Africa at work: Job creation and inclusive growth

Africa will add 122 million workers by 2020 but has to accelerate job creation to absorb this growing labour force, says McKinsey.

African nations can create up to 72 million new wage-paying jobs by 2020 through targeted strategies to spur growth in labour-intensive sectors

August 30 2012. Africa is on course to add 122 million workers between 2010 and 2020, more than any other region in the world. By 2035, the continent will have the world’s largest labour force, exceeding even those in China and India. To fully capture the potential this represents, African nations need to accelerate their creation of the stable, wage-paying jobs. Jobs are the key to ensuring that Africa’s consuming class continues to expand, and that the benefits of economic growth are shared broadly, helping to maintain social and political stability.

A new McKinsey Global Institute (MGI) report, published today suggests that by focusing on labour-intensive sectors such as agriculture, manufacturing, and retail and hospitality, the region could boost the number of “stable” wage-paying jobs from 54 million on current trends to 72 million by 2020.

The report, Africa at work: Job creation and inclusive growth, examines Africa’s employment landscape and its potential to accelerate the creation of stable jobs. This research includes quantitative modelling of national employment trends, a survey of more than 1,300 companies in five African countries, and interviews with dozens of companies and African government leaders. The report examines employment patterns across countries and sectors, and suggests how African policy makers and business leaders can develop strategies for boosting job growth. This publication follows MGI’s earlier 2010 report, Lions on the move: The progress and potential of African economies, which analysed the sources of Africa’s growth over the last decade and business opportunities in key sectors.

Commenting on the new report, David Fine, a senior McKinsey partner in South Africa and one of its authors, said: “The experiences of other emerging markets and of African countries themselves illustrate how to accelerate employment growth. Job strategies should target a few sectors that are the most promising employment creators, identifying areas where the country in question has a real comparative advantage. If the examples of success we have already seen can be replicated more broadly across the continent, Africa has the opportunity to lift hundreds of millions of people out of poverty, expand its consumer class, and emerge as a key part of the global labour market.”

Main findings:

  • The continent is poised to reap a demographic dividend, courtesy of its young and rapidly growing workforce and its declining dependency ratio (the number of young children and elderly people that each working age person must support). By 2020, the continent’s labour force will be 500-million strong, and the number of children and retired people that each worker supports will fall from the highest in the world today, to a level on a par with the United States and Europe by 2035.
  • The continent’s official unemployment rate is only 9 percent. However, just 28 percent of Africa’s labour force is in wage-paying jobs today. With few social safety nets, most adults turn to subsistence agriculture or informal self-employment to survive, giving them few prospects for raising their living standards—a situation we call “vulnerable” employment.
  • Africa is on track to add 54 million wage-paying jobs by 2020—but could boost that number to 72 million. Countries like Thailand, South Korea, and Brazil created stable jobs at double and triple the rate of Africa today when their economies were at similar levels of development. MGI’s analysis suggests that around half of Africa’s potential for generating stable new jobs is concentrated in three sectors: agriculture, manufacturing, and retail and hospitality. In Africa’s most diversified economies, such as South Africa, Egypt, and Morocco, the number of wage-paying jobs could grow faster than the number of new entrants to the labour force over the next decade, reducing the number of unemployed people or moving people out of vulnerable employment.
  • There is no single solution to accelerating the creation of more stable, wage-paying jobs. Success will require Africa to overcome a range of barriers that today prevent businesses from growing and hiring. To better understand these barriers, McKinsey surveyed more than 1,300 businesses leaders across five countries (Egypt, Kenya, Nigeria, Senegal, and South Africa).  The results provide qualitative insight into the key obstacles constraining private-sector growth: 55 percent identified macroeconomic conditions and uncertainty, while 40 percent cited potential political instability. The third most frequently cited barrier to growth was access to finance, followed by infrastructure shortcomings, including electricity and transportation. To a far lesser extent, some larger companies noted that job candidates may lack technical or vocational skills, and the smallest businesses reported that candidates lack basic job-readiness skills.
  • Economic growth is a prerequisite for job creation. But focusing on GDP growth alone may not be enough to transform Africa’s employment landscape. This is because some sectors that contribute the most to GDP growth may not create many new jobs. Natural resource sectors (mining, oil, and gas) make crucial contributions to Africa’s GDP, government revenue, and export earnings, but they employ less than 1 percent of Africa’s workforce.  
  • Alongside broad efforts to promote growth, therefore, Africa needs job strategies that focus on reforms to the business environment in labour-intensive sectors that have the potential to create large numbers of jobs and in which a country has a comparative advantage. The report sets out the five necessary elements for building and executing such a strategy:

      –   Identify specific subsectors with strong job-creation potential. The targeted subsectors should be labour-intensive areas in which the country could be globally competitive or in which there is strong domestic demand.

–     Improve access to finance for businesses in those subsectors through collaboration with and incentives for the banking sector, as well as opening access to foreign investors and educating new borrowers.

–    Build suitable infrastructure along the entire value chain in these subsectors, possibly in particular geographic regions. Power, transportation and logistics, water, and other types of necessary infrastructure must be in place.

–    Cut unnecessary regulation, bureaucracy, and corruption in the subsectors, all of  which raise the cost of doing business and limit growth and investment. Remove   regulatory obstacles and streamline procedures.

–    Ensure that there is a sufficient pool of workers with the education and practical skills needed in the targeted subsectors through strong collaboration between the  public and private sectors.

Click to download MGI PDFs:-

MGI Africa at work_Briefing note_August 2012

MGI Africa at work_Executive summary_August 2012

MGI Africa at work_full report_August 2012

Source: McKinsey Global Institute  – Press Release – 31 August 2012