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KENYA’S ECONOMY – NEW JOBS BUT NOT ENOUGH (AND WHY AFRICA ISN’T CREATING EMPLOYMENT)

UnemploymentKenya’s 2014 economic survey shows the country’s economy grew by 4.7 per cent in 2013 creating over 700,000 new jobs. Good news in part but not good enough to meet the Jubilee government’s target of 1 million extra jobs, or indeed the approximately 1.7 million increase in employment that some analysts reckon was needed just to keep pace with the young Kenyans coming on to the jobs market.

MORE STATE EMPLOYEES – MORE TAXES?

Although an estimated 742,800 new jobs were created, some 116,800 of these were in the ‘formal sector’ partly as a result of an extra 26,300 jobs ‘created’ through an increase in public sector employment, the price being paid for devolved government and a cost that will fall on the already hard-pressed Kenyan taxpayer.

At least it is growth and Kenya has avoided a double dip recession (even in election year) but it is not enough to match population growth and cut into the existing problem of unemployment.

WHY AFRICA IS NOT CREATING JOBS

The Economist magazine, in an interesting article entitled ‘Sorry, no vacancies’ (29 March) reported on why it is that Sub-Saharan African countries have not created jobs in the way that other countries have.

Based on a report published by the Centre for Global Development (CGD), The Economist noted that Sub-Saharan AfricanCGD firms have something like 24 per cent fewer employees compared with firms of a similar size elsewhere.

Several factors, the article suggest, explain why African bosses in the formal sector, especially in the private, free-enterprise world, are reluctant to take on more workers.

One reason, to be fair, is that African companies tend to be younger than their American and European equivalents, for example, but even so, older African companies still employ fewer people.

The CGD report, based on analyzing 41,000 formal businesses globally from a World Bank survey, suggests that there is an Africa dimension to the phenomenon of under employment.

CORRUPTION

One factor cited was that Africa’s business climate discourages more employment because government officials look for bribes and extra taxes from bigger companies because they are more likely to pay. So staying small keeps a firm out of the eye of the corrupt governing authorities.

AFRICA – LOW WAGES + LOW PRODUCTIVITY = HIGH UNIT LABOUR COSTS

Another surprising factor is that the cost of labour in Africa ends up being quite a bit higher than elsewhere, not because Africans get paid more, in the main they don’t, but because productivity is much lower than in other countries.

Goods made in Africa can cost up to 80 per cent more than, say, in China, because it takes longer (and hence more money) to make them. This lowers competitiveness and therefore makes employing people less likely.

Some reasons given for Africa’s lack of productivity include red tape and aspects of Africa’s unionization.

GROWTH BASED ON COMMODITIES

Yet another factor is that Africa’s economic growth in recent years is driven by increases in commodity exports, for example, taking copper, oil and minerals out of the ground and selling it abroad, something that accounts for four-fifths of Africa’s growth. Again good for some but it also results in the overvaluing of currencies, which in turn reduces competitiveness (bad for jobs) and pushes up local prices of goods and services that are not traded on the world market.

IT COULD GET WORSE

With 250 million people due to join Africa’s labour-market by 2050, things could well get worse, not better, says the report.

There is some good news. Of the top 20 economies in the world making progress in improving business regulation, as estimated by the World Bank, nine of them are in Sub-Saharan Africa but The Economist concludes that without greater improvement in the region, the creation of jobs in Africa’s formal sector, the engine room of economies, could well remain stalled.

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