Productive and sustainable employment in Africa: from structural perspective Yesuf AWEL & Michiko IIZUKA UNU-MERIT Dakar, Senegal Nov. 2013 1.

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Productive and sustainable employment in Africa: from

structural perspective

Yesuf AWEL & Michiko IIZUKAUNU-MERIT

Dakar, Senegal Nov. 2013

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Introduction• Definitions: Types of Employment• Current Employment situation of Africa (SSA)• Questions

– Why labour productivity in Africa (SSA?) is low compared to other regions?

– Why smooth labour transition does not occur in SSA?• High population still in Agriculture—low labour

productivity in Agriculture• Some population is moving towards informal (service)

sector• Possible explanations

– Agricultural Productivity– Dutch Disease: Exchange rate overvaluation due to

resource boom (trade/macro economic policy)• Summary and possible future research themes

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Types of Employment• Productive employment (Maintaining life standards)

– Employment yielding sufficient returns to permit workers and their dependents a level of consumption above the poverty line.

• Decent employment (Ensuring life quality)– Employment with quality including absence of coercion ensuring

equity, security adequacy and dignity of work.

• Sustainable employment (Improving life prospects)– Employment with reduced job vulnerability. – Long term employment security: ensures skill development—

leading to increased productivity

Above are complementary yet different aspects of ideal employment that needs to be supplied.

Does Africa have Productive, Decent and Sustainable employment?

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Sectoral Share of GDP and Employment in Sub Saharan Africa

Sector Value added (% of GDP)

2000

Value added (% of GDP)

2010

Employment (%)

2000

Employment (%)

2011

Agriculture 16.0 12.2 66.4 61.8

Industry(Manufacturing)

14.7 11.6 7.9 8.7

Service 53.5 58.4 25.7 29.5

Source: WDI, 2013 ; ILO(2013)

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Labor Productivity SSA vs EA:Low and stagnant labor productivity in SSA

Source: ILO, 2013

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Employment distribution by status: SSA [1991-2012]:According to ILO(2013) majority of employment is vulnerable employment

Source: ILO, 2013 Vulnerable workers: increase of service sector

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Sources of labour productivityIncrease in labour productivity is contributed by:• Improvement in labour productivity (technology,

capability etc) itself; increase in efficiency• General increase in employment rate or increase in

working age population; increase in participation• Shift of labour into more productive sector; structural changeIn general, change in labour productivity would

contribute more to the increase in productivity but structural transformation has longer impact.

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Agricultural Productivity [Cereal Yield (kg/ha)]10

00

20

00

30

00

40

00

50

00

1960 1970 1980 1990 2000 2010year

yld_cerealAf yld_cerealEAyld_cerealLA

Source: WDI, 2013

9

Food imports as percentage of merchandise imports5

10

15

1960 1970 1980 1990 2000 2010year

fm_EA fm_LAfm_Af

Source: WDI, 2013

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Innovation: Escaping Low Productivity of Agriculture

• Low productivity trap can be escaped by innovation: technological development and institutional change.

• Induced technological development model (Hayami and Ruttan, 1985) – Technological development is induced by the relative

scarcity of factors of production (labour, land). If the market prices of production factors reflects relative scarcity, farmers will prefer technologies that economize on the most scarce production factors.

• Type of technology involved: fertilizer, chemical inputs, tractors, seed varieties (biotechnology) (there are also African paradox: realities need to understand clearly to have right balance of technological change)

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Land expansion/Agricultural land in million hectare

40

060

080

010

00

12

00

land

1960 1970 1980 1990 2000 2010Year

Africa Eastern AsiaSouth America

Source: FAOSTAT, 2013

12

Modern Input Use [Chemical Fertilizer in Kilogram per hectare of arable land]

Source: WDI, 2013

010

020

030

040

0

2000 2005 2010 2015year

fertzr_consEA fertzr_consLAfertzr_consAf

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Fertilizer Consumption in Africa in proportion to EA and LA

0.0

5.1

.15

2000 2005 2010 2015year

fertzrAfEA fertzrAfLA

Source: WDI, 2013

14

Source: Block, 2010

15

Source: Block, 2010

Heterogeneity among African regions

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Agricultural productivity in Africa: Myths?

• Large scale is more productive than Small holder Not Necessarily

• Introduction of labour saving machine would increase productivity Not Necessarily

• Agricultural/rural life provides less sustainable livelihood—worse employment Yes

• Biotechnology is harmful for agriculture ????Revisit the Myths: Need to understand clearly what each implies in Regional/local contextNeed to approach in complementary or systemic manner

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Areas for future investigations in the area of agriculture for employment• Realities of African agriculture: how innovation

(technology/institutional change) can be incorporated to improve productivity? Requires systemic perspective?

-Improve labour productivity• Under what conditions, increase in

productivity of agriculture lead to the structural transformation ?

-Encourage structural transformation

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Theoretical understanding ofStructural transformation 1

• Classical view 1 • Dual Sector Model (A.Lewis, 1954)

– Surplus labour in Agricultural (subsistence) sector will move to manufacturing (capitalist) sector because marginal labour productivity of agriculture is low (surplus, cheap labour).

If Dual Sector Model is correct, the marginal cost of labour should be cheaper, making it attractive for more productive activities such as manufacturing.

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Theoretical understanding ofStructural transformation 2

• Classical view 2• Ricardian rent theory: diminishing returns to

increments of labour and capital applied to an inelastic supply of land represented fundamental constraint on economic growth.– Pessimistic view of technological progress;– In reality

• Real cost of agricultural production had declined in spite of land resource constraint

• TFP of agriculture increase in economic growth• Technological change released inelastic resource supplies.

But above is not happening in Africa

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Theoretical discussion ofStructural transformation

• Current view• Sustained and high level of economic growth are

highly associated with structural transformation process through industrialization mainly to manufacturing. (i.e. East/SE Asia and many developed countries)

• Alternative views• Service based development possible? (e.g India)• Latin American scholars (Perez, Lederman,

Maloney etc in 2000s): focus on Knowledge– Natural resource based development (NRBD) is possible

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Possible explanations for structural transition not occurring in SSA/Africa

• Rapid population growth eats up the increased agricultural productivity (diminishing return of labour)

• Absorption by manufacturing is inhibited by the higher wage caused by – High food cost in urban areas– Natural resource boom (Dutch disease)

• Transition perhaps also inhibited by skill mismatch– Education/training need to be aligned?

• Lack of investment in the countries to productive sectors?

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Population Growth (annual growth rate)

Source: WDI, 2013

.51

1.5

22.5

3

1970 1980 1990 2000 2010year

popgr_EA popgr_LApopgr_Af

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Comparison of Food pricesSub Saharan Africa and East Asia

1985 1990 1995 2000 20050

0.2

0.4

0.6

0.8

1

1.2

Wheat (US$/1KG)

1985 1990 1995 2000 20050

0.2

0.4

0.6

0.8

1

1.2

Rice (US$/1KG)

1985 1990 1995 2000 20050

0.10.20.30.40.50.60.70.8

Maize (US$/1KG)

SSA EA developing countries

Source:Hirano, 2013 based on ILO data

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Comparison between Manufacturing Average Wage and GDP/capita

S. Afri

ca

Senega

lEgy

pt

Ghana

Ethiopia

Malawi

Malaysi

a

Philippines

Indoensia

Vietnam

Russia

02000400060008000

1000012000140001600018000

Manufacturing Average Wage GDP/capita

Source: Hirano, 2013 based on most recent data available from UN statistics.

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Dutch disease• Phenomena whereby the currency is

overvalued due to export boom of natural resources (usually minerals);

• The overvaluation would translate into weakening competitiveness of exports and domestic industries (this also means drawing labour to the booming sector contribute to higher wage; increase of imports, such as food);

• Increase flow of money may lead to over spending by government (if not invested wisely).

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African export commodity by type in ‘000 dollars

Source:UNCTAD

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EXCHANGE RATE OVERVALUEATION

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Food imports as percentage of merchandise imports5

10

15

1960 1970 1980 1990 2000 2010year

fm_EA fm_LAfm_Af

Source: WDI, 2013

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Contribution to GDP growth (2002-2008)

Source: based on Hirano 2013, 2009 which made calculation from data obtained from UN statisticsNote: * is for 2002-2007

SSAfrica N. Africa World China* SE Asia*Productive

Agriculture 16,4 7,8 4,0 9,4 11,8Mining, infrastructure 25,4 44,0 8,1 - 11,3Manufacturing 7,0 8,5 16,3 27,4 26,8

Expenditure Personal consumption 60,6 42,9 54,6 30,0 53,4Government consumption 15,9 11,9 17,6 12,1 9,9Fixed capital formation 20,3 26,6 25,7 48,2 25,5Trade surplus 2,0 13,2 - 15,5 9,7

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Summary• So far, much of employment in SSA is in Agriculture

(subsistence) sector. But productivity of this sector remains low, underemployment exist (labour surplus) to be released into other sectors.

• Overall, there is growth in agricultural sector but conventional structural transformation seems missing [Agriculture Industry Service]

• Service sector is growing: but limited knowledge on what is happening especially on productivity and employment dynamics.

• There are some rupture in translating recent economic growth (observed in some SSA counties) into transforming structurally allocating resources to productive sector to create PRODUTIVE and SUSTAINABLE EMPLOYMENT.

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Possible areas for future research

• Understand why structural transformation is not happening in Sub-Saharan Africa from Agriculture to other sector

• Understand productivity and employment dynamics in the service sector

• How to improve existing low productivity of agriculture?– Important for structural transformation– Food security

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THANK YOU!