Foreign Policy Centre submission:

International Development Select Committee

Jobs and Livelihoods Inquiry

SUMMARY

• National governments are pivotal in identifying and targeting strategic economic sectors such as: infrastructure, agriculture, industry and household enterprise which are important for generating productive employment.

• Job growth also requires improving access to financial products and services (particularly for household enterprises and micro as well as small enterprises). Engaging the expertise of Africa’s global diaspora and doing more to support the free movement of African migrants across the continent similarly supports employment expansion.

• Increasing employment opportunities across the continent requires addressing multiple challenges. This includes building entrepreneurship training and investing in skills development particularly for young people and women who are disproportionately affected by unemployment, underemployment and working poverty.

• The development transformation process driven by employment expansion helps to create a series of well-integrated markets across a diverse range of strategic and priority sectors. All of which makes economic growth more inclusive.

• Improvements in the quality of jobs can enhance labour productivity.

• More and better jobs facilitates links between local and regional economies, maximising new employment opportunities presented by growing markets across Africa and the wider developing world.

THE FOREIGN POLICY CENTRE (FPC)

The FPC is an independent London-based think tank which seeks to increase public knowledge about foreign policy and international affairs issues.  Through our events, publications and analysis, the Centre aims to develop policy ideas and inclusive partnerships which promotes learning and increases the public’s understanding about how to achieve a fairer world.

1. BACKGROUND

1.1. In 2013/14, the Foreign Policy Centre (FPC) convened a series of roundtable discussions supported by the UK’s development finance institution, CDC Group. The meetings were held in the UK Houses of Parliament and convened by parliamentarians from both the House of Commons and the House of Lords.

1.2. The FPC was invited by a member of the International Development Select Committee to submit the findings of the roundtable discussions which were attended by: Acumen Fund, African Development Bank (AfDB), African Foundation for Development (AFFORD), BP, Business Fights Poverty, CARE International, , CDC Group, , Development Initiatives, Diageo, DfID, Embassy of Ethiopia, Enhancing Nigerian Advocacy for a Better Business Environment (ENABLE), Forum for Growth and Innovation (Harvard University), GSM Association, High Commission of Mozambique, High Commission of the Republic of Rwanda, High Commission of South Africa, London Stock Exchange Group, Oxfam GB, Policy Research in Macroeconomics (PRIME), MasterCard Foundation, Mitsui & Co, SABMiller, Standard Chartered, Tony Elumelu Foundation, Trio Policy, Twin and Twin Trading, Pearson Group, University of Oxford, Up!-Africa Ltd, World Bank and Y Care International. The full report entitled ‘Employment, enterprise and skills; building business infrastructure for African development’ can be accessed here: http://fpc.org.uk/publications/employment-enterprise-skills

2. RECOMMENDATIONS

2.1. The discussion series identified that the employment challenge across Africa remains a complex issue. Yet, a number of practical responses were suggested which might address the jobs dilemma. These recommendations could contribute to a better understanding of how best to tackle the problems of unemployment, underemployment, precarious employment and working poverty across the continent.

A FOCUS ON SECTORS

2.2. Prioritising public and private investment in labour intensive sectors such as agriculture and industry would help revolutionise employment expansion. This would enable deep structural change to promote economic diversity and increase labour productivity outputs. Developing food processing and light manufacturing sectors would provide important employment opportunities for women and young people. This is particularly the case given the continual growth of African consumer markets and the linkages this creates between firms in domestic economies.

2.3. Furthermore, one of the most significant obstacles to the growth of these ‘employment-expanding sectors’ is inadequate access to and investment in reliable infrastructure. This can range from energy, transport and ICT (information and communications technology), to access to water and sanitation services as well as roads. Beyond jobs created through the initial construction and on-going maintenance of infrastructure, the jobs generation-effect created by infrastructure programmes helps improve service delivery as well as lowers transaction and production costs for enterprise. Infrastructure acts to create economic linkages, develops wealth through creating viable assets as well as markets and boosts economic demand. All of which supports further employment expansion. Efforts to accelerate power generation, distribution and security of supply are critical for jobs growth across the region.

SCALE MATTERS

2.4. The scale of job creation required to meet mounting supplies of labour cannot be underestimated. The private sector provides 90 per cent of jobs created in the developing world. Yet, across many African economies, the complex nature of an expanding work force and the structure of economies means that formal waged employment and formal private sector jobs growth remains an important but long-term objective. The short to medium term reality is that agriculture and household enterprises in the informal private sector cannot be overlooked. They represent the most significant source of current employment in Africa. Furthermore, almost 70 per cent of all permanent full-time jobs are provided by small and medium sized enterprises (SMEs) which are most at risk of failing. This suggests that SMEs have a significant role to play in employment expansion as they have higher rates of jobs growth, despite their frailties. Nonetheless, it is worth noting that large companies are more likely to provide higher rates of productivity, training and income, improving the overall quality of employment. Greater linkages between micro, small and large firms through supply and distribution chains will provide important platforms to create productive employment, particularly growing more medium sized enterprises.[1]

EMPLOYABILITY

2.5. Addressing the employability challenge through relevant education, training, technical and specialist skills is central to sustainable employment-led growth. All of these elements build important platforms to develop labour productivity. Furthermore, improving employability skills, experience and expertise provides important access routes for jobs to move from the informal to the formal sector. With respect to education provision, improving the development of solid foundational skills such as robust literacy, competent numeracy and practical information and communications technology (ICT) know-how is paramount. With regard to training, promoting schemes which nurture  transferable skills such as: effective communication, leadership development, adopting and adapting to technology and innovation, risk and resource management, as well as fostering entrepreneurial abilities are also crucially important. In addition, building opportunities through work placement and apprenticeship schemes, training programmes, direct vocational training (e.g. in industrial clusters) and mentoring arrangements which support the development of technical, specialist and professional skills needed for employment across a diverse range of essential economic sectors are also vital. Business needs to be central in developing training programmes and curricula. In addition, the African diaspora can provide important platforms to share and support skills development in their countries of origin.

QUALITY MATTERS TOO…

2.6. The quality of and access to decent, productive jobs is critical for employment-led growth to drive and deliver long-term development impacts which transform the nature of economies across Africa. Decent employment will enable workers to enhance their well-being and that of their families. In addition, good jobs need to provide stable livelihoods and build robust job prospects. Jobs which compound the vulnerability, poverty and underemployment of workers do very little to develop the structure of economies[2]. An expansion of jobs in the services sector can be regarded as progress. However, a growth in informal urban service sector employment, for example, is a drag on structural transformation due to the low rates of productivity generated.

ACCESS TO FINANCE

2.7. Functioning financial markets which provide access to and the distribution of affordable and reliable domestic finance are considered essential. Employment expansion in Africa is dependent on institutions which are adequately able to assess and price risk with respect to: credit, insurance (particularly micro-insurance), savings, payment systems and other forms of financial products and services. The financial sector needs to expand through appropriately regulated non-banking institutions which can provide alternative ways to increase financial sector participation, particularly across the informal private sector.

POLICY CO-ORDINATION

2.8. Finally, a co-ordinated policy environment is essential for maximising employment expansion and enhancing its direct as well as indirect impact on improving economic productivity and igniting structural change. National governments and public agencies can build partnerships with the formal and informal private sector as well as other important stakeholders including civil society, international as well as regional development and finance institutions. Where possible, these alliances can set sector-specific measurable targets to support the development of: financial assistance, infrastructure networks, investment climates and regulatory environments which ultimately enhance the development impact of good jobs. Examples include concrete efforts to improve migration policy and promote greater free movement of African workers across the continent. In addition, national governments could create greater opportunities to harness the investment and trade expertise of their diaspora entrepreneur networks. This could prove instrumental for structural transformation by growing and transitioning micro and small informal enterprises to become medium formal sector businesses.

3. WHEN GROWTH IS NOT ENOUGH

3.1. Africa has become one of the highest global growth regions, boasting 16 of the world’s top 30 fastest growing economies. In 2013, average growth rates across Africa stood at four per cent. Africa south of the Sahara registered an impressive five per cent growth rate. This is projected to rise to just under six per cent in 2014.

3.2. What impact might Africa’s economic performance have on the structure and trend of current and future employment? This is particularly important given the continent’s substantial informal private sector, chronic underemployment and vast swathes of precarious jobs.

THE DRIVING FORCE IN DEVELOPMENT TRANSFORMATION: JOBS, JOBS, JOBS

3.3. For Africa’s impressive growth rates to become robust and sustainable they need to develop the ability to profoundly transform and diversify the structure of the continent’s economic landscape. Good employment opportunities are critical for igniting this change. Yet almost 78 per cent of workers across Africa either work for themselves or engage in unpaid family work. This rate of vulnerable employment is the world’s highest relative to other global regions[3].

FUTURE EMPLOYMENT FORECASTS

3.4. The results of a 2012 survey conducted by the McKinsey Global Institute entitled ‘Africa at work: Job creation and inclusive growth’ questioned a number of perceptions commonly associated with labour markets across Africa. The continent’s labour force stands at 382 million workers, 42 per cent of which are employed outside agriculture. The retail, hospitality and manufacturing sectors accounted for 18 per cent and 11 per cent (respectively) of all new waged employment created since 2002. By 2020, these sectors are predicted to create 25 million jobs. By which stage, potentially 122 million more workers will have joined Africa’s labour market. This is anticipated to create an additional 72 million new formal sector wage-paying jobs. Predictions suggest that by 2035, Africa will collectively boast the world’s largest labour force, exceeding the size of the work forces in China as well as India. This survey uses fast-growing economies across the developing world to forecast Africa’s future jobs profile so might be overly optimistic[4]. Yet, it does suggest that other sectors demonstrating strong signs of employment growth potential include: transport, construction, communications and financial services. In spite of all this, today only 28 per cent of Africa’s labour force has stable waged employment[5]. The nature and structure of employment across Africa remains vulnerable because of the continent’s demographic composition and the slow pace of structural changes in production.

AFRICA’S YOUTH BULGE: A DEMOGRAPHIC DIVIDEND?

3.5. Of the 1.2 billion global youth population aged between 15 and 24, 14 per cent reside in Africa south of the Sahara. This continental demographic is expected to increase by approximately 182 million by 2050. In addition, the youth dependency ratio – the ratio of the young population dependant on the productive or active population – is relatively high in this region. For a vast swathe of African economies, the informal private sector represents the most significant provider of employment for this growing youthful demographic. Examples include the Democratic Republic of the Congo (DRC), Cameroon and Zambia, where the percentage of informal youth employment is approximately 96, 87 and 100 per cent respectively[6]. The pressing need to address this challenge is demonstrated by the fact that each year, approximately 10 million new workers enter the African labour market[7]. The sheer size and scale of the employment dilemma confronted by young Africans is compounded by sluggish structural change which is failing to take advantage of Africa’s youthful labour force and generate higher levels of productivity.

THE NEED FOR STRUCTURAL TRANSFORMATION

3.6. Nearly 60 per cent of Africa’s working population are employed in agriculture. On average the sector accounts for 25 per cent of the continent’s economic growth. Yet, the sector is failing to meet its full potential. Less than 5 per cent of cultivated land is irrigated across Africa. Post-harvest loss ranges from 15-20 per cent and universally there is low use of quality inputs. On average 13 kilograms of fertiliser per hectare is used across Africa south of the Sahara compared to 73 kilograms across the Middle East and North Africa (MENA). Given that urban food and beverage markets are set to experience a four-fold expansion, potentially reaching USD one trillion by 2030, the potential employment prospects for African agriculture could be colossal[8].  

3.7. For many developing economies, the labour intensive industrial sector – particularly manufacturing – has provided an important platform for generating waged employment. However, across Africa south of the Sahara, jobs in industry represent less than 10 per cent of paid employment, compared to over 30 per cent in East Asia[9]. This is aggravated by the fact that some of the high growth economic sectors of industry (e.g. mining) are capital intensive and can only claim fragile links to wider national economies, so are failing to support job creating sectors.

3.8. In addition, how might African economies ensure that the growth generated by this structural transformation results in meaningful employment creation? Africa represents the least integrated global continent with only minor levels of both intra-regional trade and global economic exchange. For example, Europe has long been Africa’s major trading partner. In 2012, two-way trade was valued at USD 240 billion. This represented approximately 38 per cent of Africa’s total trade with the rest of the world. Asia was the second largest trading partner representing just over 25 per cent of total trade at USD 160 billion. North America represented just under 12 per cent registering USD 74 billion. While intra-African trade is increasing more rapidly than Africa’s exports with the rest of the world, it only stood at USD 81 billion in 2012[10].

3.9. A profound shift in the nature of African economies will contribute to: improving ordinary people’s living standards, generating the investments needed to develop diverse economic sectors which support social development and building public and private infrastructure. However, understanding the impact of structural change on inequality must not be overlooked. For example, what influence might structural change have on income distributions across economic sectors, as well as rural compared to urban incomes[11]? The reality is that such an economic transition will be a gradual and longer term objective. In the short to medium term, traditional sectors such as agriculture and household enterprises remain a significant source of employment[12].

Foreign Policy Centre written submission to the International Development Select Committee. Jobs and livelihood inquiry.

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