Key highlights
- Agriculture and non-tradable services employ 80% of Nigerian workers, but lack the potential to generate income growth and lift people out of poverty.
- Manufacturing sits in the middle of the productivity ladder and can accommodate large numbers of labor, but is hindered by inadequate infrastructure and power supply.
- There is room for growth in Nigeria’s services sector, which currently accounts for 53% of the country’s GDP, and has the potential to export knowledge, music, software development services, business process outsourcing, fintech, and talents like football.
Although the agriculture sector holds mass employment opportunities for Nigerians, the sector does not hold the wealth game-changer capacity that most Nigerians desperately need. This is according to a report by the Brookings Institute, a copy of which was obtained by Nairametrics.
The report said 80 per cent of workers are employed in sectors with low levels of productivity namely — agriculture and non-tradable services. This means that the kind of jobs needed to generate income growth and lift many Nigerians out of poverty are not available in large numbers.
It said at the top of the productivity ladder is the tradable services sector, which has the potential to improve incomes and raise overall productivity.
- “The challenge with this sector, however, is its inability to accommodate labour in large numbers. Nevertheless, the sector is important, given Nigeria’s young population who are increasingly driving a technological revolution across various sectors on the African continent. To leverage the full potential of this sector, the government will need to design and implement national skills programs aimed at up-skilling young Nigerians, to ensure many more embrace digital skills and capabilities,” the report said.
Middle of productivity ladder
At the middle of the productivity, ladder sits manufacturing. The sector has a much higher productivity level than agriculture and can accommodate, in large numbers, the kind of labour that is abundant in the country. Nigeria’s rising population (which is projected to reach 428 million by 2050), the existence of mineral resources, and the adoption of a single market in Africa —the African Continental Free Trade Area (AfCFTA)— present a case for why manufacturing would thrive in Nigeria. The priority, therefore, for the incoming government must be to address the burgeoning infrastructure deficit and inadequate power supply, which limit the competitiveness of the manufacturing sector.
A shift in economic activity
However, Brookings noted that a key feature of Nigeria’s economy in the last seven years has been the shift of economic activity towards agriculture and a slowdown of the manufacturing sector. The think tank said as a share of GDP, agriculture expanded from 23 per cent in 2015 to 26 per cent in 2021, while manufacturing declined from 9.5 per cent to 9 per cent respectively. It said during this period, non-oil exports as a share of non-oil GDP averaged 1.3 per cent while manufactured goods as a share of total exports remained low at 5.2 per cent in 2021.
- “Part of the problem facing the economy is the neglect of the manufacturing sector. Essentially, Nigeria is not producing enough, for both local consumption and export. The consequences of having a weak manufacturing base for a country with such a large population are evident in its foreign exchange shortages, a limited number of jobs created to accommodate workforce entrants, and an import bill that can hardly be met (nor sustained) by current export earnings.
- “The new administration, working with stakeholders, needs to develop an agenda for economic and social inclusion. At the heart of such an agenda must be improving the lives of the average Nigerian. This agenda must also include a practical strategy on how to structurally transform the economy, moving labour and economic resources from low productivity sectors to high productivity sectors,” the report added.
Room for growth in the services sector
The chief economist of PricewaterhouseCoopers (PwC), Dr Andrew Nevin, said two-thirds of the world’s GDP is in services, while manufactured goods are at the tail end of the world’s GDP. He stated that Nigeria needs to export knowledge, music, software development services, business process outsourcing, fintech and talents like football. He cited Access Bank, UBA, and other banks on the march across Africa with banking services. He said the government needs to expand on that by training and providing opportunities for its people.
According to the Nigerian Investment Promotion Commission, services currently account for 53% of Nigeria’s gross domestic product (GDP). The top contributory services activities are trade (16%), information and communication (12%); real estate (6%); professional, scientific and technical services (4%), and financial and insurance (3%).
Compared to the two-thirds global average, it means Nigeria still has a wide room for growth in the services sector. Like in most thriving economies nowadays, the services sector is gaining momentum in Nigeria, because more and more people are moving from the countryside to the cities to find jobs.
The PwC chief stated that there are obvious reasons to invest in services, citing that they don’t have to go through the ports system in Nigeria and face the kind of bottlenecks encountered when exporting physical goods. He also cited that they are value-added.
He stated that Nigerians are working from their homes offering services to American companies and earning thousands of dollars monthly.
