African countries should should focus on job creation in the private sector by providing the right conditions for all businesses to grow and expand so as to effectively tackle youth unemployment.
The latest report on African Economic Outlook (2012) released on Monday says African governments need to step up efforts to support small private firms that generate employment.
The efforts include offering tax incentives and reducing regulatory bottlenecks to empower them to create jobs.
In addition, given the small size of the formal sector in many African countries, governments need to focus on the informal sector and rural areas.
These contain immense entrepreneurial talent that can serve as engines for inclusive growth since they can absorb higher numbers of unemployed youths, the report indicates
According to the report, while almost every African country is running Active Labour Market Programmes (ALMPs) to reduce unemployment and promote employment for young people, the track record of many programmes is poor and coverage is low.
For instance, the report found that among the 36 countries surveyed in the report, 21 said programmes implemented to tackle youth unemployment are dysfunctional and have low coverage.
“If you look at the constraints for small firms most of them (private firms) feel that there is too much regulation about formalisation and the processes of formalising such as registration of the company, paying taxes - all these are impediments - governments need to open up in terms of regulation and this will help firms.” Mthuli Ncube, the chief economist and vice-president of the African Development Bank (AfDB) told The East African during the ongoing Annual Meetings of the Bank in Arusha.
He added that more investment into infrastructure, particularly energy, is needed to help small firms to do business and grow.
“Promoting entrepreneurship is good because people can employ themselves and others in the process. Companies need to be given incentives for employing young people,” Ncube said.
Co-written by the AfDB, the Organisation for Economic Co-operation and Development(OECD), and the UN Development Programme (UNDP), the report says the public sector will not be able to absorb the tide of young job seekers because there is little prospect of an expansion in this area.
Yet, the report adds, the private formal sector is growing but from too small a base.
Existing firms in this sector, the primary source of jobs paying a living wage, must be supported to grow further and become competitive.
“Attention must be concentrated on the informal and rural sectors because these will overwhelmingly be the source of new employment.
"Governments must focus on removing obstacles to the many small informal firms, helping them to grow and create decent jobs,” the report says.
Between 2000 and 2008, despite the world – topping economic growth rates, and a better educated youth, Africa created only 16 million jobs for young people aged between 15 and 24.
Yet today, the youth represent 60 per cent of the continent’s unemployed, and of these 40 million youths, 22 million have given up on a finding a job.
“In many cases the people looking for a job are more than what we see in the statistics …unemployment is because the labour markets are too rigid or employers do not create new jobs to avoid the constraints that legislation imposes,” said Mario Pezzini, the director at the Organisation for Economic Co-operation and Development(OECD).
He added, “Figuring out better systems to guarantee credit for small firms will be helpful. Emphasis should be put to creating demand for the services offered by small firms,”
The African Economic Outlook report covers 53 of the continent’s 54 economies with a focus on macroeconomic issues and human development.
According to the report, Africa's economy should see a rebound in 2012 to 4.5 per cent up from 3.4 per cent registered last year, though growth prospects could be dampened by the economic crisis in Europe.