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Key variables which impact the demand for labor in Africa
Lee-Roy Chetty   Jun 11, 2013   Ethical Technology  

The structure of many African economies is unbalanced and unable to deliver labor intensive and inclusive growth. Most African economies are characterized by both excessive dependence on export revenues from a few commodities and external financial flows (FDI, aid and remittances) and a weak industrial base and predominance of subsistence agriculture.

In addition, up to at least 19 countries in Africa are significant producers and exporters of oil and minerals, which often diverts resources away from “value-adding” sectors. This has left the economy vulnerable to commodity price fluctuations and international vested interests, breeding corruption and environmental problems and, last but not least, condemning the majority of the people to economic exclusion and poverty.

The lack of labor-intensive sectors and the highly unequal distribution of resource rents have, in some cases, led to social and political unrest.

Over the last 25 years, the potentially dynamic and buoyant informal sector has not effectively absorbed job seekers. Productivity has increased in the agriculture sector yet it remains relatively marginalized by virtue of its prevalent rural aspects and the insufficient leverage of technology to enhance its functioning. This continues to affect its ability to attract educated school drop-outs and graduates. Even more of a concern is the decrease of the average labor productivity of the non-agricultural informal sector in Low-Income Countries (LICs) in sub-Saharan Africa over the last decade.

Private sector promotion strategies are also not necessarily geared to employ highly skilled labor (partly because of technological constraints). Off-shoring and outsourcing strategies implemented in North African countries as well as in some SSA countries (Senegal, Kenya, Ghana and South Africa) which provided job opportunities for unskilled and middle-skilled workers can be considered as a good illustration. Few countries have implemented a global strategy to enable employment for university graduates. Morocco and South Africa have taken some actions in this regard and more university graduates could enter this segment of the labor market.

The investment climate in Africa is also not conducive to job creation. Doing business in Africa continues to have a higher transaction cost, although there is some evidence pointing to an improvement in the general investment climate. Africa’s share of global foreign direct investment flow remains relatively low therefore the continent continues to miss out on employment-generating opportunities that accompany such investment flows. Limited access to international credit as well as prohibitive cost of domestic credit and land in some countries are not favorable for private sector development.

In addition, informal employment dominates the labor market and accounts for 72% of non-agriculture employment in sub-Saharan Africa. The size of the informal economy as a percentage of gross domestic products (GDP) varies from country-to-country, with ranges from under 30% in South Africa, the continent’s largest economy, to almost 60% in Nigeria, Tanzania and Zimbabwe (World Bank 2009). About 60% of jobs in the informal sector are not skilled. Studies have shown stark differences in the education levels between youth workers in the informal and formal sectors. For instance, in South Africa, 37% of workers in the informal economy have not completed primary school education compared to only 16% for the formal sector. Furthermore, youths do not have appropriate skills for other forms of formal sector employment in industry or service activities.

Lee-Roy Chetty holds a masters degree in media studies from the University of Cape Town and the University of Massachusetts, Amherst. A two-time recipient of the National Research Fund Scholarship, he is currently completing his PhD at UCT and an economics degree with Unisa.

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