Africa is the world's youngest continent, as the proportion of youth among the region's total population is higher than in any other continent. In 2010, 70 percent of the region's population was under the age of 30, and slightly more than 20 per cent were young people between the ages of 15 to 24. The socioeconomic conditions of young Africans have improved in recent years, but not considerably. There has been an increase in school enrolment over the past 20 years, and the gender gap in education has narrowed, however, young Africans continue to face major difficulties in the realms of higher education, employment, health, and participation in decision-making processes. African youth have the potential to be a great impetus for Africa's development, provided that appropriate investments in health and human capital are made. However, if youth issues are not addressed, and if high rates of youth unemployment and under-employment persist, Africa's development could be negatively affected.
The recent financial crisis is likely to affect young people much more than the general population, given the fact that most of those presently unemployed are youth. This sentiment has been expressed in terms of civil unrest, as demonstrated most prominently by youth in Northern Africa, and a few other parts of Africa.
The global financial crisis notwithstanding, poverty, low levels of participation in national and local decision-making processes, poor infrastructure, and conflicts have led thousands of young people to migrate from rural to urban areas. Many have crossed borders within Africa, and others have left the continent, in search of better educational opportunities and livelihoods.
Dissatisfied youth are often more likely than older generations to challenge their situation actively, and to become a socially destabilizing force, as evidenced by increasing demands for change on the continent. For these reasons, many African countries are placing greater emphasis on youth development. While strategies to improve the livelihoods of young Africans have already been put in place, with the youth population continuing to represent a sizeable proportion of the total population, better integrated and scaled-up initiatives on youth development are needed. These could ensure improved health, education, and employment conditions, and also more effective participation in decision-making on issues that directly affect them, both in rural and urban settings.
Youth employment is largely a problem of quality in low income countries (LICs) and one of quantity in middle income countries (MICs). Youth in vulnerable employment and working poverty are the large majority in poor countries. In upper middle income countries more youth are unemployed, discouraged or inactive than working.
Compared to employed youth, the unemployed in LICs are relatively better off, and in MICs they are relatively worse. In LICs youth have to be able to afford unemployment and choose it over a job, most likely in the informal sector, that pays very little. In MICs the informal sector is more constrained (due to a lower demand and government intervention) and does not act as an absorber for all youth.
In all country groups more youths are discouraged than unemployed, suggesting that the youth employment challenge has been underestimated. Discouraged youth are more disadvantaged than unemployed youth and must be included in any meaningful labour market analysis. Unfortunately, often they are not.
Many African youth are poor despite being employed. They deserve as much attention and support as youth that are not working. In many African countries wage employment, the best job category, accounts for less than 15% of youth in the labour market. The global economic crisis had a strong negative impact on the employment profile of African youth. Between 2008 and 2010 good jobs declined, while jobs in family agriculture and informal activities (grouped by occupations in the next figure), picked up.
Another challenge in Africa's labour structure is that while education is a strong determinant of good employment over a lifetime, it also leads to higher unemployment among youth. Youth unemployment increases with education. This is largely because the transition from unemployed uneducated youth to educated youth employed in a field where academic study has been undertaken takes longer. Transition takes so long because of a lack of job offers and skills mismatches between what education provides and what employers need. Mismatches are also important at the secondary school level where education does not provide enough practical skills. Importantly, among 30+ year old youth cohorts with higher education, there are lower unemployment rates – as education does help those in the labour pool reinvent themselves, learn new skills and pursue gainful employment opportunities.
In the short term though this phenomenon presents a quandary for Africa as unprecedented number of Africa youth are becoming educated. Based on current trends, 59% of 20-24 year olds will have had secondary education in 2030, compared to 42% today. Hundreds of millions of young Africans will be leaving school over the next decades, at every level, and looking for jobs.
To overcome skills mismatches, education systems must become more comprehensive and linked to labour market needs. The high share of NEET rates among young people that have been to secondary school suggests that education at this level is too generalised and instils few of the practical skills that small firms or self-employment require. Vocational and technical training systems are an important tool especially when done in cooperation with firms, but play a minimal role for the time being. A much larger share of youth goes through informal apprenticeships. Governments must find ways to recognise these and combine them with formal education.
At the university level, Africa has the highest share of social science and humanities graduates of any world region. Its share of engineers is the lowest. Only 2% of students are in agriculture, the same as in the OECD, although this sector is clearly Africa's comparative advantage. Education in technical fields is expensive and requires scarce expertise. Governments should seek cooperation with the private sector to provide high quality technical education at both secondary and tertiary levels.
Mismatches are also found between youth expectations and employment offers. In North Africa, most youth want to work for government, even though only few jobs are available there. In most of Africa youth are aiming for wage employment in a large formal sector firm, but most will end up in the informal sector. Governments and educators must make active efforts to guide young people with information on labour markets at all stages of the education system.
To maintain current public sector employment levels Africa would need to create 1.9 million public sector jobs annually until 2025. The informal and rural sectors will thus continue to play an important role as the absorber of young people in need of an income, and should be seen for its opportunities. Informal entrepreneurs and the rural non-farm sector show potential. Already today, across all of Africa 53% of youth in rural areas are not in agriculture, but engaged in other activities. Youth in rural non-farm employment are much better off than youth in farming. Linkages between urbanisation, the rural non-farm sector and agriculture are important and work to strengthen rural economies in Africa.
Lack of demand for labour is the biggest obstacle to youth employment in African labour markets, supply factors are important too but less so. Labour market institutions are the smallest problem. Both country experts and youth see the lack of demand for labour as the main barrier to young people in African labour markets. Education and skills mismatches, attitudes by young people and employers and labour regulations are important challenges too, but country experts and business consider them less pressing. Skills and regulation become more important as countries grow richer. Especially Northern African countries and South Africa are struggling with skills and overly rigid labour markets. At the same time those with low skill levels are falling out of the labour market in these countries.
To turn this rapid growth in human resources into an opportunity, Africa needs to tackle youth employment. Past growth has not been sufficiently employment-intensive. A stronger focus on job creation is necessary. However, the employment outlook for young people in Africa is challenging. Although many jobs have been created over the last decade, Africa's growth was not sufficiently inclusive to meet the need for jobs of a fast growing population. The private sector has been growing, but from too small a base to have a big impact. The public sector cannot grow as fast as the population and is a much less important employer among youth than adults.
Given the size of the employment problem, any youth employment policy in Africa must place job creation at its centre. Governments must focus on removing obstacles to the many small firms in the informal sector, helping them to grow and create decent jobs. At the same time existing large firms, the primary source of decent jobs today, must be supported to grow further and become more competitive. Especially middle income countries are facing a great challenge because their employment base is very small and will need strong growth.
The biggest barriers to firms of all sizes are infrastructure (especially electricity) and access to finance. In better off countries, labour regulations and the skill level of the workforce become more important, but are still trumped by finance and infrastructure. The adverse business environment has disproportionate effects on small firms and prevents their growth. Large firms can cope more easily, but are struggling to be competitive at the international level. Informal entrepreneurs must cope with very high levels of risk in addition to access to finance issues. Savings schemes could help.
Despite the challenging short-term outlook, the long term perspective is good, if African governments effectively tackle the hurdles young people face. Today's youth are better educated than any previous cohort and the growth rate of the population is beginning to decline, opening a window of opportunity to reap the demographic dividend. New technologies are providing an opportunity to leapfrog into a service-based economy. Rapid urbanisation, largely driven by youth, leads to higher work force densities that offer opportunities for the development of clusters. Urbanisation also benefits the rural economy through higher demand for agricultural products. Finally, the informal sector, long seen as problem is turning out to contain entrepreneurial talent that can foster job creation if adequately enabled by government policies.
In the midst of this analysis, provision of access to finance for young people, becomes a particularly important lever for intermediation as young people pursue entrepreneurial initiatives, and as young employees, can help stimulate economic growth as economically active consumers.
Given the increasing youth population in developing countries, the high levels of youth unemployment and limited economic opportunities for youth, governments are increasingly looking for proactive approaches to help youth realize their full economic potential. Increased access to financial services and increased financial capability to use those services effectively to invest in their education, enterprises, and futures may provide that beacon.
Yet youth face many barriers in accessing financial services, including: 1) restrictions in the legal and regulatory environment, 2) inappropriate and inaccessible products and services, and 3) low financial capability. The public policy opportunity—and imperative—is evident. Overcoming these barriers and achieving successful youth financial inclusion requires a multi-stakeholder approach that engages government (including policy makers, regulators, and line ministries), Financial Service Providers (FSPs), Youth Service Organizations (YSOs), other youth stakeholders, as well as youth themselves.
The following are recommendations drawn from the UN Capital Development Fund's "Youth Start" programme, which is funded by the MasterCard Foundation. Youth Start aims to reach 200,000 youth in sub-Saharan Africa with demand driven financial services and non-financial services, in particular savings and financial education by 2014. The recommendations that policy makers and regulators should consider for each of the three barriers to advance financial inclusion for youth:
- Legal and Regulatory Environment:
- Coordinate efforts among different regulatory bodies (e.g., Ministry of Education, Ministry of Youth, Ministry of Finance and Central Bank), FSPs and other youth stakeholders by developing closely aligned policies and activities that support financial inclusion for youth.
- Develop legislation protecting youth that is consistent with the principles supported by the Smart Campaign and the Child Friendly Banking Principles of Child and Youth Finance International (CYFI) (e.g. maximum control by youth within the legal and regulatory framework, minimize age and ID restrictions, etc.).
- Ensure that adequate mechanisms of recourse exist and that they are accessible to youth.
- Encourage FSPs to adopt industry standards of client protection and youth-friendly products.
- Appropriate and Accessible Financial Products
- Facilitate the development of innovative, cost-effective and convenient delivery channels to increase access by passing the necessary legislation for financial institutions to bank through agents (e.g. local retail outlets), mobile phones and/or schools.
- Develop policies that offer incentives or subsidies to open and use a savings account.
- Promote the design of financial products that are consistent with the Smart Campaign and the Child Friendly Banking Principles of CYFI and respond to the diverse needs of youth by indicating to donors that building the capacity of FSPs (e.g. how to conduct market research) in youth financial services is a priority.
- Financial Capability
- Invest in the development and delivery of financial education and entrepreneurship programmes to increase the financial capabilities of youth (e.g. market research to identify most appropriate content and delivery channels).
- Support YSOs to reach out-of-school youth through financial education.
- Advance best approaches to financial education for youth by coordinating amongst government entities and collaborating with FSPs, YSOs and other youth stakeholders.