Category: unemployment

Africa needs private sector growth and jobs.

If there is one thing that African economies are not good at, it is fostering the growth of the private sector and creating jobs. This problem, more than debt, more than global geopolitics, more than infrastructure deficits is holding the continent back.

As the last two centuries have shown in Europe, America and Asia, the greatest poverty reduction strategy is jobs. People getting regular incomes spend creating demand in the economy and driving growth. They save creating a pool of savings (something else Africa struggles to do) and that is invested in funding the growth fuelled by the growing demand. Africa needs jobs, and to get those we need a growing private sector. On top of this, private sector fuelled growth is indigenous, it is not reliant on cheap western credit, or Chinese largesse.

However, Africa does not benefit from this self-perpetuating driver of prosperity and poverty reduction. Wage employment in sub-Saharan Africa has barely risen 2% since 1991.

Figure 1: Wage and salaried workers, total (% of total employment) (modelled ILO estimate) – Sub-Saharan Africa | Data (worldbank.org)

In fact, we have become so bad at it we have fetishised entrepreneurship, micro-enterprise, and self-employment. Encouraging young people to become entrepreneurs, to hustle, celebrating those that make it while not acknowledging the high failure rates that they experience (estimates suggest that 70-80% of African startups fail within their first five years). More so, the policy makers, multilaterals and foundations that lead the entrepreneur and MSME cheerleading fail to acknowledge that the high cost of credit and capital that fundamentally undermines those same entrepreneurs and businesses is driven by the fact that we have low savings and thus low levels of native capital available for investment. More than that, everyone trying to be entrepreneur, whether they want to or not, does the wider economy little good.

To rekindle our private sector and create jobs. We must create the conditions in which businesses can thrive and hire more people. Today African businesses are strangled by an ever-growing web of regulations, a policy environment that is unpredictable and disconnected from their everyday realities. Africa needs to create its own prosperity, drive its own growth and for that we need jobs, and our policies need to be geared towards that outcome.

Regulation that works not hinders

Regulation is necessary and it is not evil. Standards agencies and food authorities ensure that the food sold to us is safe to eat, medical boards and bar associations ensure that our doctors are not quacks and lawyers are not hacks.

A well-regulated economy is a positive for the private sector, it ensures stability, enables competition by levelling the playing and most importantly protects citizens. Africa, in general does not have good regulatory systems, and as a result the private sector is hampered by old regulations, poorly written regulations, contradictory regulations and sometimes no regulations. What Africa needs is regulation that works and getting there will require regulatory reform that does three critical things, expand capacity, updates and Africanises regulations.

  1. Capacity – many African regulatory agencies are understaffed, under resourced and underfunded and struggle to enforce their mandates. Frustrating businesses that need licenses, permits, approvals, certificates, standards etc. and endangering the public. Regulations are a necessary public service and the agencies in charge of delivering that service should have the capacity to deliver that.
  2. Updates – a lot of regulation and legislation on the continent is old, dating back to decades some to the colonial era. To operate modern businesses and attract investment you need modern regulations that cater for modern world. Without that you get either chaos or stagnation. For instance, Kenya’s building code dates to colonial Kenya of the 1950’s it does not account for modern construction methods, or modern ways of covering up shoddy work. This has led to a chaotic construction sector dependent on the morals on the developer in question. Leading to a country of modern buildings side by side with collapsing buildings that kill people. African governments need to take a step back, assess their critical regulations and bring them up to date.
  3. Africanisation – we have a bad habit of adopting regulatory regimes from another part of the world, because it is ‘global best practice’ but never updating and adapting them for the African context. Thus, we end up with regulations that we don’t really understand, that are not fit for the African purpose. It is not enough to adopt global best practice, but African governments must ensure that they adapted to and fit their context.

Coherent predictable policy

I have written about this previously and will keep writing about it. The way most African governments make and implement policy lacks coherence and ends up creating a disjointed and unpredictable policy landscape. Sectors (and their ministerial departments) do not exist in isolation, policy in one sector must be connected to another. A packet of biscuits, that you find on the shelf of a shop utilises products from different sectors, wheat from agriculture, milled flour, and sugar in the manufacturing sector, it is transported in trucks on roads from the transport sector and sold in a shop from the trade sector. It is very likely that the farmer, manufacturer, or shop owner has utilised credit from a bank or insurance from the financial sector. If policy is made in any of those sectors it can affect the others and the costs of doing business, and when done so in isolation, the unfortunate biscuit manufacturer may find their business adversely affected by a choice made without the consequences on their sector in mind.

Coherent, predictable policy is the bedrock of a growth environment for the private sector. We must keep demanding this from African governments until it becomes a reality.

Public Private Engagement, Accountability and Action.

One of the key lessons I take from the rise of the Asian tigers is the constant dialogue and collaboration between the public and private sector. Taiwan’s semi conductor industry, now the most important in the world would never have become a reality unless the industry and government were constantly talking and acting in pursuit of shared goals.

In Africa much the government and private sector have either an adversarial reaction where they are fighting each other or an ambivalent one where they talk but don’t listen. Significant sustained private sector and job growth requires genuine engagement and understanding between the public and private sectors.

Government and private sector must not only talk to each other but listen to each other. This requires both sides to recognise and understand that the motivations and goals of the other are legitimate and beneficial. Once that understanding is in place then shared goals can be developed. The growth of the private sector is an inherent goal of business, but it must also be one of government, tied to that the government goals of job growth and key issues like worker conditions, training and education, environmental sustainably must also be private sector goals.

When an honest dialogue and shared goals are established then, plans with key actions and milestones can be developed and the public and private sectors can hold each other accountable to those plans, and thus take real action.

Right now, Africa has an overwhelming number of vision 2030/35/40/60s etc. strategic plans, manifesto’s and blueprints. All of them developed largely by public sector and highly paid consultants with token input from the private sector. The core of their ineffectiveness stems from the fact that these documents are disconnected from and largely meaningless citizens and private sector they are being enacted on. Honest dialogue to establish shared goals and a shared plan will lead to real action and accountability because both the public and private sectors have something to gain from effective implementation.

So long as we continue the ambivalent and adversarial relationship between the public and private sectors, their engagement shall continue to be ineffective.

Jobs and growth

Without private sector growth and jobs, much of our development discourse is meaningless. With jobs come incomes, savings, investment, demand, and tax revenue. With jobs individuals and households have incomes, the ability to pay for housing, healthcare, recreation and invest in the future. In short with jobs come agency and dignity both for people and the nation, and dignity is at the core of my definition of development.

Without private sector growth and jobs, we will be stuck in our perennial cycle of economic growth that is meaningless to the vast majority of African’s, followed by debt crises as African governments attempts to invest and spark growth with debt (on the advice of consultants or multilaterals) falls flat yet again.

If we want indigenous self reinforcing growth, that enables people to live dignified lives out of poverty, then the lesson of the industrial revolution and rise of Asia is that you need a growing private sector and jobs. Our governments need to get serious about providing an environment that can foster that and collaborating with the private sector to create a shared vision for the future with jobs at its heart that both the public and private sector have a stake in achieving.

 

Forging social safety nets for Africa

Social safety nets are often seen as luxuries for rich countries. However, as we Kenyans say “2020 has shown us things”. Across Africa, the coronavirus has seen governments across the continent implement a raft of measures to cushion their citizens against the socio-economic impacts of the coronavirus pandemic. For instance, Togo rolled out an expanded digital cash transfer program called Novissi and South Africa has expanded its existing welfare and unemployment benefits system. And these are not isolated policies. Having shown that social safety nets are possible. The question shifts, from can Africa have social safety nets, to what should longer–term African social safety nets, that alleviate poverty and confer dignity look like. 

The need for a social safety net  

 The world of work and employment is changing. Formal employment is less common, and most Africans do not earn a living in formal jobs with regular paychecks. The informal jobs and agricultural work that provides the bulk of jobs on the continent often provide uncertain incomes. Compounding this is the fact that African socialism (also known as the black tax) is becoming harder. Incomes are more and more stressed, and it is becoming harder for individuals to extend support to the family, and the community that has in the past functioned as an unofficial safety for many.  

What is needed is an expansion of the African community spirit of Ubuntu to the core of our formal social contract, with the state through well designed social safety nets, and we can do this by designing and implementing sustainable safety nets.   

Defining a social safety net  

 The start of designing a safety net is defining its purpose. Which should be, in my mind, at its core about putting in place a floor beneath which society says its members cannot fall. It is not intended to replace work, or even disposable income, but rather to ensure that people do not fall into deprivation and desperation.  

The second critical issue is simplicity, which covers two key issues.  

1 – Simplicity of targeting. That the people for whom the safety net is intended are clearly defined, e.g. households that earn less than a clearly defined threshold, or even all adults over the age of 18.  

2 – Simplicity of access. A social safety net does not function if the people it is meant for cannot access it. Thus, unlike countries like the USA or UK, we cannot develop notions of the deserving or undeserving poor, which lock millions out of critical support. Thus, the means of accessing these support systems must be easy to understand, easy to find and easy to navigate.  

The third critical issue is the sustainability of funding. This means identifying and defining a long-term funding mechanism. Not a donor or simple year on year budget allocation that is subject to political changes every year. But a dedicated mechanism like a specific tax, or a percentage of royalties from natural resource extraction, will ensure significant funding over the long term. In addition, a broad, sustained funding mechanism fosters a broad feeling of everyone having skin in the game and creates broad social and political support for a safety that will ensure its long-term acceptability and stability.  

Forging the net  

So, with those critical elements in mind, what does an African social safety net look like. Each country would undoubtedly choose its own unique combinations, there are options on the table that are doable and can be made distinctly African. Not copying western systems but shaping them to our needs. Such as a universal health care system based on the provision of quality primary healthcare, that cushions people from the often crippling costs of healthcare and vastly improves the quality of life. Or a basic minimum income that lifts people out of poverty and gives them a basic level of peace and dignity. Or even community/locally based support systems that are run and funded by communities and directed to the things and people that they consider most pressing with central governments providing additional funding.  

Social safety nets are not a panacea for the socio-economic problems that the continent faces. However, they can be an important piece of the suite of solutions that drive our development. But beyond that social safety nets can reshape the relationship between African citizens and their governments. Moving away from the colonial relationship that, persists in far too many countries of the ruler who sometimes hands out goodies to the ruled masses. To one based on the government genuinely looking out for its people, recognizing their dignity, and placing it at the core of our development.  

Avoiding Demographic Doomsday: Redefining Employment in Africa

One of the central challenges facing much of Africa is unemployment, in particular youth unemployment. The African Development Bank estimates (see figure 1) that of Africa’s approximately 420 million young people (aged between 15-35) only one-sixth (16.6% or 70 million) are in formal employment. One-third are partially or vulnerably employed, and half are not employed at all. That means 140 million young African’s are at risk of losing their job at a moment’s notice and 240 million have no job and little prospect of one.

(fig.1. source African Development Bank)

This is a disaster. Half of Africa’s youth, their potential contributions to society and personal dignity and well being, is wasting away. Is it any wonder that these young men and women are risking life and limb on horrific journeys to try and get Europe for the prospect of a better life?

This though, is only half of the story. Africa’s youth population is expected to double to over 850 million by 2050. If the continent cannot find a way to harness the potential of its youth, then the continents demographic dividend could turn into a demographic doomsday. As young unemployed Africans with no stake in the economy and no prospect of a better life turn to dangerous radicalism, extremism or crime as a way out; migration will be the least of our worries.

Thus, the question becomes how do we avoid this demographic doomsday scenario? One answer is to rapidly grow the formal economy and employment via industrialisation. This is the path that much of the continent is trying to pursue. Investing in infrastructure, ease of business reforms, business incentives and trade expansion, all aimed at spurring economic growth and employment. Frankly, it has not been enough. While growth has been positive it has not been at the rate we need, and not nearly enough jobs have been created.

What is needed is a policy for the biggest non-agricultural employer on the continent, the informal sector. The majority of those in informal business (and many with jobs who have a side hustle) depend on the informal sector for their livelihoods.

Alongside agriculture, the informal sector is the foundation of the African economy and its time our policies and laws caught up to that reality. Doing so would help solidify fragile livelihoods as well help drive growth and opportunity in the economy. We can start by changing our laws to redefine employment to include the informal sector and investing in the skills, knowledge and capabilities  of those in the sector.

The Informal Sector in Africa

The informal sector can be broadly defined as activities or enterprises that produces and sells good or services but are not formally registered and do not pay taxes.

The International Labour Organisation (ILO) estimates that the informal sector represents 41% of GDP on the continent and 66% of total employment in Sub-Saharan Africa and 52% in North Africa, and that eight in ten (80%) of young workers end up in the informal sector. These figures tell us an important fact about the reality of employment in Africa, that most people earn their livelihoods through their own ingenuity and drive, hustling, and either working for or running small enterprises, they don’t have an employment contract or get a pay check. Thus, the laws, regulations, and protections of labour and employment laws are irrelevant to them. The second key thing that stands out about Africa’s informal sector is its resilience and adaptability. It has survived the ravages of one party States and dictators, near collapse of the economy in the 1990s, endemic rent-seeking and corruption, changes in weather patterns and the cycles of economic booms and busts.

It is time that government policy focused on enabling, harnessing the sector by integrating it into the wider economy, not at the exclusion of wider policy goals such as industrialisation but as part of it.

Redefining Labour and Employment

The first step to integrating the informal sector and the people in it to the wider economy is through legal definition and recognition. Just as labour and employment legislation across the continent recognises, regulates, and protects people in formal employment; similar legislation for informal sector could provide the people and businesses in it with legal protection and a foundation upon which they can build and grow.

Informal sector legislation and policy would not simply be applying the rules of the formal sector to the informal sector (which would be ignored anyway); rather it should be crafted for the needs of the informal sector and would include the following:

  • A valid legal definition of an informal sector business and job with a simple way of registering it. Registering an informal business should be as easy as getting a SIM card or a mobile money account. The goals are not to tax or regulate the sector but for registration to be a gateway to the enabling and protective elements of the laws and policy.
  • Simplified contracts and small claims courts. A constant risk in the informal sector is that you do not have the protection of the law, if you make an agreement with someone to buy or sell something it is based on their word alone. Providing a simple contract template that all can use gives buyers’ and sellers’ basic rights (such as refunds on non-delivery of goods or services). A small claims court to enforce disputes under these specific contracts quickly (rather than the expensive, laborious and slow normal court system) would engender trust and facilitate business.
  • Banking and credit access. Make it possible for informal enterprises to use their registration to open bank accounts, access credit and use their assets (e.g. a motorbike) as security for loans.
  • Provide access to national health, pension and welfare schemes. Most national health, insurance, pension and welfare schemes are based on a (formal) employee contribution model, where a portion of your salary is contributed to various schemes. On a continent where most people are not in formal employment it means that these schemes are underfunded, and many do not include everyone. Providing a way into these schemes for the informal sector like a simple subscription or yearly fee would be a way to both expand them to the wider population as well as boost their funding
  • Allow informal employees and businesses to organise. Allowing the informal sector to form co-operative societies, unions and associations would open new avenues to credit (through the pooling of savings in co-operatives), better working conditions and more powerful voice to advocate for their interests.

Legal definition and recognition opens the door to the protection and progress of the livelihoods that depend on the informal sector. Laws may be boring, but they are crucial.

Capacity Building

Legal recognition is only half the equation, for the informal sector to move from being a source of subsistence for individuals to a source of growth for the economy. Africa needs to give the people in it the tools, skills and knowledge to create, recognise and take advantage of opportunity.

The first aspect of capacity building is coupled with legal recognition. Changing laws is ineffective if the people they are aimed at are not aware of the changes and how to take advantage of them. Thus, the capacity building exercise would be a public education exercise, focused on making people within the sector aware of the changes and how to take advantage of them.

The second is around skills and knowledge training. Putting together programs that train people on key aspects of business administration, opportunity identification and marketing, crucial skills needed if they are to successfully invest and expand beyond subsistence.

The Informal Economy as an Opportunity

Most policies that African governments have come up with around the informal sector are focused on formalisation and extracting taxes and most policy around employment growth is focused on expanding formal employment. While these goals make sense, they ignore the reality of the crucial role that the informal economy plays in livelihoods and the economy of Africa.

Employment in the informal sector is not wrong or inconvenient, it is normal for Africa. And, for Africa’s development to be truly African it must not only be led by Africans but work for the majority of Africans, many of whom are employed in the informal sector.

Few if any of the development initiatives pursued by governments and institutions across the continent are aimed at furthering this sector. This approach ignores and underserves a sector which has been the foundation of the African economy, which has, since independence proven to be resilient, innovative and frankly, African.

Redefining employment in Africa to recognise and support the informal sector will not hamper or stop industrialisation or the growth of formal employment. Rather it is about understanding that the giving the hundreds of millions of Africans whose lives depend on the informal sector a stake in the economy and the opportunity to grow, is not only good for the economy it is good for people, and if that is not what development policy is about it is what it should be about.