<
http://www.foreignpolicy.com/articles/2012/08/31/10_things_you_dont_know_ab
out_Africa_economy> Lions on the Move
10 things you don't know about Africa's booming economy.
BY SUSAN LUND, AREND VAN WAMELEN | AUGUST 31, 2012
http://www.foreignpolicy.com/files/images/lion.jpg
Africa is no longer the "lost continent" of popular imagination. The region
has been growing rapidly for over a decade, the private sector is expanding,
and a new class of consumers is wielding considerable spending power. And
because of its young and growing population, the sky is the limit for future
growth: Between 2010 and 2020, the continent is set to add 122 million
people to its labor force. An expansion of this magnitude should set the
stage for dynamic growth, but capturing this potential will require a change
in economic development strategy. At its current pace, Africa is not
generating wage-paying jobs rapidly enough to absorb its massive labor
force, which will be the largest in the world by 2035.
Across Africa's diverse mosaic of countries, the challenge is the same: to
create the kind of jobs that will ensure continued prosperity and stability
for its citizens and enable Africa to become a major player in the world
economy. If current trends continue, it will take the continent half a
century to reach the same share of its labor force in stable, paying jobs as
we see in East Asia today. Africa's most developed economies have a better
record in producing wage-based employment, but shortfalls persist even in
countries like South Africa, Egypt, and Morocco. Without wage-paying jobs,
millions will be forced to turn to subsistence activities to survive,
squandering vast potential.
To change this picture, Africa's leaders must move to accelerate job
creation in order to entrench economic growth and continue to expand
Africa's emerging consuming class. But it won't be easy. To
<
http://www.mckinsey.com/insights/mgi/research/africa_europe_middle_east/afr
ica_at_work> illuminate the opportunities and challenges ahead, here are 10
things you might not know about Africa's economic landscape:
1. Africa is booming.
Africa has been the second-fastest-growing region in the world over the past
10 years. It has posted average annual GDP growth of 5.1 percent over the
past decade, driven by greater political stability and economic reforms that
have unleashed the private sector in many of the continent's varied mosaic
of economies.
Poverty is also on the retreat. A new consuming class has taken its place:
Since 2000, 31 million African households have joined the world's consuming
class. At this point, when their household incomes exceed $5,000, measured
at purchasing power parity, consumers begin to direct more than half their
income to things other than food and shelter. The continent now has around
90 million people who fit this definition. That figure is projected to reach
128 million by 2020.
Africa now has considerable discretionary spending power. Indeed, contrary
to conventional wisdom, the majority of Africa's growth has come from
domestic spending and non-commodity sectors, rather than the resources boom.
2. Africa is poised to have the largest labor force in the world.
By 2035, Africa's labor force will be bigger than that of any individual
country in the world -- even bigger than economic behemoths like India and
China. That offers the continent a chance to reap a demographic dividend,
using its young and growing workers to boost economic growth.
The story varies from country to country. Nigeria and Ethiopia, Africa's
most populous countries, will together add 30 million workers -- an increase
in their workforces of about 35 percent by 2020 -- while South Africa is
expected to add 2 million workers, growth of only 13 percent.
As Africa's workforce grows, the number of children and retired people that
each worker supports will fall from the highest level in the world today to
a level on a par with the United States and Europe in 2035 -- the other part
of the demographic dividend. With fewer mouths to feed and fewer dependents
to support, African households will begin to enjoy even greater
discretionary spending power, furthering driving economic growth.
3. African workers are better educated than ever before.
Today 40 percent of Africans have some secondary or tertiary education --
and that share is rising fast. By 2020, the share of workers with some
secondary or tertiary education will rise to nearly half.
While education rates are higher than many outside observers might assume,
this is still an area where African countries need to make further progress
to remain economically competitive. While 33 percent of Africans in the
labor force receive some secondary education, 39 percent of Indian workers
receive education at this level. In China, the share is an impressive 66
percent.
Today, educational attainment and skills are not perceived as a major
obstacle for employers, as a
<
http://www.mckinsey.com/insights/mgi/research/africa_europe_middle_east/afr
ica_at_work> new McKinsey survey of more than 1,300 African employers
reveals. However, this is likely to be an increasingly important factor as
the continent's economies develop -- employers in the survey from South
Africa, for example, did cite difficulty in finding workers with the
specific skills needed as a barrier to business. Across the continent, the
right kind of education and practical training programs can give the next
generation of workers the soft skills needed to do any kind of job -- not
just basic literacy and numeracy, but also punctuality, communication, and
dependability.
4. Steady work is still hard to come by in Africa.
But here's the bad news: Only 28 percent of Africans currently have stable,
wage-paying jobs. To reap the benefits of its positive demographics and
advancements in education, Africa needs to quickly create more jobs.
Although Africa has created 37 million "stable" wage-paying jobs over the
past decade, 91 million people have been added to its labor force.
As a result, 9 percent of the workforce is officially unemployed, and nearly
two-thirds of African workers sustain themselves through subsistence
activities and low-wage self-employment -- so-called "vulnerable" jobs.
Poverty may be decreasing, but it remains stubbornly high.
Youth unemployment is also a major challenge. In Egypt, one of the flash
points of the Arab Spring, the adult unemployment rate is moderate -- but
youth unemployment is sharply higher at 25 percent. For the sake of social
and political stability, Africa needs to accelerate its creation of stable
jobs that are the route to lasting prosperity and an expanding consuming
class.
5. With a few reforms, massive job growth is within Africa's reach.
The experience of other emerging economies shows that Africa could
accelerate its creation of stable jobs dramatically. When they were at a
similar stage of development as Africa today, Thailand, South Korea, and
Brazil generated jobs at double or triple the rate as Africa. If current
trends and policies continue, Africa looks set to create around 54 million
more stable jobs by 2020, boosting the share of Africans with stable
employment to 32 percent of the labor force. But if Africa were to match the
efforts of Thailand, South Korea, and Brazil, it could create 72 million new
stable jobs -- raising the portion of Africans with stable employment to 36
percent.
This would lift millions more Africans out of poverty and vault millions of
others into the consuming class. It would also cut the time needed to reach
East Asia's percentage of stable employment by more than half -- from over
50 years to just 20 years. Africa's most developed economies -- such as
South Africa, Morocco, and Egypt -- are on track to create more wage-paying
jobs than new entrants to the workforce, thereby reducing the ranks of the
unemployed and vulnerable employed. Three sectors in particular already have
a proven capacity to create jobs in Africa and can do so in the future:
agriculture, manufacturing, and retail and hospitality.
6. Africa can become the world's breadbasket.
Africa has about 60 percent of the world's unused cropland, providing it
with a golden opportunity to simultaneously develop its agricultural sector
and reduce unemployment. On current trends, African agriculture is on course
to create 8 million wage-paying jobs between now and 2020.
With two important reforms, however, Africa could add 6 million more jobs.
First, policymakers could encourage expansion of large-scale commercial
farming onto uncultivated land. African countries need to reform land rights
and water management, build up their infrastructure, and improve access to
inputs such as seeds, finance, and insurance in order to give a boost to
agriculture. Such steps have allowed Mali, which built integrated road,
rail, and sea links to transport refrigerated goods, to increase its mango
exports to the European Union sixfold in just five years.
Second, African economies can move from producing low-value grain to
higher-value crops such as horticultural crops and biofuels. This will not
only boost GDP, but provide much-needed jobs: Staples such as grains employ
up to 50 people per 1,000 hectares while horticultural products need up to
800.
7. It's often cheaper for Africans to buy goods made in China than those
made at home.
African manufacturing is declining as a share in most economies, and that
needs to stop. Africa is on course to generate 8 million new manufacturing
jobs by 2020 but could nearly double that tally if it can reverse this
trend.
Rising labor costs and exchange rates across Asia give African economies an
ideal opportunity to expand their manufacturing industries. There is already
anecdotal evidence that Asian businesses are setting up factories in some
African countries to regain their competitive advantage.
High transportation and input costs, duties, and bureaucracy are some of the
obstacles that have hindered African manufacturing in the past. The
continent needs to open itself up to foreign investment too. Lesotho, a
country of just 2 million people, has 100 times South Africa's exports of
apparel to the United States on a per capita basis because it made
investment attractive to foreign players and put the necessary rail and
distribution infrastructure in place. Apparel manufacturing is Lesotho's
largest employer, providing 40,000 workers with stable jobs.
Prospects for manufacturing vary according to the country. Large,
diversified economies like South Africa have relatively high labor costs,
more skilled workers, and developed infrastructure, and need to move into
higher-value-added production. Morocco has done this in auto parts and
assembly. But less-developed African countries still have competitive wages
and productivity and could develop as low-cost manufacturing hubs.
8. Nigeria's four largest cities still have only six shopping malls.
Africa's rising number of consumers is already driving growth in retailing,
but the sector could grow much faster. The potential of retail still goes
largely unrealized: In Ethiopia, Egypt, Ghana, and Nigeria, nearly
three-quarters of groceries are bought in tiny informal outlets. If barriers
to foreign players were removed and action was taken to boost the share of
modern retail outlets, this industry could finally hit its stride.
Hospitality and tourism is another major potential growth area. Africa's
advanced economies now receive around 70 percent of international visitors,
but less developed countries can quickly improve their appeal to tourists.
Take the case of Cape Verde, which offered investors a tax holiday,
exemption from import duties, and free expatriation to foreign investors,
laying the groundwork for its currently booming tourism industry. Today,
tourism employs one in five people in the island nation. Retail and
hospitality together could add up to 14 million jobs throughout Africa by
2020 if the necessary reforms were undertaken.
9. Africa needs more than petrodollars.
Mining, oil, and gas contribute significantly to Africa's GDP, but these
sectors employ less than 1 percent of the workforce.
Africa needs a job strategy, not just a growth strategy. Countries in this
region need explicit programs to create jobs, targeted at labor-intensive
sectors that enjoy comparative advantage. Governments, working with private
companies, need to improve access to finance in those sectors, build the
necessary infrastructure, cut unnecessary regulation and bureaucracy and
create a more business-friendly environment, and develop the skills needed
to support the industries of the future.
Morocco's auto-parts industry is an example of success. Realizing the
country's unique advantage of proximity to the large market of high-income
earners in Europe, the Moroccan government set a goal for the country to
become the industrial automotive supplier for Europe. Morocco analyzed its
comparative advantage for more than 600 automotive parts and eventually
chose around 100 parts on which to focus. It then created two free trade
zones dedicated to the automotive industry. Today, the sector employs more
than 60,000 people, and this year saw the opening of a 1 billion euro
assembly plant by Renault.
10. The future for Africa looks bright -- but there's still a lot of work to
be done.
More than 300 million Africans will remain in vulnerable jobs in 2020. And
even if African governments are successful at promoting job creation, the
number of Africans in vulnerable employment will keep on rising for at least
another 20 years because the labor force is expanding so quickly.
Africans in vulnerable jobs -- and those with no jobs at all -- will need
government support. African governments can use their newfound resources to
mitigate some of the pain of this process: They should invest in programs
that help organize subsistence employment more effectively, as well as
invest in health and education for the vulnerable.
Africa's employment challenge is daunting, but it is not unique. Many other
emerging markets have transformed their employment landscapes and made
sweeping gains in economic growth, and with the right policies in place,
Africa has the right ingredients to produce similar success. Businesses and
investors are beginning to take note of the continent's potential -- not
only its wealth of natural resources but its vast human capital. Africa may,
in fact, prove to be one of the next great global stories.
Received on Tue Sep 04 2012 - 22:23:30 EDT
