Addressing youth unemployment in Ghana by supporting the agro-processing and tourism sectors
As elsewhere in Africa, the issue of jobless growth in Ghana has become a major concern, particularly due to rising unemployment among the youth. Services have emerged as the driver of growth in Ghana, contrary to the experiences in East Asia and other newly industrialized countries where manufacturing exports led growth and added capacity to absorb low- to medium-skilled workers. In fact, in Ghana, manufacturing has performed abysmally, with an average growth rate of 3.2 percent between 2008 to 2017.
Despite the generally strong performance of the Ghanaian economy over the last two decades, (albeit with a slowdown in recent times), there is a disconnect between GDP growth and employment—a trend that has persisted for many years, as the country has averaged an employment-to-growth elasticity of 0.5 over the last two decades. However, recent evidence points to the role of emerging high-productivity sectors, such as agro-processing, tourism, and horticulture, among others, that share characteristics with manufacturing (particularly in the employment of low- to medium-skilled workforce), in solving the youth unemployment challenge through the generation of decent jobs in Ghana.
Thus, to examine how Ghana might best leverage recent growth trends for job creation, we recently published a paper identifying which of these sectors might play this role in Ghana. This research is part of a larger, multicountry project on policies for enabling “industries without smokestacks” (IWOSS) to both grow and absorb low-skilled labor. (For more on this project, see “Exploring new sources of large-scale job creation: The potential role of Industries Without Smokestacks.”)
The state of the Ghanaian economy
The Ghanaian economy’s strong performance over the last two decades has not translated into job creation nor improvements in employment conditions, especially for the country’s growing youth population (Figure 1). Moreover, the country’s traditional reliance on primary commodities—notably gold, cocoa, and, more recently, oil—for exports has exposed it to international commodity price fluctuations, making the need for diversification and structural transformation more urgent.
Figure 1. GDP growth and employment in Ghana
Source: Authors’ illustration based on data from WDI.
With an average national unemployment rate of about 6 percent, unemployment among the youth (persons aged 15-35) is much higher at 12.1 percent with an additional 28 percent out of the labor force as discouraged workers. In the absence of unemployment benefits in the country, unemployment is simply not an option for most people, particularly the youth who often turn to the informal sector to earn an income. In fact, 1 in 3 young people in Ghana are self-employed in the nonagricultural sector as own-account workers in vulnerable jobs.
Employment projections show IWOSS sectors will dominate employment in the future
In our paper, we find that IWOSS sectors—particularly agro-processing and horticulture, transport and storage, hotels and restaurants (tourism), and construction—will contribute a little above 50 percent to total employment by 2035 (see Table 1).
Table 1. Employment in IWOSS and non-IWOSS (2017-2035)
Note: This table is a truncated version of Table 20 in the full paper.Source: Authors’ calculations based on National Income Accounts (published by the Ghana Statistical Service), GLSS V and GLSS VI, National Budget and Economic Policy Statements. See Appendix C for the Methodology used in the projections to 2035.
The job creation potential of agro-processing and tourism
In our research, we identify agro-processing and tourism as the IWOSS sectors best poised to address this challenge in Ghana because of their high employment generation potential and the demand for low to moderate skills—a feature that is consistent with the skills spectrum of the unemployment pool in the country. Indeed, the prospects for both agro-processing and tourism sectors in Ghana are high in terms of growth and other positive spillover effects with opportunities for job creation. The agro-processing industry is dominated by micro and small firms involved in value-addition along the agricultural value chain in horticultural products, vegetables, roots and tubers, and palm oil for both domestic and foreign markets. In the area of tourism, Ghana has several natural, cultural, and heritage resources (e.g., historical forts and castles), national parks, a beautiful coastline, and unique art and cultural traditions that can be a source of great attraction to the international community.
1 in 3 young people in Ghana are self-employed in the nonagricultural sector as own-account workers in vulnerable jobs.
Moreover, these IWOSS sectors have been strategically targeted under the government’s flagship industrial transformation program to address challenges of job creation, promote import substitution, increase revenues from exports, and boost rural income generation.
What skills are required to develop the IWOSS sectors?
Despite this promise, though, a number of obstacles stand in the way of these sectors’ growth and ability to absorb jobs. Prominent among these challenges is the persistent skills gap among the youth: Our projections generally suggest that low-skilled jobs (i.e., those requiring less than secondary education) will continue to dominate, and their importance may decline only marginally. Thus, we find that deliberate public effort is required to ensure the youth can be absorbed in the IWOSS sectors, which requires upskilling.
To better understand the nuances of these gaps, we conducted a survey with a sample of firms in agro-processing and tourism in which we inquired into requisite skills for potential employees. Results from the survey show that most employees possess basic and social skills, which conveniently meet the needs of employers. Conversely, system skills—developed capacities used to understand, monitor, and improve sociotechnical systems and also sorely needed by employers—were found to be lacking in both tourism and agro-processing firm employees. Figure 2 reveals the differences between the current skill level of workers and employers’ expectations.
Figure 2. Skills deficit in tourism and agro-processing firms
Source: Authors’ calculations based on survey data.
Importantly, given that surveyed firms largely reported that digital skills like data management and analytics, production management, mobile transactions, and social selling (in agro-processing), and online communication and mobile transactions (in tourism) will be vital to future employees, policymakers must strive to better incorporate such capacity building into curricula.
Unlocking growth potential of IWOSS and overcoming skills gaps
In order to unearth the employment generation capacity of IWOSS sectors, key constraints that inhibit the growth of these sectors have to be addressed. In the case of firms in tourism, such constraints include tax rates, policies, and administration; access to credit; and electricity supply. For firms in the agro-processing sector, these constraints include electricity supply, access to credit, unfair practices of informal competitors, and customs and trade regulations.
First, we recommend an overhaul of the overall policy environment toward the training of young people in the requisite skills to be productive in all sectors of the economy. More specifically, the government must prioritize and increase enrollment into technical and vocational education and training (TVET) for hands-on employable skills to support growth and provide a pathway for sustainable employment for young people.
Second, the establishment of industrial parks, which is based on the positive spillover effects and upstream and downstream linkages associated with clustering and agglomeration, is often acknowledged to be essential for industrial development. Support to the private sector by the Ghana Free Zones Authority and Ghana Investment Promotion Centre for the establishment of industrial park infrastructure and special economic zones is anchored on such potential benefits.
Third, we recommend the strategic development of infrastructure as a critical stimulus to the drive for diversification and industrialization in the country. Fourth, government should intensify efforts at providing long-term financing to support the value chains of these sectors and upgrade them to address the issue of IWOSS firms not being well advanced, with a relatively low degree of value-addition by all firms at various stages.
In the end, we find that the agro-processing and tourism sectors can be critical for addressing the country’s jobless growth challenges, if interventions like improved infrastructure, better access to long-term financing, and enhanced digitization, among others, can be implemented. These efforts must be complemented with various incentives to local firms as well as institutional arrangements to increase local demand. (See the paper for a full list of policy recommendations.) Finally, given the increasing importance of technologies in both agro-processing and tourism, the country must invest in complementary digitalization for actors to adapt and be competitive in the changing nature of work globally.
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Employment creation potential, labor skills requirements, and skill gaps for young people: Ghana case study
Abstract
The issues of jobless growth and the poor performance of manufacturing have become major concerns in Africa. A new growth trajectory has emerged in the region with services as the driver of growth, contrary to the expectations of manufacturing export-led transformation with the capacity to absorb low- to medium-skilled workers as previously observed in East Asia and other newly industrialized countries. It has become imperative for African countries, such as Ghana, to redirect attention toward identifying and supporting sectors with more significant employment potentials, in the quest to provide decent employment for a rapidly growing population, especially the youth. Indeed, the challenge of jobless growth in Ghana has brought to fore the need to diversify the economy away from mineral dependence through industrial transformation, mindful of the new technological developments. In this report, “industries without smokestacks” (IWOSS) the Ghana case study identified agro-processing and tourism as two of the sectors that could be relied on to potentially address the country’s jobless growth issue and enhance the competitiveness and productivity of small and medium-sized firms.
The report has demonstrated that both the agro-processing and tourism sectors have several characteristics that make them unique to the situation of Ghana:
There is an improved regulatory environment for both sectors, and this is supported by various public policies to improve related infrastructure and unearth the potential in the two sectors.
Both sectors offer critical employment avenues for the youth with at least secondary education, and this pool can be found among the relatively large unemployed individuals.
Both sectors have a huge export capacity, and this is critical in enhancing competition.
The technologies used in both sectors are labor intensive, and this has prospect in addressing the country’s unemployment challenge.
There has been some effort to address various constraints in the value chains of both sectors.
Projecting into the future, we find agro-processing and tourism (hotels and restaurants) will experience a much higher annual employment growth than manufacturing and other non-IWOSS sectors by 2035. Although skill transformation of the workforce will mainly take place in non-IWOSS sectors, our projections to 2035 suggest that the IWOSS sectors in Ghana would generate more high-skilled jobs in an economy that will continue to be dominated by low-skilled workers.
Overall, constraints identified in agro-processing and tourism subsectors include the lack of adequately skilled labor, lack of access to credit facilities, inadequate infrastructure, cost of electricity, limited capacity to export, and restrictive/cumbersome regulatory environment. Specific constraints identified in the limited survey conducted on selected firms within the IWOSS sector highlight the lack of skills that are critical to the operations of IWOSS sectors (agro-processing and tourism) with the specific skills being systems skills, technical skills, and problem-solving skills. Based on this, it is recommended that a deliberate effort is made to address these various challenges to enhance the potential of the two sectors.
Download the full working paper
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Making progress on gender equality: It’s time for more transparency
While there are strong commitments to achieving gender equality with sustainable development goal (SDG) 5, the COVID-19 pandemic has exacerbated resource constraints and widened gender inequalities. As underscored by the recent G-7 communiqué, the Generation Equality Forum, and other international forums, there is a recognition that a renewed focus on gender equality is needed. Fundamental to “building back better” is the need for more transparent information about gender equality initiatives.
Improved data capacity, along with engagement and quality around gender financing and programmatic data, will support more rigorous policymaking and help gender stakeholders across all types of organizations to address funding gaps, to coordinate programs, to hold funders accountable to their gender equality commitments, and to learn which initiatives make societies more equal and why.
On July 8, the Center for Sustainable Development at Brookings will host a discussion on how we can make gender funding flows more transparent and effective. Friends of Publish What You Fund and Publish What You Fund will launch a research report “Making Gender Financing More Transparent” and discuss their recommendations for how donors can better engage with national stakeholders and improve the publication of their gender financing globally.
The panel discussion will feature gender funding experts from various perspectives who will address specific actions that can lead to more transparent information and move us closer toward SDG 5. More speakers to be announced as confirmed.
Viewers can submit questions for panelists by emailing events@brookings.edu or via Twitter by using #GenderFinancing.
Protecting and elevating early years programming during and after COVID-19: Tools to support adequate, equitable and efficient investments
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Africa in the news: A COVID-19 third wave, solar energy in Togo, and security updates
Africa faces third wave, COVAX’s limitations, and vaccine technology transfer hub in South Africa
As the third wave of COVID-19 sweeps through the continent, African governments are struggling to contain the virus, with only 1.12 percent of the African population vaccinated. With the virus’s rapid surge, the World Health Organization (WHO) projects the virus will outpace cases from the second wave by early July. DNA sequencing by the WHO of recent COVID-19 cases in the DRC and Uganda revealed most cases were tied to the Delta variant of the virus. The Delta variant has also been identified in 12 other African countries. With at least 20 nations entrenched in a third wave of the pandemic, many countries are reporting severe oxygen shortages—an essential component of treating high-risk cases—which are causing preventable deaths. African CDC Director John Nkengasong expressed concern regarding the severity of the third wave, stating, “We are not winning in Africa this battle against the virus.”
The COVAX program, a global vaccine-sharing scheme devised by the WHO, is facing shortages in the midst of the heightened need by African countries. COVAX has “delivered 90 million doses to 131 countries”—40 million of which have been administered in Africa—but many of these countries have already or nearly exhausted their supplies. Facing uncertainty about vaccine supplies, many COVAX-participating countries are halting or slowing their vaccination efforts to ensure their citizens are not left partially vaccinated. The Biden administration, hoping to accelerate the pandemic’s end, has responded by announcing a donation of 500 million doses of the Pfizer vaccine to low-income countries.
In a bid to resolve longstanding vaccine shortages in Africa, the WHO announced Monday that it is negotiating the development of a technology transfer hub in South Africa. The hub will provide companies from low- and middle-income countries with the knowledge and licenses to manufacture mRNA COVID-19 vaccines, but relies on a consortium of companies with the mRNA technology, such as Pfizer and Moderna, to participate in the technology transfer.
Largest solar plant in West Africa opens in Togo; Mozambique receives grant for agro-processing enterprises
The largest solar plant in Western Africa opened on June 24 in Togo. The plant, which is located in the Centrale Region of Togo, will provide electricity to 158,333 households given its 50-megawatt capacity. Any electricity that is not consumed locally will be diverted to parts of Ghana and Nigeria. The plant is also the country’s first private utility solar park and was built by Dubai-based AMEA Power. The company chose Togo because of the country’s “renewable-friendly” regulations that allowed the project to be completed in just 18 months. AMEA Power was given further assurance when the project was supplied with $8 billion in pre-funding from Togo’s National Development Plan. The project also provided local training and job opportunities, as 80 percent of the construction workforce was Togolese.
In other news, the African Development Bank (AfDB) announced the approval of a $1 million grant on June 24 that will support small- and medium-sized agro-processing enterprises in Mozambique. The grant, which is financed by the Italian Technical Cooperation Fund, will assist approximately 300 businesses to boost their productivity and improve quality control. The project also seeks to enable transformative infrastructure growth and agriculture transformation, two strategic pillars outlined in the AfDB’s Mozambique’s Country Strategy Paper. Italian Ambassador Gianni Bardini commented that the grant improves bilateral relations and “can act as a catalyst to extend it to the private sector where it exists a huge and largely untapped potential.”
Ethiopia holds elections amid violence; combating terrorism in Mozambique and the Sahel region
Ethiopia held elections this past Monday despite ongoing violence in the Tigray region and all regions not participating in the vote. The day after the elections, dozens of people were killed in a government airstrike that hit a market in Tigray, one of the deadliest events in an ongoing war that first broke out in November 2021 and that has continued to create instability and now famine in the region. As of this writing, there are no preliminary results from the election. This is the first test of Abiy Ahmed’s power since the war started due to the election being delayed twice.
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In other news, leaders from 16 southern African nations have agreed to send troops to Mozambique on Wednesday with the goal to “combat terrorism and acts of violent extremism.” In addition, an EU military mission to Mozambique could be approved next month with the aim of training Mozambican troops to tackle the ongoing insurgency. The EU hopes to have the mission up and running within the next several months after countries in addition to Portugal (which has already supplied some troops) offer military aid.
Reports of attacks linked to Al-Qaeda and the Islamic State are on the rise throughout the Sahel region—despite the presence of U.N peacekeepers. In Burkina Faso, a police unit was ambushed late on Monday leaving 11 polices officers dead, and according to Reuters, about 1.2 million people in the nation have been displaced by violence. In Nigeria, since attacks escalated 12 years ago, nearly 350,000 people have died as a result of conflict with insurgents, according to the United Nations Development Program (UNDP). Projections by UNDP suggest that if the conflict continues to 2030, more than 1.1 million people may die.
How New Brunswick implemented its computer science education program
Computer science (CS) education helps students acquire skills such as computational thinking, problem-solving, and collaboration, among others. It has been linked with higher rates of college enrollment, and (Brown & Brown, 2020; Salehi et al., 2020) a recent randomized control trial study also showed that lessons in computational thinking improved student response inhibition, planning, and coding skills (Arfé et., 2020). As these skills take pre-eminence in the rapidly changing 21st century, CS education promises to significantly enhance student preparedness for the future of work and active citizenship. CS education can also reduce skills inequality if education systems make a concerted effort to ensure that all students have equitable access to curricula that provides them with the needed breadth of skills, regardless of their gender, ethnicity, or socioeconomic status.
Based on prior analysis and expert consultation, we selected 11 country, state, and provincial CS education case studies from which we can draw lessons that may apply broadly to other education systems. These cases come from diverse global regions and circumstances and have implemented CS education programs for various periods and to different levels of success. As such, we have examined information to extract lessons that can lead to successful implementation.
This study will examine how New Brunswick seeks to improve and expand its CS education activities to train a future workforce that can thrive during economic transition and support the Canadian province’s budding technology sector. The Department of Education and Early Childhood Development (DEECD) and various stakeholder organizations aim to give all students the opportunity to learn CS and apply their lessons in a creative and collaborative environment.
An overview of CS education in New Brunswick
New Brunswick’s education system placed an early emphasis on CS for a period in the 1970s and 1980s that dissipated in the next decade. Then, in the early 2000s, the DEECD decided to refocus its curriculum on STEM (science, technology, engineering, and mathematics) subjects, including information and communications technology. This brought the necessary infrastructure and knowledge of digital technologies into schools that would later set the stage for mandatory CS courses in 2017.
The DEECD faced the challenge of rolling out CS education for students of two distinct language groups. Primary school teachers in the anglophone sector were encouraged to incorporate CS and computational thinking as interdisciplinary subjects, while the francophone sector had no requirement to offer either subject in primary schools. All lower-secondary school students, whether English- or French-speaking, take CS courses that emphasize programming skills. Further, both language systems offer more advanced CS courses in upper secondary school as electives.
Organizations, such as Brilliant Labs and the national flagship coding initiative CanCode, familiarize K-12 students with CS through classroom and after-school activities. This enables students to apply their CS lessons during hands-on classroom lessons.
Lessons Learned
CS education should be delivered to both the anglophone and the francophone education systems as the DEECD attempts to meet the needs of students in each language group.
CS activities encourage students to find creative and practical uses of digital technologies that can spark an interest in CS. In particular, makerspaces—customizable learning spaces that allow students to develop their own projects—have created an interactive and collaborative environment that have produced positive learning outcomes.
The DEECD works closely with NGO partners, leaning on their resources to engage students. This includes providing after-school programs, summer camps, and even activities with CS integrated as an interdisciplinary subject.
Teachers can use communities of practice to share information about helping students from different backgrounds learn about CS.
Read the full case study > >
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Will Biden deliver for rural America? The potential of the proposed Rural Partnership Program
While the American Rescue Plan, the $1.9 trillion relief and stimulus, was designed to help communities claw back from the worst ravages of the pandemic, the Biden administration’s proposed American Jobs Plan (AJP) is the opening salvo in an envisioned economic transformation. Forming the basis of its negotiations with Congress on infrastructure, the AJP seeks to put communities on a path to long-term prosperity that distributes opportunity and economic mobility more fairly while mitigating climate change.
With an orientation on “place” (its companion, the American Families Plan, focuses primarily on people), the AJP’s proposals provide ample opportunity to target specific kinds of communities. The word “rural” gets 29 mentions, reflecting an earnestness to follow through on the president’s pledge to “build a new rural American economy for our families and the next generation.”
As we showed in a recent analysis, what currently passes for rural policy at the federal level is really a vast collection of programs that is fragmented, incoherent, and often unfriendly to rural realities. The wide range of investments in the AJP that could benefit rural America—from $100 billion in support for broadband and $10 billion for a new community revitalization fund to $5 billion to clean up brownfields and $10 billion to transition rural electric cooperatives to clean energy—raises questions of how the administration will avoid adding to the confusion and ensure that rural communities can package and maximize the use of these resources to meet their long-term needs.
The Rural Partnership Program: Redefining the Social Compact with Rural America
One answer lies with the proposed new Rural Partnership Program (RPP). The president’s budget codifies this proposal with a $5 billion FY2022 request, with outlays over five years, placing the RPP within the Rural Development division of the U.S. Department of Agriculture (USDA-RD).
This would represent both a significant modernization and financial boost to USDA-RD’s capabilities for facilitating equitable community and social development: For comparison, the FY2021 program level for USDA-RD’s Rural Business-Cooperative Service (the office focused on economic development) is a little over $1.5 billion based on $319 million of budget authority.
Envisioned to “help rural regions, including Tribal Nations, build on their unique assets and realize their vision for inclusive community and economic development,” the RPP seeks to match the diversity of rural places across the U.S. and invest in local leaders, organizations, and strategies, giving communities a fighting chance to build resilience and prosperity on their own terms. The flexibility, size, and time horizon of its resources would fill a gaping void in the federal architecture.
Yet the devil, as they say, is in the details. A successful RPP will hinge on its ability to stay true to some key principles:
1. Put capacity-building at the core
While politicians spar about different uses of the word “infrastructure,” it is clear to local leaders in rural places that one of the key challenges they face, even in the face of 400+ federal programs, is a severe lack of investment in the “software” that makes a community run—staff capacity and training; technical expertise; strong and healthy nonprofits, community associations, and public administration; and connected networks and trusted relationships among different constituencies who are communicating and collaborating.
If the RPP is to recognize local leadership and strategies as the starting point for successful, equitable rural prosperity, strengthening this type of community and civic infrastructure must be central to its mission. That will require putting scaffolding in place at the national, regional, and local levels.
The U.S. Department of Housing & Urban Development’s (HUD) Section 4 program on capacity building for community development offers one model that might be adapted to enable a set of national intermediaries focused on rural. Regional rural development hubs are well-positioned to help communities, towns, counties, or states collaborate across geographies and leverage regional differences to their comparative advantage. And local, grassroots efforts require flexible and direct investments to increase and upgrade their human and organizational capital.
2. Modernize the metrics of success
RPP is an opportunity to rethink how successful, equitable rural development is measured. The standard focus of federal economic development programs on jobs created and retained, infrastructure projects completed, or funds and financing invested does not provide a full picture of rural well-being nor creates healthy incentives. Changing this will require investing in high-quality rural data, especially in communities of color, and adopting a holistic, outcomes-based approach. Evaluation policies and metrics from international development programs (USAID, Millennium Challenge Corporation (MCC), USDA Foreign Agricultural Service) and asset-based development approaches (such as Wealth Works) will provide useful models. RPP could be a catalyst to modernize USDA-RD’s technical expertise and staff capacity.
3. Aim for long-term, lasting community impact
RPP should be positioned as an “on ramp” for communities to achieve long-term improvements in their economic resilience and well-being, offering flexible and substantial grants with long-term time horizons. The MCC five-year “compact” provides a model, as compacts are locally developed yet rigorously define a small set of clear, mutually agreed priorities that promise the highest return on investment. Some of the communities that could use the investment most—especially in persistently poor counties—may be the least equipped. This means that RPP will have to consider how to balance and serve communities across a spectrum of “readiness.” Given the administration’s priorities, it is likely that RPP would prioritize those communities and entities that are able to deliver on an integrated approach, ensuring that cross-cutting issues such as climate mitigation and racial equity are woven into projects to improve facilities and infrastructure, expand business activity or start-ups, improve delivery of services, or invest in human capital.
While it is a tiny portion of the overall investment portfolio suggested in the American Jobs Plan, the RPP displays important recognition that federal policy must shift to unlock the full potential of rural America. It signifies a change in approach, and represents a first step toward redefining the federal government’s role and strategic orientation in responding to the pressures and headwinds facing many rural communities. It will be important to ensure that this first step does not become the last one.
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Figure of the week: The rise of African tech startups
Technology startups and the venture capital ecosystem that transforms ideas and fledgling companies into disruptive businesses are growing globally—a phenomenon that the Boston Consulting Group (BCG) explores in a recent report on the expansion and maturation of African tech startups. According to the authors, Africa enjoys a fertile environment for tech entrepreneurs due to the continent’s youthful and growing population, rising internet penetration, and the application of emerging technologies that have the potential to improve access to healthcare, financial services, education, and energy. As such, the research paper focuses on the meteoric growth of tech startups throughout the continent, persistent challenges and structural barriers stymying these firms’ further growth, and policy recommendations to overcome these obstacles and develop Africa’s innovation hubs.
Securing venture capital funding, according to BCG, is an important milestone for startups and is an important step that enables them to scale and develop novel products. In the study, BCG found that the number of African tech startups accomplishing this significant step experienced exponential growth between 2015 and 2020. In fact, over that time period, growth in the volume of African tech startups receiving financial backing was nearly six times faster than the global average (Figure 1).
Figure 1. Number of tech startups securing funding in Africa
Source: “Overcoming Africa’s Tech Startup Obstacles,” Boston Consulting Group, 2021.
The trends in financing, though, do not reflect the overall performance of startups, as the continent’s record of scaling up and sustaining such businesses is not as promising. As shown in Figure 2, the vast majority of African tech startups do not survive beyond Series B venture capital funding—the second round of venture capital financing and the third stage of start-up financing (typically initiated by pre-venture seed and angel investor funding). As an indicator of their underperformance versus startups in industrialized countries, such as the United States, this trend suggests that African startups suffer from long-term instability, according to the authors. Indeed, compared to the United States, a greater proportion of African tech startups have yet to progress beyond early-stage seed funding—a trend that remained constant between 2014 and 2019. Figure 2 also reveals that, since 2014, some African tech startups have managed to progress beyond Series B VC funding—a positive trend that signals the maturation of African tech startups. However, as seen in Figure 3, only a few (though growing) African tech startups have successfully evolved into mature companies, as BCG’s analysis indicates venture capital investment in Africa suffers from relatively low average returns compared to other regions.
Figure 2. Percentage of startups receiving venture capital funding, by funding stage, in Africa and the United States
Source: “Overcoming Africa’s Tech Startup Obstacles,” Boston Consulting Group, 2021.
Figure 3. Average return for venture capital investors after five years – by region
Source: “Overcoming Africa’s Tech Startup Obstacles,” Boston Consulting Group, 2021.
According to the authors, a variety of factors make Africa an inhospitable startup environment, as the continent’s business environment is marred by pervasive structural barriers such as:
Low consumer purchasing power
Complex and inconsistent regulations
Inadequate data communications infrastructure
A fragmented marketplace of 54 countries
Scarce capital and digital talent
In addition to these structural barriers, startups face strong competition from large, established national firms and state monopolies. According to BCG, this concurrence of the continent’s structural barriers and entrenched competition risks “depriving [African countries and competing businesses] of crucial sources of innovative technologies, products, and business models.”
In order to unleash innovation that drives job creation, economic opportunities, and expansive access to finance, education, and health care throughout Africa, BCG advocates for corporate partnerships and government reform to generate strategic alliances with local startups. From the perspective of the private sector, strategic partnerships with local tech startups can introduce cutting-edge digital technologies and novel business models that benefit the firm, the startup enterprise, and consumers. From the perspective of the public sector, financial incentives for investors and large national companies to nurture and collaborate with fledgling startups have the potential to develop innovation hubs that draw foreign investment and talent to the country. In addition, BCG calls on African governments to improve the regulatory environment so that countries can better cultivate hospitable investment ecosystems for startups and venture capitalists.
For more on investment in Africa, read “Figures of the week: Venture capital trends in Africa,” “Figure of the week: Trends in mergers and acquisitions in Africa,” “Placing investment at the center of Africa’s development strategy,” and Africa Growth Initiative (AGI) Senior Fellow Landry Signé’s book, “Unlocking Africa’s Business Potential.”
Fiscal policies for a low-carbon economy
Global warming is real and climate disasters are believed to be occurring with higher frequency. The heightened risks and sizeable setbacks can move economies onto trajectories characterized by lower growth rates, greater financial and fiscal instability, and even poverty traps. This is especially true for more vulnerable developing countries. Our recent report, Fiscal Policies for a Low-Carbon Economy, suggests how a mix of carbon taxation and green bonds can address climate-related risks, improve economic recovery plans, and facilitate a transition to a low-carbon economy.
Research on climate economics finds that green bonds can accelerate a low-carbon transition, may have a positive impact on aggregate output and employment, help to advance renewable energy technology, address better the issue of fair transition, and be a stabilizing force on the financial market compared to conventional, in particular fossil fuel-based, assets. Our research confirms these findings.
Figure 1. Global renewable energy investment and green bond issuance, 2004-2019
Source: Bloomberg and Bloomberg New Energy Finance.
The growth of green bonds
New green bond issues reached over $250 billion globally in 2019, up from about $30 billion in 2014 and now on par with global renewable energy investment (Figure 1). The impressive increase in and diversification of green bonds since the first issuance by the World Bank in 2008 confirms the potential of this instrument to help finance the low-carbon transition. These assets are in high demand in many countries: Oversubscriptions, for example, were reported in 2020 for German as well as Egyptian green sovereign bonds and in 2019 for Chilean green bonds.
Green bonds help meet the financing requirements of the low-carbon transition but can also help accelerate the transition itself. In practice, green bonds can mobilize private capital and act as bridge financing at the project level to increase the availability of low-carbon technologies, filling the gap until carbon pricing initiatives can be sufficiently scaled up. One of the largest solar plants in the world, Noor-Ouarzazate Solar Power Station, leveraged more than $2.5 billion in financing, in part through green bonds. This project will substantially help Morocco reach its climate targets, increasing the share of renewable energy in its total energy mix to more than 40 percent with 2624 GWh of clean energy generation. By providing additional financing, green bonds can accelerate the mitigation process. This mobilization has been the most impressive in China, where the green bond market has grown to about $120 billion, quadrupling in size over four years.
Green bonds also have several characteristics that make them attractive to financial market investors and issuers. In particular, green bonds can act as a stabilizing force on the financial market compared to conventional (e.g., fossil fuel) assets. The report presents initial evidence that issuing green bonds may have favorable effects on risk control for asset and portfolio holdings, as well as broaden and diversify the investor base. For example, Figure 2 shows that a larger share of green bonds leads to lower variance in portfolio returns during recessions (or negative oil price shocks), confirming their benefit as a hedging instrument, in particular in recessions or periods of declining fossil fuel prices.
Figure 2. Portfolio variance of different shares of green and fossil fuel bonds
Source: Author calculations based on S&P data.
But while Figure 1 shows that green bond issuance has increased together with renewable energy investment in recent decades, green bonds still represent a tiny share of financial market assets.
Price carbon better, and add green finance
To accelerate the low carbon transition, carbon pricing has been widely proposed, with many researchers and policymakers supporting this approach. Carbon pricing supports a low carbon transition by making fossil fuel energy more expensive and subsidizing renewable energy production and use. In practice, carbon pricing has come in different forms such as an Emission Trading Scheme (ETS) and a carbon tax.
Financial market instruments have also been used to encourage the growth of renewable energy to achieve climate objectives. There has been an extensive flow of financial equity funds geared toward climate mitigation and adaptation policies, for example through alternative energy Exchange Traded Funds (ETFs). There is evidence that green assets have recently outperformed carbon-intensive assets (Figure 3). The report adds evidence confirming the benefits of issuing green bonds and investigates the combination of carbon taxes (e.g., a Pigouvian tax imposed on carbon-intensive goods and services) with green bonds (a market debt instrument to fund low-carbon investments).
Figure 3. Market performance of MSCI financial market indices
Source: MSCI.
There are three benefits of combining carbon tax and climate bonds to accelerate climate mitigation and adaptation efforts:
Carbon pricing relies on substitution effects, but substitutes may not be currently available and need to be produced through private or private-public partnership investments. Green bonds can work as bridge finance for low carbon substitutes.
Whereas carbon taxes can reduce negative externalities (and incentivize investments to reduce them), green bonds help to generate positive externality effects – both appear to be needed.
Green bonds can bring about more financial stability when held as an asset class in portfolios and reduces the problem of “stranded assets.”
But in developing countries, carbon pricing and green bond initiatives are still in the initial stages (see Figure 4).
Figure 4. Countries with carbon pricing initiatives or green bonds
Source: Bloomberg Terminal data and World Bank Carbon Pricing Dashboard.Note: Data for 2017-2020. Countries in green are those which have implemented both green bonds and carbon pricing at the federal or local level; countries in light blue have implemented green bonds only; countries in dark blue have implemented carbon pricing only.
The demand for green bonds is quickly rising in middle-income countries, but there are significant roadblocks for green investment even in advanced countries such as short-termism, small markets, liquidity, and governance problems. The report finds, however, that sustainable finance in the form of green bonds is on a steep learning curve and is potentially complementary to carbon pricing—in particular to carbon taxation.
The market is still learning
The green bond portion of the asset market is still small, market participants are heterogeneous, and people are still learning. Though green bond performance depends on many factors—such as the issuer, rating, currency, bond maturity, and sector—our report provides some encouraging messages:
Green bonds appear to be less volatile than conventional bonds and assets, in particular those based on fossil-fired energy). Green bonds also appear to sell at a (negative) premium (see Kapraun and Scheins, 2019), while their Sharpe Ratio (the return-risk trade-off) is similar or even higher than that of conventional or fossil fuel-based bonds.
The literature and our study suggest a strong co-movement between oil price fluctuations and carbon-intensive security returns. Green bonds exhibit lower volatility and little co-movement with fossil fuel-based asset prices and returns, and can therefore be a good hedge for investors.
Lower volatility and yields may provide private as well institutional investors with superior asset diversification opportunities and steady returns for the investors, as well as lower capital costs for issuers. Whereas with fossil fuel-backed assets, co-movement with oil price fluctuations makes carbon-dependent countries’ income vulnerable and increases financial volatility in certain sectors and countries.
Given the potential benefits of green fiscal instruments, governments should consider including them in their economic recovery plans. The combination of carbon taxes with green bonds allows long-run climate externalities to be addressed, and possibly even incentivizes the emergence of positive externalities. Though, during business cycle downturns a carbon tax levy might be less advisable while green bonds (and green assets in general) appear to be a useful portfolio and macroeconomic stabilizer.
Minding the gap: The disconnect between government bureaucracies and cultures of innovation in scaling
Many contemporary practitioners and researchers tasked with bringing proven education innovations to scale around the world know that scaling is less a technical activity, but a mindset as much as an implementation process. As an adaptive mindset, scaling shares myriad characteristics with its close cousin: innovation. Both are complex and demand creative thinking, their outcomes are never fully predictable, and both require flexibility and engagement with the “what-ifs?” of life.
And, yet, to be supported at scale by government, most education innovations first must be adopted by public-sector decisionmakers—a group that lives within a decidedly bureaucratic culture.
The contradiction between the government mechanics of adopting innovations and the culture of implementing them becomes a central barrier to education innovations being adopted at scale.
Barriers to scale
Nayer, Saleh, and Minj (2016) point out that many governments decentralize power, which therefore requires that a new intervention gain acceptance across several sectors and personnel within a bureaucratic system. Decentralizing power is necessary for democracy, but for the logistics of implementing social science innovations it can be challenging. The authors also argue that government bureaucracies prioritize routines, precedent, and decision-trees, but innovations need flexibility and some organizational freedom to flourish. “By conforming to bureaucracies’ design and following the decision-making priorities that result,” they write, “civil servants can internalize and institutionalize a risk-averse behavioral culture. This is not conducive to scaling innovation (p. 5).” Similarly, Al-Ubaydli, List, and Suskind (2019) note that bureaucracies centralize efficiency, but innovators centralize effectiveness.
So, there lies the rub: The very conditions that social science innovations need in order to flourish are the conditions that public bureaucracies repel.
Generally speaking, policymakers tend to be failure-avoidant, linear thinkers while innovators in social sciences work in an atmosphere of experimentation and learning-by-doing. Successful innovations often need a few failures along the way as they’re implemented, adjusted, and embedded into widespread practice.
So, there lies the rub: The very conditions that social science innovations need in order to flourish are the conditions that public bureaucracies repel.
Compounding this disconnect is decades of technical-rational social science innovators who falsely promised governments that “scaling up” was a simple process. Suskind and List (2020) point out that previous generations of implementers in education, public health, and poverty alleviation convinced policymakers that “rolling out” an intervention was straightforward—and yet that was rarely true. The resulting failures cost policymakers significant money and reputational capital over the years. As a result, government decisionmakers are now reluctant to trust social science innovators, implementers, or researchers. As Suskind and List tell us: Each generation of errors makes it harder for contemporary innovators and implementers to get policymakers to listen to them.
We offer a few recommendations.
Closing the culture gap
For policymakers and other public-sector decisionmakers: Don’t hold the mistakes of old scaling paradigms against the newer models. Many contemporary teams working to implement proven education innovations at scale have learned from the past and see scaling as complex, contextualized, in need of widespread support, and unpredictable—but absolutely necessary if we’re to ameliorate intractable social problems. This new generation of scaling impact deserves a chance.
Additionally, public-sector decisionmakers can push against an understandable but sometimes self-defeating bureaucratic machinery that craves technical-rationality and risk-aversion. Finding the political will to go against the grain and inject some tolerance for unpredictability, course correction during implementation, and managed risk might be just what is needed to pry open rigid decisionmaking structures. We’re not advocating that governments gamble on untested innovations but rather that decisionmakers understand that if you are to trust a proven innovation, you will need to accept that implementing and scaling it for deep impact won’t be a quick, linear, error-free process.
For implementers and researchers of education innovations to scale: Recognize that national and regional decisionmakers don’t always share your mindset. Rather than reinforcing the binary, perhaps consider yourself teachers as much as implementers: What do decisionmakers need to know to feel comfortable supporting your innovation? What would it take to develop a scaling strategy from the beginning that foregrounds a continuous learning system, ongoing data collection, and realistic goals at each step? One that treads that middle path between being too tight (breaking like a branch that can’t bend in a storm) or too loose (sacrificing too much fidelity to the original innovation)? And how could you articulate the innovation to decisionmakers in new ways to get past the research jargon or technical details and adopt user-friendly, politically appealing, community-minded language? There is value to building personal relationships across the gap, prioritizing informal dialog (not only technical presentations), and acknowledging the bind into which bureaucracies often put decisionmakers.
If each side took some responsibility for the lacuna between the two cultures and consciously moved a few paces toward the middle, we might improve things. Government decisionmakers could accept that changing education systems requires some risk and a different procedural approach. Innovation implementers and researchers could thoughtfully plan for unpredictability; study and learn from scaling effects at all phases; and cultivate a broad network of partners and allies both before and during the scaling process.
Maybe, just maybe, this new generation of scaling impact as recursive and mutually adaptive can meet a new generation of public decisionmakers ready to loosen the nuts and bolts of their bureaucracies, and together, can ensure that promising interventions and education programs flourish.
Related Content
The Center for Universal Education at Brookings is proud to be partnering with the Global Partnership for Education’s (GPE) Knowledge and Innovation Exchange (KIX), through the Research on Scaling the Impact of Innovations in Education (ROSIE) project, to explore scaling-related issues with national decisionmakers. In advance of our own research on the topic, we’ve been exploring the literature. In previous blogs, we considered how public-sector decisionmakers adopt innovations to scale and limitations of using pilot data We will continue sharing with you what we learn through ROSIE in the months ahead. In the meantime, we’re interested in hearing from those of you with experience in these matters: What have you tried and what’s worked best?