Structural reforms to lay the foundation for long-term sustainable growth in the broader economy and the services sector, is critical to solving the country’s unemployment challenge. This is according to a new report released by leading professional Services firm, PwC Nigeria recently in Lagos.

The report titled “Structural transformation and jobless growth in Nigeria” notes that while Nigeria has recorded considerable growth in major sectors, such as agriculture and manufacturing, employment generation by these sectors has been poor. The services sector, which has the highest employment elasticity according to PwC’s analysis, is capable of delivering high productivity jobs with great potential for income generation and poverty reduction.

Unlocking this potential in the service sector will however require keen investment in 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.

Dr. Andrew S Nevin PhD, Partner and Chief Economist at PwC Nigeria said:

“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.

Our findings show that between 2010 and 2017, average job growth was 1.6%, weaker than labour force growth of 3.9%. To reduce the unemployment rate, we estimate that employment growth of at least 4-5% is required. This would translate to at least 3 million new jobs annually. Achieving this will require implementing policies that will deliver inclusive growth and engender a productive labour force is imperative.”

The report notes that 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. 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.

Services sector jobs require a wide range of skills from artisans in traditional services, to ICT experts in modern services. Without higher productivity in both segments, the potential of services to drive employment will be unrealised. Hence, enhancing productivity in services requires a significant investment in human capital development. Specifically, investing in tertiary education is required to provide high-skilled workers in modern services, while investing in vocational centers and technical colleges is required to improve the supply of skilled labour in traditional services.

Similarly, the services sector can be harnessed to diversify exports. This is particularly important because services is less reliant on physical infrastructure. Despite this, boosting services exports would still require significant improvements to telecommunications and power infrastructure. Turning these around would involve wide-reaching reforms to resolve structural and policy issues that currently restrict investment in these sectors.

The report observes that while the Nigerian economy witnessed rapid expansion between 2000 and 2014, with an average annual growth of 7.6 per cent year-on-year, employment growth was merely 1.2 per cent within the same period which was markedly below the 2.9 per cent growth in the labour force. Hence, 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. In essence, the responsiveness of employment to economic growth has not been large enough to reduce unemployment.

Commenting further Dr. Nevin noted:

“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.”