Olu Ajakaiye, Afeikhena Jerome, Olufunke Alaba & David Nabena

Labour Markets in SubSaharan Africa workshop, CapeTown

27 November, 2015

High joblessness in the midst of high growth: Nigeria’s paradox

Content The context

Motivation and objective

Stylized facts about Nigeria’s Labour Market

Methodology and data

Results

Potential:- Demographic dividend

Conclusions and Challenges

The context Nigeria is the most populous country in Africa with a

population of about 159.7 million in 2010 and 178.5 million in 2014. The sixth most populous nation in the world

After decades of military rule, the country has successfully engaged on the path of democracy since 1999, and since then has enjoyed consistent and strong growth.

Economic Growth in Nigeria under Different Regimes

Context cont… Real GDP growth has been strong,

averaging 6.8 per cent over the last decade,

The rebasing of its GDP in April 2014 better reflect the structure of the economy, saw it surge to become Africa’s largest economy with a reviewed GDP estimate of $454 billion in 2012 and $510 billion in 2013 (compared with the $259 billion and $270 billion that were reported previously).

The rebased data also reveals a more diversified economy than previously thought, with important sources of growth coming from manufacturing (especially food and beverages) and previously undocumented services (including the entertainment industry).

Source: McKinsey and Co 2014

Result of the Rebasing

Motivation and Objective Nigerian economy is transforming from an agrarian economy

to a tertiary service economy, without going through the intermediate stage of industrialization.

Recent growth has not translated into significant social and human development. The 2010 Nigeria Poverty Profile Report (NBS) estimated the poverty incidence at 69 per cent in 2010, up from 54.4 per cent in 2004 using the Harmonized National Living Standard Survey (HNLSS) of 2009/2010.

Unemployment has also assumed an inexorable dimension, reaching 25.1 percent in 2014, with up to 18 million people unemployed

The objective of the paper is to try to understand Nigeria’s high economic growth from an employment perspective.

Stylized Facts about Nigeria’s Labour Market

Nigeria’s population increased by 2.8 % from 138.6 million in 2005 to 159.7 million in 2010 and 178.5 million in 2014.

Labour force grew by 2.9% on average, from 65.2 million in 2010 to 72.9 million in 2014.

Total labour force in full remunerative employment increased at a meagre average of 2% over the period compared to 6.1% and 16.48% for the underemployed and unemployed population respectively.

Industry contribution to growth which accelerated from 43.5% in 1990 to 52.3 % in 2005, declined steadily; as the services sector value added to GDP fired up from 23.7% in 2005 to 54.1% and 59.1% in 2010 and 2014 respectively

Profile of Unemployment in Nigeria

Unemployment rate across Nigeria has been very high since the beginning of this century. The indicator which measures the proportion of active population that is without and actively seeking work increased to 25.1 percent in 2014 from 24.7 percent in 2013

The Methodology and data The study adopted growth decomposition methods recommended

by the World Bank and also used by McMillan and Rodrik (2012).

Job Generation and Growth Decomposition (JoGG)tool - growth is linked to changes in employment, output per worker and population structure at the aggregate and sectoral level .

The approach has been adopted to analyse the incidence of jobless growth in Uganda (Bbaale, 2013) and Rwanda (Malunda, 2013).

Decomposition for the period of 2005 to 2009 and 2010 to 2014

Obtaining data from various issues of Economic Survey of Government of Nigeria, NBS and NISER.

The sectoral disaggregation of the economy into agriculture, mining, quarrying and construction, manufacturing and Services.

Results: Growth performance

  ’90-94 ’95-99 ’00-04 ’05-09 ’10-14

Agriculture Value-Added (% of GDP

25.4 27.5 29.2 25.1 21.9

Industry Value-Added (% of GDP)

24.8 22.4 22.3 21.2 25.5

Services Value-Added (% of GDP)

49.8 50.1 48.4 53.7 52.6

Growth in GDP (%)

3.1 2.1 6.5 6.3 5.7

Share of different sectors in Nigerian GDP Growth, 5 year averages (1990-2014)

Industry, especially manufacturing has transformed in several ways especially with the dominance of global supply chains. As Rodrick recently established, manufacturing has become much more capital and skills intensive, with diminished potential to absorb large amounts of labour released from low-productivity agriculture (Rodrick, 2014).

Employment by Economic Activity (Shares), 1970 – 2014

1970 1980 1990 2000 2005 2010 2011 2012 2013 20140

10

20

30

40

50

60

70 68 68

60

51 52

49 4947 46 45

12 11

14

119

7 7 6 6 6

1820

23 24

34

39 40 4143 44

12

34 4

5 5 5 5 5

AgricultureManufacturingServicesMining and Quarrying, and Construction, Electricity, Gas and Water

Cont

ributi

on to

GDO

gro

wth

(%)

Agriculture has continued to provide the most jobs for the country’s labour force albeit declining. In 2014, it accounted for 45 percent of all jobs, down from 51 percent in 2000 Service sector is the second largest job providing sector rising from 24 percent in 2000 to 44 percent in 2014, while the share of the manufacturing sector fell from 11 percent in 2000 to 6 percent in 2014.

Decomposition of per capita GDP growth

2005 2009% change (2005-09)

2010 2014% change ( 2010-14)

GDP (value added) (millions Naira)

37,789 508 50,058 959 32.5 54,612 264 67,152 785 23Total population (million) 140 155, 11.3 160 179 11.8

Total Working Age population (million) 75 83 10.5 85 94 11

Total number employed (million) 50 51 2.3 51 53 4.4

GDP (value added) per capita 270,726 322,169 19

341,951

376,170 10.01

Output per worker

762,612

987,175 29.45

1,066,144

1,255,779 17.79

Employment rate 66.1 61.23 -7.37 60.23 56.66 -5.93

Share of working age population in total population 53.71 53.3 -0.41 53.25 52.87 -0.38

7.37 percent and 5.93 percent reduction in employment

an increase in labour productivity by 29.5 percent and 17.8 percent in the two periods respectively.

Decomposition of per capita GDP growth

  (2005-2009) (2010-2014)

 

Change in Per Capita value

Added(@2010 price) in NAIRA

Percent of total change in per capita value added growth

Change in Per Capita value

Added(@2010 price) in NAIRA

Percent of total change in per capita value

added growth

Total growth in per capita GDP 51,443.48 100.00 34,219.55 100.00

Growth linked to change in output per worker 76,495.76 148.70 58,809.93 171.86

Growth linked to changes employment rate -22,798.11 -44.32 -22,005.09 -64.31

Growth linked to changes in the ratio of Working Age Population in total population -2,254.17 -4.38 -2,585.29 -7.56

44.3 percent and 64.3 percent of the change in per capita value added can be linked to a decrease in the employment rate in Nigeria over the 2005-2009 and 2010 - 2014 periods respectively

Role of sectoral employment to per capita GDP growth

(2005-2009) (2010-2014)

Contribution to change in total

employment rate (percent points)

Percentage contribution of the

sector to total employment rate

growth

Contribution to change in total

employment rate (percent points)

Percentage contribution of the sector to total

employment rate growth

Agriculture -4.12 84.6 -4.27 119.5

Manufacturing -1.86 38.2 -0.69 19.4

Mining and Quarrying, and Construction etc 0.33 -6.9 -0.02 0.5

Services 0.78 -16 1.41 -39.4

Total employment rate -4.87 100 -3.57 100

Decomposition of output/worker into within sector change in output /worker and inter-sectoral shifts

(2005-2009) (2010-2014)

Contribution to Change in Total

Output per Worker

Contribution to Change in Total

Output per Worker (%)

Contribution to Change in Total

Output per Worker

Contribution to Change in Total

Output per Worker (%)

Agriculture 62 049.3 27.6 58 706.1 31.0

Manufacturing 34 588.8 15.4 67 542.6 35.6

Mining and Quarrying, and Construction etc

-64,726.9 -28.8 -22,642.9 -11.9

Services 137, 366.1 61.2 42,451.9 22.4

Inter-sectoral shift 55,285.4 24.6 43,577.9 23.0

Total change in output per worker

224,562.6 100.0 189,635.4 100.0

The inter-sectoral shift effect on output per worker was 55,285.4 Naira in the 2005 – 2009 period however, the effect reduced marginally within the 2010-2014 period (43,577.9 Naira)

Change in employment rate and productivity

Agric

ultu

re

Man

ufac

turin

g

Min

ing

and

Qua

rryi

ng, a

nd C

onst

ructi

on e

tc

Serv

ices

Agric

ultu

re

Man

ufac

turin

g

Min

ing

and

Qua

rryi

ng, a

nd C

onst

ructi

on e

tc

Serv

ices

(2005-2009) (2010-2014)

-80.0

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

41.1

22.9

-42.9

91.0

53.261.2

-20.5

38.5

-37.5

-16.9

3.0 7.1

-76.9

-12.5-0.3

25.4

7.62.3

21.2

5.5

23.3

-2.9

6.612.4

Contribution of within sector changes in output per worker

Contribution of changes in Employment

Contributions of Inter-sectoral Shifts

service sector played the biggest role from 2005 – 2009 to within sector changes in worker productivity and also highest contribution to employment changes

Employment Elasticity of Growth in Nigeria, 1981-2014

Sector Estimated Elasticity

Overall 0.115240***

Agriculture 0.4810***

Manufacturing 0.3030

Services 0.8531***

A log linear regression equation between employment and GDP using annual data between 1981 and 2014

The aggregate employment elasticity estimates is 0.11, which implies that with every 1 percentage point growth in GDP, employment increases by just eleven basis points.

Potential: Demographic dividends The current demographic structure of the country exhibits a growing

youthful population with an estimated median age of the population to be 17.9 years (17.3 for males and 18.4 for females) as well as the fact that 42 percent of the population are aged less than 14 years, 29 percent aged 15-19 years and 24 percent are in the ages of 30-59 years (NPC, 2009; UN, 2013).

TFR is estimated to have fallen to 5.73 in 2015 and is projected to slide further to 5.10 by 2030. Hence, working age population which is also estimated at 52.9 percent in 2015 is expected to expand further to 55.1 percent by 2030, as the under-15 population contracts. This growth would mean that the working age population (WAP) will grow from 97 million in 2015 to 151 million in 2030, almost 16 percent of Africa’s labour force.

An empirical study carried out by Bloom et al, estimated that not only will Nigeria’s economy be three times larger than today in 2030 with GDP per capita increasing more than 29 percent but also, the country has the capacity to lift about 31.8million people out of poverty if the country can overcome her challenges to collect its demographic dividend.

Conclusions and Challenges Nigeria has been experiencing jobless growth. Job opportunities in

the agricultural and manufacturing sectors have been below average, compelling people (especially the poor) to move into other sectors. Services and construction have been the most absorptive sectors.

There is no significant structural change in employment and productivity front, although the share of agriculture in the total GDP has decelerated marginally over the years.

Although the service sector seems to be gaining strength in employment creation, it has however remained a low productivity sector, and has continued to provide low-productive jobs.

Sectors absorbing the influx of labour are also now experiencing decline in productivity, except the construction industry which expanded in terms of employment and productivity.

Conclusions and Challenges conts..

Nigeria would need to galvanise its policy space not only to stimulate job creation and productivity within sectors, but also to ensure decent growth in high productivity sectors that will further encourage labour movements into such sectors

The country can also reap a major demographic dividend from concrete labour market policies and developing human capital necessary for the economy.

Lastly, the manufacturing industry has remained untapped, especially its potential in diversifying and expanding the country’s industrial base and decent jobs creating potential.

Challenges◦ Infrastructural Deficits◦ Poor Governance, corruption and Weak Institutions◦ Insecurity

Thank you for your attention