Redesigning Policy Intervention for Inclusive Growth

Since the year 2000, Nigeria’s economic growth has not delivered significant poverty and unemployment reduction. While GDP growth increased from 6.7% in 2006 to 9.5% in 2010, unemployment rate moved from 12.3% to 21.4% in the same period. By the year 2015 prior to the economic recession, unemployment and under-employment rate had reached a peak of 29%. That same year, life expectancy was 53.1, lower than those of Brazil (74.7) and Ghana (61.5). In addition, 46% of the country’s population lived below the national poverty line, according to the World Bank’s Human Development Indicators (HDI) Report.

Failure to achieve inclusiveness is largely as a result of the fact that economic growth has not been broad-based. A major reason why GDP growth has not translated into improved living standards can be found in the pattern and dynamics of economic growth over the last two decades. Nigeria’s economic growth pattern can be simply explained by the phrase “service-led growth.” From 2000 to 2015, the services sector contributed 61% to real GDP growth. This growth was led by key subsectors such as trade, telecoms, real estate and financial services. The productive sectors such as manufacturing, construction and agroprocessing only accounted for 15% of overall growth during the same period.

The growing services sector and rising unemployment rate suggests that value addition in the service sector is low, relative to the productive sector. This, therefore, brings to the fore three key policy considerations:

First, to achieve economic growth that delivers unemployment and poverty reduction, efforts are required to alter the pattern of GDP growth by developing the productive sectors. Nigeria needs to implement reforms that will open up and attract investments into key subsectors within the manufacturing and agro-processing sector, thus, creating opportunities along value chains. Macroeconomic stability, good governance and provision of infrastructure are supporting factors that will improve productivity and output across sectors.

Second, to address poverty and unemployment, GDP growth must be led by the productive sectors. The growth pattern in 2018 and beyond must be different from that of the pre-recession era. Inclusive growth embraces the need for a strong industry-led economy. For instance, industrial sectors such as manufacturing, agro-processing, and construction should be the engine of economic transformation. Rapid expansion of the manufacturing and agro-processing sectors will lead to massive job creation, diversification of export earnings and reduction in importation of foods and other items that can easily be produced locally.

Third, growth within productive sectors must be widespread and include major subsectors. This emphasises the need for diversification within manufacturing, agriculture, construction and other key sectors. In manufacturing, only 3 subsectors (food & beverage, cement and textile) account for 77% of manufacturing output. Similarly, in agriculture, crop production accounts for 91% of agricultural output, leaving the remaining 9% for fishery, forestry and livestock. To move a step closer to achieving inclusiveness, deliberate policy interventions are required to open up these subsectors.

This brief aims to review the manufacturing sector by identifying key structural bottlenecks, highlighting their implications, explore recent government interventions and proffer workable policy interventions.

Download the full policy brief on the NES Group website.