The Future of Work in Africa -The Role of Digital Technologies

Africa’s Pulse, April 2021, World Bank Group 

Covid-19 and the future of work in Africa - Emerging trends in digital technology adaptation

The Role of Digital Technologies (p 55-56-57)

  • Sub-Saharan African countries can still seize the opportunities from globalization and engage in manufacturing-led growth.
  • Policies should foster the participation of local firms in Global Value Chains (GVCs) and promote foreign investment - thus enhancing the transfer of technology, raise output and create jobs in the manufacturing sector.
  • A large number of grassroots investors and entrepreneurs are needed to create digital technology–enabled job opportunities
  • Foreign Direct Investment (FDI) can foster economic growth and help countries integrate into GVCs
  • Using digital technologies to increase productivity, create jobs, and enhance financial inclusion in the informal sector may provide a gradual pathway to formalization over time.
  • Seizing the opportunity to participate in GVCs requires a series of complementary policy actions in areas like standards, internet and physical infrastructure connectivity, education, and skills.
  • Manufacturing job growth along with increased productivity can be attained by lifting market distortions that lead to resource misallocation

Sub-Saharan African countries can still seize the opportunities from globalization and engage in manufacturing-led growth. To do so, countries in the region need increased integration with global markets to raise output and create jobs in the manufacturing sector. In this context, policies should foster the participation of local firms in GVCs and promote foreign investment. These policies need to be complemented with improvements in the business environment— infrastructure investments (electricity, transport, and logistics) and supportive trade policies.

It is critical for the region to build strong foundational and digital skills to unlock the opportunities provided by the digital economy.  An increase in the availability of and access to high-quality educational institutions and programs plays a key role. Adopting digital technologies that create new demand for low-skilled workers will generate more direct and indirect technology-enabled jobs. In turn, a large number of grassroots investors and entrepreneurs are needed to create these digital technology–enabled job opportunities. Additionally, policy interventions that boost productivity and upgrade the skills of informal, small-scale firms and farms, as well as unskilled workers are critical to address the informality problem in the region. Using digital technologies to increase productivity, create jobs, and enhance financial inclusion in the informal sector may provide a gradual pathway to formalization over time.

Fostering GVC Integration and Non-Resource-Seeking Foreign Investment

Automation in advanced economies may not hold back traditional industrialization-led growth in Sub-Saharan Africa. For instance, automation of “traditional” manufacturing sectors in the region is very limited because investments in automation are still not cost-efficient. There is room to exploit the opportunities from globalization to enhance productivity and create jobs in the manufacturing sector. Firms in the region need to adopt new, worker-enhancing technologies, reduce production costs, and increase demand and jobs across all economic sectors. In this context, African policy makers need to design policies to foster the integration of firms into global markets through participation in GVCs and attract foreign direct investment (FDI)—thus enhancing the transfer of technology. Still, these policies must complement measures that enhance digital connectivity and strengthen linkages between manufacturing and services.

Participation in GVCs can help create jobs by: (1) raising firm productivity through the technological, sectoral, and spatial transformations of the economy, and (2) generating spillovers from backward and forward linkages within the value chain. Recent evidence shows that Ethiopian manufacturing firms participating in GVCs tend to be more productive and, hence, employ more workers and pay higher wages than other firms. Still, the GVC participation of Sub-Saharan African countries is rather limited.

For instance, the share in world trade of Sub- Saharan African firms is very low in sectors like apparel (2.5 percent of final exports and 0.5 percent of intermediate apparel and footwear exports) and automobiles (1.3 percent of final exports and 1.0 percent of intermediate exports). For low-income countries in the region, participation in GVCs is driven by sectors like textiles and apparel (Ethiopia and Lesotho) and agribusiness and horticulture (East Africa).

Developing countries have engineered sustained growth through GVC participation thanks to actions that ensure low unit labor costs rather than low wages. This may present a challenge to lower-income countries in Africa that do not have a comparative advantage in (labor- and/or capital-intensive) traded goods compared with developing countries in other regions. For example, some Sub-Saharan African countries have higher labor and capital costs relative to some Asian countries. Gelb et al. (2017) document that capital costs in Kenya are more than nine times those in Bangladesh.

Yet, manufacturing job growth in countries like Ethiopia and Côte d’Ivoire has been fueled by ample labor supply at relatively low wages. Job creation came with rising profits per worker for these firms. Their higher profits were associated with increased average labor productivity amid relatively low wages (Abreha et al. 2019). As the period of cheap manufacturing labor comes to an end, wage increases in the region need to be supported by higher productivity.

 

Manufacturing job growth along with increased productivity can be attained by lifting market distortions that lead to resource misallocation (World Bank 2020b). Seizing the opportunity to participate in GVCs requires a series of complementary policy actions in areas like standards, internet and physical infrastructure connectivity, education, and skills.

FDI can foster economic growth and help countries integrate into GVCs. It can also help raise wages and employment. Most FDI into Sub-Saharan Africa is concentrated in natural resources, with low impact on employment and technology transfer. Improving the business environment (say, judicial independence and labor market flexibility) will attract FDI into the secondary and tertiary sectors (Walsh and Yu 2010). Evidence for African countries points to infrastructure, trade openness, and lower (economic, political, and financial) risks as factors that boost FDI flows into the region (Kariuki 2015). Corruption, taxes, and access to finance are also critical (Abate and Engel 2020). Overall, maximizing the benefits of digital technology adoption, GVC participation, and FDI involves ensuring an adequate business environment and raising the low levels of human capital across the region.