Addressing youth unemployment in Ghana by supporting the agro-processing and tourism sectors
As elsewhere in Africa, the issue of jobless growth in Ghana has become a major concern, particularly due to rising unemployment among the youth. Services have emerged as the driver of growth in Ghana, contrary to the experiences in East Asia and other newly industrialized countries where manufacturing exports led growth and added capacity to absorb low- to medium-skilled workers. In fact, in Ghana, manufacturing has performed abysmally, with an average growth rate of 3.2 percent between 2008 to 2017.
Despite the generally strong performance of the Ghanaian economy over the last two decades, (albeit with a slowdown in recent times), there is a disconnect between GDP growth and employment—a trend that has persisted for many years, as the country has averaged an employment-to-growth elasticity of 0.5 over the last two decades. However, recent evidence points to the role of emerging high-productivity sectors, such as agro-processing, tourism, and horticulture, among others, that share characteristics with manufacturing (particularly in the employment of low- to medium-skilled workforce), in solving the youth unemployment challenge through the generation of decent jobs in Ghana.
Thus, to examine how Ghana might best leverage recent growth trends for job creation, we recently published a paper identifying which of these sectors might play this role in Ghana. This research is part of a larger, multicountry project on policies for enabling “industries without smokestacks” (IWOSS) to both grow and absorb low-skilled labor. (For more on this project, see “Exploring new sources of large-scale job creation: The potential role of Industries Without Smokestacks.”)
The state of the Ghanaian economy
The Ghanaian economy’s strong performance over the last two decades has not translated into job creation nor improvements in employment conditions, especially for the country’s growing youth population (Figure 1). Moreover, the country’s traditional reliance on primary commodities—notably gold, cocoa, and, more recently, oil—for exports has exposed it to international commodity price fluctuations, making the need for diversification and structural transformation more urgent.
Figure 1. GDP growth and employment in Ghana
Source: Authors’ illustration based on data from WDI.
With an average national unemployment rate of about 6 percent, unemployment among the youth (persons aged 15-35) is much higher at 12.1 percent with an additional 28 percent out of the labor force as discouraged workers. In the absence of unemployment benefits in the country, unemployment is simply not an option for most people, particularly the youth who often turn to the informal sector to earn an income. In fact, 1 in 3 young people in Ghana are self-employed in the nonagricultural sector as own-account workers in vulnerable jobs.
Employment projections show IWOSS sectors will dominate employment in the future
In our paper, we find that IWOSS sectors—particularly agro-processing and horticulture, transport and storage, hotels and restaurants (tourism), and construction—will contribute a little above 50 percent to total employment by 2035 (see Table 1).
Table 1. Employment in IWOSS and non-IWOSS (2017-2035)
Note: This table is a truncated version of Table 20 in the full paper.
Source: Authors’ calculations based on National Income Accounts (published by the Ghana Statistical Service), GLSS V and GLSS VI, National Budget and Economic Policy Statements. See Appendix C for the Methodology used in the projections to 2035.
The job creation potential of agro-processing and tourism
In our research, we identify agro-processing and tourism as the IWOSS sectors best poised to address this challenge in Ghana because of their high employment generation potential and the demand for low to moderate skills—a feature that is consistent with the skills spectrum of the unemployment pool in the country. Indeed, the prospects for both agro-processing and tourism sectors in Ghana are high in terms of growth and other positive spillover effects with opportunities for job creation. The agro-processing industry is dominated by micro and small firms involved in value-addition along the agricultural value chain in horticultural products, vegetables, roots and tubers, and palm oil for both domestic and foreign markets. In the area of tourism, Ghana has several natural, cultural, and heritage resources (e.g., historical forts and castles), national parks, a beautiful coastline, and unique art and cultural traditions that can be a source of great attraction to the international community.
1 in 3 young people in Ghana are self-employed in the nonagricultural sector as own-account workers in vulnerable jobs.
Moreover, these IWOSS sectors have been strategically targeted under the government’s flagship industrial transformation program to address challenges of job creation, promote import substitution, increase revenues from exports, and boost rural income generation.
What skills are required to develop the IWOSS sectors?
Despite this promise, though, a number of obstacles stand in the way of these sectors’ growth and ability to absorb jobs. Prominent among these challenges is the persistent skills gap among the youth: Our projections generally suggest that low-skilled jobs (i.e., those requiring less than secondary education) will continue to dominate, and their importance may decline only marginally. Thus, we find that deliberate public effort is required to ensure the youth can be absorbed in the IWOSS sectors, which requires upskilling.
To better understand the nuances of these gaps, we conducted a survey with a sample of firms in agro-processing and tourism in which we inquired into requisite skills for potential employees. Results from the survey show that most employees possess basic and social skills, which conveniently meet the needs of employers. Conversely, system skills—developed capacities used to understand, monitor, and improve sociotechnical systems and also sorely needed by employers—were found to be lacking in both tourism and agro-processing firm employees. Figure 2 reveals the differences between the current skill level of workers and employers’ expectations.
Figure 2. Skills deficit in tourism and agro-processing firms
Source: Authors’ calculations based on survey data.
Importantly, given that surveyed firms largely reported that digital skills like data management and analytics, production management, mobile transactions, and social selling (in agro-processing), and online communication and mobile transactions (in tourism) will be vital to future employees, policymakers must strive to better incorporate such capacity building into curricula.
Unlocking growth potential of IWOSS and overcoming skills gaps
In order to unearth the employment generation capacity of IWOSS sectors, key constraints that inhibit the growth of these sectors have to be addressed. In the case of firms in tourism, such constraints include tax rates, policies, and administration; access to credit; and electricity supply. For firms in the agro-processing sector, these constraints include electricity supply, access to credit, unfair practices of informal competitors, and customs and trade regulations.
First, we recommend an overhaul of the overall policy environment toward the training of young people in the requisite skills to be productive in all sectors of the economy. More specifically, the government must prioritize and increase enrollment into technical and vocational education and training (TVET) for hands-on employable skills to support growth and provide a pathway for sustainable employment for young people.
Second, the establishment of industrial parks, which is based on the positive spillover effects and upstream and downstream linkages associated with clustering and agglomeration, is often acknowledged to be essential for industrial development. Support to the private sector by the Ghana Free Zones Authority and Ghana Investment Promotion Centre for the establishment of industrial park infrastructure and special economic zones is anchored on such potential benefits.
Third, we recommend the strategic development of infrastructure as a critical stimulus to the drive for diversification and industrialization in the country. Fourth, government should intensify efforts at providing long-term financing to support the value chains of these sectors and upgrade them to address the issue of IWOSS firms not being well advanced, with a relatively low degree of value-addition by all firms at various stages.
Employment creation potential, labor skills requirements, and skill gaps for young people: Ghana case study
Abstract
The issues of jobless growth and the poor performance of manufacturing have become major concerns in Africa. A new growth trajectory has emerged in the region with services as the driver of growth, contrary to the expectations of manufacturing export-led transformation with the capacity to absorb low- to medium-skilled workers as previously observed in East Asia and other newly industrialized countries. It has become imperative for African countries, such as Ghana, to redirect attention toward identifying and supporting sectors with more significant employment potentials, in the quest to provide decent employment for a rapidly growing population, especially the youth. Indeed, the challenge of jobless growth in Ghana has brought to fore the need to diversify the economy away from mineral dependence through industrial transformation, mindful of the new technological developments. In this report, “industries without smokestacks” (IWOSS) the Ghana case study identified agro-processing and tourism as two of the sectors that could be relied on to potentially address the country’s jobless growth issue and enhance the competitiveness and productivity of small and medium-sized firms.
The report has demonstrated that both the agro-processing and tourism sectors have several characteristics that make them unique to the situation of Ghana:
There is an improved regulatory environment for both sectors, and this is supported by various public policies to improve related infrastructure and unearth the potential in the two sectors. Both sectors offer critical employment avenues for the youth with at least secondary education, and this pool can be found among the relatively large unemployed individuals. Both sectors have a huge export capacity, and this is critical in enhancing competition. The technologies used in both sectors are labor intensive, and this has prospect in addressing the country’s unemployment challenge. There has been some effort to address various constraints in the value chains of both sectors.
Projecting into the future, we find agro-processing and tourism (hotels and restaurants) will experience a much higher annual employment growth than manufacturing and other non-IWOSS sectors by 2035. Although skill transformation of the workforce will mainly take place in non-IWOSS sectors, our projections to 2035 suggest that the IWOSS sectors in Ghana would generate more high-skilled jobs in an economy that will continue to be dominated by low-skilled workers.
Overall, constraints identified in agro-processing and tourism subsectors include the lack of adequately skilled labor, lack of access to credit facilities, inadequate infrastructure, cost of electricity, limited capacity to export, and restrictive/cumbersome regulatory environment. Specific constraints identified in the limited survey conducted on selected firms within the IWOSS sector highlight the lack of skills that are critical to the operations of IWOSS sectors (agro-processing and tourism) with the specific skills being systems skills, technical skills, and problem-solving skills. Based on this, it is recommended that a deliberate effort is made to address these various challenges to enhance the potential of the two sectors.
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Verdant Capital announces new investment advisory partnership with Invest in Visions of Germany
Verdant Capital (www.Verdant-Cap.com) is pleased to announce a new investment advisory partnership with Invest in Visions GmbH (“IIV”) of Germany. Under the partnership Verdant Capital will, on a pan-African basis, originate, prepare for execution, and monitor investments for IIV’s funds investing in inclusive financial institutions (“IFIs”). These institutions include microfinance banks non-banking financial institutions, credit-only institutions, leasing businesses, innovative or technology-driven credit businesses, as well as commercial banks that credibly serve SMEs.
The partnership with IIV is an important additional pool of capital for Verdant Capital’s Specialist Funds platform. Verdant Capital Specialist Fund’s principal aim is to alleviate the impediments to access to finance for micro, small and medium-sized enterprises across the Continent by providing innovative and impactful funding solutions to inclusive financial institutions. Each funding solution targets meaningful financial and social returns. The partnership with IIV, fits alongside the Verdant Capital Invoice Discounting Facility, a USD 30 million facility for financial institutions to grow their SME-focused receivables finance portfolios, and Verdant Capital Hybrid Fund, a USD 100 million fund to invest hybrid capital and subordinated debt into African financial institutions. Verdant Capital is a responsible investor aligned with the globally recognised principles and best practices for impact investing.
Verdant Capital announces a new partnership to invest in financial inclusion
Edda Schröder, founder and managing director of IIV, describes the newly formed partnership with Verdant Capital as a milestone for IIV’s expansion to Africa. “We are looking forward to working with an experienced advisor like Verdant Capital, who shares our values and fosters impactful funding solutions with social returns. This partnership helps us to further diversify our investment portfolio and expand our impact to African countries.”
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Contact:
Liezel van Greunen
liezel.vangreunen@verdant-cap.com
About Verdant Capital:
Verdant Capital is a specialist investment bank and investment manager operating on a pan-African basis. Verdant Capital has exceptional expertise in high impact sectors including inclusive financial institutions & microfinance, fintech, agro-industrial, renewable energy, and telecoms.
About IIV:
Invest in Visions GmbH was founded in 2006 with the aim of providing access to impact investments to institutional and private investors. In addition to financial yields, their funds’ investments also target positive social returns. In addition to microfinance, IIV invests in renewable energy and the financing of small and medium-sized enterprises (SME). The investment focus is on newly industrialized and developing countries. Globally, IIV have funds under management in excess of USD 1 billion.