The African businesses are reluctant employers. A given firm in Sub-Saharan Africa typically has 24% fewer people on its books than equivalent firms elsewhere, according to a recent paper from the Centre for Global Development (CGD), a think-tank based in Washington, DC. Given the links between employment and development, economists want to figure out the reasons for the shortfall.
The study calculates the missing jobs by crunching information on 41,000 formal businesses globally from a World Bank survey. The data capture only a sliver of what actually happens in Africa: nine in ten workers have an informal job. Shunned by the formal sector, workers turn to below-the-radar employment—toiling on family farms or otherwise beyond the government’s reach. But a big informal sector makes it harder for Africa to reduce poverty, even when economic growth is strong. Increases in income on the production side of the economy translate weakly into higher wages for workers. Indeed the relationship between economic growth and poverty reduction is weaker in Africa than any other developing region.
Several factors explain African bosses’ reluctance to take on new workers. One is that firms tend to be younger than elsewhere, but even older ones have fewer employees. More broadly, Africa’s business climate discourages hiring. Government officials in search of taxes and bribes tend to chase large firms, rather than small ones, says Vijaya Ramachandran of CGD, because they are considered more likely to cough up. The managers of Nigerien and Liberian firms with more than 100 employees spend 14% longer dealing with government officials than smaller peers. A recent study from South Africa revealed that bosses there were desperate to dodge the attentions of bureaucrats and thus avoided taking on new workers.
High unit labour costs are also culpable. Employing people in Africa should be cheap, given that many of its countries have rock-bottom income levels. Yet in half of African countries labour costs are higher than in China because workers are less productive. They are nearly 80% higher in Africa than those in other countries at similar levels of income. That lowers competitiveness and makes hiring less likely.
Economists disagree about the possible causes of this. Red tape and unionisation may be responsible, though on average indicators of labour-market regulation are no different in Africa than elsewhere. Nonetheless there are horror stories. A 2012 report on South Africa, which lays the blame on greedy unions, calculates that the average employee at Eskom, a state-owned electricity utility, earns 40% more in terms of purchasing-power parity than a German professor.
Africa’s commodity-driven export models may be another cause of low formal employment. Four-fifths of the continent’s export revenues are from commodities. That can lead to overvalued exchange rates if their prices rise. That hurts firms’ competitiveness, curbs their growth and thus discourages hiring. (Africa’s big inflows of aid also contribute to higher real exchange rates because they result in upward pressure on prices for goods and services that are not traded internationally.)
Changing labour-market dynamics could exacerbate the job problem. Some 250m people are expected to join the African workforce between 2010 and 2050. In the short term many will go into farming, which employs 65% of the African labour force. The agricultural sector struggles to create enough jobs. In the 1990s donors lost interest in using their aid dollars for agricultural investment. Shame: better farming techniques could bring unproductive land into use and help Africa shift into higher-value-added crops. According to a report by McKinsey, a consulting firm, that could create 6m extra jobs by 2020.
But agricultural improvement can also free up labour to work in more productive sectors—if the jobs are available. Africa is embracing structural reform: a recent report from the World Bank shows that of the 20 economies worldwide making the most progress in improving business regulation, nine are in Sub-Saharan Africa. Without further improvement, employment growth in Africa’s formal sector will remain depressingly stunted.
( Courtesy The Economist……Source……New Africa Business News )