The Annual African Union Summit convenes this week in Addis Ababa. In addition to discussing this year’s theme “Towards Greater Unity and Integration through Shared Values,” African heads of states are faced with two major crises in Cote d’Ivore and in Tunisia. While many scholars have focused on the regime change aspect of the crisis in Tunisia, we suggest that a primary contributory factor of the crisis is high joblessness among youths.
The crisis in Tunisia is an important reminder of why unemployment, more importantly, youth unemployment should be at the forefront of Africa’s growth agenda over the next decade. Youth unemployment/underemployment is not just a threat to authoritarian regimes like that of Tunisia but also to democracies. In Ghana, one of Africa’s most successful democracies, jobless youths have taken to barricading government offices and making demands to politicians.
Africa has had significant growth over the last decade. In fact, GDP growth averaged more than 5 percent over the last decade. The continent is now being praised for a speedy recovery in the wake of the global financial and economic crisis. Unfortunately, high GDP growth has not led to employment growth. As reported by the International Labor Office (ILO), about 7.2 percent of Africa’s youths are unemployed and an additional 46.9 percent are underemployed or inactive. African economies have been able to achieve and sustain high growth but attention now must focus on job creation.
According to the 2010 Africa Economic Outlook, more than 60 percent of Africa’s population is under the age of 25 and expected to increase to 75 percent by 2015. The United Nations Population division has also observed that Africa’s youth bulge is quite unique; the region will account for 29 percent of the world’s population aged 15-24 by 2050, up from 9 percent in 1950. By comparison Asia/Pacific and Latin America/Caribbean will maintain their 1950 shares of 54 percent and 7 percent respectively in 2050.
With aging populations in advanced economies and rising wages in Asia, Africa has the opportunity to become the next center for manufacturing, ICT and service sector jobs. Africa’s “youth bulge” need not be a harbinger of conflict and instability in Africa.
A key challenge for Africa is the fact that the jobs that are available in the wage sector are too few compared with the bulging youth labor market. Also, the market for capital that youth should be able to access to create enterprises and jobs for themselves is severely underdeveloped in Africa.
One part of the solution to address this problem is to provide tax incentives for foreign firms that establish operations in Africa. These incentives should be focused on investments made in targeted industries such as manufacturing and ICTs. Incentives could be designed to reward companies that hire local staff across the spectrum of their operations especially in the upper management category.
Africa has the opportunity to attract manufacturing companies as wages rise in Asia. There will be a significant first-mover advantage for those countries that create a good business environment and provide the right kind of skilled labor. It is important therefore for countries to align skills training with the kinds of jobs they want to attract. Those countries that wish to attract manufacturing jobs should ensure that local youth are trained in the use of machinery. Similarly those countries wishing to attract ICT-related jobs should provide computer training.
In addition to attracting foreign businesses to invest in Africa, African countries need to develop comprehensive strategies to create jobs locally. With more than 80 percent of the labor force engaged in small to medium sized enterprises (SMEs), the growth of SMEs should be an integral part of Africa’s job creation strategy.
This will require that capital be made available for businesses of all sizes. At present very small businesses have access to capital through microfinance institutions and large corporations have access through commercial banks. There is a “missing middle” for firms seeking to grow their businesses from small to medium to large, and for individuals willing to start businesses at middle levels. It is important to address this capital gap.
Governments need to make it easier for banks to extend loans to the “missing middle.” This means addressing the information problems that banks face when trying to extend loans to young entrepreneurs. National identification systems should be prioritized as a starting point for development of credit/consumer information systems. By facilitating information gathering, African governments can help to reduce the risk of doing business with young entrepreneurs which will in turn result in more favorable lending terms.
Real regional integration is essential for job creation in Africa. One of the primary obstacles to doing business in Africa is the high transportation costs. Meaningful regional integration can help to reduce these costs. Manufacturing companies require efficient supply chains for their operations. Governments should work within their regional economic groups to make it easier to conduct cross-country commerce in Africa. One stop borders are a great place to start. The East African Community has reaped significant benefits from increased regional trade. Indeed, Uganda’s recovery from the global financial crisis was due in large part to the fact that half of the country’s trade is with regional partners. Other regional groups can reap similar benefits.
The crisis in Tunisia offers an important warning about the dangers of youth joblessness. With a comprehensive innovative strategy to tackle youth unemployment, Africa’s burgeoning youth population could become a real blessing for the region.