Over one-third of workers in sub-Saharan Africa earn less than $1.9 daily, says IMF

The International Monetary Fund (IMF) says over one-third of workers in sub-Saharan Africa earn less than $1.90 per day.

The IMF spoke in a policy note presented on Monday during a session at the ongoing annual meetings organised in partnership with the World Bank, advising governments on strategies to providing better jobs.

The policy note, which examined the challenges in job creation in the region, was jointly presented by Athene Laws and Faten Saliba, both from the fund’s African department.

The IMF team said when gross domestic production (GDP) per capita increases the in sub-Saharan Africa, only one-third as many jobs are created.

“The story gets even more concerning for fragile and conflict-affected low-income countries and growth in resource-intensive countries produces only 1/10 of the expected jobs,” the IMF said.

“As a result, over 1/3 of workers earn less than $1.90 per day. Underemployment is extremely high, particularly in rural areas, and more than three in four workers do not hold a wage job in many countries, public sector employment is the most stable, lucrative route to a good job, but this public sector already is large and does not have the capacity to create the number of jobs needed for the future.”

The speakers said while Africa does not have a problem with firm creation, growth remains a huge challenge as poor access to power and funding obstacles rise.

‘AFRICAN FIRMS STRUGGLE TO GROW’

They said Africa creates more firms than other low-income countries around the world, but the companies struggle to grow.

“Most businesses are micro firms, small, unregistered and often have low productivity and are run by a single person. Some do transition to formality. For example, 1/3 of Angolan formal sector firms started unregistered,” the IMF official said.

“Nonetheless, there are very few medium and large firms, and these types of businesses tend to create the most good jobs internationally. When surveyed, sub-Saharan African firms say, getting finance, accessing reliable electricity and informal sector practices are the biggest gross obstacles.

“Firms then struggle with small domestic markets and limited international market access, bureaucratic regulations, corruption and inadequate infrastructure compound the challenges.”

The IMF said another challenge to job creation in the region is transforming the structure of the economy to create more labour demand in high-productivity sectors.

According to the lender, structural transformation refers to the movement of workers and other resources, from low-productivity activities like subsistence agriculture to high-productivity activities like manufacturing and modern services.

“This movement is critical to generating lots of better jobs,” the IMF said.

“It is happening in the region, but slower than elsewhere. Unfortunately, structural transformation is arguably more difficult today than 30 to 40 years ago. Technological change means manufacturing is now more capital-intensive.

“That means factories often employ fewer workers than in the past, and manufacturing in Sub-Saharan Africa has a disproportionate number of small firms with low productivity.

“So, if creating lots of manufacturing jobs isn’t as straightforward as in the past, the region will have to look to other options. Luckily, there are quite a few industries that can both employ lots of people and have the potential for productivity growth, industries like agro-processing and other modern business services, financial services, tourism and more.”

“There is no one route. The Pathways will vary by country, but the important message is to get lots of better-quality jobs the economy will need to shift towards higher productivity activities.”

‘TACKLING CORRUPTION, RED TAPE ESSENTIAL FOR JOB CREATION’

To address the challenges, the IMF officials said broad-based and inclusive private sector growth in the informal sector is essential for creating quality jobs.

They called for the transformation of informality into an opportunity by focusing on targeted policies for workers.

This, according to them, includes boosting productivity in the informal sectors through well-matched skills training, better access to finance and policies that encourage transitioning to formal employment.

“It’s crucial to create programs that help young people, especially women, enter the workforce, ensuring they have the tools to succeed,” the IMF officials said.

“Two, address the barriers to firm-level growth, increasing finance by attracting more foreign direct investment and developing local capital markets, prioritize basic infrastructure like electricity, internet, roads and low-cost public transport. Get a bigger market by strengthening regional integration and trade [and] really tackle corruption and red tape.”

The speakers advised governments to support structured transformation by increasing employment in high-productivity sectors like modern services and manufacturing, prioritise cost-effective measures that benefit multiple sectors such as improving market competition and cost-effective infrastructure.

The IMF team also urged global leaders to be cautious with industrial policies that target specific sectors “as they can be expensive, distortionary and prone to governance challenge”.