How do we solve Africa’s underemployment problem?

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 morejobs.

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.

This article was first published by The World Bank’s Jobs and Development blog. Publication does not imply endorsement of views by the World Economic Forum. 

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Authors: Stephen Golub is the Franklin and Betty Barr Professor of Economics at Swarthmore College. Professor Ahmadou Aly Mbaye is the Dean of the Centre de Recherches Economiques Appliquées at the University Cheikh Anta Diop of Dakar.

Image: An employee registers a customer for a mobile money transfer, known as M-Pesa, inside the Safaricom mobile phone care centre in the central business district of Kenya’s capital Nairobi July 15, 2013. REUTERS/Thomas Mukoya.