The Missing Middle Management
Unveiling the dearth of middle management in Africa
Kheel Shah (not his real name) runs a very successful sanitary wares distribution business in Dar es Salaam, Tanzania. Yet if you were to ask him why is he always stressed, his number one complaint is lack of qualified personnel in his management team. He has been wanting to expand his business and open more outlets, but finding middle management that is capable of independently working, managing, and reporting is one of the biggest challenges SMEs face in developing countries. For companies to grow, they will need to access reliable local management. Development aid is addressing this through programs such as Employment for Development in Africa. While there is no shortage of talent in Africa, there is a dilemma when it comes to business and management skills. Why do SMEs hit a growth wall? Studies have consistently shown it is not possible to effectively manage more than 7-10 people, so why are managers missing in developing countries when clearly they are in high demand?
SMEs stagnate in developing countries. In the USA, firms on average will grow by 7x from when they started over a period of 40 years, while in countries like Mexico and India, firm size only doubles in the same time span. What is surprising in the case of African firms is that small firms barely grow over time, and if large firms do exist, they are likely to have started big in the first place. Diamond, Mortensen and Pissarides won the Nobel in 2010 for studying markets with “search friction” – and became famous for its application to the labor markets where matching candidates (supply) to employers (demand) can become very challenging. What is the reason for this friction?
Indeed, there are structural challenges in Africa that hold back business growth, specifically related to access to finance and governance structures. However, even when controlling for both (i.e., if a firm had its own savings, was able to borrow, or enjoyed exemption from various government regulations), businesses still struggle to expand. And it’s the lack of trained and experienced middle management candidates that holds them back. Often firms are forced to hire based on familial ties. Not only is this detrimental to the growth of the firm, but hiring based on familial ties as opposed to merit is obviously inefficient.
A major constraint on business growth is access to good qualified managers. Take the example of African universities. Though they have improved over the past decade, not even one features in the top 150 universities in the world. And overall, only 97 universities in the whole continent are ranked at all, with only 40 in the top 1,000 universities. Quality tertiary education is beneficial for building managerial skills through its impact on specialized knowledge, development of critical thinking and problem solving, building communication and interpersonal skills and providing youth exposure to real world situations. Yet, sub-Saharan Africa only spent 3.4% of GDP on education in 2022, while OECD countries spent nearly 5.3%. Not only is the spending higher, but the quality of education also matters. For example, quality of education between private schools and public schools can be drastically different, yet on paper there may be educational attainment convergence. In such situations, academic certificates fail to give an appropriate signal to the prospective employer about the candidate’s ability. In Tanzania, many prospective employers will assign the least importance to degrees during the screening process due to the low confidence that they accurately signal a quality candidate. In such an environment, the cost of hiring becomes extremely high, especially when labor laws make hiring and firing very difficult.
As AI becomes more prominent, the landscape of an effective manager is going to change drastically. Without real structural changes in the education system, Africa will remain with low quality jobs and businesses will continue to struggle to expand if management skills do not significantly improve. Specifically primary and secondary education need a revamp because it lays the foundation for individuals to develop the necessary skills and capabilities required for managerial roles. Through early year schooling programs, one can nurture talented individuals who will eventually become effective managers, contributing to the country’s organizational and economic success.
However, in the meantime there are actions we can take to grow the pipeline of good middle managers in sub-Saharan Africa. Here are some ideas to start the conversation, with an eye on Tanzania in particular:
Encourage private sector support in training and development. Currently the Tanzanian government charges 4.5% of gross salary as a skill and development levy per employee to any organization with more than 4 members of staff. These funds are used in the financing of sector needs and funding of vocational training centers. Although an important source of revenue for the government, the programs are outdated and lag the rapidly changing demands of the modern workforce, creating a skills gap. Surely the companies are better placed to know the fast-evolving needs of the sector. I would recommend allowing firms to re-invest the 4.5% directly into training and development to meet its objectives. Through verified national and international programs, the company gets a direct benefit of its resources, and the sector gets an immediate boost in productivity.
Formalize and support internship/apprenticeship placements in the private sector, which are then tax deductible. Through work placements, young graduates get to see immediately what they lack and what the expectations are from the sector. Too often, graduates leave higher education with a sense of entitlement. While this achievement should be celebrated given very few make it even this far, it creates false expectations that graduates are ready for the world of work. A stronger relationship with businesses during their studies would produce a graduate population better prepared – both in terms of mentality and skills – for the rigors of professional life.
Establish business hubs for skill and development that provide support and services to individuals and businesses looking to develop their skills and enhance their professional capabilities. These could range from workshops on updating ICT skills, use of technology for better communication and organizational flow to networking opportunities, mentoring and coaching. Providing firms with tax deductions for participation in these programs will increase private sector engagement and help develop the missing middle management faster.
Africa has a burgeoning youth who are hungry to grow. With the right government policies and private sector engagement, business enterprises can be the source and the market for producing the missing middle management on the continent.