Unemployment

Lacklustre Education, Weakened Private Sector Exacerbate Youth Unemployment

Even though Ethiopia’s economic growth is continuously lauded by international organisations, unemployment rates among young people remain high, reaching as much as 44.9Pct for people aged 20-24. Experts argue that the causes are multifarious and require comprehensive solutions. If not, then the long-term consequences may prove detrimental for the nation’s economic growth and image. EBR’s Tamirat Astatkie spoke with researchers to learn more about the challenges of youth unemployment and what’s being done to mitigate its potential effects.

Ermias Getachew, 24, graduated from Arba Minch University in 2014 with a degree in Water Resources and Irrigation Engineering. Despite his optimism at graduation, he has been without a job for more than two years: “I strived to get a job pertinent to my field of study in public and private offices. However, all my attempts were futile.”
He says that of his more than 200 classmates in the same field, many of them haven’t secured jobs. “On top of the narrowed job opportunities in the field, what matters most are not your grades or competence, but rather nepotism and affiliation to the ruling party.”
Furthermore, Ermias confesses that he has yet to even receive a response after more than two years of submitting job applications to different organisations. “I haven’t even gotten a chance to prove myself through written or oral examinations,” he told EBR, unable to contain his anger and frustration.
This year, with the support of his family, he plans to pursue a postgraduate degree as well as start his own business. “My life would have been miserable had it not been for the relentless support of my family; be it moral, emotional or financial,” he asserts.
Ermias’ experience sheds light on a common situation facing many recent graduates: the increasing trend of youth unemployment. This topic is a socio-economic problem that has emerged as a major source of concern among scholars, policymakers and social commentators throughout the world because of its daunting consequences.
The United Nations defines youth unemployment as people between the ages of 15 and 24 years old who do not have a job but are actively seeking employment. According to the 2015 Urban Employment Unemployment Survey published by the Central Statistical Agency (CSA), of the total four million people between the age 15 and 24 in urban areas, only 1.67 million are employed, which means the unemployment rate for these age group stood at 58.3Pct.
The unemployment rate for the 20-24 age group, which is comprised of graduates from different higher education institutions, stood at 44.9Pct, while the unemployment rate for 15-19 age group reached 72.3Pct. Although official data is unavailable, researchers believe that there is significant youth unemployment in rural areas due to landlessness and insignificant job creation.
Haile Kibret (PhD), Director of Research for the Horn Economic & Social Policy Institute and Professor of Macroeconomics at Addis Ababa University (AAU), says the mismatch between supply and demand in the labour market is the primary cause of unemployment in a given economy. “The mismatch is perpetuated due to the population structure in Ethiopia, as is the case anywhere else, which makes it difficult to implement strategic policy solutions,” he told EBR.
Sociologists argue that unemployment has implications for the social development of young people. This is because employment is an important element in daily life – contributing to the socialisation and maturation of youths, as well as equipping them with life skills, which are key tools as they transition to adulthood.
“Unemployment is a major social problem for young people during the transition from college, university and training institutions into the labour market,” says Tesfaye Zeleke (PhD), Professor of Sociology at the Centre for Environmental and Developmental Studies in the College of Development Studies at AAU. He is concerned about high rates of unemployment on youth development: “It is a critical phase and a decisive time for their future and their social and individual lifestyle.”
The CSA uses unemployment indicators to measure the extent of unutilised human resources in a given area or region during a certain period of time. It indicates the quantity and quality of the human labour a nation or a region should use to promote its economic development but that is not actually used.
Economists like Haile argue that since unemployment is closely associated with an economy’s overall performance, assessing the economic problems in the country is important to address the problem. “This will be useful to get a complete picture of the youth market in Ethiopia,” he explains.
Official data reveals that the service sector is the largest in the Ethiopian economy, contributing more than 46.3Pct to gross domestic product (GDP) in the 2014/15 fiscal year, while agriculture closely follows, contributing 39.1Pct to the national economy. The industrial sector, which includes manufacturing, on the other hand, accounts for 19.9Pct.
Haile argues that the growth of sectors that employ the largest portion of the population has a direct impact on the labour supply-demand equation. “When the sectors that absorb the majority of workforce grow massively, there will be additional employment opportunities.”
In Ethiopia, the agriculture sector employs close to 80Pct of the total population. However, its growth in the past six years has not been as impressive as the government had hoped. According to data obtained from the National Planning Commission, although agriculture was expected to grow by 8Pct between 2010/11 and 2014/15, it only grew by 6.6Pct on average annually.
In addition to such underperformance, some criticise the government because it has chosen the agricultural sector to drive economic growth, although growth potential, especially in creating job opportunities for the youth, appears to come from the industry and service sectors.
In the past, the service sector has registered noteworthy performance, exceeding government plans. Between 2005/6 and 2009/10, the sector grew by close to 15Pct annually on average. In fact in the year 2008/09, service sector replaced agriculture as the dominant contributor to the GDP.
However, after 2010/11, the growth of the sector, which includes major activities in areas like hotels and restaurants, transport and communications and financial intermediation, grew at a slower pace – 12Pct annually. Furthermore, in recent years the industrial sector has been underperforming and at times fails to meet its minimum target, thwarting its ability to be a robust generator of job opportunities.
In their study on youth unemployment, Nzinga H. Broussar from Ohio State University and Tsegay Gebrekidan from the University of Sussex demonstrate that the weakness of the economy contributes to lacklustre job creation, especially for youth. They argue that this is why unemployment presents a particular challenge to Ethiopia, especially amongst urban youth, as big cities have the highest youth unemployment rates.
This reality contrasts with the rapid economic growth the country has experienced in recent years. In July 2016, Prime Minister Hailemariam Desalegn told Parliament that the Ethiopian economy is expected to register a growth rate of 8.5Pct for the 2015/16 fiscal year, despite unsatisfactory export earnings, the recurrent drought and declining agricultural productivity.
Such a solid growth trajectory, according to government officials, helps create millions of job opportunities. For instance, information from the National Bank of Ethiopia shows that during the first phase of the Growth and Transformation Plan (GTP I), which was from 2010/11-2014/15, the government hoped to create three million employment opportunities through micro and small-scale enterprises (MSEs) in the last year of the period. As a result, in the 2014/15 fiscal year alone, there were 271,519 newly established MSEs, which employed about 2.8 million people.
Another report from the Public Communication Directorate of the Ministry of Urban Development and Housing demonstrates that the Ministry created jobs for more than 10 million citizens through micro and small enterprises during the GTP I period. In addition to this, last fiscal year the MoUDH created jobs for more than 1.6 million citizens, which exceeded initial plans. Of this total, 71.7Pct are permanent jobs, whereas the remaining are provisional jobs. The government hopes to create 8.5 million jobs by the end of the GTP II period.
Despite these promising statistics from the government, the exponential growth of SMEs might not be a lasting solution to youth unemployment. According to a report by the Organisation for Economic Cooperation and Development, SMEs face many obstacles, especially in developing countries: “the greater variance in profitability, survival and growth of SMEs compared to larger firms accounts for special problems in financing. SMEs generally tend to be confronted with higher interest rates, as well as credit rationing due to shortage of collateral,” which compromise the growth and survivability of these businesses.
This, the report demonstrates, is especially true of new firms that may operate in an environment with high regulatory burdens and not enough government support. Together, these affect the ability of SMEs to be a robust, stable and effective source of permanent job creation, as they tend to occupy a precarious position within a developing economy.
In addition to these challenges, Haile argues the population structure in Ethiopia makes it difficult to implement effective policy solutions: “The population is uneven here; 50-60Pct of the total population is young, the number of people entering the work force at a given point in time is unmatched with the number of people who retire from work. In other words, there is a need to supply as many job opportunities as possible to accommodate the demand.”
Given this scenario, he praises the government’s initiatives, policies and strategies to tackle unemployment. “Had it not been for the construction sector boom as well as the horticulture and the garment industries’ improved performance, the situation would have been worse.”
However, he criticises the government for failing to implement policies at full capacity: “There is a huge rift between what the government plans and does.”
In their study, presented at the 2013 United Nations General Assembly, entitled ‘Beyond 2015: Pathways to Addressing Africa’s Potentially Explosive Unemployment Challenge’, Degefa Tolossa and Dula Etana argued that resource scarcity is the major contributor to increasing youth unemployment, especially the scarcity of land due to population increases. They contend that although Ethiopia registered rapid economic growth in the last 10 years, there is still a mismatch between economic growth and an increase in the number of jobs.
Indeed, the elevated proportion of youth in the demographic pyramid makes their unemployment a critical issue. This is because the increasing number of youth as percentage of the total population puts pressure on the labour market.
According to information obtained from the CSA, Ethiopia’s population was roughly 73 million in 2007. Of that total, 20 million were aged 15 to 24, accounting for 28Pct of the population. When compared with the data in 1994, the youth population increased by 7 million. On the other hand, in 1999, the share of the youth labour force relative to the total accounted for 35Pct. That figure was 28Pct in 2009.
A report from Deloitte, a global consulting firm, paints a picture of the implications of significant youth unemployment on a nation’s economy. These include lower lifetime earnings, decreased tax revenue, depleted resources to fund pension programmes, and difficulties in saving money for younger citizens.
To remedy the effects of youth unemployment, the Ethiopian government has implemented a number of policy solutions, such as encouraging foreign direct investment, promoting micro enterprises, expanding microfinance services, and supporting labour-intensive investment programmes. However, demographic trends and the failure of the education system to provide youths with sufficient skills to create their own jobs or to be hired have also contributed to unemployment in Ethiopia.
Inadequate education, some argue, exacerbate the effects of unemployment. Experts like Demewoz Admasu stress that local higher education institutions are plagued by poor quality, which is a disservice to students. In his study presented at the aforementioned high-level UN meeting, he argued that many university graduates are experiencing difficulties in finding jobs, others spend a long time searching for work, and some earn meagre incomes doing manual labour such as garbage collection and working on construction sites.
One of the deterring factors for unemployment, according to Haile, is the attitude of people, especially university graduates, regarding working with MSEs, though he says this is changing. “The role of MSEs initiatives in creating job opportunities is substantial, though they are expected to do more,” he argues.
Haile notes that political instability contributes to the problem: “The current unsettled political situation is another contributing factor for the proliferation of unemployment, though its long-term effects remain to be seen. It creates hesitation on the part of investors who are, by their very nature, risk-averse.”
He says the government is not opening up enough space for the private sector, which in turn deters job creation. “The ultimate source of employment is believed to be the private sector. But in a country where there is small capital, high influence of the oligopoly (which is characterised by short-sighted investments and entrepreneurship) intertwined with the government structure, huge capital projects and the inclination of the financial sector towards the public sector, the role of the private sector is very limited.”
Indeed, according to a study entitled ‘Enabling the Private Sector to Contribute to the Reduction of Urban Youth Unemployment in Ethiopia’ published by the Addis Ababa Chamber of Commerce and Sectoral Associations, the major constraints to youth unemployment include low levels of education and training, skills mismatches, lack of experience, and inappropriate perceptions of practical work and entrepreneurship. On the other hand, the critical constraints on the demand side of the labour market are low absorption capacity and slow investment implementation.
As a result, the study suggests a vibrant private sector can play a major role in creating jobs and reducing youth unemployment. But it stresses that road maps for creating an enabling environment for the private sector should be defined and incentives need to be introduced for the private sector to take full advantage of the opportunities that can be gained from sustainably creating jobs for the youth.
Socially, youth unemployment, especially when it lasts for a long period, may lead to various problems that will compromise the overall growth of the country’s economy. Tesfaye says that high rates of youth unemployment are related to social problems such as petty crime, drug abuse, and social unrest. “This paves the way for engaging in risky activities that are proving costly in many ways. For example, the high level of crime that characterises South Africa is partly driven by the high level of youth unemployment.”
The government admits that high youth unemployment in urban areas is one contributing factor to the ongoing unrest in the states of Oromia and Amahra.
Experts agree that the causes of youth unemployment are multifarious and require varied solutions. Both Haile and Tesfaye propose that the government invest in awareness creation and programmes to encourage entrepreneurship, especially among university graduates, as well as being realistic about what graduates can expect when they enter the labour force. EBR


4th Year • October 16 2016 – November 15 2016 • No. 44

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