Productive and sustainable employment in Africa: from structural perspective

1. Productive and sustainable employment in Africa: from structural perspective YesufAWEL & Michiko IIZUKA UNU-MERIT Dakar, Senegal Nov. 2013

2. Introduction • Definitions: Types of Employment • Current Employment situation of Africa (SSA) • Questions • Why labour productivity in Africa (SSA?) is low compared to other regions? • Why smooth labour transition does not occur in SSA? • High population still in Agriculture—low labour productivity in Agriculture • Some population is moving towards informal (service) sector • Possible explanations • Agricultural Productivity • Dutch Disease: Exchange rate overvaluation due to resource boom (trade/macro economic policy) • Summary and possible future research themes

3. Types of Employment • Productive employment (Maintaining life standards) • Employment yielding sufficient returns to permit workers and their dependents a level of consumption above the poverty line. • Decent employment (Ensuring life quality) • Employment with quality including absence of coercion ensuring equity, security adequacy and dignity of work. • Sustainable employment (Improving life prospects) • Employment with reduced job vulnerability. • Long term employment security: ensures skill development—leading to increased productivity Above are complementary yet different aspects of ideal employment that needs to be supplied. Does Africa have Productive, Decent and Sustainable employment?

4. Sectoral Share of GDP and Employment in Sub Saharan Africa Source: WDI, 2013 ; ILO(2013)

5. Labor Productivity SSA vs EA:Low and stagnant laborproductivity in SSA Source: ILO, 2013

6. Employment distribution by status: SSA [1991-2012]:According to ILO(2013) majority of employment is vulnerable employment Source: ILO, 2013 Vulnerable workers: increase of service sector

7. Sources of labour productivity Increase in labour productivity is contributed by: • Improvement in labour productivity (technology, capability etc) itself; increase in efficiency • General increase in employment rate or increase in working age population; increase in participation • Shift of labour into more productive sector; structural change In general, change in labour productivity would contribute more to the increase in productivity but structural transformation has longer impact.

8. Agricultural Productivity [Cereal Yield (kg/ha)] Source: WDI, 2013

9. Food imports as percentage of merchandise imports Source: WDI, 2013

10. Innovation: Escaping Low Productivity of Agriculture • Low productivity trap can be escaped by innovation: technological development and institutional change. • Induced technological development model (Hayamiand Ruttan, 1985) • Technological development is induced by the relative scarcity of factors of production (labour, land). If the market prices of production factors reflects relative scarcity, farmers will prefer technologies that economize on the most scarce production factors. • Type of technology involved: fertilizer, chemical inputs, tractors, seed varieties (biotechnology) (there are also African paradox: realities need to understand clearly to have right balance of technological change)

11. Land expansion/Agricultural land in million hectare Source: FAOSTAT, 2013

12. Modern Input Use [Chemical Fertilizer in Kilogram per hectare of arable land] Source: WDI, 2013

13. Fertilizer Consumption in Africa in proportion to EA and LA Source: WDI, 2013

14. Source: Block, 2010

15. Source: Block, 2010 Heterogeneity among African regions

16. Agricultural productivity in Africa: Myths? • Large scale is more productive than Small holder Not Necessarily • Introduction of labour saving machine would increase productivity Not Necessarily • Agricultural/rural life provides less sustainable livelihood—worse employment Yes • Biotechnology is harmful for agriculture ???? Revisit the Myths: Need to understand clearly what each implies in Regional/local context Need to approach in complementary or systemic manner

17. Areas for future investigations in the area of agriculture for employment • Realities of African agriculture: how innovation (technology/institutional change) can be incorporated to improve productivity? Requires systemic perspective? -Improve labour productivity • Under what conditions, increase in productivity of agriculture lead to the structural transformation ? -Encourage structural transformation

18. Theoretical understanding ofStructural transformation 1 • Classical view 1 • Dual Sector Model (A.Lewis, 1954) • Surplus labour in Agricultural (subsistence) sector will move to manufacturing (capitalist) sector because marginal labour productivity of agriculture is low (surplus, cheap labour). If Dual Sector Model is correct, the marginal cost of labour should be cheaper, making it attractive for more productive activities such as manufacturing.

19. Theoretical understanding ofStructural transformation 2 • Classical view 2 • Ricardian rent theory: diminishing returns to increments of labour and capital applied to an inelastic supply of land represented fundamental constraint on economic growth. • Pessimistic view of technological progress; • In reality • Real cost of agricultural production had declined in spite of land resource constraint • TFP of agriculture increase in economic growth • Technological change released inelastic resource supplies. But above is not happening in Africa

20. Theoretical discussion ofStructural transformation • Current view • Sustained and high level of economic growth are highly associated with structural transformation process through industrialization mainly to manufacturing. (i.e. East/SE Asia and many developed countries) • Alternative views • Service based development possible? (e.g India) • Latin American scholars (Perez, Lederman, Maloney etc in 2000s): focus on Knowledge • Natural resource based development (NRBD) is possible

21. Possible explanations for structural transition not occurring in SSA/Africa • Rapid population growth eats up the increased agricultural productivity (diminishing return of labour) • Absorption by manufacturing is inhibited by the higher wage caused by • High food cost in urban areas • Natural resource boom (Dutch disease) • Transition perhaps also inhibited by skill mismatch • Education/training need to be aligned? • Lack of investment in the countries to productive sectors?

22. Population Growth (annual growth rate) Source: WDI, 2013

23. Comparison of Food pricesSub Saharan Africa and East Asia Source:Hirano, 2013 based on ILO data

24. Comparison between Manufacturing Average Wage and GDP/capita Source: Hirano, 2013 based on most recent data available from UN statistics.

25. Dutch disease • Phenomena whereby the currency is overvalued due to export boom of natural resources (usually minerals); • The overvaluation would translate into weakening competitiveness of exports and domestic industries (this also means drawing labour to the booming sector contribute to higher wage; increase of imports, such as food); • Increase flow of money may lead to over spending by government (if not invested wisely).

26. African export commodity by type in ‘000 dollars Source:UNCTAD

27. EXCHANGE RATE OVERVALUEATION

28. Food imports as percentage of merchandise imports Source: WDI, 2013

29. Contribution to GDP growth (2002-2008) • Source: based on Hirano 2013, 2009 which made calculation from data obtained from UN statistics • Note: * is for 2002-2007

30. Summary • So far, much of employment in SSA is in Agriculture (subsistence) sector. But productivity of this sector remains low, underemployment exist (labour surplus) to be released into other sectors. • Overall, there is growth in agricultural sector but conventional structural transformation seems missing [Agriculture  Industry Service] • Service sector is growing: but limited knowledge on what is happening especially on productivity and employment dynamics. • There are some rupture in translating recent economic growth (observed in some SSA counties) into transforming structurally allocating resources to productive sector to create PRODUTIVE and SUSTAINABLE EMPLOYMENT.

31. Possible areas for future research • Understand why structural transformation is not happening in Sub-Saharan Africa from Agriculture to other sector • Understand productivity and employment dynamics in the service sector • How to improve existing low productivity of agriculture? • Important for structural transformation • Food security

32. THANK YOU!