Sunday 26 June 2016
The myth of Nigeria’s import-dependency
By Tunde Obadina
There are many myths in circulation concerning the nature Nigeria’s economy. One is these is that it is highly import-dependent. The common assumption is that Nigerians are more reliant than other nationalities on the consumption of imported goods. The truth of this may seem obvious to nationalists who believe that it is unhealthy for people to prefer exotic products over local products. But the assumption is simply not true. Merchandise imports as a percentage of Nigeria’s Gross Domestic Product (GDP) in 2015 was only 7%, according to the National Bureau of Statistics latest trade data. This rate indicates a nation that has far lower usage of foreign goods than most comparable economies in the world.
The reality is that Nigeria is one of the least import-dependent nations in the world and its low level of international trade is probably a major factor in its economic under-development. According to World Bank’s data imports of goods and services as a percentage of GDP in Nigeria was 12.5% in 2014. This was the lowest of all countries recorded in the table and compared with a ratio of 30.3% for Britain, 33.1% for South Africa, 18.9% for China and 25.5% for India. With imports equivalent to only an eighth of domestic output it is absurd to describe Nigerians reliant on imported goods. Countries like Singapore, Hong Kong and Togo, where the value of imports is greater than GDP, may be categorised as highly import dependent, but not a nation where imports is a fraction of GDP. Of course, it may be argued that World Bank data do not fully capture high levels of smuggling into Nigeria. But even if the 12.5% import-to-GDP estimate was doubled to account for smuggling the result would still not make the country is extraordinarily import-dependent.
Friday 24 June 2016
The fallacy of high unemployment in Nigeria
By Tunde Obadina
It is often said that Nigeria is impaired by a major unemployment problem, especially affecting its youths. But this common belief that the level of joblessness in the country is high by international standards is simply not true. Using internationally comparable method of calculation, unemployment in Africa’s most populous nation is not high. It is low to moderate.
The idea that a large proportion of the Nigerian labour force is without gainful employment stems partly from job data published by the country’s National Bureau of Statistics (NBS) up until mid-2015. Before revising the premises on which it calculated unemployment rates, the bureau told that the world that around a quarter of Nigeria’s workforce was out of work. The problem with this assessment is that it is derived a definition of unemployment that is quite different from that used by most national statistical agencies in the world and the International Labour Organisation (ILO). Nigerian statisticians counted members of the labour force who did not work for at least 40 hours in a week as jobless, while the ILO defines unemployed as those in the workforce who have not worked for at least one hour in a week.
Whereas people who worked only one hour in a week are regarded by the ILO as employed, those who toil for 39 hours were counted as unemployed by the NBS. Given this very different understanding of joblessness it made no sense using official Nigerian data to compare unemployment in the country relative to elsewhere.
In May 2015 the NBS launched a new method of computing unemployment rates. This is a compromise between the old formula and the ILO way. Official unemployment figures now comprise people who have not worked for at least 20 hours in a week. This still exaggerates the extent of joblessness in the country, but to a less degree. Fortunately, the NBS now also publishes alongside the official rates, estimates based on the ILO definition. In its first post-revision dataset the bureau put Nigeria’s official unemployment rate in the last quarter of 2014 at 7.8%, but only 2.1% when calculated according to the ILO formula. Nigeria’s internationally comparable unemployment rate was shown to be significantly below the 5.3% average for developing countries and 7.8% for the world, as reported by the ILO.
Unemployment in Nigeria has since risen, reaching 5% in the fourth quarter of 2015. The upward trend is worrying but the current levels are still below the global average. It is not surprising that joblessness in Nigeria is relatively low. Economic inactivity is not an option available to poor people in countries that lack state welfare safety nets for the out of work. Individuals without savings or benefactors simply cannot survive without engaging in some form economic activity. The prospects of destitution forces men and women to be imaginative in creating work for themselves.
Unemployment statistics indicate the quantity of available work in an economy. The issue in Nigeria and other developing economies is not the quantity of jobs available but their low quality. Widespread poverty does not stem largely from unemployment but prevalence of low-paid and low yielding economic activities. Poor people are not idle – most toil for many hours, but for little gain. Subsistence farmers who produce insufficient value of crops to support themselves and their families are not poor because they are unemployed or underemployed – they have little money because of the low value of their output. What they need is not necessarily new jobs but the wherewithal to boost their productivity, and perhaps access wealthier markets.
The challenge facing governments is to foster an environment in which individuals and firms are unhindered in their ability to grow through attaining higher productivity and expansion into new markets. Those who look to the state and large corporations to generate millions of new jobs to cater for low earning masses are liable to be disappointed. Governments already struggle to maintain their current workforce let fund substantial expansion of the public sector. Also the era of mass job creation in the private sector is probably over in most parts of the world. We are unlikely to replicate the conditions that triggered the mass movement of labour from farming into urban factories as occurred during the industrial revolution in the West and the more recently in parts of East Asia.
Manufacturing, traditionally the big provider of full-time, salaried employment opportunities, is worldwide struggling to retain its existing workforces. The nature of work in the 21st century is evolving into something quite different from what pertained in the past two centuries. Globalisation and advances in technology have made manufacturing less centralised and labour intensive. Furthermore, many labour intensive industries, such as textiles, that have moved from the old industrialised centres to newly industrialising economies have also in the process shifted from the formal to informal sector.
Governments in low-income economies should endeavour to remove restrictions on the ability of citizens to grow their wealth by exploiting their skills and innovating for greater profit. The state should get out of the way of enterprise and concentrate its attention on protecting life and property, rendering other services if they are essential and only it can provide.
It is often said that Nigeria is impaired by a major unemployment problem, especially affecting its youths. But this common belief that the level of joblessness in the country is high by international standards is simply not true. Using internationally comparable method of calculation, unemployment in Africa’s most populous nation is not high. It is low to moderate.
The idea that a large proportion of the Nigerian labour force is without gainful employment stems partly from job data published by the country’s National Bureau of Statistics (NBS) up until mid-2015. Before revising the premises on which it calculated unemployment rates, the bureau told that the world that around a quarter of Nigeria’s workforce was out of work. The problem with this assessment is that it is derived a definition of unemployment that is quite different from that used by most national statistical agencies in the world and the International Labour Organisation (ILO). Nigerian statisticians counted members of the labour force who did not work for at least 40 hours in a week as jobless, while the ILO defines unemployed as those in the workforce who have not worked for at least one hour in a week.
Whereas people who worked only one hour in a week are regarded by the ILO as employed, those who toil for 39 hours were counted as unemployed by the NBS. Given this very different understanding of joblessness it made no sense using official Nigerian data to compare unemployment in the country relative to elsewhere.
In May 2015 the NBS launched a new method of computing unemployment rates. This is a compromise between the old formula and the ILO way. Official unemployment figures now comprise people who have not worked for at least 20 hours in a week. This still exaggerates the extent of joblessness in the country, but to a less degree. Fortunately, the NBS now also publishes alongside the official rates, estimates based on the ILO definition. In its first post-revision dataset the bureau put Nigeria’s official unemployment rate in the last quarter of 2014 at 7.8%, but only 2.1% when calculated according to the ILO formula. Nigeria’s internationally comparable unemployment rate was shown to be significantly below the 5.3% average for developing countries and 7.8% for the world, as reported by the ILO.
Unemployment in Nigeria has since risen, reaching 5% in the fourth quarter of 2015. The upward trend is worrying but the current levels are still below the global average. It is not surprising that joblessness in Nigeria is relatively low. Economic inactivity is not an option available to poor people in countries that lack state welfare safety nets for the out of work. Individuals without savings or benefactors simply cannot survive without engaging in some form economic activity. The prospects of destitution forces men and women to be imaginative in creating work for themselves.
Unemployment statistics indicate the quantity of available work in an economy. The issue in Nigeria and other developing economies is not the quantity of jobs available but their low quality. Widespread poverty does not stem largely from unemployment but prevalence of low-paid and low yielding economic activities. Poor people are not idle – most toil for many hours, but for little gain. Subsistence farmers who produce insufficient value of crops to support themselves and their families are not poor because they are unemployed or underemployed – they have little money because of the low value of their output. What they need is not necessarily new jobs but the wherewithal to boost their productivity, and perhaps access wealthier markets.
The challenge facing governments is to foster an environment in which individuals and firms are unhindered in their ability to grow through attaining higher productivity and expansion into new markets. Those who look to the state and large corporations to generate millions of new jobs to cater for low earning masses are liable to be disappointed. Governments already struggle to maintain their current workforce let fund substantial expansion of the public sector. Also the era of mass job creation in the private sector is probably over in most parts of the world. We are unlikely to replicate the conditions that triggered the mass movement of labour from farming into urban factories as occurred during the industrial revolution in the West and the more recently in parts of East Asia.
Manufacturing, traditionally the big provider of full-time, salaried employment opportunities, is worldwide struggling to retain its existing workforces. The nature of work in the 21st century is evolving into something quite different from what pertained in the past two centuries. Globalisation and advances in technology have made manufacturing less centralised and labour intensive. Furthermore, many labour intensive industries, such as textiles, that have moved from the old industrialised centres to newly industrialising economies have also in the process shifted from the formal to informal sector.
Governments in low-income economies should endeavour to remove restrictions on the ability of citizens to grow their wealth by exploiting their skills and innovating for greater profit. The state should get out of the way of enterprise and concentrate its attention on protecting life and property, rendering other services if they are essential and only it can provide.
Subscribe to:
Posts (Atom)