President Buhari And Unemployment Challenge Before Him

 
One of the planks of the Buhari campaign was the emphasis on jobs. This emphasis was correct, because the problem of unemployment is a huge one that successive governments have lamented about, but never actually managed to
solve in any systemic manner, paying only lip service to it.

Strengthening the National Bureau of Statistics

As Nigeria’s population increases, the problem of unemployment becomes more urgent every day, because more and more people join the labour force without a sufficient number of jobs. The recently released third quarter jobs report by the National Bureau of Statistics enables a proper appreciation of this problem.
I am a fan of the work the statistician general, Dr Yemi Kale, is doing at the NBS. It is even more impressive because this is taking place without a whole lot by way of resources. A strong national statistical agency is vitally important, not just because data and planning are important to problem identification and the allocation of such resources to solving those problems, but also because they help to identify when certain solutions are working, and when they are not working. Strengthening the NBS with more resources must be one of the goals of this administration.

What has been done so far

The report itself makes for sober reading. The unemployment rate has risen to nearly 10% as a result of more entrants into the job market, and although there were 475,180 jobs created, those were mostly attributed to the planting season across the country, when more hands are employed on the farms. As such, that makes the increase a seasonal one, which will fall back to normal levels in subsequent quarters.
Needless to say, this is not nearly enough. During the campaigns, the APC went on record to promise three million jobs a year. It sounded ambitious, but those are the type of numbers needed to make a real dent in the unemployment rate. In total, there are 13.2 million underemployed, and 7.5 million unemployed.
Now that a cabinet is finally in place, a credible jobs plan is awaited that will start the process of fulfilling electoral promises, and generate the kind of employment necessary to cater for the large numbers already out of work, and those on the way.

Working on Nigeria’s image

There are many ways to do this. The broad outline of the 2016 budget shows a focus on infrastructure projects like roads and housing, that have the potential to generate significant levels of employment. Improved power generation will also reduce the cost of doing business and keep SMEs afloat.
However, only a strong focus on manufacturing for export can generate jobs in the millions. Below is a quote from this 10,000-word intervention by the former CBN governor, Chukwuma Soludo, in November:
“China is now running out of its rural cheap labour and manufacturing wages are beginning to rise. To continue to compete, Chinese firms will have to relocate to cheaper cost locations (just like the Japanese firms relocated to many East Asian countries in a phenomenon called the ‘flying geese model’). Nigeria must position itself to be the preferred location for these flying geese”.
Back in 2011, Justin Yifu Lin, formerly the World Bank’s chief economist and its senior vice president, wrote that as many as 85 million jobs in China will be shed over the next ten years due to rising wages, and these jobs will be in light manufacturing of garments, shoes and furniture.
However, to take advantage of these opportunities, Nigeria will have to ensure policy stability, identify industries in which we have a comparative advantage, and create clusters with favourable logistics. Firms are actively looking for new opportunities with lower costs, as the below quote from this Wall Street Journal report shows:
“Levi is also checking out African countries where wages are low and the population, unlike China’s, is youthful and growing. The company isn’t convinced yet that Africa’s infrastructure is up to snuff”.
The challenge for the Buhari administration is put together a mix of policies and provide the infrastructure that will draw in companies looking for cheaper cost centers, and encourage exports from local players.

Adopting a sensible monetary policy

One of those policies must be a flexible exchange rate regime. The gap between the official rate and the black market rate is longer than the Third Mainland bridge, and the restrictions on foreign exchange to “manage demand” are only choking off businesses. That is simply unsustainable, especially when whatever is left of Nigeria’s manufacturing base is shrinking further, and the country has been kicked out of an emerging market index because of this, and is rapidly losing credibility to foreign investors.
Again, I will let Professor Soludo step in briefly:
“Let me make another strong statement: no developing country has diversified its economy in the last 40 years or so, especially into competitive manufacturing with an overvalued real effective exchange rate over an extended period of time. In the late 1960s and early 1970s, Nigeria was in every aspect comparable to Indonesia as agrarian societies before both experienced oil boom in 1973. Books and articles have been published describing Nigeria’s ‘great mistake of the 1970s’. Indonesia decided on a deliberate strategy to avoid an overvalued real exchange rate, while Nigeria fixed its nominal rate with overvalued real exchange rate. Our argument then was that we had nothing but oil to export and therefore would not benefit from a weak currency regime. Indonesia used weak currency to protect its infant industries from imports, thereby encouraging domestic production. After two decades, Indonesia’s export of manufactures accounted for more than 25% of its exports while Nigeria’s was still less than 1% as was the case at the beginning”.
It is urgent that the CBN reverses its current course and adopts a sensible monetary policy regime that will align with the administration’s plans to generate employment. Without this, the unemployment challenge is likely to remain unmet.