Nigeria tries to transform its challenging demographics from a liability into an asset

A central conundrum of Nigeria’s past decade of 7% average annual GDP growth has been the consistent rise in unemployment, poverty and inequality of distribution of wealth. Although the conclusions of the rebasing exercise, unveiled in April 2014, lifted per-capita income from $1555 to $2689, this new accounting will no doubt sound hollow to the more than 60% of Nigerians living in absolute poverty.

The world’s seventh-largest population is expected to rise from its current 170m to 213m by 2020 and 440m by 2050, according to UN forecasts.

With more babies to be born in 2015 than in all of Western Europe, according to McKinsey, Nigeria’s successive governments are striving to transform what is currently a liability into a demographic dividend.

Jobless Growth

Given that GDP growth has averaged above 7% since 2003 and the economy has tripled in size from 2000 to 2014, it may seem paradoxical that official unemployment (which includes those working fewer than 40 hours per week) has nearly doubled from 12.3% in 2006 to 24% in 2012, according to figures from the National Bureau of Statistics (NBS). “It is clear that the top 5% to 10% is capturing most of whatever growth there is, and people at the bottom are being left behind,” Ngozi Okonjo-Iweala, the coordinating minister for the economy and minister of finance, told a conference in Lagos in December 2013.

In a country with two-thirds of its population below the age of 24, according to the UN Population Fund, a youth unemployment rate of 56%, as per NBS figures, is particularly alarming.

“Since 2006, Nigeria has experienced social unrest, largely led by youth between the ages of 16 and 24,” noted the IMF’s 2013 Article IV Consultation. Since the third quarter of 2012, the federal government has tracked job creation on a quarterly basis, with studies revealing that high-growth sectors like telecoms have yielded the fewest posts, whereas low-growth sectors like agriculture and education generated more than half of all new jobs. Indeed, the NBS reported that agriculture accounted for 57.9% of employment as of 2012, followed by education (19.3%), public and social administration (9.9%), and manufacturing (1.5%).

Meanwhile, the vast informal sector, which the UN Development Programme (UNDP) estimates accounts for 57.9% of the country’s rebased GDP, has made significant contributions to employment since the third quarter of 2012, responsible for more than 50% of jobs created, according to the NBS.

Persistent Inequality

As a result, and as is the case in a number of high-growth African economies – including Ghana and Kenya – economic activity has not been wholly inclusive. The Gini coefficient, which tracks inequality, with higher scores indicating greater disparities, has risen from 0.387 in 1986 to 0.429 in 2004 and 0.488 in 2010, according to the World Bank. Meanwhile, the Palma ratio, which tracks the most affluent 10% of the population’s share of income relative to the poorest 40%, reveals a 75% increase in the concentration of income between 1986 and 2010, according to the Centre for Global Development.

As with most indicators, poverty rates and human development figures vary widely by state, with a 14-year disparity between life expectancy rates and average poverty rates ranging from 30% in the south-west to 60% in the north-east, according to UNDP figures. Likewise, child mortality (below five years of age) ranges from the extremes of 37.4/1000 in the southwest to 130.3/1000 in the north-west.

Turning the Corner

 The stakes are high given the robust population growth rate, with around 1.8m new working-age Nigerians entering the labour market every year, according to the Ministry of Finance (MoF). If high job-creating industries are able to emerge, a 2013 Harvard School of Public Health study estimates that Nigeria could start yielding a demographic dividend by 2030: the economy could triple rather than double in size in that span, while around 32m people could be lifted out of poverty and per-capita income could rise 31% higher than it otherwise would have.

Despite the 1.8m aforementioned Nigerians that join the labour force each year, only 1.6m jobs were created in 2013 – of which over half were in the informal sector, according to the NBS. The lion’s share of jobs were created in education, which accounted for around 48% of new jobs over the period; followed by manufacturing, with 15%; trade, at 7%; and human and social services, with around 7%, according to NBS figures. Additionally, in the first six months of 2014, just 500,000 positions were created across the country.

Key initiatives under the Jonathan administration’s Transformation Agenda are meant to catalyse further employment, including in agriculture and housing development under the low- to mid-income mortgage schemes, as well improve rural activity. “I want us to drive quality, inclusive growth that creates jobs,” Okonjo-Iweala said in May 2014.

The World Bank unveiled a new Country Partnership Strategy for Nigeria in early 2014, involving $2bn per year in loans for four years to 2017, targeting job creation, governance and social services. The majority will be devoted to power-sector reform as a catalyst for job creation; however, funds will also be disbursed to improve social service delivery and strengthen public sector governance. “Efficient, affordable and reliable access to electricity is essential for small and medium-sized enterprises in Nigeria to accelerate job creation,” Makhtar Diop, the World Bank’s vice-president for Africa, said at the partnership’s unveiling in May 2014. The country has also piloted initiatives for immediate returns that have started to bear fruit.

Reinvesting Savings

The Subsidy Reinvestment and Empowerment Programme (SURE-P), initiated in 2012, uses the savings from the partial fuel subsidy removal of early 2013 to fund projects, primarily through the Ministries of Works, Transport and the Niger Delta, as well as community service, women and youth empowerment (CSWYE) schemes. The initiative has an annual budget of N180bn ($1.1bn) – equivalent to monthly subsidy savings of N15bn ($91.5m).

The SURE-P also contains human development components, with some 500 health centres upgraded and 620 new water boreholes drilled as of May 2014. The programme claims to have helped reduce maternal mortality by 60% as a result. Unspent SURE-P funds, which reached N88.37bn ($539.06m) in 2013, are rolled over to the next year, thereby boosting its 2014 budget to N268.37bn ($1.64bn). The CSWYE schemes provide temporary employment in community-related and social services, with a minimum of 30% earmarked for women. They created 120,000 such jobs by May 2014, according to the MoF, with the goal of creating 10,000 jobs in each state. Starting in 2014, the SURE-P also earmarked N15bn ($91.5m) to place 25,000 young graduates in private-sector internships, at a salary of N25,000 ($152.50) per month. The programme aims to expand to 100,000 interns over time.

Fostering Innovation

In addition, the MoF is piloting schemes to promote entrepreneurship through competitions between start-ups. Established in 2011, the Youth Enterprise with Innovation in Nigeria programme – dubbed YouWiN! – is a business contest for young entrepreneurs, with awards of between N1m and N10m ($6100-61,000) in equity investments for each of the six winners and additional equity participations for 1200 other projects.

The first edition, whose results were announced in 2012, created around 22,000 jobs, while the second, which took place in 2013 and focused on women, created some 5000 jobs, according to figures referenced by the president in November 2013.

The central bank has also supported entrepreneurship by funding Entrepreneurship Development Centres (EDCs) in four of Nigeria’s geopolitical zones thus far: Lagos in the south-west, Kano in the north-west, Onitsha in the south-east and, as of September 2013, Calabar in the south-south. Two more centres are planned for Maiduguri in the north-east and Markudi in the north-central region. The EDCs’ purpose is to both train and advise young entrepreneurs and facilitate their access to finance.

In the five years to 2013 the three first EDCs trained 41,828 students, advised 94,259 entrepreneurs, facilitated the creation of 13,124 jobs and helped 1743 trainees access a total of N227.84m ($1.39m) in loans, according to central bank figures. By involving both state governments and the private sector, including lenders, Nigeria’s central bank expects these incuba-tion zones to support formalised start-ups. While such initiatives are a start to addressing the underutilisation of Nigeria’s abundant potential labour force, more will need to be done to curb the accumulated employment gap. Addressing unemployment is seen as a key way to curb insurgency in the north. “Job creation will help eradicate Boko Haram,” Aliko Dangote, president and chief executive, Dangote Industries, said in May 2014. “If we import, we import poverty and export jobs.”

With job creation viewed by the federal government as the primary means of curbing growing inequality, more attention will also need to be paid to structural challenges like education over the longer term.