Africa continues to face a major employment challenge: Put simply, countries are not creating enough jobs. By some estimates, the continent needs to create 15 million jobs annually to meet the demand of the burgeoning labor force. Many analysts are now arguing that the challenge of job creation might be exacerbated by the economic disruptions of the Fourth Industrial Revolution. So, in light of new technologies, I recently examined the challenges to and opportunities for job creation that they present, and I recommend policies for how countries can maximize the benefits of digitization while limiting risks in a recent African Development Bank report, “Creating Decent Jobs: Strategies, Policies, and Instruments.”
Automation is a key pillar of the Fourth Industrial Revolution and a significant threat to Africa’s need to create jobs. Historically, large-scale manufacturing has been an important step in the development process. Now though, labor-saving technologies threaten Africa’s comparative advantage in low wages, and recent evidence is already pointing to premature deindustrialization in developing countries. As wages in China rise, more firms are choosing to upgrade production technology rather than shift jobs to lower-wage countries, limiting opportunities for Africa to develop a large industrial base. Looking ahead, as robot costs fall, companies, including those in Africa, will also increasingly find it profitable to automate production.
Not all is lost: While automation is a challenge to the future of work in Africa, other aspects of the Fourth Industrial Revolution are creating tremendous opportunities for employment. As digital services expand, this sector has created jobs for agents and technology experts. Digitization in the financial sector has improved savings and expanded access to credit, improving financial inclusion and increasing women’s financial empowerment. Digital platforms like Uber and Lynk (the technology platform for informal sector workers in Kenya) are boosting entrepreneurship and self-employment.
Recommendations for harnessing digitization for job creation and growth
These innovations present tremendous opportunities for African countries to address development problems at scale and with greater efficiency. To fully harness the benefits, policymakers should understand the opportunities and challenges presented by new technologies. Governments must recognize digitization as a cross-cutting sector and develop an economy-wide strategy that is implemented by a well-funded and functioning Digitization Ministry. Policymakers should actively engage with the sector and adopt regulations appropriate to the rapidly changing environment. If regulation fails to keep up, it could slow or stall adjustment of the economy to the new technologies.
In addition, African countries must continue to make progress on digital infrastructure and connectivity. As cited in the “Creating Decent Jobs” report, internet penetration currently averages 35 percent, well below the global average of 55 percent. Policymakers should continue to support investments to develop robust digital infrastructure and expand access. Affordability is also a concern in Africa where internet access costs $119 on average each month, compared to the global average of $73 dollars. Addressing both connectivity and affordability will help broaden the benefits of digitization.
At the same time, given that digital sector jobs will require a different skill set—including soft skills such as cognitive ability, socio-behavioral ability, and critical thinking—education and training programs should be adapted and expanded to keep up with these new skill requirements. New digital technologies present opportunities to innovate and leapfrog in the education sector where the region’s booming population is expected to strain education infrastructure and resources.
Given the ongoing challenges of premature deindustrialization and the increasing adoption of labor-saving technologies in manufacturing, countries must develop other sectors of the economy for structural transformation. Research by the Africa Growth Initiative and the United Nations University World Institute for Development Economics Research has identified “industries without smokestacks,” sectors that share characteristics with manufacturing and could be development escalators for African countries. These industries include agribusiness, horticulture, tourism, and a growing number of service industries, including information and communication-based services.
Finally, governments must step up revenue mobilization efforts to finance the digitization agenda. Since 2000, African countries have made progress as non-resource tax revenues have increased steadily from 11 percent of GDP to an average 15 percent in 2015. According to a recent Africa Growth Initiative study, tax capacity in sub-Saharan Africa is estimated at about 20 percent of GDP. In the short term, bridging the gap between the region’s current revenues and its tax capacity by improving governance around taxation can mobilize an additional $110 billion annually, on average, over the next five years. Notably, digitization is also creating opportunities to increase domestic resource mobilization by streamlining revenues collection and sealing leakages.
The time for action is now. As I write in the chapter:
“The digitization agenda should be carried out with greater urgency … The scale of the disruption associated with new technologies will only grow with time. While Africa has demonstrated the ability to innovate and be a leader in leapfrog development, the scale of the challenge will require a more concerted and coordinated effort led by African governments and civil societies with strong support from development partners and institutions and private sector participation. A successfully digitized Africa will yield tremendous socioeconomic benefits for Africa and the global economy.”