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Can Anything be Done to Push Broad-based Economic Growth in North Africa?

After more than three years, what we’ve learned about increasing jobs and growth

Now that the “Arab Spring” has become an integral part of any analysis of the future of the Middle East/North Africa (MENA) region, it is worthwhile to see what we are learning about two core issues raised during the demonstrations – increasing youth employment and economic growth. While governments have worked with international agencies and donors to launch or revise programs addressing these concerns, and the related issues of governance and transparency, three challenges persist: scalability – what to do to make small-scale programs succeed when greatly expanded; sustainability – how to make the programs cost effective so that funding costs do not limit the utility and shelf-life of the efforts; and inclusiveness – how to impact beneficiaries in the broadest possible demographics of gender, ethnicity, age, and education.

Meeting of Maghreb Employers Union

Government, Donors, Private Sector partners for growth

Morocco is a good example of the challenges faced by policy makers and intermediaries who manage the programs. It has always had technical and vocational programs for young people, and the government has been working for the past two years to include other key inputs, such as market needs to shape skills training and career support for graduates to help them find jobs. So by the end of 2014, Morocco will roll out new and improved programs that aim to close the gap between skilled workers and job opportunities. With an overall target of 60,000 jobs for graduates per year, the Minister of Employment Abdeslam Seddiki noted that as of 2016, some 10,000 unemployed people will benefit from these specific programs in addition to jobs generated by other agencies, international donors, and the private sector.

USAID, the World Bank, various EU agencies, and others are funding and running programs in Morocco dealing with youth employment. There is concern that more needs to be done to ensure collaboration among the donors to maximize the impact and lessons learned. If a stable, economically active country such as Morocco faces problems with ensuring consistent, cooperative, measureable efforts for job creation, others in the region that are less stable are in much more difficult situations.

A Different Formula

A sacred cow that is coming under scrutiny is microfinance. It is no surprise that programs in limited environments, such as microfinance schemes in poorer urban communities and rural areas are an attractive first alternative. The common wisdom is that if a program just provides loans and oversight, people, especially women, will find ways to use loans

Promoting the growth of the informal economy can be facilitated by cash transfers

Promoting the growth of the informal economy can be facilitated by cash transfers

productively. But a growing body of research shows that “it ain’t necessarily so.” So much of the success of microfinance loans depends on the metrics of success. Repayment rates have long been the staple metric. Yet a number of recent convincing studies using rate of expansion of existing business activities and levels of beneficiary consumption as indicators show the limitations of microfinance programs, especially when they are introduced across more populated and economically diverse locations.

In a recent intriguing article in Foreign Affairs, the authors review several studies of the option of cash grants instead of microfinance loans. Some general conclusions are that recipients have more insights regarding how to expand their business and acquire the needed skills than external agencies. This is particularly relevant as there is a prevailing perception that the informal economy, where most of these recipients work, is “bad” because it deprives a country of a significant portion of the population’s contribution to GDP. The authors report that “many of the poor are working below their potential because they lack the capital, credit, or insurance products necessary to grow their businesses. In the absence of financial services, which can take decades to develop, cash can fill the gap.”

While they recognize that cash grants are not appropriate or effective in every case, “the evidence is stacking up faster in favor of cash than it is for a lot of the alternatives, and direct cash transfers deserve to shed their reputation of being eccentric.” If one goes further and links the impact of better and more effective assistance programs with the dynamic role played by the informal sector in terms of basic business experience, then the value of utilizing rather than constraining this human energy becomes apparent. In a recent video released by the Initiative for Global Development (IGD), Austin Okere, Founder/CEO of Computer Warehouse Group made the point quite emphatically. He said that there are 17.7 million companies in the informal economy in sub-Saharan Africa. If each added just one employee, they would create more jobs than the African governments combinedare able to generate.

Hernando De Soto addresses MENA growth

Hernando De Soto addresses MENA growth

A similar effort is underway in Egypt, where the Sisi government is trying to make good on its economic development promises. They have recruited famed economist Hernando de Soto, who long ago studied property rights in Egypt and was consulted by both the Mubarak and Morsi governments for advice as to how to free up Egypt’s moribund economy. His answer was quite simple, “This is where most of the country’s resources that can give you…the high growth rates are…it’s the informal economy.” Rather than try to constrain its vitality through more regulation, de Soto recommends an extensive plan to integrate the informal economy into the economic system by reforms and incentives to drive economic growth. The bottom line, as in this proposed initiative and the others, is to develop strategies that generate large-scale employment and robust and sustained inclusive economic growth.

 

Mobilizing Human Capital

The paths to linking effective strategies for growth and employment are still unclear. A major effort is underway at the Brookings Institution, with partners in sub-Saharan Africa, to assess programs addressing youth unemployment to gauge effectiveness and lessons learned. So far, the studies indicate far more about lessons learned than what works under a variety of conditions. What’s critical to the studies is that they are done on a country-by-country basis by local NGOs, thus providing vital first-hand data and insights that might not be obvious to outsiders.

The authors are releasing the studies individually so that researchers can do both country-specific and comparative analyses. “A number of lessons can be drawn from these country-focused studies,” they point out. First of all, know your beneficiaries, their backgrounds, demographics, social indicators, past and current experience in the informal and formal sectors, relevance of ethnicity or minority status, motivational profiles, and educational backgrounds.

Secondly, there is data that supports the effectiveness of government-sponsored vouchers and subsidies when they allow individuals to make choices that reflect their ambitions. This is particularly relevant to those who have experience in the informal economy and have a strong entrepreneurial sense of what is needed to expand and grow their business. Finally, they stress the importance of good data, not just focusing on unemployment rates, but digging deeper into categories of unemployment, quality of available jobs, and mismatches between jobs and potential employees.

Good Decisions Require Reliable Information and Critical Insight

While these studies focus on sub-Saharan Africa, the same types of challenges exist in the Maghreb, and the same in-depth

Fez - combining the best of old and new

Fez – combining the best of old and new

assessments are needed to understand not only what works and what doesn’t but why. A good starting point for this undertaking is to parse the recently released report on the impact of the first National Initiative for Human Development campaign in Morocco. The report categorizes the results of this most important effort to lift people out of poverty through introducing sustainable development projects. In his most recent Throne Day speech, King Mohammed VI tasked the Economic, Social and Environmental Council to look at the human development indicators in the country for the past five years and come up with recommendations to ensure equitable growth that supports the quality of Morocco’s “intangible capital.” It is this integration of political will, well-developed research, strategic thinking, and close attention to all stakeholders that will provide the clearest insights and policies for advancing growth and employment throughout Africa.

Reports to Results: Dealing With Youth Unemployment in Africa

http://www.fairobserver.com/region/africa/reports-to-results-dealing-with-youth-unemployment-in-africa-57014/

How should Africa deal with millions of young people entering the job market each year?

With more than 290 million people between the ages of 10-24, Africa is the youngest continent in the world. Youths constitute about 60% of Africa’s entire population, yet their participation in the formal economy is greatly limited. “Although the youth population constitutes two-fifths of the continent’s working-age population, they make up three-fifths of the unemployed,” according to Foresight Africa. In 2011, 82% of African workers were working poor, more than twice the world average. In southern Africa, 51% of young women and 43% of young men are unemployed.

Youth Unemployment in Africa

Three major factors coalesced to garner this attention. First, the people factor: Demographics of growing young populations are forcing policymakers to address employment issues that will not be solved by public sector hiring. Second, people are more educated, yet they find fewer opportunities due to the mismatch between education and available and prospective jobs — supply does not even approach demand. Finally, governments are generally ill-equipped in terms of expertise or management, or both, to address employment issues when it means upsetting those who control much of the economic activity of a country.

The future of Africa needs action now

The future of Africa needs action now

These trends occur within a shifting global marketplace dominated by spiking commodity demands, increased competition in semi-skilled production and technologies, and great pressure for opening up the labor force through higher private sector investment. Although sub-Saharan Africa faces similar problems as the rest of Africa and many emerging economies, others are unique to the continent, such as the potential superstar role of the agricultural sector.

While the overall macroeconomic indicators are up and generating optimism, this is based on the continued expansion of African economies, largely due to exploitation of commodities and expansion of telecommunications infrastructure. Yet the picture is far bleaker, if factoring in actual improvements in the quality of life of most Africans.

According to a McKinsey update on the continent:

Africa is harnessing its natural wealth, and … sectors across the economy are growing rapidly. These sectors include agriculture, manufacturing, and local services such as retail, banking, and transportation and communications, in addition to the natural resources sector, which was the largest single contributor to growth … Income inequality, however, remains unacceptably high and is falling in only about half of Africa’s countries; hundreds of millions remain trapped in poverty. Africa’s growth needs to be inclusive if it is to improve human welfare and ensure increasing social and political stability.”

People are more educated, yet they find fewer opportunities due to the mismatch between education and available and prospective jobs — supply does not even approach demand.

The International Labour Organization (ILO) reflects this theme of inclusive growth in a number of its publications, and calls for “job-rich growth” that does not ignore the youth, women and unskilled in terms of economic opportunities. “High levels of youth unemployment, poor structural and labour market transformation call for more employment-friendly policies to promote a job-rich growth in Africa’s development strategy.” Its Global Employment Trends 2014 report stated:

“Employment growth remains weak, unemployment continues to rise, especially among young people, and large numbers of discouraged potential workers are still outside the labour market … As a result, the demographic change characterised by a growing young population is considered to be a burden on the economy rather than an asset due [to] the scarce job opportunities in the region and [the] necessary conditions required to absorb and employ this growing young population [that] are absent.”

Less than 14% of the working-age population is in paid employment, which limits the growth of a consuming middle-class. When combined with the low contributions of manufacturing and agriculture to national gross domestic products (GDP), this challenging outlook calls for proactive partnerships among stakeholders to advance the employment landscape.

Africa’s Unique Opportunities

There are at least six major targets in improving youth employment in sub-Saharan Africa:

1) Relevant and widespread education and training at all levels

2) An integrated ecosystem to support entrepreneurs, including financing, mentoring/training, access to markets, protective and supportive regulatory regime, and available infrastructure

3) Pro-business policies by governments, so investments in infrastructure, services, commercial law and related regulations are timely and transparent

4) Sustainable programs built around competitive advantages and cultural acceptance

5) A stable political environment that does not exclude new entrants or restrict sectors based on existing power relationships

6) A mindset about labor that values work as a path to a career and provides the means to acquire additional skills to progress

All eyes on agriculture in Africa

All eyes on agriculture in Africa

The African Development Bank (AfDB), among others, is very active in building programs that target many of these concerns. In a series of papers, it has tracked programs aimed at building youth employment in sub-Saharan Africa that provide important models for member countries. There are several variations, for example, of entrepreneur promotion efforts that address financing, training and mentoring issues, but lack sufficient scale to generate the number of jobs needed to dent the growing employment deficit.

One theme focused on by the AfDB, and others, is the importance of reviving and building the competitiveness of the agricultural sector. Nowhere in the world is there as much underutilized arable land as in Africa. Significantly, the least skilled and literate populations are in the rural areas. With the ever increasing demand for food, experts believe the agricultural sector offers benefits to feed locals and supply overseas demand.

Shantayanan Devarajan, chief economist for the World Bank’s Africa Region, articulated this need for understanding the roles of the formal and informal labor forces: “The challenge of youth employment in Africa, therefore, is not just to create more wage and salary jobs — important as this may be — but to increase the productivity, and hence earnings of the majority of young people who will be employed in informal farms and household enterprises.” He emphasized that:

“…because most Africans will work in informal farms and household enterprises, the challenge of increasing their productivity needs to be met by first, increasing their basic skills, which they can then take with them when they move to the new enterprises; and second, creating jobs in the formal sector by improving the economy’s competitiveness, so that this sector can absorb more qualified workers into a productive workforce.”

According to Busani Bafana, writing for Africa Renewal: “Despite the negative perceptions, the agricultural sector employs as much as 60% of Africa’s labour force … and accounts for only 25% of the continent’s gross domestic product (GDP).” He cites experts who see agriculture as an important engine of growth, if the government and private sector act together to build the supply chain and distribution infrastructure that will turn today’s deficits into jobs and income. As importantly, it is a sector that can absorb large numbers of youth and women in productive jobs.

Turning Good Intentions into Results

The broad consensus among the private sector, international donor community and host governments about the need to aggressively pursue youth employment policies is an opportunity. Such an initiative could scale-up existing effective programs and help absorb the 10-12 million annual new entrants to the job market in sub-Saharan Africa. By implementing a broad strategy that incorporates rural as well as more traditional manufacturing options, utilizing technology across all sectors to improve productivity, and including women and youth in employment programs that increase their skills and employability, Africa has a viable and realistic opportunity to diminish its employment deficit and build a strong middle-class.

Moreover, if the countries of sub-Saharan Africa can understand the regional and local benefits that can be obtained from labor mobility, resource sharing, better distribution and power infrastructure, and streamlined business procedures, the task of generating worthwhile jobs becomes less onerous and reflects the deep commitment needed to propel Africa forward.

Sura Nualpradid / Shutterstock.com

Testing the Waters of Morocco’s Link to Africa

I just returned from Dakhla, in the south of Morocco, where the sounds of the Atlantic Ocean reminded me that there is an undeniable link that is becoming increasingly stronger between this continent and the Americas. Earlier last week, that was the theme of the Atlantic Dialogues, a joint project of the German Marshall Fund and the OCP-Foundation that explores the growing vitality of commerce, diplomacy, and common interests in the environment, human development, and economic growth on both sides of the ocean.

Throughout our stay in Morocco, including most recently in Dakhla, we have heard the theme of Morocco’s future in Africa as an alternative, along with the US, to its traditional trading partners in Europe, which have experienced a decline in their interactions with Morocco. Dakhla, we were told, is Morocco’s “Door to Africa” much as Tangier is Morocco’s “Door to Europe.” Fortuitously, two recent events in Washington, DC looked at this proposition from two different but related perspectives and found many reasons to support this view of Morocco’s future.

The Africa Center at the Atlantic Council held a roundtable on Morocco’s security relations in Africa and how these intersect with US interests in the region. Policy experts from various agencies, NGOs, and think tanks in Washington reviewed a paper presented by Dr. J. Peter Pham, who directs the Africa Center, which examined the case for enhancing Morocco’s security capacity in Africa both to deepen regional operational ties and to advance the US’ ability to work in cooperation with countries in the area. The final version of the paper, incorporating the group’s refinements, is due to be released shortly.

Morocco’s Role in Regional Security

Dr. Pham opened with a summary of the paper, stating his belief that Morocco is sometimes taken for granted by US policy makers, despite, or perhaps because of, our long and valued ties. He believes that in a region where the US doesn’t have many reliable allies, we should do more to build a strong security relationship with Morocco. While the country has a very robust counterterrorism strategy, which he described in some detail, Dr. Pham noted that greater international cooperation will certainly expand the effectiveness of the region’s efforts to maintain security and promote stability.

Morocco and the US have held joint military exercises since 1999, and building these into a program of regional joint operations would contribute to the interoperability of forces in West and North Africa and the Sahel and improve the professional behavior of militaries in participating countries. Dr. Pham pointed out that Algeria’s reluctance to include Morocco in regional counterterrorism coordination makes it necessary to have overlapping regional security agreements, which does not serve US interests for a broader, more effective approach to regional security.

Dr. Pham also strongly supports a holistic approach to security, which means enhancing stability by including programs that promote economic development, respect for minorities, enhanced rule of law, and better governance. At the core of the recommendations in his paper, later expanded on by the experts, is the view that the US has much to gain by broadening and deepening its security programs with Morocco as a regional player. Despite the obstacles inherent in Morocco-Algeria tensions over the Western Sahara, and the ensuing competition for regional leadership, US interests are not well served by the lack of robust military and security ties between Morocco and Algeria.

Knocking on the “Door to Africa”

A paper prepared by Haim Malka, Deputy Director of the Middle East Program at The Center for Strategic and International Studies (CSIS), took a broad look at Morocco’s Africa strategy. His paper was a refinement of an earlier paper published in early October, which was then presented to a roundtable of participants from the US government, think tanks, policy analysts, NGOs, and former diplomats for their comments and recommendations regarding how the US can support Morocco’s economic growth.

Mr. Malka makes a strong case for Morocco’s strategic pivot to the south, arguing that the decline of trade, investment, tourism, and remittances from the EU makes that shift an imperative. Another important point that may seem counterintuitive is that Morocco’s business outreach to the US has been limited due to the lack of competitiveness and “fit” of Moroccan products with the US market.

With the prospects for North African regional economic integration at a stalemate due to the conflict in relations with Algeria, the Moroccan strategy to expand and deepen its economic ties to Africa is sensible and can be immensely profitable. So Mr. Malka’s recommendation is that the US work to enhance Morocco’s strategy to more deeply engage economically throughout Africa, beyond its traditional ties to Francophone Africa.

The basic concern Mr. Malka raises is the need for Morocco to become more competitive in terms of its domestic economy so that it can enhance its capacity to export manufacturing products to Africa. While Morocco has a strong base in financial, transportation, and IT services, it needs to greatly improve its manufacturing base if it is to succeed in the Africa marketplace.

Among his other recommendations is for the US to work with Morocco by re-allocating US funding through triangular aid programs that utilize Morocco’s expertise in Africa in delivering social, health, and community development projects. He also makes a strong recommendation that Morocco decouple its economic strategy from its Western Sahara policy, as some of the biggest markets in Africa do not agree with Morocco’s position on that issue.

The experts noted that Morocco already has a strong footprint in Africa and must focus on increasing its competitive edge in order to expand existing market opportunities and open new ones. They also noted that the private sector has more freedom to operate below the political radar and therefore more flexibility and opportunities to promote ties across Africa. US regional interests in stability, employment, and economic growth benefit from a stronger Moroccan presence in Africa. Africa’s rapidly growing consumer markets, need for more efficient use of agricultural land, power generation requirements, and banking and financial services, all provide immense opportunities for Morocco in Africa. The basic requirement at this point is for Morocco to undertake a comprehensive analysis of where it has competitive advantages in the emerging African economy and build a strategy to target and support its exports to those markets.

While Morocco does not compare with China, India, and even South Africa in terms of size of impact on African markets, it has the agility and private sector capabilities to carve out a prosperous and effective presence in Africa, serving its regional and national economic growth goals, and US interests for greater stability and development on the continent

German Marshall Fund Report Links Morocco’s “Geo-Economics” to US Interests in Africa

In late October, the German Marshall Fund of the United States (GMF) released a policy brief “Morocco’s New Geo-Economics: Implications for U.S.-Moroccan Partnership.” Authored by Dr. Ian Lesser, Executive Director of GMF’s Brussels Office and its Senior Director for Foreign and Security Policy, the paper was reviewed by a roundtable of experts whose insights were incorporated into the final document.

It is fitting that the paper was released during the week that marks the founding of the United Nations. As the world’s leadership in the 21st century has moved beyond a handful of Western powers and the Soviet Union to a broader, more diffuse global network in which regional alliances and relationships are increasingly significant, Morocco’s maturing strategic role in Africa points to how emerging states linked together by a wide range of interests are reshaping models of bilateral and multilateral relations.

As Dr. Lesser explains, the US-Morocco relationship is longstanding, and “Morocco’s strategic significant for the United States has been shaped…by Morocco’s proximity to areas of vital U.S. economic interest.” He points to several trends that have reinforced the “geo-economic dimension of Morocco’s international posture and its importance to U.S. interests. From African development to global food security, from new transport hubs to renewable energy…Morocco’s focus is increasingly drawn south and west, to Africa and to the wider Atlantic.”

For Morocco, this growing outreach is driven by four overlapping trends in the region. First of all, traditional trade and investment ties to Europe are increasingly weaker due to the recent economic stagnation in the EU. This is clear from slowdowns in foreign direct investment (FDI), purchases of Moroccan products, tourism, and remittances from Europe. In looking for new business partners, Morocco has several differentiated marketing strategies: more tourism promotion globally, with initiatives along both sides of the Atlantic basin (regular flights to Sao Paulo are a recent example) and into Asia; the Moroccan Investment Development Agency (AMDI) has an eight-city road show covering markets in Asia, North America, and Europe to highlight opportunities in Morocco; and Moroccan firms are benefiting from government subsidies to attend trade shows and expand their export operations.

The second trend is the growth in trade and investment agreements linking Morocco to a potential market of one billion consumers, from the US and EU to Africa, the Mediterranean, and the Gulf. With its rapidly expanding manufacturing and logistics/distribution capabilities, Morocco is fast becoming a key regional hub for business activity north and south, into Europe and Africa.

The Africa Imperative

A third component in Morocco’s evolution as a regional economic player is its commitment to renewable energies and the potential for “substantial offshore oil and gas resources,” which would both reduce Morocco’s “high national expenditure on imported energy and domestic energy subsidies” and provide the backbone for expanding power transmission to meet the growing demand in African markets. With most projections for economic growth pointing to sub-Saharan Africa as the next great opportunity, Morocco is well-positioned to increase its already sizeable presence on the continent into an effective network for economic growth. 

Regional stability and security issues are the fourth element that affects Morocco’s regional designs. Although Morocco is committed to regional integration across North Africa, the continued stalemate with Algeria frustrates that ambition. For now, it appears that Maghreb relations will be more bilateral, building on shared business interests. So Morocco is looking elsewhere for growth to drive job creation to absorb local demand and provide a reservoir of talent for opportunities in target markets. It recognizes the importance of linking jobs, economic stability, and public security throughout the region. “To be sure, political and security factors are also at play in Morocco’s growing African interests, especially in light of the rapidly evolving terrorism, insurgency, and trafficking scene affecting Atlantic Africa and the Sahel – the dark side of regional geo-economics.” It is no surprise that King Mohammed VI has made Africa a priority in his travels, speeches, and support for economic and policy conferences focusing on Africa.

Dr. Lesser points out that “Morocco’s expanding economic role looking south shows every sign of becoming a structural factor in regional development and a more significant facet of U.S. interest in, and cooperation with, Morocco.” To this end, the policy paper concludes with several recommendations for US policymakers:

  • Morocco’s growing Atlantic engagement should be made an explicit part of the US-Morocco strategic partnership.
  • The US should renew its commitment to greater regional economic cooperation and integration in the Maghreb.
  • In the context of transatlantic trade negotiations (TTIP), consideration should be given to implications for the US-Morocco FTA and ways to streamline the current provisions on roles of origin and other constraints to extend the value of the FTA to other African countries.
  • The private sector should be more broadly integrated into US-Morocco Strategic Dialogue.
  • Morocco’s growing role in Africa should be part of the agenda with Washington and with European partners.

These recommendations are part of a common-sense approach to recognizing how the US can support Morocco’s growing global engagement, which enables Morocco to enlarge its leadership role while contributing to security, stability, and prosperity in a critically important part of the world.