Growth and Job Creation in Africa

1. Growth and Job Creation in Africa Louise Fox Oxford University March 16, 2008

2. How to Create “Jobs”? • Genesis: AFR Region Discussion, 2004 • Consensus around key question: Why hasn’t structural adjustment created jobs? • What can governments do? • Some hypotheses • w/in labor market (institutions, policies, regulations) • outside the labor market: structure of growth, microfoundations of growth

3. Summary of Presentation • Countries with broad-based growth are creating private sector jobs rapidly • from a low base • mostly in non-tradeables (construction, services) • not correlated with labor regulations; but perhaps with IC as a whole • Non-farm informal sector is absorbing most new entrants • the main vehicle for poverty reduction • high variance in outcomes • Can this scenario continue?

4. What is a job: data issues • Definitions difficult when 75% are self employed and poor, data limited • In effect, everybody has a job and is employed – few can afford not to work • What do governments want ? • As many of the labor force as want it, a full time wage/salary job, with good pay • May also want this job to be in big firm to give security, benefits, compliance with rules • This analysis: any wage/salary job

5. Growth and Structural Change in Africa 1990-2005 • Is there no job creation? • Low growth, oil-dominated: no job creation • High growth, high poverty reduction countries did create jobs • Low base meant job creation very low relative to supply of workers • Structure of growth: dominated by agricultural, service sector, not by manufacturing • Public sector restructuring

6. Some country examples

7. Structural transformation:A Uganda story

8. What are key factors? • Balanced growth – agriculture plus diversification • Job creation not correlated with labor regulations • Why are Ghana and Lesotho creating jobs faster than Uganda? Worse DB scores • Firm perceptions: issues outside the labor market matter more

10. Education/skills deficit • Africa has huge education deficit still • Rapid expansion of primary enrollment, but completion low, quality issues • Already over 20% of budget – and now need to finance secondary education + • Brain drain • Firms are citing skill deficit as major obstacle • Knowledge or behavior? • Who should pay to address this?

11. Informal Sector • What is informal sector in Africa? • Legal definitions – registration, etc. • Our definition: non-agricultural, and selling labor to them selves or their family – micro informal sector • Characteristics: mostly services, mostly urban, but some non-farm rural • High variance in earnings; • average well above agriculture; growth of earnings sometimes tracks wage sector earnings

12. Informal sector is where the new entrants go - route out of poverty • Explosive growth seems to be influenced by both push and pull factors • High labor force growth • Low quality of agricultural land – can’t absorb 2-3% increase in labor with current technology • Earnings and public services better in urban areas, poverty lower – rural to urban migration is high. • Average earning above poverty line- driver for poverty reduction

14. Challenges for creation of wage and salary jobs • Macro level: optimism about fundamentals • Institutional development in non-oil, non conflict countries is the challenge • Can African firms produce for export? • cost, risk factor in Africa • Understand skills large firms are not finding in labor market, develop responses

15. But what about the rest? • High labor force growth huge challenge • Social issue: underemployed youth • Micro informal sector will spread, esp. in urban areas – but what about incomes? • Develop effective responses – support the sector, don’t try to wipe it out • Education: practical skills • Property rights, services such as utilities, etc. • Collect appropriate data in order to diagnose, monitor, and evaluate • Better evaluation, scale up what works