RESEARCH STREAM Addressing Africa’s youth unemployment through industries without smokestacks June 2021 Employment creation potential, labor skills requirements, and skill gaps for young people Ghana case study Ernest Aryeetey, Priscilla Twumasi Baffour, Festus Ebo Turkson AGI Working Paper #30 Industries without smokestacks Ernest Aryeetey is the secretary-general of the African Research Universities Alliance (ARUA). Priscilla Twumasi Baffour is a senior lecturer at the Department of Economics at the University of Ghana. Festus Ebo Turkson is a senior lecturer at the Department of Economics at the University of Ghana. Acknowledgements The authors gratefully acknowledge the Brookings Institution for the invitation to join the project “Addressing youth unemployment in Africa through industries without smokestacks.” The authors would like to thank John Page for the very helpful comments and direction. The authors are also grateful to the workshop participants at the Brookings Institution virtual workshop in June 2020 for their very useful comments and discussions. Brookings gratefully acknowledges the support provided by the Mastercard Foundation and Canada’s International Development Research Centre (IDRC). Brookings recognizes that the value it provides is in its commitment to quality, independence, and impact. Activities supported by its donors reflect this commitment. The views expressed by Brookings do not necessarily represent those of the Mastercard Foundation or its Board of Directors, or IDRC or its Board of Governors. The Brookings Institution is a nonprofit organization devoted to independent research and policy solutions. Its mission is to conduct high-quality, independent research and, based on that research, to provide innovative, practical recommendations for policymakers and the public. The conclusions and recommendations of any Brookings publication are solely those of its author(s), and do not reflect the views of the Institution, its management, or its other scholars. Africa Growth Initiative at Brookings Employment creation, labor skills requirements, and skills gaps for young people: A Ghana case study Abstract The issue of jobless growth and the poor performance of manufacturing have become major concerns in Africa. A new growth trajectory has emerged in the region with services as the driver of growth, contrary to the expectations of manufacturing export-led transformation with the capacity to absorb low to medium-skilled workers as previously observed in East Asia and other newly industrialized countries. It has become imperative for African countries, such as Ghana, to redirect attention towards identifying and supporting sectors with more significant employment potentials, in the quest to provide decent employment for a rapidly growing population, especially the youth. Indeed, the challenge of jobless growth in Ghana has brought to fore the need to diversify the economy away from mineral dependence through industrial transformation, mindful of the new technological developments. In this report, ‘industries without smokestacks’ (IWOSS) the Ghana case study identified agro-processing and tourism as two of the sectors that could be relied on to potentially address the country’s jobless growth issue and enhance the competitiveness and productivity of small and medium-sized firms. The report has demonstrated that both the agro-processing and tourism sectors have several characteristics that make them unique to the situation of Ghana: (1) there is an improved regulatory environment for both sectors, and this is supported by various public policies to improve related infrastructure and unearth the potential in the two sectors; (2) both sectors offer critical employment avenues for the youth with at least secondary education, and this pool can be found among the relatively large unemployed individuals; (3) both sectors have a huge export capacity, and this is critical in enhancing competition; (4) the technologies used in both sectors are labor intensive, and this has prospect in addressing the country’s unemployment challenge, and (5) there has been some effort to address various constraints in the value chains of both sectors. Projecting into the future, we find agro-processing and tourism (hotels and restaurants) will experience a much higher annual employment growth than manufacturing and other non-IWOSS sectors by 2035. Although skill transformation of the workforce will mainly take place in non-IWOSS sectors, our projections to 2035 suggest that the IWOSS sectors in Ghana would generate more high-skilled jobs in an economy that will continue to be dominated by low-skilled workers. Overall, constraints identified in agro-processing and tourism sub-sectors include the lack of adequately skilled labor, lack of access to credit facilities, inadequate infrastructure, cost of electricity, limited capacity to export and restrictive/cumbersome regulatory environment. Specific constraints identified in the limited survey conducted on selected firms within the IWOSS sector highlight the lack of skills that are critical to the operations of IWOSS sectors (agro-processing and tourism) with the specific skills being systems skills, technical skills, and problem-solving skills. Based on this, it is recommended that a deliberate effort is made to address these various challenges to enhance the potential of the two sectors. Africa Growth Initiative at Brookings Industries without smokestacks Contents 1. Introduction ................................................................................................................. 1 2. Country context and background.................................................................................... 4 3. Patterns of growth: The role of IWOSS .......................................................................... 12 3.1 What is IWOSS?............................................................................................................. 12 3.2 Overview of trends in agro-industry and tourism................................................................ 12 3.3 Sectoral decomposition in employment and productivity: IWOSS in comparative perspective with non-IWOSS over the last decade ........................................................................................... 20 3.4 Policies to promote IWOSS sectors in Ghana .................................................................... 23 4. Constraints to IWOSS growth ....................................................................................... 29 4.1 Regulatory environment and requirements....................................................................... 29 4.2 Infrastructure ................................................................................................................ 31 4.3 Skills ............................................................................................................................ 32 4.4 Capacity to export .......................................................................................................... 33 4.5 Agglomeration ............................................................................................................... 33 4.6 Firm capabilities ............................................................................................................ 34 4.7 Constraints within the value chains ................................................................................. 34 4.8 Potential for future output and employment growth and demand for labor .......................... 36 5. Scenarios for the future: Projecting output and employment growth and demand for skilled workers............................................................................................................................. 40 6. Firm survey results ..................................................................................................... 44 6.1 Identifying skills in business ........................................................................................... 45 6.2 Digital skills................................................................................................................... 50 6.3 Future occupational and skill needs ................................................................................ 50 6.4 Business environment.................................................................................................... 52 6.5 Innovation and technology.............................................................................................. 54 7. Policy implications: Unlocking growth potential and overcoming skill gaps ....................... 56 7.1 Measures to ensure rapid overall growth ......................................................................... 56 7.2 Measures to realize the potential of the IWOSS sectors ..................................................... 58 8. Conclusion................................................................................................................. 59 References........................................................................................................................ 61 Appendix A: The employment and growth opportunities in Ghana’s tourism sector: A case report of the Elmina Castle .................................................................................................................... 64 Appendix B: Tables............................................................................................................. 67 Appendix C: