Kigali City Center, Rwanda
When I joined the World Bank education team in Kigali, Rwanda, I was tasked with undertaking a labor market landscaping analysis to understand the “skill gaps” prevalent in the country and trace the underlying factors behind such gaps. As I embarked upon this endeavor, it soon dawned on me that high unemployment and underemployment rates in the country are as much, if not more, a demand-side problem as they are a result of supply-side factors, such as skills deficits in the labor force.
By demand side, I mean that labor demand from the private sector is lacking—there are not enough high-quality jobs being created in Rwanda at the moment. Any sustainable solution that seeks to address unemployment and labor productivity in the country must tackle both sides of the problem.
Rwanda’s private sector remains dominated by informal and micro enterprises
The private sector in Rwanda has for many decades been dominated by informal and micro enterprises. As of 2020, 88% of all establishments were categorized as informal, and 90 to 95% of all establishments as micro, employing between 1 and 3 people. Medium and large enterprises form about 1% of all establishments in the country and are overwhelmingly government-owned or set up as public private partnerships (PPPs). As per the World Bank Enterprise Survey, access to finance and tax rates are among the top two obstacles to growth faced by firms across sectors in the country.
Figure 1: Type of Establishments in Rwanda (2014-2020)
Additional evidence suggests the lack of access to business advisory services is another obstacle. Evidence from tracer studies of graduates from higher learning and technical and vocational education and training (TVET) institutions and data from the government’s National Institute of Statistics of Rwanda’s labor force survey also points to the inability of the private sector to provide high quality jobs. As of 2021, 64% of all employees received less than 30,000 RWF (~$30) in monthly cash income and 81% of all employees were on temporary contracts. The figures were much worse for women and rural workers.
Furthermore, the top reasons for employee turnover, as reported through graduate tracer surveys included low income, poor career prospects, and no job security.
Rwanda needs to expand labor force participation to leverage its youth demographic
As per the 2021 Labor Force Survey, Rwanda’s population is overwhelmingly young, with 66% of individuals below the age of 30. This translates into 7.2 million working-age individuals, of whom only 2.3 million are employed full-time. A large chunk of working-age individuals exists outside the labor force, employed in subsistence agriculture or simply discouraged. On top of this, unemployment rates increased during the pandemic, affecting women and rural workers more than their male and urban counterparts.
Figure 2: Unemployment Rates by Educational Attainment, 2021
Unemployment rates are particularly high among individuals with a secondary or high school education (more than for those with no or just an elementary or primary education), suggesting the economy might be creating more low skills jobs in subsistence occupations and thus leaving a “missing middle” of medium skill jobs.
University graduates form the smallest part of the Rwandan labor force but have the lowest unemployment rates, enjoy higher salaries, and occupy more technical and managerial positions, suggesting high returns to completing higher education and a demand for specialized skills. It is interesting to note, however, that a large majority of these graduates work in the public sector, again hinting at the limited ability of the private sector to absorb and retain them.
An “inadequately educated workforce” ranks high among obstacles to growth for firms
There is no doubt that there are skills gaps in the market, as demonstrated by the third major obstacle to growth named by firms in the World Bank Group (WBG) Enterprise Survey, that is, an “inadequately educated workforce.” To be more specific, firms cite gaps in i) technical, vocational, and job-specific skills, ii) foreign languages, iii) interpersonal and communication skills, iv) problem-solving and critical thinking, v) management and leadership skills, and vi) IT and computer skills.
The government, World Bank, and other development partners are trying to expand the capacity of Rwanda’s higher learning ecosystem to remedy these gaps by improving the infrastructure, training equipment, and opportunities available for hands-on learning, as well as making revisions to curriculum, training faculty, and creating better links between industry and academia.
These efforts, however, will fall short without corresponding initiatives to spur job creation in the economy by supporting private sector growth. Currently a low-income country, Rwanda aspires to be a middle-income country by 2035 and a high-income country by 2050.
More work is needed on increasing access to low-cost financing for Micro, Small, and Medium Enterprises (MSMEs)−particularly for micro-enterprises− startup capital for aspiring entrepreneurs, and business advisory services. In addition, incentives for the private sector to absorb interns and frameworks around how to manage and productively utilize them will support efforts by educational institutions to offer more hands-on learning opportunities through internships and apprenticeships.
Advocating for the application of labor regulations around salaries, social security payments, and contracts, is required, and policy-level reforms could include easing formalization and international certification processes and rationalizing tax and tariff barriers to support private sector growth. Lastly, any systematic plan to spur job creation in Rwanda needs to leverage the entire suite of tools and products the World Bank Group has to offer through better collaboration across the WBG between the IFC, World Bank, and MIGA.
Do you know of a country that may have faced similar circumstances and models of engagement that could help Rwanda meet its ambition of becoming a middle-income country by 2035? Let us know in the comments below.
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