Ernst & Young’s David Storey looks at some of the human capital considerations companies need to be aware of when expanding into the continent.

While conditions in Africa are highly conducive toward growth, too little attention has been paid to the human resources required to drive this growth.

More specifically, it is important to understand how workforces across sub-Saharan Africa are positioned to support, participate in and benefit from rapid economic development.

This is not to suggest that sub-Saharan Africa is a blank canvas on which Western human capital practices can be imposed. Unlocking human capital potential in sub-Saharan Africa presents unique challenges best addressed by:

• Viewing Africa as a continent of diverse countries with different challenges and opportunities, and not as a homogenous entity
• Strengthening and customising workforce planning and talent strategies, and partnering, to accelerate technical, vocational and tertiary education delivery
• Complying with minimum employment standards, and partnering with stakeholders in shaping the labour-relations environment
• Designing systems that acknowledge the significance of learning and development as a value driver for employees, and structuring incentive solutions that are tangible and immediate
• Promoting employee engagement that avoids the trap of generalisations and stereotypes, in order to resonate more with local cultural values and attributes

Gold isn’t where you find it, but how you mine it

Those looking to enter or expand their businesses in sub-Saharan Africa are taking care to understand local labour markets, and formulating strategies and plans to mitigate the risks they encounter. Finding the right talent is one of the most important challenges currently facing businesses in sub-Saharan Africa, given:

• Low literacy rates in many countries – about 40% of the sub-Saharan Africa working age population in 2010 was literate
• Low primary school completion rates (less than 60% across the region)
• Relatively low secondary and tertiary education enrolment rates (average regional gross and net enrolment rates of 40% in 2010 and 29% in 2009)
• A tertiary education enrolment ratio of only 6%, although this number is growing

Despite increased urbanisation in the past decade, agriculture remains a key employment sector across the continent. In Tanzania, for example, while the agriculture sector’s share of employment is declining, it is still pegged at 70%. In Cameroon, agriculture’s share has increased in recent years. Workforce experience of modern wage employment remains critically low. In Cameroon, the formal private sector represents less than 4% of the labour force, while for Ghana, this figure is 5.9%.

The potential pool of talent to fill management positions and skill intensive roles in these markets is small. Business can mitigate these risks by deploying expatriates. This, however, brings its own challenges and is unsustainable.

The African Management Initiative estimates there are 11 million people in management roles in Africa, and that many lack the skills they need to perform effectively. This is exacerbated by high mobility rates among top African talent, many of whom do not trust their employers to manage their careers. The problem is compounded by an acute shortage of recognised business schools and training providers.

The war for local talent throughout sub-Saharan Africa has only just begun, and is expected to intensify quickly. To address this, business needs to:

• Strengthen and customise their leadership, talent and workforce planning capabilities
• Engage host governments on strategies to increase the quality of technical, vocational and tertiary education
• Define standards for effective leadership and talent management processes, and reframe approaches to the development of expatriate and indigenous leaders

Employment: not a lawless frontier

The preconception that doing business in sub-Saharan Africa means relaxed employment standards is misguided, despite the following labour market dynamics:

• Trade unions have seen a decline in membership, except in the public sector. The size of the informal sector constitutes a long-term threat to the formation of trade unions and collective bargaining.
• Casualisation, outsourcing, self-employment and family labour also shrink the recruitment base of trade unions, as do emerging forms of worker organisation such as community organisations, NGOs, and unregistered unions.
• Mature labour relations practices are absent in many African countries, although a number have introduced minimum standards and ratified International Labour Organisation (ILO) conventions.
• Governments often have limited capacity to enforce labour standards and legislation.

However, trade unions, having played a key role in the struggle for democracy in many African countries, remain fundamental to the political and economic landscape. While state capacity to enforce minimum standards may be weak, they are important business stakeholders and customers in the context of privatisation, public-private partnerships and outsourcing trends. To disregard the state is to disregard an important source of business. In addition, foreign-owned businesses are easy targets for enforcement campaigns; non-compliance carries reputational risk. Corporate behaviour that is experienced by governments as disrespectful may invite a backlash that generates harmful publicity beyond the African continent.