Youth employment and private sector development are key to Africa’s economic growth

Sierra Leone Telegraph: 29 May 2012

The African Development Bank (AfDB) yesterday, Monday, 28 May, in Arusha – Tanzania, launched its ‘African Economic Outlook (AEO)’ Report, in collaboration with the OECD Development Centre, the United Nations Development Programme (UNDP), and the United Nations Economic Commission for Africa (UNECA), says the African Press Organisation.

The Report presents a comprehensive analysis of the economic, social and political developments in the region and focuses on Africa’s economic performance in 2011 and its growth prospects in 2012.

It discusses Africa’s fastest and slowest growing countries in 2011; the problem of youth employment and the shortage of sustainable and well paid jobs; and an in-depth country notes on 53 of the continent’s 54 economies.

But, with the number of youths in Africa set to double by 2045, countries across the continent should boost job creation and help young people acquire new skills, the Report concludes.

“Creating productive employment for Africa’s rapidly growing young population is an immense challenge but also the key to future prosperity”, say the authors.

Co-written by the African Development Bank, the OECD Development Centre, the United Nations Economic Commission for Africa (UNECA), and the UN Development Programme (UNDP), the report says that Africa’s youth are an opportunity for future economic growth.

Between 2000 and 2008, despite world-topping economic growth rates, and a better educated youth, Africa created only 16 million jobs for young people aged between 15 and 24.

Today, the youth population represent 60 percent of the continent’s unemployed, and of these 40 million youths, 22 million have given up on finding a job, many of them women.

“The continent is experiencing jobless growth”, said Mthuli Ncube – Chief Economist and Vice-President of the African Development Bank (AfDB). “That is an unacceptable reality on a continent with such an impressive pool of youth, talent and creativity”.

The report argues that youth unemployment figures will increase, unless Africa moves swiftly to make youth employment a priority, turning its human capital into economic opportunity.

On the other hand, youths can present a significant threat to social cohesion and political stability if they do not secure decent living conditions.

High growth alone is not sufficient to guarantee productive employment. Youth employment is largely a problem of quality in low-income countries and one of quantity in middle-income countries, the report says.

“In low-income countries, most young people work – but are poor nevertheless. In African middle-income countries, on the other hand, such as South Africa or the Northern African countries, despite better education, more youth are inactive than working”, said Mario Pezzini, Director at the OECD Development Centre.

The report recommends that African countries design better coordinated strategies to effectively tackle youth employment, focusing on job creation in the private sector while providing the right conditions for businesses of all sizes to grow and expand their work force.

In addition, given the small size of the formal sector in many African countries, the report finds that a government focus on the informal sector and rural areas, which contain immense entrepreneurial talent, can serve as engines for inclusive growth, since they can absorb higher numbers of unemployed youths.

It also advocates for policies focused on creating the skills that are necessary for youths to compete in the job market, for instance by improving the quality of education in agriculture and new technologies.

Increased policy focus on youth employment must be coupled with measures to boost investments in social and economic infrastructure and diversify the continent’s economy.

“Export diversification beyond raw material and private sector development are important to mitigate the continent’s susceptibility to external shocks, but that takes time”, said Emmanuel Nnadozie, Director of Economic Development at UNECA.

With the right policies in place, the continent could capitalize on its recent economic growth to achieve a development breakthrough.

“Youth employment is an investment in the future. It contributes to reducing poverty, wealth creation, well-being and social cohesion,” said Pedro Conceição, Chief Economist at UNDP’s Regional Bureau for Africa.

The document also offers a chapter on human development, which focuses this year on the importance of reversing capital flight to achieve sustainable human development.

But it is the role of the private and its development that also attracted considerable debate at the launching of the report yesterday in Arusha.

The Report says that most African countries have come to recognize the critical role that the private sector can play to help the continent reach its full economic and social potential.

Focused on private sector as the engine of Africa’s economic development, the report examines the challenges facing the sector’s development and highlights ways to address these challenges, taking country differences into account.

“After being hamstrung for decades by difficult political and economic conditions and burdensome government policies, it is now poised to become the main engine of growth for the African continent,” says AfDB president, Donald Kaberuka.

“The African Development Bank is committed to addressing the constraints on private sector development. We believe that private sector development is fundamental for creating inclusive growth through employment creation.

“The private sector is also a provider of essential goods and services to the public, and a key source of the revenues that African countries need to meet their development challenges,” he adds.

Having promoted development of the sector for more than 40 years, the AfDB has made private sector development one of the four priorities of its Medium Term Strategy (MTS) for 2008-12, along with infrastructure, governance, and higher education.

According to the Report; in order to generate a greater developmental impact, the AfDB is integrating private sector development across all its operations with threefold objective:

Supporting regional member countries in improving business enabling environments, and strengthening their international competitiveness;

Broadening participation and inclusion in the private sector and supporting local enterprise development for spurring robust employment creation and improving social well-being; and encouraging the embedment of social and environmental responsibility, sustainability, and good corporate citizenship in private sector development.

Although the private sector helps reduce poverty, reliable statistics on private sector activities in African countries are scarce. Most of the activities are informal, carried out by micro, small and medium enterprises.

Among its other findings, the report says laws and regulations critical for private sector development and corporate governance were undermined by poor monitoring and enforcement.

“Developing Africa’s infrastructure at the pace necessary to unleash its economic potential requires a concerted effort to improve planning, preparation, and procurement capacities in line ministries and relevant sector units; mobilize financial resources; and adopt a regional approach to infrastructure development,” says the report.

Africa’s private sector accounted for more than 80 percent of total production, two-thirds of total investment, and three-fourths of total credit to the economy during 1996-2008. It was also responsible for 90 percent of formal and informal employment.

Although the private sector in African countries faces common challenges, the impact of these constraints varies according to the stage of economic development.

Fundamentally, the constraints include insufficient transport networks and lack of access to power and finance.

Challenges also differ by type of firm, with large companies being more concerned about corruption, skill shortages and labour regulations, while export-oriented businesses place tax administration at the top of their list.

“These systemic factors are of less importance for small firms, which find the lack of access to (and high cost of) finance, insufficient collateral, and the business owner’s limited technical, management, and accounting skills to be more binding. The most severe challenge for microenterprises is access to finance, with those in AfDB countries also constrained by business licensing procedures,” the report points out.

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