McKinsey’s new Africa report sees big jobs-acceleration potential

31st August 2012 By: Terence Creamer - Creamer Media Editor

The research arm of international consulting group McKinsey & Company believes that Africa has the potential to create 72-million wage-paying jobs by 2020, primarily in agriculture, manufacturing, and retail and hospitality.

To achieve such an acceleration, though, countries would need to address some of the current barriers to job creation and would do well to follow the example of countries such as Thailand, South Korea and Brazil, which created stable jobs at double and triple Africa’s current rate when their economies were at similar levels of development.

The McKinsey Global Institute (MGI), which nailed its Afro-optimist colours to the mast in 2010 with the release of ‘Lions on the move: The progress and potential of African economies’, says that, given prevailing trends, the continent should be able to generate 54-million stable jobs by 2020.

But in the study, entitled ‘Africa at work: Job creation and inclusive growth’, MGI argues that growth in jobs could be more than 50% faster in agriculture, manufacturing, and retail and hospitality if policymakers removed key obstacles to private-sector growth.

By 2020, Africa’s labour force should rise to more than 500-million, with 122-million of its citizens likely to enter the labour market over the coming eight years. The African labour force will also be more educated by that date, with estimates showing that 48% of African workers will have secondary or tertiary education, up from 40% currently.

Therefore, the report asserts that Africa could reap a demographic dividend, courtesy of its young and rapidly growing workforce and its declining dependency ratio. By 2020, the number of children and retired people that each worker supports will fall from the highest in the world today, to a level on a par with the US and Europe by 2035.

However, while the continent’s official unemployment rate is 9%, only 28% of Africa’s labour force is in wage-paying jobs.

MGI argues that agriculture, which is set to create eight-million stable jobs at current trends, could add six-million more by 2020 if the continent accelerates the development of this sector. “This upside would come from two sources in particular: expanding large-scale commercial farming on uncultivated land, and shifting from low-value grain production to more labour-intensive and higher-value-added horticultural and biofuel crops.”

In manufacturing, 15-million jobs could be created instead of the current forecast of seven-million, if countries tap into their comparative advantages. For instance, countries with large agricultural sectors could develop downstream agro-processing industries, such as food and beverage manufacturing, textiles, leather goods and wood products. “To realise these opportunities, however, African countries need to address high costs for transportation, inputs, duties, and bureaucracy”.

In retail and hospitality, which is on track to add nine-million jobs by 2020, a further five-million could be generated if countries removed hurdles to the formalisation and modernisation of the sector. “Hospitality and tourism is already growing strongly, but there is potential to accelerate growth by addressing inadequate and costly air travel and visa requirements, poor surface transportation, and problems related to land-use and development rights.

Outside of these sectors, MGI expect that there could also be employment growth in construction, transport and communication, and financial services, while government and social sectors will also remain strong contributors.

Issues identified as key constraints to private sector growth include macroeconomic conditions, the potential for political instability and the continent’s infrastructure shortcomings.

The study urges Africa’s policymakers to adopt explicit strategies aimed at encouraging growth in labour-intensive sectors, which could be executed in conjunction with the private sector.

“Focusing on gross domestic product growth alone will not be enough to transform Africa’s employment landscape fundamentally or to ensure inclusive growth and wider opportunities for Africa’s people. To harness growth for job creation, African leaders should focus on reforms to the business environment in the labour-intensive sectors that have the potential to create large numbers of jobs,” the authors argue.