The process of structural transformation in Rwanda, as in other parts of Africa, is occurring not by relying primarily on manufacturing, but rather on a diverse set of activities, including services. This raises several questions: Can Rwanda generate a sufficient number of new jobs without relying primarily on a surge in manufacturing growth to absorb increases in the labor force, especially young workers and women? Will these new jobs be productive enough to fuel growth and raise incomes?
This article examines the movement of workers from low-productivity to high-productivity activities in all sectors (such as the shift from farming to manufacturing) and within sectors (change from subsistence agriculture to export and horticultural products). He finds that the most dynamic job-creating sectors are the “chimneyless industries”: tourism, business services, ICT, agro-industry, horticulture and high value-added export crops. These sectors, such as manufacturing, have high average productivity, contribute a large share of exports and employ a growing share of the labor force. The paper then creates an IWOSS-led growth scenario through 2035 to project labor supply and demand. The exercise reveals that the demand for skilled labor will create a strong market bias towards greater income inequality. A review of selected value chains in IWOSS sectors reveals that lack of skills could be one factor, among others, that could short-circuit growth aspirations. Achieving sustained, rapid, and inclusive growth will therefore require compensatory fiscal and education policies to reduce skills constraints to industrial development and mitigate the potential wage-raising effects of skill bias on Rwanda’s growth trajectory.
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