Structural change -- critical for poverty reduction in Africa.

 
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15 December 2014

KEY FINDINGS

* Economic growth has had a negative effect on unemployment and poverty reduction in Africa.

* The transition from low-to middle income requires within sector increases in productivity and a shift of labour resources from low productivity agriculture to high productivity manufacturing.

* Structural change in Africa's labour market has not been sufficient to achieve poverty reduction.

Donors have focused much attention on African development but have mostly failed to assist the region in making the transition from low value added agricultural activities to more sophisticated and productive manufacturing alternatives. In order to rectify this, an ambitious new approach to aid in Africa is needed, with a focus on three key objectives:

  1. Assisting African workers to acquire the skills needed in higher added-value industries.

  2. Supporting firms seeking the necessary funding and managerial expertise to develop their activities.

  3. Helping governments develop industrial clusters and attract foreign direct investment (FDI).

    Unequal growth pushes African workers towards informal economy

    One of the most pervasive problems in Africa is the size of the informal economy and its effect on unemployment. At 6.4 per cent, official unemployment figures suggest a relatively low level of unemployment, but the main driver seems to be the large informal sector. The economic landscape is complex and varied, but the available data shows that countries with larger informal economies tend to have lower levels of unemployment. This suggests that a large level of the work-force is employed in informal activities, with precarious working conditions, low wages, no benefits and little job security. This leads to, despite low levels of unemployment, poverty across Africa remaining a problem.

    Counter-intuitively, the impact of economic growth on employment seems to have been negative. Those countries that experienced the least growth were more apt at generating well-paying jobs than their faster growing neighbours. This suggests that growth has come from industries that are not employment intensive and workers are thus pushed towards the informal sectors.

    Lack of structural change limits poverty reduction in Africa

    Poverty reduction is linked to the interaction of two fundamental forces in the labour market.

  4. Productivity gains across all sectors improving wages.

  5. Workers shifting to higher productivity jobs.

    Such structural change has been...

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