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Private sector development (PSD) interventions alone will not automatically create the (better-quality) jobs needed for youth in Africa. A balance must be found between a focus on creating much needed short-term jobs and tackling underemployment in low-productivity firms and sectors in Africa and creating better-quality jobs in high-potential growth firms and large firms. These are some of the key findings of the new evidence synthesis paper, ‘Private sector development interventions and better-quality job creation for youth in Africa: linking business performance with productivity growth and sustainable job creation‘, prepared for INCLUDE by Evert-jan Quak and Justin Flynn from the Institute of Development Studies (IDS).

In the frame of the ‘Boosting decent employment for Africa’s youth’ partnership between INCLUDE, IDRC and ILO, under the umbrella of the Global Initiative on Decent Jobs for Youth, a series of evidence synthesis papers will be released in the coming years. Led by INCLUDE, these papers will take stock of existing evidence on themes relevant to the youth employment debate. The first paper in the series was prepared by Evert-Jan Quak and Justin Flynn from IDS. It consolidates the available evidence linking PSD interventions with job creation for youth in Africa for three outcomes: job creation for youth, better-quality jobs creation for youth, and sustainable job creation for youth.

The private sector, through job creation, is seen as key to addressing the current youth employment crisis in Africa. It is clear that more high-quality jobs are urgently needed to address the high youth unemployment rates in North and South Africa, high underemployment in Sub-Saharan Africa, and the generally insufficient number of formal jobs available. One way to do this is through PSD interventions, which seek to improve firm performance and increase labour productivity in firms and sectors. Increasing labour productivity is important for firms to increase economic surplus, creating greater value and, thus, increasing incomes, particularly in low-productivity sectors. Research shows that employment (for youth) in Africa will be mostly achieved through PSD interventions, enhancing higher productivity in labour-intensive sectors such as agriculture, manufacturing (especially food processing and light industry such as textiles), and construction. However, what may count more in the long term are the investments in capital-abundant sectors, which can generate ‘transformational’ effects spurring labour market dynamics through job creation. Context-specificity is key, so PSD strategies should consider a country’s income level and phase of economic transformation to develop more targeted approaches.

With donors and governments increasingly focusing on PSD interventions that aim to improve a firm’s productivity, business performance and employment outcomes, it is important to consider the interactions between these outcomes. Different types of PSD interventions (on micro, meso and macro levels) targeting different types of firms (especially in term of size) have mixed results with regards to better-quality job creation for youth in Africa. Larger firms in Africa, those that have 100–250 or more employees, are seen as better able to increase the amount of sustainable jobs than smaller firms. This does not mean that small firms do not create jobs – in fact, the opposite is true, as 8 or 9 out of 10 jobs on the continent are created by small or medium-size enterprises (SMEs) – but over time the failure rate of SMEs is high, which may result in job losses. Because larger firms have higher productivity levels, they can generally provide higher wages and better and more sustainable jobs. Therefore, a PSD strategy should balance the focus between formal sector job creation in larger firms (mainly by encouraging investments and an enabling business environment) and tackling the constraints that SMEs (especially those in the informal sector) face, so that they can not only survive, but increase production, productivity and better-quality employment in the long term.

The youth employment challenge can be partly addressed with PSD interventions that improve firm performance and productivity. However, PSD interventions should further internalize youth employment issues and aggregate data collection to secure youth employment outcomes and understand them better. To this end, based on the evidence gathered, the paper recommends the following:

• PSD interventions and investments should be more targeted and context specific. It is necessary to understand potential sectors for high job creation for youth (light manufacturing and food processing) and a firm’s potential to increase productivity significantly with positive spillovers to the economy, including generating high quality jobs.
• Local and regional markets, as well as the informal sector, should not be ignored.
• It ought to be acknowledged that the success of PSD interventions in Africa depends heavily not only on economic factors, but on political factors as well.
• Better and standardized data that captures labour market dynamics is needed to improve the evidence base on firm performance with regard to employment outcomes for youth.
• Funders should encourage the implementation of an iterative learning component in their programmes to shed more light on their effectiveness and to ensure greater adaptability to the context.