Tinashe Mukogo and Musekiwa Samuriwo
Over the last series of articles, we have looked at the inherent advantages that exist for the African entrepreneur operating in the African Context. We looked at the benefits of obvious problems, the home-field advantage and the opportunities that exist in the massively underserved markets in Africa.
In this last article in the series, we would like to explore one more theme and African Advantage — the demographic dividend and the rise of the African Labour force.
The world is getting old
Most developed countries in the world have ageing populations. For example, the median age in the European Union is 41 compared to sub-Saharan Africa where the median age only 19.
In fact, all of the worlds 10 youngest populations are from Africa.
The economic impact of these demographics can be analysed by a number of ratios one of which is what is known as the dependency ratio. The dependency ratio measures the percent of dependent people (i.e. not of working age)/number of people of working age.
A high dependency ratio means a large percentage of the population is no longer able to work owing to age and is also indicative of a number of long-term negative economic effects such as lower tax revenues (older people tend to pay less tax) and higher government spending on health and pensions.
In addition, a high dependency ratio usually results in labour market shortages as there are not enough people to take up all the jobs that are in the market as most of populous are too old to work.
To illustrate how serious this problem can be, Japan, which has a median age of 49 and dependency ratio of 64 percent, has even put in place a number of Government initiatives such as state-sponsored dating services to ultimately try to reverse their ageing population by encouraging more people to have children.
Around the world, dependency rates are expected to increase significantly, in most cases doubling, but in Africa, only a mild increase is expected. This means that whilst other countries may struggle to find sufficient labour in future, in Africa, the availability of labour is not going to be an issue.
The largest workforce the world has ever seen
This young African population is eventually going to result in the largest workforce the world has ever seen. McKinsey expects that by 2034, the largest workforce in the world will be in Africa at over 1,4 billion people — even more than China and India.
This large workforce if managed well can provide a significant competitive advantage for African economies and entrepreneurs especially in labour-intensive fields such as manufacturing. This competitive advantage in the manufacturing space can result in more companies moving their manufacturing base to Africa.
In a recent post on Harvard Business Review, Irene Yuan Sun makes the argument that the next centre for global manufacturing is going to be Africa, taking over from China. One of the waterfall effects of increased manufacturing in Africa is increased employment and ultimately higher household incomes. McKinsey also predicts that Africa’s private consumption will grow at an impressive rate of 3,8 percent to nearly $2,1 trillion in 2025 in real 2015 prices.
To paint an overly simplified picture of what the impact of the above could be for the average entrepreneur, this demographic shift is the equivalent of waking up tomorrow and being told that the number of your customers has doubled and they all want to pay more than before for the goods or services you were offering. This certainly would be good news to any entrepreneur.
What does this all mean?
While there is certainly grounds for optimism, African entrepreneurs seeking to make a large impact need to think in decades and not years.
A common theme in all of the above graphs and statistics is that the time horizon is fairly long. In most cases between 10-30 years. The reality is that the turn in the economic fortunes in Africa is not going to be sudden but gradual.
This can often serve as a source of frustration for the African entrepreneur, especially in the tech sector, if he compares himself to his Silicon Valley peers who, in the last few years, have shot from the dorm room to the Forbes list in only a few years.
Indeed, on a more personal and perhaps relevant aspect, consider how many times Africans in the diaspora have assumed after two or three years they would return to Africa and catch the “sudden wind” of opportunity only to continue to revise their plans to later dates.
The key takeaway is then — rather than waiting impatiently for the right time to start investing in Africa, the entrepreneur needs to start now and then wait patiently for the imminent growth.