June 16, 2023

Nigeria’s industries without smokestacks are delivering better economic opportunities than traditional sectors

Persistently high levels of unemployment have emerged to become a key policy challenge in Nigeria. Between 2010 and 2018, the unemployment rate rose from 5 percent to 23 percent. Worsened by the COVID-19 pandemic, the economy is simply not generating enough jobs for labor entrants, particularly women and youth. In 2020, the national unemployment rate stood at 33 percent, while 52 percent of women remained unemployed and 42 percent of youth (aged 15-34 years) were without jobs.

Moreover, the contribution of the manufacturing sector to formal sector employment has also been low and stagnant, averaging 11.4 percent between 2011 and 2021. Estimates show that Nigeria’s manufacturing sector accounts for less than 10 percent of gross domestic product (GDP), and as a result, the sector employs only a small proportion of the labor force.

Given that traditional sectors like manufacturing alone can no longer sustain economic development and generate sufficient job opportunities, attention is now shifting toward alternative sectors that can support growth and create jobs, for example: agro-processing, financial and business services, information and communications technology (ICT), tourism, formal trade, and transport. These “industries without smokestacks” (IWOSS)—as they have been termed in a growing body of literature—are often service-based sectors that closely mimic manufacturing in their tradability, proclivity to absorb large numbers of low-skilled employees, and potential for technological change and productivity growth.

In our recent report, published jointly by the Africa Growth Initiative at Brookings and the Centre for the Study of the Economies of Africa, we find that these industries without smokestacks are indeed already surpassing manufacturing and other traditional sectors in creating jobs and generating economic growth in Nigeria.

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