On Nigeria’s Joblessness

 

youthsIn March 2009, the CEO of an Indian company related an instructive story to postgraduate students, including yours truly, at Oxford University. An Indian politician on a campaign tour had while addressing prospective voters reeled out Indian’s impressive GDP growth numbers emphasizing that the country had one of the fastest growing economies in the world compared to some of the so called developed countries, who he told his audience, were in ‘recession’. An Indian peasant at the event, contrasting the images he sees of Americans and Britons on TV with his poverty stricken situation, rose and asked a simple question. ‘’When will India start having ‘recession’ so that I can feed my family and live like the Americans I see on TV?’’

The powerful message in the peasant’s innocent question is that people don’t eat GDP numbers nor do ‘GDP growth rates’ provide salaries. The Hausa people have a saying that, when there is a feast in the house, the dog says he requires no formal announcement – the presence of bones in refuse will tell a more compelling story. The paper attempts to highlight the paradox that exists between the official GDP growth rates in Nigeria and the standard of living and welfare of the average Nigerian. How is it possible that Nigeria’s economy is said to be one of the fastest growing economies in the world yet unemployment is increasing and poverty is yet to abate?

According to official figures, Nigeria’s real GDP grew by 6.96% in 2009, 7.87% in 2010 and is expected to grow by 7.8% in 2011. National Planning Minister reports that 3rd quarter GDP growth has already reached 7.92%. CBN’s Monetary Policy Committee believes Nigeria’s full year GDP growth target is ‘…still reasonably robust by emerging markets standards..’ The World Bank representative in Nigeria even suggests that Nigeria may achieve double digit growth this year. These figures are quite staggering when you realize that they all ‘real’ numbers meaning they are inflation adjusted (which until recently has been in double digits). Based on some of these figures, the online edition of The Economist Magazine (June 13, 2011) listed Nigeria’s economy as the 12th fastest growing economy in the world on a per capita basis. Looking at these figures, from outside the country, Nigeria must be a booming economy. From within Nigeria, the picture is different. Outside of government technocrats who make ‘Power Point’ presentations of these figures to politicians, many reasonable people are asking; where exactly are these figures coming from? If Nigeria’s economy is growing at this enviable pace, should it not be obvious in lower unemployment rate, higher standard of living, increasing middle class, reduced poverty and improved Gini Coefficient (a measure of the gap between the rich and the poor). Atleast the one thing most Economists agree correlates very well with GDP growth is electricity consumption. Yet during the same period of such supposedly spectacular growth, electricity generation and distribution has either remained stagnant or declined and there is no evidence that the consumption of diesel (electricity generation’s proxy in Nigeria) has substantially increased.

According to Nigeria’s Bureau of Statistics (NBS), in 2010, the major sectors contributing to Nigeria’s GDP are Agriculture (40.84%), Wholesale and retail (18.70%), Crude Petroleum (15.85%), Telecom (4.56%), Manufacturing (4.16%) and Finance and Insurance (3.57%).  Although government says it expects  the non-oil sector to continue to be ‘central to Nigeria’s economic growth’, the reality is that in 2011, three sectors, Crude Oil, Telecoms and Agriculture will account for the bulk of Nigeria’s GDP growth. Crude oil production, because of improved production due to Amnesty program, Telecoms, even as the exponential growth of the last decade reaches a plateau, and Agriculture, more because of ‘luck than design’.

Because of serious structural imbalances in Nigeria’s economy, the composition of its GDP ad its manner of growth, Nigeria’s GDP growth is unlikely to translate to any meaningful impact on the lives of Nigerians. Agriculture (crop production is the largest component), which provides the bulk of our GDP and the largest employer is, in most regions, a seasonal industry. In the rural areas, high unemployment in the dry season is very common partly because most of the farming is subsistence without the presence of large scale commercial farms. Agric related industries are not left out in this seasonality effect. Savannah Sugar Company in Numan provides a very good example of fluctuations in seasonal employment rates and incomes. Even in the US, where agriculture is more advanced, computation of unemployment numbers excludes farming related jobs – thus the so called ‘Non-Farm Payroll Numbers’ released every first Friday of the month. So without real structural changes, Nigeria’s agricultural sector cannot be a sustainable supplier of real income generating full employment for the populace. Telecoms sector (especially GSM voice) has grown exponentially in the last decade in Nigeria. However, the effect of this industry on creating high paying jobs and improving incomes has been very limited. Telecoms is one of those industries, as the respected economist Dr Nouriel Roubini highlights, that ‘…rewards capital more than labor….’. Recently a leading telecom company in Nigeria reported half year revenues of approximately N344 billion (on an annualized basis, that is $4.4 billion or 1.2% of Nigeria’s $378 billion GDP on PPP basis). However, the company required less than 2,000 permanent staff to achieve that revenue. The other major categories of jobs created by the industry are low level temporary ‘Call centre’ jobs and ‘razor margin’ informal street corner recharge card vendors. One debatable argument made for the Telecom is that, like the computer industry, the sector improves productivity in other sectors. However, as the Nobel prize winning American Economist, Robert Solow, noted in relation to the effect of computers on productivity ‘…..you can see the computer age everywhere, but in the productivity stastics….’ Truth is, there is no country whose citizen’s average income has substantially improved because of an exponential growth in its telecom sector. If there is debate about the limited positive effect of growth in Agriculture and Telecoms sectors, there is little debate about the negative effects of growth in crude oil production on a country’s economy. Economist have coined the term ‘Dutch disease’ to explain the apparent reversal of fortunes other sectors of a country’s economy experience as a result of discovery, or boom in prices, of a resource commodity like oil. Crude oil production is domain specific, less labor intensive and even where labour is required; the skill requirement is rather high. A ‘rich’ Bayelsa state populated by poor unemployed citizens is a perfect example of this paradox. Crude oil may be good for government, but in the long term, it is not so good for the citizens. So to continue quoting GDP numbers in Nigeria as a sign of economic progress is not only misleading by provides a sense of false comfort to policy makers.

What can be done?
In June 2011, The Economist Magazine organized a debate on whether ‘A nation can succeed without a big manufacturing base? ‘’. An overwhelming majority of respondents (76%) gave compelling arguments about why no economy can succeed without a strong manufacturing base. The resilience of countries with strong manufacturing bases (like Germany and China) in the current
financial crisis compared with the performance of more service inclined economies (like UK and US) is a reminder to the importance of manufacturing. Although some opposed to the motion mentioned the case of India, which has had a service led growth and Australia, whose citizen’s high standard of living is based on extractive industry, Nigeria cannot rely on such exceptions. The fact that India has had to rely on high levels of emigration to address unemployment highlights the limitation of the service sector. Australia’s coal and iron ore mining are more labor intensive than Nigeria’s crude oil drilling.

In spite of the importance of manufacturing to the development of a nation’s economy and its citizen’s standard of living, in Nigeria, the industry accounts for only 4.16% of GDP. Even more worrying is the fact that the industry has been on a consistent decline in the last few years. From the closure of textile industries to Dunlop tires, the decline of manufacturing has contributed the most to urban unemployment (now at over 25%) and discouraged cash crop production in the rural areas. According figures provided by Manufacturers Association of Nigeria (MAN), total production output in the sector declined by 10% to N165.7 billion in 2010 as capacity utilization dropped to 45%. Nonetheless, the sector still employs over 966,000 Nigerians.

Government’s policy responses to these issues have been at best haphazard. Take the textile industry. From 2005 when former President Obasanjo launched the ‘Cotton Farming Initiative’, to the ‘N70 billion Textile revival funds’ and the current government’s removal of the ban on importation of textile materials, there has not been any appreciable progress in reviving the sector. This single industry has the potential of providing employment for up to 10 million Nigerians in direct (factory) and indirect (cotton farming) ways. Bangladesh, which together with Nigeria and others belongs to the so called ‘Next 11 Economies’, provides a very good example of the positive effect this industry can have on the standard of living of the citizenry. This year, the size of Bangladesh’s middle class is expected to be around 30 million (compared with Nigeria’s declining number of roughly 17 million even though Nigeria has a higher population). The bulk of Bangladesh’s growth is due to the impressive growth of its garment industry (3rd largest in the world) which directly employs over 3 million people and earned the country over $12.6 billion in export earnings last year. Although respected Economist Paul Collier, in his book ‘The Bottom Billion’ makes the point that Asia had seized the third world’s opportunity in global manufacturing when the industry was shifting locations in the 1980s and as such suggests Africa will have to wait for real wages to rise in Asia to make manufacturing there expensive enough for international companies to look towards Africa, Nigeria need not wait for that. We have the population and demand that can support many industries before thinking of export. Manufacturing is such an important industry that can act as a pull to other sectors. A vibrant textile industry will definitely spur cotton farming. On the contrary, focusing on cotton farming, as the new Economic Team seems to suggest, cannot revive textile industry.

Apart from the issue of power, one important infrastructure issue the government needs to focus on is the railways. Far more important that airports or roads, railway is the next important infrastructures that can assist in opening up Nigeria and encourage manufacturing in all parts of the country. An effective Railway system preceded industrialization in Britain and America and is the cornerstone of the current Chinese economic boom. To the credit of Obasanjo’s government, and inspite of its many other failings, it had the vision to conceptualize and award contract for the railway modernization project which the Yar’adua / Jonathan administration has all but killed in the name of a ‘patch patch’ program similar to the rehabilitation program under the Abacha regime. The original idea was that by now, the first phase of the new modern ‘Standard Gauge’ rail line from Lagos-Kano with a link-up between Kaduna and Abuja would have been completed. Four years later, the government has again spent millions of dollars on the old narrow gauge ‘snail speed’ network and is just re-awarding contracts for the Abuja-Kaduna link. Building and maintaining a new rail network, if properly managed, is one of those projects that has the potential of generating massive employment for Nigerians. No private sector participant would be interested in investing in this sector unless the faster ‘standard gauge’ network is built. President Jonathan recently asked his Facebook friends about their experiences on the ‘newly rehabilitated rail network’. The overwhelming unfavorable comments he got must have given him a better story than the official reports he gets. Government should just build the new standard gauge network and stay away from buying locomotives. The Railway Act should be reviewed so that the NRC manages the rail network & stations while private sector participants are invited to run train services. After all, this is the arrangement we have in the airline industry.

The current situation in the banking sector has not helped matters. One of the fallouts of the recent consistent MPR rate hikes in Nigeria is that Government has successfully ‘crowded out’ the private sector in bank lending. A look at the recently released half year results of Nigerians banks reveals a stagnant or declining ‘Loan book’ borne out of risk aversion (and, to some extent, NPL clean up). Trading in Treasury Bills seems to be fastest growing activity of most Nigerian banks. It would appear that Nigerian Banks have worked out that collecting cheap deposits from their retail customers and government agencies and lending same at higher rates back to the government offers a better proposition than getting involved in the nitty gritty of real sector lending. It is a reflection of the structural problems of our economy that the CBN has had to create “Intervention funds’ for many sectors of the Nigerian’s economy (although NIRSAL is one concrete attempt at solving some of these structural issues). Also, banks have been sitting comfortably on their statutory SME funds. Summarily, at the moment, there are simply no linkages between banking credit and GDP growth in Nigeria.

The challenge of developing Nigeria’s economy does not lie with government alone. Unpalatable as this may sound; Nigeria does not have a vibrant private sector similar to India’s. You just have to look at the fastest growing sectors of the economy to see that. Many so called Nigerian business men are just engaged in ‘rent seeking’ activities or focused on the ‘fastest growing and most lucrative industry’ in Nigeria – Politics. The father of modern Economics, Adam Smith may not have mentioned politicians when he complained , in his book ‘Wealth of Nations’, about the unproductive labors of ‘’… some of the most frivolous professions; churchmen, lawyers, physicians, men of letters of all kind; players, buffoons, musicians, opera singers, opera dancers etc…’’, but the point is well taken.


Sa’ad lives in AbujA.

 

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