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Report| McKinsey Global Institute

Africa at work: Job creation and inclusive growth

August 2012 | byDavid Fine, Arend van Wamelen, Susan Lund, Armando Cabral, Mourad Taoufiki, Norbert Dörr, Acha Leke, Charles Roxburgh, Jörg Schubert and Paul Cook

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Africa is the world’s second-fastest-growing region. Poverty is falling, and around 90 million of its households have joined the world’s consuming classes—an increase of 31 million in just over a decade. But a new McKinsey Global Institute report, Africa at work: Job creation and inclusive growth, shows that the continent must create wage-paying jobs more quickly to sustain these successes and ensure that growth benefits the majority of its people.

Despite the creation of 37 million new and stable wage-paying jobs over the past decade, only 28 percent of Africa’s labor force holds such positions. Instead, some 63 percent of the total labor force engages in some form of self-employment or “vulnerable” employment, such as subsistence farming or urban street hawking. If the trends of the past decade continue, Africa will create 54 million new, stable wage-paying jobs over the next ten years—but this will not be enough to absorb the 122 million new entrants into the labor force expected over the same period. However, by implementing a five-part strategy to accelerate the pace of job creation, we estimate that Africa could add as many as 72 million new wage-paying jobs over the next decade, raising the wage-earning share of the labor force to 36 percent.

Exhibit

If Africa accelerates job creation, it could add 72 million additional wage-paying jobs by 2020.

1. Identify one or more labor-intensive subsectors in which an African country has a global competitive advantage or could fill strong domestic demand.

Lesotho, for example, capitalized on the African Growth and Opportunity Act (2000), granting some African exports duty-free access to US markets. A landlocked nation surrounded entirely by South Africa, Lesotho developed industrial zones for the apparel industry and built rail links between them, offered incentives to foreign investors, and simplified the regulation of the sector. Today, Lesotho’s apparel exports to the United States are almost 100 times as large as South Africa’s on a per capita basis, and the sector is the single largest creator of jobs, employing about 40,000 people in 2008 in a country of just two million.

2. Improve access to finance in target sectors. Cape Verde, for instance, encouraged foreign direct investment to ease financial constraints on its tourism sector.

To capitalize on the country’s beautiful beaches, it offered investors a five-year tax holiday, exemption from import duties, and unrestricted expatriation of profits. Revenues generated by foreign tourism increased from $23 million in 1999 to $542 million in 2008, and the sector now employs 21 percent of Cape Verde’s workforce.

3. Build a suitable infrastructure. Countries that remove infrastructure constraints in target subsectors, particularly in export-oriented industries, can reap sizable benefits.

Mali’s exports of mangoes to the European Union, for example, grew sixfold between 2003 and 2008 after a concerted public–private program helped the country build integrated road, rail, and other infrastructure necessary to access export markets. These moves cut the transit time for shipments in half.

4. Cut unnecessary regulations. Removing needless red tape in certain sectors is also important.

In Rwanda, for instance, streamlining the procedures needed to open a business dramatically increased the number of new companies, from only 700 a year before the reform to 3,000 a year today.

5. Develop skills in target sectors. Around 40 percent of African workers now have at least some secondary education, and that share will rise to 48 percent by 2020.

Few employers in our survey of businesses in Egypt, Kenya, Nigeria, Senegal, and South Africa reported that a lack of skilled workers was a top barrier to growth. Still, Africa’s educational attainment lags behind that of other regions, and the continent would undoubtedly benefit from continued improvement. Two things are of particular importance: work readiness among school graduates and, in some countries, specific vocational skills.

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About this research

This report draws on applied research carried out by McKinsey consultants. To learn more about our expertise please visit Mckinsey Global Institute, Cairo, Casablanca, Johannesburg, Lagos. Mckinsey Global Institute,