- Knowledge base
- Policy question
The employment challenge in Sub-Saharan Africa is not only to create enough jobs for an ever-growing population, but also to create decent jobs. Most people work either in agriculture or the informal service sector, where productivity is low and earnings are unstable and insufficient to meet their basic needs. Creating gainful employment for both men and women requires fundamental changes in economic sectors that drive inclusive development. Critical factors include macroeconomic policies that help create productive employment and an enabling environment for innovative entrepreneurship.
Despite rapid growth in many Sub-Saharan African (SSA) countries over the past fifteen years, there is widespread concern that this growth has not created sufficient productive jobs to lift large numbers of people out of poverty. Although the registered level of open unemployment is not strikingly high (around 7.6% in the past 5 years), a large proportion of the working population is employed in the agricultural, extractive and service sectors, where productivity is low and returns are fluctuating and uncertain. Moreover, a significant number of people work in the informal sector, where they have no access to social protection. As activities in the informal sector are not registered, there is a lack of consistent and reliable labour market data at country level. This makes it difficult to measure exact unemployment levels and to understand why Africa’s rapid economic growth has not trickled down to its population.
Comprehensive analyses of the exact state of Africa’s labour markets are therefore of crucial importance. For the Netherlands, the challenge in the years ahead is to identify the most effective ways in which Dutch aid, trade and investment policies can help create decent jobs and make economic development in African partner countries more inclusive.2 Creating productive employment requires the structural transformation of African economies, by uplifting economic sectors that drive growth and productive employment, stimulating dynamic entrepreneurship and creating an enabling policy environment. However, with labour market conditions and challenges varying between SSA countries, there is no one best approach. The Knowledge Platform on Inclusive Development Policies (INCLUDE) is therefore interested in conducting country-specific analyses to determine which policies and activities work best in what context.
INCLUDE focuses not only on unemployment, but also on job vulnerability and underemployment. A large number of people living in SSA countries belong to the ‘working poor’, i.e. people, especially women and young people, who are employed but in jobs that do not yield sufficient income to lift them out of poverty and which affect their health and safety. A large number of these people are also ‘underemployed’: as they have no support mechanisms or social protection, they have to have some kind of job, but often work less than full-time and barely earn enough to survive. A large proportion of the working poor work in the informal sector, mostly engaging in small-scale non-agricultural activities and providing a broad range of services. Together with poor working conditions and insufficient income, a lack of social protection keeps these informal sector workers trapped in vulnerability. This is reflected in data showing that one-third of the working population in developing countries live in poor households, and a quarter in households just above the international poverty line of US$1.25 a day.
To an significant extent, the employment challenge facing African countries lies in the dual nature of the continent’s labour market. The African labour market has a large traditional sector with subsistence incomes and a very small modern sector paying higher wages.3 Rather than increased labour productivity in the manufacturing and formal services sectors, many African countries have experienced a process of de-industrialization and remain largely dependent on agriculture.
Productivity increases in the agricultural sector have, however, been very sluggish and thus not able to offer gainful employment to the ever-growing African workforce. This means that a large number of people need to be absorbed in other sectors. However, the options are limited as most African economies have not diversified. The mining and services sectors, for example, have not been expanding fast enough to offer work to the growing labour force. Most people formerly employed in the agricultural sector are now working in the informal sector, creating a vicious circle of job vulnerability and poverty.
The lack of productive employment is related to a number of factors, including the structure of African economies, insufficient demand for labour, constraints for small and medium entrepreneurs, inadequate skills, lack of knowledge about where to find a job, insufficient education, a general mismatch of skills between job seekers and available jobs, and labour market discrimination. In addition, unemployment or underemployment in SSA is fundamentally interwoven with poverty, as malnutrition and poor health during early childhood inhibit the development of the cognitive and non-cognitive skills that are the basis of human capital. Creating more productive jobs therefore depends on a combination of structural economic changes, poverty reduction strategies and supportive employment and education policies.
Moreover, creating productive employment in SSA does not only depend on national policy-making. It is also linked to the global trade and financial system. This interdependency is analysed in a research project, funded within the NWO Productive Employment programme, on the role of Dutch multinationals in creating productive employment in SSA. The INCLUDE knowledge platform has chosen three areas critical to the creation of productive employment: structural economic transformation, dynamic entrepreneurship, and an enabling policy environment.
The availability of productive jobs in a country depends to a large extent on the productive capacity of its dominant economic sectors. Creating productive employment is thus about stimulating economic sectors that contribute to economic growth and create employment. As manufacturing jobs are often better paid, more stable and offer more learning opportunities than jobs in most other sectors, some scholars argue that Africa is in need of re-industrialization.4 Others, however, argue in favour of either agriculture-led industrial development – implying investment in productivity improvement and technological change in agriculture while laying the foundations for expanding manufacturing – or promoting resource-based manufacturing activities. Both of these options are technology-driven and contribute to employment. Accordingly, diversifying the production and export structure, and introducing mechanisms to channel the wealth generated by resource extraction to the rest of the economy are crucial to the way in which an economy benefits from natural resources.
The following key questions therefore have to be answered: What specific sectors drive growth and create employment in different countries, for young people and women in particular? Do these vary with levels of fragility? How can industrial activities, including simple agro-industrial activities, be promoted in a way that contributes to sustainable employment growth? Can the productivity of informal sectors be increased? And if so, how? What is the role of innovation in promoting employment? What are the linkages between education and the demand for labour in various sectors? Addressing these questions helps us to understand the ways in which various sectors can contribute to economic growth and create employment in SSA.
Besides uplifting economic sectors that can drive inclusive development, creating productive jobs is deeply interconnected with a continuous process of innovation. Innovation upgrades existing production and jobs, and supports the shift to new products and activities in the different sectors. One particular avenue of structural change is the emergence of non-traditional exports.5 In the past fifteen years, several African countries have successfully developed new modern export sectors for a range of products, including flowers, vegetables and brand coffees. An interesting focus of research is how global value chains affect the creation of jobs in SSA. For example, one of the research projects granted funding within the NWO Productive Employment programme focuses on the impact of structural transformation of the dynamic Kenyan fresh produce sector, in particular avocado production, on employment creation.
Another focus of research is how growth-oriented small and medium enterprises (SMEs) and pro-poor innovators can rapidly create new jobs.6 Such dynamic enterprises, or ‘gazelles’, often operate in the informal sector and may face a number of barriers, such as a lack of access to credit. Moreover, often due to restrictive government policies, many of these enterprises operate in the informal sector, where they are stifled by low productivity rates and operate in crowded market segments with low entry barriers. The key question is thus how dynamic SMEs can genuinely help to create productive jobs. Examples of such research are the NWO-funded research projects on innovative, job-creating business models in the IT sector in Kenya and the research project on Ugandan entrepreneurs. Key questions to be answered include: How can dynamic and innovative enterprises create employment, especially for the young people and women? How can these enterprises be recognized? And how can they be supported?
Changes in economic structures and activities need to be accompanied by an enabling policy environment. In many SSA countries, productive employment can be created through policy changes in the export sectors, though the scope of national governments to do so might be limited by global economic constraints. Such changes need, for example, to be directed towards attracting foreign direct investment (FDI), promoting export-oriented industries, selective tariff protection and raising taxes on exports to incentivize the local processing of raw materials.7
National policies that contribute to the creation of productive employment are oriented towards training (vocational, middle-level and technical), entrepreneurial activities or employment services. Such policies can provide incentives for better use of abundant labour resources and enhance the productive capacity of the labour force through the development of human capital. Research is needed on the impact of these policies, and how they are formulated, implemented and accounted for. What types of policies have created productive employment in and outside Africa? What type of policies failed and why? Are there specific policies that promote or hinder productive employment for young people and women? What is the relation between extra-sectoral policies (e.g. on education) and employment creation? An example of research in these areas is the NWO-funded project on the employment effects of road development in Ethiopia and Kenya.
INCLUDE’s aim is to bring together African, Dutch and other international stakeholders and act as a ‘broker’ between them, so as to translate academic findings into inclusive policy practice. With a wide variety of content – updates from the research groups, expert opinions, case studies and stakeholder mappings – INCLUDE aims to provide more thorough knowledge on how to create more productive jobs.