Today’s world is facing a strange predicament wherein some countries are struggling with shortage of talent pool, while others are struggling to generate enough employment for its youth.
The solution is in the geo-economics of skills arbitrage.
To gain a deeper understanding of the Geo-Economic tool of ‘skills arbitrage’, let’s examine a recent public statement made by Mr SN Subrahmanyan, Chairman of Larsen & Toubro (L&T).
He said the company needs about 20,000 additional engineers for its subsidiaries LTI (L&T Infotech) and LTTS (L&T Technology Services).
In addition to engineers, L&T is facing a shortage between 25,000 and 30,000 blue-collar workers across its active infrastructure sites. Whereas the demand for skilled labour is high the reality is that there is a challenge in finding adequately skilled professionals.
It’s clear that L&T is facing a talent shortage that is impacting its expansion and operational capabilities.
The irony is that India with a population of approximately 1.4 billion and producing 1.5 million engineering graduates annually, is facing a talent crunch.
L&T is not the only company struggling; in fact, it is not even the largest employer!
Likewise, the United States is currently facing significant skill shortages in several critical sectors. For instance, the tech sector is experiencing a massive demand for cybersecurity experts, software developers, and data scientists.
According to Cybersecurity Ventures there will be 3.5 million unfilled cybersecurity jobs globally by 2025, with a significant portion of these in the USA.
According to the US Bureau of Labor Statistics the cybersecurity job market is expected to grow by 33 percent through to 2031.
Every year, the US will need about 400,000 new engineers. Yet the next-generation skillsets that those engineers will require are sorely lacking, presenting the alarming possibility that nearly one in three engineering roles will remain unfilled each year through to 2030.
These shortages are not just numbers; they represent a substantial gap that impacts economic growth, national security, and the well-being of citizens.
It may also seriously inhibit various US government initiatives intended to boost the economy and US competitiveness, such as the 2022 Build Back Better Act (BBBA) and the 2022 Chips and Science Act.
On the other hand, when Andersen Kenya recently advertised for an internal IT position, it was inundated with an extremely large number of qualified applicants, indicative of an economy wherein smart qualified youths are struggling to get appropriate employment.
The same case would apply to several other disciplines in Kenya where a large pool of professionals has been trained and is eagerly looking for work.
Given the cases described, geo-economics can provide a solution by leveraging the differences in labour markets between countries.
Geo-economics involves the use of economic tools to influence global political and economic landscapes.
This is a case of exploiting the economic tool of "skills arbitrage," wherein there is a skills shortage in one country and employment shortage in another.
It implies leveraging the differences in labour markets between countries to optimise the use of skilled labour, much like financial arbitrage takes advantage of price differences in different markets.
This term highlights the strategic movement and employment of talent across borders to address mismatches in supply and demand.
India's IT and Engineering Sector
India provides an exemplary case study of how skills arbitrage can effectively bridge labor gaps and drive economic growth.
The country has become a global hub for IT and engineering services, leveraging its large, skilled workforce to meet the demands of companies worldwide.
But back in the late 1980s and early 1990s there was an acute shortage of jobs in India.
It was only in the mid 1990s that the IT industry in India began to take off, driven by a combination of a highly educated workforce, proficiency in English, and favourable government policies.
A clear outcome of these initiatives is that major cities such as Bengaluru, Hyderabad, and Pune have become key global Backoffice centres for IT and engineering services.
By 2021, the Indian IT sector employed over 4.5 million people and generated revenues exceeding $194 billion.
Companies such as Tata Consultancy Services (TCS), Infosys, and Wipro have become global leaders in providing IT services, outsourcing, and consulting.
The sector has also contributed significantly to the country's GDP and positioned India as a key player in the global tech industry.
Key success factors included government support through tax incentives, established IT parks, and implemented policies to support the growth of the IT industry.
Significant investments were made in higher education, particularly in engineering and technology, resulting in a large pool of skilled graduates.
Indian IT companies are known for their high-quality service, innovation, and cost-effectiveness, making them preferred partners for businesses globally.
The success of India's IT and engineering sector demonstrates how strategic investment in education, infrastructure, and government support can turn a country into a global hub for outsourced labor, addressing both local employment needs and international skill shortages.
Let us consider a few options for Kenya to become a part of the solution to address the mismatch between skilled labour shortages globally and a shortage of jobs in Kenya:
Facilitating cross-border talent mobility
Formulating and implementing policies that make it easier for skilled workers to move across borders can help address labour shortages in countries such as India, where L&T needs 20,000 engineers.
This may include streamlined visa processes, mutual recognition of qualifications, and partnerships between governments to promote skilled migration.
Kenyan government can initiate dialogue with their Indian counterparts, even if it is for short-term visas.
As per Dr. Jane Doe, an expert in international labour economics, "Encouraging talent mobility across borders can be a game-changer for both sending and receiving countries, addressing unemployment and skills shortages simultaneously."
International collaboration and training programmes
Establishing international training programmes and collaborations between companies and educational institutions can significantly enhance the skills of workers.
In countries with an abundance of youth and shortage of jobs, exporting talent or providing remote services can contribute to global productivity.
Notably, Tanzania’s initiative to attract the renowned Indian Institute of Technology (IIT) to set up its first-ever international campus in Zanzibar will automatically draw global recruiters to Tanzania’s shores.
Kenya has a long-standing relationship with India, and it must exploit this goodwill for the good of Kenya youth.
Youth educated in India today are Global CEOs of leading organisations; just like Tanzania, Kenya should consider fostering collaboration with the Indian education system for the good of its youth.
In fact, Kenya must consider partnering with multiple globally renowned education institutions. "Identifying global skills gaps and collaborating to establish education hubs, especially across developing nations, will address the needs of both the developed and developing economies”.
Outsourcing and offshoring
Businesses in countries with a shortage of skilled labour can outsource work to countries with a surplus of qualified professionals.
This not only addresses the immediate demand for skills but also helps in reducing operational costs and promoting economic interdependence.
Eastern African countries, particularly Kenya, with her democratic stability, can attract companies such as L&T to set up engineering design centres.
However, it’s essential to recognise that infrastructure alone (such as IT parks) won’t suffice; a skilled youth workforce trained in globally scarce skills and to globally acceptable standards is crucial.
Cross investments in education and skill development
Countries facing labour shortages can invest in educational programmes and vocational training in those with high unemployment rates.
This can create a pipeline of skilled workers tailored to meet the specific needs of industries in shortage-affected regions.
Kenya must reach out to such countries which have a shortage of skilled workforce and entice them to invest in the education sector in Kenya to establish a mutually beneficial ecosystem.
Kenya should proactively engage with nations experiencing shortages in skilled workforce, encouraging them to strategically invest in Kenya's education sector, thus cultivating a mutually advantageous ecosystem.
Additionally, the integration of AI in education can play a pivotal role in bridging the skills gap.
In Kenya, for instance, AI-driven platforms can provide personalised learning experiences, real-time feedback, and adaptive teaching methods, ensuring that students acquire the necessary skills efficiently and effectively.
This technological approach can help overcome challenges related to limited access to quality educational resources.
Geo-economics and skills arbitrage offer a potent solution to align global labour shortages with employment needs.
Kenya can capitalise by implementing incentives and cultivating a conducive environment, positioning itself as a hub for technical talent and fostering economic prosperity.
Now is the time for decisive action through global collaboration to maximise this potential and drive sustainable growth.
Punia is the geo-economist and Head of Advisory, Andersen Kenya
