World Bank economists have raised concerns about the effectiveness of retail and wholesale trade jobs in mitigating poverty in Nigeria, indicating that these positions may not provide a reliable pathway out of the country’s escalating poverty crisis.
According to Jonathan Lain, Senior Economist, and Utz Pape, Lead Economist, Poverty and Equity Global Practice, at the World Bank, the Nigerian labour market presents a complex scenario where not all jobs offer a pathway out of poverty.
In a detailed blog post, they highlight that despite the accessibility of jobs within the retail and wholesale trade sector across various economic demographics, these roles are not seen as a substantial solution for overcoming poverty.
The insight comes as Nigeria grapples with significant poverty reduction challenges exacerbated by economic recessions and inflationary pressures.
They said:
- “Retail and wholesale trade jobs offer no guarantee to exit poverty. Unlike jobs in industry and other types of services which are concentrated in richer households, retail and wholesale trade workers are found right across the whole welfare distribution.
- “Many of the new jobs within the service sector appear to be in retail and wholesale trade, according to data from Nigeria’s new labour force survey. These jobs do not offer the same productivity gains as other service-sector jobs.
- “In fact, despite growing in the 2000s, labour productivity in services began to decline following the oil price-induced recession in 2016. Thus, it is possible that new workers entered services to cope with income losses, without necessarily finding high-productivity jobs. This was exactly what happened during the COVID-19 crisis.
- “Thus, it is not surprising that the level of wage jobs has not increased either. Wage jobs are known to be associated with utilizing higher skill levels and allowing workers to exit poverty more than self-employment.”
What You Should Know
Despite experiencing positive per capita growth in the decade leading up to the COVID-19 pandemic, Nigeria has struggled significantly with its poverty-reduction efforts.
The country’s economic challenges have been exacerbated by deep recessions and escalating prices, pushing nearly half the population below the national poverty line.
The economists point out that although many Nigerians are employed, the nature of their employment does not suffice to lift them out of poverty.
They also noted that Nigeria’s economy is transitioning, with employment moving from agriculture to services. This shift should theoretically improve living standards, as the service sector boasts productivity levels over 70% higher than agriculture.
However, Nigeria’s productivity gains in services fall short compared to countries like Brazil, Mexico, and Malaysia, where the service sector’s productivity is significantly higher. Furthermore, within Nigeria’s service sector, a vast disparity in productivity levels exists, with jobs in business and finance far outpacing those in commerce and hospitality, including retail and wholesale trade.
They said:
- “Employment in Nigeria is certainly moving from agriculture to services: 20 years ago, about half of workers were in agriculture and about one-third were in services, but now it is the other way around.
- “Also, overall labour productivity is more than 70% higher in services than in agriculture. So, all other things equal, employment shifting to services should boost living standards. Why has this not happened?
- “While Nigeria’s productivity is higher in services than in agriculture, peer countries benefit from a much larger productivity premium in services. In Brazil, Mexico, Malaysia, Colombia, Peru, and South Africa combined, labour productivity is around 167% higher in services than in agriculture—well over double the premium in Nigeria.
- “Moreover, the service sector is highly diverse. Within services, jobs in ‘business and finance’ are far more productive than those in ‘commerce and hospitality’—the sub-sector which includes retail and wholesale trade.”
Policy Recommendations
Lain and Pape argue that Nigeria requires policies geared towards fostering a meaningful structural transformation. This entails integrating firms into global value chains, attracting foreign direct investment, and ensuring a stable macroeconomic environment through fiscal and exchange rate reforms.
Additionally, improving trade facilitation, aligning skills with economic needs, and upgrading infrastructure are critical for creating jobs with higher productivity.
In the short term, enhancing earnings in currently low-productivity sectors like farm and non-farm household enterprises is also essential, which could involve improving access to inputs and credit.
As Nigeria faces the pressing need to address its growing poverty challenge and capitalise on its demographic dividend, the call for evidence-based policies to generate sustainable employment and lift people out of poverty has never been more urgent.
