Africa is the world’s second-fastest-growing region. Poverty is falling, and around 90 million of its households have joined the world’s consuming classes—an increase of 31 million in just over a decade. But a new McKinsey Global Institute report, Africa at work: Job creation and inclusive growth, shows that the continent must create wage-paying jobs more quickly to sustain these successes and ensure that growth benefits the majority of its people.
1. Identify one or more labor-intensive sub sectors in which an African country has a global competitive advantage or could fill strong domestic demand. Lesotho, for example, capitalized on the African Growth and Opportunity Act (2000), granting some African exports duty-free access to US markets. A landlocked nation surrounded entirely by South Africa, Lesotho developed industrial zones for the apparel industry and built rail links between them, offered incentives to foreign investors, and simplified the regulation of the sector. Today, Lesotho’s apparel exports to the United States are almost 100 times as large as South Africa’s on a per capita basis, and the sector is the single largest creator of jobs, employing about 40,000 people in 2008 in a country of just two million.
2. Improve access to finance in target sectors. Cape Verde, for instance, encouraged foreign direct investment to ease financial constraints on its tourism sector. To capitalize on the country’s beautiful beaches, it offered investors a five-year tax holiday, exemption from import duties, and unrestricted expatriation of profits. Revenues generated by foreign tourism increased from $23 million in 1999 to $542 million in 2008, and the sector now employs 21 percent of Cape Verde’s workforce.
3. Build a suitable infrastructure. Countries that remove infrastructure constraints in target subsectors, particularly in export-oriented industries, can reap sizable benefits. Mali’s exports of mangoes to the European Union, for example, grew sixfold between 2003 and 2008 after a concerted public–private program helped the country build integrated road, rail, and other infrastructure necessary to access export markets. These moves cut the transit time for shipments in half.
4. Cut unnecessary regulations. Removing needless red tape in certain sectors is also important. In Rwanda, for instance, streamlining the procedures needed to open a business dramatically increased the number of new companies, from only 700 a year before the reform to 3,000 a year today.
5. Develop skills in target sectors. Around 40 percent of African workers now have at least some secondary education, and that share will rise to 48 percent by 2020. Few employers in our survey of businesses in Egypt, Kenya, Nigeria, Senegal, and South Africa reported that a lack of skilled workers was a top barrier to growth. Still, Africa’s educational attainment lags behind that of other regions, and the continent would undoubtedly benefit from continued improvement. Two things are of particular importance: work readiness among school graduates and, in some countries, specific vocational skills.