Inequality, employment and economic growth in Africa

Employment & Income,Inclusive Economy26 Jun 2014Annemarie van de Vijsel

Macroeconomic policy should focus on job creation and labour-intensive manufacturing. This was the main message of a panel session at the EADI conference.

The bright picture of Africa’s economy is that it is growing and that inequality is declining. However, as Stefano Prato of the Society for International Development (SID) said at the beginning of a panel session at the EADI conference, not all Africans recognize this optimistic version of the state of their continent. Inequality is still high, and economic growth is not inclusive: a lot of people at the bottom of the income ladder are not formally included in the economy.

When a country’s economy grows, there is no unambiguous effect on inequality: it can increase or decrease. In the words of Bartholomew Armah of UNECA, “growth is a necessary but not sufficient condition for inequality reduction.”

Armah showed that North and East Africa are the least unequal regions of Africa, while Southern and Central Africa are the most unequal. Aidan Eyakuze of SID Tanzania zoomed in further on East Africa. Within this region, Rwanda is the most unequal country. Burundi is the least but, as Eyakuze observed, it also has the smallest economy.

Whereas economic growth does not automatically lead to more or less inequality, according to Eyakuze, evidence from East Africa shows that rapid change in the composition of economic sectors is a main driver of inequality. This is compounded by malnutrition and poor education, leading to a loss of GDP.

Armah argued that, to counter inequality and unemployment, a “skills development programme” that specifically addresses gender and ethnic inequalities is needed to improve equality of opportunities. Moreover, macroeconomic policy should focus on job creation and labour-intensive manufacturing.

Growth is not job-rich in Africa, according to Armah. This means that economic growth does not lead to increasing employment. In Sub-Saharan Africa, growth in 2012 even created fewer jobs than in the two decades before.

Industrialization is also low in Africa and does not yet necessarily generate employment. “It depends on the extent to which industries, heavy or light, absorb labour, and unskilled labour in particular,” said Armah. In general, industrialization based on commodities contributes to productivity and increases the value of produced goods. In Armah’s words, “the retail value of a polished diamond is three times higher than the raw version.”

In a reality of low inclusiveness and inequality in East Africa and an aim to improve both, Eyakuze explained that most interventions focus on inclusiveness. The challenge, his colleague Prato said, is to become more active on equality as well.

The Broker is reporting from the EADI conference ‘Responsible Development in a Polycentric World: Inequality, Citizenship and the Middle Classes’, 23 – 26 June 2014 in Bonn, Germany. The Broker is the media partner during this conference.