Policymakers must be prepared to direct investment towards businesses operating in the informal economy to tackle the growing problem of low-wage youth employment that could prove “explosive”, according to a senior World Bank official.
Shanta Devarajan, chief economist of the bank’s Africa region, said that as many as 10 million people – mostly rural women – were entering the labour market every year but only finding work in low-productivity low-wage work in the village farm and household sectors.
He said that while on the surface this was different from the problem of male youth unemployment in North Africa that has been at the centre of the outbreaks of protests and civil unrest during “Arab spring”, the problem of low-wage employment was a major issue for sub-Saharan governments.
We should all be worried. These people are not complacent. They are in these low productivity jobs only out of necessity. They are not happy and this is clearly not the life they are dreaming about,” he told Emerging Markets.
“That in turn is exacerbated by what they see in other countries and now with the internet that’s wide open. There’s a clear syndrome and what we do see that the urban male population can be quite volatile.”
Devarajan said that the priority for national governments and international institutions such as the World Bank should be to target the infrastructure shortfall and the skills gap even if that meant dealing directly with the informal economy.
“If you could improve the quality of infrastructure such as electricity and roads you would increase the productivity of these people and thereby improve their welfare so they are just sitting around eking out a living but are selling goods into the local market or even into towns or they are performing services that they could not otherwise perform,” he said.
“But given that these people are in the informal sector, this question is never asked in terms of how we can improve the productivity of people in the informal sector. Many governments think of the informal sector as something that is illegal and therefore should be taxed and regulated which will only make it worse.”
The Bank estimates that there is an infrastructure investment shortfall of about $48 billion a year in areas such as bringing electricity and efficient road transport to rural areas in sub-Saharan Africa.
Devarajan said that was needed was a “concerted effort” to improve the productivity of the informal sector. “If the international community could help increase the productivity of the informal sector it could have a huge impact and frankly I don’t think will require a huge amount of money but it will be the targeting of that money towards the informal sector,” he said.
“The problem is that the international community has been working with governments - which is the opposite of what we are talking about.”
The other priority is to raise skills levels among low-wage workers in the informal sector who often lack any “useful” training they could use in the labour market. “Some 50% of the labour force in countries like Tanzania and Uganda haven’t even completed primary school.”