Transcript Document

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
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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)
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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:
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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.