Addressing youth unemployment in Africa through industries without smokestacks: A synthesis on prospects, constraints, and policies
Young people between the ages 15 and 24 constitute 20 percent of sub-Saharan Africa’s population, making it the youngest continent in the world. While this trend is an opportunity for increased creativity and innovation, it is also a risk for many youths in the region not in education, employment, or training. And the number of young people continues to rise. The World Bank estimates that by 2050 half of the 1 billion people in sub-Saharan Africa will be under the age of 25, highlighting the importance of creating employment opportunities for Africa’s youth.
By some estimates, 20 million new jobs need to be created every year to meet the increasing demand for jobs (Fox and Gandhi, 2021). Yet the job creation capacity of African economies is only half of what it should be, and the lack of adequate employment opportunities has slowed the continent’s structural transformation and progress on poverty reduction. The development of export-led manufacturing, which has historically been a successful job creation strategy for other parts of the world, notably East Asia, is playing a much smaller role in Africa due to rising competition for low-cost work and decline of the sector. The services industry is largely absorbing the bulk of African youth leaving agriculture and moving to cities. This shift reflects the impact of technological progress, the rapidly evolving global marketplace, and natural resource endowments on Africa’s industrialization prospects.
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There is an opportunity for other industries—notably subsectors of agribusiness and service-oriented industry—that share firm characteristics with manufacturing to offer productive jobs for African youth (Baumol, 1985; Bhagwati, 1984). Similar to manufacturing, these sectors are tradable and have high value added per worker. They have the capacity for learning and productivity growth, and some exhibit scale and agglomeration economies (Ebling and Janz, 1999; Ghani and Kharas, 2010). Importantly, they have the capacity to absorb low-skilled labor. For lack of a better term, we call these “industries without smokestacks” (IWOSS) to distinguish them from traditional, “smokestacks” (e.g., manufacturing) industry. Moreover, reductions in transport costs and progress in information and communications technologies (ICT) have spurred the development of such subsectors.
IWOSS activities are defined as those that are:
– Tradable;
– Have high value added per worker—relative to average economywide productivity;
– Exhibit the capacity for technological change and productivity growth; and
– Show some evidence of scale and/or agglomeration economies.
The industries that conform to this definition and are explored in this paper include horticulture and high-value agribusiness, tourism, business services, and transport and logistics. Today, many African economies are turning to these industries to lead the process of structural change (Newfarmer, Page, and Tarp, 2018)—the movement of labor and other productive resources from low-productivity to high-productivity economic activities. The main question we address in this report is: Do these sectors have the potential to solve Africa’s youth employment problem and create large-scale formal productive jobs? Our research shows that there is an opportunity:
Key findings
IWOSS sectors have been growing at a faster pace than many other sectors (Newfarmer, Page and Tarp, 2018).
IWOSS have higher job creation potential compared to the rest of the economy and tend to employ women and young people more intensively compared with other sectors.
IWOSS sectors tend to have higher labor productivity compared with agriculture.
If government policies support the development of IWOSS sectors well, including by addressing key constraints—like infrastructure, skills, and the capacity to export—IWOSS sectors have the potential, over the next decade or so, to generate between 65 and 75 percent of all new formal sector jobs in the majority of countries.
The skill requirements in these sectors generally include soft skills, digital skills, and intrapersonal skills. Equipping young people with these skills will make them employable in IWOSS sectors.
Public policy priorities to support IWOSS range from improvements to the investment climate—reliable electrical power, lower costs of transport, workers better able to perform their jobs, and competition—to industry-specific interventions—such as investments to improve trade logistics in agro-processing and horticulture.
Although the case studies were largely conducted prior to the COVID-19 pandemic, follow-up work in four countries (South Africa, Uganda, Kenya, and Senegal) suggests that, in spite of the vicissitudes of the pandemic, the policy prescriptions in this report remain highly relevant in the post-COVID world.
In this paper, we will share deeper insights on the IWOSS sector in Africa and provide recommendations as we look ahead: Section 2 presents a review of crosscutting themes drawn from the country studies—Ghana, Kenya, Rwanda, Senegal, South Africa, and Uganda—undertaken under the project.1 Section 3 seeks to answer the central research question of the project: Which IWOSS sectors offer the greatest potential for employment of Africa’s growing young population? Section 4 sets out the constraints to growth of IWOSS sectors, built around four drivers of industrial location that have largely shaped the global distribution of industry—with and without smokestacks. Section 6 sets out a number of policy recommendations to relieve the constraints to the growth of IWOSS sectors. Section 7 summarizes the main policy recommendations arising from the research, Section 8 deals with the impact of the COVID-19 pandemic on IWOSS, and Section 9 offers some concluding remarks.
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It takes a village: The role of mentorship in supporting India’s young women in the workforce
Despite important gains in the formal education of girls in the last decade and half, women in India are conspicuously missing from the workforce. The country achieved universal girls’ enrollment in primary education in 2003, secondary-school enrollment currently stands at 74.5 percent, and in higher education, women participate in close to equal numbers as men. Yet, between 2005 and 2019, India’s female labor force participation fell from 32 percent to 21—a loss of more than 1 out of every 3 formally employed women.
Many factors are behind the decline: family-enforced social norms that place women predominantly in caregiving roles, deeply ingrained stereotypes around occupations that stymie aspirations, traditionally low levels of self-confidence, and information and network asymmetries. With so many job sectors that are traditionally male-dominated, women do not have access to the same amount of information and opportunities.
Mentor Together, the organization I founded in 2009, created a virtual mentoring program in 2018 for university students across India—with the goal of supporting workforce readiness through soft skill development, career planning, and network building. As the COVID-19 pandemic forced education institutions in India to close on-campus classes for the better part of 2020, we conducted virtual townhall meetings through which we onboarded 8,000 students from more than 10 states. We were heartened that more than 60 percent of our new sign-ups were young women. Female mentees also outnumbered their male counterparts 3 to 1 in accessing our six-month mentoring program!
Young women like Manjula (name changed for privacy), a graduate student of technology, are well aware of the challenges that face them and actively seek out mentorship that helps sharpen their skills and develop a plan of action to counter these challenges:
“This program is most recommended for students from rural backgrounds because we interact with a mentor who is a working professional, who is dedicated and committed to help students… Whenever I’m speaking with [my mentor], I feel like I’m speaking with my elder sister because she supports and cares so much. … She always shares her experiences in the field which is very important for me because I don’t have much knowledge about work life and programming. That was quite challenging and worrying for me, but now I am learning and understanding programming languages and got more confidence about myself because of my mentor.”
As an Echidna Global Scholar, my research at Brookings will focus on understanding the role of mentorship in the personal and professional journeys of young women. I will study the prevalence and interplay of factors that support or obstruct women’s professional aspirations and plans. I will also examine the role of mentorship in helping young women improve their work-readiness skills, career decisionmaking, and self-efficacy. Additionally, I will explore the possibilities, as well as the limitations, of the virtual mentoring format.
Young women are persevering in education against so many obstacles; it is our collective responsibility as a society to back up young women like Manjula with a “village” of mentors that champion their dreams.
A United Nations Development Programme study of the current policy landscape in India for women’s labor force participation found that out of 53 policies evaluated, the most frequent support provided to women was financial assistance (67 percent of the policies). Support to tackle challenges around social norms, beliefs, and information asymmetries were scarce. Less than half the policies focused on the capacity building of women, and less than a quarter on job placement and mentoring. Through my research, I hope to map out a richer framework of policies that can bring together actors across sectors to provide a broader range of supports to young women as they transition to the world of work.
If even half of Indian women were in the labor force, income per capita could increase by an estimated 20 percent by 2030. Young women are persevering in education against so many obstacles; it is our collective responsibility as a society to back up young women like Manjula with a “village” of mentors that champion their dreams.
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CFA franc zone: Economic development and the post-COVID recovery
Comprising many of the poorest countries in Africa, the CFA franc zone faces particularly daunting challenges to economic development and growth in the context of the ongoing COVID-19 pandemic.
Encompassing 14 countries in francophone West and Central Africa, the CFA franc zone faces climate change, poverty traps, demographic pressures, and natural resource management hurdles. Furthermore, the trifecta of high energy costs, financing constraints, and expensive transport creates barriers to competitiveness. In addition, despite decades of international aid flows, the region has struggled to gain the upper hand in reducing poverty. The COVID-19 pandemic has further amplified the challenges faced by the countries of the CFA franc zone and has simultaneously led to questions about the fiscal and monetary policies most conducive to driving recovery and growth as the world economy adapts to post-COVID-19 market realities.
Since the 1940s, the CFA has been pegged to European currencies—first to the French franc, and, since 1999, to the euro. Until recently, the CFA countries deposited 50 percent of their reserves in the French Treasury in return for a convertibility guarantee. While this arrangement generally resulted in lower inflation than other countries in Africa and some degree of fiscal restraint, it significantly limited the macroeconomic policy options available to its member countries. The trade-off for lower inflation has been slower per capita growth (Figure 1) and diminished poverty reduction.
However, the current exchange rate regime presents several macroeconomic problems that impede these countries’ ability to navigate the COVID-19 pandemic. First, the anchor to a strong currency diminishes private sector competitiveness by effectively subsidizing imports and penalizing exports. As measured by a simple CGE model, in 2020 the CFA franc in the West African Economic and Monetary Union (WAEMU, or UEMOA in French) was 20 percent overvalued, and in the Central African Economic and Monetary Community (known by its French acronym, CEMAC) it was 30 percent overvalued. Second, exchange rate rigidity forces adjustments to trade shocks on the fiscal side via cuts to public investment or additional debt accumulation. Third, the current system worsens inequality between urban elites and rural poor by constraining incentives for commercial agriculture. Fourth, since the monetary policy is fixed, the CFA countries face credit constraints and are unable to use interest rate policy to stimulate small and medium enterprise development. Finally, the currency union has failed to accelerate growth for the poorest members as seen in the lack of economic convergence over time (Figure 2).
As the CFA member countries plan for a post-COVID-19 future, taking the next step on meaningful currency reform must be part of the package. Specifically, while the Macron-Ouattara reform of 2019 ended the reserve deposit obligation and removed French representatives from the Central Bank of West African States (known by its French acronym, BCEAO), it stopped short of overhauling the exchange rate framework. Modernizing the system must include a serious discussion about alternative exchange rate frameworks that would enable greater monetary flexibility while improving competitiveness, opening the door to export-led growth, and realigning incentives for agricultural producers.
For more on this issue, see my book, “CFA Franc Zone: Economic Development and the Post-Covid Recovery,” in which I lay out a policy road map with a number of steps. First, the exchange rate regime should evolve from the peg to the euro, to a basket (tripartite) peg to the euro-dollar-renminbi that reflects West Africa’s changing trade patterns with the world. For CEMAC, which is an oil-rich region, I propose a peg to a basket, including the euro, dollar, and price of oil. This reform will balance stability and flexibility, make the currency more market-based, and support African exporters and entrepreneurs. In the CEMAC zone, it will help the countries adjust to oil price volatility, while in the WAEMU zone, the countries can even embrace integration with specific anglophone countries like Ghana and create a stronger economic space. Second, it is important to modernize the French convertibility guarantee for the CFA franc, which is unclear, and negotiate a clear swap line with the European Central Bank to provide a financial buffer during the transition period and downturns.
Finally, the ultimate goal of the reforms is to have greater African sovereignty and widen the options for fiscal and monetary management in a post-pandemic world. A richer and more prosperous CFA zone will be beneficial not only for West and Central Africa but also for France and the world at large.
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Leveraging IWOSS and soft skills to address slow structural transformation and youth unemployment in Uganda
In recent years, Uganda’s economic growth has been among sub-Saharan Africa’s strongest, averaging 5.4 percent between 2010 and 2019 (World Bank, 2020). However, the rate of growth has failed to match the rate at which employment opportunities are created to both absorb the burgeoning labor force and improve livelihoods. The high population growth rate (recorded at 3.1 percent per year) has resulted in a high labor-force growth rate that has outpaced the rate of job creation, resulting in increasing unemployment and pervasive underemployment rates.
Moreover, in this tough labor market, young and female workers remain disadvantaged, and overall employment numbers often mask other problems in the labor market. For example, as we find in our recent working paper, while the number of unemployed actually declined between 2012/13 and 2016/17 for both young female Ugandans (23.1 percent vs. 18.5 percent) and young male Ugandans (18.5 percent vs. 9.6 percent), the annualized growth rate of discouraged workers—potential workers who would like to work but are unable to secure a job and so have given up on the process—is extremely high and more acute among Uganda’s youth.
A solution?
Like in many other African countries, the slow growth of Uganda’s manufacturing sector—a sector that historically has led to the absorption of low-skilled workers and structural transformation in much of the developing world—has constrained labor outcomes in the country. To address this issue, recent research points to other sectors—termed “industries without smokestacks” (IWOSS)—that share much in common with manufacturing, especially their tradability and tendency to absorb large numbers of low-skilled workers. Examples of IWOSS include agro-industry, horticulture, tourism, business services, transit trade, and some information and communication technology (ICT)-based services. To better assess the potential of these sectors to drive structural transformation, we recently published a case study examining the constraints to growth of select IWOSS sectors (horticulture, agro-processing, and tourism) and skills requirements for those sectors.
IWOSS sectors’ growth contributing to employment growth
IWOSS are well-positioned to help Uganda achieve its growth objectives: Indeed, while the contribution of IWOSS to GDP in recent years has been less than non-IWOSS sectors, it has been higher than manufacturing (Table 1). Moreover, growth in IWOSS sectors (22.9 percent) has been higher than either manufacturing (17.2 percent) or non-IWOSS (18.4), implying that the contribution of IWOSS to GDP is increasing.
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In terms of employment, IWOSS sectors show higher elasticities than non-IWOSS and manufacturing: A 1 percentage point increase in GDP in an average IWOSS sector is associated with a 0.96 percent increase in employment. For manufacturing, the employment elasticity is negative and sizable, which could suggest that automation in the sector is replacing workers, having the opposite historic effect of industry. Despite agriculture being the biggest employer, it has a very low employment elasticity.
Table 1. Change in GDP and employment from 2012/13 to 2016/17 by sector
Source: Authors own calculations’ using UBOS Statistical Abstracts and Survey data sets.Note: This is Table 5 in the case study.
What sectors are driving structural transformation?
As seen in Figure 1, which combines GDP/output and employment growth to get a full picture of industry changes over time, by and large, little structural transformation has taken place over the time period under consideration. While growth in IWOSS overall has contributed to employment growth, the subsector “finance, business, and professional services” seems to have significantly driven the structural growth agenda in the country—much like in South Africa. While tourism, horticulture and export crops and agro-processing—the three IWOSS sectors we explore in this paper due to their significant contributions to revenue, potential for absorbing many Ugandan laborers, and strong backward and forward linkages–do provide great contributions to GDP and employment, they also have had mixed impacts on the economy’s structural growth. For example, while agro-processing seems to have spurred transformation, this change seems to have been driven by its contribution to GDP, not necessarily as an employment avenue.
Figure 1. Correlation between sectoral productivity and change in employment in Uganda, 2016/17
Notes: Uses methodology in McMillan and Rodrik (2011); yellow indicates IWOSS sectors; purple indicates manufacturing; and light blue indicates other non-IWOSS sectors.Source: Authors’ own illustration using 2016/17 UNHS dataset.
What does the future hold for growth and employment in IWOSS sectors?
The outlook for the Ugandan economy over the next 10 years suggests its makeup will shift, leading to a concentration of employment in tourism, finance and business services, ICT, and agro-processing. In our recent paper, we use a 7 percent GDP growth scenario (Table 2) to examine the prospects for job creation in the country. We find that IWOSS sectors will expand somewhat faster (8 percent) than non-IWOSS (6 percent) and twice as fast as manufacturing (4 percent) by 2029/30. In the same vein, employment is expected to grow at about 4.5 percent, largely driven by employment growth in the IWOSS sectors (6.3 percent).
Table 2. Sectoral distribution of GDP and employment in 2029/30—an illustrative 7%-growth scenario
Source: Extracted from Table 20 in the case study.
But are young people ready for these jobs?
While in other countries, IWOSS looks to readily absorb low-skilled workers, our research finds the trend in Uganda to be more nuanced. In fact, in line with the projected strong growth in IWOSS sectors, we find that the skill profile of workers in IWOSS will shift distinctively toward skilled and high-skilled workers, which could be problematic since we predict that, by 2029/30, 54 percent of Ugandan workers in IWOSS will need to be skilled or high-skilled. For a detailed discussion at the sector-specific level, see Table 21 in the full case study).
Figure 2. Uganda’s 7%-growth scenario—Projected employment by skill level
Note: MFG = manufacturing; non-IWOSS excludes manufacturing.Source: Derived from Table 21 in the Uganda case study.
Requisite skills needed for new jobs in horticulture, agro-processing, and tourism
To better advise Uganda on how it can prepare its young people to enter a labor market in which IWOSS are expanding, we need to assess which skills are both available in and needed for the market. To do so, we conducted firm surveys and found, among other trends, that gaps in problem-solving skills among employees inhibit firms from meeting their full potential. More specifically we found that tourism firms place a heavy emphasis on problem-solving and basic skills; horticulture, on problem-solving and social skills; and agro-processing on basic skills, At the same time, the surveys revealed that while the youth were overskilled for the jobs they were holding, the majority had skills gaps in problem-solving in all three IWOSS sectors of focus. Figure 3 illustrates this trend for the tourism sector (see details in full case study).
Figure 3. Skills gap by occupation type in the tourism sector—hotels
Source: Authors’ own calculations based on field survey data (2020).
Importantly, beyond these needs, we also find that digital skills will be paramount for future occupations likely to hire the youth. Indeed, future digital-skills needs were identified as a must by the interviewed firms in the tourism sector. In horticulture, digital skills will be needed for the use of computerized mechanisms in the production of fresh fruits and vegetables while in agro-processing, as automation progresses, digital skills will be needed for the production of primary raw materials.
Constraints to aspired growth
In addition, as our paper points out, to leverage IWOSS sectors and soft skills as avenues for addressing Uganda’s current slow structural transformation and youth unemployment challenges, several constraints to the growth of these sectors must be addressed. Outstanding among these obstacles are: limited access to finance; poor and costly infrastructure (roads, electricity, water, internet, and phone coverage); inherent nontariff barriers; government bureaucracy; and skill gaps (noted briefly above).
Unfortunately, the emergence of COVID-19 has only exacerbated challenges facing IWOSS sectors and the economy in general (see our paper updating our original case study as Uganda now faces the COVID-19 pandemic). Indeed, the three IWOSS subsectors on which we focused experienced significant losses due to reduction of earnings as business operations declined owing to the pandemic-induced lockdown across both the country and the globe. Indeed, many firms responded by laying off some workers, both temporarily and permanently.
Recommendations
In the original case study, we offered a number of high-level policy recommendations that, despite the COVID-19 pandemic, remain extremely relevant for Uganda’s growth and job-creation potential. If anything, the pandemic has made our recommendations all the more urgent. These include, among others:
Develop avenues to improve the soft and digital skills of workers and reduce the cost of trading through investing in physical and digital infrastructure. Such a push could eradicate the skills mismatch reported by employers as one of the obstacles to their operations. We continue to see the importance of this recommendation now: When facing COVID-19, sectors and firms that adopted ICT/digital technologies continued to survive within the measures that the government took to control the spread of COVID-19.
Ensure increased access to affordable financing. Already, a step has been taken in this direction by recapitalizing the Uganda Development Bank (UDB), the Uganda Development Corporation (UDC), and the Micro Finance Support Centre (MFSC) in order to offer affordable credit and facilitate the COVID-19 economic recovery. Such a program is an opportunity for agro-processing firms to acquire long-awaited financing, which historically has been one of their most difficult operating constraints.
For a deeper dive into our research as well as sector-specific recommendations, see our working paper, “Industries without smokestacks in Africa: A Uganda case study.”
The impact of COVID-19 on industries without smokestacks in Uganda
Abstract
In Uganda, the spread of COVID-19 and its economic impacts gained momentum in March 2020 when the country’s first case was reported. By March 30, the government of Uganda had declared a nationwide lockdown in addition to other critical measures to minimize its spread.
The impacts of the virus itself together with government initiatives to control its spread have been felt in the political, social, and economic spheres of life of the country. Simply put, there have been losers and winners as the pandemic took its toll on the economy.
This brief examines the potential economic impact of COVID-19 on Uganda’s industries without smokestacks as a follow-up on the previous work undertaken in the same sectors prior to the pandemic. The aim is to ascertain whether the recommendations made prior to the pandemic are still relevant.
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Employment creation potential, labor skills requirements, and skill gaps for young people: A Uganda case study
Introduction
Over the course of the last decade, Uganda’s economic growth has ranked among sub-Saharan Africa’s strongest; indeed, the country’s annualized average growth rate was 5.4 percent between 2010 and 2019 (World Bank, 2020). Despite this impressive growth, there has been limited creation of productive and decent jobs1 to both absorb the burgeoning labor force and improve livelihoods. The population growth rate (recorded at 3.1 percent per year) has consistently remained higher than the jobs creation rate necessary for absorbing persons joining the labor market, resulting in increasing unemployment and pervasive underemployment rates. Moreover, where jobs have been created, few young Ugandans (especially young women) have benefited from such opportunities. Indeed, a study conducted by the EPRC (2018) finds that, while the economy grew by 4.5 percent in 2016/17, this growth was largely driven by the services sector,2 but services, in turn, contribute a mere 15 percent to total employment. In addition, due to severe skill gaps, Ugandan youth are largely engaged in low-value services (e.g., petty trade, food vending, etc.), and only few are able to secure employment in high value-added economic activities like agro-processing, horticulture, or tourism.
Uganda’s economy-wide unemployment rate declined to 9.2 percent in 2016/17 from 11.1 percent in 2012/13. Among youth3 (who represent 21.6 percent of Uganda’s population), unemployment declined to 16.8 percent in 2016/17 from 20.3 percent in 2012/13, however, with less progress recorded for female youth. Underemployment, a critical development challenge faced by the youth, is widespread in Uganda and can partly be explained by low skills among job seekers (at 1 percent), time (at 43.6 percent) as well as wage-related aspects (at 30.2 percent) (UBOS 2018). At the same time, inequality of opportunity is also growing. Even among the employed youth, 21 percent are classified as poor due to the precarious jobs in which they are engaged, especially if they work in the informal sector.
In this regard, informality, underemployment, and unemployment persist in the country’s labor market; as a result, many Ugandans are engaged in “vulnerable employment.”4 Vulnerable employment is often characterized by inadequate earnings, low productivity, and difficult conditions of work that undermine workers’ fundamental rights. According to the Uganda Bureau of Statistics (2018), 61 percent of employed persons in the country were classified as engaged in vulnerable employment with the share being higher for female Ugandans (71 percent). Similarly, 68 percent of employed persons living in Uganda’s rural areas are more likely to engage in vulnerable employment compared to 48 percent living in the country’s urban areas.
While agriculture employs nearly 77 percent of the rural population, recorded growth in the sector was low at 2.8 percent in 2016/17 (UBOS 2018). However, sectors providing more productive and better-paying jobs, like agro-processing and high value-added agro-industry have clear linkages to agriculture sector’s overall performance in the country. Weak economic growth in agriculture, therefore, affects agro-industrialization, which, in turn, has implications for the employment viability in the dominant agro-industry. Sector-level performance is also deterred by irregularities and erratic decisions in the business and policy environment. Consequently, the vast majority of Uganda’s labor force remains employed in labor intensive and less productive sectors. Even within agriculture, only a very small proportion of agricultural workers are engaged in the cultivation of high-value, commercialized crops.
The above narrative is also exacerbated by the small and not expanding number of formal jobs, especially in Uganda’s public sector. This lack of available “white collar jobs” is met by a significant number of youth graduating annually either with a certificate, diploma, or degree who aspire to find such employment. While the private sector is coming in to fill the gap in creating jobs for this segment of the population, current efforts are not sufficient, and more opportunities for jobs to be created for this segment of the labor force need to be identified and supported.
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In order to create jobs, especially for the youth, there is need to raise private investment in labor-intensive industries. Besides providing jobs, labor-intensive industries—historically manufacturing— can pave the way for continuous upgrading to higher value-added economic activities. However, the average share of manufacturing in Uganda’s GDP keeps declining, from 11 percent between 2000 and 2010 to 9 percent between 2011 and 2018. Therefore, manufacturing will not be able to absorb the 600,000 young Ugandans entering the jobs market each year (AfDB, 2019).
In light of the slow growth of the manufacturing sector, Uganda needs to find alternatives for the creation of productive jobs if the country is to achieve its Vision 2040. Service-oriented industries that share key firm characteristics with manufacturing firms have the potential to enhance growth and create decent employment opportunities. Such industries are called “industries without smokestacks” (IWOSS). Newfarmer et al. (2018) classify these as agro-industry, horticulture, tourism, business services, transit trade, and some information and communication technology (ICT) based services. This study contributes to the evidence base around this topic by analyzing the role of IWOSS in generating large-scale employment opportunities for (young) workers in Uganda, especially in the formal parts of the economy. The paper pays particular attention to three sectors: agro-processing, horticulture, and tourism, as the earlier literature indicates that these sectors have considerable potential to create large-scale formal employment opportunities for young people.5
Specifically, this study:
Assesses the current employment creation potential along the value chains of IWOSS industries under their respective current sectoral growth trajectories;
Aims to identify the key constraints to growth in IWOSS sectors;
Estimates future labor demand in IWOSS sectors when identified constraints are removed;
Analyzes the occupation and labor skills requirements and gaps in IWOSS sectors; and
Pays particular attention to the need for soft and digital skills among youth (employed and unemployed) to ensure that suggested policy interventions can bridge them.
The remainder of the paper is organized as follows: Section 2 presents the approaches adopted as well as data sources and their limitations. Section 3 presents the country context and background with emphasis on the performance of selected IWOSS sectors in Uganda. The section further delves into employment patterns and other salient features of employment in the country. Section 4 analyzes growth patterns in terms of output, productivity, and exports with emphasis on the role of IWOSS in structural transformation. Section 5 analyzes the specific characteristics regarding sectoral employment and comparisons are made between IWOSS and non-IWOSS sectors as well as manufacturing. Section 6 presents the growth constraints that IWOSS sectors face. Section 7 provides projections for the size of labor force by 2029/30 according to skill groups, projections that inform discussion on the skills gaps that need to be filled to solve current employment gaps. Section 8 presents firm-level surveys that provide insights into future employment requirements and the need for digital skills along the IWOSS value chains selected for this study (horticulture, agro-industry, and tourism). Section 9 concludes with policy recommendations to leverage IWOSS sectors for employment generation, especially for youth.
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The power of technical and vocational skills: Increasing girls’ participation in formal agriculture education in Afghanistan
In March 2021, I visited an agriculture and veterinary institute (AVI) in northern Balkh province in Afghanistan. With state-of-the-art educational infrastructure and labs, the institute is built on about 250 acres of land in the outskirts of Mazar e Sharif. The AVI is separated from the surrounding villages by the walls of an old castle. Beyond the walls, you see women and girls working in the agricultural fields. However, inside the walls—contrary to expectations—very few girls are pursuing formal agriculture education within the institute. The question is, why? Why have we been unable to fill these empty classrooms with students from outside the walls of the institute?
In the informal sector, women and girls from all socioeconomic and religious backgrounds actively participate in agricultural activities. Indeed, a 2017 study found that 70 percent of rural women are directly or indirectly involved in agriculture. They learn and transfer agricultural skills through informal processes with family and friends.
According to a 2018 report by the World Bank, 40 percent of the total labor force is employed in agriculture, and in rural areas more than half of the workforce is busy in the sector. Agriculture is considered the backbone of the Afghan economy, and women the backbone of agriculture, through unpaid labor. The Afghanistan Growth Agenda identified agriculture as one of the top growth sectors in the country, and the National Comprehensive Agriculture Development Priority Program prioritized an aggressive policy goal strengthening women’s role in growing and increasing food production at the household and commercial levels to ensure food security.
While national policies are calling for equal access to education, the question remains why girls’ participation in formal agriculture education remains low, particularly in rural communities.
The National Strategy on Women in Agriculture recognized formal agriculture education and women’s skill development as essential to inclusive agricultural development and called for the enhancement of vocational and skills training for women and girls. While national policies are calling for equal access to education, the question remains why girls’ participation in formal agriculture education remains low, particularly in rural communities. There are several key challenges that require further research.
Challenges
1. Low participation of girls in agricultural education
The Technical Vocational Education and Training (TVET) Authority of Afghanistan manages about 380 technical and vocational high schools and institutes across the country, of which about half are dedicated to agricultural education—or at least teaching agriculture as a trade. However, in 2020, of the 20,000 students studying agriculture in TVET programs, only around 3,000 are girls, and most of them are studying in urban areas. Of the 34 provinces nationwide, nine have less than 50 girls enrolled in agriculture schools and institutes; in another nine, there are no girls enrolled in formal agriculture education at all.
2. Perceptions of agricultural education
Agricultural education is perceived by society as second-class education. As one female teacher at an agriculture institute commented, “When I heard that through Kankor [the national higher education entrance] exam I got [accepted] to the agriculture faculty, I cried for one week. I wanted to become a doctor.” In my survey as a part of the Echidna Global Scholars program, of the 82 female students already studying at the agriculture faculty at Balkh University, only 12 respondents selected agriculture as their top choice. Further, of the 55 female students already studying at the AVI in Balkh, only 21 selected agriculture faculty as their top choice in Kankor. Since they could not get to the four-year undergraduate program, they are now pursuing a two-year degree program at the AVI. My survey indicates that female students are more inclined toward law and political sciences and medical sciences instead of agriculture. In some instances, even agriculture faculty professors questioned female students on why they were not studying something else instead of agriculture.
3. Lack of female teachers
Female teachers account for 4 percent of the total teachers in agriculture. Of the 1,248 teachers in agricultural schools and institutes in the country, only 54 are female, half of them hired on short-term contracts. The lower number of female students in agricultural education results in a lack of female teachers to serve as role models, resulting in a vicious cycle in which the small number of female teachers leads to a lack of interest among female graduates in teaching agriculture as a career, which attracts fewer female students, and so on.
4. Lack of financial resources
The TVET Authority would require substantial additional funding to increase and expand TVET and agricultural education for girls, yet it is unclear where this funding would come from. The current TVET Strategy (2019-2024) outlines the establishment of eight special TVET schools for girls, but no reference is made as to how or where these schools would be built, and the strategy does not mention how such construction would be financed nor where the funds would come from for their operation.
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As an Echidna Global Scholar, I will investigate pathways that could potentially address some of these daunting challenges, reviewing policies that currently support or hinder girls’ participation in formal agriculture education. I hope that my work at the Center for Universal Education will contribute to girls’ greater participation in TVET—particularly in formal agriculture education in Afghanistan—so that technical and vocational skills can help unleash their potential and enable them to more effectively participate in the national growth and economic development of the country.
Addressing America’s crisis of despair and economic recovery
Summary
Despair in American society is a barrier to reviving our labor markets and productivity, jeopardizing our well-being, health, longevity, families, and communities—and even our national security. The COVID-19 pandemic was a fundamental shock, exacerbating an already a growing problem of despair.
This despair in part results from the decline of the white working class. It contributes to our decreasing geographic mobility and has political spillovers, such as the recent increase in far-right radicalization. At the same time, other population groups are also suffering, for different reasons. Over past few years, for instance, suicides increased among minority youth and overdoses increased among Black urban males (starting from a lower level than whites but now exceeding it).
Policy responses have been fragmented, with much focus on interdiction or ex-post treatment rather than on the root causes of despair. There are local efforts to boost the well-being of vulnerable cohorts, but most are isolated silos. There is no federal level entity to provide the vulnerable with financial or logistical support, nor is there a system that can disseminate relevant information to other communities seeking solutions. While federal agencies—such as the Centers for Disease Control (CDC)—track mortality trends, no system tracks the underlying causes of these deaths. In contrast, many countries, such as the U.K. and New Zealand, track trends in well-being and ill-being as part of their routine national statistics collection and have key leadership positions focused exclusively on these issues.
This policy paper proposes a new federal interagency task force to address our nation’s crisis of despair as a critical first step to sustainable economic recovery. The task force would both monitor trends and coordinate federal and local efforts in this arena. We identify five key areas the task force could monitor and help coordinate: data collection; changing the public narrative; addressing community-wide despair as part of the future of work; private-public sector partnerships; and despair as a national security issue.
Download the full report > >
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Solidifying the DFC-USAID relationship
Transforming the Overseas Private Investment Corporation (OPIC) by expanding its resources and authorities while merging it with other financing mechanisms—including the U.S. Agency for International Development’s (USAID) Development Credit Authority (DCA)—to create the U.S. International Development Finance Corporation (DFC) understandably required a major sales effort. While the foreign policy elites saw the DFC as a counter to China’s massive Belt and Road Initiative, advocates for international development viewed the DFC as an expansion of U.S. development leadership. And while fiscal conservatives were sold on prospective cost savings through the elimination of duplication, OPIC management told affected staff at USAID (the DCA team that was transferred to the DFC) that all of them would be offered jobs at the new DFC. Meeting all the expectations was always going to prove difficult—but one of the trickiest topics is how to best solidify the DFC-USAID relationship in order to maximize development results.
The DFC and USAID have a long history. In 1971, when OPIC was created, it assumed investment guarantee and promotion functions formerly conducted by USAID. The USAID administrator has always been a member of the OPIC board of directors since its creation, and served as the initial chairman of the board. Over the years, coordination between the two agencies has ebbed and flowed. In 2018, when Congress merged OPIC with several other federal programs and expanded its capital and authorities to create the DFC through the Better Utilization of Investments Leading to Development (BUILD) Act, a cornerstone philosophy of the legislation was that a vibrant collaboration between USAID and the DFC would be crucial to achieving major development impact.
Eight challenges for collaboration
Mismatch of development sectors. The sectors (or subsectors) on which USAID is focusing at any given time, either as a result of Congressional and executive branch priorities or country-level strategies, may not always be sectors in which the DFC has deep investment expertise and/or in which there is large private sector interest (as expressed via applications submitted to the DFC).
Different approaches and metrics for success. Historically, OPIC has been a demand-driven organization that promptly responded to deals presenting themselves to its Washington-based staff. OPIC measured its success largely on its earnings and the amount of investment it facilitated. USAID, on the other hand, undertakes long-term development projects usually designed by staff in the field, in collaboration with host governments and other local stakeholders and subject to detailed Congressional oversight—resulting in long planning and budgetary timelines. Success of USAID projects has been measured by development outcomes and advancement of U.S. foreign policy goals.
Tension between positive earnings and development effectiveness. The priority placed by the DFC on returning funds to the U.S. Treasury ensures that the DFC often ignores smaller or riskier deals that may only break even, but which can yield significant development results. USAID uses 100 percent of its program funding for grants and contracts that are never repaid, so there is a natural disincentive for DFC staff to work on USAID-sponsored transactions that may only break even or earn negative returns, even though such deals would still be more cost-effective for American taxpayers than a grant or contract.This also means that the DFC “risk analysis models” are much more risk averse than those previously used by the USAID DCA, despite the fact that DCA had a perfectly decent credit history. As a result, DFC deals are more expensive. A DCA $15 million guarantee for a deal in Colombia could be funded with $250,000 (the so-called “subsidy” paid to cover the risks), but now a similar $8 million guarantee for a DFC deal in Columbia requires $340,000.
Misplaced focus on large deals. Some DFC staff currently mistakenly believe that the BUILD Act’s provision stating that the “Maximum contingent liability of the [DFC] outstanding at any one time shall not exceed in the aggregate $60,000,000,000” means that the DFC must reach that ceiling within the seven-year life of the BUILD Act or risk this ceiling being reduced. This is then cited as a reason why the DFC needs to focus on big deals regardless of the scale of development impact.
Different definitions of development success. USAID and DFC view the definition of “major development outcomes” differently. DFC Impact Quotients (IQ) scores can be quite high for projects that USAID might not see as having major development impacts in a sector or country.
Limited political incentives. While heads of U.S. government agencies care deeply about their organizations’ mission, some are also very focused on their agency’s reputation, as well as their personal legacy and reputation. As such, it is a rare DFC CEO or USAID administrator who has the time to spend on helping their colleague get a big “win” if the credit is not shared equally or if the project ranks very low on their own list of priorities.
Limited staff incentives. Currently, DFC-USAID collaboration is not prioritized in the performance evaluations of the staff of either agency. While the performance review systems at USAID vary by hiring type, for those involved in designing and running programs, reviews primarily focus on management and development success of programs. At the DFC, annual performance reviews largely focus on the number and size of deals closed and the performance of deals already on the books. There is little at either agency that would reward staff for collaborating and jointly advancing results, especially factors prioritized by the other agency.
Lack of cross-agency understanding. Significant numbers of staff in both organizations have significant gaps in their understanding of the other organization’s processes, incentives, and strategic orientation, making it difficult for them to understand how the two organizations might best work together and the benefits that can arise from such a collaboration.
Overcoming these challenges requires a sophisticated set of responses. Some can be legislated; others will depend on the commitment of USAID and DFC leadership to facilitate strong collaboration that persists across electoral cycles and changes in administration.
Recommendations
Joint strategy for collaboration. Once every four years (in the year following the presidential election), USAID and DFC should be required to prepare or update a joint strategy for collaboration.1 As part of the strategy, the two organizations should agree on at least three to five sectors of joint interest based on each of their overall sectoral priorities (and funding).2 Similarly, the two organizations should agree on at least five countries of joint interest based on each of their overall country priorities (and funding). The National Security Advisor can facilitate final decisions.
Once the sectors and countries of joint interest are identified, the DFC CEO should ensure sufficient staff expertise within nine months to process any proposed deals in the agreed-upon sectors and coordinate with relevant USAID staff. The USAID administrator should issue an Agency Notice requiring any and all programs in the sectors and countries to identify ways in which working with the DFC could enable achievement of some or all of the programs’ goals prior to using other programming tools. When these modalities of collaboration are identified, USAID should prioritize budget and efforts to support these approaches, and DFC investment papers should reflect that there has been early consultation with USAID and the CDO on each transaction.
Primacy of development. Congress needs to make clear that its number one priority for the DFC is achieving substantial development results. Financial losses on the overall portfolio are to be avoided, but earning a return for American taxpayers has never been mandated in either the OPIC or DFC statutes and should be seen as a nice bonus rather than essential. Positive returns within the portfolio should be used to create a potential fund that DFC could use to take on more risk for greater development impact than OPIC was willing to take on in the past, particularly in low-income countries. Similarly, Congress should clarify that reaching the contingent liability cap within seven years should not be used as a reason to focus on large transactions.
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Joint credit. The two organizations shall be told that on any projects involving joint collaboration, announcements shall be joint and issued by both organizations at the same time. Any public signings of deal agreements, Hill meetings, or public events announcing the collaborative deals shall be designed, undertaken by, and convenient to representatives of both organizations (including, when appropriate, the relevant overseas offices).
Board roles. The BUILD Act’s provision concerning the chairperson of the DFC Board of Directors should be amended to state that in the event of the secretary of state’s absence, the vice chairperson (the USAID administrator), shall chair meetings of the DFC Board. In the event the chairperson and vice chairperson are both absent from a Board meeting, then it shall be chaired by the secretary of state’s designee.
Regular joint engagement. The DFC CEO and USAID administrator should convene a joint meeting of all their senior leaderships annually to brief one another on their organizations’ current priorities, challenges, and collaboration impediments. Furthermore, the current quarterly meetings among DFC and USAID regional leaders should be expanded so that USAID regional and pillar bureaus formally meet with their DFC counterparts and vice presidents once a quarter to review and provide information on current pipelines and programs.
DFC chief development officer (CDO) evaluation. Consistent with the BUILD Act’s requirement that the selection of the CDO shall be acceptable to both DFC CEO and USAID administrator, the CDO’s annual performance evaluation should include inputs received from the administrator, as well as “360° feedback” from personnel in both organizations.
Revised performance factors. For applicable job functions, both organizations should make any modifications to annual performance methods, factors, and metrics needed to recognize and incentivize employees for their efforts to ensure effective collaboration.
Joint training. Personnel within DFC and USAID have been working to create training programs relevant to USAID-DFC collaboration. Training for USAID foreign service officers, program officers, deputy mission directors, mission directors, and any other staff with relevant responsibilities, as well as all DFC investment, origination, credit, and legal personnel, shall include substantive training about the other organization, its tools, and methods of collaboration. Training materials shall be jointly prepared by the two organizations. Finally, the two agencies should broaden and formalize the current minimal two-way exchange of staff for multiyear assignments.
In-country staffing. Either the DFC is going to have to be allowed to have career staff located overseas to conduct proactive business development and work with USAID field staff to integrate DFC’s tools with USAID programs, or USAID is going to have to increase, dedicate, and train overseas staff for that purpose (similar to the “field investment officers” USAID created to maximize the DCA office’s effectiveness).
Beneficiary-level monitoring and evaluation (M&E). USAID and the DFC should jointly fund third parties to independently calculate the number of beneficiaries benefitting from a DFC-USAID collaboration so that those numbers can be aggregated with confidence and credibility.
Paperwork reduction. Congress can help reduce some of the time and staff investment required to enact “subsidy” transfers from USAID to DFC so that deals over $10 million don’t require two congressional notifications for the single transaction.
As the DFC evolves and scales its operations within the mandates set by Congress, policymakers are seeking to work out the kinks and make sure it operates efficiently and effectively. Solutions to fix the budget scoring of equity investments, for example, have been ably proposed by former OPIC CEO Rob Mosbacher and colleagues. Other policymakers are thinking through issues concerning how much to focus on low- versus middle-income countries. We offer these recommendations as another contribution to help the new institution leverage USAID’s development experience and in-country expertise to maximize the development effectiveness of its investments.
Is West Africa ready for a single currency?
Since the early 2000s, the 15-member Economic Community of West African States (ECOWAS) has been pursuing a common currency agenda, centered on the “eco,” with the intention of reducing barriers to doing business across the region and increasing trade overall. While the implementation of the new currency has been postponed due to hurdles in macroeconomic convergence across the countries and the disruptions caused by the COVID-19 pandemic, among other challenges, many policymakers remain keen to forge ahead, with implementation now tentatively set for 2027.
As the region considers steps toward this goal, Brookings scholars Eswar Prasad and Vera Songwe have written an ambitious book on the regional integration agenda in West Africa and the role for a single currency in which they consider important questions concerning how ECOWAS could achieve greater trade and financial integration, with or without a currency union, as well as the ramifications of the agenda for the African continent. Three key contributions emerge from the book.
First, this book by Prasad and Songwe stands out for the methodical thoroughness of the analysis. The authors outline the factors that conventional theory sees as critical for an “optimal currency area” (OCA), originally conceived by Robert Mundell in his 1961 article, “A theory of optimum currency areas.” The authors compare these factors to the data and essentially conclude that “ECOWAS is not equal to an OCA.” As we have learned from Ashoka Mody’s 2018 book, “Euro Tragedy: A drama in nine acts,” Europe also did not meet the ideal conditions for OCA when the European Union (EU) embarked on its monetary union experiment. Drawing on a broad array of theoretical literature and applied policy analysis, Prasad and Songwe outline both the potential benefits and the significant costs of monetary integration. The book highlights how differences in economic structure and macroeconomic convergence can and might deter the ECOWAS common currency project and how a strong institutional framework is necessary, especially in terms of regional financial market development and unified legislation.
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Second, linked to the previous point, the book provides an academic framework in which all factors considered critical for the stability of a currency union (especially under macroeconomic stress) are identified and compared to econometric data as well as the institutional and policy realities in West Africa. These are the “hard factors” in the book. Notably, according to the authors, these hard factors do not yet support a transition to a single currency for West Africa. Policymakers might act regardless. They did so in the eurozone, which did not meet the criteria for an optimal currency area at the time of the implementation of the euro. “Soft factors” in the form of a regional vision extending far beyond the realms of monetary policy were used to cover over some of the concerns and hard gaps (correctly) identified during the run-up for monetary union. But these same soft factors subsequently proved to be the ultimate counterweight to the centrifugal forces unleashed by crisis and member state divergence (see Y. Varoufakis’ 2017 book, “Adults in the room”).
In that way, the book reiterates the importance of these soft factors when it highlights Nigeria’s monumental importance as an anchor, representing greater than 60 percent of the gross domestic product of ECOWAS, and compares that to Germany’s role as the eurozone’s main anchor. Germany—and specifically its export-oriented economy—derived benefits from the single currency but the country as a whole had to sacrifice its cherished conservative monetary policy and provide subsidies to weaker members of the euro area. This result appears to be not just the consequence of a cold cost-benefit analysis but also a commitment to Europe, which is broadly popular across the political center of gravity in the country, allowing for enough elasticity in what was perceived to be a rules-based project.
As we argued elsewhere (in “An evaluation of the single currency agenda in the ECOWAS region”):
“[T]he euro lessons show that even with robust institutions and strong political commitment, sustaining a single currency remains a challenge. These challenges are likely to be much more difficult to surmount in West Africa where the pre-conditions for success, including strong political will and robust institutions, are evidently absent. Let us also be clear that the euro was never just about monetary policy and trade. It was shaped by a vision of a united Europe. And this does not appear to be an entirely fruitless effort, especially in the eyes of Europeans coming of age in the new millennium.”
There are several areas where the book could provide a deeper analysis. First, the book is relatively silent on the geopolitics surrounding the currency reform. The book could discuss further the competing visions and perspectives of the anglophone bloc, led by Nigeria, and the francophone bloc, led by Côte d’Ivoire, as there appear to be two contrasting visions of the currency. For example, in January 2020, Nigeria criticized the December 2019 decision of French President Emmanuel Macron, Ivoirian President Alassane Ouattara, and the eight-member West African Economic and Monetary Union to replace the CFA franc (which is pegged to the euro) with the eco, saying that it conflicted with the ECOWAS broader vision of a single currency across all 15 West African countries. There also seem to be competing economic philosophies between the anglophone and francophone blocs, with Ghana, perhaps, as a potential bridge.
Second, the book leaves some questions unanswered. What is Nigeria’s perspective on the umbrella ECOWAS initiatives? What trade-offs and shared visions for the region can be identified? Fringe political movements in Europe may not threaten the single currency directly but their ascendance toward the center of political power could threaten the policy elasticity on which the euro’s survival, through all its recent upheavals, relied. How does the West African political landscape compare?
One issue in this context is the asymmetry between different interest groups: Owners of businesses with cross-border activities may derive benefits from a rule-based monetary union. Poor farmers may prefer a central bank with a domestic mandate to fund monetary stimulus. Nigeria’s multitier exchange rate mechanism highlights these policy dilemmas. Aside from the convergence of member states, which is analyzed by Prasad and Songwe, do we need to focus more on convergence criteria between different interest groups inside single countries, specifically inside Nigeria?
Third, the book highlights the various gaps without ranking them. Do the authors, nonetheless, have a view on policy priorities preceding a transition? How strong is the evidence that West Africa will derive benefits from a single currency? Most of the book focuses on impediments to a successful transition to and subsequent stability of a currency union. The benefits, such as growth of intra-regional trade and development of cross-border supply chains, are of a more general nature. Are there lessons from the West African Economic and Monetary Union or even from countries (e.g., the U.K.) that have chosen to stay out of currency unions among their main trading partners? Do we have to be conscious of the inherent dilemma that, although we have a good idea of what it takes to successfully transition (i.e., the outlined hard factors and maybe some of the soft factors), we cannot equate that to the quantifiable expectations of the benefits of a monetary union and their accrual over time? Are there specific risks to a transition in the context of West Africa? We know that potential benefits of economic integration are a consequence of transacting seamlessly in a single currency and eliminating exchange rate volatility. Are there potential risks such as portfolio flow volatility or trade deficits?
Fourth, when we talk about West Africa’s currency union, are we ultimately talking about promoting industrial growth and integration into the global supply chain? Asian economies grew into their dominant position along global supply chains without a currency union while their experiment with pegged currencies caused a temporary setback during the Asian Financial Crisis of 1997-1998. (See “Common currency? Well, region must first build trust and grow investment” in The East African.)
Against this background, one may argue that it was not monetary policy stability and integration that drove development. Do policymakers need to think about a future both inside and outside the framework discussed here?
Finally, let us not underestimate the importance of visionary leadership. In the EU, German Chancellors Helmet Kohl and Gerhard Schroder and France’s Jean Monnet were visionaries motivated by the quest for an integrated Europe—a Europe with no more wars. In West Africa, Presidents Yakubu Gowon (Nigeria) and Gnassingbe Eyadema (Togo) built trust and ensured the successful launch of the Treaty of Lagos that established ECOWAS on May 28, 1975. The primary motivation of these two visionary leaders was a united West Africa—not a conglomeration of anglophone, francophone, or lusophone blocs.
In sum, Prasad and Songwe have written a thoughtful book that explores many aspects of the common currency project in West Africa. The book can serve as a call to action for policymakers to seriously consider the hard questions posed by the authors.