The unemployment problem

22 Oct, 2021 - 00:10 0 Views
The unemployment problem

eBusiness Weekly

Alfred M. Mthimkhulu

How do we talk about a looming catastrophe without sounding alarmist? In “An Inconvenient Truth”, Al Gore’s uses an analogy of a frog in a jar with cold water to illustrate global warming. 

The jar is slowly heated. The frog can cook as water heats up but, it would have sprung out had it been thrown into already hot water. The scale of unemployment and underemployment in Zimbabwe and in Africa has been worsening for decades. 

Because the problem affects the individual more directly than society, and, because it has been prevalent for years, it does not attract the urgency which other issues like climate change and governance do. 

Indeed, all election manifestos mention jobs and all economic policies talk about job creation yet little has come out of all that as the following discussion shows.

Earlier this month, the Friedrich Ebert Stiftung published a study by Professor Robert Kappel, one of the leading scholars of our time on global geopolitics and economic development. The study discusses employment trends in Africa in the past two decades. It is available online on the Friedrich Ebert Stiftung website and this piece draws from it. 

There are two sides to a discussion on employment. The first is on the number of people joining the labour market each year.

The other is the capacity of local institutions to absorb new entrants. 

Private and public institutions have not been able to absorb new entrants. On the other hand, the number of new entrants keeps increasing and will increase further in coming years. 

Africa’s population is forecast to grow at an annual average of 2,5 percent to 2040 meaning that the labour market must expand faster than that to clear the backlog and absorb new entrants. 

This has not happened. Robert Kappel finds that on average in Africa, “Not even 5 percent of new labour market entrants can find jobs in the formal sectors. 

Only 20 percent of all workers have permanent, paid jobs in the private sector and public services.”  What happens to the rest? MSMEs.

Policy makers are aware of the problem but their policies have failed to fix it. What have been the policies? 

Policies have focused on economic growth as measured by changes in GDP and to drive that growth has meant attracting FDI among other measures. 

But as the study shows, some parts in Africa have experienced “jobless growth” with countries like South Africa posting wonderful growth rates at the turn of the century with no corresponding new jobs. How can that happen? Let us look at FDI. The study tells us that “on average, all foreign investors combined create just 2,8 jobs per one million US dollars invested”. 

That figure is lower for Chinese investments at 1,9 new jobs while it is higher at 4,6 new jobs for German investments. These stats are much lower at 0,6 new jobs per US$1 million invested in extractive industries. Most FDI especially in high-risk countries such as Zimbabwe is in extractive industries, which yields the lowest number of jobs. 

These basic statistics points to limited power of FDI to create jobs hence the jobless growth (although this must not downplay the positive impact FDI has on facilitating emergence of other industries as well as technology transfer and skills development). If not FDI then what will deliver jobs? “Local investors, MSMEs!”  would be the thunderous reply if I asked this question at a local seminar. 

That’s also what I would have said before I spent a few years pondering on the matter as a doctoral student at Stellenbosch University. 

I studied enterprise development and job creation lured by the romantic narrative of MSMEs as the bedrock of the economy, the narrative of MSMEs as a major contributor to GDP, a captivating story of little Davids doing wonders, of gazelles and antelope galloping their clans to prosperity. 

But there are lots of inconvenient truths in that beautiful narrative. For instance, we don’t talk about the economic vulnerability of MSMEs’ owners and employees. We avoid talking about how most MSMEs have no provisions for pension and medical insurance or that most fail a year or two after formation resulting in heart-breaking career breaks for many.

These inconvenient truths tamed my conviction on the extent to which MSMEs, in general, could avert the looming catastrophe. Further reading led me to a body of literature that shows that it is only a tiny segment of firms in an economy that accounts for sustainable job creation. 

The literature refers to such firms as high-growth firms. My work sketches the profile of such firms: In which sectors do we find them? What kind of entrepreneurs or managers run them? How big are they? What markets do they serve? Like others, I use large datasets to sift these characteristics in a bid to arrive at a typical high-growth firm. 

The thinking we have as researchers on this is that if we have a good sketch of such firms then we can contribute something to policymakers and other development agents particularly in helping them channel their limited resources to support such high-growth firms either as co-investors, trainers, or agents to catalyse growth. 

A focus on a few firms also showcases local investable assets for institutional investors thus facilitating the emergence of a vibrant venture capital market. Africa is easily serenaded by flawed narratives that divert attention from dealing with the problem to worsening it. 

Two such narratives that relate to the unemployment problem are how Africa will in future harvest the so-called demographic dividend and the other is how Africa can leapfrog on the back of the Fourth Industrial Revolution. 

The truth is; both spell trouble for Africa. A bulging youthful population with no job prospects is big trouble. 

The Fourth Industrial revolution will ensure that the ultramodern Global Value Chain bypasses our rudimentary manufacturing sector which lack technologies to produce with precision components for onward processing in the value chain. 

So, what is the way forward?

 “What is needed is a new discussion on economic policy in Africa that will overturn the current growth model and de-construct misleading promises. It would be reckless to cling to the illusion that higher growth, low wages and higher financial flows will solve the employment crisis,” writes Robert Kappel. 

I will wrap this up with words from Lee Kuan Yew, founding father of Singapore: “We wouldn’t have made the economic progress if we had not intervened on very personal matters: who your neighbour is; how you live; the noise you make; how you spit and where you spit or what language you use. Had we not done that and done it effectively we would not be here today.”

Economic progress manifests at microlevel. Our policy planners are spending too much time pouring on macro-level data while politicians serenade us at micro-level. 

It must be the other way round if we are to avert this looming catastrophe of unemployment and underemployment.

Alfred M. Mthimkhulu/Email: [email protected] /Twitter: @mthimz

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