By Abel Myburgh, Associate Director, BDO South Africa
In 2040 Africa will be home to one in five of the world’s young people and the size of its labour force will top China’s.
It has been reported that Africa has more people under the age of 20 than anywhere else in the world. Sub-Saharan Africa is a region where people aged between 15 and 29 will continue to constitute about half of the population of most countries for the next three to five decades. Currently, the estimated average age in sub-Saharan Africa is under 19.
The most crucial aspect for Africa to successfully benefit from its own greatest asset, namely its growing young population, is job creation. The African Development Bank (AfDB) recently reported that of Africa’s nearly 420 million youth aged 15 – 35, 31% are unemployed and discouraged, 35% are vulnerably employed, 19% are inactive and only 15% are in wage employment. Of the 10 to 12 million youths entering the workforce every year, only 3.1 million jobs are available to them. We are failing to capitalise on Africa’s greatest asset for growth.
It is our view at BDO that solutions have to be further explored and developed by governments and private sectors in order to provide meaningful employment to the continent’s rapidly growing young population. For example, multi-national companies with their vast business expertise invest in new business operations in Africa, can further participate by adopting or developing programs through mentorship schemes, to encourage entrepreneurship. There are a number of these initiative already in existence, such as the Young Entrepreneurship Facility (YEF) in Uganda, Tanzania and Kenya, which focuses on business development training and entrepreneurship support. Moreover these potential entrepreneurs require start-up capital or better access to capital and in our view, provides investors with the biggest opportunity to participate in securing future growth in Africa.
A couple of decades ago, limited domestic demand and lack of infrastructure prevented the growth of strong local markets. But this has changed with the rapid economic growth in many African countries.
Urbanisation is one of the most powerful growth engines the world has experienced and is especially evident in Africa. By 2025, the population of Dar es Salaam is predicted to grow by 85%, Nairobi by 77%, Kinshasa by 72%, Luanda by 69%, Addis Abba by 62%, Abidjan by 53% and Dakar by 52%. Compare this to a predicted growth of only 13% for Durban and 12% for Johannesburg and Cape Town respectively. As the proportion of the population living in cities increases, so will productivity.
The higher density of the population allows for the creation of domestic markets, the demand to emerge and local entrepreneurs to develop in an economic environment that is much more business-friendly than 20 odd years ago. It is reported that the African consumers increased from 59 million households in 2000 to over 106 million in 2014.
There is no doubt that Africa is the most commodity-dependent continent on earth, partly because manufacturing still accounts for a relatively small share of output. Most goods are exported in a raw state without being processed, refined or having had value added to them in other ways. The fact remains that economic growth in Africa remains linked to commodity prices and is especially According to McKinsey.com susceptible to swings in the global commodity prices as is evident with the oil exporting countries such as Angola, Gabon, Nigeria and Algeria.
On the upside, Africa stands at the threshold of a shift towards the services and manufacturing sectors, driven by a rising middle class and technological advancements. For the foreign investor, this socio-economic shift opens the door to a wide spectrum of services and manufacturing opportunities, especially in the downstream activities. Therefore, the development of the manufacturing sector will provide a country with sufficient means to increase the direct benefit derived from its own natural resources, including improved tax potential and a larger set of job opportunities. We have seen a number of countries developing free trade zones offering investors a menu of tax incentives.
During the Second Regional Employment Forum, Rwandan Prime Minister, Anastase Murekezi, challenged regional employment experts to devise ways to address the unemployment and skills gap across Africa. “In Rwanda, we have established the Workforce Development Authority (WDA) with a mandate of building and strengthening technical and vocation training by equipping our workforce with hands-on skills to enable a smooth transition to the labour market. This also helps prepare our youth towards self-employment,” Prime Minister Murekezi said. He further outlined some of the challenges facing labour markets across the continent including low levels of investment resulting in limited capacity of regional economies to absorb job seekers; and skills gaps leading to a mismatch between labour market needs and graduates’ skills.
The youth unemployment was specifically addressed at the just concluded World Economic Forum on Africa in Rwanda when the AfDB introduced its “Jobs for Youth in Africa Strategy 2016 – 2025” in order to create 25 million jobs and reach over 50 million Africans by driving inclusive growth across the continent. The goal of the strategy is to create investment facilities by facilitating a variety of financing instruments to be funded by the Bank and external partners. The purpose is to reduce financing risk in order to release more capital, therefore expanding access to capital and to incentivise private investment in youth employment challenges. They envisage this programme will create more than 41 million jobs in the Agriculture sector, 14 million jobs in the Industrial sector and 2 million jobs in the ITC sector. The approach is expected to generate over USD30 billion in income gains for Africa in the next ten years.
One of the key points raised in Kigali was that in order for Africa to transform its economy it has to industrialise, thus, exploring the opportunities of adding value through manufacturing and most importantly addressing its unemployment challenges. Highlighting that Africa’s rapid population growth is a key driver of innovation and growth.
Africa Desk Tax