A Matter of Size

• Author: Bruce Edwards
• Position: on the staff of Finance & Development.

Given the speed at which many economies in sub-Saharan Africa have been growing in recent years, one could easily conjure up images of “Help Wanted” signs at nearly every firm. But even at more than 5 percent a year, the region’s growth has fallen short of providing enough paying jobs, especially outside agriculture.

The labor force in sub-Saharan Africa is around 450 million, with fewer than 40 million on formal payrolls. But it’s not that the rest of the people don’t work; in fact, unemployment in the region is relatively low. The problem is transforming the job market from one that has kept people working in small informal jobs and on farms—often for little or no pay—to one that offers more opportunities in the manufacturing and service sectors, where there is more income security. The International Labour Organization (ILO) says that 76.6 percent of workers in sub-Saharan Africa are in vulnerable forms of employment.

And with the highest fertility rate in the world, sub-Saharan Africa needs businesses to provide many more jobs if the region is to absorb the rapidly expanding workforce. The United Nations says the working-age population in sub-Saharan Africa will more than double by 2050.

Potential boon

Although the growing population puts pressure on the job market, it also could be a boon to the region. In sub-Saharan Africa, the 32 percent share of the population ages 10 to 24 is the world’s highest—which the ILO says offers a “demographic dividend” because the productive capacity of the working-age population will surge with the additional labor supply.

An IMF study, “Africa’s Got Work to Do: Employment Prospects in the New Century,” says that if sub-Saharan African economies can attract more investment in labor-intensive production from east Asia, the region could indeed experience a large jump in manufacturing output for exports. But today fewer than 10 percent of the region’s workers have industry jobs.

A recent study by the Center for Global Development (CGD) found that firms from 41 sub-Saharan African countries are 24 percent smaller than those elsewhere in the world. The study was based on data from 41,000 formal firms in 119 countries and compared their productivity over time.

The study, âStunted Growth: Why Donât African Firms Create More Jobs?â suggests several possibilities why the regionâs businesses are smaller, including reluctance by family-owned businesses to hire nonâfamily employees and...