Despite the global enthusiasm for the economic potential of Africa and the Middle East, we recognize that our operating regions confront much broader social and political challenges on the ground. In particular, they have the highest unemployment rates of all emerging markets. This unemployment burden falls heaviest on the next generation; youth unemployment averages nearly 30% in the Middle East and over 10% in Africa. Both regions will need to create over 100 million jobs by 2020 just to maintain the current employment levels. And as these disenchanted youth lose faith in the political and economic system, it can spiral into social upheaval. Whether it’s the uprising of the Arab Spring, the backlash of Boko Haram or election riots in Kenya, our markets are rife with examples of unmet needs catalysing revolt, insecurity and political instability.
Obviously, these risks affect our pricing and our investor return expectations. More importantly, they affect the people we care about most, our children, the next generation. As individuals, we have a limited platform to influence such massive problems.
One way GroFin is tackling youth unemployment is by supporting schools. Today, our portfolio includes 17 schools in 7 countries, which are educating over 8,000 students. Most of these low-cost private schools are in East and West Africa. However, many more schools are needed to fill the educational gap, in a region with such a young population. Additionally, the social return on our investment, improved human capital and employability, will require years to materialize.
Thus, we also support 5 different vocational training and job placement centres. These businesses cater primarily to adults or adolescents and provide a more immediate solution. Their financial performance indicates that this is a business model with consistent demand, and possibly untapped potential.
While we do work with our investees to improve their labour standards, including minimum wage compliance, we can’t (and wouldn’t) push them to specifically hire younger workers. We recognize that each investee has distinct HR needs and understand these needs must be met efficiently. However, we can look at expanding our engagement in younger sectors. Technology is obviously at the forefront. In addition to being a high-growth sector, it is able to onboard higher proportions of young workers. And it has other profound implications for inclusion, food security and social innovation. Just as gender-lens investing has gained traction as a blended value option, youth-lens investing will help define key sectors and strategies for impact investors to combat youth unemployment. Morgan McClain-McKinney, of USAID, even advocates for eventually exploring youth investment as an asset class.
In the meantime, GroFin’s investments have already helped support over 16,000 jobs in Africa and the Middle East. These jobs are within formal small businesses, which are demonstrated to provide greater incomes, better benefits and more financial security than the informal economy or microenterprises. In addition to providing employment, our investees are entrepreneurial role models to young adults in their communities. Nevertheless, we look forward to further exploring how our investments and how the private sector in general can enable the next generation to thrive.
Originally published at https://www.grofinblog.com on August 22, 2014.