Featured
Africa’s 500 million person question — Part 1
What is the role of technology as 500 million African youth reach working age over the next 30 years?
The graphic and hyperbolic text above represent the vision statement of a fictional venture capital firm I invented, called “Strawman African Venture Capital Fund” (SAVC Fund). Though entirely made up, its vision statement will likely sound familiar to many readers. SAVC Fund’s optimistic perspective reflects a widely touted narrative in the African venture community that the ongoing wave of population growth in Africa will only create massive economic opportunities for all.
This optimistic future is a viable possibility, and clearly the one we hope to achieve. Still, there are other potential futures in which job and economic opportunities don’t keep up as Africa’s youth age into the workforce, leading to a world of subsistence economics and survival strategies.
So, which future will emerge for Africa?
No one can claim to know for sure, but in this two-part piece, we’ll examine the economic forces and trends that could push Africa toward one future or the other. And hope to highlight opportunities for entrepreneurs and investors along the way.
Here’s a quick summary of what each piece will cover.
Part 1 (this piece): Africa faces an urgent challenge: creating good jobs for the 500 million people entering its workforce in the coming decades. We begin by examining the reasons why the continent has yet to replicate the manufacturing-led growth achieved by the Asian Tigers. We surmise that Africa now faces the task of developing a unique economic model that can keep pace with its rapid population growth and expanding working-age population.
Part 2: (to be released soon) We’ll explore alternative growth paths that could position Africa for a prosperous future, focusing on the role technology startups and other innovation-driven models can play in economic transformation. We believe we can only find fortune as investors by backing models that move Africa toward a brighter future. Our goal is to identify opportunities and determine where our fictional friends at SAVC Fund should invest their money — and, by extension, where we should invest ours.
We’ll begin Part 1 by exploring the current projections for Africa’s population growth and the evolution of its job market.
Is Africa headed for a “Demographic Dividend” or a “Demographic Markdown”?
By 2050, it is estimated that Africa will have more young people entering the labor force every year than the rest of the world combined. A quote from a 2018 IMF research paper on the future of work in Sub-Saharan Africa sums up the jobs challenge succinctly:
“The [Sub-Saharan African] population is expected to rise from 1 billion today to 1.7 billion by 2040. The working-age population in the region will, on average, experience a net increase of 20 million per year over the next two decades. At the same time, migration toward cities is accelerating, increasing the need for urban jobs. How can sub-Saharan Africa add 20 million jobs a year to keep up with such a pace of population growth?”
Stated this way, population growth is often framed as a problem, but the optimism expressed by SAVC Fund isn’t the usual fluff we have come to expect from VCs (or other VCs, at least). There is a well-established theory supporting this perspective, known as the ‘demographic dividend.’ Long-term declines in birth rates and improved health outcomes for adults create a bulge in the working-age population relative to younger or older dependents (see Figure 1).
As the share of working-age people increases, incomes rise, the workforce expands, economic surpluses grow, and more women join the workforce instead of focusing on childcare (or so the theory goes). This trend is just beginning to unfold in Africa. Meanwhile, most other regions worldwide are reaching the end of their demographic dividend, as their working-age populations age out of the workforce increasing their need for labor.
But things don’t have to turn out quite so positively.
The underlying assumption here is that when people join the future workforce, they will find jobs. But they might not! Right now, most don’t. Three-fourths of job market entrants in Sub-Saharan Africa are self-employed or work in informal microenterprises, roughly 20% earn wages in services, and only 4 to 5% secure salaried jobs in industry.
This just won’t do. If young dependents age into the workforce but cannot find jobs or are stuck in survival entrepreneurship, a new dependent class emerges — individuals eligible for work but unable to find it.
Just as there are positive ripple effects when things go right, there are equally negative ones when things go wrong including high structural unemployment, reduced investment in education and other critical growth areas, and potentially civil unrest — all of which could transform the “demographic dividend” into a “demographic markdown.” The stakes are incredibly high for the 500 million people entering the job market in the coming decades.
Overcoming “non-demand” for African Labor
Rather than simply focusing on enhancing labor supply through education or infrastructure — a standard supply-side approach — we see African countries’ core problem as the absence of demand for labor itself. Here, Clayton Christensen’s concept of non-consumption provides a useful lens. In Christensen’s and book, “The Prosperity Paradox” the authors focus on a concept they call “non-consumption” which occurs when the market for a potential good or service simply doesn’t exist and must be created (a concept also referenced in a great post by Chris Maclay here). Often, this implies taking a product normally only available to certain groups or in certain countries and and repackaging it so it’s available for another group (often from rich to poor). M-PESA is one of their examples, which, rather than competing to give a better banking experience to consumers of existing banking services, recreated banking for the masses who previously consumed no banking services at all. To win at the non-consumption game, companies must see the potential consumption before it exists then create innovative products that allow consumers or businesses to consume — no small feat.
We think the non-consumption concept is the right one for labor markets too but instead of non-consumption of goods and services, Africa faces non-demand for labor: markets simply do not yet exist to absorb the large incoming workforce. The task is to create these new markets and labor demands explicitly from scratch.
Global markets currently represent a significant area of non-demand for African labor. The strategic solution lies in turning global non-consumers of African labor into active consumers through exports, specifically via services and agricultural innovations enabled by digital technologies and AI.
At DFS Lab, job creation is one of the core tenets of our long-term strategy. We want to invest in sectors and value chains where massive long run growth is possible; especially ones which can give economic opportunities to hundreds of millions of people and create the conditions for a thriving population.
But to achieve this kind of growth, we must first recognize the models that haven’t worked for Africa before exploring potential alternatives that might work.
Lions, following the path of Tigers?
At this point, we can hear our friends at SAVC Fund say, “Don’t worry, we’ve seen the growth story play out before in Asia, and elsewhere, and we expect it to unfold similarly in Africa, too!”
Yes, Asia, Latin America, and Eastern Europe are all further along in their demographic transitions than Africa, and most have successfully reached middle-income status or higher. Many relied heavily on manufacturing to absorb the large numbers of semi- or unskilled agricultural workers early in that transition. For example, Figure 2 illustrates South Korea’s remarkable growth, showing how its GDP per capita has risen from being on par with Nigeria’s in the late 1980s to now matching that of France, where I live.
Isn’t it a reasonable assumption that African countries could follow the same path?
Unfortunately, the data seem to suggest otherwise. Africa appears instead to be diverging from the manufacturing-led growth model of the Asian Tigers (Hong Kong, Singapore, South Korea, and Taiwan), instead facing a trajectory with fewer obvious opportunities and more dead ends.
Did Africa miss its growth miracle?
One of the first researchers to point out that the Asian miracle was not manifesting in Africa — and to explore why — was Dani Rodrik, in his 2016 paper titled “An African Growth Miracle?”. He starts by pointing out that, contrary to the typically negative narrative, African countries were doing reasonably well in terms of policy and institutional environments:
“Agricultural markets have been liberalized, domestic markets have been opened up to international trade, parastatals have been rationalized or closed down, macroeconomic stability has been restored, and exchange rate management is infinitely better than it used to be[…]. Beyond economic governance, political institutions have improved significantly as well, with democracy and electoral competition becoming the norm rather than the exception throughout the continent […]. Finally, some of the worst military conflicts have ended, reducing the number of civil war casualties in recent years to historic lows for the region […].”
Our friends at SAVC Fund are now cheering along, echoing Dani Rodrik’s sentiments, “We told you so — Africa is the land of opportunity and possibility! We must eliminate the narrative that Africa is a land of corruption and broken institutions!”
Here, at last, we agree with our friends at SAVC Fund!
While Rodrik’s statement remains largely true, the years since have not been so rosy. Countries like Nigeria and Kenya have experienced episodes of electoral turmoil, while the resurgence of military coups in West Africa — in Niger, Mali, and Burkina Faso — highlight significant setbacks in political transparency and democratic progress. These events underscore that Africa’s political trajectory is not a uniform success but a patchwork of progress and setbacks.
Nevertheless, the overall picture has improved significantly compared to a few decades ago, and it is at least on par with countries like Vietnam and Bangladesh, where manufacturing sectors have begun to thrive. This isn’t to dismiss the importance of addressing issues around institutional quality, corruption, and policy; rather, it suggests they are not the primary factors holding back growth.
Looking deeper, we see many African countries are shifting to services — similar to what Asian countries have done recently — but without having fully industrialized, a phenomenon Dani Rodrik dubs “premature deindustrialization”. Workers leaving low-productivity agriculture often move into urban service jobs that are not much more productive.
Why has the anticipated manufacturing-led growth bypassed Africa?
Rodrik and others highlight several challenges behind this trend. First, labour costs in many African countries are surprisingly high compared to other developing countries, partly due to the expense of imported food and essentials. Second, poor infrastructure — such as unreliable logistics and power — adds a lot to costs. Lastly, the global manufacturing value chain has become increasingly sophisticated and capital-intensive, making it harder for newcomers, like African economies, to compete without experienced manufacturing entrepreneurs or deep capital markets. Some of these issues — especially the challenges with integrating into the global value chains — are deeply entrenched and beyond the control of African policy makers or entrepreneurs.
Beyond these structural challenges, Africa faces new forces that weren’t as pronounced during the era of the Asian Tigers in the 1950s: climate change and artificial intelligence (AI). Climate change disproportionately impacts Africa, particularly its agricultural sector, which remains a major employer. Rising temperatures, unpredictable rainfall, and extreme weather events threaten food security and rural livelihoods, complicating efforts to use agriculture as a foundation for growth. Global policies such as the EU’s Carbon Border Adjustment Mechanism could add further barriers to African exports, particularly for carbon-intensive industries.
AI, meanwhile, presents both risks and opportunities. If AI evolves as a “labour-enhancing” technology, it could empower low-skilled workers to perform more complex tasks, unlocking productivity and growth, especially in the crucial services sector. Conversely, if AI becomes predominantly “labour-replacing,” it risks displacing low-skill jobs that have traditionally been stepping stones out of poverty. We’re going to get into the AI question more in Part 2 of this piece.
Here again, I’m skimming the surface of a complex subject that varies across Africa’s 54 countries. But for the sake of argument, let’s assume that most of the larger African economies are not well positioned for manufacturing to become the central driver of their growth story.
Is there another path for these countries?
Alternatives to manufacturing-led growth would (logically) need to emerge from the agricultural or services sectors. Yet, as we’ve seen, it’s not obvious how to make these options work. Historically, few countries have reached middle-income status through growth driven solely by agriculture or services.
No wonder Rodrik’s paper concludes with the following:
“If African countries do achieve growth rates substantially higher than what I have surmised, they will do so pursuing a growth model that is different from earlier miracles based on industrialization. Perhaps, it will be agriculture-led growth. Perhaps, it will be services. But it will look quite different than what we have seen before.”
There’s no doubt Africa needs to reinvent its growth model. It must find pathways that replicate the productivity-boosting features of export-led manufacturing that powered the Asian Tigers, Latin America, and Eastern Europe, though it may not have the option to rely on manufacturing itself. At DFS Lab, we believe the key lies in leveraging technology to drive bold initiatives that expand exports and cross-border services to reach markets beyond Africa’s borders and solve the problem of “non-demand” for African labor.
Next week we’ll release the second part of this two-part series. In it, we identify four opportunity areas where we believe VCs — including our friends at SAVC Fund — should focus their efforts over the next decade to capture venture-scale returns and create jobs for Africa’s 500 million new workers.
Follow me on Linkedin to see when the next part is released.
Jake Kendall is a researcher, investor, and policy expert focused on Africa’s digital economy. He is currently co-founder and managing partner at DFS Lab, a Research Fellow at Cambridge University, and teaches at Sciences Po, with past roles spanning the Gates Foundation, World bank, academia, and two years as an aquaculture extension agent in rural Zambia.
