Case Study: Addressing the Job Creation Challenge in Sub-Saharan Africa

Sub-Saharan Africa faces a critical challenge: creating enough jobs to support its rapidly growing population. By 2030, the region will account for half of the world's new workers, with an estimated 15 million jobs needed annually. However, many of these jobs are expected to remain in the informal sector, which lacks security, benefits, and higher productivity.

Despite high rates of business creation, most firms remain small and unregistered, contributing little to employment growth. Structural transformation, such as moving labor from low-productivity agriculture to more productive industries and services, has been slow. Tackling barriers like limited infrastructure, poor access to finance, and regulatory inefficiencies is essential for unlocking the region's job creation potential.

Extract 1: Demographics and Job Creation Needs

Sub-Saharan Africa is experiencing a demographic boom, with its labour force expected to grow significantly over the next decades. By 2030, the region will contribute half of the world's new workers, requiring the creation of approximately 15 million jobs annually. This challenge is particularly pronounced in fragile and conflict-affected states and low-income countries, which account for nearly 80% of the job creation needs. For example, Niger requires 650,000 new jobs annually for the next 30 years to meet labor force demands. In contrast, middle-income countries like Botswana and Mauritius face less severe pressures due to earlier demographic transitions.

Extract 2: Labour Market Characteristics

The labour market in Sub-Saharan Africa is characterised by high levels of informality, with over 80% of jobs classified as informal. These roles lack security, benefits, and higher productivity compared to formal sector jobs. A large proportion of workers are underemployed or engaged in subsistence agriculture, with nearly one-third living on less than $1.90 a day (PPP). Wage employment, which offers better job quality, is accessible to only a minority, with the majority engaged in self-employment or lower-tier informal jobs.

Extract 3: Constraints on Private Sector Growth

Firm growth in Sub-Saharan Africa is limited by several factors, including inadequate infrastructure, difficulty accessing finance, and corruption. Although the region boasts high rates of new business creation, most enterprises remain small and unregistered, contributing minimally to job creation. Moreover, reliance on low-employment sectors, such as resource extraction, exacerbates the issue. Addressing these constraints is essential for fostering private sector development and enabling job creation.

Extract 4: Structural Transformation Challenges

Sub-Saharan Africa’s economic growth has been less effective at reducing poverty compared to other regions. A slow transition from low-productivity sectors, such as agriculture, to higher productivity sectors like manufacturing and services has hindered job creation. Furthermore, the manufacturing sector’s contribution to GDP and employment has stagnated. However, services like IT and finance, as well as industries such as agro-business and renewable energy, present opportunities for structural transformation.

Case Study Questions

• Why does Sub-Saharan Africa need to create so many new jobs every year? Explain how this need is different in poorer and richer countries in the region.
• What is an informal job, and why are most jobs in Sub-Saharan Africa classified as informal? Suggest ways to help workers move from informal jobs to better jobs.
• What problems do businesses in Sub-Saharan Africa face when trying to grow? How can governments help solve these problems?
• How can sectors like technology and farming help create more jobs in Sub-Saharan Africa? Give examples of how these sectors can grow.
• Why hasn’t economic growth in Sub-Saharan Africa created enough jobs or reduced poverty as much as in other parts of the world?

References

• International Monetary Fund (IMF). (2024). The Clock is Ticking: Meeting Sub-Saharan Africa’s Urgent Job Creation Challenge. Regional Economic Outlook: Sub-Saharan Africa. Washington, DC: IMF.
• World Bank. (2023). Africa’s Pulse October 2023 Vol. 28. Washington, DC.
• ILO. (2024). World Employment and Social Outlook: Trends 2024. Geneva: International Labour Organization.
• Danquah, M., Schotte, S., & Sen, K. (2021). "Informal Work In Sub-Saharan Africa: Dead End or Stepping-Stone?" IZA Journal of Development and Migration, 12(15).
• Newfarmer, R. & Twum, A. (2022). "Employment Creation Potential, Labor Skills Requirements and Skill Gaps for Young People: A Rwanda Case Study." Brookings Africa Growth Initiative Working Paper 39.
• Rodrik, D. (2022). "Prospects for Global Economic Convergence Under New Technologies," Brookings Institution.

Suggested answers

1. Why does Sub-Saharan Africa need to create so many new jobs every year? Explain how this need is different in poorer and richer countries in the region.

Sub-Saharan Africa's rapidly growing population drives the need for job creation. By 2030, the region is expected to account for half of the world's new labor force entrants, requiring the creation of 15 million jobs annually. This need is more urgent in low-income and fragile states, which face high fertility rates and slower demographic transitions. For example, Niger must create 650,000 jobs annually for 30 years due to its youthful population. In contrast, middle-income countries like Botswana and Mauritius, where fertility rates have declined and youth populations have peaked, face less pressure. Addressing this challenge is vital to prevent rising poverty, social unrest, and migration. Policies must be tailored, with poorer nations focusing on rapid job creation and richer ones on sustaining economic growth to absorb labor force entrants.

2. What is an informal job, and why are most jobs in Sub-Saharan Africa classified as informal? Suggest ways to help workers move from informal jobs to better jobs.

Informal jobs lack legal recognition, secure contracts, and benefits, making them less productive and unstable. Over 80% of jobs in Sub-Saharan Africa are informal due to limited formal sector opportunities, high entry barriers, and a reliance on self-employment. Many workers, particularly women and youth, remain trapped in low-tier informal jobs, earning subsistence wages. To transition to better jobs, governments can improve access to credit for small enterprises, invest in skills training, and promote job formalization by reducing bureaucracy. Expanding safety nets and providing incentives for businesses to formalize can also help workers climb the job ladder. These measures can transform informal work from a survival mechanism to a stepping-stone toward higher-quality employment.

3. What problems do businesses in Sub-Saharan Africa face when trying to grow? How can governments help solve these problems?

Businesses in Sub-Saharan Africa face significant barriers, including limited access to finance, unreliable electricity, and corruption. Small enterprises struggle to secure loans, often relying on informal lenders. Frequent power outages reduce productivity and sales, while bureaucratic inefficiencies and regulatory hurdles deter growth. Governments can address these challenges by improving infrastructure, such as electricity and transport networks, fostering financial inclusion through microfinance and digital banking, and streamlining business regulations. Tackling corruption and promoting regional trade agreements, like the African Continental Free Trade Agreement, can further expand markets for businesses. By enabling firms to scale, governments can unlock private sector potential for job creation.

4. How can sectors like technology and farming help create more jobs in Sub-Saharan Africa? Give examples of how these sectors can grow.

Technology and farming offer significant opportunities for job creation in Sub-Saharan Africa. The IT sector, as seen in Rwanda and Kenya, has shown potential for growth by offering services like mobile banking and e-commerce. Expanding internet access and training workers in digital skills can boost employment in high-value services. Similarly, improving agricultural productivity through investments in irrigation, modern equipment, and agro-processing can create non-farm rural jobs. For example, Rwanda’s agro-processing sector grew by 9% annually, tripling employment in two decades. By adding value to raw agricultural products and leveraging technology for market access, these sectors can absorb labor and drive sustainable development.

5. Why hasn’t economic growth in Sub-Saharan Africa created enough jobs or reduced poverty as much as in other parts of the world?

Economic growth in Sub-Saharan Africa has not translated effectively into job creation or poverty reduction due to its reliance on low-employment sectors like resource extraction. Unlike other regions, the relationship between GDP growth and employment is weak, producing only one-third of the jobs seen elsewhere with similar growth. High levels of informality and concentration in low-productivity agriculture exacerbate the issue. Additionally, many jobs are subsistence-level, with over 33% of the population living on less than $1.90 per day. Structural transformation, shifting resources to more productive industries and services, has been slower than in other regions. To address this, policies must focus on diversifying economies, investing in high-value sectors, and fostering inclusive growth.