Figure of the week: Simulating the future of work in sub-Saharan Africa

Last week, the International Monetary Fund published its biannual Regional Economic Outlook for Sub-Saharan Africa, forecasting that growth is on track to improve from 2.7 percent in 2017 to 3.1 percent in 2018. The report presents this news with cautious optimism and cites potential risks in the near future. In particular, the global economy is entering a period of unusually elevated policy uncertainty as growth in advanced economies slows down, fears of trade wars escalate, and a new wave of populism spreads. Specifically, one of the key challenges the report finds is preparing for the future of work in sub-Saharan Africa. In dealing with the next wave of technological advances affecting existing jobs, sub-Saharan Africa simultaneously faces the task of creating 20 million jobs per year over the next two decades to absorb its growing working age population.

Figure 3.3 and 3.4 from the report lay out the theoretical framework and simulation of implications of vast technological advancements for sub-Saharan Africa. The report builds a simple economic model to simulate two regions, an advanced economy region (generally titled “rest of the world”) and a low-income region (specifically titled sub-Saharan Africa). Both regions trade with each other and goods are produced using traditional capital, labor, and “robots,” with robots defined broadly to include the wide range of breakthrough technologies, including advanced robotics, biotechnology, quantum computing, and artificial intelligence.

The figures illustrate that in this modeled scenario, the nature of technological change crucially determines whether sub-Saharan Africa achieves income convergence or is left behind. Specifically, the impact of the technological change depends on the labor substitutability or complementarity of technological advancements. If many technological innovations substitute work in agriculture, factories, and other critical sectors of the region with intelligent machines or robots, the economic outlook may be gloomy at best. However, if digital technology assists workers increasing their productivity and task quality with things like improving crop production, the region can find many opportunities for growth. In reality, both developments may occur in parallel or sequentially.

Bottom line, if technology ends up substituting much of the labor work of sub-Saharan Africa, the region faces declining labor shares of income and lower GDP per capita. However, if complementary technologies evolve the capacity of labor, that can lead to both income convergence as well as employment creation. To push sub-Saharan Africa toward the latter outcome, the report emphasizes several policy objectives of which two are critical. First, it urges nations to opt for more digital infrastructure to improve connectivity and access to information. Paired with a supportive business environment, this can help people harness technology rather than be replaced by it. Second, the report emphasizes a greater focus on developing the complimentary skills to technological changes through flexible education systems, especially one that champions digital literacy, skill adaptability, and lifelong learning.