By Christine Lagarde
Published December 18, 2018
Sub-Saharan Africa has seen relatively robust growth for almost two decades. The region has created almost nine million jobs per year since 2000, on par with the rise in the labour force. The share of the population living in extreme poverty decreased from 59 percent in 1993 to 41 percent in 2015.
Most of the new jobs throughout the region are in agriculture and traditional services. Far too few have been in better-paying manufacturing jobs and modern services.
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How can we ensure that the coming decades will generate strong economic growth?
We can start by looking at the major forces shaping this region’s destiny.
The first is demographics.
Sub-Saharan Africa’s population is expected to increase from about 1 billion today to 1.7 billion by 2040. The labour force will increase at double the rate of the last decade. As a result, sub-Saharan Africa needs to create 20 million jobs per year to keep up with its growing labour force.
If successful, this region could enjoy a prolonged period of high growth — the so-called demographic dividend.
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The second force is technology.
We know that advances in machine learning, artificial intelligence, and robotics are poised to dramatically transform the job market. In fact, in many places this process is well underway.
Some argue that this new industrial revolution will prove no different from previous ones. Technology will improve living standards over the long run. New jobs will emerge to replace old ones.
Others fear that automation will replace humans in a variety of tasks, leading to job losses and rising inequality. I confess that I myself am more of a techno-optimist than a techno-pessimist. I believe we can run with the machines, not against them. But we will need strong policy action. There is little doubt that the transition will be challenging for those who do not stay ahead of the curve.
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And this brings me to the final major force that will shape the region — climate change.
IMF research shows that climate change is expected to hit low-income countries the hardest: a 1-degree Celsius rise in temperature could cause low-income countries to experience a 1.5 percent fall in GDP on average.
Making policy decisions in the face of such highly uncertain trends is challenging.
One way to approach the problem is by imagining different futures, and then looking back from these futures to think through today’s challenges. That is what our most recent African Regional Outlook report does.
We at the IMF have developed three scenarios, sketching different paths for the future of work in sub-Saharan Africa. Think of these as alternative versions of the future that could happen, depending on how policymakers tackle the forces of demographics, technology, and climate change.
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The first scenario is called Africa Adrift.
This is a world in which automation leads to re-shoring of manufacturing to advanced economies which means that the traditional manufacturing export-led growth model will be non-viable. Large investments in infrastructure that promotes manufacturing exports are wasted.
This leaves African countries indebted and ill-positioned to take advantage of the new opportunities in the digital economy. With limited resources, governments fail to make the necessary investments in connectivity and education.
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The second scenario is called Africa for Africa.
This is a world where trade tensions increase and inward-looking policies become more common place in many parts of the world. These changes are fueled by technology radically displacing workers and increasing income inequality.
African leaders respond to the challenging external environment by taking decisive action to boost regional trade, which in turn helps cushion the negative effects for the region’s citizens.
In fact, we are already seeing some evidence of this scenario today, including the recent signing of the Continental Free Trade Agreement. The new agreement is a positive first step towards creating an integrated pan-African market.
The final scenario is Africa Arisen.
This is a world in which technology increases productivity for all, and global economic cooperation leads to decisive action to mitigate the adverse effects of climate change.
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Sub-Saharan Africa successfully harnesses new technologies and creates an emerging vibrant middle class.
Again, we see some elements from this scenario in sub-Saharan Africa today.
Farmerline, an innovative agro-tech company in Ghana uses cellphones to provide up to the minute information to farmers across all steps of the value chain, including weather forecasts, market prices, and help with financial services.
These innovations can improve productivity, reduce the power of middlemen, and enable farmers to gain a larger share of the market value.
Technology is also helping to revolutionise sectors like healthcare. Zipline in Rwanda uses drones to deliver blood and medical supplies to remote health facilities in a timely manner.
And, of course, we have seen the power of fintech to accelerate financial inclusion. Just think of M-Pesa in Kenya and how widely used it was before services like Apple Pay became common in the west.
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So, these are just three of many possible futures. They provide a snapshot of how today’s uncertain forces can shape sub-Saharan Africa’s future. They give us a vantage point to explore how our policy choices can influence tomorrow. Allow me to highlight just two of these policy areas briefly — education and digital connectivity.
In the Africa Arisen scenario, the region succeeds in harnessing the benefits from new technologies. To get there we will need a well-trained labor force with the right skills.
Here, I am reminded of the words of one of Ghana and Africa’s greatest sons, the late Kofi Annan:
“Knowledge is power. Information is liberating. Education is the premise of progress, in every society, in every family.”
Despite successes in primary education, sub-Saharan Africa lags behind in secondary education. The share of children in the region who attend secondary school is just 30 percent, the lowest in the world.
And simply increasing enrollment is unlikely to be enough. We need to promote digital literacy and identify the skills that will allow the next generation to work with and take advantage of technology rather than be replaced by it.
One example comes from Ghana where the government recently introduced the ambitious free Senior High School program. This program can play a pivotal role in improving educational outcomes if implemented in a sustainable way.
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A second area to focus on is digital infrastructure.
Knowledge and information are the new resources of the future. Digital access fosters innovation in all sectors of the economy.
Africa has made progress bypassing landlines and leapfrogging directly to mobile phones. At the same time, only 20 percent of the population has internet access, less than half the world average. Broadband services often remain prohibitively expensive.
Traditional infrastructure remains essential to connect the farm and factory gates with global trade routes. But digital infrastructure is just as essential for the traditional sectors and even more so for the new opportunities created in the digital economy.
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We know there is a critical financing need to develop physical, digital, and social infrastructure. Our research has shown that there is potential to raise 3 to 5 percent of GDP in domestic revenues by improving the efficiency of the tax system and through institutional reforms. The IMF can help to achieve this potential through technical assistance, including by helping governments leveraging technology.
We are already starting. Recently we hosted hackathons in Senegal, Uganda, and Côte d’Ivoire. These creative brainstorming sessions which brought together programmers and other experts produced fascinating ideas on how to use technology to boost tax collection and improve efficiency.
So, where does this leave us? With a lot of work to do, but also a lot of hope.
There are of course many other important policy areas to cover: from promoting intra-regional trade to fostering smart urbanization so cities become incubators of innovation to expanding social safety nets. I look forward to the discussions during the day on these issues.
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The core question we face is difficult and does not have a single answer:
What can policy-makers do today to provide an environment in which tomorrow’s high-quality jobs are created and workers are being equipped to benefit from these jobs?
If we think about the future, we can find the solutions.
This is an edited speech by Christine Lagarde, Managing Director, International Monetary Fund, in Ghana
