Job creation is key to Africa’s economic future

Africa has made big strides to follow in the footsteps of Asia and Latin America, according to the McKinsey Global Institute. Across the continent, GDP has increased at a compounded annual rate of 5.1% from 2000 to 2010, outpacing most other regions in the world. Several African countries are emerging economies, and demand from a growing number of African middle-class consumers has begun to contribute to rapid economic growth that was initially fuelled by a commodity boom.  

To be sure, political instability, high income inequality and a lack of infrastructure continue to pose challenges in some of Africa’s 54 countries, as does the continent’s manufacturing activity, which has been stagnant or declining in the past decade.   

But Africa could be tomorrow’s Asia or Latin America, lifting millions out of poverty, raising living standards of emerging middle-class consumers and entrenching economic growth – if the continent’s economies master their biggest challenge, according to McKinsey’s report Africa at Work: Job Creation and Inclusive Growth.

“Africa must accelerate the creation of wage-paying employment,” the report says. “Failure to do so will consign millions of households to toiling in subsistence activities and will raise the risk of political and social unrest.”
 
At the current pace, economic growth is projected to create 54 million wage-paying jobs by 2020. That’s 68% more than the 37 million wage-paying jobs African economies generated in the past decade, but not enough for the 122 million more Africans who will join the continent’s labour force by 2020.

By 2040, Africa is estimated to be home to one in five of the world’s young people, and its working-age population of about 1.1 billion will likely be larger than India’s, China’s, Southeast Asia’s, Latin America’s, Europe’s or North America’s, according to McKinsey research.

To absorb their expanding labour forces and to boost the consuming middle classes, African economies must focus on rapidly increasing the number of jobs that provide regular paychecks, the McKinsey researchers suggest.

Based on national employment data, a survey of about 1,300 companies in five African countries, and dozens of interviews with business leaders and policymakers, McKinsey researchers proposed a 21st-century strategy for job creation that by 2020 would generate up to 72 million wage-paying jobs in African economies.

On a continent where 63% of the labour force is involved in low-productivity activities with unreliable incomes, 72 million additional wage-paying jobs would raise the share of stable employment to 36% in 2020, from 28% in 2010.

McKinsey’s job creation strategy consists of these elements:

• It zeroes in on growth and development in labour-intensive sectors in which specific African countries are competitive.

  Morocco, for example, focused on auto parts for the European market. They are produced in two free-trade zones dedicated to the automotive industry, a sector that today employs more than 60,000.

  Lesotho built an apparel manufacturing sector by attracting foreign investors looking to take advantage of duty-free African exports to US markets. In 2010, Lesotho’s apparel sector employed about 40,000 in a country of 2 million people.

• To ensure that targeted sectors have access to financing, McKinsey researchers suggest incentives for banks that loan to businesses.

  Nigeria, for example, established a $500 million agricultural lending facility that guarantees loans banks make to small farmers and large-scale producers and that helps offset losses banks may incur. The facility also includes incentives for banks that have high levels of lending to agribusiness.

• The jobs strategy helps prioritise infrastructure projects to improve transportation, energy, water and communications needs, the McKinsey researchers argue.

  To boost its textiles and apparel manufacturing, for example, Ethiopia would need better transportation links between its manufacturing hub in Addis Ababa and the port in Djibouti, about 500 miles (800 km) away.

• Removal of unnecessary trade barriers, regulatory bottlenecks and administrative procedures can open up targeted sectors for growth.

  In Rwanda, streamlining procedures needed to open a business increased the number of new companies from 700 a year to 3,000 a year.

• McKinsey’s survey of business owners did not pinpoint a lack of skills amongst available workers, but the job strategy also promotes workforce skill development such as a vocational initiative in South Africa that matches employers with unemployed youth.

—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.