What should Nigeria's wealth-creation plan look like?

No food for lazy man…

Well, that's only if you're doing the right work. Many times in Nigeria, hard work does not exempt you from hunger. 

Unfortunately, being a person in Nigeria means that you're working to actively prevent poverty, but even the work can't save you. This trend explains why the working poverty rate is as high as 40% in low-income countries. In Africa, 55% of the poor are employed. This means they're in working poverty, and we discussed this in detail in a previous article. On the other hand, fewer non-poor people are employed. 

In-work poverty or working poverty is when the people with jobs are still unable to afford the necessities for living, such as feeding, shelter and more. 

Many people remain in poverty even while working because of the kinds of jobs they are engaged in. There are many reasons why in-work poverty exists in different countries, but we identified some of those peculiar to Nigeria in our previous article. The first and most obvious reason is that many jobs don't pay well. Other causes are the poor distribution of well-paying jobs across the country, the volatility of farming and non-farm household jobs, the poor structure of in-wage jobs in poorer states, and the lack of skills to acquire well-paying jobs. 

We can break this into two: the quality of the jobs and the quality of the job seeker. Someone can be working poor because they're engaged in bullshit or informal jobs that don't pay well. But sometimes, the issue is that people don't have the right skills to engage in well-paying jobs. 

This tells us that poverty is not just a function of an individual's capabilities but the environment around them. Depending on what bucket each person falls under, the solution to their in-work poverty would be to solve the individual and structural problems simultaneously. 

Time is money

One structural problem we identified was that many working poor are underemployed. They work for less time than they should and do not have enough financial leeway to wait for well-paying jobs when they become unemployed. Or going by the National Bureau of Statistics’s definition, people who work for 20-39 hours per week.  

Let's say Funke works on a farm during the land preparation phase. When the clearing is done on the farm, she has to look for another job—making her unemployed for that period. If her income from land clearing was tiny, and she has no other income coming in, then she’ll have to search for a job quickly. That means she does not have the luxury of time to search for a better paying job. So, Funke goes for the same quality of work, or worse, than the previous one—a job that can put food on her table today.

One way to solve Funke's time-money-constraint problem is by providing welfare packages that she can enjoy while searching for a new job. Such welfare packages are called unemployment insurance (UI). Here, the government provides people in between jobs with some form of income on the condition that they are actively searching for jobs. 

Sometimes the unemployed receive a percentage of what they earned while they were working. Other times, they receive a means-tested income, which is basically dependent on how much income and wealth the person earned. 

Several countries across the world adopt this form of welfare. Two notable examples are the US’ Unemployment Insurance package and the UK's Job seekers benefits programme—where people that are out of work but actively searching for a job are given some form of benefits.

The responsibility for unemployment insurance is split between both parties: the government must pay the unemployed, while the unemployed must be actively searching for jobs. Therefore, it aims to tide people over while searching for jobs—the exact solution to the time-money-constraint problem. 

Usually, the decision of how much to pay is dependent on how much the person has earned in the past and may earn in the future. So, the government would not want to pay ₦100,000 monthly to someone who was previously paid—and only can earn ₦100,000 or less because the person would no longer have an incentive to work. Job seekers make as much as 30% of their previous income in the US.  

However, how do you decide how much is too much? Is it fair for someone who earns ₦100,000 to receive unemployment benefits while someone who earns ₦1 million earns benefits too? No, especially when the amount required to meet basic needs is below ₦1 million! 

One of the reasons why unemployment among the non-poor is more than the poor is that the non-poor earn enough income to either rely on their savings or some form of credit during the waiting or job searching period. 

The poor don't have that luxury. So, to ensure that the benefit is going to the people who need it the most, the government usually imposes a maximum amount that can be paid as unemployment benefits. Therefore, everyone earning higher than the maximum is generally disqualified from accessing the benefits. 

For example, in the US, different states dictate how much unemployment benefits their residents can earn—to reflect the cost of living across the states. In some states like Massachusetts average weekly income can be as much as $555 per week, while the maximum in Mississippi is about $213. The states also determine how long people can earn the benefits, between 12 - 24 weeks per month. 

These restrictions are to ensure that people are not discouraged from searching for jobs because they're enjoying employment benefits. Emerging countries, in particular, might find it challenging to monitor the job search efforts of beneficiaries of unemployment benefits. For example, Nigeria has significant data constraints—our last official census was carried out in 2007, and even the data from that is highly questionable. Then the last available data for unemployment was compiled in the last quarter of 2020, after a hiatus from 2018. Also in this 2020 unemployment data, 10 million people magically disappeared from the labour force—that is, they were no longer willing and able to work.

In a country where inflation is continuously rising, it is difficult to see how 10 million people can be uninterested in earning income. If unemployment data is difficult to compile, imagine how compiling an accurate and real-time list of unemployed people would be.  

Due to this difficulty, countries would have to enforce the time band placed on providing unemployment benefits to ensure people don't get comfortable enjoying free money.

There's also the issue of ensuring that people are also not working in informal roles while enjoying employment benefits, which would only be solved by formalising many casual jobs. That might be a painstaking move considering how much political and institutional will it takes for the government to roll it out. 

He who pays the piper…

One major downside to these conditional unemployment benefits is that they are costly to sustain. The US, for instance, spent as much as $4 billion on unemployment benefits in December 2021. Granted, the US is a larger country, and the cost of living is higher than in Nigeria. 

However, social welfare programs are not cheap in Nigeria either. The closest form of social welfare program to the unemployment benefits program is Nigeria's Conditional Cash Transfer program. The Nigerian government spent over $260 million (approx. N115 billion) on conditional cash transfers in 2020, out of the $500 million it borrowed from the World Bank for the program. However, it could only reach 4.6 million people out of the 90 million + people living in poverty. 

Given the lean fiscal space of the government, the government might have to look out for alternative funding sources to provide unemployment benefits to Nigerians. 

But giving people money does not solve their problem of poverty; as we mentioned at the beginning of this section, it's only meant to help them in between jobs. So, unemployment benefits are meant to tide them over while they search for rewarding jobs that do the work of lifting them out of poverty. This is one of the structural issues that can be fixed to reduce the possibility of in-poor poverty. 

Regional development 

One of the reasons why in-poor poverty continues is the lack of diversity of jobs across the country. Agricultural jobs which pay less and are loosely structured are more prevalent in states where the share of wage jobs is low and vice-versa. Therefore, in states where wage jobs are higher, people tend to be richer than in states with only a few wage jobs. Therefore, people might have to migrate to new states where the cost of living is higher for a chance for better jobs. 

Therefore, solving this problem of poor job diversity would require another structural change: creating and enabling an environment and providing incentives for well-paying jobs to thrive. 

The solution is to provide the required incentives for sectors to generate significant employment for the country.

Governments have been able to increase employment in their countries by building up specific sectors that will generate growth and jobs. China did this with its industrialisation move and changed the composition of its work from primary sectors like agriculture to more secondary and tertiary jobs.

Nigeria could do the same with critical sectors like the digital economy, which has proven its resilience in periods of economic contraction. However, cherry-picking sectors to provide them with an incentive for growth is something the Nigerian government has done severally and yielded no results because of the lack of institutional will to follow through. Also, the government would need a lot of knowledge and data to select the right sectors to thrive. So, picking the right sector is complex. 

What is the less stressful way out?

Letting the market select for itself. If the government provides an enabling environment for all businesses to thrive, the best sectors will thrive more, while those that are not so good would shrink. Creating an enabling environment for all businesses allows for the best sectors to provide many jobs. 

One of the implications of cherry-picking is how the government's dependence on the oil sector, which is capital intensive, has not improved Nigeria's overall employment situation. 

We've seen states in Nigeria take such initiatives to attract investment in their states. One such state is Lagos, which has enjoyed its corporate concentration because of its proximity to the seaports and its status as Nigeria's former capital and current financial centre. Naturally, because of these benefits and the benefit of having the highest concentration of corporate headquarters in the country, it is no surprise that Lagos has the largest labour force and the most people in full-time employment nationwide. 

However, Lagos' commercial success is not coincidental. The Lagos state government has made the state attractive to businesses and investors. An excellent example of such incentives is the I-HQ initiative in 2013 where Lagos state waived the Right of Way cost for the laying of terrestrial fibre optic cables in Yaba. This ushered in a large concentration of tech & tech-enabled companies, which have created significant well-paying jobs (the right kind of jobs we are evangelising). 

The state also has a free trade zone, which currently houses the Dangote refinery and fertiliser plants, two critical industries poised to create massive jobs. But the state didn't just provide land in a secluded area for businesses to thrive; it has provided the infrastructure required for companies who take a leap of faith in the state to thrive. 

However, Lagos has its downsides, like the high cost of living and stringent laws highlighted in this article. Therefore, this leaves room for other states to house some more companies. 

So what can they do to attract high growth, job-creating companies? By providing incentives for companies to move into the states, two key incentives are infrastructure and labour. 

Infrastructure, in this case, refers to everything from physical infrastructure like electricity, security and transportation infrastructure to digital infrastructure like fibre optic connections. In Nigeria, electricity is centrally provided, and distribution—which informs the quality of electricity people enjoy, is mainly dependent on the private distribution companies. 

So, for states to stand out, they need to provide more electricity to complement the epileptic power supply that the entire country suffers from. This could come from collaborating with such electricity providers to make this happen. What this does for businesses beyond reducing their cost of operation is create some stability for them. They're confident that the electricity they enjoy (if well rolled out, will sustain their businesses). 

Electricity also attracts labour because it reduces the cost of living. When there are companies that can provide jobs in areas with low cost of living, such places become appealing to thor states.

Digital infrastructure is also an essential form of infrastructure which can induce the right kind of investment for companies. The digital economy is known for creating a high number of high-quality jobs. Many of these digital companies are high growth companies. PwC recorded that despite only representing 6% of SMEs in the US between 1992 and 2011, they created 50% of all the new jobs. Likewise, in Nigeria, Endeavor, an organisation focused on supporting high impact companies, through its support has created over 24,000 jobs in Nigeria. So, the states that are serious about improving employment can start by attracting digital ecosystem investors by improving digital infrastructure within the state. 

However, it's one thing to provide the infrastructure, another to maintain it and ensure that it gives the value required for its users. This is where security comes in. Lack of security not only reduces the chances of free movement around the state but also causes the value of infrastructure to deteriorate quickly. 

We saw how the lack of adequate security infrastructure led to the loss of lives and property on the Abuja-Kaduna expressway. The same is the case for infrastructure across the country. An example is the provision of wind turbines by the Sokoto state government in collaboration with the French embassy in Nigeria. Today, those turbines are abandoned because of persistent kidnapping by the maintenance staff, who in many cases had to escape by themselves from the kidnappers' den.   

Lack of security in the states prevents businesses from operating smoothly and poses a labour risk. Where companies have to migrate to other states due to severe security threats, there's a huge chance they won't take all their staff with them, resulting in unemployment in the state. 

Therefore ensuring the security of lives and property in a state poses a strong incentive for businesses and labour to thrive. 

Train the people

Remember the two reasons for in-work poverty are the quality of jobs and the quality of the job seeker. We’ve explained how the government can improve the quality and diversity of jobs across states, so now we would go into how to improve the quality of the job seeker. 

One critical incentive that could attract investment which would, in turn, generate growth, is human capital development. Without the required labour, the infrastructural development in the states may not translate into improved employment, which is the goal. 

When states can provide competent labour who have the skills required for many businesses, then employment would increase. This is the direct solution that state governments can take, although its benefits are only noticed in the long term. 

The government doesn't do this by simply building new schools and refurbishing new ones but also by identifying what skills are required for success in the labour market and focusing on providing such skills. Thankfully, as Andela and TalentQL have shown us, many of these skills don't require traditional schools and can bring short term results. 

India took this approach by improving its vocational education in order to improve its workforce’s preparedness for available jobs, and they have recorded success. A study showing India’s success with vocational training found that workers received 37% and 18% more wages in the primary and secondary sectors than people without formal training. 

The overarching theme of the initiatives we’ve highlighted so far is the intentionality of the government to improve the employment situation of the country, not just by providing jobs but by providing high-quality jobs. People can only escape in-work poverty when they work in jobs that guarantee stability and sufficient financial and non-financial benefits. 

The jobs would only exist if the companies that provide such jobs also exist. So, providing the structure that encourages the companies to set up in the state is required for the success of such businesses, and the employment of labour in such states. 

Such jobs are scarce and take time to obtain, therefore, selecting them should not be done in a rush. While people make their choices, the government should provide enough financial leeway to the unemployed. 

The theme of all the initiatives is that success comes from combining all the solutions, not by implementing one and neglecting the other. Therefore states can implement these solutions by choosing specific locations like Special Economic Zones in their state where they can implement all the solutions and then attract investors to that space.