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Creating good jobs in Africa: demand- and supply-side policies

Stephen Golub's picture
In Africa people do have jobs: they are simply too poor not to work.  Instead, the problem is underemployment; typically 90% (or more) of the labor force is in the informal sector such as subsistence agriculture and urban self-employment in petty services.  African labor markets remain marked by large disparities in incomes between a small number of formal public and private employees, and the vast informal sector. For example, in the major cities of Douala and Yaoundé in Cameroon, about 96% of employment is informal. (Golub and Hayat 2014, Benjamin and Mbaye 2014, Mbaye et al 2015).

These informal sector workers have no job security, minimal benefits, very low pay, and often face hazardous working conditions.  So the challenge is to create better jobs, as well as more jobs.

Impediments to both labor demand and supply account for Africa’s lagging performance in creating formal sector jobs: 
  1. Lack of demand for labor arising from the product market;
  2. Human capital deficiencies due to inadequate education, training and health services.
On the labor demand side, firms emphasize lack of infrastructure, corruption and pervasive red tape as the most significant barriers to investment. On the supply side, while major strides have been made in educational attainment, schooling and training programs often fail to provide the skills that employers seek. 

Raising Labor Demand in Africa
Historical experience reveals the importance of labor-intensive exports in boosting income and employment.  Africa has opportunities to benefit from globalization - not only in manufacturing, but even more so in agriculture. When a government fails to provide public goods and harasses formal-sector firms, domestic enterprises will shut down or become informal. Foreign investors will look elsewhere.  The workforce has paid the price of a dissuasive investment climate in the form of fewer employment opportunities and lower incomes.
Africa has made some progress in this area, but still has a long way to go to attain international competitiveness and thus boost investment and job creation. Experiences in other emerging economies show that integration into the global economy and exports of labor-intensive products are vital to boosting labor demand. While African exports – notably to China – have boomed, they tend to be in capital-intensive mining and energy exports, creating few jobs. 

There is a large supply of workers in the informal sector in Africa whose earnings are as low as those of apparel workers in Bangladesh, Cambodia and Vietnam. But very little labor-intensive manufacturing has shifted to Africa as wages rise in China and other East Asian countries.  This reflects high African unit labor costs in formal manufacturing due to relatively elevated wages in African formal sectors. It is also due to overvalued exchange rates, low labor productivity, and continued deficiencies in infrastructure and the business climate - most importantly Africa’s notoriously expensive and unreliable supply of electric power (Ceglowski et al 2015).  Africa has some potential to become competitive in light manufacturing but only if productivity increases and formal-sector wages can be brought closer into line with earnings in the informal sector.  This calls for the easing of labor market restrictions and most importantly, ramping up investments in infrastructure while renewing efforts to curtail red tape and harassment of formal sector firms.

Improving Worker Training and Building Entrepreneurial Skills
Most enterprise surveys identify the lack of several key competencies in the workforce as a major constraint.  While enrollments in secondary and higher education have risen impressively, vocational training has lagged. Moreover, the limited programs offering vocational training are often poorly designed. 
In a 2002 study, for example, we found that the Senegalese tuna-fishing industry had to resort to hiring expatriate technicians with salaries up to 15 times higher than their local counterparts, to compensate for the latter’s lack of relevant skills. Recent surveys corroborate these findings. There is a complete lack of formal training programs for craft-related tradesmen such as plumbers, carpenters, electricians and mechanics.  Instead, skills are learned through ad-hoc training schemes such as apprenticeships or in informal schools run by religious groups or charities.  

The educational system also fails to foster entrepreneurship, as it remains oriented towards preparing students to be civil servants.  Self-employment constitutes more than 60% of total employment in Africa – almost all of which is informal.  These informal entrepreneurs are industrious, willing to take risks, resilient to the adverse business climate, and adept at providing goods and services that low-income people can afford.  Nevertheless, lack of formal training in management, accounting and finance limits the potential of these businesses to grow and expand employment.

Growth in Africa has picked up substantially since the mid-1990s. But, many are now asking why employment growth and poverty reduction are lagging. What can be done to address the lack of decent jobs in African countries? We believe that governments need to adopt policies that raise the demand for African labor, while also improving worker training and building the skills of the continent’s entrepreneurs.
 

Comments

Submitted by Seyni Mbaye on

I read the article and found it very interesting. However, I disagree on what you have written about the benefits of globalization for Africa.
I think that Africa needs to withdraw into itself in order to gain some strength before getting involved into the international market. It can be analogically compared to having sharks and tunas in a same tank. The tunas are going to end up with crumbs and live under the dictatorship of sharks. On another hand, I agree with you saying that Africa has to make an enormous progress when it comes to higher level education. We have to stop relying on transfers of technology and come up with our own machines that meet our needs and are adaptive to our environment.
You also said that Africa exports a lot products to China but that does not creates many jobs. I think that is an example that shows that Africa is not ready for globalization yet. I think we need to wait until we can for example export steel instead of iron mines to get involved in the international trade.
I think Africa needs to invest more in education in order to have a high quality human capital that will be able to extract, transform, and export finished goods. In that way, several jobs are going to be created at every single step and several other problems that Africa is actually encountering such as poverty and hunger can be resolved. Africans will then have higher incomes allowing them to have higher standards of living.

Very nice article :).

Submitted by Steve Golub on

Dear Seyni

Thanks for taking the time to read the blog and your thoughtful comments.

Africa has areas of comparative advantage where it can compete very successfully. At present this is largely confined to capital-intensive minerals and fuels but there has been some some progress in labor-intensive export industries such as horticulture, fishing, tourism and even manufacturing. Some traditional primary products such as coffee, cocoa, and groundnuts can be very lucrative for farmers if quality is upgraded. In all these cases, however, weak institutions and poor governance impede competitiveness. Consider the groundnut industry in Senegal. As my co-author Prof. Aly Mbaye has shown, Senegal could benefit from producing and exporting high quality edible groundnuts but Senegal has been unable to upgrade the quality of its groundnuts due to lack of investment in infrastructure and training of producers. As a result, Senegalese groundnuts are contaminated by high levels of aflotoxin, a cancer-causing substance that occurs when groundnuts are not properly handled. Controlling aflotoxins is not a difficult technological problem but requires an organized effort to educate farmers and improve storage and transport infrastructure. The government and private sector must work together to overcome these kinds of obstacles to competitiveness.

Protection of domestic industry can be helpful in some circumstances, if kept at reasonable levels and on temporary basis. High levels of protection foster inefficiency and smuggling. Elevated protection in Senegal for industries such as sugar and textiles failed to create a viable industrial base and led to large-scale smuggling from The Gambia, as Prof. Mbaye and I have also shown.

The African tunas are quite capable of holding their own in the world economy if governments create a favorable environment for domestic and foreign firms to invest.

Submitted by Fred on

I too read the article and your comments which I generally agree with. I also note your emphasis on the need to improve in the area of high level education which is correct. I however believe the biggest problem with Africa is organisation. Whether this is to be resolved through higher education is a discussion for another day. Until we are able to organise better an attribute you will find in China and Asian Tigers as well as Europe just having the "well educated" may not solve the problems. Africa has a fairly good number of educated who I believe may have attained the size of a critical mass. They however do not operate in a context where there potential can be harnessed. This to the extent that you will find them operating well from outside the continent but not in their own countries. This challenge ought to be acknowledged as fundamental. The skills that were possessed during the era of the Vikings surely exist in Africa but it is still a challenge to transform Africa to the level of the Scandinavian countries. With proper organisation we shall be able to be more formal in our employment sector and benefit from the synergy created by this. Currently there is more interest in white collar jobs in Africa yet most African migrants to countries Europe consider themselves comfortable with Blue collar and other jobs. Organisation and objective identification of the real issues is what will liberate Africa.

Submitted by Steve Golub on

Dear Fred

Thank you for this interesting comment. Your point about the importance of social organization is well taken. You are quite right that education by itself will not transform Africa. Indeed, many African university graduates are unemployed, partly due to the failure of the educational system to impart useful skills, as we point out, and also more fundamentally reflecting systemic weaknessess, as we also stress.

It is ultimately the government's responsibility to set the institutional environment in which the private sector operates. The "rules of the game" must be clear and enforceable in order to foster long term investment and job creation. Some authors, such as Acemoglu and Robinson, stress the role of inclusive institutions, i.e., democratic accountability. In some cases, however, as China and the earlier East Asian tigers illustrate, autocratic governments can take an enlightened view on economic development. Either way, a strong "developmental state" committed to fostering economic and social progress is essential in organizing the economy to benefit the wider population rather than the just the elites.

Submitted by M. Gueye on

Great article!
I agree with most of your points. However, I would put some emphasis on developing technical and vocational training to overcome the shortcomings on the supply side of the labor market.

Clearly, Sub-Saharan Africa’s primary school enrolment has significantly increased in the last 20-30 years but this surge in primary education is squeezing the resources allocated to the relatively small secondary and vocational systems in many countries. As a result, the secondary and vocational schools are unable to absorb the larger number of students who complete the primary cycle. Furthermore, the high drop-out rates from secondary school, and the difficulty many students encounter to gain employment are signs of low quality education.

To overcome this issue, it is important to put forward a more diversified approach to education which would include technical and vocational topics in order to align it with the needs of the labor market.

Submitted by Aly Mbaye on

Dear Mbaye
Thank you very much for your interest in our blog and for your positive comments. Your point about few children entering vocational schools is right. Statistics show that most secondary schools graduates follow humanities tracks rather than scientific ones. Since in Africa, and more so in francophone Africa, such early specializations determine students’ university hosting departments, many of them end up with humanities and social sciences degrees with too few in science and engineering. The share of vocational training in overall education is negligible because most parents and students maintain the increasingly obsolete hope that very general university training is the ticket to white-collar jobs. So increasing the scope of vocational training is very relevant. Nevertheless, it is likely not to be enough because in African countries as elsewhere, the performance of the economy is critical in determining how many jobs are created regardless of how effective the training system is. Beyond vocational training, African youth need entrepreneurial skills and support to set up their own businesses and not always aspire to positions as civil servants as remains too often the case.

Submitted by David Rurangirwa on

Interesting blog, Stephen and Mbaye. You captured all the elements that need to be addressed if we are to achieve meaningful employment rates in Africa. Africa has experienced a mismatch between labor supply and demand for decades and undoing the harm caused will take concerted efforts, requiring us to run extra miles where other economies are running ordinary miles. When it comes to supply, our education systems need a complete overhaul, right from basic education. Our education system needs to focus on key competencies demanded by the modern day economy. Whereas the economic trends have gone through several revolutions-from agrarian to industrial to knowledge/information; the education system has not matched up. We still teach and learn subjects that are completely irrelevant today and tomorrow. Today's learner needs to be equipped with the skills to acquire and organize knowledge for productivity. An ability to acquire, organize, and use knowledge across the various trades will help to create a labor force that is flexible to fit in today's rapidly changing economy.

When entrepreneurship and innovation become a culture, matching demand and supply will become easy. African governments will just need to remove red tape like you pointed out, and put in place policies that enhance this culture.

Submitted by Steve Golub on

Dear David

Thank you for this cogent comment. We completely agree. There is no shortage of entrepreneurial talent and work ethic in Africa. But, as you point out, lack of appropriate education and oppressive business climates thwart the development of entrepreneurship and investment. The situation is improving in some regards, thanks to new technologies and better policies, but, as you point out, there is a long way to go.

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