Nigeria's Unemployment Rate Grows By 27.1% As Economy Stutters

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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