3 April 2018

Africa - Harnessing the Demographic Dividend


Africa has the fastest-growing and most youthful population in the world. Over 40 percent are under the age of 15 and 20 percent are between the ages of 15 and 24 which corresponds to the African Development Bank's (AfDB's) youth definition. According to the 2017 revisions of the United Nations World Population prospects, Africa's population is predicted to have increased from 1,2 billion in 2016, to 1,3 billion in 2017 creating new challenges and opportunities for the economy.

Nevertheless, the continent has not yet achieved the magical demographic transition and dividend where the dependency ratio falls far enough for incomes and savings to begin to rise (the dependency ratio of the younger population not in labour versus the active population). This crucial demographic transition, which yields the demographic dividend, can only be achieved through investment in small and mid-sized enterprises (SMEs ), creative hubs, education and health, as well broader family planning strategies.

In September 2017, the 72nd UN General Assembly (UNGA), GBC Health, World Bank and UNFPA convened to discuss the private sector's role in supporting Africa's demographic change. The demographic dividend has been acknowledged by African leaders and decision-makers as a strategic basis for focusing and prioritising investments. Investments into Africa's youth will contribute towards sustainable development, inclusive economic growth and to build an integrated, prosperous and peaceful Africa.

Job creation is not keeping pace with population growth. Many African countries are struggling to create jobs for the increasing numbers entering the job market: The International Labour Office's Global Employment Trends for Youth 2015 reported that youth comprised 48,1 percent of the long-term unemployed in sub-Saharan Africa.

This high unemployment figure represents a significant lost potential to realise Africa's demographic dividend. Among the factors challenging the employment of Africa's youth are deindustrialisation occurring in many sectors as production becomes increasingly automated; a higher demand for design skills than for manufacturing skills; the mismatch between the skills on offer and the requirements of employers; and the drain on skilled talent suited for the needs of industry across Africa.

According to a report by Brookings on Increasing Employment Opportunities in Africa's complex job market, even some of Africa's largest economies such as Nigeria, Kenya and South Africa struggle with high unemployment. This is a challenge that may continue to grow as more youth begin to enter the workforce if not more investments are made into education and skills creation. The report by Brookings noted that investments into "human capital" more generally will help African countries to fulfil their broader development missions.

Education systems are slow to reform and have not kept up with the demands for the skill sets industry players need to drive growth. Food security continues to be a challenge, though this could be overcome through the effective use of scientific and business management skills. Skills usually found in mature career professionals rather than youth, and to boost agricultural productivity both ends of the workforce must be engaged. Also, rather than prepare for industrial and agricultural careers, the high levels of youth involvement in small- and medium-sized enterprises as well the innovation space continue to dominate the African landscape.

Young people coming into the workforce require mentoring and coaching, creative hubs and workshops, training and vocational skills which can be effectively provided by those close to or already in retirement. This places a premium on the effective use of existing skills to connect Africa's young generation with the highly skilled and experienced.

Current initiatives such as the International Youth Foundation, who together with corporate, research and education institutions, aims to solve this challenge by intervening in sectors where capacity needs are as big as the potential for youth engagement.

Youth will develop the leadership, technical, and life skills to earn a livelihood. Partnerships with universities and research institutes in particular can scale up skills provision and capacities in agriculture.

A new model proposes to pay retired or retiring experts in the agriculture sector for partnering with such trainees or graduates. The scaling would occur through a cycle of compulsory onward training involving a network of workers, students and retiring professionals in villages. Governments across the continent should identify specific sectors in their countries and work within each to develop a workforce transition programme that scales up the skills and capabilities of the next generation.

According to the International Monetary Fund (IMF), the number of Africans joining the working age population will exceed that of the rest of the world combined by 2035. SMEs are also said to account for 80 percent of Africa's employment. Youth involvement often focuses on family-owned businesses, artisanal work and light manufacturing. Skill shortages threaten the future performance of several industries (such as mining) as there is also a regional shortage. The speed of producing the talent Africa needs to drive transformation and ensure inclusive growth is slow, due to the difficulty of reform, vested interests and the time taken to experience results even with good reforms. African governments therefore need to direct investments into entrepreneurship, innovation, private equity investment funds, and improve access to credit to support future growth.

African-focused private equity firms such Quantum Global Group have integrated environmental and social impact assessment as core components of their investment process. The group's newly developed Africa Investment Index (AII) takes demographics (in addition to growth factors, liquidity factors, risk factors, business environment factors and social capital factors) as a key factor to assess the investment potential of African countries.

In the AII, the demographic factor accounts for the size of population and potential market at present and in the future. With the addition of so many young people to Africa's workforce, business and investments are extremely influential in accelerating progress and economic transformation. The Allianz's report on Demography as an Investment Opportunity, sees the rise in the global population, and particularly in emerging economies, as characteristic for "dynamic economies" and an opportunity for investment.

The speed of producing the talent Africa needs to drive transformation and ensure inclusive growth is slow, due to the difficulty of reform, vested interests and the time taken to experience results even with good reforms. African governments therefore need to direct investments into entrepreneurship, innovation, private equity investment funds, and improve access to credit to support future growth.

A key challenge hampering inclusive growth is Africa's disproportionately high growth rate of population, placing high demands on education and jobs. According to United Nations population projections, the total fertility rate for sub-Saharan Africa was 5,1 births per woman by 2015, a decline of just 1,8 births since 1960. By comparison, the average global fertility rate halved over the same period, declining from 5,1 to 2,5 births per woman. Governments and policy makers will need to address the micro and macro socio-economic benefits of reduced family size, promote education for women, increase budget allocation for health and focus on economic and entrepreneurship training for women.

It is clear that African countries have a tremendous potential to reap the demographic dividend. A critical time is when the working-age population peaks. In order to take advantage of opportunities governments will need to create a conducive policy environment with long-term impact urging investments into the necessary sectors that prepare a favourable economic environment for the youth bulge. Investments in education, innovation, skills, women and private equity development will promote a healthy, educated and diverse workforce to match the increasing expectations of the youth of working age in Africa. - New African

Prof. Mthuli Ncube is Managing Director, Head of Research, Quantum Global Group


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