Structural Transformation, Productivity Growth and Employment in Nigeria

Structural transformation involves the movement of labour from low-productivity to high-productivity sectors. This movement is often accompanied by the expansion of modern high-productivity sectors, creating jobs and increasing productivity and the income level of the populace in a country. Over the past three decades, Nigeria has experienced significant labour shifts from agriculture to the services sector, with minimal changes in manufacturing. As at 2021, 81% of Nigeria’s labour force was employed in sectors with low labour productivity – agriculture and non-tradable services. Labour is moving away from agriculture but rapidly towards the non-tradable services sector, which has accommodated the most labour since the 2000s. Using a mixed-method approach involving regression analysis, shift-share analysis, and semi-structured interviews, this study examines the effects of the movement of labour on per capita income, productivity, and employment in Nigeria from 1990 to 2021. In addition, the study explores how Nigeria can achieve income and productivity growth and employment generation through structural transformation. From the regression and shift-share analyses, the findings reveal that labour has primarily moved towards low-productivity non-tradable services sector, which has not significantly contributed to income and productivity growth. Conversely, tradable services, which received less labour, positively impacted income and productivity growth in Nigeria. The semi-structured interviews show that the manufacturing sector’s potential for driving structural transformation in Nigeria was hindered by its reliance on imported intermediate inputs and weak export capacity. This study makes important academic contributions to the study of structural transformation by decomposing the manufacturing sector into modern and subsistence, based on firms’ access to resources, level of productivity and interactions with markets. This categorisation provides a new lens for viewing manufacturing firms, offering an alternative to the debate of formal vs informal firms, particularly because of the overlapping features between formal and informal firms, especially in a country like Nigeria. The idea that productivity differs within manufacturing broadens the discussion beyond the mere transition of informal firms to formal status. It emphasises the importance of enhancing the productivity of subsistence manufacturing firms, which also includes small formal firms. The scope of industrial policy should include enhancing the capacity of subsistence manufacturing firms, which are important for employment creation in Nigeria. These firms would benefit from initiatives to improve access to finance, domestic markets and better technology to raise their productivity. For modern manufacturing firms, industrial policy must leverage export opportunities such as the African Continental Free Trade Area Agreement and enhance the production of intermediate inputs to increase domestic value addition. Additionally, effective structural transformation requires that the tradable services sector is supported by ensuring skills training of Nigeria’s youthful population, especially digital skills. This is crucial for improving productive employment, productivity and income growth in Nigeria.