Companies in Africa prefer low or unskilled/uneducated labour for production, despite the fact that education has a significant and positive impact on productivity. The result is low added value and less competitive goods and services. Breaking this ‘paradox of education’ is a precondition for improving the growth of African small enterprises.
Education is the main factor influencing the quality of human capital, as people with an education tend to join the labour market. Corporate decisions in relation to employment and hours of work are assumed to be usually based on maximizing profits and minimizing production costs. According to Blaug (1999), 1 productivity is the main reason for the existence of companies. Thus, it can be assumed that firms only invest in factors of production that increase their profitability.
In African small and medium-sized enterprises (SMEs), labour, which is one of the main factors of production, is characterized by a large number of workers with little or no qualifications or education. Consequently, the goods produced are intensive in terms of low skilled, low educated labour. However, the growth of SMEs requires the goods and services produced to be competitive and of good quality. This requires an increase in the number of skilled and educated workers involved in the production process.
Although workers in African SMEs are mostly low skilled or unskilled/uneducated, it is clear that the higher the level of education and qualifications of the workers, the higher the productivity of the firm. This is especially true as, according to Tsang and Levin (1985), 2 labour input takes account of both the quantity of labour and its capacity to work – which is related to education. So why do African SMEs not employ more educated and skilled workers in their production processes? The answer to this question can help us to understand the reasons behind this situation and allow a reversal of the trend.
The ‘paradox of education’ described above has been regularly studied in research analyzing the relationship between education and business performance in Africa. I recently conducted a study with Yves Abessolo illustrating this very paradox in African companies. Over a period of three years, from 2006 to 2008, the various categories of labour involved in industry in Cameroon were found to be 2.5% executives, 5.9% senior technicians, 72.2% employees and labourers, and 19.4% technicians and supervisors. During the same period, executives contributed to the growth of value added by 68%, senior technicians by 82% and employees and labourers by 65% (the category ‘technicians and supervisors’ was the reference category).
|Effect of education on growth of value added in Cameroon (2006–2008)|
|Category of labour||Impact of education||Coefficient|
|Employees and labourers||Positive||65%**|
|Notes: *statistically significant respectively at 10% and ** at 5%; Sample consisted of 272 companies and 138,996 employees; see Olley and Pakes (1992) re modelling.|
This paradox was also observed by Dia (2005), 3 who studied the industrial sector in Senegal from 1977 to 1997. During this period, executives held less than 3% of jobs, senior technicians less than 5%, technicians and supervisors less than 2%, and workers, employees and labourers between 70 and 80% of jobs.
While technical and professional skills are poorly developed (technical and vocational training is less than 5% of youth training; African Economic Outlook, 2008) in most Sub-Saharan African countries (SSA), it is worth noting that rates of enrolment have increased through increased access to primary education, among other things. Cameroon and Lesotho are examples of this rise in gross enrolment in primary education (World Bank, 2014).
These issues in the formal sector of the African labour market also plague the informal sector. In fact, access to formal employment in Sub-Saharan African countries is a real challenge. In Cameroon, for example, over 90% of jobs are informal (INS, 2010). 4 The informal sector is an involuntary refuge for many people who seek employment (Cunningham and Maloney, 2001) and is generally characterized by low productivity. 5
Moreover, workers in the informal sector in Africa are mostly confined to production units. 6 In Cameroon, for example, three main sectors constitute the informal economy: industry (34%), commerce (34%) and services (32%). These sectors are mainly composed of small production units, of which 86% are staffed by one person (INS, 2010). Thus, any investment to increase the stock of human capital of workers and entrepreneurs could be confused with an investment in the intangible capital (firm-specific human capital) of their production unit. Specifically, on the job training could be likened to the process of human capital accumulation for the worker, but also to building the intangible capital of the company. Indeed, according to Corrado et al. (2012), 7 when the investment in training leads to an accumulation of human capital and the associated yields lead to higher wages, then it can be considered an investment in human capital. However, if the investment in training leads to an improvement in firm-specific human capital and the returns associated are not fully reflected in wages, then it is an investment in the intangible capital of the company.
Ultimately, breaking the ‘paradox of education’ in African SMEs requires the capacity building of both workers and employers. Capacity building could enhance the effects of human capital on labour productivity and, thus, the growth of African SMEs.
1 Blaug, M. (1999). La pensée économique. Economica, 5è édition.
Tsang M.C. and Levin H.M. (1985). The Economics of Overeducation. Economics of Education Review 4, 93-104.
3 Abdoul Alpha Dia (2005). Education, capital humain et dynamique economique: Analyse à partir du secteur industriel senegalais. Economies and Finances, Université de Bourgogne (French).
4 INS (2010) Enquête sur l’Emploi et le Secteur Informel. Phase 2: Enquête sur Secteur Informel. Cameroon.
5 Cunningham, W. and Maloney, W. F. (2001). Heterogeneity in the Mexican Micro-enterprise sector: An application of factor and cluster analysis. Economic Development and Cultural Change, 5:, PP. 131–-156.
The informal sector in Cameroon for example, is mainly composed of small production units, of which 86% are one-person (EESI, 2010).
7 Corrado, C.; Haskel, J.; Jona-Lasinio, C. and Iommi, M. (2012) Intangible capital and growth in advanced economies: Measurement methods and comparative results. IZA Discussion Paper No. 6733, July.
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