Nigeria’s industries without smokestacks are delivering better economic opportunities than traditional sectors

Staff of Jumia company work on computers at the office in Lagos, Nigeria January 20, 2020. Picture taken January 20, 2020. REUTERS/Temilade Adelaja

Persistently high levels of unemployment have emerged to become a key policy challenge in Nigeria. Between 2010 and 2018, the unemployment rate rose from 5 percent to 23 percent. Worsened by the COVID-19 pandemic, the economy is simply not generating enough jobs for labor entrants, particularly women and youth. In 2020, the national unemployment rate stood at 33 percent, while 52 percent of women remained unemployed and 42 percent of youth (aged 15-34 years) were without jobs.

Moreover, the contribution of the manufacturing sector to formal sector employment has also been low and stagnant, averaging 11.4 percent between 2011 and 2021. Estimates show that Nigeria’s manufacturing sector accounts for less than 10 percent of gross domestic product (GDP), and as a result, the sector employs only a small proportion of the labor force.

Given that traditional sectors like manufacturing alone can no longer sustain economic development and generate sufficient job opportunities, attention is now shifting toward alternative sectors that can support growth and create jobs, for example: agro-processing, financial and business services, information and communications technology (ICT), tourism, formal trade, and transport. These “industries without smokestacks” (IWOSS)—as they have been termed in a growing body of literature—are often service-based sectors that closely mimic manufacturing in their tradability, proclivity to absorb large numbers of low-skilled employees, and potential for technological change and productivity growth.

In our recent report, published jointly by the Africa Growth Initiative at Brookings and the Centre for the Study of the Economies of Africa, we find that these industries without smokestacks are indeed already surpassing manufacturing and other traditional sectors in creating jobs and generating economic growth in Nigeria.

In the past two decades, profound changes have occurred with regards to the sectors contributing the most to growth and employment. Whereas the mining sector contributed as much as 29 percent to gross economic output in 2000, it made up only 10 percent in 2020. At the same time, other sectors such as ICT and construction are experiencing significant improvements in their contribution to GDP (from 4 percent and 3 percent, respectively, in 2000, to 16 percent and 11 percent in 2020).

A similar trend is visible in the employment data. For instance, the financial and business services sector recorded the highest employment absorption (23.5 percent) when considering the share of employment growth between 2010 to 2018, followed by trade services (12.3 percent). On the other hand, sectors such as mining recorded the least marginal improvement (0.1 percent), indicating a shift from traditional sectors to newer service-based sectors.

As shown in Table 1, the employment shares of IWOSS sectors are growing more rapidly than manufacturing, with non-IWOSS sectors experiencing a decline. In Nigeria, three IWOSS sectors have the most potential to lead the structural transformation of the economy. They include financial and business services, ICT, and trade.

Table 1. Employment in IWOSS and non-IWOSS sectors in Nigeria, 2010 and 2018

table 1

Source: National Bureau of Statistics, CBN Statistical Bulletin and University of Groningen Economic Transformation Database

Our projections for both economic growth and employment show that IWOSS sectors will remain relevant both now and in the future. Between 2018 and 2035, Nigeria’s real GDP is expected to grow at an average rate of 4.2 percent per year, and the majority of this growth (5.6 percent) is expected to be delivered by IWOSS sectors. Tourism is expected to grow the most with 13 percent, followed by construction with 12.8 percent and export crops and horticulture with 8.2 percent.

Similar trends are seen in our employment projections, as employment growth for the entire economy is estimated at 4.7 percent per year, while employment growth in IWOSS sectors is estimated at 9.8 percent annually. Employment in the financial and business services sector is topmost with an expected growth of 18.4 percent, followed by agro-processing with 13.4 percent, and transport with 10.8 percent. Collectively, IWOSS sectors are expected to generate about 52 percent of the country’s 57.2 million new jobs between 2019 and 2035, while non-IWOSS sectors would create 42.4 percent and manufacturing would create the remaining 5.7 percent.

IWOSS sectors as catalyst in creating jobs for women, youth, and the highly educated or skilled

A noteworthy aspect of IWOSS sectors is their inclination toward employing women, young people, as well as the educated and skilled population. These sectors have consistently absorbed a higher percentage of this subgroup of workers compared to non-IWOSS sectors. In 2018, for instance, 34 percent of the IWOSS workforce was female compared to the non-IWOSS sectors which ,had a lower composition of women (32 percent)—see Figure 1 below.

Projections reveal that by 2025, there will be a further increase in female employment by the IWOSS sectors (Figure 1). These statistics bode well for advancing gender equality in the workforce, as the sector provides the right opportunities for women to overcome the challenges that have previously impeded their employment and progress in traditional sectors. One significant advantage of IWOSS is the flexibility they offer; enabling women to balance work and family responsibilities. Remote work options, freelancing opportunities, and flexible working hours have revolutionized the employment landscape, particularly for women. Moreover, because IWOSS sectors tend to have a greater focus on skill-based employment rather than physical strength, they provide equal opportunities for women to excel and thrive.

Figure 1. Labor force absorption by gender in Nigeria, millions; 2010, 2018, 2025

fig 1

Source: Authors’ computation from the National Bureau of Statistics (2020)

Similarly, youth, who often face the challenge of entering a competitive job market due to insufficient years of experience, find IWOSS sectors to be a promising avenue for employment. The dynamic and innovative nature of IWOSS sectors appeals to the creativity and adaptability of youth. These sectors offer a plethora of opportunities for young people to leverage their digital skills, entrepreneurial spirit, and fresh perspectives. During the pandemic, IWOSS sectors, particularly ICT, played a pivotal role in absorbing the shockwaves of job losses in more traditional industries. The digital economy, e-learning platforms, and online entertainment witnessed a surge in demand, opening up avenues for young people to contribute and earn income. As seen in Figure 2, IWOSS sectors were composed of more youth than the non-IWOSS sectors in both 2010 and 2018, suggesting that IWOSS sectors will continue to present more employment opportunities to youth over the years.

Figure 2. Share of IWOSS and non-IWOSS sector employees in Nigeria that are youth (%), 2010 and 2018

fig 2

Source: Authors’ computation using data from Ekeruche et al. (2022)

Furthermore, the IWOSS case study for Nigeria reveals that individuals employed in the IWOSS sectors tend to possess higher levels of education and skills, a trend that is expected to continue in the future. Based on firm-level surveys carried out during the study, postsecondary education is a relatively more desirable educational qualification to gain employment in IWOSS sectors.

The firm surveys also asked respondents in the three selected IWOSS sectors to identify the most suitable skills. Respondents in the trade and ICT industries ranked systems skills—skills that are used to understand, monitor, and improve socio-technical systems—as the most important in their operations, while those in the finance and business sector considered basic skills the most important. Basic skills were defined as active learning and listening, critical thinking, learning strategies, mathematics, monitoring, speaking, reading, and writing. Firms in the finance and business sector also placed great emphasis on social and problem-solving skills, regarding these skills as highly relevant for their operations. This highlights the importance of equipping Nigeria’s workforce with the necessary skills and education to meet the demands of IWOSS sectors.

In conclusion, industries without smokestacks have emerged as a powerful force for change, enabling the economic empowerment of Nigeria’s unemployed population. The flexibility, inclusivity, and resilience demonstrated by IWOSS in the past two decades and during the COVID-19 pandemic have highlighted their potential to drive employment creation even in moments of crisis. Accordingly, it is imperative to seize the opportunity, unleash the full potential of IWOSS, and build a future where no one is left behind.

To achieve this, aligning education and skills training programs with the specific needs of IWOSS sectors can significantly enhance employability for Nigerians. Educational institutions and training providers can design targeted curricula and vocational programs to ensure that individuals are equipped with the knowledge and skills demanded by the job market, thereby, enhancing their prospects for meaningful employment. Furthermore, promoting science, technology, engineering, and mathematics (STEM) education among girls and young women can help bridge the gender gap in IWOSS sectors traditionally dominated by men, such as information technology (IT) and engineering. Lastly, policymakers should prioritize investments in infrastructure to attract private investments into IWOSS sectors. Strengthening infrastructure, including providing high-speed internet connectivity, reliable power supply, and digital platforms, will enable Nigerians to fully leverage the opportunities presented in the IWOSS sectors.