Governance and Markets A proposal for new industries
Unlike in past decades, even a degree from an Ivy League university no longer guarantees a decent job in Nigeria.
It is no secret that Nigeria’s youth are facing a jobs crisis. As of the third quarter of 2018, 55.4% of young people – aged between 15-35 years – were either unemployed or underemployed. This is probably why many young people are engaged in armed robberies, kidnappings and many other crimes and vices.
The high youth unemployment rate has festered for a number of reasons. But the key reason is that the Nigerian economy is not growing fast enough. Furthermore, the country has been caught in a trap of jobless growth. This simply means the economic growth of the decade before the 2016 recession did not add significant number of jobs to absorb the growing youth population.
Another reason for the high youth unemployment and underemployment rate is a skills mismatch. The educational system and the labour market are out of
step with each other. Our secondary schools and universities are churning out students who don’t have the skill sets employers are looking for. In essence, young people in Nigeria are suffering from what the International Labour Organisation (ILO) calls underutilisation of the youth labour market. This is a situation where young people do not have access to education or skills to enable them gain meaningful employment.
Whilst the government has tried various programmes and initiatives to combat the youth employment crisis, these efforts are few and far between and their impacts have been insignificant.
The rate of underemployment is also high because many young people are forced to work in jobs they are overqualified for. Unlike in past decades, even a degree from an Ivy League university no longer guarantees a decent job in Nigeria. This is because the growth of traditional whitecollar jobs is not as strong as it used to be. Rather, we are seeing the emergence of new kinds of jobs and the growth of a new economy.
These new jobs have emerged due to the proliferation of information technology – which has led to the rise of automation – and the ubiquity of the internet and social media networks. For instance, whilst the postal service industry is declining, instant messaging – thanks to social media, and online communication – are growing at a very fast pace.
Over the last 20 years, a number of professions have declined, while some have completely become obsolete. For instance, video rental and video store jobs are obsolete. Elevator operators are in decline. According to a 2017 report from McKinsey & Company, by 2030, more than 800 million people will lose their jobs to automation.
At my son’s recent graduation from elementary school, the graduating pupils were asked about their choices of future professions. Many of them said they would like to be footballers, chefs, actors, musicians and ‘YouTubers.’ The kids’ preferences are informed by the rising popularities of soccer, cooking, the Nigerian film and music industries and YouTube celebrities. These are emerging industries that are poised to drive growth and create the jobs of the future.
From virtually zero contribution to the Gross Domestic Product (GDP) of Nigeria 20 years ago, the entertainment and media (E&M) sector has been contributing an average of 2% to the GDP over the last ten years. According to PwC’s Global entertainment and media outlook 2017-2021 report, Nigeria will be the world’s fastest growing entertainment and media industry over the five-year period, growing at a compound annual growth rate (CAGR) of 12.1%. The report further states that internet advertising generates more revenue than TV advertising globally. These
trends present massive opportunities for job creation and youth employment.
It is also interesting that many young people are beginning to look beyond governments and large corporations for jobs. Young people are either disillusioned as a result of increasingly fewer opportunities at these established institutions or they have decided to be entrepreneurial as the cost of starting a new business reduces. And with the help of emerging technologies, new industries are being created.
The fastest growing industries globally over the last five years include social games, mobile apps, online education and green technology. It’s not uncommon to see young people, fresh from school, opting to work in these emerging industries.
The downside, however, is that because these industries are nascent and untested, they tend to be unstructured and difficult to understand or fund by the formal financial services industry. But if these industries are going to be the new drivers of growth and jobs, then the financial institutions need to take them more seriously and find ways to support them.
Some banks are already making some strides in this regard by partnering with players in the new economy or setting up technology hubs to understand the business models. Some are organising business plan and startup pitch competitions.
The Central Bank of Nigeria and Bankers Committee have taken up the challenge by specifying guidelines for lending to the creative industry and stipulating concessionary interest rates for the industry. All these moves are commendable and should be scaled up and replicated in other emerging industries.
However, in order to create a dent in the unemployment figures and provide the greatest benefit to the creatives, regulators and financial institutions have important roles to play, some of which I have proposed below.
The government will need to:
1. Ensure the emerging industries are not overregulated, thereby stifling their growth. Nevertheless, effective regulation is important in setting standards and giving credibility to the industries and operators. By formalising the industries, there would be available data to help banks in engaging with the operators and managing risks.
The financial institutions will need to:
1. Understand the emerging industries: Financial institutions need to make efforts to understand the structure and dynamics of these industries. They should not look at them with the same lenses they look at traditional industries. Their efforts should include understanding the cash flows, business models and the peculiar risks of these emerging industries.
2. Update risk assessment methods: Financial institutions also need to update the training of their frontline officers and credit risk personnel. Whilst lending to any business follows a fundamental principle of matching the loan with the cycle of the business, financial institutions have gotten into the trap of treating every industry the same way. For instance, how do you ask a musician who wants to monetise his content online to provide you with a signed invoice from a supplier in order to confirm the transaction?
3. Hire subject-matter experts: Financial institutions should consider hiring experts in these emerging sectors. These experts will serve as the inhouse go-to persons to bridge the knowledge gap between financial institutions and the sectors. 4. Support formalisation: If possible, the financial institutions should hold regular sessions with the organised bodies of these new industries. Banks can also insist that a portion of their loans/investments must go towards installing an enterprise resource planning (ERP) system, hiring auditors, embedding a financial control system or other mechanisms that can help to reduce risks at the firms.
The operators, on their part, will need to:
1. Synergise and seek support: The operators need to work closely together under organised bodies to influence legislation and change the narratives about the perceived risks of investing in their industries. A better understanding of the industries will ensure that ecosystems are created to support their growth.
2. Set standards and codes of conduct: It’s very important for standards and guidelines to be set in nascent industries. Practitioners need to organise themselves in such ways that they don’t allow quacks to undermine the growth of the industries. 3. Professionalise. Industry practitioners need to understand that there is a difference between being technically savvy and owning a business. The mobile app developers, dance instructors, fitness coaches and the other emerging practitioners in the new economy need to think like businesses. This requires bringing in lawyers, accountants, consultants, etc, to help them structure their business, authenticate their models and put the right processes in place. These are some of the ways these businesses can attract capital and respect from financiers and other stakeholders.
The adoption of these strategies will ensure a win-win for everyone. Financial institutions will have new streams of income; operators in the new economy will have bridged the gap between their operations and financial institutions; and the government will have aided in the birth and growth of new industries that create jobs and tax revenue for the government.
How do you ask a musician who wants to monetise his content online to provide you with a signed invoice from a supplier in order to confirm the transaction?