Saturday, March 20, 2021, 06:00 AM / by
Proshare Research/Header Image Credit: NBS
Nigeria's economy has been caught in an unemployment bear hug. Data recently released by the National Bureau of Statistics (NBS) showed Q4 2020 unemployment figure rose to 33.33% from 27.1% in Q2 2020. The rise in unemployment reflected a downturn in economic activity in 2020 partly as a result of the COVID-19 global health pandemic and a crash in the nternational price of crude oil. The double whammy slammed a fist into the ribs of the local Nigerian economy.
To make matters worse, in the same week the national statistics authorities released inflation figures that showed that the national inflation rate in February 2021 stood at 17.33% which was a step up from the 16.47% recorded in January 2021. The combination of rising inflation and rising unemployment opened a floodgate of tears to drown an already troubled 'misery index'. The index has become a shorthand method of capturing the state of economic wellbeing of citizens.
Analysts note that the higher the index the worse off the citizens and the lower the index the better the standard of living of citizens. The recent Nigerian numbers show that the misery index is not only high, but worsening.
A breakdown of the country's unemployment numbers shows that Nigeria's unemployment rate rose from 27.1% in Q2 2020 to 33.33% in Q4 2020 while its underemployment rate fell from 28.6% to 22.8%. Furthermore, the report noted that the unemployment rate was highest amongst Nigerian youths. The unemployment rate for people between the ages of 15 and 24 years stood at 53.4% while those between the ages of 25 and 34 stood at 37.0% (see Chart 1 below).
Chart 1: Nigeria's Unemployment Rate (%)
Source: Proshare Research, NBS
Looking for the Industrial Path
A growing swell of economic analysts have argued for a clear and persuasive national industrial policy aimed at improving the pace of growth of manufacturing and the rise in local productivity. They argue that the matter is not one of what is but that of what should be, the difference is reimagination and rethinking, commodities that are in scarce supply in policymaking circles.
The present administration has concentrated on agricultural growth without building understanding of the national input-output matrix that would ensure sustainable development based on industrial growth. The thought processes that sustains the notion of the export of raw agricultural material as catalysts to growth and development went out with the dinasuar.
Nigeria's unemployment rate has been made worse by a narrow perspective the nexus between agriculture and industry, creating a disproportionate emphasis on agriculture relative to industry. Agricultural ouput needs to be supported within the context of industrial inputs thereby creating a sustainable local demand and supply value chain network. For example, maize, millet, sorghum and soybeans are critical inputs in the baby formula business. Expanding these commodity outputs without fast-paced growth in the production of baby formulas, animal feeds and other edible fast-moving consumer goods would depress local farmgate prices and depress farmers welfare.
Besides, at the global level, raw agricultural ouput prices have suffered a secular decade-long decline and are not expected to rise. With improved agricultural production processes in more matured economies (for example, a cow in Nigeria produces 200litres of milk daily while a cow in the United States of America produces 2,500 litres of milk daily and are milked three times a day), the pricing of agricultural output in Nigeria is globally uncompetitive. The poor productivity in the agricultural sector and the slow growth of the local manufacturing sector have conspired to raise domestic unemployment rates, thereby creating a scrappy outcome for public policy.
In 2020 the emergence of the COVID-19 global pandemic turned a bad situation to a terrible one. The unemployment rate piggybacked off the government's virus containment policies to drag down employment and stick a knife through the heart of the country's economic growth for the year. The country's gross domestic product slipped to -6.1% in Q2 2020 and dropped less steeply downwards to -3.62% in Q3 2020 before sliding up to +0.11% in Q4 2020.
The manufacturing sector has continuously declined and stubbed its feet against policy rocks. The year 2020 was no exception as a result of a cumulative FX challenges, the rising cost of doing business, port congestion challenges, and the coronavirus pandemic which affected operations and suppl chains in 2020. According to the Manufacturers Association of Nigeria (MAN), goods valued at N577.61bn were unsold in 2020. The association lamented that the increase in inventory was attributed to the decline in consumption and renewed imports as global economies reopened after months of lockdown. Also, it noted that about 3,903 jobs were lost in the manufacturing sector and that the total manufacturing investment declined to N118.52bn in 2020 from N496.11bn in 2019. The body also noted that production value in the sector dropped to N4.4trn in 2020 from N11.99trn in 2019. The contraction in the sector would have become worse if the economy had remained shut.
The recent call for faster manufacturing sector growth rides on unemployment fears as both the Central Bank of Nigeria (CBN) and the Ministry of Finance (MoF) have been spooked by limited policy effectiveness despite the large sums of money spent on supporting economic growth and employment. An improvement in Nigeria's productivity would reduce import-dependence and relieve FX pressures thereby improving the naira to dollar exchange rate and reduce domestic inflation, hence improving domestic manufacturing competitiveness.
The FGN; Ruined by Policies
It is well known that the pandemic hit most economies, but some analysts have attributed the significant rise in Nigeria's unemployment rate to poor/bad governance which limited the government's ability to salvage the economy when the pandemic hit hard. Many advanced and emerging economies were able to pass a huge fiscal stimulus plan to prevent the rise in the unemployment rate.
The fiscal discipline adopted by some of the advanced and emerging economies in the past shored up their ability to intervene to cushion their economy from the negative effect of the pandemic e.g., the British government embarked on job retention schemes, the American government paid unemployment benefits while recently passing the $1.9trn stimulus. Economies like Hongkong, Singapore, Sweden had been operating a budget surplus before the coronavirus broke out. Hence, it was relatively less burdensome for these countries to intervene to quicken rebound in economic activities.
The Nigerian government was only able to spend about 4% of its GDP as a stimulus package. According to analysts, the fiscal stimulus was inadequate and was incapable of triggering any major rebound in the economy as the shortfalls of the past administrations and the present government such as lack of diversification of revenue, mismanagement of funds, etc limited its capacity to spend big. The constraint in fiscal expenditure could be linked to Nigeria's overdependence on oil revenue which was badly affected by the pandemic. Some of the interventions embarked by the government include N15bn to sustain about 300,000 jobs in 100,0000 MSMEs by guaranteeing off-take of identified priority products, N260bn to establish the SME Survival Fund to sustain at least 500,000 jobs in SMEs for 3 months, N4bn for the aviation industry, etc. Most analysts felt that these interventions were grossly inadequate and could not trigger the required rebound in the economy. The cumulation of weak policies, lack of political will, corruption, etc are past and present challenges that continue to haunt the Nigerian economy.
FDIs: Playing the Investor Friendliness Card
The government's lean fiscal purse has prompted the need to adopt other creative ways of moving the industrial needle forward while improving local productivity. Analysts have noted the benefits of increased foreign direct investments (FDIs) especially with respect to reducing the pressure on FX, improving domestic infrastructure, increasing employment, and so on.
The Lucrative Business of 'People-Jacking'
The rise in insecurity has become an investor's bane as they look for safe and secure locations to park their funds. Kidnapping is increasingly becoming the most lucrative business in Nigeria, promising high, even if illicit returns. Recent abductions range from the Kangara schoolboy's abduction, 279 girls kidnapped in Zamfara, gunmen kidnapping about 39 students in the Federal College of Forestry Mechanization in Mando. In reaction to these kidnappings, the Canadian government has warned its citizens to avoid non-essential travel to Nigeria owing to the unstable security situation.
About 26 states in Nigeria recorded no capital importation in 2020 while some analysts have attributed this to lack of infrastructural facilitates in the sub-nationals, others note that the levels of insecurities in the country must have been a major contributor to the absence of foreign inflows to these states e.g., all the unsecured states in the North East recorded no capital importation in 2030.
Although according to the unemployment statistics, some of the states battling insecurity recorded high unemployment rates, they were lower when compared to analyst expectations and this was largely attributed to the notion that a majority of its citizens are in the informal sector hence, the full effect of the insecurity was not captured in the NBS statistics e.g., Zamfara state recorded a low unemployment rate of 12.99% while Borno state's unemployment rate stood at 43.25% (see Chart 2 below).
Chart 2: States with Highest Unemployment Rate Q4 2020
Source: Proshare Research, NBS
Some characteristics of the states with the highest levels of unemployment as of Q4 2020 include high levels of insecurity, overdependence on FAAC, poor infrastructural facilities, and low levels of industrialization.
It is predicted that if the trends of insecurity persist in the country especially the North East region not only will it have a devasting effect increasing unemployment, but it will further add to their woes of not being a destination of capital imported and limit the full exploitation and utilization of resources in the states. Hence, it is pivotal for the insecurity challenges to be paid attention to as it is both a cause and consequence of poverty as both variables have a bidirectional relationship.
Twisting the Knots and Tightening the Screws
Local economists have suggested different pathways through which the Nigerian economy could navigate through turbulent waters. Some of the solutions offered to reducing unemployment include overhauling the Nigerian school curriculum to meet modern needs of society, funding and encouraging entrepreneurship like Sweden, and subsidizing capacity building training. These suggestions though well-meaning could prove difficult to implement in the absence of political will. While politics ties the implementation knots, economics applies the screws.
10. Unemployment in Today's Recession Compared to the Global Financial Crisis