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Africa’s challenge: Creating jobs for a growing working-age group while improving incomes of the employed

Friday July 11 2014
Africa jobs

Identifying the key drivers of inclusive growth that are critical to alleviating Africa’s twin jobs challenge: creating jobs for a rapidly growing working-age population in the future, and improving the incomes of the currently employed population. TEA Graphic

The global jobs challenge is disproportionately an African one.

United Nations demographic projections for 2015-2030 show that at a regional level, Africa will be a significant driver of future global population growth, and, as a consequence, the working-age population.

Therefore, it is critical that we take heed of such projections and fully understand both the challenges and opportunities of Africa’s pending demographic dividend.

Aside from the fast growing working-age population, Africa’s jobs challenge is complicated by its current labour market landscape: The working poor — defined as those earning less than $2 a day — constitute almost two-thirds of the total employed. (The total employed is made up of individuals involved in wage employment or self-employment.)

Therefore, the need to pursue a growth and development path that is sufficiently job creating, while also reducing the number of working poor in Africa, remains central to the pursuit of prosperity on the continent.

ALSO READ: Africa’s impressive growth is not creating jobs; we need to industrialise

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The International Labour Organisation’s population growth rate projections for the next 15 years make it clear that the working-age population — those aged 15-64 — is projected to contract in Europe and grow in single digits for North America.

Thus, the growth of the global workforce will be driven by Asia, Latin America and Africa. Of those regions, sub-Saharan Africa is predicted to have the fastest growth.

This trajectory translates into a working-age population of 793 million people in 2030 — a 70 per cent rise from the current 466 million. To get there, the region will add 15.6 million people on average per year through 2020, then 17.2 million per year through 2025, and, finally, 19 million per year through 2030. 

Of the three billion people in the global labour force, only half are in wage employment — loosely defined as employment in which you earn a wage, either formal (officially recognised contract) or informal (oral/implicit contract).

Agriculture

In sub-Saharan Africa, 74 per cent of the 297 million employed individuals are self-employed. This means that the incomes of most of the employed in sub-Saharan Africa are directly dependent on the profits of their enterprise, which are typically more variable than income from wage employment.

Also unique to the region is that, on average, 56 per cent of the labour force work in agriculture, compared with 25 per cent of the labour force in non-Organisation for Economic Co-operation and Development (OECD) countries. This means that 77 per cent of the self-employed in sub-Saharan Africa work in agriculture, compared with the corresponding figure of 55 per cent for other non-OECD countries.

This fact emphasises the importance of the agricultural sector in the region — and, relatedly, rural livelihood strategies and rural labour markets — when attempting to uncover the complexities of job creation and poverty reduction in most of the developing world.

A segmented understanding of an African developing economy labour market necessarily needs to account for informal work, but more particularly, informal agricultural work and associated labour dynamics.

Since labour in the region primarily involves activities related to working on land in rural areas (typically low-earning work), employment in the current context (self-employed agricultural work with associated inadequate earnings) will not be sufficient to reduce poverty in the future.

For the millions of young people entering the labour force in the next 15 years, the generation of “better quality jobs” (including enhancing agricultural productivity) represents a growth path that is more poverty reducing (in the absence of other redistributive measures such as social transfers).

Data from the ILO shows that the number of working poor in sub-Saharan Africa not only constitutes almost two-thirds of the total employed, but is also approximately eight times the number of unemployed in the region.

Furthermore, strongly linked to the indicator of working poverty is that of vulnerable employment — defined as the sum of own-account workers (those who are self-employed and do not employ workers of their own on a continuous basis) and unpaid family workers.

The vulnerable employment indicator provides insights into overall employment quality, as a high value indicates extensive informal work arrangements, often characterised by low earnings and difficult working conditions.

The region has had a consistently high rate of vulnerable employment over the past decade, ranging between 77 and 81 per cent. Thus, while the proportion of the working poor has gradually declined since 2000, the fundamental jobs challenge in the region remains the problem of the working poor.

This trend highlights the further challenge of not only creating jobs, but improving the quality of jobs and self-employed agricultural work.

Ultimately then, Africa faces the twin challenge of maximising the pending opportunity of a demographic dividend while simultaneously reducing the number of working poor. The opportunity is that of a new mass consumer market for goods and services on the continent — so heavily touted by the global corporate sector.

The challenge, though, is to improve the purchasing power of this new consumer market by pursuing a growth and development plan that is sufficiently job creating and income improving.

Over the past decade, the region’s high growth performance has not always resulted in similar achievements in poverty reduction, highlighting the low growth-poverty elasticities across the region.

Arguably, the two main drivers of poverty are unemployment and low earnings. So the important task is thus to identify the key drivers of inclusive growth that are critical to alleviating Africa’s twin jobs challenge: creating jobs for a rapidly growing working-age population in the future, and improving the incomes of the currently employed population.

Policies in pursuit of inclusive growth could range from more optimal industrial strategy to productivity-enhancing measures in agriculture, but they should be underpinned by fundamental measures.

These include, first, the adequate supply of skilled and well-trained workers, which requires an acute understanding of the skills needed to promote high-growth sectors and thereafter working to develop these capabilities.

Second, investment in infrastructure is critical and remains one of the most significant traps for Africa’s sustained economic growth: From transport networks to basic utilities, infrastructure remains of poor quality, under-supplied and relatively more costly than in other developing economies.

Third, the building of effective, transparent and accountable institutions is important to ensuring a stable macroeconomic environment and good management of public funds — of particular importance in resource-dependent economies — which are key elements of a successful economy.

Finally, it is unlikely that government budgets along with official development assistance are sufficient to close the infrastructure gap at a rapid enough pace, or even make the required investments in the education system.

Therefore, developing the ability to effectively harness foreign private capital provides access to an important source of funds for development projects.

Continued engagement with an international network of NGOs, governments, private sector actors and civil society groups provides a valuable source of knowledge and experience for African leaders to draw on to pursue these types of inclusive growth policies.

By Haroon Bhorat and Karmen Naidoo. Mr Bhorat is non-resident senior fellow, global economy and development, Africa Growth Initiative, while Karmen Naidoo is a researcher in the Development Policy Research Unit.

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