The Continent’s Employment Conundrum
Delving into the African Development Bank’s African Economic Outlook 2019 report and its analysis on the region’s rapidly growing labour force
Much has been said about the booming prospects of the Africa. From the buoyant GDP growth rates of Ethiopia, Ivory Coast, Rwanda and Senegal, all set surpass seven percent this year, to the continent’s thriving mobile economy that is eluded to in the previous article, there is great anticipation surrounding the region’s ascending trajectory.
Accompanying such swathes of development and prosperity, however, will be an unprecedented population boom.
According to the UN, the continent will become the home of 2.4 billion by 2050, up from the estimated 1.3 billion that currently live there. Meanwhile, between now and 2100, more than half of the world’s population growth is expected to come from Africa, its total populous forecast to rise to 4.1 billion and represent over a third of the world’s entire inhabitants.
As you might expect, this will be accompanied by a series of challenges related to employment – challenges highlighted in the African Economic Outlook 2019 report, published by the African Development Bank.
According to this analysis, Africa’s labour force will be nearly 40 percent larger by 2030. Yet, if current trends continue, only half of these new workers will be able to find employment, while the vast majority of those who are successful will likely only find jobs in the informal sector.
Looking at the figures, this could be close to 100 million young people without jobs.
Facing the problem
Against this backdrop, where the working again population is projected to increase from 705 million (as recorded in 2018) to one billion by 2030, increasing pressure will be placed on generating sustainable employment opportunities.
“A one percent increase in GDP growth between 2000 and 2014 was associated with only 0.41 percent growth in employment, meaning that employment was expanding at a rate of less than 1.8 percent a year, or far below the nearly three percent annual growth in the labour force,” the report reveals.
Informal employment is a major hurdle that needs to be overcome in order to tackle this.
Africa has the highest rate of informality in the world, a segment that is renowned for lower wages and living standards. It is no coincidence that 82 percent of African workers are considered poor, compared to the global average of 39 percent, with informality as high as 90 percent in some countries.
According to the African Development Bank, certain sectors will be crucial in changing the existing employment structure, ensuring it becomes more sustainable in the long term. Manufacturing is one such sector, described as an industry that exhibits unconditional labour productivity convergence, standing as a powerful driver of aggregate income convergence.
“Manufacturing-driven growth acceleration episodes increased total employment growth considerably and had stronger effects on employment elasticities, boosting employment elasticity by about 0.017 percentage point (or by three percent) – three times higher than effects of services-driven episodes,” the report continues.
“Moreover, manufacturing-driven growth acceleration episodes have larger cross-sector effects – 0.034 percentage point higher growth elasticities of employment for manufacturing, 0.038 for services, 0.022 for agriculture, and 0.053 for mining.”
Such episodes therefore generate positive structural change in regard to employment across Africa. In turn, this points to industrialisation as key to solving the continent’s employment conundrum, owed to its ability to create reliable, sustainable jobs at scale, stimulate innovation and enhance productivity and quality.
Looking for the solution
There is another layer of challenges in achieving industrialisation acceleration, however, due to the lack of sizable firms capable of motivating such change.
The African business landscape is currently dominated by small businesses and a shortage of medium and large companies, and many of these smaller companies are more concerned with survival and growth rather than investing heavily in operational transformation.
“More than 40 percent of African firms have fewer than 10 employees and 60 percent have fewer than 20,” the report shows. “Currently, 55 percent of firms are small, 30 percent are medium, and 15 percent are large.”
This structure points to a lack of firm dynamism in Africa, with the dominance of small firms driving down aggregate productivity, preventing companies from creating enough high-quality jobs for the growing labour force.
“More needs to be done to encourage large companies to set up businesses in Africa and to help small firms grow by removing constraints such as poor infrastructure, political instability, and corruption,” the report reads.
“Identifying and building the necessary clusters at the right scale also might help firm growth. This implies a concerted industrialisation effort that builds on countries’ comparative advantage in Africa’s manufacturing sector.”
In the eyes of the African Development Bank, the aforementioned should be a top priority for policymakers in addressing and dealing with the rapid growth of Africa’s labour force.
It adds: “While striving to exit the informality trap, countries need to protect vulnerable workers without making the labour market too rigid. Incentives should encourage informal firms to formalise. And structural transformation needs to be advanced through steady and rapid industrialisation that moves labour from low- to high-productivity sectors and ultimately creates more high-quality jobs.”
Seven key takeaways
Listed below are some key messages from the ‘Jobs, Growth and Firm Dynamism’ section in the African Development Bank’s African Economic Outlook 2019 report:
- Africa’s labour force is projected to be nearly 40 percent larger by 2030.
- The rapid growth achieved in Africa in the past two decades has not been pro-employment.
- African economies have prematurely deindustrialised as the reallocation of labour has tilted toward services, limiting the growth potential of the manufacturing sector.
- Key factors impeding industrialisation, particularly manufacturing growth, are limited firm dynamism.
- Estimates from Enterprise Surveys show that between 1.3 and three million jobs are lost every year due to administrative hurdles, corruption, inadequate infrastructure, poor tax administration, and other red tape.
- Small and medium firms have had very little chance of growing into large firms.
- Reviving Africa’s industrialisation requires a commitment to improve the climate that supports firm growth.