BAINBRIDGE ISLAND, Washington — In the past decade, Africa has experienced a high rate of economic growth. The economy expanded at a rate of 4.7 percent in 2013 and is increasing to an expected 5.2 percent in 2014, due to factors including natural resource and infrastructure investment, as well as household spending.
This growth has not included job creation, however. Sub-Saharan African firms typically have 24 percent fewer employees than equivalent companies in other locations, according to a recent study by the World Bank and the Center for Global Development.
While the African economy is expanding, its growth does not translate into a larger job market or lower rates of poverty – but why?
The study examines data from 41,000 established businesses around the globe but this, in part, is what makes it so difficult to fully understand the African job market.
Many Africans have difficulty finding a formal job, and thus turn to work that is below the radar, such as farm work.
About nine out of 10 workers in Africa have an informal job, but a large informal sector makes it difficult to lower poverty rates, as well as thoroughly examine the entirety of African employment.
Workers often turn to the informal sector because the African market generally discourages hiring employees. Companies generally have a younger set of employees and those with an older group of workers often have less people working for them.
Firms have another incentive to stay small because of government attention. Government officials often target larger firms when seeking out taxes and bribes, as opposed to smaller businesses, because they are more likely to give up the money, says Vijaya Ramachandran of CGD. Company leaders in Nigeria and Liberia of firms with more than 100 employees spend 14 percent longer than small firms dealing with bureaucrats.
High costs of labor also play into low rates of employment. Labor costs are higher in half of African countries than in China because African employees are less productive. When compared with regions of similar income, labor costs in African countries are almost 80 percent higher. This makes African products less competitive and does not give companies incentive to hire more workers.
The African economy is largely commodity driven, which may also factor into low employment. Approximately four-fifths of the economy’s export revenues come from commodities, or primary products, rather than manufactured goods. If commodity prices rise, increased costs can lead to overvalued exchange rates.
When exchange rates are higher, foreign companies are less likely to purchase those goods. This makes African firms even less competitive, hampers their growth and further discourages hiring workers.
The dynamics of the African economy are predicted to change drastically between 2010 and 2050, with an expected 250 million people joining the workforce. This may also affect employment, in that a great majority of these workers will likely go into the agriculture sector, which employs 65 percent of the African workforce.
However, the agriculture sector has trouble creating enough jobs. In the 1990s, donors who formerly invested in agriculture improvement lost interest in using their aid money to do so. Thus less money is going toward improving farming techniques, which would help make agriculture in Africa more sustainable.
In order to increase job availability and growth in the long term, investment in basic infrastructure may be an effective way to improve African employment. Investing in the private sector, agriculture and manufacturing are potential ways with which African countries can shift the structural dynamics of the job market.
As the African economy and workforce continue to grow, the time to make structural change is becoming increasingly important. Though employment rates are currently low, the opportunity for employment has the potential to change drastically with the economy’s growth.
– Julia Thomas