So, how’s it going?

OECD prepares for brainstorm

It’s a big day here today, with French President François Hollande and senior ministers coming to find out what the heads of the OECD, World Bank, IMF, WTO and ILO have to say about the global economic outlook as well as the European and French economies. They’re discussing policies needed to return to growth, redress global imbalances, improve competitiveness and alleviate the social impact of the crisis.

We talked about the OECD’s views here in an article called “Doom and gloom” on the May interim global economic outlook. The main worry was that the euro area crisis is dragging down the rest of the world economy through its impacts on trade and business and consumer confidence. The World Bank agrees. Their Global Economic Prospects says that “resurgence of tensions in the Euro Area is a reminder that the after effects of the 2008/09 crisis have not yet played out fully. Financial market uncertainty and fiscal consolidation associated with the high deficits and debt levels of high-income countries are likely to be recurring sources of volatility for the foreseeable future as it will take years of concerted political and economic effort before debt to GDP levels of the United States, Japan and many Euro Area countries are brought down to sustainable levels.”

The World Bank’s sister organisation, the IMF supports its sibling, and the OECD. The Global Financial Stability Report (GFSR) says that “risks to financial stability have increased since the April 2012 GFSR, as confidence in the global financial system has become very fragile. Although significant new efforts by European policymakers have allayed investors’ biggest fears, the euro area crisis remains the principal source of concern.”

Austerity is among these efforts, but the OECD warned that although this is a medium-term policy designed to help public finances, it acts as a drag on short-term economic activity, and can even start a negative feedback loop whereby activity is weaker than expected when planning the budget, so less tax comes in and there is overspending, and then the need for more consolidation, which acts as a drag…

The ILO calls this the “austerity trap” in the latest World of Work Report, and outlines a similar vicious circle to the one the OECD described: “Austerity has, in fact, resulted in weaker economic growth, increased volatility and a worsening of banks’ balance sheets leading to a further contraction of credit, lower investment and, consequently, more job losses. Ironically, this has adversely affected government budgets, thus increasing the demands for further austerity.”

The ILO estimates that there is still a deficit of around 50 million jobs compared to the pre-crisis situation, and “It is unlikely that the world economy will grow at a sufficient pace over the next couple of years to both close the existing jobs deficit and provide employment for the over 80 million people expected to enter the labour market during this period.”

As you’ve no doubt noticed, there’s a general air of pessimism about these reports, and even the efforts that have been made to address the issues that caused the crisis in the first place don’t generate much enthusiasm. Financial sector reform for instance, leaves a lot to be desired according to the IMF, because although there has been some progress over the past five years, financial systems have not come much closer to being more transparent, less complex, and less leveraged. “They are still overly complex, with strong domestic interbank linkages, and concentrated, with the too-important-to-fail issues unresolved.”

Developing and emerging economies did comparatively better than the more developed economies during the crisis, but even there are worrying signs, with the World bank warning that in a new crisis no developing country would be spared, particularly those with strong reliance on worker remittances, tourism, commodities or those with high levels of short-term debt or medium-term financing requirements. Even without a full-blown crisis, elevated fiscal deficits and debts in high-income countries and their very loose monetary policies mean that the external environment for developing economies is likely to remain characterized by volatile capital flows and heightened investor uncertainty.

But let’s end of a positive note. The WTO’s figures reveal that world merchandise exports increased by 5% in 2011 in volume terms. The United States remains the world’s biggest trader (in value terms), with imports and exports totalling $3,746 billion in 2011. China and Germany rank second and third respectively. Exports of commercial services grew by 11% in value terms. The United States is the world’s largest trader, with $976 billion of services trade in 2011.

See you next year, if President Hollande’s suggestion to make this an annual event is adopted.

Useful links

OECD work on the economy

OECD work on employment

OECD work on finance

OECD work on trade

Internet traffic exchange: 2 billion users and it’s done on a handshake

That’ll be $0.0000008 for transit or 100,000 times more for voice, please

Today’s post is written by Rudolf Van der Berg of the OECD’s Science, Technology and Industry Directorate

Every day one Exabyte of data is said to travel over the Internet – enough data to fill 300,000 of the world’s biggest hard disks or 212 million DVDs. And astonishingly, according to Internet Traffic Exchange: Market Developments and Policy Challenges a new OECD report on Internet traffic exchange, most of the thousands of networks that exchange this traffic do so without a written contract or formal agreement.

The report  provides evidence that the existing Internet model works extremely well, has boosted growth and competition and brought prices for data down to 100,000 times less than that of a voice minute. A survey of 4300 networks, representing 140,000 direct exchanges of traffic, so called peerings, on the Internet, found that 99.5% of “peering agreements” were on a handshake basis, with no written contract and the exchange of data happening with no money changing hands. Moreover, in many locations, multilateral agreements are in place, using a so-called route server, where hundreds of networks will accept to exchange traffic for free with any network that joins the agreement. The parties to these agreements include not only Internet backbone, access, and content distribution networks, but also universities, NGOs, branches of government, individuals, businesses and enterprises of all sorts – a universality of the constituents of the Internet that extends far beyond the reach of any regulatory body’s influence.

These peering agreements save both parties money and improve quality for their users at the same time. The alternative is to pay third parties, so-called transit providers, which still remains necessary to reach all networks. Paying for transit currently costs between $2 and $150 per Mbit/s per month, depending on country and competition, irrespective of whether a network sends or receives it.

Under the current system, operators have an incentive to invest and expand their network to reach new peers and cooperate with other networks to establish new Internet exchange points (IXPs) in areas where there are none, because they save on transit costs. Indeed peering locations have been established in every corner of the world and large content providers and Content Distribution Networks have expanded their networks into these locations – in both developed and developing countries. This has saved them and their customers, including the ISPs they peer with and their customers, millions of dollars every year, while greatly increasing quality of service.  Expanding IXPs helps keep local traffic local, unburdens interregional links and stimulates investment in local networks. It is for this reason that the OECD has encouraged countries to develop and use IXPs for more than 15 years.

The Internet has thus developed an efficient market for connectivity based on these voluntary contractual agreements. Operating in a highly competitive environment, largely without regulation or central organisation, the Internet model of traffic exchange has produced low prices, promoted efficiency and innovation, and attracted the investment necessary to keep pace with demand.

For example, if the price of Internet transit were stated in the form of an equivalent voice minute rate, it would be about $0.0000008 per minute – or 100,000 times lower than typical voice rates. By contrast, interconnecting voice services on traditional telecommunication networks has been contentious, requiring strong regulatory oversight, with contracts between networks sometimes totaling hundreds of pages and expensive computer systems calculating the incoming and outgoing revenues.

The findings lend support to the conclusions of a June 2011 OECD High Level Meeting on the Internet Economy, which endorsed principles for Internet policy making that have since become an OECD Council Recommendation. Key among that guidance for policy makers is the need to ensure a multi-stakeholder approach to Internet policy making, and, whenever possible, avoid regulation.

The evidence gathered in Internet Traffic Exchange demonstrates that Internet traffic exchange is the archetypical example for this approach. Not only has the open model of the Internet supported two billion users in an incredibly short period of time, it also lends itself to supporting the type of innovation and competition that will drive growth for the next two billion users.  Importantly, it has done this through a mixture of multi-stakeholder participation and self-governance. The current model of Internet traffic exchange can only exist in an environment that stimulates market entry and investment.  This requires that regulators allow telecommunication and non-telecommunication operators to enter into the market, to compete and to interconnect. Indeed where development of the Internet has been less than satisfactory this often stems from a lack of sufficient liberalization.

Given the enormous difference in performance between the heavily regulated telephony sector and the performance of the Internet sector, the report says:  “As incumbent networks adopt IP technology, there is a risk of conflict between legacy pricing and regulatory models and the more efficient Internet model of traffic exchange. By drawing a “bright line” between the two models, regulatory authorities can ensure that the inefficiencies of traditional voice markets will not take hold on the Internet… That these “rules of the game” are so ubiquitous and serviceable indicates a degree of public unanimity that an external regulator would be hard-pressed to create.”

Useful links

To share best practice in this area, the OECD together with BEREC (the telecommunication regulators of the European Union area) organized two workshops on Internet traffic exchange in 2011 and 2012. Some of the presentations of these meetings can be found here.

The Relationship between Local Content, Internet Development and Access Prices (with UNESCO and ISOC)

Developments in Mobile Termination

World Food Day: Let’s cooperate

Click to see the other winning images

Last year, the world spent the equivalent of $2000 on arms for every one of the planet’s 870 million malnourished people.  Other than giving the gun money (or guns) to the hungry, how else could we fight malnutrition? On its annual World Food Day, the FAO argues that agricultural cooperatives are the “key to feeding the world”. Co-ops are far more important than most of us realise. According to the FAO, around 1 billion people worldwide are members, and cooperatives provide over 100 million jobs across all sectors, 20% more than multinationals. In 2008, the top 300 cooperatives were responsible for an aggregate turnover of $1.1 trillion, roughly the size of the world’s tenth largest economy, Canada.

Agricultural cooperatives (the main type in many countries) can offer their members a range of services, including credit, training, marketing and access to information, as well as improving their bargaining power when buying inputs or in policy making. That can help them take advantage of opportunities like the surges in food prices seen in 2007-2008, that in fact left many poor farmers worse off because they couldn’t increase their own production but still had to pay higher prices for things they didn’t produce themselves.

People in this situation can become trapped in a vicious circle, where food insecurity is not just an immediate tragedy, but a threat to longer-term wellbeing. As Joe Dewbre explains in the OECD Observer, faced with hunger, families first tend to reduce consumption of higher quality foods, such as meat or vegetables. But if the crisis continues, they may have to sell the means by which they normally earn a living – their animals or tools for instance – or take out loans that will leave them impoverished and indebted for years to come. Or even worse. Earlier this year, the Indian media reported on a wave of suicides among farmers in Bengal unable to repay loans.

Dewbre argues that historical evidence – and common sense – suggest that as a society becomes richer, food security becomes less of a problem. An OECD working paper shows that developing countries with very different levels of economic development, population size and geographical location have succeeded in reducing poverty and improving nutrition. Despite the significant differences among them, they share some characteristics. During the period when they had the greatest success in reducing poverty, the macroeconomic context became progressively more favourable. Their own governments were lowering export taxes, reducing overvalued exchange rates and dismantling inefficient state interventions in agricultural markets. Meanwhile, the governments of rich country trading partners were reducing the kinds of support to their farmers that distorted production and trade the most.

As we discussed in this article, hunger exists in rich countries too, but the main food-related problem here is obesity. According to the OECD Obesity Update 2012, obesity rates in OECD countries have doubled or tripled from 1980, when fewer than one person in ten was obese. Now, the majority of the population is overweight or obese in 19 of the 34 OECD countries, and OECD projections suggest that more than two out of three people will be overweight or obese in some OECD countries by 2020. The good news is that the progression of the epidemic has effectively come to a halt for the past ten years in some countries, including Korea (where obesity rates have stabilised at 3% to 4% of the population), Switzerland (7% to 8%), Italy (8% to 9%), Hungary (17% to 18%) and England (22% to 23%).

However, the epidemic isn’t regressing anywhere, and it’s also becoming a problem in developing countries. Data from the WHO show that overweight and obesity are now on the rise in low- and middle-income countries, particularly in urban settings. Close to 35 million overweight children are living in developing countries, compared to 8 million in developed countries. The WHO ranks overweight and obesity as the fifth leading risk for global deaths. At least 2.8 million adults die each year as a result of being overweight or obese. In addition, 44% of the diabetes burden, 23% of the ischaemic heart disease burden and between 7% and 41% of certain cancer burdens are attributable to overweight and obesity.

That said, hunger and malnutrition are still the number one risk to the health worldwide — greater than AIDS, malaria and tuberculosis combined. That $1.738 trillion used to buy arms last year could have been better spent.

Useful links

OECD work on food security and nutrition

OECD work on agricultural policies for poverty reduction

Cow power!

Click to learn more about Cow Power

Today’s post is from Kate Lancaster, editor in charge of publications on regional development at the OECD.

They say a picture is worth a thousand words, but what about its worth in cows? Behind this simple photo of a jolly tourist trolley stand a herd of 16 proud Vermont dairy cows, happily producing waste to help power this trolley. To be clear, their manure isn’t shoveled directly into an onboard furnace. Rather, the cows and the vehicle represent start and end points in a renewable energy success story.

This trolley runs thanks to “Cow Power”, a Vermont programme that gets dairy farmers to convert bovine waste into fuel, through the use of bio digesters. The digester produces methane gas, which fuels a modified natural gas engine, which in turn powers a generator to create electricity. Heat generated from this process keeps the digester warm, offsetting the farm’s fuel purchases. And the electricity generated is fed into the local energy utility’s system for distribution to customers.

To date, the programme has generated $1.8 million per year for Vermont farms, supporting a sector that has struggled, but which is of economic, cultural and historic value to the state. There are environmental payoffs too: Converting cow manure into methane biogas instead of letting it decompose reduces greenhouse gases. And together, eight Vermont cow power farms have the potential to eliminate 24 000 metric tons of carbon dioxide per year. The programme also benefits the electric utility, as consumers agree to pay a higher rate when they choose to use cow power. A final bonus? The processing of the waste makes the final solid byproduct a whole lot less smelly than manure straight from the source, something that the farmers and their neighbors alike appreciate.

But “cow power” is only one of the myriad renewable energy options being deployed in rural areas around the world.  Many OECD governments have invested large amounts of public money to support renewable energy development and are requiring significant quantities of such energy to be sold by energy providers, deriving from biogas, wind, hydropower, solar power, or other natural sources. A new OECD report, Linking Renewable Energy to Rural Development, asks what the true economic impact of these policies and investments is, based on case studies in 16 regions across Europe and North America. Can renewable energy really help develop rural economies?

Renewable energy is being championed as potentially significant new sources of jobs and rural growth, and as a means of addressing environmental and energy security concerns. However, there can be significant trade-offs among these three goals. For instance, large biomass heat and power plants can generate employment in rural communities, but may increase CO2 emissions due to changes in land use and the transportation of feed or livestock. Or consider that small-scale renewable energy installations typically use labour and equipment from international suppliers, thus limiting local job creation.

Can such trade-offs be mitigated? The authors think so, if renewable energy policy is well-thought out, flexible and carefully adapted to local conditions, cultures and opportunities. Renewable energy strategies should not be imposed from above, they suggest, but rather embedded in local economic development plans and undertaken with community involvement. Programmes such as the Community and Renewable Energy Scheme (CARES) – overseen by Community Energy Scotland (CES) – not only help provide greener sources of energy, but also build community cohesion, develop local confidence and skills, and support local economic regeneration.  

It is equally important to be realistic about what projects will work in a given place and economy, particularly if subsidies are limited or removed from the equation. Investment should be in those projects that are appropriate for their setting and viable on the market, or close to being so. Choosing relatively mature technologies such as heat from biomass, small-scale hydropower, and wind, is advisable. The Italian region of Puglia, for example, although long a producer of coal energy, has also invested in mature solar and wind technologies, and is seeing economic and environmental benefits.

Will cows soon be powering your buses? Will sheep be mowing your lawn? Such ideas are charming – and working, in certain communities. But the wider reality is that viable renewable energy policy is complex, and there are no shortcuts to rural development.

Useful links

OECD work on regional, rural and urban development

OECD work on green growth and sustainable development

Making the most of international capital flows

Click to obtain a copy of the Code

Today the OECD is hosting a high-level seminar on the role of international co-operation in capital flow management and liberalisation. We invited OECD Secretary-General Angel Gurría to describe the Organisation’s work in this field, notably the OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations.

International capital flows have increased dramatically in the past decades. Gross cross-border capital flows rose from about 5% of world GDP in the mid-1990s to historical highs of about 20% in 2007. This growth was around three times stronger than growth in world trade flows. The contraction caused by the crisis affected mainly international banking flows among advanced economies and subsequently spread to other countries and assets. Capital flows have rebounded since the spring of 2009, driven by portfolio investment from advanced to emerging-market economies and increasingly among emerging-market economies themselves.

Financial globalisation, and the associated increase in the movement of capital across international borders, can be both a blessing and a challenge. As we argued in the 2011 OECD Economic Outlook, increasing international capital flows can support long-term income growth through a better international allocation of saving and investment, but they can also make macroeconomic management more difficult, because of the faster international transmission of shocks and the increased risks of overheating, credit and asset price boom-and bust cycles and abrupt reversals in capital inflows. Volatility indeed is one of the hallmarks of capital flows.

Several countries, including in the OECD area, have dealt with the adverse effects of such volatility by taking measures to limit capital inflows. Others are considering doing so. At the same time, some emerging economies with restrictive regimes are opening up. These contrasting situations are a good enough reason in themselves to bring together experts and officials from the public and private sectors to exchange experiences, analyses and opinions.

But there’s another reason for today’s seminar too. In June this year, the OECD invited non-members to join our Codes of Liberalisation of Capital Movements and of Current Invisible Operations. These codes are an important tool to promote orderly liberalisation, learn from each other’s experience, and ensure mutual accountability. While the two OECD Codes constitute legally binding rules, implementation involves “peer pressure” and dialogue exercised through policy reviews and country examinations.

Countries that adhere to the Codes are expected to fulfil three core principles. First, non-discrimination, meaning they grant the benefits of their liberalisation measures to all other adherents and do not discriminate against other adherents when applying any remaining restrictions.

Transparency is the second principle. Adherents must report up-to-date information on barriers to capital movements and trade in services that might affect the Codes’ obligations and the interests of other adherents.

Standstill” is the third principle. This means that adherents should avoid taking new restrictive measures or introducing more restrictive measures except in accordance with the Codes’ provisions or established understandings regarding their application.

By adhering to the Codes, a country receives international support and recognition for its openness, and joins a community of countries that refrain from a “beggar-thy-neighbour” approach to capital flows. In other words, countries that adhere to the Codes will not try to improve their own situation by harming others.

An adherent also enjoys the liberalisation measures of other participants, regardless of its own degree of openness. It is protected against eventual unfair and discriminatory treatment of its investors established in other participating countries.

A more subjective, but equally important benefit is that the country reassures market participants that it does not intend to maintain controls broader or longer than necessary. This is crucial in today’s economy where expectations and attitudes play such a significant role in financial markets and investment decisions.

There is obviously an issue of sovereignty in any discussion of openness (whether to capital flows or trade). I’d argue that the Codes help reinforce national influence because as an adherent, a country fully participates in shaping jurisprudence and improving the rules of the framework.

Moreover, the Codes recognise the right of countries to regulate markets and operations. The liberty to conduct transactions is subject to national regulations, as long as they do not introduce discriminatory treatment, in like circumstances, between residents and non-residents. Countries have the right to set prudential measures to protect users of financial services, ensure orderly markets, and maintain the integrity, safety and soundness of the financial system.

It’s also worth emphasizing that while economies are increasingly interdependent and interconnected, they are not identical, and the Codes recognise this.

Countries can pursue liberalisation progressively over time, in line with their level of economic development. Emerging economies such as Chile, Korea and Mexico have adhered to the Codes. Some OECD countries used a special dispensation from their obligations under the Codes for countries in the process of development, while still enjoying the same rights as other adhering countries.

Last the Codes also provide countries with flexibility to cope with situations of short-term capital volatility including the introduction of controls on short-term capital operations and the re-imposition of controls on other operations by invoking the Codes’ “derogation” clause in situations of severe balance-of-payments difficulties or financial disturbance. This clause has been used 30 times since 1961, most recently in 2008 when Iceland introduced exchange controls and measures restricting capital movements in response to a severe banking and balance of payments crisis.

Hence the Codes are the only multilaterally-backed instruments promoting the freedom of cross-border capital movements and financial services while providing flexibility to cope with situations of economic and financial instability. They were also the first instruments created by the OECD when it was founded in 1961. For 50 years adhering countries have used the Codes to support reform, to co-operate to reap the full benefit of open markets and to avoid unnecessary harm from restrictive measures.

The OECD Council decided last June to open the Codes to adherence by all interested countries outside the OECD membership with equal rights as OECD countries. This is an important step in expanding international co-operation, maintaining deep liquid global capital markets, and making the most of international capital flows as a tool to finance growth and development. Time has also come to think about how the Codes should be improved to ensure we can continue to maximise the benefits from open capital markets while avoiding their downside effects.

Today’s seminar will, I hope, give us insight into how to adapt the Codes’ highly effective mixture of principle and pragmatism to the coming decades.

Useful links

OECD work on capital flows

Composite leading indicators: the forecasters’ forecast

Click for the latest CLI

To the uninitiated, a double Hodrick-Prescott filter probably sounds like something a 1920s spaceship used to reduce coal consumption during long flights.  But as some of you probably know, and I certainly didn’t until this morning, it is in fact a mathematical means used to help spot turning points in a time series. So, it’s not rocket science, but it is every bit as complicated. And very useful in calculating the OECD Composite Leading Indicators, published today.

The turning points that the CLIs spot are those in the business cycle, and experience over the past 30 years shows that the turning points of the CLIs consistently precede those of the business cycle, with lead times of about 6 – 9 months. In fact in the animated graph of the OECD Business Cycle Clock, it looks like GDP is stalking the CLIs around the axes.

The CLIs work by comparing a country, or group of countries, with itself, looking at how the latest figures compare with long-term trends – is the country doing better or worse than long term trends suggest it should. They provide qualitative information rather than quantitative measures, but by forecasting changes in direction of the economy, they help economists, businesses and policymakers to improve their analysis of current trends and anticipate economic developments.

The indicators used to build the CLIs include both facts and opinions, such as the number of new houses being built or a consumer confidence indicator. The actual components vary from one country to another, with Turkey for example including electricity production while Belgium’s CLI uses new passenger car registrations. You can find the components of the CLI for each OECD country, the BRIICS, and various regional groupings here.

So what do they latest figures reveal?   Weakening growth in most major economies, I’m afraid. The CLIs for the United States and Japan continue to show signs of moderating growth while in Canada the CLI points to weak growth. In Germany, France, Italy and the Euro Area as a whole, the CLIs point to continued weakening growth. In China, the CLI points to soft growth, but tentative signs are emerging that the recent deterioration in the short-term outlook may have stabilised. In India and Russia, the CLIs continue to point to weak growth.

Useful links

Hope for Africa’s youth

Click to go to the African Economic Outlook site

Today’s post is from Roopa Chauhan, in collaboration with the OECD Development Centre

If Mohammed Bouazizi had lived in Dar es Salam, Tanzania or Durban, South Africa, he might still be alive today. Like millions of young Africans, Bouazizi didn’t have a regular job, but managed to scrape by as an informal market trader, selling vegetables out of a wooden cart. Being fined repeatedly and having his stock confiscated proved too much to bear and Bouazizi committed suicide by setting himself on fire. He would have remained just as anonymous as countless other victims of injustice had news of his death not provoked the protests in Tunisia that led to the Arab Spring.

Youth employment is the special theme for this year’s African Economic Outlook. It analyses the economic factors that indirectly contributed to Bouazizi’s demise, namely a rigid formal sector unable to provide sufficient employment opportunities for Africa’s youth. Yet, the AEO remains positive in its overall assessment of Africa’s prospects, which are generally good even though the Arab Spring set growth back from 5% in 2010 to 3.4% in 2011. Commodity prices, key to many African economies, have also dropped recently and may continue to fall, but their levels are still relatively high and have so far supported growth in exporting countries.. Despite this and other issues related to the global recession (inflation, the rise in food and fuel prices, etc.), Africa’s economy continues to expand, creating favorable conditions for governments to tackle unemployment, a serious problem in most African countries, especially for youth.

A discouraged youth population is the risk governments face if their policies don’t become more inclusive and fail to stimulate employment creation. So, how can African countries unlock the potential of their youth and offer them a hopeful future? The solutions and problems differ depending on the level of development. The rate, quantity and quality of employment differ depending on a given country’s income level, and the policy challenges are therefore also different. In middle-income countries, the quantity of employment is more of an issue than in lower-income countries, where the quality of employment is a problem for first-time job seekers. Formal employment is higher in middle than in low-income countries, but overall employment is lower because middle-income countries do not provide as many informal employment opportunities as LICs, which creates an “employment bottleneck” to accessing the formal sector.

Generally, all African countries, need to recognise the economic benefits of the informal sector where millions of Africans find their first jobs and where those with the talent build successful businesses. The formal sector needs to be flexible enough to absorb the informal sector. One way of accomplishing this is to encourage private sector growth, which is “the most important vehicle for creating jobs for young people in Africa”. However, until the private sector can do this, those employed in the informal sector need adequate government support. For example, in Dar es Salaam, Tanzania and Durban, South Africa local governments provide licenses to street traders. This practice legitimises their status, strengthens their ties to local authorities and renders them less vulnerable to harassment. Bouazizi would have certainly benefitted from such a license.

Education should also be high on African policymakers’ agenda. African youth need skills that match employers’ expectations. For many African countries, graduates with degrees in engineering and information technology are more likely to find jobs than those who have degrees in the social sciences or humanities. In order to encourage students to obtain degrees in science and technology and produce employable graduates, the Ethiopian government introduced a policy designed to shift the balance of subjects in all public universities away from the humanities’ on a 70:30 basis.

Finally, the dynamism of the rural sector needs to be exploited. It provides employment not only in agriculture, but in small-scale, non-farm related activities (mechanical repair shops, hair dressing, handicrafts, textiles, etc.). It has “potential as an engine of inclusive growth and youth employment”. Youth in rural Africa are endowed with the entrepreneurial spirit, more so than their urban counterparts: 23% of youth in rural areas have plans to start their own businesses; in urban areas only 19% have similar ambitions. Their creativity can benefit the African economy as a whole, so it needs to be channeled in the right direction.

The bottom line is that African economies are expanding. They have weathered the global economic crisis rather well with a projected growth rate of 4.5% in 2012 and 4.8% in 2013.  This growth needs to be accompanied by job creation so that all Africans can reap the benefits, not just the elite.

Today, Africa has 200 million young people, which makes it the youngest population in the world. By 2045, this number will double. African youth are also becoming more educated: 42% of 20-24 year olds have a secondary education. In 2030, it will be 59%. Who would like to see a vibrant, capable generation of workers sacrificed because of inadequate policy choices? Hopefully, not African politicians. The stakes are too high and economic outlook is too positive for those in power not to take advantage of their best resource: Africa’s youth.

Useful links

The 2012 International Economic Forum on Africa: Promoting Youth Employment

Development Centre Director Mario Pezzini talks about youth employment