The chart that shows the real sector is suffering
The Index of Industrial Production (IIP) is a global measure of productivity in an economy. It measures the changes in activity level in the different industries in the economy. Globally, it is used to capture the economic activity level in three industries namely: electricity, manufacturing and mining. Generally, significant positive growth in the index is good while a negative change is considered a bad signal.
The IIP is measured on a quarterly basis in Nigeria, and its data that should be watched closely due to its significance to the economy. The electricity, mining and manufacturing sectors are all key to employment generation and wealth creation in Nigeria. The electricity sector powers the economy and can boost the other sectors if productivity level is high. The mining sector still remains Nigeria’s main source of foreign exchange and provides the money that the government spends. Manufacturing is a source of jobs and products. The greater the economic activity in the manufacturing sector, the higher the likelihood of more jobs and wealth being created. The IIP thus captures productivity in these three key sectors as a proxy for what is happening to the economy.
For example, looking at the IIP figures for Nigeria from January 2008 to December 2012 provides some insights into how the Nigerian economy has performed within the period. The data is available in the Central Bank of Nigeria statistical bulletin for 2012 and shows that the three sectors have not recorded much significant growth within the period. Year-on-year growth rate for the IIP in the three sectors was largely unimpressive.
As can be seen from the chart below, the growth in the three sectors are almost similar. However, there is a clearly higher level of inconsistency in the growth rate of the electricity sector from one quarter to another, perhaps a reflection of the inconsistent productivity in the sector.
The chart also shows a higher correlation between manufacturing and the electricity sector than between the mining and the electricity. This is largely a reflection of the fact that manufacturing activities primarily rely on the electricity sector to sustain and improve productivity.
Growth rate from the three sectors also flatten out in 2012 as can be seen from the chart. The IIP data for the electricity actually remained almost unchanged in the last three quarters of 2012. This simply means that electricity did not improve in that period. The same situation is seen in the data for the manufacturing and mining sectors, though they were marginally better.
This seems to suggest that 2012 was not a particularly great year for the real sector. What this will mean on the street is lower productivity and higher level of unemployment for many Nigerians. Already, the National Bureau of Statistics (NBS) put the official unemployment figures at 23.9 per cent as at 2011. Based on the flat productivity level in the most of 2012, the official unemployment figures may at best remain the same or may have actually got worse.
The government should actually be very concerned about the slow growth in these key sectors. The slow growth in these sectors is obscured by the fast growing agricultural sector, which has sustained a high jobless economic growth. This tends to cover up the fact that these key sectors are lagging. In the long run, it is growth in the industrial sector that will have the most impact on quality job and wealth creation in the Nigerian economy.
Interestingly, the challenges faced by these sectors are obvious. The mining sector is being dragged down by an unclear policy direction. This has led to a slowdown in new investments in the sector while insecurity and theft are putting pressure on existing economic activity in the sector. The manufacturing sector growth is mainly hindered by the poor productivity in the electricity sector while the electricity sector is held down by a slow reform process that sometimes seems not to be heading in any particular direction.
As noted in last week’s article on this page, the share of the electricity sector’s contribution to GDP has dropped from 3.28 per cent in 2008 to 2.88 per cent at the end of 2012. Yet, the economy has seen growth in high single digits within the same period. This is an indication that it is the primitive side of the economy that has been growing within the period.
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Editor, BusinessDay Research Unit
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