By Abiodun Egbetokun, Science Policy and Innovation Studies Department, National Centre for Technology Management, Federal Ministry of Science, Technology and Innovation, Nigeria

 

- This opinion piece is part of a series of articles commissioned by UNIDO's Department of Policy Research and Statistics. The views expressed in this article are those of the author based on his experience and on prior research and do not necessarily reflect the views of UNIDO (read more).

 

Africa’s COVID-19 paradox

At first glance, it seems that the COVID-19 pandemic has hit Africa less severely than other countries. The infection and fatality rates in Africa have been significantly lower than in other more developed regions. As of 15 July 2021, Africa had recorded less than six million COVID cases compared to over 51 million in Asia, 74 million in America and 56 million in Europe. For every recorded death in Africa by 15 July 2021, there were five in Asia, 13 in America and eight in Europe. The pandemic’s economic impact is disproportionately worse in Africa, however. First, it has resulted in high income losses on the continent. In a mid-August 2020 telephone survey of over 24,000 adults in 18 African Union Member States, 70 per cent of respondents reported that their present household income had fallen compared to the same period in 2019. Second, existing income inequalities have intensified because a reduction in income is more likely among people with an already low income. While six out of every 10 households with a monthly income of at least US$500 experienced a loss of income, this figure increased to nearly eight out of 10 households among those with a monthly income of less than US$100.

COVID-19 has exacerbated an already bad situation in a continent with already high poverty and unemployment rates. A higher number of people engaged in informal employment have become jobless since the outbreak of the pandemic. Survey data from Burkina Faso, Mali and Senegal, for instance, show that around 25 per cent of workers had lost their jobs, and 50 per cent had experienced a reduction in income by April 2020. Moreover, the number of hours worked by those who were still employed at the time decreased since the pandemic started. The job and income losses have primarily affected informal workers, revealing the disproportionately high risks they are exposed to. Manufacturing jobs are particularly at risk, and the manufacturing sector has been the worst affected sector, according to the International Labour Organization.

Informality and the policy dilemma

Informal employment is associated with unacceptable wages, poor working conditions, and a lack of social protection or employment benefits. Yet informal employment is a means of survival for the largely poor and unemployed population in most developing countries, including the youth. The International Labour Organization estimates that over 60 per cent of all workers aged 15 years and up were engaged in informal employment worldwide in 2018. As Figure 1 illustrates, this number is substantially higher in Africa at around 86 per cent and up to 90 per cent across all African sub-regions, with the exception of Northern Africa (67.3 per cent) and Southern Africa (40.2 per cent). Informal employment was even higher among young people aged 15-24 years, namely around 77 per cent globally and 95 per cent in Africa. With the exception of Southern Africa, at least 9 out of every 10 employed persons aged 15-24 years in all other African regions were employed informally (Figure 1). These figures contrast sharply with those elsewhere: in 2018, informal employment among youth ranged from a high of 86.3 per cent in Asia and the Pacific to a low of 35.7 per cent in Europe and Central Asia (Figure 2).

 

 

 

 

 

Globally, agriculture accounted for the largest share of informal employment (approximately 94 per cent). Informal employment in industry—including manufacturing, construction and mining—as a per cent of total employment was around 10 per cent higher than in services which had a share of 47.2 per cent. In all African regions (with the exception of Southern Africa), the share of informal employment in industry was higher than in services (Figure 3). That is, Africa’s manufacturing sector could have potential, but does not offer sufficient and decent employment options for youth. Poverty and limited opportunities for decent employment compel many young people to enter into informal employment, which, however, does not necessarily enhance their welfare. Their precarious situation has deteriorated since the outbreak of COVID-19. African governments are facing a policy dilemma: moving young people out of informal employment without first exacerbating unemployment. The urgency to resolve this dilemma has intensified because young people are entering the labour market at a rapid rate. According to a 2016 estimate of the African Development Bank, 10 million to 12 million youths enter the labour market annually, but only 3.1 million jobs are created, resulting in a huge employment gap.

In this specific context, manufacturing offers limited opportunities for decent employment. In Africa , manufacturing accounted for only around seven per cent of wage employment at the end of 2019, and the continent is currently the least industrialized region of the world. The share of manufacturing employment in total employment in low-income countries remained stagnant at six per cent between 1991 and 2018. In sub-Saharan Africa, only six per cent of all jobs created between 2000 and 2018 were in the manufacturing sector; manufacturing jobs accounted for just 6.2 per cent of total employment in 2019. By contrast, employment in Africa’s services sector registered strong growth, but the majority of jobs in the sector are characterized by low productivity and high informality. For instance, around 84 per cent of workers in the tourism industry and 87 per cent in transport, storage, communications, repair services and wholesale and retail trade in sub-Saharan Africa are informal workers. This notwithstanding, manufacturing remains a viable engine of growth and structural transformation.

 

The limits of entrepreneurship as a policy option

Governments have invested tremendous effort into developing high-quality entrepreneurship to create more decent employment and increase self-reliance. Several African countries have invested heavily into entrepreneurship support programmes that aim to stimulate job creation for young people. These programmes range from providing funding to non-pecuniary support, such as management consulting and business training. Nigeria’s Youth Enterprise With Innovation in Nigeria (YouWiN!) programme is a case in point. In its first year (2011), the programme provided an average of nearly USD 50,000 in equity funding to over 1,200 entrepreneurs aged between 18 and 40 years. These businesses created an additional 7,027 jobs at a programme cost of around US$8,500 per job.

Market failures influence the scope and direction of entrepreneurship. Infrastructure and credit constraints as well as a high level of uncertainty tend to deter entrepreneurs from engaging in manufacturing. For instance, only a small share of the businesses supported under the YouWiN! Programme are manufacturing firms. According to David McKenzie in the American Economic Review, manufacturing firms only make up around 13 per cent of total firms, with the remainder engaged in agriculture and services. One consequence is that only few additional jobs are created in manufacturing compared to other sectors. Moreover, skills mismatch and deficits means that manufacturing firms attract more informal than full-time, salaried employees. According to Lucy Heady, knowledge director of Education Sub-Saharan Africa (ESSA), young people in many African countries graduate from tertiary education without the skills they need to be able to work. This is connected to the lack of flexible learning and courses, excessive emphasis on theoretical rather than practical education, and the scarcity of formal apprenticeship and internship schemes that support skills development. Firms have to therefore often retrain highly educated workers—who have a higher contract wage premium—before they can effectively contribute to firms’ production processes. Such retraining is typically not required for less educated but adequately skilled workers, who participated in informal apprenticeship schemes and who are often subjected to poorer working conditions than their better educated counterparts.

Two downward-pulling mechanisms are at work here. First, despite an increase in entrepreneurship interventions, medium- to large-scale manufacturing is difficult to stimulate in countries overshadowed by market failure. Yet it is medium- and large firms that have a higher potential to create jobs. Larger firms tend to grow faster and, therefore, significantly contribute to employment creation, partly due to the strong positive relationship between firm size and productivity growth. By contrast, most micro- and small-sized firms are necessity-driven and exhibit limited desire or potential for growth. Secondly, recent evidence suggests that irrespective of sector, the majority of firms in sub-Saharan Africa—where at least 70 per cent of all private sector jobs are informal —have only one employee. In Nigeria, for instance, over 99 per cent of firms have fewer than 10 employees. There are some outliers, i.e. large firms that employ many workers and demonstrate sustained growth. Such firms disproportionately contribute to the process of economic development. Even among these firms, however, informal employment remains attractive, despite existing regulations.

Apprenticeship as a policy option

Interventions that support job creation should aim to enhance existing firms’ potential to provide access to formal and quality jobs. Apprenticeship schemes could support post-COVID employment recovery in Africa. An apprenticeship entails the learning of a craft or occupation while in the service of a skilled practitioner or someone who is traditionally referred to as a “master”. In developed countries such as Germany, formal apprenticeship schemes consist of an integrated workplace- and school-based “dual” learning and training system. This contrasts sharply with the prevalent informal system found in African countries, which is based on direct training agreements between an apprentice and a master. Such informal schemes are known to underperform in terms of job creation and income generation. Formal apprenticeship systems, on the other hand, are particularly suited for manufacturing because they combine “part-time formal education with training and experience at the workplace, and results in an externally recognized vocational qualification”.

 

Apprenticeship and internship training schemes in Africa are mostly found in the informal sector, and certification or formal qualification are rarely awarded to apprentices. When incorporated into entrepreneurship programmes and interventions, formal apprenticeship programmes can mitigate market failures. Formal apprenticeship schemes, particularly when they involve firms, have demonstrated the potential to correct skill mismatches, information asymmetry and negative externalities. In UK manufacturing, for example, employers’ investments in apprenticeships are “paid back within three years...” and there are “significant benefits…through lower labour turnover, a better fit between the skills possessed by employees and the skills required by the company, and some control skill-shortages potentially pushing up wage rates”.

 

Making apprenticeship work

Programme design: Apprenticeship schemes and programmes can be designed in partnership with established manufacturing firms. Within the scope of such programmes, contracts that combine training and employment are concluded, allowing young people to develop a set of manufacturing-specific skills and competencies that are broad enough to be of relevance in other sectors as well in order to avoid lock-in. Training under apprenticeship contracts is co-financed by the government, firms and workers. Government involvement from the onset is crucial in the African context, where informality is high, legal institutions and contract enforcement are weak. Firms can recoup part of the training costs by paying employed apprentices less than the average wage for the duration of the training. Apprentices are incentivized to participate in such training by the employer’s commitment to pay a much higher wage upon completion of the training programme.

 

Contract design: The design of apprenticeship contracts should specify the expected vocational qualification and any associated certification, which will only be awarded at the end of the training period. This will discourage trainees from exiting early. At the same time, the employer’s commitment to pay a higher wage to apprentices who remain with the firm upon completion of the training programme will limit opportunism among firms. Firms can be further incentivized by regulations that provide for the possibility to extend the apprenticeship contract and by subsidies tied to the completion of the training scheme.

 

Incentives: Formal apprenticeship programmes are even more successful when deterrents to employee turnover are put in place. Programme efficiency increases significantly if apprentices who leave the firm prior to completing the training programme have to pay a fee. One way to achieve this is to ensure that the qualification awarded at the end of the apprenticeship scheme is highly valued in the labour market. A well-designed system of skill certification serves this purpose. Such systems already exist in most African countries in the form of trade tests, but need to be upgraded from their current focus on the artisanal informal apprenticeship system.  

 

Balancing demand and supply: A matching problem may arise within the apprenticeship system. Formal certification of acquired skills usually indicates higher quality and consequently generates higher returns on the labour market. This incentivizes trainees to contribute to the cost of training. Certification reduces asymmetric information by properly informing employees of their potentially higher value relative to their current employment. This, in turn, increases employee turnover and discourages firms from investing in apprenticeship programmes. Consequently, the supply of training may fall while demand increases, and the overall provision of formal apprenticeship schemes may become uncertain. This demand and supply conundrum can be easily balanced since the effectiveness of training strictly depends on the trainees’ active participation and completion of training. The current employer’s promise to pay higher wages is only realized if the apprentice completes the training; higher value is only attained through certification, which is awarded at the end of the training programme. Such delayed gratification induces apprentices to invest more efforts into skill acquisition since the benefits are only reaped upon completing the apprenticeship scheme.

 

Conclusion

Firms in countries such as Germany substantially contribute to apprentice training. This form of support creates well-designed formal apprenticeship schemes in manufacturing and could help improve the present skills gap in the African labour market, especially among youth. Apprenticeship schemes and programmes also have important implications for entrepreneurship policy – they have the potential of reducing unproductive entrepreneurship, increasing the likelihood of business success, improving access to formal accreditation and facilitating the creation of more decent employment. Apprenticeship schemes are especially suitable in the manufacturing sector because manufacturing jobs primarily involve codified skills. In the post-COVID 19 world, formal apprenticeship schemes offer a promising alternative to the status quo in terms of recovering lost manufacturing jobs and generating new ones.

 

It is now abundantly clear that the COVID-19 pandemic has had an impact on nearly all aspects of our lives and has caused us to rethink “business as usual”. As we adapt to the "new normal", appropriately channeled opportunities can help us improve the way we do business and the way we live. The United Nations Industrial Development Organization's latest flagship report, the Industrial Development Report 2022, provides a comprehensive assessment of the pandemic’s impact on global manufacturing and the prospects for the future of industrialization in a post-pandemic world. The report makes a key contribution to countries' national and international strategies for an inclusive, sustainable and resilient industrial recovery to build back better from the COVID-19 pandemic.

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