as Fortune 500 companies abandon Africa, who will create jobs?

I recently joked about car manufacturers in Canada having a strong track record of squeezing billion-dollar subsidies from the government to create jobs. It happened again last week, but in a much funnier manner. A Honda executive, speaking at a press conference, said the silent part out loud: Canada was only option #3 for a new EV battery plant until Honda received a $15 billion investment from the government.

The past twelve months have been far less kind to Africa’s already small formal employment space.

Recently, Microsoft announced the closure of their Nigeria development office and the loss of 200 engineering jobs, just two years after launching the tech center. Fast-moving consumer goods account for close to 40% of African household spending. Despite this, Procter & Gamble closed operations in Kenya and Nigeria recently, costing over 5,000 jobs. Not to be outdone, Unilever is closing shop in Nigeria, cutting 7,500 jobs. Even in other sectors like pharmaceuticals, GSK exited both Kenya and Nigeria, resulting in the loss of another 1,400 jobs.

In Africa, 80% of employment is informal, the highest share among all regions globally. With this backdrop, it is concerning that Fortune 500 companies are walking away from $300 million factory assets. Citing macroeconomic challenges, these companies are switching African markets to “import-only business models,” at the expense of good formal jobs.

Increasingly, job creation is becoming a north star metric, especially for impact investors in Africa. So, if you had unlimited funds solely to maximize African job creation, which sectors or companies warrant the most support?

I attempt to answer that question using self-reported financial data from 2017-2022 from Africa’s fastest-growing companies, as reported by the Financial Times.

Revenue per employee:

Revenue per employee is a key human resource metric that gauges the productivity of a company's entire workforce. Employees are often considered the most valuable assets of a company or country. So, it's only fitting to know the efficiency of a firm’s human capital.

Globally, wholesalers, energy, and finance firms have the most productive workforce, generating $1M-$6M per employee. Top-performing wholesalers include Rajesh Exports in India (gold, $66M per employee) and Trafigura Group in Singapore (commodities, $42M per employee).

In contrast, technology companies have more modest human capital productivity, averaging $500K per employee. Apple, the top sector performer, generates $2.4M per employee. Using self-reported data from the Financial Times Africa’s media and telecommunications sector has the most productive workforce, generating $529,522 per employee.

Africa’s most productive workforce is Zone (formerly Appzone Ltd), which generates $10.6M in revenue per employee with approximately 177 employees. Zone is a blockchain-enabled payment infrastructure company from Nigeria founded in 2008. Alongside Zone, six other companies have demonstrated the ability to generate more than $1M in revenue per employee.

Though media and telecommunication firms have the most efficient workforce in terms of revenue, mining and construction firms create more jobs (326K total jobs across 17 firms). Mining companies generate 76% more revenue per annum than media & telecommunication firms, and employ 245% more individuals (23K employees vs 6.6K employees).

A final metric to help inform which sectors and firms are the best at producing African jobs is comparing human capital efficiency to global benchmarks.

One important reminder is that approximately 96% of Africans live on less than $3,650 a year, meaning there are hundreds of millions of non-consumers. Therefore, it’s unrealistic to expect an African retail firm to ever generate as much total revenue as an American or European firm. Take, for example, Safaricom in Kenya, a telecommunications business that employs 6,663 people and generates $2.3B in annual revenue. Safaricom’s ability to generate $344K per employee is nearly twice the average of other African telecoms and as efficient as telecom providers in the United States and Europe. Therefore, a telecom company like Safaricom would be a worthy employment-driven investment: high human capital efficiency in a big-employment sector.

Which firms in Africa are the best job creators?

The schematic below places each of Africa’s fastest-growing industries in one of four categories:

1. Big & Efficient Job Creators: African sectors that (i) have a human capital efficiency within 30% of global benchmarks and (ii) employ more than 1,000 people per firm.
2. Small & Efficient Job Creators: African sectors that (i) have a human capital efficiency within 30% of global benchmarks but (ii) employ less than 1,000 people on average per firm.
3. Small & Inefficient Job Creators: African sectors that on average employ less than 1,000 people and have human capital efficiencies 50-94% below global benchmarks.
4. Big & Inefficient Job Creators: African sectors that have human capital efficiency 50-94% below global benchmarks but employ more than 1,000 people per firm.

Creating jobs in Africa is hard work, and the most promising job creators are those firms that demonstrated an ability to improve their human capital efficiency. Leading the way of ‘doing more with less’ is AFEX. AFEX is the first private sector-led commodity exchange in Nigeria which grew revenues from $848,000 in 2017 (headcount: 98) to $415 million in 2022 (headcount 391).

?Maximizing Job Creation in Africa Through Strategic Investments

Africa faces significant challenges in job creation, especially in the formal sector, due to macroeconomic hurdles and the withdrawal of major multinational companies. To address this, investments should focus on sectors and companies with high human capital efficiency and strong job creation potential. Supporting these enterprises will not only boost economic growth but also provide stable, meaningful employment opportunities. By empowering the right sectors and firms, we can build a more resilient job market, fostering long-term development and enhancing livelihoods across the continent.