Roza Mamuye, Associate Economist, UNDP Ethiopia

Improving worker productivity and capacity of its workforce together with increased access to means of production is necessary for Ethiopia to reap demographic dividend and manage the demographic transition.

Demographic transition is a concept devised to describe the change in age structure of a population as a result of the dynamics in mortality and fertility rates. Demographic transition basically has four phases namely pre-transition, early transition, late transition and post transition depending on direction and speed of fertility and mortality rates and the net effect between the two. Demographic transition generally parallels economic progress; modernization resulting from industrialization, urbanization, education, empowerment of women, as well as substantial overall socioeconomic development activates the shift towards low mortality and fertility rates. There is a continuous development to the model to capture the dynamics such as migration, economic hardship and, social and political stability and to entertain diversity of countries by introducing new stage (phase).

Demographic transition is critical because of its interplay with economic growth and human development. The change in population structure affects economic growth and development through demand for resources, and basic services and also through supply of labour.  The term coined to capture and explain this effect is demographic dividend. Demographic change could result in either dividend or disaster depending on policies and its management. Even though demographic transition has happened in many countries, it has not resulted in demographic dividend in all of them underlining the importance of smart policies and strategic investments. East Asia has been frequently cited as a success story for reaping demographic dividend by combining rapid demographic transition with export-oriented policies that resulted in increased the demand for labor.

Challenges related population growth spiraling out of control or weak mechanisms linking demographic transition to social change could delay or even deny reaping demographic dividend.  One of those important mechanisms or channels is job creation and productive employment. However, it should be noted that the link between demographic transition and demographic dividend is not necessarily one way; development could promote or speed up the transition process.

Ethiopia has seen a significant decline in both death and birth rates over the years. However, fertility rate is still high at 4.6 though slightly declining.  Fertility rate has declined by 0.9 percentage points between 2000 and 2016, the percentage change in rural areas was higher, but the decline in rural areas only started after 2005. With regards to mortality rate, there was a sharp decline in both child and adult mortality.

The share of the youth population (15-29 years of age) has reached 30 percent and the share of the working age population is currently 55.4 percent, with more than half belonging to the youth group. The share of children under 15 years of age is 40 percent, as a result, the age dependency ratio remains high at 82 percent. Among the prominent features of the demographic change in Ethiopia are youth bulge and high labor force participation. The phase of demographic transition Ethiopia is in is where the middle of the pyramid, basically the working age group, is high. The working age population has been increasing on average by 1.6 million people every year in the past decade. The share of the youth population has been increasing steadily.

Demographic Transition and its Consequences

 

Source: World Bank, WDI 2016 and EDHS 2016

 

The figures demonstrate that Ethiopia is in the second stage of demographic transition known as the early transition which is characterized by falling death rates but relatively high birth rates the net effect being rapid population growth.

This shows that investments in children and maternal health have paid off in terms in decreased mortality rates and hence the change in the population structure. However, the decline in fertility is relatively slow indicating gaps on the coverage of family planning programmes as well as educational attainment of women. Studies indicated that there is an inverse relationship between level of education of women and fertility rate in Ethiopia.

The increase in share of the working age group and the number of new labour market entrants have an overall impact of reducing the age dependency ratio, however, the actual benefit to the economy is realized only through the level of quality jobs created. One of the main challenges of population growth is creating adequate demand for labour to absorb the growth in supply. In the absence of adequate demand the workforce is obliged to be unemployed or underemployed.

In Ethiopia, large share of the workforce, including the youth, is engaged in low productivity sectors such as small holder agriculture and informal services. Due to the high fertility in the rural areas and stagnation in the agriculture sector, the youth is fleeing to urban areas only to end up in the informal services sector. The unemployment and underemployment in urban areas is being aggravated by impacts of climate change and stagnation in the agriculture sector. In addition, as a result of slow structural transformation, the job structure has not changed, majority of employment is still in the agriculture sector followed by informal service sector.

Employment in the informal sector, though it increases the absolute number of the employed population, can not necessarily translate in to human development gains for the employed. For demographic dividend to happen, the employment should be productive. So, for Ethiopia the dominance of low productivity sectors like agriculture and informal services, and micro and small manufacturing could be a sabotaging factor for demographic dividend.

Studies and surveys show that there is a dichotomy in the Ethiopian labour market, where industries report lack of qualified human resources as one of their impeding factors, while employment surveys show that it has been hard for people with some level of education to find jobs. So, promoting youth employment in Ethiopia in the face of the changed demographic structure would touch on wide spectrum sectors, policies and institutions.

Promoting Youth Employment for Greater Demographic Dividend

Productive youth employment is one of the main channels through which demographic transition benefits an economy. Turning a youth bulge and change in population structure in to a demographic dividend needs appropriate policies and efficient use of resources. It demands a well thought through policies and strategies towards enhancing productivity of those sectors as well as enhancing the structural transformation towards industry. For Ethiopia to reap the first stage of demographic dividend it needs to augment the value and competence of its youth workforce and ensuring its productive employment.

The policies and strategies of the country should not just dwell on generating employment, but productive employment. Harnessing demographic dividend requires creating of decent and high productivity jobs. Accordingly, key policy actions should be able to address the root causes of underemployment such as low productivity and low access to resources. This includes policies to increase capital endowment per worker through encouraging capital investment particularly by promoting domestic private investment. The most urgent interventions in this regard shall focus on skills development through quality education and training, and increased access to means of production for youth cohort.

Human Capital is the Key

Quality human capital development is at the center of promoting productive youth employment. Revamping the education system is a must for Ethiopia, in order to improve worker productivity and increase the capacity of the work force. This involves ensuring higher secondary and tertiary school enrollment and completion rates. Higher education institutions should continuously reform to respond to demands from technological progress and to be the hub of innovation. Likewise, TVET system should step up to accommodate advances in technology and the country’s direction towards transforming to industry. The TVET system now is designed only in such a way to encourage self-employment in micro and small enterprises. This will reduce the challenges faced by big manufacturing firms, including foreign-owned, in terms of supply for qualified workforce and lessen jobs export.

In addition, to address the demand side, the country needs policies and laws backing up the trained labour force and ensure decent work environment. For instance, the country cannot keep promising cheap labour to attract FDI. The objective of attracting FDI should include creating decent jobs for the youth. Building demand for labour also involves creating conducive business environment, for the private sector, aided by strong institutions and macroeconomic stability.

 Linking the Youth to the Means of Production

The second main channel through which Ethiopia can promote productive youth employment is through linking the youth to means of production such as capital, land and technology. Capital is one of the critical factors in production and lack of access to capital is often reported by Ethiopian young entrepreneurs as a challenge. Creating access to capital through deepening financial inclusion is central to ensuring productive employment. Financial inclusion in terms of access to credit encourages entrepreneurship and innovation. One the lingering problems faced by young entrepreneurs in Ethiopia is the proverbial lack of access to credit. There is a need to expand the financial services to include different kinds of loans to finance innovation and investment on education and skills. Financial sector development will play a huge role in promoting productive youth employment.

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