How to Generate Employment and Attract Investment Beatrice Kiraso Director UNECA Subregional Office for Southern Africa 1 1. Introduction The African Economic Outlook (AEO) is an annual publication that is sponsored by all or sometimes some of the following organizations: OECD, AfDB, UNDP, Dev Centre, UNECA and the EU. The 2012 AEO was on a special theme of Promoting Youth Employment. It highlighted the following: Africa has registered impressive growth for more than a decade and demonstrated some resilience to the deep global recession and the setbacks from the uprising in North Africa. As the aftermath of the world economic crisis continues, the continent s growth fell from 5% in 2010 to 3.4% in 2011. Further, due to rising food and fuel prices, Africa s median inflation rate increased from 5.8% in 2010 to 7.9% in 2011. While the two scenarios above improved slightly in 2012 with growth rebounding to 4.5% in 2012 and expected to improve further to 4.8% in 2013, restoring sound public finance policies remains a priority in countries where fiscal deficits are relatively high, especially for oil importers. Specifically on employment, the report reveals that: Africa has the world s youngest population and it is growing rapidly; Hundreds of millions of young Africans will be leaving school over the next decades at every level and looking for jobs; currently, 10 to 12 million young people are entering the African labour market every year. For example, in Zambia, 300,000 young people are ready to enter the job market per year The challenges and obstacles the unemployed youth and working poor face are diverse and vary between countries; Youth employment is largely a problem of quality in low-income countries and one of quantity in middle-income countries; Youth in vulnerable employment and working poverty are the large majority in poor countries; In upper middle-income countries more youth are unemployed, discouraged or inactive; In all country groups more young people are discouraged than unemployed, suggesting that the youth employment challenge has been underestimated. Further, the report draws some conclusions including the following: The public sector will not be able to absorb the tide of young job seekers because there is little prospect of an expansion in this area; The private informal sector is growing but from too small a base; Existing firms in this sector, the primary source of jobs paying a living wage, must be supported to grow further and become more competitive; With right incentives and support, the informal and rural sectors have a high potential for generating new employment;
Governments must focus on removing obstacles to the many small informal firms, helping them to grow and create decent jobs. The quality of employment, gender parity, effects on people s livelihoods and morals are some of the key issues that should be explored further. All these factors differ in degree when it comes to the rural/urban divide. In most countries including Zambia, the youth, especially young women are the majority of the unemployed. The situation is even worse in North Africa, where the number of young people entering the job market every year exceeds 1 million in countries such as Egypt, Algeria and Morocco. In Southern Africa, Mozambique and South Africa also have more than 1 million youth entering the job market every year. 2. Demographic trends and unemployment The increase in youth unemployment is due to a number of factors, including demographics. The age structure of most African countries is skewed towards the young, with median age ranging from mid-20s to early thirties. For instance, Uganda has a very young age structure, with 77 percent of its population below the age of 30. The 0-14 age group accounts for 49 percent compared to 25% of the population in Algeria, while the working age group (15-64) accounts for 48 percent compared to 70 percent in Algeria. In Nigeria, the 0-14 age group account for 43 percent of the population (Table 1). Table 1: Age structure of selected countries Country Population aged 0-14 Population aged 15-64 Population aged 65+ Algeria 25 70 5 Botswana 33 63 4 Democratic 46 51 3 Republic of Congo Ghana 37 59 4 Mozambique 44 53 3 Kenya 42 55 3 Lesotho 37 58 4 Nigeria 43 54 3 South Africa 30 65 5 Tanzania 45 52 3 Tunisia 22 71 7 Uganda 49 48 3 Zambia 46 51 3 The age distribution of the Zambian population is split 50-50 between the young in the 0-14 year category, and those of working age group (15-64 ). According to UN Population projections the working age group is expected to exponentially rise above the <14 year by 2030, when both the young population and the working age population will exceed the 10 million mark (figure 1). Other countries have already experienced this transitioning resulting in massive pressure on the labour market from youthful population. Thus, on the basis of demographic transitioning alone, the number of new entrants in the African labour market will continue rising particularly for countries with large youthful populations. 2
Figure 1: Zambia population profile and projections 3 Source: UN World Population Prospects, the 2010 Revision Countries should not feel intimidated or overwhelmed by the changing demographics. Having a young population can pay dividends if certain economic conditions are met, with inclusive, broad-based growth as the main condition. A growing youth population is a platform for launching further economic growth as those aged 15-24 are not only a source of labour but also consumers that will increase spending, investment and saving. The downside is that the demographic transition on its own can become a burden on the economy unless economic growth rates are sustained through a number of coordinated policy actions including the following: Optimal investment in youth skills and capacities that target labour gaps in existing and emerging sectors of the economy; Public and private sector funded welfare programs that ensure intergenerational equity by taking care of the aged population that is predicted to increase over time; Improving income distribution to reduce dependency on government resources; Strengthening financial markets and financial intermediary services particularly social security, investor credit facilitation, and international exchange. Synchronizing economic and social policies to match growth in infrastructure with human capital development.
3. The disparities in the labour market Gender disparity is also a serious risk to attaining socioeconomic growth. In a recent MEASURE DHS analysis focusing on the Zambian youth found that the percentage of youth employed in the 12 month period preceding the survey were 11.9 % of females and 33% of males; this is despite the fact that literacy rates and levels of education were similar for men and women. Hence, solving youth unemployment requires concerted efforts, and a renewed mindset that keeps pace with global trends, in particular those related to knowledge, information, innovation and technology. As highlighted earlier, investments in education and training are vital, but one has to be strategic by selectively and judiciously investing in those education fields that Zambia is lacking when compared with global and regional competitors. There are similarities between countries in terms of rate of unemployment among the youth, particularly when considered by gender (Table 2). Except for a few countries like Zambia that have seemingly made progress in addressing gender gaps, unemployment is consistently higher among females, and the disparity is more pronounced in North African countries (see Egypt and Algeria) than other subregions. Table 2: Unemployment rate by sex and age in relation to total youth population Unemployment rate by sex and age Youth Population ('1000) Country Female Male Female Male Total Years Years 15-24 Egypt 48.2 55.8 10.2 16.6 3,835 3,799 4,160 4,196 15,990 South Africa 66.9 52.9 61.7 45.2 2,598.0 2,496.0 2,627.0 2,516.0 10,237 Algeria 25.0 39.7 23.1 17.2 1,890 1,835 1,936 1,994 7,655 Cameroon 29.9 51.2 24.0 32.6 1,021 1,018 948 803 3,790 Morocco 9.6* 8.9* 1,588.0 1,560.0 1,648.0 1,551.0 3,199 Ethiopia 26.1 36.5 23.4 18.8 949 828 729 674 3,180 Zambia 28.6 26.2 32.1 29.8 782.5 641.4 748.6 553.3 2,726 Mali 11.2 17.4 5.3 11.1 709.7 616.1 651.9 441.2 2,419 Tunisia 28.0 34.2 28.9 27.4 461.3 517.3 490.8 524.6 1,994 Benin 0.6 2.3 0.2 1.2 229 189 283 154 854 The employment disparities also extend to rural/urban settings in some countries. For Zambia, the rural unemployment rate is lower because most youth are in informal agricultural employment normally characterized by low pay and part-time employment, agriculture being seasonal by nature (Table 2). The urban youths, on the other hand, are young school leavers, some of them graduates who cannot get absorbed in the job market because the economy is not generating new jobs, or they lack the required skills. They obtained educational qualifications without skills! 4
Table 3: Age distribution of the unemployed youth in Zambia Age group (Years) 15 19 20-30 Urban Unemployed 63% 48% Rural Unemployed 16% 7% The rural sector is crucial in generating employment for the youth as more than 70 percent of Africa s youth are rural based. However urban youth population is also increasing due to rural to urban migration in all major economies in Africa including Nigeria, Kenya, South Africa, Uganda and Ghana, hence the role of the informal sector, particularly trade in services, in generating employment must be assessed. Africa in general has suffered from the failure to transform agriculture, keeping millions of people trapped in a cycle of underemployment,, low incomes and chronic poverty, and yet agriculture employs 90% of the rural workforce, 60% in total (urban and rural) and accounts for 40% of Africa s export earnings while providing 50% of household incomes. Expanding rural job opportunities is important in tackling youth unemployment. There is need to invest in infrastructure that could support the rural industrialization drive, within the general framework of agriculture value chain development. Increasing formal sector employment is one of the specific macroeconomic objectives of the Zambian Government as expressed in the 2013-2015 Medium Term Expenditure Framework and the 2013 Budget Green Paper. The other objectives are to achieve average real GDP growth of at least 7.5 percent per annum, expand and diversify the economy, sustain single digit inflation, increase domestic resource mobilization, maintain debt sustainability, limit domestic borrowing to no more than 2 percent of GDP, contain the overall deficit within sustainable levels and lower the cost of doing business, including the cost of credit. A growing economy is a necessary but not sufficient condition for creating employment. There is need for inclusive, broad-based robust growth supported by deliberate policies to encourage youth participation in economic activities. The Zambian economy has been growing at an average of 7 percent over the last three. The fastest growing sector was industry, which recovered strongly from the 2008 financial crisis to record 17.6 percent and 10.8 growth rates in 2009 and 2010 respectively. At over 70 percent of total exports, copper still dominates the economy of Zambia, although other sectors are emerging, including agroprocessing and services. Services consist the single largest sector contributing about 46 percent to GDP followed by industry which accounts for 36 percent. Hence, in terms of focus, the services sector could potentially emerge as a source of employment for the youth. 4. Conclusion The youthful population of Africa presents both an opportunity and challenge for economic development. Member States are urged to harness the vast potential that the bulging youth population presents by developing their skills so that they can effectively participate in economic development. Growth, particularly inclusive growth, remains a precondition for generating employment. However, inclusive growth will only become a reality if the investment flows to Africa match the growing labour force. In going forward, there should be a number of coordinated policy actions and strategies in place to attract investments that generate employment for the youth. Some of these imperatives include tax incentives, macroeconomic stability, developing skills and strengthening governance institutions. 5
However, tax incentives come at the tail end of a conducive environment for attracting investment, both local and foreign. It is this investment that in turn creates jobs. Tax incentives again cannot be applied in exclusivity of other incentives which may be equally or sometimes more important. The incentives that will lead to employment creation will be obvious once the challenges are identified, scrutinized, weighed and appropriate policy interventions are designed into a coordinated effective strategy. There is need to move away from small, ad-hoc interventions by different government and non-government agencies, with no monitoring and evaluation mechanism of what works and what does not. Some governments have put in place good programmes and now need to track the records on sustainable results. For example, the Government of Zambia has several existing frameworks including policy documents where it has indicated strong desire to create employment for its citizens. These include the Vision 2030; Zambia Decent Work Country Programme; the Sixth National Development Plan, the Private sector development reform programme; and Micro and small enterprise development policy. In addition, Zambia has signed the SADC Protocol on Social Rights, which among other things, aims at enhancing employment creation. While the national policies and instruments have been mainstreamed in decent work as a key vehicle to poverty reduction, their effective implementation is yet to be realized 1. There have also been strong political statements made at the level of the President and his cabinet to focus on youth employment policies and to strategically embed them in national development plans. However, these political pronouncements should be supported by access to finance and adequate budget allocations to facilitate effective implementation of youth programmes. The following areas should be interrogated to identify challenges and appropriate measures to address them. I highlight just a few anecdotal challenges but there could be more: 1) Education system: Education without skills designed for white-collar jobs will continue to deliver fewer opportunities in a changing globalized economic environment. 2) Weak incentive regime to make an urban-rural demographic transition. 3) Poor rural and interregional infrastructure to support marketing therefore low value for products. (Power, telecommunications, sanitation, roads, railways, housing ); 4) Limited access to affordable credit; 5) Weak land tenure security; 6) Value chains and innovative smallholder farming systems are embryonic, low fertilizer use and under developed irrigation potential. 7) Cost of doing business and creating an enabling business environment (overregulation, less protection of property and investor rights. 8) Weak policy on promotion of innovation, science and technology by domestic firms through market mechanisms. 9) Low diversification, value addition and low income base. 1 Background Document to the National Conference on Towards a new growth strategy for employment, decent work and development in Zambia held from 21-22 May 2012 in Lusaka 6