How skills arbitrage can cure global labour woes

The world today faces a strange dilemma where some countries suffer from a shortage of talent, while others struggle to generate enough jobs for their young people.

The solution lies in the economic geography of skill arbitrage.

To understand more deeply the geo-economic tool known as “skill arbitrage”, let us study a recent public statement by Mr. S.N. Subramanian, 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 of 25,000-30,000 blue-collar workers at its active infrastructure sites. While the demand for skilled labour is high, the reality is that finding professionals with adequate skills is a challenge.

It is clear that L&T is facing a talent shortage which is impacting its expansion and operational capabilities.

Ironically, India, with a population of about 1.4 billion and graduating 1.5 million engineers a year, is facing a talent crisis.

L&T is not the only company struggling; in fact, it is not even the biggest recruiter!

Similarly, the United States is currently facing a significant skills shortage in many critical sectors. For example, the technology sector is seeing huge demand for cybersecurity experts, software developers, and data scientists.

According to Cybersecurity Ventures, there will be 3.5 million unfilled cybersecurity jobs worldwide by 2025, and a large portion of them will be in the United States.

According to the U.S. Bureau of Labor Statistics, the cybersecurity job market is expected to grow 33 percent through 2031.

Each year, the United States will need about 400,000 new engineers. Yet the skills needed for these next-generation engineers are largely insufficient, raising the alarming prospect that nearly one in three engineering roles will go unfilled each year through 2030.

These shortcomings are not just numbers; they represent a huge gap that affects economic growth, national security and the well-being of citizens.

This could also hamper several US government initiatives aimed at boosting the US economy and competitiveness, such as the Build Back Better Act of 2022 and the Chips and Science Act of 2022.

On the other hand, when Andersen Kenya recently advertised for an internal IT position, it received an overwhelming number of qualified applicants, indicative of an economy where smart, qualified young people are struggling to find suitable work.

The same applies to many other disciplines in Kenya where a large pool of professionals have been trained and are eagerly looking for work.

Based on the cases described, geoeconomics can provide a solution by taking advantage of the differences in labor markets between countries.

Geoeconomics involves the use of economic tools to influence the global political and economic landscape.

We are talking here about the exploitation of the economic tool known as “skill arbitrage”, where there is a skills shortage in one country and a labour shortage in another.

This means taking advantage of differences in labor markets between countries to improve the use of skilled labor, just as financial arbitrage takes advantage of price differences in different markets.

This term highlights the strategic movement and recruitment of talent across borders to address the mismatch between supply and demand.

India provides a case study of how skills arbitration can help bridge employment gaps and boost economic growth.

The country has become a global hub for IT and engineering services, leveraging its large and skilled workforce to meet the requirements of companies around the world.

But in the late 1980s and early 1990s there was a severe shortage of jobs in India.

India’s IT industry only began to take off in the mid-1990s, driven by a combination of a highly educated workforce, proficiency in English, and favorable government policies.

A clear outcome of these initiatives is that major cities like Bengaluru, Hyderabad and Pune have become major global hubs for IT and engineering services.

By 2021, the Indian IT sector employed over 4.5 million people and generated revenues of over $194 billion.

Companies like 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 major player in the global technology industry.

Key success factors included government support through tax incentives, establishment of technology parks, and implementation of policies to support the growth of the IT industry.

Large sums have been invested in higher education, especially in engineering and technology, resulting in a large pool of skilled graduates.

Indian IT companies are known for their high quality services, innovation and cost effectiveness, making them preferred partners for businesses across the globe.

The success of India’s IT and engineering sector demonstrates how strategic investment in education, infrastructure and government support can transform the country into a global hub for outsourcing, addressing domestic labour needs and international skills shortages.

Let us consider some options for Kenya to be part of the solution to address the mismatch between the global skilled labour shortage and the job shortage in Kenya:

Formulating and implementing policies that make it easier for skilled workers to move across borders could help address labor shortages in countries like India, where Larsen & Toubro needs 20,000 engineers.

This could include simplifying visa procedures, mutual recognition of qualifications, and government-to-government partnerships to promote skilled migration.

The Kenyan government could initiate dialogue with its Indian counterpart, even if it is for short-term visas.

“Encouraging cross-border talent mobility can be a game-changer for both sending and receiving countries, by simultaneously addressing unemployment and skills shortages,” says Dr. Jane Doe, an expert in international labor economics.

Creating international training programs and collaboration between companies and educational institutions can greatly enhance workers’ skills.

In countries with an abundance of young people and a shortage of jobs, exporting talent or providing services remotely can help boost global productivity.

It is worth mentioning that Tanzania’s initiative to attract the renowned Indian Institute of Technology to set up its first ever international campus in Zanzibar will automatically attract global recruits to Tanzania’s shores.

Kenya has longstanding relations with India and should leverage this goodwill for the benefit of Kenyan youth.

Today, educated young people in India are global CEOs of leading organizations; like Tanzania, Kenya should consider strengthening cooperation with the Indian education system for the benefit of its youth.

In fact, Kenya should consider partnering with several prestigious educational institutions around the world. “Identifying global skills gaps and collaborating to establish learning hubs, especially in developing countries, would address the needs of both developed and developing economies.”

Companies in countries with a shortage of skilled workers can outsource their work to countries with a surplus of qualified professionals.

Not only does this meet immediate demand for skills, it also helps reduce operational costs and enhance economic connectivity.

East African countries, especially Kenya, with their democratic stability, could attract companies like Larsen & Toubro to set up engineering design centers.

However, it is important to realise that infrastructure alone (such as IT parks) will not be enough; a skilled young workforce trained in globally scarce skills and to globally accepted standards is crucial.

Countries facing labor shortages can invest in education and vocational training programs in countries with high unemployment rates.

This could create a pipeline of skilled workers designed to meet the specific needs of industries in areas affected by the shortage.

Kenya needs to reach out to countries that are short of skilled manpower and urge them to invest in Kenya’s education sector to create a mutually beneficial ecosystem.

Kenya should proactively engage with countries that are experiencing skilled workforce shortages, encouraging them to strategically invest in Kenya’s education sector, thereby developing a mutually beneficial ecosystem.

Moreover, integrating AI into education can play a pivotal role in bridging the skills gap.

In Kenya, for example, AI-powered platforms can provide personalized learning experiences, real-time feedback, and adaptive teaching methods, ensuring students acquire the necessary skills efficiently and effectively.

This technological approach can help overcome challenges related to limited access to quality educational resources.

Economic geography and skills arbitrage provide an effective solution to match global labor shortages with employment needs.

Kenya can capitalize on this situation by implementing incentives and creating an enabling environment, thereby enhancing its position as a hub for tech talent and boosting economic prosperity.

Now is the time to take decisive action through global cooperation to maximize this potential and drive sustainable growth.

Bonya is a geo-economist and head of consulting at Andersen Kenya.