The world today is facing a strange predicament where some countries are struggling with a lack of talent pool, while others are struggling to generate enough employment for their youth.
The solution lies in the geo-economics of skills arbitrage.
To get a deeper understanding of the Geo-Economic tool of ‘skill arbitrage’, let’s review the recent public statement made by Mr. SN Subrahmanyan, Chairman of Larsen & Toubro (L&T).
He said the company needs around 20,000 additional engineers for its LTI (L&T Infotech) and LTTS (L&T Technology Services) subsidiaries.
In addition to engineers, L&T faces a shortage of between 25,000 and 30,000 blue-collar workers at active infrastructure sites. While the demand for skilled labor is high, there is a real challenge in finding enough skilled professionals.
It is clear that L&T is facing a talent shortage which is affecting its expansion and operational capabilities.
The irony is that India with a population of about 1.4 billion and producing 1.5 million engineering graduates every year, is facing a talent crisis.
L & T is not the only company struggling; in fact, it’s not even the biggest employer!
In addition, the United States is currently experiencing significant skills shortages in several critical sectors. For example, the technology sector is experiencing a 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, with a significant portion in the US.
According to the US Bureau of Labor Statistics, the cybersecurity job market is expected to grow 33 percent through 2031.
Every year, the US needs about 400,000 new engineers. But the next-generation skills these engineers need are in short supply, pointing to the alarming possibility that nearly one in three engineering roles will remain unfilled each year until 2030.
This shortage is not just a number; they represent a substantial gap that impacts economic growth, national security, and the welfare of citizens.
It could seriously inhibit various US government initiatives intended to improve the US economy and 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 internal IT positions, it was flooded with qualified applicants, indicating an economy where bright young people are struggling to find suitable employment.
The same case will apply to some other disciplines in Kenya where many professionals are trained and eager to find work.
With the described case, geo-economics can offer a solution by exploiting labor market differences between countries.
Geo-economics involves the use of economic tools to influence the global political and economic landscape.
This is a case of exploiting the economic tool of “skills arbitrage”, where there is a skills shortage in one country and a labor shortage in another.
This means using differences in labor markets between countries to optimize the use of skilled labor, just as financial arbitrage takes advantage of price differences in different markets.
This term highlights the strategic movement of talent and labor across borders to address mismatches in supply and demand.
Indian IT and Engineering Sector
India provides an exemplary case study of how skills arbitrage can effectively address the labor gap and drive economic growth.
The country has become a global hub for IT and engineering services, employing a large and skilled workforce to meet the demands of companies worldwide.
But in the late 1980s and early 1990s there was an acute shortage of jobs in India.
It was only in the mid-1990s that India’s IT industry began to take off, driven by a combination of an educated workforce, proficiency in the English language, and favorable government policies.
A clear result of these initiatives is that major cities such as Bengaluru, Hyderabad, and Pune have become major global Backoffice centers for IT and engineering services.
By 2021, India’s IT sector will employ more than 4.5 million people and generate revenues exceeding $194 billion.
Companies such as Tata Consultancy Services (TCS), Infosys, and Wipro have become global leaders in providing IT, outsourcing, and consulting services.
The sector has also contributed significantly to the country’s GDP and positioned India as a key player in the global technology industry.
Key success factors include government support through tax incentives, established IT parks, and policies implemented to support the growth of the IT industry.
Significant investments are being made in higher education, especially in engineering and technology, resulting in a large number of skilled graduates.
Indian IT companies are known for their high-quality service, innovation and cost-effectiveness, making them a preferred partner for businesses around the world.
The success of India’s IT and engineering sector shows how strategic investments in education, infrastructure, and government support can transform the country into a global hub for outsourced labor, addressing local employment needs and international skill shortages.
Let’s consider some options for Kenya to be part of the solution to address the mismatch between the shortage of skilled workers worldwide and the lack of jobs in Kenya:
Facilitate cross-border talent mobility
Formulating and implementing policies that make it easier for skilled workers to move across borders can help address labor shortages in countries such as India, where L&T needs 20,000 engineers.
This could include a more streamlined visa process, mutual recognition of qualifications, and partnerships between governments to promote skilled migration.
The Kenyan government can start a dialogue with its Indian counterpart, even for short-term visas.
According to Dr. Jane Doe, international labor economist, “Encouraging talent mobility across borders can be a game-changer for sending and receiving countries, tackling unemployment and skills shortages together.”
International collaboration and training programs
Establishing international training programs and collaboration between companies and educational institutions can significantly improve the skills of workers.
In countries with a large youth population and a lack of employment, exporting talent or providing remote services can contribute to global productivity.
In particular, Tanzania’s initiative to attract the renowned Indian Institute of Technology (IIT) to set up its first international campus in Zanzibar will automatically attract global recruiters to Tanzania’s shores.
Kenya has a long-standing relationship with India, and should exploit this goodwill for the good of Kenyan youth.
Indian educated youth are now Global CEOs of leading organizations; like Tanzania, Kenya should consider developing collaboration with the Indian education system for the good of the youth.
In fact, Kenya should consider partnering with various renowned educational institutions around the world. “Identifying global skills gaps and collaborating to create educational hubs, especially in developing countries, will address the needs of developed and developing economies”.
Outsourcing and offshoring
Businesses in countries with a shortage of skilled labor can outsource work to countries with a surplus of qualified professionals.
This not only fulfills the immediate demand for skills but also helps to reduce operational costs and improve economic dependence.
East African countries, especially Kenya, with democratic stability, can attract companies such as L&T to set up engineering design centers.
However, it is important to recognize that infrastructure alone (such as an IT park) is not enough; A skilled youth workforce trained in globally scarce skills and globally acceptable standards is essential.
Cross investment in education and skill development
Countries experiencing labor shortages can invest in education and vocational training programs for those with high unemployment rates.
This can create a pipeline of skilled workers tailored to meet the specific needs of industries in areas with shortages.
Kenya should reach out to those countries that lack skilled manpower and persuade them to invest in the education sector in Kenya to create a mutually beneficial ecosystem.
Kenya should proactively engage with countries experiencing a shortage of skilled manpower, encouraging them to invest strategically in Kenya’s education sector, thereby developing a mutually beneficial ecosystem.
In addition, the integration of AI in education can play an important role in bridging the skills gap.
In Kenya, for example, an AI-driven platform can provide personalized learning experiences, real-time feedback, and adaptive teaching methods, so that students acquire the skills they need efficiently and effectively.
This technological approach can help overcome the challenges associated with limited access to quality educational resources.
Geo-economic and skills arbitrage offers a powerful solution to align global labor shortages with labor needs.
Kenya can capitalize by implementing incentives and developing a conducive environment, positioning itself as a center for technical talent and promoting economic prosperity.
Now is the time for decisive action through global collaboration to maximize this potential and drive sustainable growth.
Punia is a geo-economist and Chief Advisor, Andersen Kenya
