December 18, 2015

Paradox Of Jobless Growth In Nigeria And Options For Policy

By Solomon Abayomi Olakojo

Most cynics of the appellation of Nigeria as the giant of Africa were better convinced when the country became the continent’s biggest economy due to its rebased gross domestic product (GDP) data using 2010 as the base year. Rebasing the data, undeniably, has its advantages including capturing economic activities that were initially uncaptured and decreasing debt-GDP ratio which increases investors confidence and gives more room for borrowing for developmental purposes. However, most of the 60 percent of poor people in Nigeria may be doubtful of the gains of being the biggest economy in Africa. In other words, the desired growth requires more jobs creation and poverty reduction. Any deviation from this implies a growth that is not inclusive-an issue needed to be addressed.

The definition of a performing economy transcends beyond the expansiveness of land mass, GDP, population, oil production and military strength but can be measured by the extent to which growth reduces inequality, unemployment and poverty. The case of Nigeria is a paradox: A Paradox of Jobless Growth. In order words, the improvement noticed in economic growth is associated with increasing unemployment. The question arising is: who is producing the improved growth? Taking the argument from simple Cobb-Douglas production function, in the short run, output is produced using capital and labour, while capital is fixed. Therefore, variation in output can only be attained by varying mobile inputs-the labour. With higher output, it means that more variable inputs are combined with fixed capital in a more efficient manner. Nigerias situation defiles the short run analysis.

Without a doubt, there are situations in which both output and labour can be varied, in the long run. In this case, it means that output changes with changes in both labour and capital. The jobless growth in Nigeria can then be justified on the basis that growth is capital intensive-only few labour is required to combine with huge capital endowment in the course of production. Is Nigeria a capital abundant or labour abundant nation? Given the indicators and conditions that the largest share of output is from a less-mechanized agricultural sector as well as less contribution of manufacturing sector to the GDP- where manufactured exports account for only about 1.5 percent of total merchandise exports between 1960 and 2014-, Nigeria cannot be termed as a capital intensive nation in its entirety. However, it is logical to note that growth is coming from less-labour intensive sectors. Hence, if Nigeria is a labour abundant nation, jobless growth is a possibility. Therefore, someone should be responsible for redistributing the growth to enhance reduction in poverty.

Several issues can be raised from the non-inclusiveness of Nigerias growth including whether the improved growth from non-labour intensive sectors have been captured by the few capitalists and ruling elites; or whether political elites have simply failed in their responsibility to redistribute national wealth for the benefit of all. The answers to these issues are not farfetched- the rising inequality and poverty gives some insights.

Firstly, between 2004 and 2010 the income share held by lowest 20 percent fell from 5.63 percent to 5.39 percent, while the income share held by highest 20 percent rose from 46.07 percent to 48.93 percent within the same period. Secondly, this is also accompanied by the rising unemployment rate of 13.4 percent and 21.2 percent between 2004 and 2010, respectively. This simply means that with the rising economic growth, the poor have become relatively poorer, while the rich have become richer. In other words, Nigerias growth has not been inclusive.

The situation in Nigeria is not hopeless but the contemporary realities do not make Nigeria a giant, perhaps a sleeping giant that needs to wake up. This implies that in terms of potentials including; vast agricultural land, huge population that can easily attract investors, oil resources that can be invested in infrastructures and the revamp of other productive sectors and human resources, Nigeria is a potential giant. However, with rising inequality, unemployment, poverty, weak industrialization and poor power supply there are puzzles to solve.

Given the above realities, the nation needs to identify the dearth in three main areas which includes: its monoculture nature that depends mainly on oil proceeds, wrong policy directions and financial misappropriation and indiscipline. The nations oil resources should not be a curse but a resource needed to launch investment for industrial take-off. While this suggestion would have been more appealing in the good old days of crude oil boom, all hope is not loss if the strategy for the much-needed economic diversification is launched.

However, diversification from oil to non-oil economy will be hard in the presence of weak power supply. To this end, it is imperative that the nation resuscitates the stability of power supply by increasing the supply and restructuring the power market that allows private sector participation in transmission and generation. Effective private sector participation is not only germane to power but also to all areas of infrastructural investment. With an increase in private sector participation, the burden on government to provide employment will be reduced, thus permitting government to channel more resources to capital project rather than the dominance of recurrent expenditure which characterizes the current fiscal space.

Furthermore, Nigeria as a nation with high level of informality requires policies that can pull its teeming populace out of this stance. This can be achieved by identifying and effectively supporting Small and Medium scale Enterprises (SMEs) with required funding to operate in the formal market. This would also help to re-engage the displaced labour from other less growing sectors of the economy. In addition, encouraging private sector investment would enhance participation in global value chains, rather than exporting raw commodities. This would go a long way to reducing the high rate of unemployment in Nigeria.

Finally, government should further consolidate on its ways of checking financial indiscipline, especially among public office holders. The Treasury Single Account (TSA) is a step in the right direction. Beyond being policed, imbibing against the economic-principle contentment culture will go a long way to reduce corrupt practices that have become endemic in our contemporary societies, thus making more resources available for developmental purposes. The above suggestions may not be new, however, it serves as a re-awakening of active engagement in the much-needed inclusive development.

World Bank (2015). World Development Indicators.

National Bureau of Statistics, various editions



Southern Voice Research Conference On Post-2015 International Development Goals And Target

The first research conference on Southern Voice on Post-MDG International Development Goals and Targets held on February 16-17, 2015 in Istanbul, Turkey.The event was organized by Southern Voice on

CSEA Participates in the 7th Meeting of the Africa Policy Circle

CSEA participated in the 7th meeting of the Africa Policy Circle which focused on the central theme Structural Inequalities as a driver for Violent Extremism. The meeting provided a platform for wid