Advanced Statistics

Assignment 1

Use of Statistics to find the Influence

of the Deregulated Tele-
communication Sector on Urban
Employment Generation in Nigeria.

Submitted By:
Pulkit Sinha
MBA(tech) Telecomm
423
IVth year
 EXECUTIVE SUMMARY
The study examined employment generation through the deregulated telecommunication sector.
The study which was conducted in Lagos metropolis among other things considered the socio-
economic characteristic of GSM operators, the profitability and efficiency of GSM operations and the
influence of some selected macro economic variables on income generated from the business. Data
was sourced from both secondary and primary sources. Information was elicited from 80
respondents randomly selected from Mushin and Oshodi – Isolo within Lagos. The data collected
was analysed with the aid of descriptive statistics, Gross margin and Net return analysis and multiple
regression analysis. Findings show that majority of operators were educated youth with a mean age
of about 29 years. Moreover, about 71.3% of total respondents were jobless before the inception of
the GSM business. This shows that deregulation has actually reduced youth unemployment in the
study area. Study also showed that GSM operation was profitable both in the short and long runs in
the study area with N73,452, N36,627 and N86,105 as the mean gross margin, net returns and
income respectively. However, the return to scale analysis shows that operation is still in stage I of
the production surface. Nevertheless the factor inputs except education were efficiently allocated.
The regression analysis shows that year of experience, cost of operation, amount of loans obtained
and manday are significant factors in the GSM business. The study recommends an expansion in the
scale of operation by the operators and greater access to credit and greater encouragement to
uneducated unemployed youth by the government. The government should also persuade service
providers to improve in their services and to also reduce service costs for operators.

INTRODUCTION
In recent times, the opportunity to earn a living has turned out to be quite elusive to a growing
number of people in the Less Developed Countries (LDC). Unfortunately this seems to be mostly
prominent in urban areas in Nigeria. Several years back, unemployment was rarely anything to be
reckoned with in traditional Nigeria where tending of crops, herding of goats, fishing, among others
were major occupation/obligations. According a report by ILO[4], the problems then were wars,
cattle raids, famine, diseases and poverty.

However, the tide turned the negative direction as far back as the early 1980s when many countries
of the world were hit by economic recession. Since then, unemployment has assumed alarming and
disturbing diamensions in Nigeria with millions of able bodied persons who are willing to accept jobs
at the prevailing rates yet unable to find one[6]. The most disturbing part of the nature of
unemployment in Nigeria is that it is very high among young school leavers and graduates from
Universities, Polytechnics and Colleges of Education. This amounts to colossal wastage of
economically active proportion of the Nation’s labour force. The negative effects of unemployment
on the Nigerian cannot be over emphasized. It results in nonutilisation of resources leading to low
productivity. It is also a major cause of rural-urban drift which has led to congestion problems in the
urban centres with its attendant problems such as urban unemployment, destitution and high rate
of criminal activities like armed robbery, ritual murders, increased rate of child abandoning and
advanced fee fraud. Moreover, unemployment generates unbalanced mental state, which often
results into frustration, suicides, alcoholism, drug abuse, thuggery and the likes.
In the light of the above, the Nigerian governments have made several attempts to solve this social
menace. An example is the National Directorate of Employment with its various components which
include National Youth Employment and Vocational Skill Development Programmes, Small-Scale
Industries and Graduate Employment Programme, the agricultural sector employment programme
and the special public works. Others include the Agricultural Development Programme (ADP) and
the Accelerated Development Area (ADA), River Basin Development Authorities and National
Economic Empowerment and Development Strategy (NEEDs). Despite these efforts, the problem of
unemployment has remained largely unabated. However, some levels of respite came with the
deregulation of the Telecommunication sector. As a matter of fact, the introduction of the Global
System of Mobile Communication (GSM) completely changed the tempo of the Nigerian business
environment in that many employment outlets for small and medium enterprises were created. This
study is designed to examine the influence of the GSM business on unemployment, the profitability
of the GSM business and the influence of respondents’ selected socioeconomic variables on the GSM
business.

Literature Review
Unemployment has been described as one of the most widely feared concept in micro economics.
This is because it has persistently defiled almost all public policies to stem its increase in most
countries. Different authors have attempted the definition of unemployment. Everyman Dictionary
of Economics defined it as the involuntary idleness of a person willing to work at the prevailing wage
rate but unable to find it. In the same vein, the International Labour Organisation (ILO), defined the
unemployed workers as those who are currently not working but are willing and able to work for
pay, currently available to work and have actively searched for work. The Eurostat on the other hand
defined the unemployed as those persons between age 15-74 years who are not working, have
looked for work in the last four weeks, and ready to start work within two weeks, which conform to
ILO standards. According to Paul Samuelson , the [8] unemployed are those without jobs looking for
work. Summarily, unemployment is a situation in which people who are willing and able to work but
can not find any gainful employment. One noticeable fact about these definitions is that
unemployment only relates to those within the labour force. Others such as involuntary retirees who
are still strong and the physically challenged are not considered. Unemployment could be of various
types depending on the causes. According to Edmond Malinvaud[5] the type of unemployment
depends on the situation at the goods market. If the goods market is a buyers market i.e. sales
restricted by demand, then Keynesian unemployment occurs. On the other hand, if sales is limited
by supply, then classical unemployment occurs. Given this background, the following types of
unemployment exists:

Frictional Unemployment: This occurs when a worker moves from one job to another while he
searches for job, he is experiencing fractional unemployment. Frictional unemployment occurs
because of lack of information on where jobs are available.

Classical Unemployment: This occurs when real wages for a job are set above the market level. This
may be as a result of government intervention in form of minimum wages or labour unions’ agitation
for increases in wages. It may be due to social taboos that prevent wages from falling to the market
clearing level.
Structural Unemployment: Structural unemployment is caused by mismatch between jobs offered
and potential workers. This could be caused by reasons such as geographical location, skills, and
technological advancement.

Cyclical or Keynesian Unemployment: This is a type of unemployment caused by deficiency in

demand. It is caused by a business cycle recession.

Seasonal Unemployment: This is a type of unemployment that occurs when a skill or occupation is
not in demand at certain seasons.

In most Less Developed Countries, the high rate of unemployment has been the result of structural
imbalance which makes it difficult to match the demand for employment with supply especially in
the urban modern sector. In Nigeria, the problem of high urban unemployment dated back to the
1960s when urban unemployment ranged between 10-18 percent. According to FOS records, the
early 1970s witnessed urban unemployment rate of 0.4% and 19.3% for Sokoto and Lagos
metropolis while it ranged between 10-13 percent for cities such as Ibadan, Benin, Enugu, Port-
Harcourt and Calabar. However, by the turn of the 80s, there was an upsurge in the rate of
unemployment especially among young school leaves who out of the quest for white collar job
thronged the urban cities. Presently Nigeria is witnessing graduate and youth unemployment.
According to Adebayo[1], this covers what can be referred to as school leavers unemployment
(among people with primary and secondary education) and educated unemployment which is found
among graduates of tertiary institutions. This high unemployment among youth is a terrible threat to
sustainable development.

According to Adebayo[1], unemployment could be caused by factors that are related to supply or
demand in the labour market. The supply factors include growth in urban labour force arising from
rural-urban migration, rapid population growth rate, inadequate school curriculum and lack of
employable skills. On the demand side, the most important factor is the low level of aggregate
demand arising from low income, low investment, and low productivity. Since the demand for labour
is a derived demand, a decrease in the demand for the goods and services produced by labour will
definitely result into unemployment. Anyawu [2], Englama[3] and Otaki[7] identified the structural
adjustment programme, negative International Trade Policies, misguided monetary and fiscal
policies and faulty plans of the government as the crucial factors behind unemployment in Nigeria.

Research Methodology
i. The Study Area: The city of Lagos includes the Federal Territory of Lagos (Lagos, Island, Ikoyi,
Victoria Island, Ebute Meta, Yaba, Surulere and Apapa) and part of the former Western region
(Somolu, Ikeja, Ilupeju, Mushin and Agege). The city lies on low land, with about 17,500 hectares of
built-up area. The environment is characterized with coastal wetlands, Sandy barrier Islands,
beaches, low lying tidal flats and estuaries. The average temperature in Lagos is about 270C with an
average annual rainfall of 1532mm.The city of Lagos takes about 37% of the total land area of Lagos
State and houses about 90% of its population (UNICEF 1995). Lagos, though no more the Federal
capital, is the centre of Nigerian industrial, commercial and financial activities. According to United
Nations’ report in 1995, Lagos house, 60%, 90% and 80% of the nation’s industrial and commercial
establishments, foreign trade and imports respectively. The major occupation of the people includes
fishing and farming. The secondary occupation includes transport services, petit trading and
handicraft.

ii. Data Collection: Data for the study was derived from both primary and secondary sources.
Primary data was obtained with the aid of well structured questionnaires administered on operators
of GSM business. Secondary data was obtained from learned journals, textbooks, Central Bank
Publications and the internet. Data collected were ages of operators measured in years, income
measured in naira, educational status measured by the number of years spent in schools and years
of experience among others. Multi-stage sampling method was employed in selecting 80 operators
of GSM business. Out of the 20 local government areas, two were selected i.e. Oshodi- Isolo, and
Mushin Local Government Area. Furthermore, four towns namely Isolo, Mafoluku, Olosha and Palm
Avenue were randomly selected from the study area. Twenty respondents were selected from each
town.

iii. Method of Data Analysis: Descriptive and quantitative methods were used to analyse the data
collected. The descriptive method includes the use of frequency tables, percentages, means and
mode. The quantitative methods used were Gross margin and Net Returns analysis and multiple
regression analysis to evaluate the influence of respondents’ socio-economic variables on GSM
business. The t-statistic, standard error and standard deviation were used to ascertain the statistical
significance of the variables in the specified model.

iv. Model Specification: a.Gross Margin and Net

Returns Analysis

GM = TR = TVC (1)

NR = TR – TC (2)

Where GM = Gross Margin

NR = Net Returns

TR = Total Revenue

TC = Total Cost

TVC = Total Variable Cost

Where Xi ……… X6 are age, level of education, years of experience, cost of establishment, amount of
loans obtained, and manday.

are parameters to be estimated.

U = error term.
 RESULTS AND DISCUSSIONS
a. Socio-economic characteristics of Respondents:

i. Age: Results presented in Table 1 shows that 38.6%of total respondents was within age bracket
25-29 years. Study shows that most operators of GSM business in the study area are youth below
age 40 years which is about 93.6%. The mean age was about 29 years. This is an indication that the
introduction of GSM business has in no small way helped to reduce urban youth unemployment.
This could further be buttressed by the occupational distribution shown in table 2 …… where about
71% of total respondents had no job before the introduction of GSM business.

ii. Educational Status: Results show in table 3 that 75% of total respondents had more than
secondary school education. This shows that the level of literacy among operators in the study area
is very high. This could afford efficient management of the business, all things being equal.

iii. Area of GSM Operation: The various areas of GSM business in the study areas are phone calls
only, sale of GSM accessories and phone repairs. Findings show that 41.3% of total respondents
were engaged in phone calls only while 41.3% combined phone calls and the sale of phone
accessories. On the other hand, 8.7% engaged in only phone repairs while 8.7% combined phone
calls, sale of accessories and phone repairs (Table 4).

iv. Sources of Loans: The major source of finance was personal savings i.e. self finance as reported
by 28.8% of total respondents. However, 23.8 had access to microcredit while 17.4%, 20% and 10%
sourced their finance from cooperative societies, friends and relatives and formal financial
institution respectively. This implies that 90% of total respondents sourced for finance outside the
formal financial markets (Table 5).

b. Profitability Analysis: Table 6 shows that GSM business was profitable both in the short and long
runs in the study area. The mean gross margin and mean net returns were N73,452 and N36, 627 per
month respectively, since the figures are positive, GSM business could therefore be adjudged to be
profitable in the study areas, all things being equal.

c. Results and Interpretation of Regression Analysis: The descriptive statistics are presented in
Table 7. Results showed a mean income of N86, 105 showing that GSM operation is profitable. The
mean education years of 14 years within the four walls of school shows that majority obtained
tertiary education. On the average, setting up the business will cost N21,733 while the operator
works for an average of 10 hours per day.

ii. Regression Analysis: Table 8 shows the results of the linearised multiple regression. Results show
that all explanatory variables except educational status positively influenced income generated from
GSM business. The negative sign borne by level of education violates ‘a priori’ expectation in that
education is expected to improve efficiency of labour. However, the negative sign may be due to the
fact that the operation of GSM business does not require any special education. The computed t-
statistic (Table 9) shows that years of experience, cost of operation, amount of loan obtained and
man-day had statistical influence on the income generated by GSM operators. The R2 of 0.65
showed that 65% of total variations in income could be explained by the variations in the
explanatory variables. The F* of 22.67 showed that the independent variables have the ability to
explain the variations in the dependent variable. The computed D.W. Statistics shows the absence
of auto correlation.

iii. Elasticities and Return to Scale (RTS): Table 10 shows the elasticities of the variables and the
return to scale. Findings show that the explanatory variables except education exhibit decreasing
positive returns to scale since their values are less then one and are positive. Hence the GSM
business is in stage II of the production function and the inputs are efficiently allocated.

The computed RTS of 2.70 (Table 10) shows that the GSM business exhibits increasing returns to
scale i.e. it is in stage I of production surface. The implication is that the GSM operators can make
use of economies of large scale to raise the scale of operation i.e. more human and non-human
resources can be employed to raise the scale of operation.

d. General perception of GSM business in the study

area: The GSM business was generally perceived as a principal contributory factor in reducing urban
unemployment in the study area. However, the business is not without some limiting factor as
outlined by the respondents. The major problems are as follows:

i. Poor and epileptic service delivery by GSM service providers

ii. High cost of call tariff

iii. Inaccessibility to micro finance

iv. Inadequate orientation about the business.

The respondents were of the opinion that improvement in service delivery, easy accessibility to
finance and reduction in cost tariff among other things will increase profitability and efficiency of the
GSM service.

Summary, Recommendation and Conclusion

The study examined employment generation through the deregulated tele-communication sector.
The study considered some socio-economic variables of respondents, profitability of GSM business
and the influence of some selected socio-economic variables in income generated from GSM
business. Data used for the study was collected from both primary and secondary sources. The study
made use of well structured questionnaire administered to 80 respondents randomly selected from
four towns in Lagos metropolis. The data collected was analysed with aid of descriptive and
quantitative methods. The descriptive methods used included frequency distribution, percentages,
means and mode while the quantitative methods included the gross margin and net returns analysis
and the production function analysis.

Results showed that GSM operators were majorly educated youth with a mean age of about 29
years. The business was dominated by male operators accounting for 56.25% of total respondents. It
was also revealed that 71.3% of total respondents had no job before the introduction of the GSM
business. This shows that the deregulation of the telecommunication sector has indeed reduced
urban unemployment among the youth in the study area. The profitability analysis showed that GSM
business was profitable both in the short and long runs with a gross margin of N73,452, net returns
of N36,627 and a mean income of N86,105. Findings also showed that the business was majorly self
finance. Moreover, the regression analysis showed that years of experience, cost of operation,
amount of loan obtained and manday had significant statistical influence on the operation of GSM
business. However, contrary to ‘a priori’ expectation, education was negatively related to income
from GSM business. The Return to Scale (RTS) of 2.70 shows that GSM business is experiencing
increasing return to scale indicating that resources are inefficiently allocated. Hence, the scale of
operation should be increased as there are greater opportunities to increase the level of
profitability. The general perception is that the GSM business has increased employment
opportunities in the study area. In the light of the above, the government should encourage greater
participation of educated but jobless youth in the GSM business by giving them greater access to
micro credit facilities, encourage service providers to reduce call cost and also improve their network
services.

Tables