Provide an enabling environment for private sector investment

OPINION

Ambrose Byamugisha Muhoozi- Victoria University, Kampala Uganda

Youth unemployment remains a serious policy challenge in many sub-Saharan African countries, including Uganda.

In 2013, youth (aged 15 to 24) in sub-Saharan Africa were twice likely to be unemployed compared to any other age.

For Uganda, in 2012, the Uganda Bureau of Statistics revealed that the share of unemployed youth (national definition, 18-30 years) among the total unemployed persons in the country was 64 percent.

Given the rapid growth of the Ugandan population—three-quarters of the population are below the age of 30 years—coupled with the fact that the youth are getting better educated through higher access to primary and secondary education, a stronger focus on job creation  of people cannot be overemphasized.

Causes of youth unemployment are believed to be multifaceted, ranging from an inadequate investment/supply side of jobs, insufficient employable skills (i.e., youth possess skills that are not compatible with available jobs) and high rates of labor force growth at 4.7 percent per annum.

State and Structure of Youth Unemployment in Uganda

According to the International Labor Organization (ILO) definition, Uganda's measured unemployment rates are relatively low for the region though they have been increasing over time (from 1.9 percent in 2005/06, to 3.6 percent in 2009/10, and recently to 5.1 percent in 2012).  

At the same time, the characteristics of the unemployed vary widely. Urban youth are more likely to be unemployed (12 percent) than rural youth (3 percent). In addition, female youth are twice as likely to be unemployed compared to male youth.

Interestingly, the report notes that unemployment increases with the level of education attained: Unemployment is lower among persons with no education and primary education, and higher among those with secondary education and above.

This is not to negate the importance of education—as it is widely known that education is a significant factor in securing good employment over time—however, the more educated are biased towards wage-paying formal jobs, which are harder to find.

Indeed, persons with education above the secondary level are more likely to be in wage employment (59.1 percent) compared to those with primary education (18 percent), and their earnings tend to be higher.

These low unemployment statistics may appear counterintuitive given the prevalent concern about youth unemployment in Uganda.

The low measured unemployment figures do not necessarily signify a healthy labor market.

For instance, a large proportion of youth have given up the search for jobs and are more likely to be discouraged than unemployed, and the official measured unemployment does not capture this.

A better alternative would be to consider the NEET (not in employment, education or training) population as a proportion of the youth population.

Young people work in jobs that do not fully utilize their skills and competencies, earn low pay and do not work full time as desired. Hence, focusing on unemployment measures fails to take into consideration the gruesome reality of vulnerable employment—characterized by low pay and job insecurity—in which youth are currently engaged since many cannot afford to be openly unemployed.

 Agriculture is the predominant sector of employment in Uganda—providing employment to about 66 percent of the workforce. The services and industrial sectors employ about 28 percent and 7 percent of the labor force, respectively.

Despite the bulk youth employment in agriculture, less than 5 percent of those in agriculture are in wage-paying jobs. The majority are engaged as subsistence family workers with no wages accruing to them. Similarly, informal employment accounts for the highest proportion of employed youths outside agriculture.

In 2011, about 95 percent of youth in non-farm enterprises were in informal employment. Informal jobs are of low-quality, characterized by low and unstable earnings and job insecurity.

About 24 percent of employed youth are in wage-paying jobs while the remaining jobs are either in self-employment or household enterprises as contributing workers.

Involvement in the wage sector is predominant among urban youth and those with at least a secondary school level of education. From a gender perspective, females are more likely to be in non-wage employment compared to the male youth.

Since the informal sector has been and will continue to be a major source of employment in Uganda in the short to medium term, it is imperative that productivity of the workforce engaged in the informal sector is increased to address the underemployment associated with this sector.

Uganda has implemented a number of programs aimed at creating employment specifically for youth.

These policies consist of those aimed at providing an enabling environment for the private sector to create jobs and those targeted at building the skills and requisite knowledge to make youth more employable.

Providing an enabling environment for private sector investment to create jobs

While the Ugandan public sector was the major employer before the 1990s, the civil service reform that started in 1992 led to a large reduction in the number of public servants in Uganda.

This reduction was achieved through retrenchment, voluntary retirement schemes, divestiture and privatization of public enterprises.

The private sector was envisioned to be the driver of economic growth and employment creation. Macroeconomic stability—low inflation and stable foreign exchange rates—was looked at as a sufficient prerequisite for investment, economic growth, structural transformation and jobs creation.

While these policies have generated much-needed economic growth, they have not created enough decent and productive jobs for the Ugandan youth.

Analysts have blamed this poor performance on the failure of the policies to consider the structural nature of the economy, which is largely agrarian.

Investment in agriculture is still low and subsequently the sector has been experiencing low average growth rates of about 2 percent for the 1990-2012 period, and offering quantity but low productivity jobs.

Investment in infrastructure, promotion of foreign direct investment (FDI), and support to local investors were anticipated to spur growth in jobs.

The Uganda Investment Authority (UIA) was put in place by an act of parliament in 1991 to foster private sector investment and, subsequently, creation of employment through foreign, joint-venture and local projects.

Efforts to promote FDI have focused on generating new investments with foreign and domestic private sector actors.

Although the UIA has created some jobs—particularly in telecommunication and banking—the number is inadequate compared to the huge number of annual labor market entrants.

According to the Uganda Employment Policy, employment stemming from the UIA's projects absorbs less than 10 percent of labor market entrants annually. By 2013, the UIA's jobs conversion rate (the difference between jobs at licensing and actual jobs at implementation) was about 60 percent.

The majority of these jobs (63.5 percent) are of an unskilled or casual nature. This poor performance of the UIA is due to a number of challenges, which include its urban bias (yet the majority of the youth reside in rural areas and are highly underemployed), its lack of strategic focus beyond attraction of FDI, and weak support to domestic investors.

Further analysis reveals that close to 70 percent of businesses in Uganda operate below installed capacity, citing inadequate infrastructure—both energy and transport.

Even more so, Uganda's business environment is not very favorable: When measured for ease of doing business in 2014,

Uganda was ranked 132 out of 189 countries.

Support to enterprise development

Recognizing that micro-, small- and medium-sized enterprises have been a considerable source of employment in Uganda, the government should promote the culture of "self-employment" through microfinance.

This kind of intervention dates back to the late 1990s when the government introduced the Youth Entrepreneurial Scheme (YES). The YES program was designed as a loan scheme for youth who wished to venture into business.  

Building skills and equipping labor with requisite knowledge

Another major intervention to be undertaken by the government relates to skills development for young people.

Upon recognizing that youth lack employable skills or possess skills that are irrelevant in the current job market,  the government should  focus on a phased curriculum review at all levels of education with a focus on business, technical, vocational education and training (BTVET).

Entrepreneurship should be introduced as a subject in both lower levels of education and university levels with a view of imparting practical knowledge and skills to enable youth to become job creators.

In addition, the Ugandan government should put an emphasis on science by paying higher wages to science teachers, building science labs and allocating more government-sponsored slots (75 percent) for science students at universities.

 At the tertiary level, mandatory internships and introduction of courses that teach skills that are sought after by employers should be some of the interventions.