Jobs: The next piece of Africa's growth jigsaw

By David Fine and Susan Lund

Africa's recent growth is impressive, yet its rate of stable job creation is anything but. This column argues that Africa needs rapid growth in stable, wage-paying jobs in order to ensure future stable growth and prosperity. African governments must develop and implement targeted jobs strategies – which focus on labour-intensive, competitive industries – to get the most out Africa’s rapid economic emergence, write David Fine and Susan Lund in VoxEU

Africa’s recent economic performance has been impressive. With average annual growth of 5.1% over the past ten years, the continent is the second fastest-growing region in the world (IMF 2012). The share of people in extreme poverty is falling. Since 2000, 31 million African households have joined a 90 million-strong consuming class with discretionary income to spend or save1.

Explaining African growth

Contrary to conventional wisdom, the majority of Africa’s growth has come from domestic spending and non-commodity sectors, rather than booming resource prices (McKinsey Global Institute 2010). Rather, improved macroeconomic and political stability and microeconomic reforms have laid the foundations for growth. Looking ahead, a young and rapidly growing workforce could be a potential demographic dividend, buoying growth. Africa is set to add 122 million to its labour force between 2010 and 2020 (McKinsey Global Institute 2012). By 2035, the continent’s labour force will be larger than that of any nation, including China or India. And this workforce will be better educated than in the past; by 2020, nearly half of all people of working age will have received some secondary or tertiary education.

Vibrant domestic markets

As Africa’s potential consumer army swells its ranks, there is every prospect of vibrant domestic markets being the lynchpin of growth. By 2020, Africa’s consumer class is projected to number nearly 130 million. A new McKinsey survey of African consumers reveals that they are exceptionally optimistic about their economic future, with 84% saying that they expect to be better off in two years.(McKinsey 2012). Consumers are internet-savvy and brand-conscious. In the survey, 58% of respondents said they choose clothes based on fashion. Reflecting these trends, Africa’s consumer industries are on course to expand by a further $410 billion by 2020, accounting for more than half the entire increase in revenue that businesses are expected to generate during this period.

Jobs: The missing piece of the jigsaw

Couple all of this with a growing private sector, and many African countries have much more solidly grounded and diverse economies than outside observers might assume. But one big question mark hangs over this promising outlook: jobs. This is the missing piece needed to complete Africa’s growth jigsaw and ensure future prosperity and stability.

Over the past decade, growth has allowed Africa to create about 37 million stable, wage-paying jobs – a 50% increase. Still, nearly two thirds of Africa’s workforce today is struggling to get by in subsistence agriculture or informal self-employment. And the current rate at which the economy is generating wage-paying jobs is simply not fast enough to keep pace with the expansion of Africa’s labour force. So the continent urgently needs to speed up its creation of those stable jobs that underpin incomes, domestic demand, and social stability. The experience of other countries, and a closer look at the growth potential of different sectors within Africa, suggests that the continent can achieve this.

Lessons from other emerging economies

Data over many decades shows that when Thailand, South Korea, and Brazil had a similar level of per capita GDP as African countries today, they were creating stable jobs at double or triple Africa’s current rate. Our analysis suggests that Africa could accelerate job creation, adding up to 72 million stable jobs over the next decade. This would lift millions more out of poverty and create millions of new consumers, injecting a large dose of new dynamism into the region’s economy. Instead of taking Africa half a century to reach East Asian shares of stable employment today, it could take just 20 years. Roughly 60% of those 72 million additional wage-paying jobs could come from just three sectors that have already proven to be significant employment generators on the continent; agriculture, manufacturing, and retail and hospitality.


Africa has about 60% of the world’s uncultivated cropland. The sector has the potential to become a major part of the global agricultural value chain through continued expansion of large-scale commercial farming onto uncultivated land, shifting some production from grain crops to higher-value crops such as horticulture and biofuels, and by improving the productivity and yields of smallholder finance. Action like this could create six million additional jobs by 2020 on top of the eight million that will come from current trends.


African manufacturing has been declining as a share of GDP in most economies; that trend needs to reverse. Africa is on course to generate eight million new manufacturing jobs by 2020 at current projections for the sector, but could nearly double that number if more countries focused on developing specific manufacturing value chains. As labour costs and exchange rates rise across Asia, there is already anecdotal evidence that Asian businesses are setting up factories in some African countries to regain their advantage. While Africa’s most developed economies cannot compete on low wages alone, many countries across sub-Saharan Africa could be competitive in the labour-intensive industries that create many jobs, such as textiles, apparel, leather goods, and wood products. There is also more potential for food processing industries in Africa.

Retail and hospitality

Retail and hospitality together could add up to 14 million jobs by 2020 with action to remove barriers to foreign players and to promote the modernisation of the sector, raising productivity. In retail, nearly three-quarters of groceries are bought in tiny informal outlets in Ethiopia, Egypt, Ghana, and Nigeria compared with just 20% in South Africa. Nigeria has only six shopping malls in its four largest cities, serving a population of nearly 20 million. Shifting the mix of retail from informal markets to modern format stores can generate millions of jobs.

The hospitality and tourism industry today employs more than eight million people or 2% of the continent’s workforce. Three quarters of tourism spending in Africa is in well established destinations in some of the region’s more diversified economies – Egypt, South Africa, Morocco, and Tunisia. But less developed economies have a major opportunity to develop themselves as destinations, too, in the process creating significant employment. Tanzania is now experiencing rapid growth in tourism and employment is expanding quickly, too. In many countries, developing tourism requires less investment per stable job created than other sectors: nearly 200 full-time jobs for each $250,000 of investment compared with only 100 stable jobs in the resources sector.

Achieving targeted jobs strategies

To achieve the full potential to accelerate the rate of job creation, these sectors need targeted jobs strategies. Economic growth alone will not deliver enough jobs because some of the sectors that contribute most to growth, notably mining and oil and gas, are capital-intensive and don’t create much employment. Although these sectors have generated about one quarter of Africa’s growth over the past decade, they directly employ less than 1% of Africans.

A jobs strategy is not about protectionism and reducing competition or about creating ‘national champions’ in trophy industries. Instead, it requires a targeted strategy. The first element of any targeted jobs strategy is identifying specific industries and service sub-sectors that are labour-intensive, and in which the country either enjoys strong domestic demand or could become globally competitive. Identifying the most appropriate sectors will require rigorous benchmarking and a clear view of a country’s strengths and weaknesses. Morocco, for instance, assessed the potential of more than 600 automotive parts before selecting around 100 parts in which to compete.

Then governments should provide the key elements for businesses to succeed in that sector. Our survey of businesses in five African countries, along with our experience working on the continent, reveal four areas that hamper business growth: access to finance, infrastructure, inappropriate regulations and a poor business climate, and lack of workforce skills. Today, African countries have economic development plans that address goals in these areas, but too often reforms are not coordinated and are fragmented across the economy. Bringing together all these elements for the target industry can unlock job creation and growth, enabling the impact of reforms to be more than the sum of the individual parts.

Helping Africans get stable jobs

Even if Africa were to accelerate its rate of stable job creation, it will remain crucial for policies to address the needs of the growing number of people in vulnerable employment. By our calculations, Africa will see at least 50 million people more people join the ranks of informal self-employment or subsistence agriculture over the next decade. Programs that extend education, healthcare, and entrepreneurship to these citizens will be vital.

This article originally ran in VoxEU.

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