Access to finance alone will not save youth from unemployment; what will? Part 1

• by Shalom Mbugua and Adama Diaby
• Dec 4, 2023
• 6 min

This blog delves into the complex challenges at the macro, meso, and micro levels that cause unemployment among African youths.

Youth unemployment is an urgent challenge in Africa. The International Labor Organization (ILO) reports the youth unemployment rate in Africa was 12.7% in 2022. More than 20 million working-age youth are unemployed, which hinders the continent’s economic development.

Addressing youth unemployment is a crucial step to harness the potential of Africa’s youth to foster sustainable economic growth, social stability, and innovation. Employed youth contribute to a virtuous cycle of poverty reduction, increased consumer spending, and the cultivation of a skilled workforce that can adapt to the evolving demands of the global economy. The realization of this potential is not just an economic imperative but a moral one. The continent must ensure that its most valuable resource—young people—does not become a narrative of lost opportunities but a beacon of progress and prosperity.

Why are African youth unemployed, and what are the consequences?

The factors behind youth unemployment in Africa and their consequences may vary across countries and regions. Still, we identified a few common factors, which we have classified into three categories:

 Macro factors

Africa struggles to provide sufficient employment for its youth, with a low economic growth rate of only 2.5% in 2023. Youth comprise 23.5% of the 38.1% estimated working poor in Sub-Saharan Africa (SSA). 60% of Africa’s population is younger than 25, which exerts immense pressure on the need for job creation. While 10 to 12 million youth enter the workforce yearly, only 3.1 million jobs are available. This leaves many youth unemployed.

As per the International Labor Organization (ILO), micro, small, and medium enterprises (MSMEs) are Africa’s largest source of employment, yet they face significant entry barriers. MSMEs comprise 90% of African businesses and generate more than two-thirds of the continent’s employment opportunities. Youth-led MSMEs often face significant barriers despite their immense potential to create employment opportunities. They struggle to access essential resources, such as land, capital, and technology. The FinAccess report in Kenya states that youth aged 18 to 25 are the most excluded from access to financial services, with an exclusion rate of 22.5%. Only 45% of youth-led MSMEs are likely to approach financial institutions for financing compared to 50% of non-youth-led MSMES because youth-led MSMEs cannot present an adequately structured business plan.

Weak governance and institutional deficiencies further discourage job creation. With an average score of 51.8 in the ease of doing business, SSA ranks below the global average of 63. This makes it one of the poorest performing regions. This low score indicates that the business environment in SSA is challenging and less conducive to economic activities. This score may discourage potential investors and business activity, which leads to high unemployment rates.

Meso factors

Insufficient education and a lack of skills that align with market demands exacerbate youth unemployment. For example, in South Africa, the unemployment rate for those aged between 15 and 24 is a staggering 63.9 %. Stats SA highlights that the lack of suitable jobs that match their skills leads to a significant loss of hope for these youth.

Poor coordination between employers and job seekers creates significant barriers. This lack of communication makes it difficult for youth to find suitable jobs and align their skills with job market needs, which continues the unemployment cycle. A good example is South Africa. As per the ILO, labor market institutions—intermediaries between job seekers and employers—raise wage levels above what would be needed to reduce unemployment.

Additionally, the limited integration of youth into local, regional, and global value chains exacerbates the unemployment challenge. The Organization for Economic Co-operation and Development (OECD) reports that Africa’s participation in regional value chains constitutes only 2.7% of its global value chain engagement. This rate starkly contrasts other regions, such as Latin America and the Caribbean, with a participation rate of 26.4%, and Asia, with 42.9%. Insufficient integration into these economic networks restricts young individuals’ opportunities to apply their skills and talents. This limits their access to suitable employment opportunities.

Micro factors

Social and cultural biases, especially against groups such as women, rural dwellers, and ethnic minorities, contribute to youth unemployment. ILO states that women in some SSA countries face high underemployment rates, around 40% or 50%. Additionally, youth unemployment is more pronounced in rural areas, with a 10% difference compared to urban areas. These biases limit job opportunities for specific groups, make it harder for youth to find work, and perpetuate the issue of youth unemployment.

Summary of the macro, meso, and micro levels constraints

Complex challenges at the macro, meso, and micro levels cause unemployment among African youths. These challenges limit economic opportunities for young Africans and lead to social issues, such as inequality and underused human capital. MSC identified the following factors and consequences of rising youth unemployment when it developed AGRA’s youth employment, empowerment, and entrepreneurship strategy:

Macro

Factors

• Low level and quality of countries’ economic growth
• Limited access to productive resources, such as land, capital, and technology
• High barriers to entry and growth for small- and medium-sized enterprises (SMEs)
• Weak governance and institutions 

Consequences

• Insufficient job creation opportunities due to a stagnant or slow-growing economy result in limited positions for youth.
• Youths face barriers to start or expand businesses due to the lack of essential resources, such as funding and technology. These barriers limit entrepreneurship and the potential for economic empowerment.
• Significant barriers hinder the establishment and growth of small businesses. This reduces entrepreneurial activities among youths, and this reduction of activities leads to missed opportunities for self-employment and innovation.
• Lack of effective policies, enforcement, and regulatory frameworks may result in an unstable business environment. This uncertainty discourages domestic and foreign investments, which leads to a diminished job market for the youth.

Meso

Factors

• Lack of quality education and skills adapted to the demands of the labor market
• Lack of intermediation and coordination between employers and job seekers
• Poor integration into local, regional, and global value chains

Consequences

• Youth may have qualifications that do not align with the skills employers need. This results in a mismatch between the education system and the job market’s needs. This mismatch can lead to higher rates of unemployment and underemployment.
• The mismatch of skilled youth with suitable employment opportunities leads to inefficiencies in the labor market. This mismatch can result in prolonged job searches for young individuals and higher unemployment rates.
• Limited economic opportunities restrict innovation, growth, and the creation of new jobs.
• Youth may face restricted employment prospects due to a lack of integration into broader economic networks.

Micro

Factors

• Social and cultural norms that discriminate against certain groups of young people, such as women, rural dwellers, and ethnic minorities
• Employment involves various risks, such as instability, vulnerability, exploitation, and violence, which often lead to migration.

Consequences

• Exclusion and limited access to employment opportunities for specific groups contribute to higher unemployment rates among marginalized segments of youth. This exclusion perpetuates social and economic inequalities.
• Fear and uncertainty in the job market may deter youth from seeking or maintaining employment. Precarious work conditions, along with exploitation and violence, undermine job security and adversely affect the well-being of young workers.
• Additionally, migration may respond to limited opportunities, but it leads to brain drain and further exacerbates unemployment issues in certain regions.

What do we lose when youths are out of productive economic engagement?

We lose the potential of a large and dynamic population segment that could drive innovation, entrepreneurship, and social change in Africa. We lose the opportunity to harness the demographic dividend, the economic benefit that arises when a country has a large share of working-age people relative to dependents. Around 60% of Africa’s population is predominantly young and could contribute to job creation, increased productivity, and higher living standards if put to good use. We lose the chance to achieve the sustainable development goals (SDGs), a set of global targets to end poverty, protect the planet, and ensure peace and prosperity for all by 2030.

The exploration of the multifaceted challenges of youth unemployment in Africa proves that tackling this issue requires innovative and multidimensional solutions. Our next blog delves into these solutions and offers practical approaches to address the identified barriers and capitalize on African youth’s untapped potential.

This blog was written with inputs from Willis Ogutu.