Report: Intensive Investments in Services Sector Development Hold Key to Unemployment Reduction in Nigeria

Job seekers at Nigerian Immigration Service recruitment exercise in 2014

Vincent Obia

Employment elasticity in the Nigerian economy is highest in the services sector, thus, to reduce unemployment and diversify exports, the country needs to boost investment in the expansion of the sector, so says leading professional services provider, PricewaterhouseCoopers Nigeria.

Employment elasticity measures the responsiveness of employment to growth in particular sectors of the economy or the total Gross Domestic Product.

PwC Nigeria says in a report published Thursday that, though, Nigeria has recorded considerable growth in major sectors, such as agriculture and manufacturing, employment generation by the sectors has been poor. It identifies services as an area capable of delivering high productivity jobs with great potential for income generation and poverty reduction.

The report titled, “Structural transformation and jobless growth in Nigeria,” says while industrialisation in most advanced countries followed a three-stage process of agriculture, industry, and services, Nigeria has tended to develop along the line of India, where structural changes boosted growth and employment through the expansion of high productivity activities within the services sector, particularly, Information Technology and Business Process Outsourcing services.

“Nigeria has evolved in this same pattern, as declining shares of output and employment in agriculture have been absorbed by the services sector,” the report states. “In addition, estimates of employment elasticities suggest Nigeria’s services sector has the highest employment potential at 0.5, relative to agriculture’s -0.1 and manufacturing’s 0.3.”

PwC Nigeria stresses, “The services sector is the largest sector in the economy, with its share of GDP rising from 54.1 per cent in 2010 to 56.9 per cent in 2017. Although the sector accounts for the largest proportion of employment at 57.4 per cent, employment growth in the sector has been less than proportionate to its average annual real GDP growth of 7.8 per cent recorded between 2010 and 2014.

“Our analysis shows that a 1 per cent increase in services growth led to 0.5 per cent increase in employment. This is, perhaps, due to the dominance of the less productive traditional services sub-sectors, such as transport and trade, where scope to increase productivity is low.

“On the flipside, higher productivity sectors, such as financial services, real estate and professional services are crucial to increasing employment, given the relatively higher employment elasticity.”

High unemployment rate has remained a huge socio-economic challenge for Nigeria in the last decade, despite economic growth. Data from the National Bureau of Statistics puts Nigeria’s unemployment rate at 18.8 per cent as at the third quarter of 2017. In 2015, the unemployment rate was 9.9 per cent. Similarly, the underemployment rate reached an unprecedented 21.2 per cent, from 17.4 per cent, over the same period.

On the subject of economic boom amid high unemployment, the report observes that the Nigerian economy witnessed rapid expansion between 2000 and 2014, with an average annual growth of 7.6 per cent year-on-year. But within the same period, employment growth was merely 1.2 per cent, markedly below the 2.9 per cent growth in the labour force. Consequently, the unemployment rate, which also mirrored underemployment at the time, increased from 13.1 per cent in 2000 to 24.3 per cent in 2014.

“This suggests that the responsiveness of employment to economic growth has not been large enough to reduce unemployment,” the report states.

To reverse the trend in a country projected to be the third most populous country by 2050, with a population of 410 million, PwC Nigeria states in the report, “Implementing policies that will deliver inclusive growth and engender a productive labour force is imperative.”

However, it says despite the remarkable growth recorded in Nigeria’s services sector, there is ample room for improvement considering the progress countries like India have made in “modern and highly productive service sub-sectors, such as IT-BPO offshoring, telecommunications, real estate, and financial services.

“In Nigeria, traditional services, such as wholesale and retail trade, public administration, accommodation and food services, and transportation still dominate the services industry, with low employment, growth and export potentials. Like India, Nigeria can leverage its sizeable services sector to drive growth, promoting forward and backward linkages in other sectors that create opportunities for employment.”

PwC Nigeria stresses the need for structural reforms to lay the foundation for long-term sustainable growth in the broader economy and the services sector, in particular. It says, “Such reforms include business environment reforms, which are necessary to improve the ease of doing business, sustain macroeconomic stability, and attract investments.

”In specific terms, improving human capital development, providing enabling infrastructure and intellectual property rights are necessary to drive growth and productivity in the services sector.”