Few people would think that Africa’s labour markets are the most dynamic in the world. Yet, according to the International Labour Organisation (ILO), African countries had some of the lowest unemployment rates in 2018.
They include Niger (0.3%), Rwanda (1%), Burundi (1.5%), Madagascar (1.7%), Togo (1.7%), Ethiopia (1.8%), Tanzania (1.9%), Liberia (2%), Benin (2.1%) and Chad (2.2%).
But the reality in these countries is that most must work to survive because governments have limited capacity and no fiscal space to support social safety nets.
African economies also have some of the world’s highest underemployment rates, caused by erroneous policy choices, low levels of productivity and insufficient growth, despite the commitment and hard work of an abundant labour force.
Defining unemployment and underemployment, and comparing them across countries, can itself be problematic. According to the ILO, an unemployed person is someone who was not employed during a specified recent period, and is both available for and seeking work.
The underemployed comprise the unemployed plus those who are employed less than 30 hours a week and want to work full time. Yet, although most African economists and statisticians accept the official definitions of these terms, policymakers continue to debate their practical significance.
What is clear is that African per capita gross domestic product (GDP) growth has been insufficient in recent decades — both in absolute terms and compared with other parts of the developing world — and employment has remained overwhelmingly informal.
Africa’s population growth poses a further problem. The United Nations expects the continent’s working-age population (those aged 15 to 64) to double to 1.5-billion by 2050 and to reach 2.8-billion in 2100. Providing decent jobs for this huge labour force is perhaps the biggest problem facing the world, not just Africa.
No restrictive immigration policy in advanced economies would stop the influx of migrants from a continent burdened by poverty, joblessness, conflict and climate change.
The wrong approach
Traditionally, governments in developing countries have tried to tackle unemployment and underemployment by improving the business environment, typically through reforms aiming to increase labour market flexibility. This means making it easier for firms to hire and fire workers, scaling back employee benefits, reducing the tax wedge (the difference between the cost of employing a worker and their take-home pay), weakening trade unions and pursuing active labour market policies (including employment subsidies and training).
Unfortunately these conventional measures generally are more appropriate for advanced economies with high levels of full-time employment and relatively expensive labour. In developing economies with far less full-time employment and persistent labour surpluses, these measures rarely produce the hoped-for results. And because traditional policies neglect the most glaring features of low-income countries’ labour markets — a shortage of good formal sector jobs and widespread informal employment — empirical evidence of their effectiveness is ambiguous.
As a recent study from the African Development Bank points out, for too long much of the developing world neglected the key principle of successful job-creation strategies — ensuring that economies develop in a manner consistent with their comparative advantage and are internationally competitive.
Instead of focusing on labour-intensive sectors, African governments often tried to replicate the capital- and technology-intensive industries characteristic of high-income countries. Such a misguided “modernisation” drive explains why many African economies stay commodity-dependent and job-scarce six decades after independence.
A better way
To circumvent constraints on growth, and boost productivity and job creation, African governments should focus on three policy priorities. First, they need to gear macroeconomic policies toward ensuring external competitiveness, including the adoption of flexible exchange rates to mitigate trade shocks. Economic stability is a precondition for sustained growth and hence the creation of decent jobs, particularly in small developing countries that are most vulnerable to shocks.
Demand-boosting policies play an important role in combating unemployment, especially in economies with good fundamentals. By using fiscal and monetary policies whenever possible to support economic growth, governments can help to reduce uncertainty, thereby making firms more inclined to invest and hire even in economies with no lingering excess capacity. Furthermore, macroeconomic policies specifically geared toward job creation make active labour market programmes much more likely to succeed.
Second, therefore, African governments need to consider a range of labour market initiatives to help create jobs. For example, when fiscal and debt conditions permit, they should accelerate the implementation of carefully designed, labour-intensive public works programmes. Well-targeted public infrastructure projects (whether new investment, repair, or maintenance) provide much-needed incomes, typically to the urban poor, and can help to ease social and political tensions. Moreover, such schemes remove bottlenecks to growth and contribute to increased productivity.
Evidence from Latin American and Caribbean countries suggests that infrastructure investment can have a sizable effect on employment. Yet, poorly targeted public works schemes may crowd out some private sector jobs, so policymakers should set wage levels carefully to ensure that these programmes are cost effective. In addition, governments should refrain from hiring the unemployed directly, but instead contract with private firms or nonprofit organisations to provide jobs.
Governments could also consider introducing temporary, transparent and targeted wage subsidies for industries that are clearly competitive but are facing provisional shocks. Wage subsidies would allow businesses to keep employees on their payroll instead of laying them off, and to hire younger workers and women for a given period while paying part of their salary, enabling them to acquire or develop skills that eventually could lead to long-term employment.
Because some employers may regard subsidies simply as a temporary means of securing cheap labour, governments must consider the risk of deadweight losses and be prudent in determining the level and duration of support. Furthermore, some regions can be caught in a self-fulfilling cycle of dependency in which public sector jobs become the only source of income, entrepreneurship is discouraged and the private sector does not develop. That often results in the emergence of powerful political constituencies of public sector employees and unions that oppose labour market reforms.
Finally, government-sponsored training programmes that help new and unemployed workers to gain or regain skills could boost productivity if they target the neediest segments of society, such as young people, women and disadvantaged groups. Youth-oriented programmes designed in collaboration with private firms, academic institutions, and nongovernmental organisations can yield good results. To maximise the effect of such initiatives, policymakers should tailor them to the needs of potentially competitive industries.
Enclaves of excellence
African governments’ third policy priority should be to establish special economic zones (SEZs) and industrial parks to facilitate the development of sectors with strong competitive potential. Such initiatives help to connect domestic companies to foreign firms and global value chains, and provide platforms for developing capacities and skills.
If carefully designed, well-equipped, and managed, SEZs and industrial parks can be enclaves of excellence that attract foreign direct investment, help local small- and medium-size enterprises connect to global value chains, and allow firms to operate efficiently even when the overall business environment is suboptimal.
African policymakers must also address long-standing problems related to poor investment climates and weak governance. For example, limited financial resources mean that active labour market policies in Africa often are either random or politicised, especially with respect to their sectoral and geographic targeting.
The presence of vested interests can make it too politically costly to abolish some binding constraints on growth and job creation, such as rigid labour laws. And many African governments are unable to afford national public infrastructure programmes. The reforms needed to remove these obstacles to sustainable economic growth are politically difficult and often take time.
Furthermore, some fear that the so-called fourth industrial revolution will impede the creation of formal sector jobs in Africa, and thus deprive the continent of its comparative advantage in labour-intensive industries. But such worries are overblown. Robotics and artificial intelligence could help to reorganise workflows in agri-processing, manufacturing and modern services, thereby creating new labour-intensive activities. Such innovation offers infinite possibilities for Africa.
As former United States president Franklin D Roosevelt once said, “The only thing we have to fear is fear itself.” By implementing bold policies based on sound ideas, African governments in 2020 can work toward creating enough decent jobs for almost everyone.
— ©Project Syndicate
Célestin Monga, former vice-president and chief economist of the African Development Bank Group and former managing director at the UN Industrial Development Organisation, is an economic adviser at the World Bank