Despite the fact that East Africa remains the fastest-growing sub-region in Africa with an estimated growth of 5.6 percent in 2017, up from 4.9 percent in 2016, it still grapples with low job growth rates. The African Economic Outlook 2018 by the African Development Bank Group (AFDB) further notes that it is imperative for sustained economic growth to create jobs which positively impact poverty reduction and lead to more inclusive growth.
According to the report, the combination of high economic growth and low job creation has given rise to the claim that Africa is experiencing jobless growth. The findings of the document point to the fact that in the last decade, faster-growing countries in Africa actually generated fewer jobs than countries that grew more slowly. The slow job growth has mainly affected two demographic groups; women and youth aged between 15 to 24 years. Estimates of African population data indicate that it had 226 million youth in 2015, a figure projected to increase 42 percent, to 321 million by 2030. Its labour force is also projected to rise from 620 million in 2013 to nearly 2 billion in 2063.
In an effort to sustainably reduce poverty, economies must create more productive jobs, which are better remunerated and better-quality jobs. For this to happen, AFDB recommends that countries engage in structural transformation, which is a process whereby capital and labour is shifted away from low-productivity sectors toward higher-productivity sectors.
Structural transformation has encountered slow implementation due to a couple of reasons. First, the agricultural sector remains the dominant source of jobs in Africa, accounting for about 51 percent of employment in these countries, most of it in subsistence agriculture. The document highlights that almost 84 percent of Africa’s poverty is a result of employment in agriculture and services sectors. Second, the shift to manufacturing has been focused toward a comparatively small sector, which has the third-lowest relative productivity level after agriculture and services. Also, the labour resources that left agriculture have shifted toward wholesale and retail trade, much of which is characterized by low-productive informal activities.
As per findings of the report, the informal sector remains a key source of employment in most African countries, accounting for approximately 70 percent of jobs in Sub Saharan Africa and 62 percent in North Africa, with 93 percent of all job growth in Africa in the 1990s being accredited to the informal sector. The last factor that has slowed down the implementation of structural transformation is the fact that the public sector has generally been the main source of higher-paying formal sector jobs in many African countries. Fiscal constraints and demographic change have combined to limit the future scope of the public sector as a driver of formal sector employment growth.
One key policy recommendation that was proposed on the way forward as a priority for African governments is to encourage and embrace a shift toward labour-absorbing growth paths. In this sense, they should put in place programs and policies aimed at modernizing the agricultural sector, which employs most of the population and is typically the main step toward industrialization. A second priority is to invest in human capital, particularly in the entrepreneurial skills of youth, in an effort to facilitate the transition to higher-productivity modern sectors.
In as far as reversing the fortunes of the manufacturing sector, it is proposed that emphasis should be placed on light manufacturing, which is typically considered key to job creation in Africa. Doing so requires developing export capacity, given the continents small domestic markets. The interrelated nature of agriculture and manufacturing is crucial to achieving job creation as both are labour intensive. In the highly heterogeneous service sector, the way forward is to develop modern services while improving the productivity of informal activities.
Seeing as informality is a key component of African labour markets in that it accounts for an estimated 50–80 percent of GDP, 60–80 percent of employment, and up to 90 percent of new jobs on a continent where more than 60 percent of the population performs low-paid informal jobs, policy makers should avoid burying their heads in the sand and recognize the diversity and importance of the sector as a profitable activity that may contribute to economic development and growth.
Informal Economy Analyst.