Can Africa re­ally ben­e­fit from its de­mo­graphic div­i­dend to ac­cel­er­ate growth?

Could Africa also ben­e­fit from its enor­mous po­ten­tial for a de­mo­graphic div­i­dend, which is yet to come? The an­swer is, per­haps.

Financial Nigeria Magazine - - Contents - Jorge Saba Ar­bache is Se­nior Econ­o­mist in the World Bank's Of­fice of the Chief Econ­o­mist, Africa Re­gion, and is the di­rec­tor of the Africa De­vel­op­ment In­di­ca­tors. Source: OCP Pol­icy Cen­ter - a Moroccan pol­icy-ori­ented think tank.

I[was] in Mar­rakech at­tend­ing the At­lantic Di­a­logue, a very in­ter­est­ing event or­ga­nized by the OCP Pol­icy Cen­ter. One of the ques­tions put to de­bate was: "How can Sub-Sa­ha­ran Africa ben­e­fit from its eco­nomic po­ten­tial to grow, thrive and elim­i­nate poverty?"

In fact, this is one of the ques­tions most fre­quently raised by the eco­nomic de­vel­op­ment com­mu­nity. And one of the most com­mon re­sponses is that, along­side nat­u­ral re­sources, the young pop­u­la­tion is the most pow­er­ful en­gine of growth in the re­gion.

In­deed, with the world's youngest pop­u­la­tion, the re­gion could ben­e­fit from the unique gains pro­vided by the de­mo­graphic div­i­dends.

In short, the de­mo­graphic div­i­dend the­ory says that be­cause of the de­mo­graphic tran­si­tion, a grow­ing por­tion

of the pop­u­la­tion will even­tu­ally be part of the work­ing age pop­u­la­tion, which will re­sult in a rel­a­tive in­crease in labour sup­ply and a fall in the de­pen­dency ra­tio, which is the ra­tio of in­ac­tive pop­u­la­tion (chil­dren and the el­derly) over the work­ing age pop­u­la­tion.

Dur­ing the de­mo­graphic tran­si­tion, the econ­omy be­comes more com­pet­i­tive in the pro­duc­tion of labour-in­ten­sive goods and services, spends rel­a­tively less on pub­lic poli­cies aimed at the in­ac­tive pop­u­la­tion and can there­fore save and in­vest rel­a­tively more.

East Asia is a good il­lus­tra­tion of how the de­mo­graphic div­i­dend can boost eco­nomic growth, raise per capita in­come, and change for­ever the prospects for de­vel­op­ment.

Could Africa also ben­e­fit from its enor­mous po­ten­tial for a de­mo­graphic div­i­dend, which is yet to come? The an­swer is, per­haps.

The cau­tious an­swer is re­lated to the fact that new pro­duc­tion tech­nolo­gies based on ar­ti­fi­cial in­tel­li­gence, the in­ter­net of things, sen­sors, ro­bots and 3D prin­ters are rev­o­lu­tion­iz­ing man­u­fac­tur­ing and the ge­og­ra­phy of pro­duc­tion and of em­ploy­ment. Adi­das, for ex­am­ple, is open­ing a sports jer­sey fac­tory in At­lanta whose unit labour cost will be as low as $ 0.33 per shirt. There will be 400 di­rect and in­di­rect jobs pro­duc­ing 800 thou­sand pieces per day. Other fac­to­ries are be­ing opened by Adi­das in Ger­many and in other ad­vanced coun­tries. Nike is on the same foot­ing and is also open­ing au­to­mated shoes and gar­ment fac­to­ries. Coun­tries such as El Sal­vador and Bangladesh, which are heav­ily depen­dent on the pro­duc­tion and ex­port of gar­ments and footwear, are likely to face dif­fi­cul­ties as low labour costs are be­com­ing less im­por­tant as a com­pet­i­tive ad­van­tage.

The ge­og­ra­phy of pro­duc­tion and em­ploy­ment is also chang­ing in the ser­vice sec­tor. E-com­merce al­ready ac­counts for a sig­nif­i­cant and grow­ing share of re­tail trade in a num­ber of coun­tries, in­clud­ing emerg­ing ones, with un­prece­dented im­pacts on tra­di­tional jobs. Shop­ping on the plat­forms of giants like Ama­zon and Alibaba is be­com­ing part of the daily lives of many peo­ple around the world. Al­though at a still mod­est level, it is only a mat­ter of time the ser­vice sec­tor of the sub-Sa­ha­ran re­gion will also come to ex­pe­ri­ence the ef­fects of tech­no­log­i­cal changes.

With the pop­u­la­tion still grow­ing at high rates, en­gag­ing young peo­ple in the labour mar­ket will most likely be the great­est eco­nomic chal­lenge of the African sub­con­ti­nent over the com­ing decades.

Given the on­go­ing tech­no­log­i­cal changes that are rel­e­gat­ing labour costs to a lesser el­e­ment of com­pet­i­tive­ness, what can Africa do to cre­ate jobs and mit­i­gate the risks in­her­ent in this agenda? Fol­low­ing a "more of the same" ap­proach will do lit­tle good.

A more promis­ing al­ter­na­tive is to en­gage the re­gion in the in­ter­net-based econ­omy and in fu­ture-ori­ented ac­tiv­i­ties. While it may sound like an overly am­bi­tious idea, the re­gion has al­ready shown its in­cli­na­tion for in­no­va­tions and tech­nolo­gies by mak­ing the old cell phone a so­phis­ti­cated tool for fi­nan­cial and trade de­vel­op­ment.

Ob­vi­ously, the task will not be easy and it will re­quire a lot of work. But per­haps this is the best bet to most coun­tries in the re­gion.

Var­i­ous cases sug­gest that Africa should in­deed be bold in em­brac­ing the new tech­no­log­i­cal fron­tier. Uruguay, for ex­am­ple, is do­ing a lot in meat trace­abil­ity; Chile is ad­vanc­ing in smart min­ing and forestry; Brazil is de­vel­op­ing very promis­ing agritechs; and In­dia is among the lead­ers in soft­ware pro­duc­tion for the in­dus­try 4.0.

In or­der to suc­ceed, sub-Sa­ha­ran Africa will have to work on the var­i­ous fronts needed to ad­vance that agenda, in­clud­ing the fol­low­ing: re­form the ed­u­ca­tion sys­tem, in­vest more in in­fra­struc­ture and in ICT, im­prove the busi­ness en­vi­ron­ment, and en­sure the rule of law in such a way as to cre­ate an en­vi­ron­ment more con­ducive to en­trepreneur­ship and pri­vate in­vest­ment. Of course, there is also a need of a broad pol­icy view.

The re­gion could also ben­e­fit greatly from the de­ploy­ment of new tech­nolo­gies in tra­di­tional ac­tiv­i­ties such as agri­cul­ture and min­ing, which could have ma­jor eco­nomic and so­cial im­pacts.

Fi­nally, it is crit­i­cal that the re­gion avoids fall­ing into the dig­i­tal com­modi­ti­za­tion trap, which clearly sets out the dif­fer­ences be­tween the ben­e­fits of us­ing ver­sus the ben­e­fits of de­vel­op­ing, dis­tribut­ing and man­ag­ing the new tech­nolo­gies. Africa will only make a def­i­nite leap if it pre­pares it­self to be a pro­tag­o­nist of this new tech­no­log­i­cal fron­tier.

It is crit­i­cal that the re­gion avoids fall­ing into the dig­i­tal com­modi­ti­za­tion trap, which clearly sets out the dif­fer­ences be­tween the ben­e­fits of us­ing ver­sus the ben­e­fits of de­vel­op­ing, dis­tribut­ing and man­ag­ing the new tech­nolo­gies.

Some youth job ap­pli­cant

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