Major central banks around the world have maintain interest rates at record low levels since the global financial crisis in 2008. However, yesterday the Bank of Ugandan (Central Bank) increased its benchmark interest rate by 150 basis points to 14.5% in order to protect the currency and ease inflationary pressure. However interest rates did reach 23% in January 2012. The Bank of Uganda has intervened in the foreign exchange market to the extent that foreign reserves have decreased in the last year by 17% to US$2.8 billion but have been forced to increase interest rates as an alternative. Uganda is Africa’s biggest exporter of coffee with a current inflation rate of 4.9%. How some developed countries would love to have a bit of inflation.
Source: Trading Economics
A common feature in the labour market of many Africa countries is the high rate of low-productivity and under-employment in their economies. Furthermore firms in southern Africa take on 24% fewer employees than is the norm in other countries. So what are the constraints in these countries that put a stop to firms hiring more workers?
One of the main reasons is the informal economy that exists in many of these countries. It is estimated that nine out of ten workers have cash jobs, mainly in the primary sector, and therefore are not part of the employment figures. Their choice makes it harder for Africa to reduce poverty because increases in revenue in this sector do not mean that wages will also become greater. The size of firms will also impact on employment numbers as small firms will want to maintain that status. A firm below 50 workers is classified as small and therefore will not have the burden of government regulations that a large firm (over 100 workers) will have to contend with. In Nigeria and Liberia firms with more than 100 employees have to spend 14% longer in its communication with government officials than their smaller counterparts. Additionally where a company has fewer employees government officials are less likely to allocate time in search of tax fraud and bribes than would be the case with large firms – the latter being more inclined to pay up.
Labour in Africa should be cheap as income levels are very low – World Bank Classification low income country is less than US$766 per person. However unit labour costs on average are higher in Africa than in China as the productivity of the workforce is much lower. In comparison to other countries of less developed status outside Africa, the wages are 80% higher which makes employers less inclined to hire more workers.
The issue of trust between employer and employee is another reason for the low employment numbers. As firms start to grow bigger they switch away from family-only employees to those in the labour force and this lack of trust can play a role in limiting the size of the firm.
The above is a brief extract from an article published in this month’s econoMAX – click below to subscribe to econoMAX the online magazine of Tutor2u. Each month there are 8 articles of around 600 words on current economic issues.
Here is another documentary type movie which has had some very good reviews. Produced by the Directors of the award winning documentary “Black Gold”.
On the front line of China’s foray into Africa, the lives of a farmer, a road builder, and a trade minister reveal the expanding footprint of a rising global power. A historic gathering of over 50 African heads of state in Beijing reverberates in Zambia where the lives of three characters unfold. Mr Liu is one of thousands of Chinese entrepreneurs who have settled across the continent in search of new opportunities. He has just bought his fourth farm and business is booming.
In northern Zambia, Mr Li, a project manager for a multinational Chinese company is upgrading Zambia’s longest road. Pressure to complete the road on time intensifies when funds from the Zambian government start running out.
Meanwhile Zambia’s Trade Minister is on route to China to secure millions of dollars of investment.
Through the intimate portrayal of these characters, the expanding footprint of a rising global power is laid bare – pointing to a radically different future, not just for Africa, but also for the world.