Nigeria’s unemployment rate will rise further to 40.6 percent in 2023, a report by KPMG has indicated.
In the report titled ‘Global Economic Outlook’, the professional services firm said the figure is based on its estimates.
As at fourth quarter (Q4) of 2020, the National Bureau of Statistics (NBS) said the country‘s unemployment rate stood at 33.3 per cent.
This is as a new report by Afrinvest (West Africa) Limited, a wealth advisory firm, showed that Nigeria’s spiraling inflation rate has eroded the N30, 000 monthly minimum wage by more than 40 per cent since 2019.
The report titled ‘The Cost of Nigeria’s Spiraling Inflation Rate on the Average Household’, show that since the national minimum wage was raised to N30,000 from N18,000 in 2019, the headline inflation rate index has risen by about 68.3 percentage points (ppts) from 2019 year-end to 517.39 points in February 2023.
“Unemployment is expected to continue to be a major challenge in 2023 due to the limited investment by the private sector, low industrialisation and slower than required economic growth and consequently the inability of the economy to absorb the 4‐5 million new entrants into the Nigerian job market every year,” KPMG said in the report.
“Although lagged, the National Bureau of Statistics recorded an increase in the national unemployment rate from 23.1 per cent in 2018 to 33.3 per cent in 2020.
“We estimate that this rate has increased to 37.7 per cent in 2022 and will rise further to 40.6% in 2023.”
KPMG projected that Nigeria’s gross domestic product (GDP) would continue to grow at a relatively slow pace of three percent in 2023.
This, it said, is due to the slowdown in economic activity that typically characterises periods of political transition in Nigeria.
The firm said the spillover from an expected slowdown in the global economy and its trade and financial flows implications are likely to drag on the country’s GDP.
KPMG said that key non-oil sectors such as manufacturing, trade, accommodation, food services and transportation would be negatively affected by the naira redesign policy introduced by the Central Bank of Nigeria (CBN), further slowing down overall GDP growth in 2023.
“Nevertheless, we expect telecommunications, trade services, as well as an expected recovery in the oil sector, on account of measures being taken to tackle security issues, to drive our forecast of 3% growth in 2023,” the firm said.
KPMG further projected that the incoming administration would face a deeply rooted challenging environment characterized by fragile and slow economic growth and challenges in the foreign exchange market.
It added that government revenue remained inadequate to support much needed expenditure, leading to a high debt stock and high debt service payments.
Meanwhile, regarding Nigeria’s inflation rate and impact on minimum wage, Afrinvest, “As a result, when adjusting the value of the minimum wage rate for inflation over this period, our estimate suggests that the purchasing power of the average household has been eroded by 40.6 per cent, leaving the consumers worse-off in real terms compared to pre-2019,” it said.
It said connecting this to the average household allocation from disposable income, they estimate that the share of final consumption expenditure of the average households in the inflation-adjusted national disposable income is about 71.3 percent in 2022, implying a 3.9ppts reduction from the level last reported by the National Bureau of Statistics (NBS) in the first half of 2021 H1:2 but way above the 2019 level.
“Furthermore, the increase connotes a weaker level of savings – with potential negative consequences for current and future economic health of households.”
According to the NBS, Nigeria’s headline inflation rate rose for the second straight month in February, largely driven by higher food prices.
The inflation rate rose to a 17-year high of 21.91 percent from 21.82 percent in the previous month.
“The contributions of items on a class basis to the increase in the headline index are presented thus: bread and cereal (21.67 percent), actual and imputed rent (7.74 percent), potatoes, yam and other tubers (6.06 percent), vegetable (5.44 percent) and meat (4.78 percent),” the statistical agency said.
Damilare Asimiyu, senior analyst at Afrinvest, said the country’s inflation rate is not surprising given the fact that it began to spiral in August 2019 (from an average of 11.4 percent to 18.8 percent in 2021) after land borders were shut to food importation amid the structural plague on domestic capacity.
“The average inflation rate reading has even worsened to 18.8 percent in 2022, no thanks to the additional pressure from the global supply chain stoked by the war in Eastern Europe,” he added.
Last year, the World Bank said that Nigeria’s accelerated inflation growth has eroded the N30, 000 minimum wage by 35.5 percent and widened the poverty net with an estimated five million people in 2022.
In its latest Nigeria Development Update report, the international organization, said the higher inflation in 2022 is estimated to have pushed an additional five million Nigerians into poverty between January and September 2022, mainly through higher prices of local staples- rice, bread, yam, and wheat, especially in non-rural areas.
“Between 2020 and 2022, for instance, the inflation shock has pushed an estimated 15 million Nigerians into poverty.”
The report highlighted that the minimum wage, which was $82 in 2019, had dropped to $26.
“Consumer price inflation had heightened, making it one of the highest in the world.”
Apart from the World Bank report, a similar report by Picodi.com, an International e-commerce platform revealed that the basic food items required for survival by an average Nigerian family which cost N48, 130 in January 2023 was 60.4 percent higher than the country’s minimum wage.
An analysis of the report shows that the 60.4 percent is the highest in five years when compared with the same period in 2022, which was 36.6 percent; 17.7 percent in 2021, 8.1 percent in 2020, and 5.1 percent in the same period 2019. Also, the amount in January surged by 52.6 percent from N31, 536 in the same period of 2019.
“This means that the wages of those paid the least increased slower than the food prices and the minimum wage is not enough to cover even such a basic basket of products,” it said.
The Afrinvest report recommends that a modest upward review in the national minimum wage rate, combined with a concerted effort targeted at boosting output level in the near term (to curb demand-pull inflation) and taming supply-side shocks, would be crucial to preventing more households from falling below the poverty line.
“By adopting these measures, Nigeria can mitigate the impact of the pressured macroeconomic fundamentals and improve the living standards of its citizens.”
