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Informal Economy Not Enough to Handle Africa’s Workforce Explosion

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IMF director Christine Lagarde
  • Informal Economy Not Enough to Handle Africa’s Workforce Explosion

Unemployment in Nigeria, sub-Saharan Africa’s largest economy, is running at more than 14 percent and climbing; in South Africa, the second largest economy, it is over 27 percent. For youth in both places, it is far more.

This may seem bad enough, but according to International Monetary Fund calculations the sub-Saharan Africa region’s jobs travails are in danger of reaching uncharted territory in less than two decades. That is, unless the economies can create jobs for their burgeoning, young population.

“By 2035, sub-Saharan Africa will have more working-age people than the rest of the world’s regions combined,” Reuters quoted the IMF to have written in a blog post.
“This growing workforce will have to be met with jobs.”

This has major implications for the region’s economy, its security and wider immigration patterns. In the past, some of the jobs strain has been taken up by the so-called informal economy which is dominated by street vendors, household workers and off-the-radar cash jobbers. Typically, these workers pay no tax and do not come under regulation, but they do add to a country’s wealth.

The informal sector in sub-Saharan Africa was around 38 percent of gross domestic product in 2010-14, according to the IMF.

This represented a steady decline from nearly 45 percent in 1991-99, possibly a reflection of more formal growth in some parts of Africa. But up to 90 percent of jobs outside agriculture are still in the informal sector. It is not generally by desire. The IMF found that a third of new entrepreneurs in sub-Saharan Africa said they were doing what they were doing out of necessity.

“Most would prefer a job in the formal sector, but don’t have that option,” it said. The International Labour Organization goes further.

“Some of the characteristic features of informal employment are lack of protection in the event of non-payment of wages, compulsory overtime or extra shifts, lay-offs without notice or compensation, unsafe working conditions and the absence of social benefits,” it notes.

“Women, migrants and other vulnerable groups of workers who are excluded from other opportunities have little choice but to take informal low-quality jobs.”

For the economy, informal sector work can be both positive and negative for growth. In some cases, for example, it represents entrepreneurship and start-up businesses.

But a lot of it is far from opportune for growth. The informal sector tends to be low productivity work, partly because it attracts lower skilled workers.

“In a country where the informal sector is large, the rate of economic growth is reduced,” the IMF said.

This would suggest that countries such as Tanzania and Nigeria, where the informal economy is 50 to 65 percent of GDP, will fare worse than others such as Mauritius, South Africa and Namibia, where it ranges from between 20 to 25 percent.

Africa is not alone, of course. Indeed at the moment the region where the informal sector plays the biggest role is Latin America and the Caribbean. It also amounts to around 15 percent of GDP in developed countries.

But with the large working age population about to explode, the countries of the region are facing a crunch.

“Countries need to adopt a balanced approach in the design of policies to grow the formal sector. This means focusing on ways to increase the productivity of the informal sector, while working to support the expansion of formal businesses,” the IMF said. It also called for improved access to finance to create the right kind of jobs.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Crude Oil

Oil Holds Near Highest Since 2018 With Global Markets Tightening

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Crude Oil - Investors King

Oil held steady near the highest close since 2018, with the global energy crunch set to increase demand for crude as stockpiles fall from the U.S. to China.

Futures in London headed for a third weekly gain. Global onshore crude stocks sank by almost 21 million barrels last week, led by China, according to data analytics firm Kayrros, while U.S. inventories are near a three-year low. The surge in natural gas prices is expected to force some consumers to switch to oil, tightening the market further ahead of the northern hemisphere winter.

China on Friday sold oil to Hengli Petrochemical Co. and a unit of PetroChina Co. in the first auction of crude from its strategic reserves said traders with the knowledge of the matter. Grades sold included Oman, Upper Zakum and Forties.

Oil has rallied recently after a period of Covid-induced demand uncertainty, with some of the world’s largest traders and banks predicting prices may climb further amid the energy crisis. Global crude consumption could rise by an additional 370,000 barrels a day if natural gas costs stay high, according to the Organization of Petroleum Exporting Countries.

“Underpinning the latest bout of price strength is a tightening supply backdrop,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd.

Various underlying oil market gauges are also pointing to a strengthening market. The key spread between Brent futures for December and a year later is near $7, the strongest since 2019. That’s a sign traders are positive about the market outlook.

At the same time, the premium options traders are paying for bearish put options is the smallest since January 2020, another indication that traders are less concerned about a pullback in prices.

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Energy

Unlocking Investments into Africa’s Renewable Energy Market

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green energy - Investors King

The African Energy Guarantee Facility (AEGF) is launching a virtual roadshow of free webinars allowing a deeper understanding of risk issues for renewable energy projects on the continent, and conversations around risk mitigation solutions. The first webinar will take place on Thursday, 23 September from 14:30-16:00 hrs. EAT. 

The session will be oriented on how to get more energy projects from the drawing board to the grid. While the energy demand in African economies is expected to nearly double by 2040, and although the potential for renewable energy is 1,000 times larger than the demand, only 2GW out of almost 180GW of this new renewable power were added on the African continent.

Clearly not good enough! To improve the situation within the next two decades, new solutions need to be implemented urgently. De-risking and promoting private sector investments will play a crucial part of it.

In this 90-min interactive session, AEGF partners: the European Investment Bank (EIB), KfW Development Bank, Munich Re and the African Trade Insurance Agency (ATI) will share their experience and provide valuable insights on how they were able to come together and design practical solutions for investors and financiers of green energy projects in Africa aligned with SDG7 objectives.

Across Africa, the complexity of renewable energy projects and their long tenors hold back crucial energy investment. Tailored to the specific needs and risk profiles of sustain­able energy projects, AEGF will tackle the investment challenge by providing underwriting expertise and capacity tailored to market needs.

The AEGF will significantly boost private investment in sustainable energy projects, both expanding access to clean energy and contribute to achieving UN Sustainable Development Goals. The scheme supports new private sector investment in eligible renewable energy, energy efficiency and energy access projects in sub-Saharan Africa.

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Energy

Shell Signs Agreement To Sell Permian Interest For $9.5B to ConocoPhillips

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Shell profit drops 44 percent

Shell Enterprises LLC, a subsidiary of Royal Dutch Shell plc, has reached an agreement for the sale of its Permian business to ConocoPhillips, a leading shales developer in the basin, for $9.5 billion in cash. The transaction will transfer all of Shell’s interest in the Permian to ConocoPhillips, subject to regulatory approvals.

“After reviewing multiple strategies and portfolio options for our Permian assets, this transaction with ConocoPhillips emerged as a very compelling value proposition,” said Wael Sawan, Upstream Director. “This decision once again reflects our focus on value over volumes as well as disciplined stewardship of capital. This transaction, made possible by the Permian team’s outstanding operational performance, provides excellent value to our shareholders through accelerating cash delivery and additional distributions.”

Shell’s Upstream business plays a critical role in the Powering Progress strategy through a more focused, competitive and resilient portfolio that provides the energy the world needs today whilst funding shareholder distributions as well as the energy transition.

The cash proceeds from this transaction will be used to fund $7 billion in additional shareholder distributions after closing, with the remainder used for further strengthening of the balance sheet. These distributions will be in addition to our shareholder distributions in the range of 20-30 percent of cash flow from operations. The effective date of the transaction is July 1, 2021 with closing expected in Q4 2021.

Shell has been providing energy to U.S. customers for more than 100 years and plans to remain an energy leader in the country for decades to come.

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