Labour market

Masses of young people, too few jobs

African economies must generate an additional 25 million decent jobs every year to employ all young people and transform the informal sectors. There is scope for economic progress, but no blueprint. Governance matters, especially because several global mega trends are adding to the challenges.
The informal sector remains huge: book seller in Nairobi. dem The informal sector remains huge: book seller in Nairobi.

The figures are stark. Tilman Altenburg of the Bonn-based German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) reckons that some 350 million Africans are toiling away in grim informal employment with no social protection and meagre incomes (see Hans Dembowski in the Monitor section of D+C/E+Z e-Paper 2019/11) Compounding the problems, an additional 13 million young people crowd onto African labour markets every year. Altenburg concludes that an annual 25 million new decent jobs are needed.

A demographic dividend of the kind that East and Southeast Asia’s emerging markets enjoyed in past decades would be good. As Altenburg elaborates, industrialisation there was facilitated by the mass availability of young workers who did not have to fend for many dependent family members, whether children or grandparents (see box Samir Abi in D+C/E+Z e-Paper, Focus section). The work in light manufacturing was certainly tough, but even though the wages were low, the incomes were unprecedented. Exports expanded fast and nations began to prosper.

The big question is whether such dynamism can be triggered in Africa. At a DIE-conference in Bonn in February, Altenburg pointed out that several mega trends must be considered. They can prove both helpful and harmful. Demographic change is one. African birth rates are falling slowly, but they are still comparatively high. Other important mega trends include urbanisation and changing patterns of world trade.

Experts currently see no single driver of economic growth that might prove as effective as the advent of light manufacturing in past decades in Asia. They agree that the scenario is bewilderingly complex (see box for insights from the UN Economic Commission for Africa).

Some scholars hope that Chinese manufacturers will shift production to low-wage countries as wages rise in the People’s Republic. However, the expectation of millions of jobs being created in Africa is probably exaggerated. That is what studies published by the DIE and the London-based Overseas Development Institute (ODI) respectively suggest. The researchers argue:

  • that Chinese companies tend to prefer to invest in Asian countries,
  • that rationalisation and digitalisation mean they actually need fewer workers and
  • that those Chinese companies that have strong foreign shareholders are the most likely to invest abroad, which implies that western investors are still particularly important for foreign direct investment (FDI) in Africa.

Lindsay Whitfield of Roskilde University in Denmark has studied international supply chains. She warns that it has become difficult to promote light manufacturing simply by setting up special economic zones. In spite of huge efforts, Ethiopia struggled to gain a foothold in global supply chains, Whitfield reports, because low wages are not enough to attract investors. Rather, it is essential to involve global retail brands early on. The reason is that international competition is fierce. Supply chains are now very sophisticated and tightly managed. In Whitfield’s eyes, Ethiopia is now seeing results of its light-manufacturing strategy, but the approach will not work in many countries.

Feeding urban populations

Another hope is that urbanisation drives inclusive development, with the demand of surging middle classes increasing fast. Growing cities need to be fed after all. Ousmane Badiane of the Washington-based International Food Policy Research Institute (IFPRI) sees a huge potential for creating gainful employment in the modernisation of rural-urban supply chains. Farm produce should be processed regionally, and the goods could then be distributed efficiently to retail customers (see essay he co-authored with Shenggen Fan in the Tribune section of D+C/E+Z e-Paper 2019/12). High-tech applications would prove useful moreover (see interview with Peter Njonjo in Focus section of D+C/E+Z e-Paper 2019/11).

There is certainly scope for urban demand to drive rural change, but Abebe Shimeles of the multilateral African Development Bank (AfDB) warns that things cannot be taken for granted. He says the continent’s new urban middle classes still tend to be “vulnerable or fleeting”. While many families plunge back into poverty, others newly rise to lower middle-class status. Inequality remains great, the scholar says.

Education can make a difference, Shimeles points out, but while individual returns tend to be high, social returns do not. Higher productivity should propel entire economies, but the economist does not see education making that happen. Neither skills training nor colleges have made a decisive difference yet.

Given that the private sector, on its own, is unlikely to generate employment as needed, Joachim von Braun of Bonn University proposes public works schemes. He insists that nations must provide work to their people. At the same time, there is a great need to build infrastructure. Public work schemes would thus serve a double purpose.

There is no obvious recipe for reaping in a demographic dividend. Policy choices will matter very much. Governments, for example, must identify which sector has competitive advantages and might therefore deserve targeted support. Unfortunately, there is reason to doubt that African leaders will be up to the task.

Stefan Dercon of Oxford University warns that neopatrimonialism still marks many states: policymakers use government resources to forge alliances with powerful interest groups, and those alliances then entrench the privileges of their members. According to Dercon, too few African countries have what it takes to define something like a “national growth bargain”. Nonetheless, he believes that some may succeed – including Kenya and Ethiopia in East Africa and Ghana and Senegal in West Africa. To do so, they need the kind of policy consensus that proved beneficial in Asian tiger nations. The preconditions, he says, are:

  • peace and political stability,
  • an affective state and
  • leaders and elites committed to growth.

Carlos Lopes of the African Union acknowledges that the complexity of the challenges exceeds the capacities of many governments concerned. At the same time, he expresses the hope that policy debate will improve leadership.

Lopes also points out, moreover, that Africa’s population peak may actually come sooner than currently expected. In his eyes, the reduction of both maternal and child mortality are promising. The societal ageing of nations on other continents, moreover, could make Africa’s youthfulness, which now looks like a time bomb, actually become something like a global public good.

Hans Dembowski is editor in chief of D+C/E+Z.

Related Articles