Nigeria Economy | |
Nigeria Economy | |
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Friday,
August 14, 2020/ 7:00PM/ TheAnalyst /Header Image Credit: NBS
Caught
between two crises recent unemployment and underemployment data released by the
National Bureau of Statistics (NBS) indicates that Nigeria's unemployment
situation has worsened between Q3 2018 and Q2 2020. Nigeria's unemployment rate
rose from 23.1% in Q3 2018 to 27.1% in Q2 2020, while the underemployment rate
rose from 20.1% in Q3 2018 to 28.6% in Q2 2020. The rise in the number of
jobless Nigerian's was expected but puts additional pressure on Nigeria's
fiscal and monetary authorities to engineer faster growth between 2020 and
2021.
Analysts note that 2,736,076 persons or
3.4% of the local labour force were kicked out of jobs during the period but such
individuals may have had workplaces to return to after the coronavirus
lockdown. The combination of unemployment and underemployment rate for Q2 2020
was 55.7% (see Chart 1 below).
Chart 1: Nigeria's
Unemployment Rate 2015-Q2 2020
Source: NBS, Proshare Research
Before the release of NBS's report foreign and local
analysts had predicted that Nigeria's unemployment rate would balloon to about 35%
given the slow growth of the economy (GDP growth was 1.87% in Q1 2020 as
against 2.1% in Q1 2019), the looming recession, and the adverse effect of the
coronavirus ate deep into the healthcare system and the nation's treasury.
Although the unemployment rate announced by NBS for Q2 2020 was 27.1% analysts
fear that the number may not be a true reflection of the employment challenge
in the country. According to the NBS report,
the five states with the highest unemployment numbers in Q2 2020 were Imo state
48.7%, Akwa-Ibom state 45.2%, Rivers state 43.7%, Delta state 40.3%, and Taraba
state 39.4%. Among the five states with the highest unemployment rate one was
from the South East region, three from the South-South region, and one from the
North East region. The five states with the lowest unemployment rate in Q2 2020
were Anambra state 13.1%, Kwara state 13.8%, Sokoto state 13.9%, Zamfara state 14.0%,
and Ebonyi state 14.6% (see Chart 2 & 3 below).
Chart 2: States
with the Highest Unemployment Rate (%)
Source: NBS, Proshare Research
Chart 3: States
with the Lowest Unemployment Rate (%)
Source: NBS, Proshare Research
To tackle similar unemployment problems governments
around the world have embarked on various fiscal measures to ease the burden of
the coronavirus on citizens. These measures include unemployment benefits, job
retention schemes, grants to MSMEs, etc. Nigeria's government in July 2020 approved
the creation of an N75bn Nigerian Youth Investment Fund (NYIF) to support
enterprise among 68 million young Nigerian between the ages of 18 and 35, the
Federal Government also announced plans to initiate an N2trn stimulus package
and survival fund for Micro Small and Medium Enterprises (MSMEs) to stay afloat
during the COVID 19 crisis.
Hope Dims as Unemployment Goes into Fast
Drive
Key
employment drivers have slipped in Nigeria raising doubts about an early return
to growth and a fall in the local jobless rate. The several economic challenges
of the country have dampened hopes of a V-shaped recovery. Nigeria's high
dependence on imports, oil exports for foreign exchange earnings, high levels
of corruption, insecurity, policy inconsistency, and the high inflation rate
has affected growth prospects. Since its
recovery from recession in Q2 2017, Nigeria's GDP has shuffled ahead slowly,
with a growth rate of 2.55% recorded in Q4 2019, the highest in recent quarters
(see Chart 4 below).
Chart 4: Nigeria's GDP Growth Rate (%)
Source: NBS, Proshare Research
The
Dominant thought amongst local economists is that if the manufacturing sector is
properly developed it can absorb a large number of the labour force.
Manufacturing in Nigeria is tedious as manufacturers have to compete with
imported products for market share. The disruption in global supply chains as a
result of the coronavirus has further worsened the woes of the sector in
Nigeria. Manufacturing firms in Nigeria are plagued with high-cost production
resulting from an epileptic power supply, the rising cost of inputs, and high
transportation costs. Nigeria's dwindling foreign reserves has also been a
cause of concern for investors and manufacturers. Manufacturers who rely on
imported inputs find it difficult and expensive to access FX. The shortage of FX has limited the expansion
capacity of firms. Investors have expressed fears of investing in Nigeria as
its currency has consistently fallen over the years, investors fear that the
true value of their investment would be lost. Nigeria's manufacturing PMI for
July stood at 44.9 index points, indicating manufacturing sector contraction
for the third consecutive month which suggests that the sector has suffered
from the adverse effect of COVID 19 (see Chart 5 below).
Chart 5: Nigeria's Manufacturing PMI
Source: NBS, Proshare Research
Insecurity
in the Northern parts of the country has affected the agriculture sector
severely. There have been reported an increase in the crime rate in the North
as banditry, farmers-herders crisis, kidnapping, and terrorism cause fear and panic
thereby reducing farm output. The insecurity has hindered the growth of
investment in the North hence, the rise in unemployment and underemployment in
the region. Investors desire a stable environment
for their money and expect adequate protection of lives and property.
Inflation and Unemployment: Upending The
Philips Curve
The
Phillips curve says that there are inverse and stable relationships between the
inflation rate and the unemployment rate in Nigeria. The theory states that
there must be a trade-off between economic growth and inflation i.e. when there
is a rise in economic growth there would be an increase in the inflation rate
and vice-versa.
Illustration 1: A Bitter Battle with Stagflation
The Nigerian economy is presently in the grips of what has been termed "stagflation" as there is a rise in both inflation and unemployment rate. Nigeria's stagflation has primarily been caused by a fall in productivity and a continuous rise in the inflation rate. Nigeria's inflation rate has maintained a steady upward trend since the temporary closure of its border in August 2019 (see Chart 6 below).
Chart 6: Nigeria Inflation Rate (%)
Source: NBS, Proshare Research
Unemployment Lingers Despite Social
Investment Programmes
Nigeria's fiscal and
monetary authorities have pushed massive expansionary programmes to counter the
slowing effects of supply chain disruptions and a dip in production caused by
COVID 19. Programs such as the proposed employment of 774,000 Nigerians under
the Special Public Works Programme of the Federal government scheduled for
October, N-power, FarmerMoni, and TraderMoni under the Government Enterprise
and Empowerment Programme (GEEP) have been in initiated. Though these policies have meant well they
have equally raised eyebrows concerning sustainability, equity and transparency.
According to the Ministry of Humanitarian Affairs Disaster Management, and
Social Development "Over five million Nigerians have applied for the third
batch of the N-Power programme" this statement reveals the worrisome state
of unemployment in Nigeria.
Nigeria: A Sub-optimal Mine
Nigeria
is a mine of opportunities yet to be optimally explored. The country, according
to a few local economists, may strategically position itself as the trade
center for Africa, for example, the yet to be ratified AfCFTA provides a wide range
of opportunities for the Nigerian economy to become the major financial hub of
Africa which can help drive productivity, forex inflow, and generate more
employment opportunities.
The enactment of the long-awaited CAMA act if implemented could help simplify regulatory processes, improve the operating business environment, and re-energize the private sector as the engine of growth in Nigeria.
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