Strategies for Job Creation and Inclusive Growth in Africa
This piece originally appeared on The CEO Zimbabwe: Back to Work Exclusive with Chairman of GBSH Consult Group H.E.Dr. Ambassador Tal Edgars
Africa economies are on the move and the continent has the second fastest growing economy in the world in the past decade. The acceleration in Africa’s growth over the past ten years reflects fundamental improvements in in the overall macroeconomic landscape, country political stability, and the business environment. Africa is beginning to harness its natural wealth and sectors growing rapidly include local services such as retail, banking, transport and communications, manufacturing and agriculture.
Poverty is on the decline with around 90 million African households having joined the consuming classes by 2011. Income inequality however remains unacceptably high and although it is falling in only about half of African countries. Africa has a workforce of 382 million with 42 % of the workforce being employed outside agriculture and 28% earning a wage versus a 24% margin in the year 2000.
Africa’s growth needs to be inclusive if it is to improve human welfare and ensure increasing social and political stability. In most countries economic growth reaches most people through employment income, so the challenge is to ensure that the economic growth translates into stable wage-paying jobs. Most countries in Africa have the potential to create stable employment to absorb the growing potential labour force.
Depending on the source, Zimbabwe’s unemployment rate has been estimated as low as 4% and as high as 95%. The real level of unemployment is almost impossible to gauge as countless Zimbabweans are making a living in the informal sector and outside the country. This shows that the government needs to step up processes and policies that can create more jobs and more so create a labour force that can contribute to the country’s GDP.
WHAT ARE THE BARRIERS TO JOB CREATION?
For most businesses the barriers to job creation revolve around macroeconomic or political instability conditions. Notwithstanding the improved and faster economic growth within the region, businesses still show concern about ;insufficient demand, potential threat of inflation, access to finance, shortcomings in infrastructure like electricity, transportation and internet.
There is no simple solution to boosting job growth in Africa. I believe with targeted reform programmes, governments can eliminate these barriers and unleash private sector growth.
A robust GDP is a necessary condition for accelerating the creation of jobs. National leaders on the continent need to ensure that the improved macroeconomic and political stability of the past decade is maintained. They should also pursue macroeconomic reforms that create a more attractive business environment. However focusing on GDP growth alone, will not be able to transform Africa’s employment landscape or ensure inclusive growth and wider opportunities for Africa’s people.
To harness growth for job creation, Africa’s leaders should focus on reforms to the business environment in the labour-intensive sectors that have the potential to create a large number of jobs.
A job strategy is very far from the broad based industrial policies that have more than often proved ineffective in countries around the world. Africa’s development needs are vast and national economic plans can often be hundreds of pages long. Many well-meant reform programmes enact numerous policy changes but have limited practical success. I believe that a more pragmatic approach is to remove all obstacles to growth end-to-end in specific industry value chains and then build more broadly on this narrow head start theorem.
Examples that have successful done this include;
Morocco which consolidated its growth in 2013 with GDP rising 4.7% compared to 2.7% in 2012. Sound macroeconomic and fiscal management has continued while a cautious monetary policy held inflation at 1.9% and the current account deficit at 7.2% of GDP, compared to 10% in 2012, while foreign exchange reserves reached 4.5 months of imports of goods and services. The new aeronautical and automobile industries represent an important source of economic growth and innovation for Morocco.
In India there has been a huge growth of IT companies which have in the first instance taken advantage of the growing Indian market and also exported there products to overseas markets. Foreign owned companies were also allowed 100% ownership to provide funding for the booming industries in the country and these companies were critical part in providing capital and know-how in the earlier days of India’s economic growth.
Mali’s integrated investment in road, rail and other transportation to facilitate mango exports and Morocco’s two free trade zones for automotive companies are examples of targeted infrastructure tailored to specific industry opportunities.
Nigeria’s telecommunications sector is estimated to have generated up to 3 million jobs in the absence of the state telecom monopoly.
In Angola, Africa’s second largest oil producer, major investment is being made to expand access to electricity, water and transport and infrastructure development, leveraging off the oil revenues in the country. To boost business, financial sector policies are being modernised with the introduction of a new foreign exchange currency law for the oil sector and a mining law.
WHAT ELEMENTS SHOULD AN END-TO-END STRATEGY HAVE?
In order to boost grow and generate jobs, end to end strategies should have these six elements:
Identify one or more labour intensive sub sectors in which the country has a global competitive advantage or enjoys strong domestic demand, and can create a large number of jobs.
Improve access to finance for businesses in those sub sectors by providing incentives for the banking sector to increase lending, educating new borrowers and opening access to foreign investors.
Build suitable infrastructure to support economic activity in these subsectors and in the geographic mosaic regions needed for success.
Cut unnecessary bottlenecks in regulation, corruption and bureaucracy, all of which raise the cost of doing business and limit growth and investment.
Public-Private Partnerships: Strong collaboration through the public and private sectors, to ensure a steady pool of workers with the education and skills needed in those targeted subsectors.
Another country that has successfully created an enabling environment for job creation is China which has added well over 300 million jobs predating to 1980. Several factors have assisted in this development including rapid growth in manufacturing, increased urbanisation, and improving education and skills attainment that has prepared children for non-farm work. Over the past decade, close to one quarter of China’s employment growth (33 million jobs) was in the manufacturing industry. Many of the jobs were labour intensive. China migrated into the production of higher value-added and knowledge - intensive goods and have become the biggest producer, and consumer of high value technologies. The country invested heavily in primary and secondary education, including in the rural areas, preparing its children to join the modern workforce. By 2010, 60% of the workforce had at least a secondary education.
India created 67 million non-farm jobs over the past decade, just over half the tally in China. Gross exports in India amount to 22% of the GDP, compared with 30% in China.
The lesson from China is simply that to create jobs, countries should focus on labour-intensive export sectors and from India, the lesson is to create products firstly for domestic demand and then export.
For these countries and other growing economies, the SME sector has played a major role in creating jobs. Governments that have supported the Small and Medium sectors have reaped enormous rewards in terms of innovations and job creation as well as positive contributions to the GDP.
The policies to grow the SME sector must be able to create a conducive business environment for them to thrive. These are generally reflected in; Strategic support to the SME sector, Institutions supporting business development must be visible and accessible in all areas, Support for beneficiation of SME products, Simplification of labour laws for SMEs, Promotion of government SME support programmes and Integration of SME roles into strategic thinking on trade and industrial policy.
Youth unemployment is an emergent and perennial problem in many countries in Africa and the increased internationalization of labour markets and flexibility of labour relations, with the traditional cycle of school-to-work-to-retirement giving way to more varied patterns of employment provide a new context for this problem.
WHAT ARE THE STRATEGIES TO DEAL WITH YOUTH UNEMPLOYMENT?
The best approach to dealing with this challenge is to outline youth policies and programmes that address:
Promotion and introduction of the self-employment option including a boost in En
Financing of youth projects
Access to work spaces
Business expansion support
Creating support networks and
Multifunctional youth enterprise agencies.
In order to generate more jobs in such sectors as agriculture, tourism, mining, manufacturing, technology and retail, Africa should have clear policies that encourage ease of investment in these sectors.
In order to make agriculture more productive, there should be expansion of large scale commercial farming on uncultivated land, shifting from low-value grain production to more labour-intensive and higher-value-added horticultural and biofuel crops. Growth in agriculture should be used to develop downstream agro-processing industries.
To grow the manufacturing sector the country needs to understand the sources of potential comparative advantage it holds in the global market, identify the specific manufacturing subsectors in which it can compete, and then begin to remove the blockages that have prevented these subsectors from reaching their potential.
The main barrier to expanding wage-paying employment in retail is the prevalence of tiny informal stores and cheap imports. Another major barrier to the expansion of modern retail stores is a lack of or expensive commercial retail space. Strategy to grow this sector include moving retail and consumer good companies upstream for owners to become anchor stores or co-invest in formal retail space. A perfect example is the South African grocery store Shoprite.
Africa needs to overcome barriers to growth in the tourism industry including inadequate and costly airfares, visa requirements, and unreliable local airlines, expensive hotels compared to the region, poor surface transportation and poor uncoordinated marketing of the country.
Construction of hotels is very costly and even if the infrastructure is improved, the industry needs to explore how it can boost the length of stay and spending per stay to increase revenue and create more jobs.
To create more jobs, Africa needs an innovation-led, knowledge-based approach to improving the policy environment in the continent. Keeping in mind that there is no “quick-fix” there are areas in which concerted action can generate forward momentum, and overtime make a sizeable difference for growth and job creation. They are deeply couched in the following areas:
Encouraging Foreign Direct Investment
Accelerating privatization of loss making public entities
Targeted investment incentive schemes
Development of the SMME market
Labour market flexibility
Education and training policies need to fill the growing “skills gap”.
Targeted employment subsidies
Accelerating rural development
The continent needs to create a cross functional task force to create and execute the jobs plan and strategies. Private sector business leaders can help identify the most pressing blockages to growth in their sectors and to measure the success of overcoming them. This should also be supported by broad civic engagement.
For more on how to create a job creation strategy or implement one. Get in touch with the GBSH Consult Group.