The future of work in Africa

Hays_Viewpoint_8.6.16-660x372

John Maynard Keynes once eulogized about the potential of technology induced, machine-driven, workless future by 2030. Nuval Harari further predicts that we will become superhuman or “Homo Deus.” For those fortunate enough to be born in an advanced economy such as the United States or Germany, this future does not look like a utopian pipedream. Conversely, for young Africans such as myself, the stability and prosperity of our continent depend on our ability to provide jobs and skills for a burgeoning young populace. This will further require an environment that is able to adapt to and mitigate technology’s multifaceted impact on the labour market.

This article initially argues that the first world solutions such as a universal basic income will have an adverse impact on the continent. Moreover, an increase in the African working age population coupled with the decreasing cost of technology provides the continent with a limited time frame to sufficiently prepare for the inevitable. The central thesis is that the possibility of a workless future requires an entirely different approach concerning the business, educational and political dynamics within each African country. To that effect, this article argues for the creation of an “African Readiness Index” that encompasses each economy’s ability to 1) provide clean governance 2) increase competitiveness and 3) focus on youth empowerment. After that, African governments and their citizens should use this index as a means of quantifying their policies and their efficacy. That is, in enabling small businesses to thrive and serve the overlooked African consumer. The rationale for the selection of variables along with the data sources will be provided within the methodology section. Finally, this article will conclude by restating the overarching benefit of such an index insofar as it allows for the creation of a uniquely “African solution to an African problem.”

1.1) The adverse effects of a global basic income

A widely touted idea levied at overcoming income inequality, and a jobless future revolves around the concept of a universal basic income. The benefit of such a policy is that it would give each a more judicious trade-off with respects to their 24-hour day. Purportedly, such a solution provides every economic agent a more optimal choice between labour and leisure. It is assumed that a basic income would drastically improve the lives of Africans. Beyond freeing up time for the continents young populace to pursue creative endeavors, it would further allow for the more efficient use of scarce resources, natural resource rents and assist in countering the impact of labour saving technologies.

The challenges with the idea above of a universal income applied to Africa are multifaceted. Firstly, this article argues in the next section that labour saving technologies in Africa would take a longer time to materialize due to the “labour glut” derived by the demographic dividend. Furthermore, the provision of a basic income is no different from foreign aid if it is external governments, international institutions or monopolized businesses provide for it. Sub-Saharan Africa currently has the lowest living standards in the world (See figure 1). If we were to assume then that the basic income cash transfer matches the current level of income in the region, then this would not improve living standards of agents within recipient countries. Alternatively, if the basic income were to exceed the current living standards, then it has potentially disastrous impacts on the economy through two separate transition mechanisms. Initially, the economy will suffer inflationary pressures as an increased money supply without an increase in local capacity leads to too much money chasing too few goods. To combat higher inflation, contractionary monetary policies would need to be enacted by African central banks. Economic theory predicts that an increased interest rate would stifle local consumption and investment respectively. These two effects will only exacerbate the job shortage challenge on the continent. Secondly, this inflow of money will damage the export and job-creating sectors within the economy. That is, an inflow of dollars from sponsoring agencies, converted into the local currency to pay the basic income would inevitably cause an appreciated currency. In such a scenario, African consumers would shift towards relatively cheaper imports further damaging local industries. It is again evident that a basic income would have a significant impact on the job prospects of the new wave of African job seekers already behind their more privileged counterparts in the modern world.

Figure 1: Living standards across various regions: GDP per capita (in US$’s)

Screen Shot 2018-05-08 at 9.36.57 PM

1.2) Population dividend and its impact on technology adoption

The United Nations predicts that Africa will experience the most significant level of population growth between now and 2050. The report further reports that 26 African countries will see their populations double within the same time frame. Simple economic models of supply and demand for labour and technology -broadly defined- provides us with a useful framework for understanding the impact of population growth on mechanization in both Africa countries.

Initially, we assume an increase in the supply of labour, ceteris paribus, decreases the wages of the African worker. A decrease in wages will inevitably reduce the demand for capital-intensive production techniques. Taking this logic one step further, labour saving technologies in Africa would take a longer time to materialize due to the “labour glut” derived by the demographic dividend or increased labour. Essentially, labour will still be an abundant and cheap factor of production available to business (See figure 2). That said, it would be safe to assume that, going forward, technology and labour saving technology will become more ubiquitous. This will inevitably lead to a shift in the supply of labour saving production techniques and a further decrease in the price that challenges the price of labour. This will create a perpetual cycle of decreasing wages and prices respectively.

Figure 2: Partial equilibtrium analysis for labour and labour saving technologies

Screen Shot 2018-05-08 at 9.40.04 PM

The analysis above highlights two salient points. The “demographic dividend” will slow down the automation process such that each African government will be afforded more time to improve underlying conditions for absorbing and developing their labour force. Secondly, policy and changes need to happen promptly before the labour-saving technologies increase in supply and productivity to a point where an African worker has no chance. Given the urgency of the challenge in Africa, it is critical to formulate a mechanism for monitoring and to advance the continents ability to provide policy and a sustainable future for its people going forward.

2) A solution: The “African Readiness Index” and its component parts

The African Readiness Index is unique insofar as it allows for citizens to actively monitor and promote a better future in a readable format. It centers around three key pillars that need to be promoted for the African economy to transition successfully. They are:

  1. Good governance is important for the future of Africa. Malfeasance and plundering diverts resources to unproductive activities. To this end, Transparency International’s dataset provides the most robust metric for measuring the level of corruption in a country and is used in the compilation of the index. The objective for this is simple, the less corrupt a government, the more focused it will be on empowering its growing number of citizens
  2. Business competitiveness can be sourced from the World Economic Forum’s annual report and standardized. Competitiveness is essential for the attraction of foreign direct capital (FDI). FDI is necessary for an economy because it raises the demand for workers and wages for non-skilled labour in foreign-owned manufacturing firms. Moreover, it increases the level of technology within an economy that is necessary for today’s economy. Secondly, an improvement in the underlying conditions for business will inevitably lead to an increase in the number of SMME’s. This is important because these businesses provide up to sixty percent of jobs in developing countries and eighty percent in low-income countries. There is an opportunity for SMME’s to upskill and provide jobs for young Africans.
  3. Youth empowerment index should be split up between 1) youth unemployment, 2) quality of education and 3) average age of the government relative to the average national age. This data will be normalized and indexed. Youth unemployment is available from the World Bank and is essential in Africa because of the aforementioned demographic dividend. The longer a person is out of work for, the lower the chances of getting a job in the future, which will have a disastrous impact on African economies and their political stability. An education proxy can be governments spending on education as a percentage of GDP. This is available within the World Bank database. Without a focus on education and preparing the youth for the future, Africa will not progress. New and innovative tools and solutions need to be sought out and implemented. The average age of the government can be found in the CIA Factbook. A lot of the issues such as climate change and youth unemployment will have a disproportionally large impact on young Africans. To this end, it is necessary to get a new wave of younger leaders to inspire the youth to get more actively involved in creating “African solutions to African problems”.

These aforementioned variables will need to be standardized to yield indices with a value of between 0 and one according to the following formula:

X=(X- Min⁡value of statistic)/(Max value – Min value of statistic)

After that the African Readiness Index (ARI) can be created by computing the geometric mean of the three normalized indices according to the following formula:
ARI= 〖Governance〗^(1/3)*〖Competitiveness〗^(1/3) 〖*Youth empowerment〗^(1/3)
The index is then represented by a value between 0 and 1, which will allow business, governments and African citizens to identify their countries readiness for the inevitable mechanization in a natural way. By ensuring that you govern well, improve the competitiveness of an economy that stimulates FDI, SMME’s and job creation and empower the youth to take control of the policy, the youth will inevitably be in a better position to manage the technology driven revolution.

There are ample examples of success stories that reaffirm the aforementioned conditions and their importance. For example, the South African wine business is a world leader regarding quality. Moreover, the industry is a source significant jobs and foreign income and shows that if the government focuses on creating an enabling environment, a business can thrive and grow. Another example, the largest selling smart phone company on the continent that adapted its profitable product to the African consumer. Transsion, beyond selling their product at a lower price point, included two sim-cardholders to overcome the challenge of intermittent cellphone access while traveling across Africa. Moreover, the firm increased the bass on its headphones to match local music sounds. Finally, it improved the cellphone camera to take better photos of a darker complexion as opposed to western norms. A final example is of Mobius motors that designs produce a car in Kenya. The space frame, engine, chassis and suspension are tailored towards the auspices of the African terrain. Furthermore, the firm educates and up skills its young employers with the support of the government. It indicates another truly African solution to an African problem and all of the criteria mentioned above in the ARI.

To conclude, Africa’s future of work will depend on its ability to sustain itself through the creation of a burgeoning tax-paying middle class. This will ensure a feedback mechanism in tandem with the rest of society that can hold government accountable and create the possibilities of creating an environment necessary for the pursuit of a better tomorrow. It is safe to say that the continent does not have this yet. The main idea behind the African Readiness index is to make people aware of underlying conditions necessary for the African youth of tomorrow to understand, adapt, integrate and ultimately profit from the technological revolution. Africans do not have a lot of time, so we should start preparing right now.

 

About the Author

Carlos Baeta
Proudly South African. Masters student at Fordham University in New York. Entrepreneur, young leader, coffee addict and an avid Liverpool fan. Let's change the world.

Be the first to comment on "The future of work in Africa"

Leave a comment

Your email address will not be published.


*