Stepping Up Job Creation and Inclusive Growth in Africa

Susan Lund is Director of Research and Partner, McKinsey Global Institute.

Over the past decade, Africa has established itself as one of the world's fastest-growing regions. The next challenge is to ensure that economic growth benefits the majority of Africa's people. Job creation and the expansion of stable, wage-paying jobs is one way this happens. Jobs provide the ladder for income growth and economic opportunities, and they are the key to expanding the continent's emerging consuming class. To achieve this, Africa needs targeted jobs strategies to run in parallel with pro-growth policies.

Today, the continent is not creating jobs fast enough to meet the needs of a labor force set to grow by 122 million over the next 10 years. Although we estimate that Africa has generated around 37 million stable wage-paying jobs over the past decade-a 50 percent increase-nearly two-thirds of the workforce remains in vulnerable subsistence agriculture or informal self-employment. Only 28 percent of Africans are in wage-paying jobs, as we explain in our recent report Africa at work: Job creation and inclusive growth.

Our research - which included considering the experience of other emerging economies as well as potential job growth within specific sectors in African economies - suggests that Africa can accelerate job creation. First consider the experience of other developing countries. We were able to obtain data over many decades for Thailand, South Korea, and Brazil. When they were at a similar level of per capita GDP as African countries are today, we find they were creating wage-paying jobs at double or triple the rate. We also developed scenarios for job growth across some of Africa's largest-employment sectors: agriculture, manufacturing, and retail and hospitality. With the right policies in these areas, and assuming trend employment growth in the remainder of the economy, we find Africa has the potential to create up to 72 million new stable jobs over the next decade.

Why just these sectors? What about Africa's high-profile resources sectors? The fact is that some of the sectors that contribute most to GDP growth-mining and oil and gas included-are capital-intensive and don't create many jobs. We estimate that these directly employ less than 1 percent of Africans, and they have accounted for only one-quarter of the continent's GDP growth over the past decade. 

Developing targeted jobs strategies 

To achieve the potential Africa has to accelerate job creation, governments need to develop targeted jobs strategies. These are not the industrial policies of the past, which focused on protectionism and reducing competition. Nor are they about creating "national champions" in trophy industries such as high-tech or automotive. Instead, a job creation strategy is about putting in place all the elements for private business growth in specific areas of the economy. Rather than spreading reforms across the economy, the idea is to focus on getting all the elements in place for a small number of target sectors to grow-and then to replicate any successes in other areas. 

The first plank of any targeted jobs strategy needs to be identifying specific industries and service sub-sectors that are labor-intensive, and in which the country either enjoys strong domestic demand or could become globally competitive. Identifying the most appropriate sectors will require rigorous benchmarking and a clear view of a country's strengths and weaknesses. Morocco, for instance, assessed the potential of more than 600 automotive parts before selecting around 100 parts in which to compete. 

Then governments need to provide the key elements for businesses to succeed in that sector. Our survey of businesses in five African countries, along with our experience working on the continent, reveal four areas that hamper business growth: access to finance, infrastructure, inappropriate regulations and a poor business climate, and lack of workforce skills. Bringing together all these elements for the target industry can unlock job creation and growth. 

Providing for the most vulnerable 

Even if Africa were to accelerate its rate of stable job creation, however, it will remain crucial for policies to address the needs of the growing number of people in vulnerable employment. By our calculations, Africa will see at least 50 million more people join the ranks of informal self-employment or subsistence agriculture over the next decade. Programs that extend education, health care, and entrepreneurship programs to these citizens will be vital.

This post was first published on the Jobs Knowledge Platform.