Fostering Sustainable Economic Growth through Human Capital Development

Ms. Mia Seppo

Statement by UN Resident Coordinator Mia Seppo at ECAMA Conference on 16 October 2014

I wish to thank ECAMA for giving me this opportunity and privilege to address this august gathering on the subject: “Fostering sustainable economic growth through human capital development”.

We have heard excellent analysis of the opportunities of growth in Malawi. While the agriculture sector will continue to drive growth, the economic structure is expected, and needs to, diversify through growth in mining, services and manufacturing. None of the above is possible without massive investment in human capital development.

With this presentation I hope to draw your attention to and trigger a discussion on the criticality of human capital and labor in order to increase productivity and growth.

Malawi has a unique history created by a colonial power that ensured the availability of an unskilled labor force for its interests in southern Africa. Its top-down administration was built on, over the following 30 years, by the post-colonial one-party state that maintained a small elite to run the bureaucracy, seamlessly taking over from the small colonial bureaucracy. Education remained the privilege of the few, not the right of the many. Some argue the situation has not changed and that Malawi cannot allow itself to be a hostage to its history – it needs to turn a page, and look towards developing its future potential and competitive edge.

Today, the world is a global village, and it is a competitive village – interconnected to an unprecedented degree in human history.

Hence preparing for growth in one country demands knowledge of what goes on elsewhere, as well as a thorough analyses of the internal factors that would promote growth. It is important to acknowledge that the benchmark for Malawi’s performance cannot be internal only. The benchmark must also be the countries with which it competes.

Noting the general consensus that for growth to be inclusive and lead to sustainable human development, people must remain at the centre. We must always consider human capital both as a factor of production and as beneficiaries of the growth process.

The recent African Economic Outlook Country Note for Malawi points to a number of issues that bring the importance of the quality of labor, and its organization into sharp focus:

1)      With the growing push towards regional integration and establishment of a free trade area, Malawi needs to implement policies that will enable it to compete effectively within the region.

2)      The key constraints to private sector development and competitiveness include: red tape, poor infrastructure, limited access to finance and a weak skills base.

3)      Malawi has well established organizational and institutional frameworks for transparency, accountability and anti-corruption on paper, but their effectiveness is hampered by limited capacity, both in terms of human resources and resource constraints.

4)      Malawi enjoys a comparative advantage in labor-intensive activities, notably agro processing and production of less sophisticated consumer products. The shift in the production and export patterns of industrialized countries, as well as emerging economies, such as China, towards higher value and knowledge-intensive products has opened up opportunities for low- income countries, such as Malawi, to export labor-intensive products and integrate into regional and global supply chains. The challenge facing Malawi is to restructure its economy and build capability to exploit such opportunities through enhanced competitiveness.

Human capital is one of the most critical determinants of sustainable growth. For Malawi to achieve its aspiration of transforming from a “predominantly importing and consuming to a producing and exporting economy” in a globalized and increasingly competitive environment, raising productivity in both public service delivery and the private sector is key.

For growth to be sustained, there needs to be an investment in human capital and skills. Unlike other natural resources, human resources, if left unutilized (due to unemployment or underemployment), deteriorate rapidly. Unemployment is costly both to the individual and society; long-term unemployment reduces the chances of finding a job and erodes self-confidence and self-respect fostering a sense of dependency and powerlessness.

The 2013 Comprehensive National Human Resource Survey indicates that: (1) there is a huge mismatch in Malawi between available skills and the skills demanded in both the public and private sector; and (2) that there is general lack of technical, vocational, entrepreneurial and “hard” skills that are essential for the productive sector.

The 2014 Global Competitiveness Index, in which Malawi ranks very low (132/144), shows that poor health and primary education, as well as low quality and insufficient higher education and training are the key contributing factors to Malawi’s low ranking.

According to the Ibrahim Index of African Governance (IIAG), which covers 52 countries, the Malawi index for education[1], although improved slightly, remained consistently far below the average for Africa since 2001 and the gap is widening over time.

Malawi’s vision 2020 identifies seven challenges in the labor and employment sector: unavailability of robust labor statistics (labor market information), low labor productivity, weak institutional and regulatory framework, child labor, inadequate skills development and lack of adherence to occupational safety and health principles.

Mr. Chairman,

Human capital development is critical for Malawi’s economy to grow in an increasingly competitive world.

The challenges ahead

For Malawi to succeed in augmenting the quality of its human capital, there are five major challenges that need to be addressed: 

  1. 1.      Improving the quality of education

Allow me to start with a few statistics to illustrate the urgency of improving the quality of education in Malawi:

  • Over 90% of Malawians are not receiving a secondary school education at all.

Ecama graph jpg

[1] The education index includes indicators on education provision and quality, educational system quality, ratio of teachers to pupils in primary, primary school completion, progression to secondary school, tertiary enrollment and literacy.

Gross tertiary school enrollment ratio – lowest is Malawi

  • In terms of higher education, only 0.4% of the university age group were enrolled in higher education. This is the lowest level in the SADC region.
  • A girl in Malawi is 50 times more likely to be married before 18 than to enter university. Marriage at that age tends to discourage further education.
  • Malawi has, according to the Africa Economic Outlook, the lowest number of technical and vocational students relative to comparator countries.

Education for children and the young would allow them to acquire the knowledge, skills, values and attitudes required not only to become successful individuals but also productive members of the labor force, good parents and responsible citizens. Educated women tend to have fewer, healthier children and have their children at older ages. Children from educated families in turn are more successful at school. Educating girls and integrating them into the labor force is a highly cost-effective way to break the intergenerational cycle of poverty.

Issues of access, quality and relevance also arise with respect to vocational education and training as well as tertiary education. For example, enrollment in Technical, Entrepreneurial, and Vocational Education and Training (TEVET) is about 8,000 compared to the 250,000 students in secondary schools, and is biased towards boys (girls account for about 37%).

Strong investment in education, girl education and vocational training are required and the government together with private sector must commit to this.

The quality of human capital is also central to promoting and sustaining innovation and adaptation of technology. Rapid transformation in South Korea, Taiwan, and Singapore, which are not resource-rich, is largely attributed to their success in building human capital.

  1. 2.      Improving public health

The health status of the population is a major determinant of the quality of human capital and hence by extension its impact on sustainable economic growth. In Malawi it is estimated that the combined effect of death and infections rate due to HIV and AIDS alone amount to 0.35-1.23 percentage loss of GDP annually.

Allow me to use an example from my own country, Finland, which gets it’s share of fame from unhealthy use of alcohol. It is estimated that the direct cost to the public sector from alcohol abuse is 1 million EURO a year about half of which is social security, 40% maintaining order and security and 10% health related costs. About 120.000 Finns 2006-2010 left the labor force and went on premature pension/disability support with alcoholism as one of the main reasons.

Investing in health is a prerequisite to quality, highly productive human capital. Investments in health systems, disease prevention and control gives high pay offs to a country.  

  1. 3.      Bringing down the rates of stunting

The recently completed MDG endline survey found that 42% of Malawian children are stunted. Whilst it is pleasing to note that stunting appears to have reduced from 47% in 2010 to 42% in 2014, these figures are still unacceptably high.

Stunting goes well beyond a loss of height. Stunting limits cognitive development. It literally robs children of their potential. The resultant impact on sustainable and equitable growth is devastating. The World Bank has estimated that countries with high levels of stunting and micro nutrient deficiencies suffer a drag on their productivity and the Gross Domestic Product (GDP) lowers between two and three percent annually. When compounded over the generations, the impact on economic growth is huge.

Stunting cannot be treated. But it can be prevented — and at relatively little cost (providing expectant mothers, newborns and very young children nutrients such as proteins, fat and vitamins and minerals such as vitamin A, iron and zinc). Research shows that better nutrition at an early age improves learning outcomes for children – so it has a multiplier effect on education outcomes.

How can a community or a nation ever hope to develop to its full capacity if its children cannot?

  1. 4.      Stemming population growth

The population in Malawi, as we all know, is rapidly growing, from almost 4 million at independence to 14.8 million in 2012. UN population projections show that if families continue, on average, to have 6 children than Malawi’s population could reach 37 million by 2050.

The recent UNICEF Generation 2030 report for Africa issued in 2014, shows the following for Malawi:

  • One of 15 African countries where more than half of the population will be under 18 (52 per cent)
  • Between 2015-2050 Malawi will experience on the of the largest percentage increases in the child population at 92% increase (top 10 in Africa)

What does this means in terms of social services? Currently Malawi adds approximately 400,000 people each year to its population. If an average school size is 1000, that is 400 new schools that need to be built per year. If average class size is 50 that’s 8,000 new teachers per year! Progress in the social sectors will erode with the fast population growth.

On the other hand, a rapid demographic transition would result in a demographic dividend. A demographic dividend can be defined as a:

“A window of opportunity for accelerated economic growth that results from substantial decline in the child dependency ratio that countries can earn if birth rates decline rapidly and requisite investments are made in education, health, industrial based job creation and accountability. With fewer births each year, a country’s working age population grows larger in relation to the young dependent population, which creates a window of opportunity for accelerated economic growth if the labor force is healthy, well educated, skilled and gainfully employed.”

  1. 5.      Creating jobs for the Youth

A 2013 labor force survey found that unemployment (broad definition) stands at 21% while a large percentage (27%) of those employed are either underemployed or mostly engaged in low productivity and low paying jobs. Unemployment is more severe among women and the youth, standing at 26% and 23% respectively.

Malawi is therefore underutilizing a huge amount of human capacity, almost 50% of the labor force through unemployment or underemployment.

Decent work and livelihood creation are chief determinants in the socio-economic empowerment of youth. Success means increasing the quantity of jobs for young people, improving their productivity, facilitating movements of young people to more productive sectors, and increasing access to social protection. Another important area will be fostering a policy environment conducive to job creation for young people.

Let’s listen to the voice of the youth in Malawi. Malawi has completed local consultations on the post-2015 agenda. This is the message from the youth:

The main problem, especially for school drop-outs, is the lack of employment. The failure to get employment is because of the type and quality of education which does not give life skills like carpentry, brick laying, metal works or computer skills. The primary school leavers have very limited access to vocational schools.

There are very few employment prospects even for qualified and skilled youths. Lack of access to capital makes starting businesses difficult and established businesses aim to provide income to the owner but not employment to others. Previous efforts by government to finance the youth were greatly mismanaged. Such programmes were characterized by politicization; lack of transparency and involvement of community leadership; funding of unviable business ventures; and insufficient funding to fulfil financial needs and reach out to more youths. The private sector is seen as not to be very keen to finance the youth into entrepreneurship. There is also little support given to youths in creation of youth links within the country and the sub-region to promote sharing of ideas and skills in entrepreneurship and investment.

There exist a large army of young, able-bodied people without jobs or at best in vulnerable employment or the informal economy. Let us remember that the spark of what later became the Arab Spring, was in fact a young man, a university educated engineer, who subsisted by selling fruits and vegetables because he could not get a job commensurate with his education.
It should be noted further that global youth unemployment rate increased to a greater degree than adult unemployment, suggesting that youth are more vulnerable to economic shocks.
Recently, I have heard arguments to the effect that most of the unemployed youths are in fact unemployable, that despite their relatively higher level of education, they do not have the right skill sets required by the employers. This is true to some extent. The UN has done path-breaking work on labour market issues, including demand, supply and skills surveys that, to some extent, support this view.
However, it also remains self-evident that the primary cause for pervasive unemployment remains that the economic growth of the last decade has not generated significant and transformative jobs. In fact, we observe that on average, the rate of growth in jobs has slowed down.

The Malawi Employment Diagnostic Analysis Report (2010) points to some key issues worth noting:

  1. Income of workers in the agricultural sector (83 per cent of the labour force), have not risen at the same level as agricultural productivity;

ECAMA 2 copyRural poverty in Malawi has increased compared to other countries such as Rwanda

  1. In fact, majority of workers have actually earned less returns on their labour, thereby increasing income inequality and vulnerability;
  2. Improving the quality of employment by increasing the earnings on productive labour is one of the faster means to reduce poverty in Malawi;
  3. Malawi needs to urgently improve its human capital through appropriate education and training for increased productivity, growth and creating sustainable employment.

The development strategies of Malawi needs to focus on job-creation and growth as integral parts in the design of the development strategies rather than as an after-thought.

Investments in human capital often require resources that those who need it most do not have. Support to the poor through, for example, resource transfers can therefore be a powerful tool to enable poor families to invest in their future. A robust network of social protection, like the Social Cash Transfer Programme in Malawi, is therefore considered a prerequisite for increased human capital investment.

Given time and space limitation, this paper is not addressing the complex issue of migration and brain drain. Suffice to say, measures that minimize and compensate for loss of the educated and skilled through migration and maximize the benefits (including remittance and investment) from its diaspora are needed.  Policy options may include placing greater emphasis on non-wage retention strategies, including improving working and living conditions, streamlining remittance channels and investment opportunities in the country for its diaspora, and an active network with the diaspora to promote its return.

Your Excellency, Distinguished Guests and Participants

Investing in human capital development makes economic sense. Without it, investing in Malawi is less attractive, youth employment will over time lead to increasing tensions and human capacity and potential will be lost.

In today’s increasingly competitive world, sustaining growth requires continuous improvement in productivity and efficiency which in turn requires, among other things, sustained investment in human capital development. The central pillars in human capital development are education, health and well being. Improving education, healthcare, and employment augments human capital. So does improving socio-economic and political conditions and facilitating and stimulating creativity.

Malawi’s education and health policies need to be response to an economy which is largely driven by agriculture, manufacturing and services and to the long term vision of higher and sustainable growth. The planning also needs to tackle the twin problem of unemployed graduates and growing informal sector dominated by women.

The core of the issue of human capital development is people. It is about investing in people; it is about recognizing people as the greatest asset and national resource for creating wealth and prosperity. The returns on such investment are inestimable but high; no one can predict the number of Malawian Bill Gates that are only waiting to emerge; no one can envisage the number of Malawian Mo Ibrahims ready to take on the private sector.

I’m sure that you are aware of the great story, of William Kamkwamba, which is now a book:

“The Boy Who Harnessed the Wind.” The story of a Malawian teenager who transformed his village by building electric windmills out of the everyday waste that he found.

It is this creativity, this talent, that we need to harness, much as William did with the wind.