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Murchison Falls national park / Uganda - February 20 2020: Ferry crossing the Nile river to bring the safari tourists to the other side.
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Employment creation potential, labor skills requirements, and skill gaps for young people: A Uganda case study

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Introduction

Over the course of the last decade, Uganda’s economic growth has ranked among sub-Saharan Africa’s strongest; indeed, the country’s annualized average growth rate was 5.4 percent between 2010 and 2019 (World Bank, 2020). Despite this impressive growth, there has been limited creation of productive and decent jobs1 to both absorb the burgeoning labor force and improve livelihoods. The population growth rate (recorded at 3.1 percent per year) has consistently remained higher than the jobs creation rate necessary for absorbing persons joining the labor market, resulting in increasing unemployment and pervasive underemployment rates. Moreover, where jobs have been created, few young Ugandans (especially young women) have benefited from such opportunities. Indeed, a study conducted by the EPRC (2018) finds that, while the economy grew by 4.5 percent in 2016/17, this growth was largely driven by the services sector,2 but services, in turn, contribute a mere 15 percent to total employment. In addition, due to severe skill gaps, Ugandan youth are largely engaged in low-value services (e.g., petty trade, food vending, etc.), and only few are able to secure employment in high value-added economic activities like agro-processing, horticulture, or tourism.

M

Madina M. Guloba

Senior Research Fellow - Economic Policy Research Centre in Uganda

M

Medard Kakuru

Research Analyst - Economic Policy Research Centre in Uganda

Uganda’s economy-wide unemployment rate declined to 9.2 percent in 2016/17 from 11.1 percent in 2012/13. Among youth3 (who represent 21.6 percent of Uganda’s population), unemployment declined to 16.8 percent in 2016/17 from 20.3 percent in 2012/13, however, with less progress recorded for female youth. Underemployment, a critical development challenge faced by the youth, is widespread in Uganda and can partly be explained by low skills among job seekers (at 1 percent), time (at 43.6 percent) as well as wage-related aspects (at 30.2 percent) (UBOS 2018). At the same time, inequality of opportunity is also growing. Even among the employed youth, 21 percent are classified as poor due to the precarious jobs in which they are engaged, especially if they work in the informal sector.

In this regard, informality, underemployment, and unemployment persist in the country’s labor market; as a result, many Ugandans are engaged in “vulnerable employment.”4 Vulnerable employment is often characterized by inadequate earnings, low productivity, and difficult conditions of work that undermine workers’ fundamental rights. According to the Uganda Bureau of Statistics (2018), 61 percent of employed persons in the country were classified as engaged in vulnerable employment with the share being higher for female Ugandans (71 percent). Similarly, 68 percent of employed persons living in Uganda’s rural areas are more likely to engage in vulnerable employment compared to 48 percent living in the country’s urban areas.

While agriculture employs nearly 77 percent of the rural population, recorded growth in the sector was low at 2.8 percent in 2016/17 (UBOS 2018). However, sectors providing more productive and better-paying jobs, like agro-processing and high value-added agro-industry have clear linkages to agriculture sector’s overall performance in the country. Weak economic growth in agriculture, therefore, affects agro-industrialization, which, in turn, has implications for the employment viability in the dominant agro-industry. Sector-level performance is also deterred by irregularities and erratic decisions in the business and policy environment. Consequently, the vast majority of Uganda’s labor force remains employed in labor intensive and less productive sectors. Even within agriculture, only a very small proportion of agricultural workers are engaged in the cultivation of high-value, commercialized crops.

The above narrative is also exacerbated by the small and not expanding number of formal jobs, especially in Uganda’s public sector. This lack of available “white collar jobs” is met by a significant number of youth graduating annually either with a certificate, diploma, or degree who aspire to find such employment. While the private sector is coming in to fill the gap in creating jobs for this segment of the population, current efforts are not sufficient, and more opportunities for jobs to be created for this segment of the labor force need to be identified and supported.

In order to create jobs, especially for the youth, there is need to raise private investment in labor-intensive industries. Besides providing jobs, labor-intensive industries—historically manufacturing— can pave the way for continuous upgrading to higher value-added economic activities. However, the average share of manufacturing in Uganda’s GDP keeps declining, from 11 percent between 2000 and 2010 to 9 percent between 2011 and 2018. Therefore, manufacturing will not be able to absorb the 600,000 young Ugandans entering the jobs market each year (AfDB, 2019).

In light of the slow growth of the manufacturing sector, Uganda needs to find alternatives for the creation of productive jobs if the country is to achieve its Vision 2040. Service-oriented industries that share key firm characteristics with manufacturing firms have the potential to enhance growth and create decent employment opportunities. Such industries are called “industries without smokestacks” (IWOSS). Newfarmer et al. (2018) classify these as agro-industry, horticulture, tourism, business services, transit trade, and some information and communication technology (ICT) based services. This study contributes to the evidence base around this topic by analyzing the role of IWOSS in generating large-scale employment opportunities for (young) workers in Uganda, especially in the formal parts of the economy. The paper pays particular attention to three sectors: agro-processing, horticulture, and tourism, as the earlier literature indicates that these sectors have considerable potential to create large-scale formal employment opportunities for young people.5

Specifically, this study:

  1. Assesses the current employment creation potential along the value chains of IWOSS industries under their respective current sectoral growth trajectories;
  2. Aims to identify the key constraints to growth in IWOSS sectors;
  3. Estimates future labor demand in IWOSS sectors when identified constraints are removed;
  4. Analyzes the occupation and labor skills requirements and gaps in IWOSS sectors; and
  5. Pays particular attention to the need for soft and digital skills among youth (employed and unemployed) to ensure that suggested policy interventions can bridge them.

The remainder of the paper is organized as follows: Section 2 presents the approaches adopted as well as data sources and their limitations. Section 3 presents the country context and background with emphasis on the performance of selected IWOSS sectors in Uganda. The section further delves into employment patterns and other salient features of employment in the country. Section 4 analyzes growth patterns in terms of output, productivity, and exports with emphasis on the role of IWOSS in structural transformation. Section 5 analyzes the specific characteristics regarding sectoral employment and comparisons are made between IWOSS and non-IWOSS sectors as well as manufacturing. Section 6 presents the growth constraints that IWOSS sectors face. Section 7 provides projections for the size of labor force by 2029/30 according to skill groups, projections that inform discussion on the skills gaps that need to be filled to solve current employment gaps. Section 8 presents firm-level surveys that provide insights into future employment requirements and the need for digital skills along the IWOSS value chains selected for this study (horticulture, agro-industry, and tourism). Section 9 concludes with policy recommendations to leverage IWOSS sectors for employment generation, especially for youth.

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Footnotes

  1. By jobs, this paper refers to a status held by an individual, rather than the total number of opportunities.
  2. Services accounts for 52 percent of GDP (UBOS, 2019).
  3. This paper defines youth as per ILO to be those between 15-24 years.
  4. According to the International Labor Organization (ILO), the employed workforce who are own-account workers or contributing family workers are considered to be in vulnerable employment.
  5. For example, Mbaye et al. (2019) estimate Uganda’s sector level average employment elasticity for IWOSS sectors to be 0.96. In the same study, Ugandan manufacturing, transport, and tourism are found to have average employment elasticities of 0.80, 0.90, and 0.73 respectively.

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