In­for­mal econ­omy not enough to han­dle Africa’s work­force ex­plo­sion

Kuwait Times - - BUSINESS -

Un­em­ploy­ment in Nige­ria, sub­Sa­ha­ran Africa’s largest econ­omy, is run­ning at more than 14 per­cent and climb­ing; in South Africa, the sec­ond largest econ­omy, it is over 27 per­cent. For youth in both places, it is far more. This may seem bad enough, but ac­cord­ing to In­ter­na­tional Mon­e­tary Fund cal­cu­la­tions the sub-Sa­ha­ran Africa re­gion’s jobs tra­vails are in dan­ger of reach­ing un­charted ter­ri­tory in less than two decades.

That is, un­less the economies can cre­ate jobs for their bur­geon­ing, young pop­u­la­tion.

“By 2035, sub-Sa­ha­ran Africa will have more work­ing-age peo­ple than the rest of the world’s re­gions com­bined,” the IMF wrote in a blog post this week. “This grow­ing work­force will have to be met with jobs.” This has ma­jor im­pli­ca­tions for the re­gion’s econ­omy, its se­cu­rity and wider im­mi­gra­tion pat­terns.

In the past, some of the jobs strain has been taken up by the so-called in­for­mal econ­omy which is dom­i­nated by street ven­dors, house­hold work­ers and off-the-radar cash job­bers.

Typ­i­cally, these work­ers pay no tax and do not come un­der reg­u­la­tion, but they do add to a coun­try’s wealth. The in­for­mal sec­tor in sub­Sa­ha­ran Africa was around 38 per­cent of gross do­mes­tic prod­uct in 2010-14, ac­cord­ing to the IMF. This rep­re­sented a steady de­cline from nearly 45 per­cent in 1991-99, pos­si­bly a re­flec­tion of more for­mal growth in some parts of Africa. But up to 90 per­cent of jobs out­side agri­cul­ture are still in the in­for­mal sec­tor. It is not gen­er­ally by de­sire.

The IMF found that a third of new en­trepre neurs in sub-Sa­ha­ran Africa said they were do­ing what they were do­ing out of ne­ces­sity. “Most would pre­fer a job in the for­mal sec­tor, but don’t have that op­tion,” it said.

The In­ter­na­tional La­bor Or­ga­ni­za­tion goes fur­ther. “Some of the char­ac­ter­is­tic fea­tures of in­for­mal em­ploy­ment are lack of pro­tec­tion in the event of non-pay­ment of wages, com­pul­sory over­time or ex­tra shifts, lay-offs with­out no­tice or com­pen­sa­tion, un­safe work­ing con­di­tions and the ab­sence of so­cial ben­e­fits,” it notes. “Women, mi­grants and other vul­ner­a­ble groups of work­ers who are ex­cluded from other op­por­tu­ni­ties have lit­tle choice but to take in­for­mal low-qual­ity jobs.”

For the econ­omy, in­for­mal sec­tor work can be both pos­i­tive and neg­a­tive for growth. In some cases, for ex­am­ple, it rep­re­sents en­trepreneur­ship and start-up busi­nesses. But a lot of it is far from op­por­tune for growth. The in­for­mal sec­tor tends to be low pro­duc­tiv­ity work, partly be­cause it at­tracts lower skilled work­ers.

“In a coun­try where the in­for­mal sec­tor is large, the rate of eco­nomic growth is re­duced,” the IMF said.

This would sug­gest that coun­tries such as Tan­za­nia and Nige­ria, where the in­for­mal econ­omy is 50 to 65 per­cent of GDP, will fare worse than oth­ers such as Mau­ri­tius, South Africa and Namibia, where it ranges from be­tween 20 to 25 per­cent. Africa is not alone, of course. In­deed at the mo­ment the re­gion where the in­for­mal sec­tor plays the big­gest role is Latin Amer­ica and the Caribbean. It also amounts to around 15 per­cent of GDP in de­vel­oped coun­tries.

But with the large work­ing age pop­u­la­tion about to ex­plode, the coun­tries of the re­gion are fac­ing a crunch. “Coun­tries need to adopt a bal­anced ap­proach in the de­sign of poli­cies to grow the for­mal sec­tor. This means fo­cus­ing on ways to in­crease the pro­duc­tiv­ity of the in­for­mal sec­tor, while work­ing to sup­port the ex­pan­sion of for­mal busi­nesses,” the IMF said. —Reuters

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