jobs in a broadly unproductive economy is, according to analysts, naïve. Nigeria’s manufacturing sector is stagnant, agricultural sector growth has slowed and mainly the service sector appears to show signs of minimum vigour. A struggling manufacturing sector cannot support a rise in employment at higher labour costs.  
  • The only way for employment to increase is when real wages adjust lower to enable market forces increase labour demand. Labour cannot heckle jobs into existence because labour demand is a function of productivity (embodied in technology), labour prices (as dictated by demand and supply) and market conditions (as reflected in growth in global demand and the state of international trade politics) and not the sound of labour Union foghorns and rhetoric.


The tightening Debt Noose

To make matters worse, several state governments presently face rising debt profiles that are becoming increasingly problematic. A few examples:

  • The South West has the highest domestic debt of the six geopolitical regions in the country; most of the debt region’s debt is tied to Lagos State with a domestic debt of N530.22bn in 2018. The next highest debt in the region was recorded by Osun State with a debt of N148.1bn. Both States have low unemployment rates but Osun State has a population of just 4.5m people as against Lagos States 12.1m (official 2016 estimates), but more importantly Osun State has a public service workforce of over 2.5m (about half its population) as against Lagos State’s public service workforce of less than 500,000. A rise in the minimum wage rate will definitely worsen Osun States fiscal balance in contrast to Lagos State that is likely to take the new wage bill in its stride. Ogun State has a domestic debt of N98.7bn with a population of 5m. Its rising IGR and growing industrial sector provides it with a potential fiscal cushion, but this will depend on fiscal strategies adopted by the incoming administration, poor project sequencing and prioritization could lead to a fiscal logjam throwing the State into a severe debt crisis as revenues fail to support growth aspirations.
  • Other states have varying degrees of debt and capacity to service them. States that are predominantly public sector (with profiles similar to Osun State) will struggle to keep heads above water, but States with thriving commercial activities may do better if revenue loopholes are plugged and internal waste is curbed to a minimum.


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Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.


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Aluta Continua!

As labour celebrates a major milestone in improving the wellbeing of Nigerian workers in 2019, it should take time for circumspection. The rise in Nigeria’s hourly wage rate may appear to be a feat that has been a long time in coming, but without careful handling labours admirable battle may cost it the war, as workers begin to queue up government handouts as companies close shop one after the other. 

We at Proshare congratulate Nigerian workers and urge them to see beyond the pay packet to the challenges of productivity because ultimately this is what will make a wage hike make sense.

Happy Labour Day!                                                                                         

 

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