In the past decades, African countries have experienced a rapid change in fortune, as major countries across the continent recorded massive growth in their Gross Domestic Product (GDP). Unfortunately, the same cannot be said about the rate of job creation in the continent, as figures released by the African Development Bank (AfDB) in 2015 shows that over one-third of the 420 million youths (i.e. 140 million youths) in Africa are unemployed.
Basically, the rapid and consistent economic growth experienced in Africa over the past years has not yielded sufficient job opportunities to sustain the growing number of job seekers. This has raised so many questions as to why the constant economic growth is not yielding much positive impact on job creation.
A recent research on “The Cost of Inaction: Obstacles and Lost Jobs in Africa” funded by the AfDB reveals how major business constraints are having a negative effect on the potential of job growth in Africa. It uses the World Bank Enterprise Survey of 30,000 firms in 24 African countries to ascertain the annual rate of entry and exit of firms (i.e. the rate at which new firms are created and existing firms fold up) in Africa,
Below are some key findings from the study:
1. A large number of businesses in Africa are affected by insurmountable obstacles, some of which includes: difficult political environment, strict business regulations, inadequate infrastructure, and limited access to finance. These business obstacles pose great threat to the survival of thousands of firms in Africa, thereby stunting job creation.
2. The presence of these business constraints has led to increased rate of firm exit and low rate of firm entry into the African labour market. This lowers net job creation. Ideally, in a competitive market, new firms continually come into existence, which forces existing firms to increase their productivity; thereby creating room for employment opportunities.
3. The annual rate of exit for firms in Africa is about 6.1%, with younger firms being more likely to exit than older ones. This is high when compared to the average exit rate in other continents, which ranged between 3.7% and 5.4%.
4. Fifteen (15) business obstacles were found to negative affect African businesses. These obstacles can be categorized into 6 groups: political environment, business regulation, infrastructure, access to finance, practice of competitors in the informal sector, and inadequately educated work force. Of all these major constraints, limited access to finance is ranked as the biggest obstacle faced by firms in Africa, followed by the lack of electricity.
Conclusively, low job creation and high unemployment will continue to be major problems in Africa except a large number of the overwhelming business constraints are tackled. As African governments work collectively to improve the level of job creation for youths across the continent, it is important that their intervention scheme are focused on minimizing some of the identified constraints, to encourage entry and reduce exit of a large number of firms in the African labor market.
Still Craving? Find out more about this research experiment and the results on AFDB Working Paper
Author Credit: Ima-Abasi Joseph Pius