Addressing low productivity amid growing GDP
WITH an economy that stands at $ 394.94 billion, ranks 39th in the world with a growth projection of 3.1 per cent, less than 10 per cent contribution from productivity level is certainly abysmal.
It is believed that despite having the largest economy and population in Africa, Nigeria offers limited opportunities to most of its citizens, which the low productivity level seems to mirror.
In Nigeria, factors impeding high productivity in Nigeria include infrastructure deficit, unemployment, under- employment, constant industrial actions, brain drain, corruption, and poor attitude of workers to work.
In a report, ‘ Total Factor Productivity ( TFP) in Nigeria ( 1991 – 2020)’ by the National Productivity Centre ( NPC), it was found that during the 30 years that the report covers, there was negative TFP growth except in the second decade ( 2001 to 2010) where index grew by 1.9 per cent and contributed 23.78 per cent of the GDP growth of 7.97 per cent recorded in during the period.
Worryingly, there was negative TFP growth except in the second decade ( that is, 2001 - 2010) where TFP grew by 1.9 per cent and contributed 23.78 per cent of the GDP growth of 7.97 per cent recorded during the period. According to the report, TFP contribution compensated for the decrease in the contribution of labour and capital inputs. Therefore, for this decade ( 1991 to 2000), the main source of economic growth came from both capital accumulation and the contribution of TFP.
It noted: “In the first ( 1991- 2000) and third decades ( 2011- 2020), TFP declined by - 0.88 per cent and declined even further by - 1.88 per cent respectively, thus dragging the GDP growths of 1.94 per cent and 2.67 per cent by - 53.65 per cent and - 69.33 per cent respectively. The two decades were marked by technical inefficiency in the production of goods and services as the only factor accumulation – the addition of labour and/ or capital drove the GDP growth recorded during these two decades ( 19991 – 2000 and 2011 – 2020).”
Labour productivity is estimated as a ratio of real GDP per worker. From the growth accounting method, labour productivity can be estimated as equivalent to the sum of TFP Growth ( TFPG) and weighted capital deepening growth, that is, Labour Productivity Growth ( LPG) can be decomposed into TFPG and capital deepening growth.
The growth accounting table of the report shows that Nigeria’s economic growth over the last 30 years – 1991 to 2020 – was largely driven by factor accumulation.
It said: “Capital and labour accumulation contributed 100 per cent to growth, while productivity contributed - 6.79 per cent over the same period. This implies that there was a high level of inefficiency in the utilisation of labour and capital in the production of goods and services in Nigeria during the period. Decomposing the annual average GDP growth rate of 4.09 per cent for 1991 – 2020 showed that 2.25 per cent was attributed to employment, 2.13 per cent attributed to increase in capital stock and 0.28 per cent to TFP. In other words, 54.87 per cent of the growth rate was due to an increase in capital stock, 51.92 per cent to an increase in labour and - 6.79 per cent to productivity improvement. The TFP growth rate fluctuated, albeit negatively over the three decades making only reasonable contributions of 32.78 per cent between 2001 and 2010.”
Explaining capital deepening as an increase in the proportion of the capital stock to the number of labour hours worked, the report highlighted that the growth in labour productivity in Nigeria had a capital deepening effect that can be regarded as the major driver of labour productivity growth within the period 1991- 2020.
It added: “In the first decade ( i. e., 1991 - 2000) labour productivity declined by - 0.72 per cent due to very poor levels of productivity. However, TFPG contributed significantly to labour productivity growth in the second decade ( 2001 - 2010), with a contribution share of 35.62 per cent.
“In the same decade, it can also be seen that capital deepening accounted for 3.43 per cent of the labour productivity growth of 5.32 per cent recorded, hence a contribution share of 64.38 per cent. Labour productivity growth declined from 5.32 per cent in the second decade to 1.10 per cent in the third ( i. e., 2011- 2020) due largely to high- level inefficiency and low productivity.”
The report also stressed that the growth for the decade was fully driven by capital deepening which accounted for all the growth in labour productivity.
It went further to find that TFP declined 17 times, while capital deepening and labour productivity both declined 11 times each compared to output experienced negative growth five times.
It said this scenario implies that the country has not been able to sustain productivity growth which, more than any other variable, has experienced the greatest volatility in its growth rate.
The report painted a gloomy picture of how productivity progressively declined within five years.
“The total factor productivity also varied from a height of 26.13 per cent in 2000 to - 36.58 per cent in 2005 while the variability in capital deepening was equally high, from a peak growth of 40.29 per cent in 2000 to a descent of - 23.81 per cent in 2005,” it stated. It also finds that the Nigerian economy during the 30- year study period experienced technical inefficiency (- 2.45 per cent) and low level of productivity (- 0.28 per cent) even though a mean output growth of 4.09 per cent and labour productivity growth of 1.83 per cent was recorded adding that the sluggish growth of labour productivity was buoyed by 2.18 per cent capital deepening. On a decadal growth rate basis, the average output growth was at a rate of 1.64 per cent while labour productivity declined to an average of - 0.93 per cent, and total factor productivity and technical change declined by - 0.88 per cent and - 1.03 per cent respectively.
It may be noted that the real GDP decadal mean growth improved over the years as it was only 1.64 per cent during the 1991- 2000 decade, whereas it increased to 7.97 per cent in the 2001- 10 decade. During the same period, labour productivity, total factor productivity and capital inputs increased at the rate of mean decadal growth of about 5.32 per cent, 1.9 per cent and 3.43 per cent respectively.
Furthermore, there was an increase in technical inefficiency from - 1.53 per cent in the previous decade to - 4.8 per cent in the 2011 - 2020 decade. In the same decade, labour productivity grew by a mean rate of 1.1 per cent and total factor productivity regressed by a mean rate of - 1.85 per cent. Reacting to the abysmal level of productivity in the country, the Director General of the National Productivity Centre, Dr Nasir RajiMustapha, bemoaned the steady decline of productivity within the Nigerian economic space amid GDP growth.
On steps that must be taken to boost national productivity, Raji- Mustapha urged stakeholders to embrace green productivity. Delivering a paper on ‘ green productivity and its implications’ Raji- Mustapha, explained that green productivity is a strategy aimed at enhancing productivity and environmental performance that simultaneously leads to sustained improvement in the quality of life.