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MIGRATION AND ECONOMIC DEVELOPMENT NEXUS: LESSONS AND OPPORTUNITIES FOR PRIVATE SECTOR JOBS CREATION IN AFRICA WILLIAM A. AMPONSAH DEPARTMENT OF FINANCE & ECONOMICS COLLEGE OF BUSINESS ADMINISTRATION GEORGIA SOUTHERN UNIVERSITY STATESBORO, GA 30460, USA Presentation Outline • • • • • • • • Introduction and motivation Objectives Theoretical Explanation of Internal Migration Explanation of External Migration The Theory of Rural-Urban Migration in Africa Demographic Distribution Challenges Urbanization Challenges Lessons Learned and Opportunities for Jobs Creation & Growth • Summary Conclusions Introduction and Motivation • The world became more urban than rural in 2008 for the first time in human history (UN, 2010). • World population projected to exceed 9 billion people by 2050. • In 2009, Africa’s total population reported to have exceeded 1 billion, of which 395 million, almost 40%, lived in urban areas. Potential data inconsistencies? • However, African urban population expected to grow to 1 billion in 2040, and to 1.23 billion in 2050; 60% of total population (UN-Habitat, 2010). However, we can agree… • Rapid urban transition calls for public policies, investments in infrastructure, governance, services delivery, affordable housing, jobs and better wealth distribution (Joan Clos). Introduction and motivation • Public policies must also address aspects of regional integration that deal with the free flow of people across countries in seamless borders. • Potential additional economic development challenges for Africa. Objectives • Paper focuses on complex & nuanced problem of unprecedented migration leading to increasing unemployment and underemployment. • First, reviews theoretical explanations of internal migration. • Second, briefly review external migration. • Third, analytical framework of rural-urban migration presented. • Fourth, demographic distribution challenges facing Africa discussed. • Fifth, rapid urbanization challenges discussed. • Finally, lessons from case examples from urbanization and unemployment challenges discussed with approaches to jobs creation. Theoretical Explanations of Internal Migration • Neoclassical Todaro model (Todaro, 1969): – Postulated that each potential risk-neutral migrant made the decision to move because of wage differentials between the origin and destination areas when facing an income maximization objective. • The Lewis two-sector model (Lewis, 1954): – General theory of development process in surplus-labor rural (agricultural sectors) to urban industrial sector in developing nations. • Rural-urban migration decision (Sjaastard, 1962): – Decision choice of individual migrant; a permanent, lifechanging, discrete choice usually entered into early in life to reap long-term benefits. Theoretical Explanations of Internal Migration • Harris and Todaro (1970) model: – Introduced uncertainty in finding formal sector job in urban center; introduced possibility of unemployment and underemployment into rural-urban migration model. External Migration • Recent interest in international migration and role of remittances flows into developing countries. • Studies focusing on Africa (Adepoju, 1995; Ratha et al., 2011) – Explain migration as a matter of choice; although some people may be forced to migrate by natural disasters or conflict. – About 30 million Africans (about 3 percent of the population) have migrated internationally including within Africa (Ratha et al., 2011). – In West Africa more than 70 percent of intra-African emigration stayed in the sub-region (presumably across nations). External Migration • Surge in worker remittances into the Sub-Sahara African region reached a peak of $42 billion in 2008 (Amponsah and Garcia-Fuentes, 2012; see Figures following). • Remittances catching up with ODA and FDI. • Ratha et al. (2011) indicate the need for innovative financing mechanisms such as securitization of future remittance flows to help finance infrastructure, institution building. • Has great implications for regional integration. Remittances, FDI and ODA inflows 6 Percent of GDP 5 4 FDI 3 ODA 2 REM 1 0 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 Year Source: Own calculations using data from World Developments Indicators, online version, World Bank, 2012. Figure 1. Net FDI inflows, net ODA inflows, and Remittances inflows as percent of GDP to Africa, 1975-2009 The figures include all the countries in Africa as grouped in the UNCTAD Handbook of Statistics, 2011. Remittances, FDI and ODA inflows 50 Billions of U.S. dollars 45 40 35 30 25 FDI 20 ODA 15 REM 10 5 0 75 77 79 81 83 85 87 89 91 93 Year 95 97 99 01 03 05 07 09 Source: Own calculations using data from World Developments Indicators, online version, World Bank, 2012. Figure 2. Ne t FDI inflows, net ODA inflows, and Remittances inflows in billions of U.S. dollars to Africa, 1975-2009 The Theory of Rural-Urban Migration in Africa • Africa is the fastest urbanizing continent in the world (UN data, 2010) – – – – – – – Urban growth rate of 3.4% per annum Projected to cease being predominantly rural in 2030 Large projected urban unemployment Fueled largely by rural-urban migration (see Figure 1) Driven by economics: rural-urban differential in earnings But also social benefits vs. costs Mainly migrants are young with secondary and tertiary education, unclear about income/wealth status of rural households of emigrants, seeking to better earnings stream, send remittances back to rural sector (Byerlee, 1974; Caldwell, 1969). Figure 1. Framework for the Analysis of the Rural-Urban Migration Decision Source: Byerlee, Derek (1974). “Rural-urban Migration in Africa: Theory, Policy, and Research Implications,” International Migration Review, 3: 553 Demographic Distribution Challenges • Generally, Africa’s demographic trends reveal relatively large youth bulge (see Figure 2). • Typically defined by a pyramidal-shaped profile of populations with a large proportion of young adults in the working-age population. • Children (both male and female) under the age of 15 constitute more than 30% of the total population, with Nigeria’s being about 45%. • The youth dependency ratio—the proportion of youths (under age 15) to economically active adults (ages 15 to 64)—is very high; • High proportion of young adults (about 15 to 34 years old) in the working-age population; about 40% of active workforce of about 54% of the population. Figure 2. Demographic Population Distribution in Selected Countries Figure 2. Demographic Population Distribution in Selected Countries (continued) Figure 2. Demographic Population Distribution in Selected Countries (continued) Figure 2. Demographic Population Distribution in Selected Countries (continued) Figure 2. Demographic Population Distribution in Selected Countries (continued) Source: United States Census Bureau International Database Demographic Distribution Challenges • Relatively youthful workforce supports a very large population of children, many of whom are at school age. • High rates of workforce growth (>3% p.a.) => associated with rampant unemployment, institutional failures, and political instability (Cincotta, 2010). • For example, unemployment rate of Nigeria (see Figure 3) ranged between 12% (2005) and 24% (2011). – Critical as evidenced by studies on Nigeria (already presented) • Overall unemployment in Africa estimated at 9%. • Aside from Botswana, South Africa, Cape Verde and Djibouti African countries remain epicenter of “demographic arc of instability” manifested already in N. Africa (Cincotta, 2010). Figure 3. Unemployment Rates in Nigeria Source: EconStats, World Economic Outlook data, IMF Demographic Distribution Challenges • McKinsey Global Institute’s (2011) report paints a much hopeful picture of an Africa on the resurgence. • Accelerated GDP growth rates since 2000 + improvements in macroeconomic policies + relative political stability + business attraction + FDI + harnessing natural resources (led by petroleum) + agriculture + manufacturing + service sector (banking, retail, transportation and communication). • Falling levels of poverty => 90 million more African households as active global consumers by 2011. • However, prevalent income inequality and disparities (income distribution issues) => sustainable development? • Challenge: Ensuring stable wage-paying jobs for millions. Urbanization Challenges • With an urbanizing rate of 3.4% p.a., Africa is the fastest urbanizing region in the world (UN; see Figure 4). • In 2010, population in urban areas was 40% but projected to reach and exceed 50% of total in 2030. • Therefore, Africa projected to cease being predominantly rural by 2030. • Major challenges from continuous population flows into urban areas => access to land, infrastructure and basic services in colonialdesigned capitals. • Populations of all SSA million-plus cities expected to expand by average of 32% from 2010 to 2020; and • 70% of all African urban population growth occurring in smaller cities with less than half-million (UN-Habitat, 2010). Figure 4. African Urban Population Trend 1950-2050 Source: State of African Cities 2010, UN-Habitat, 2010 Urbanization Challenges • West Africa manifests rapid growth in capital mega-cities (see examples in Figure 6). • Lagos is projected by UN-Habitat (2010) to exceed 12.4 million in 2015 (not counting outlying suburbs) and surpass Cairo as the largest African city. • Arguably, Nigerian data estimated the population of Lagos in 2010 at 20 million. With no modern technology (GPS)? • Accra grew rapidly from 500,000 in 1970 to nearly 3 million in 2010 and is projected to continue its rapid growth path. • Challenges: How would these mega-cities cope economically, environmentally, and politically with such high population concentrations? Figure 5. Population Rates of Selected African Cities Burkina Faso, Ouagadougou Figure 5. Population Rates of Selected African Cities (continued) Abidjan, Cote d'Ivoire Figure 5. Population Rates of Selected African Cities (continued) Accra, Ghana Figure 5. Population Rates of Selected African Cities (continued) Niamey, Niger Figure 5. Population Rates of Selected African Cities (continued) Lagos, Nigeria Sources: National Population Commission of Nigeria (for Lagos data) EconStats, World Economic Outlook data, IMF (for all other data) Urbanization Challenges • Todaro and Smith (2012): Cities offer agglomeration economies, economies of scale and proximity to manufacturing and large markets, and social externalities – Skilled workers – Cheap transportation – Social and cultural amenities • But social costs of “urban giantism” include – Overloading of housing and social services (water & sanitation, electricity, drainage, educational & health services, etc.) – Increased crime, pollution and congestion – Proliferation of slums and shanties, and homelessness – Lack of jobs and growing urban unemployment Urbanization Challenges • Abstract from discussing causes of “urban giantism.” • Focus more on concern about jobs availability and potential of rising unemployment from continuous migration. • Dualistic decomposition into formal and informal sectors. • The bulk of new entrants to the urban labor force appeared to have created own jobs or worked for small-scale familyowned enterprises (from reviewed literature) – Range from hawking, street vending to prostitution and drug peddling. – Not usually viewed as sustainable jobs. – However, when successful (sustainable) over time, some legally register, become licensed and subject to government labor regulations. Lessons Learned and Opportunities for Jobs Creation • Strong demographic growth in cities is neither good nor bad by itself (UN-Habitat, 2010) • Lessons from examples from developed regions: – Urbanization has occurred in tandem with improved human development, rising incomes, and better living standards. – Requires well-drawn public policies that direct demographic growth, create healthy urban economies, and ensure equitable distribution of income and wealth. – Harnessing demographic expansion in support of economic progress and development through job creation and higher factor productivity (presumably in manufacturing industry), is preferred urbanization. – Requires good governance that ensures adequate housing and basic services for all (Director Clos). Lessons Learned and Opportunities for Jobs Creation • Observations gleaned from African cases: – rural-urban migration has been dramatic; and – rates of rural-urban migration are exceeding urban jobs creation by surpassing the absorption capacity of industry, government, and urban social services. • Potential policy responses (Todaro & Smith, 2012): – imbalances in urban-rural employment opportunities arising from urban bias or first-city bias of development policies must be reduced since migrants are known to respond to differentials in expected incomes. – urban job creation by itself cannot provide a sufficient solution to the urban unemployment problem; concerted effort to improve rural incomes and employment opportunities. – indiscriminate education expansion is expected to lead to further urban migration and unemployment. Lessons Learned and Opportunities for Jobs Creation • Policy responses (continued) – the authors argue against wage subsidies by African governments as an incentive for private firms to hire more urban workers, employer tax incentives, direct government hiring, etc., since they would create factor price distortions. – policy makers must encourage programs of integrated rural development along with resolving urban challenges so as to regulate the supply of rural labor to urban areas. – Take advantage of complementarities between rural and urban areas. – For example, raw materials produced in rural sector serve as inputs in urban industries. – When rural incomes grow, markets for urban manufactures can expand. Lessons Learned and Opportunities for Jobs Creation • International Finance Corporation (2013) report: – By 2020 some 600 million jobs would have to be created , mainly in Africa and Asia due mainly to demographic trends. – These jobs must be good income earning and sustainable jobs. – In some of the poorest nations, informal sector jobs and underemployment, rather than unemployment, are the main problem. – The private sector (provides 90% of developing country jobs) must play a key role in any response to this challenge. • The World Bank (2012) report: – Jobs (as source of income) boost living standards, (through use of resources) raise productivity and economic growth, and (workers interacting with society) foster social cohesion and self esteem => way out of poverty. Lessons Learned and Opportunities for Jobs Creation • Sustained good (especially informal sector) jobs contribute to economic development (IFC, 2013) – The quantity and quality of jobs created important in Africa because the region faces “a double jobs challenge” caused by the dual challenges of youth bulge and demographic dependency. – Bad jobs (low income potential) would promote working poverty. – Note that projections into the future are to expect more migration by the youth into Africa’s mega-cities. – Expect even higher youth unemployment and social displacement. – Caution: paucity of African unemployment data and where available they tend to understate the true scale and nature of unemployment problem. – Employment creation must be balanced with rights for workers. Lessons Learned and Opportunities for Jobs Creation • Role played by the private sector (IFC, 2013): – Private sector must be at core of jobs creation policy design. – Crucial to understand how the private sector creates jobs, what obstacles limit jobs creation, and how to mitigate those obstacles. – Public sector’s role: principally create enabling macroeconomic environment and supportive investment climate. – Public sector must develop strategies to enhance nation’s productivity generating factors such as – Public-private investment in technological innovation/adoption – Workforce and human capital investment (education, skill and experience) – Physical capital investment and natural resource exploitation. Lessons Learned and Opportunities for Jobs Creation • McKinsey Global Institute (survey) report (2012): – African workforce is more educated and employed in diverse sectors than commonly perceived. – In 2000, only 32% of Africans had secondary and tertiary education – In 2020, number expected to rise to 48% – Worker skills not viewed by business leaders as prominent obstacle to jobs creation in Africa – Rather, creating opportunities for individuals to gain work experience and practical vocational and tertiary level skills needed by business – Top three barriers in growing firms: – 55% identified macroeconomic conditions (insufficient demand and inflation) – 45% identified political instability – 32% identified access to finance. – Infrastructure shortcomings; incl. electricity & transportation. Conclusions • Main message of the paper: – African countries face emergency in the inordinate flows of rural migrants into mega-cities. – Predictions are that these urban centers will continue to teem with even greater migrants. – Predictions are that these urban centers will continue to experience high unemployment, underemployment and poverty (especially from informal sectors). – These challenges will become even more acute with aspects of regional integration policies that allow migration across seamless national borders. – What do these challenges mean for growth and development with a human face in African countries? Conclusions • Key lesson from the analytical portion of paper: – Urbanization presents major challenge in jobs creation; – Economic growth may occur with GDP growth; – But broad economic development may not occur without sustained jobs creation that ensures incomes security for majority of the population. • Why? – Because markets must be stimulated with greater consumption demand; and – Consumption demand requires living wages and earned incomes. Conclusions • Second message from the paper: – Jobs creation, socioeconomic development and poverty reduction are not independent; they are interrelated. – Therefore, policy makers must embrace, design and implement integrated policies that deal with these critical issues in ensuring economic development. – Policies to induce additional jobs creation must be at core of economic policy discussions and at the forefront of regional integration agenda. – Reviewed lessons show importance of solving twin challenges of generating greater quantity and better quality jobs. Conclusions • Third lesson from paper: – There must be coordination between public sector and private sector. • Public sector role: – – – – create good macroeconomic (fiscal, monetary and financial) policies, provide enabling investment climate, focus on institutions and infrastructure building, provide market incentives, ensure fair labor market rules and regulations with good institutional oversight, – Provide key catalysts in jobs creation with supportive investments in education, workforce skills and practical vocational experience – Ensure social protection (especially for the young and vulnerable). Conclusions • It is important to understand who and what drives jobs creation (supply-side concerns). – The private sector drives 90% of jobs creation, but not from extractive industries and FDI, but mainly local value-added manufacturing and other entrepreneurial ventures by small and medium-size enterprises. – Understand what obstacles prevent the private sector from generating jobs. – Businesses appear concerned about potential political instability, insufficient demand for their products, access to finance, and inadequate infrastructure.