Everyone knows about Africa’s jobs crisis. Each year, about 10 million youth across the continent enter the labour force. However, the region only creates about 3 million formal jobs. The remaining seven million people typically get absorbed in agriculture and informal work.
Many remain underemployed throughout their working lives, oscillating between contract work in urban areas and subsistence farming. Ominously, this un/under employment crisis is only getting worse. Farming is no longer an attractive option for most young people. Many prefer urban areas and non-agricultural work. The demise of agriculture as a safety valve means that governments will have to think hard about mass job creation as quickly as possible. This then raises the question: how do countries create jobs?
The simple answer is that countries create jobs by enabling their firms to grow and employ ever more people. But how does one get to having lots of large firms? Here, the historical record suggests that deliberate government effort to unlock the binding constraints for firms matters.
Governments can help with financing, market regulation, lowering costs of inputs (including labour), among other interventions to make firms viable. It is such firms that then grow to spawn entire supply chains. This then creates ever more jobs.
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Unfortunately, this is not the typical approach to job creation throughout Africa. First, most of our governments are actively hostile towards domestic firms.
The only firms they bother being nice to are foreign. This undoubtedly inhibits firm growth, while also reducing the impact of local firms’ investments. Such investments are more likely to have a bigger impact if granted on top of a successful domestic value chain ecosystem.
Second, most of our governments believe the best way to create jobs is to give low-income individuals some form of seed capital. This, too, does not work. While it is true that talent is distributed across the board, the sums that governments typically give out as micro loans are hardly enough to finance the launch of serious businesses.
And so what ends up happening is a mushrooming of micro enterprises lacking capacity to become bigger and more efficient. Many of such businesses close shop with an year or two. All this to say Africa’s jobs agenda must pass through the creation of lots of large firms. There will not be a leapfrogging of this step through micro-entrepreneurship.
The only way to create lots of jobs is by giving our firms strong legs to stand on as they expand.
To that end, they need simplified regulatory clarity, affordable inputs (including energy), access to financing, market access, and the like. These are all areas that governments willing to do whatever it takes, would readily jump on.
Finally, economies that successfully create lots of jobs typically have a sustained buzz about business. In other words, both the society and administrations in these contexts tend to be pro-growth. This, too, should be the norm in African countries.
The writer is a professor at Georgetown University
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By Ken Opalo