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Oppenheimer Lecture 2013
Ngozi Okonjo-Iweala,
Minister of Finance and Coordinating Minister for the Economy, Federal Republic of Nigeria
Arundel House, London
Wednesday 19 June 2013

I am deeply honoured by the invitation extended to me by Dr. John Chipman and the IISS to deliver this year’s Oppenheimer Lecture, even moreso as most of my predecessors have been Heads of State. So at least for an evening, I feel Presidential. Let me also commend the IISS which has been at the forefront of promoting global peace and security, over the last few decades, and reiterate that the Institute’s mission is ever-pertinent in a world where change is the only consistent factor, and likewise, where the nature of threats to peace and security is ever-changing.

In this context distinguished ladies and gentlemen, my lecture today, titled ‘Securing Development: Challenges of Economic Inclusion in Africa’, discusses a rising phenomenon which I believe poses significant risks to peace, security, and the overall development of the continent, and the world at large. In 2010, the world watched in horror as one young man’s frustrations with his alienation from society and exclusion from job opportunities set the Arab world on fire – a fire that continues to burn till date.  Similarly we have seen angry youth on the streets of Europe- from Greece to Spain to Italy to Turkey, protesting viciously and often violently in response to austerity measures that have prevented them from being economically active.

Like other regions, Sub-Sahara Africa too has not escaped from this phenomenon of rising youth unemployment. According to the OECD and the African Development Bank, young people (under the age of 25) make up slightly more than a third of the region’s total labour force but account for about 60 percent of total unemployment. On average, 72 percent of the youth population lives below the $2 a day poverty line, according to a World Bank Survey. In my own country Nigeria, about 63 percent of the population is under 25. Unemployment is at 23.9 percent, with youth unemployment at around 37 percent. In the north-east of the country where Boko Haram thrives, the level of unemployment is worse. Yobe and Adamawa States, where the government recently declared a state of emergency, have one of the highest unemployment rates in the country, at about 35 percent. These numbers are even higher during the dry season, when agricultural activity – in which more than 90 percent of the population in these States is engaged, is low. Generally speaking, Northern Nigeria falls below the national average on measures of relative poverty and social development, according to a recent report by the UN.

These high levels of unemployment often create a feeling of hopelessness and desperation among youth, and these are psychological variables that terrorist organizations use in recruiting their members. After all, ‘an idle mind is the devil’s workshop’, as the famous proverb goes. So it is not surprising that Sub-Sahara Africa has of recent come under the spotlight as a breeding ground for terrorism, with the insurgency of groups like Ansar Al-Dine in Mali, and Boko Haram in the northern parts of my country Nigeria, Cameroon, and Niger.

However, unlike other regions of the globe where this phenomenon of rising youth unemployment can be closely linked to economic downturn and slow GDP growth, Africa’s economy has been thriving. In the past decade, the growth of Sub-Sahara African economies, averaging about 5 percent per annum, has outpaced global growth of about 3 percent annually. Countries like Nigeria, Ghana, Angola, and Ethiopia have grown at 7 percent or higher on an annual basis over the last few years, and six of the ten fastest growing economies of the world were in Sub-Sahara Africa during this same period. This economic growth has largely been on the back of strong macroeconomic reforms being implemented in several countries, and on the back a peace dividend that resulted from an end to the protracted civil wars of the 1980s and 1990s.

As a result, Sub-Sahara Africa, in the last few years, has been a hotbed for foreign and intra-regional investment, since the region offers the highest rate of return on investment according to the Mckinsey Global Institute. In fact it appears that Africa no longer needs a hands-up, as Nicky Oppenheimer had suggested when he gave the first lecture of the series in 2005. Africa now needs a handshake – a partnership in global development.

So why then is this region which has been doing so well for more than a decade experiencing this phenomenon of ‘jobless growth’?  Why is it that the vast majority of our youth are yet to be included in this economic growth?  My concern is that if this trend is not checked, its effects could arrest Africa’s progress towards peace and security and in so doing disrupt our economic development, like the civil wars of the 80s and the 90s. I believe the answers to these questions lie in a number of critical issues confronting the continent, which I would like to bring to the forefront.

The Challenges of Economic Inclusion
First, the pattern of growth is highly unequal. In other words, growth is fast but inequality has increased. Take the case of Nigeria,  Ethiopia, and South Africa – three fast growing African countries over the last decade. Latest World Bank data available shows that the Gini Coefficient – a measure of inequality in income distribution among individuals – has worsened over the last decade. In Nigeria, the coefficient rose from 42.9 in 2004, to 48.8 – where 100 implies perfect inequality by 2010. Likewise in Ethiopia, the coefficient rose from 30 in 2000 to 33.6 by 2011. In South Africa, the coefficient rose from 57.8 in 2000 to 63.1 in 2009. Such disparity in equality fuels social tensions and violence in the society.

Second, while it is true that economic growth is a pre-requisite for job creation, the sources of growth may not create many new jobs. African economies have not really transformed as several countries still depend primarily on commodity exports, and manufacturing is low. Natural resources like oil and various minerals account for nearly a quarter of the region’s GDP, and continue to be a significant driver of growth on the continent.  Africa benefitted greatly from the surge in global commodity prices in recent years. For example, oil prices climbed from less than $20 per barrel in 1999 to more than $145 per barrel in 2008. Gold prices rose from an average of $363 an ounce a decade ago to about $1,371 per ounce today; Copper, from $1779 per metric ton in 2003 to $7,059 today.

Africa’s natural resources output is set to increase as new oil deposits are being discovered in countries like Ghana, Uganda, and Kenya, while the extraction of other minerals (like iron ore) is set to accelerate in countries like Guinea and Sierra Leone. The IMF projects that oil-exporting countries in Sub-Sahara Africa will experience a relatively stronger growth on average of about 6.6 percent in 2013 – higher than the region’s overall growth rate of 5.4 percent. However, in spite of contributions to economic growth, the natural resources sector are not labour-intensive, and do not generate sufficient jobs to minimize the impact of this jobless growth phenomenon. As I said earlier, manufacturing activity, which can potentially create millions of jobs across Africa, is still quite low. In fact, Sub-Saharan Africa’s share of manufacturing GDP is declining and is less than half of the average for all developing countries.

Third, our human capital is inadequate as there is a mismatch between demand and supply in our labour markets. On the one hand, the ILO estimates that about 133 million young people in Africa or 50 percent of its youth population are uneducated, and lack the basic skills to be competitive in the labour force. On the other hand, even those who are educated continue to work in low-productive jobs mostly in the informal sector of the economy because of their inadequate skills level. According to the African Development Bank, about 5 million graduates are produced annually by African universities, but the mismatch between the skills they have acquired and those required by the private sector to create sustainable jobs is fueling a phenomenon of the educated unemployed.

Fourth, there are no safety nets, and this leaves the unemployed highly vulnerable to poverty. In many countries, the information required to better target the poor and the unemployed is not available. We lack sound identification data and biometrics that can support safety nets. We lack effective tax systems that can help redistribute income in favour of those at the bottom end.

Fifth, Africa has a demographic challenge – its youth bulge. According to UN population statistics, the median age on the continent is 19.7 years, compared with 27.6 in Latin America and the Caribbean, 29.1 in Asia, 37.2 years in North America, and 40.1 in Europe. Nearly 70 percent of the continent’s population is aged below 25. As a result, Africa’s labour force has been growing strongly, expanding by 91 million over the past decade, yet only 37 million of the new entrants were employed in wage-paying jobs, according to the McKinsey Global Institute. With yet a very high fertility rate and this demographic composition, Africa’s labour force is projected to rise by 122 million between 2010 and 2020, creating a continent-wide labour force of 500 million by the end of the decade. Clearly, this raises the challenge of job creation. And whilst jobs are being created in Africa’s economies, they are not being created fast enough to absorb the millions of new entrants into the labour force.

In spite of these challenges, I am very optimistic about Africa’s future and the potential of its youth. I believe the region can continue on its fast growth trajectory and turnaround this trend of 'jobless growth'into 'job-fueled growth', and by so doing, tackle the imminent threat to peace, security, and development on the continent.

So how do we solve this problem? We need to act fast and act smart. We need to mainstream youth employment as a core strategic objective of development, and we need to tackle issues raised with both short and long-term solutions. Now let me start with the real long-term solutions

Solutions
First, it is necessary that Africa’s economy continues to grow, and even faster perhaps in the double digits, to keep pace with population growth. And to ensure this, we must look beyond the reliance on primary commodity exports and natural resources. We must diversify our economies by focusing on alternative sources of growth and job creation. We need to add value to Agriculture and other commodities. We need to develop Manufacturing and Petro-Chemicals, and other sectors that can grow our economy faster.

We need to intensify efforts at improving our investment climate to ensure that the private sector can thrive and create jobs. In this regard, it is important that we fill the infrastructure gap, which is costing the African economy at least 2 percent in GDP growth annually. We need to join hands with the private sector and invest proceeds of our natural resources in critical infrastructure like power, roads, rail, ICT, and water and sanitation. We need to develop our financial systems to provide flexible and timely credit. We need to develop capacity for entrepreneurship, especially among the youth, as a major driver of job creation.

Like in a number of other African countries, we in Nigeria are already doing this. In fact, it is the main thrust of our Transformation Agenda. We are focusing on high-value Agriculture, where we expect to create 3.5 million jobs by 2015; we are developing, manufacturing through backward integration with agriculture; the Housing, ICT, Solid Minerals, and the Creative Industries, where we expect to unleash growth and job creation. We are also filling the gaps in our infrastructure. We have embarked on a comprehensive privatization program in our power sector. We are investing some of our petroleum subsidy savings in building new roads, bridges, and improving our rail transport system.

Second, it is crucial that our youth are not only educated but the quality of education they receive addresses the skills mismatch. We must develop our human capital in Africa. We need to improve access to basic education, especially for girls and women.

Let me say that the Nigerian government, led by President Goodluck Jonathan recognizes this, and has made improving both access and quality of education a national priority. Our policy now is to get 10.6 million out-of-school children back in-school, and improve the quality of education and access, including vocational training, at all levels. For example, the construction of 124 schools for the 'Al-Majiri' or 'street children' in Northern Nigeria is on-going to ensure that these out-of-school children, who have been a major supplier of manpower to the Boko Haram sect, are educated and liberated from the clutches of terrorist activities.

Third, we need to build safety nets. We need to develop Identity platforms and biometric systems that will facilitate the development of safety nets for the poor and the unemployed. We need to build a tax system that can efficiently redistribute income to those at the bottom end.  In Nigeria, we launched the pilot phase of a Conditional Cash Transfer (CCT) Scheme in May 2013, to support maternal and child health.

 Fourth, the reality is that Africa needs to consider controlling its population growth. This is an option that I believe we have not discussed enough. China’s much-reviled One Child Policy was crucial to its current economic success. I’m not suggesting we follow this but we Africans must now begin to look for our own home-grown policies that would manage our population growth in a way that whatever economic growth we achieve can be poverty-eradicating and more inclusive. I also believe that women and girls education is key here, given the implications on family planning. Africa is urbanizing rapidly and our spatial patterns of growth must be looked at to create more urban infrastructure and opportunities.

Fifth, while our youth bulge can be viewed as a threat to our economic development, it can also present unique demographic opportunities or dividends, depending on how it is managed. I propose that we see our youth bulge not as a threat but as a catalyst for economic transformation as the 'Asian Tigers' did. In the 1940s, the Asian Tigers such as South Korea found themselves in a similar situation that Africa is in today. They had a very young population and built their economies on the backbone of this young labour force.

The Koreans developed a program of 'education for economic growth' focused on investing in skills and education for the youth to power industrial revolution and economic growth. They were able to transit from a developing to a developed economy by investing in their young labour force. Africa’s youth bulge, if properly harnessed can also power economic activity over the next 30-40 years like in Korea’s case.

In the short term though, we need to introduce job-creation programs, given the severity of the problem, and the urgency with which it must be dealt with. In Nigeria, we have engaged in a series of programs to create short-term job opportunities. These include a community services program for the unskilled youth, which will create 370,000 jobs each year over the next four years, and already 178,000 jobs have so far been created this year; and a Graduate Internship Scheme, which will support 50,000 university graduates to acquire work experience in various private sector entities. We also created a special intervention fund called the YouWin program in Nigeria, to provide grants of up to US$70,000 to young entrepreneurs between the ages of 18 and 45, to enable them startup a business or expand an existing business. Beneficiaries of the first round of the 3-round program have so far created about 15,000 jobs for their fellow youth, and we expect 100,000 jobs to be created under the program during its 3-year life.

Conclusions
In summary, distinguished ladies and gentlemen, the security of Africa’s development is under threat, if we do not address the rising phenomenon of jobless growth and high youth unemployment. We cannot afford to exclude our young ones from economic opportunities. I remain optimistic that with the right policies, African countries can continue to the harness the potential of their youth, tackle violence and restiveness among their citizens, and ultimately build more inclusive and prosperous societies.

To conclude, let me borrow the words of Kofi Annan to say that 'no one is born a good citizen, no nation a democracy. Rather, both are processes that continue to evolve over a lifetime. Young people must be included from birth. A society that cuts itself off from its youth severs its lifeline: it is condemned to bleed to death.

Thank you for listening.

 



Dr Ngozi Okonjo-Iweala is a renowned development economist and reformer who has served the Nigerian government and World Bank for most of her career. In her current role, Dr Okonjo-Iweala is responsible for managing the finances of Africa’s most populous nation and one of the world’s fastest-growing economies. 

Before starting her current and second term as Nigerian Finance Minister in July 2011, Dr Okonjo-Iweala was Managing Director of the World Bank where she had oversight responsibility for a US$81 billion operational portfolio in Africa, South Asia, Europe and Central Asia. In that role, she spearheaded initiatives to assist low-income countries during the food crisis and later the financial crisis, and chaired an initiative that raised $49.3bn in grants and low-interest credit for the world’s poorest nations. Her 2012 nomination for Presidency of the Bank enjoyed support from across Africa and the world, with the Economist, Financial Times and Newsweek backing her bid.

Dr Okonjo-Iweala's first term as Nigerian Finance Minister was between 2003 and 2006, when she was also briefly Minister of Foreign Affairs, the first woman to hold both posts. As Minister of Finance, she spearheaded the negotiations with the Paris Club of Creditors that led to the wiping out of $30bn of Nigeria’s debt. During that period, she won recognition for her unwavering stance against corruption.

In 2011, 2012 and 2013 she was named one of the 100 most powerful women in the world by Forbes, and one of the 100 Top Global Thinkers by Foreign Policy. A Distinguished Fellow of the Brookings Institution, she is also the author of several books, including Reforming the Unreformable: Lessons from Nigeria. She is the recipient of numerous awards and has been described by the Independent as ‘the woman who has the power to change Africa... and a heroine of the entire continent'.

This meeting was chaired by Dr John Chipman, Director-General and Chief Executive of the IISS. It took place in the fifth-floor Lee Kuan Yew Conference Room at Arundel House, 13-15 Arundel Street, Temple Place, London WC2R 3DX.

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About the Oppenheimer Lectures

Since the inaugural lecture by Nicky Oppenheimer in 2005 entitled 'Africa needs a hand-up not a hand-out', prominent speakers have included Ellen Johnson-Sirleaf, President of Liberia, and Rwandan President Paul Kagame.