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IFC's Report on Jobs


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Presentation made at the Youth Employment workshop in Abuja, Nigeria on July 23, 2013 highlighting the key messages from IFC's 2013 Report on Jobs.

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IFC's Report on Jobs

  1. 1. IFC Jobs Study: Findings , implications and next stepsFindings , implications and next steps More information: 1 Thanks to the donors supporting the jobs study:
  2. 2. Current dual jobs challenge: o Quantity: 200M unemployed. 621M neither working nor studying. Additional 600M jobs needed by 2020. o Quality: About 50% of jobs are informal and 30% of workers are poor worldwide private sector provides ~90% Why jobs matter…(1) 2 Only the private sector can bring an answer, as it provides ~90% of jobs worldwide – but the public sector needs to help. IFC Jobs Study: o Assesses the effects of private sector activity on job creation o Elicits practical lessons for policy makers, IFC and other finance institutions focused on private sector – and private companies.
  3. 3. Where are jobs located in Nigeria? • 67 million people are in the labor pool out of a population of 164 million* • Around a quarter of the labor pool (~16 million people, especially youths) are unemployed* • Agriculture is by far the largest employer and informal sector employment is prevalent • Formal employment in either the public and private sector is relatively rare 3 Nigeria Workforce Distribution Source: Nigeria Employment & Growth Study 2009 (World Bank) *Source: Nigerian Bureau of Statistics – Unemployment Report 2011
  4. 4. Yet the Scale of the Jobs Crisis is Significant • Unemployment has doubled in five years and underemployment is significant • The populations most affected are: youth (37%), women (24%) and the rural population (27%) • A third of jobs are in the informal sector – evenly split between self-employed and hired help • The high level of informal jobs may indicate further “underemployment” in low quality jobs – over half are self-employed, the rest are apprentices, family (unpaid) and hired workers 30.0% Nigeria Unemployment Rates 4 DRAFT 12.3% 23.9% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 2006 2007 2008 2009 2010 2011 Source: Nigerian Bureau of Statistics – Unemployment Report 2011
  5. 5. Why jobs matter…(2) 5
  6. 6. Enterprise Survey Analysis IFC Job Study: Components Infrastructure case study Macro-case studies Micro- case studies Literature review Meta evaluationIFC Operational experience Collaboration with WDR Financial Markets case study IFC’s Smart Lessons competition Blog WEF-IFC Youth essay competition Website jobcreation MSMEs FI study Funds analysis Data from IFC’s DOTS Advisory panel ILO experience 6
  7. 7. Which Sectors Contribute Most to Jobs, Growth? • The agricultural sector provides 30% of the jobs in Nigeria, but has very low labor productivity • Food production, retail and furniture manufacturing employ the most in the formal sector • SMEs contribute more to job growth through manufacturing than through service industries …but, manufacturing has a disproportionately low contribution to GDP and growth 7 DRAFT WB Enterprise Survey for Nigeria (2007): Agriculture Excluded WB Enterprise Survey for Nigeria (2007)
  8. 8. Three distinct layers of policies are needed 8 Source: WDR
  9. 9. Selected findings: Removing constraints creates jobs Investment Climate: Business entry reforms can have large positive effects, particularly when combined with other reforms. o Mexican one-stop shops: Firm entry + 5%, jobs +2.8%. Infrastructure: Most studies focus on immediate direct job creation, but effects through enabling economic growth are even larger. o A reliable power supply could increase job growth in low income countries, by at least 4-5% … and probably much more. Powerlinks: Effects from having power far outweigh direct + indirect + induced effects of power transmission. Access to Finance: Improvements create significant number of jobs.Access to Finance: Improvements create significant number of jobs. o Significant extra job growth from bank loans (>3%) or external financing (>4%). o “Footprint”: Jobs provided - in 2011 IFC clients “reached” 23M MSMEs … which employed an estimated 100M+ people huge potential. o Job created: Sri Lanka case study – SMEs financed grew twice as fast (12%) as jobs in economy … but attribution is difficult, and more studies needed. Training: Programs show mixed results, but involving private sector and combining education with on-the-job training works best. o Programs that included both had 20% increase in probability of success 9
  10. 10. Cumbersome and costly regulations prevent companies from entering, operating and growing. Investment Climate Investment climate adds up to the most pressing issue for firms Top IC constraints: 10 Source: Enterprise Surveys constraints: (1) Informal competition (2) Tax rate (3) Corruption
  11. 11. Informal firms provide a large portion of jobs in developing countries. Investment Climate Informalemployment agricultural employment) 36 countries High poverty high informalityLow poverty high informality Informality is closely linked to poverty 11 Source: ILO, Department of Statistics, and IMF, World Economic Outlook. Informalemployment (%oftotalnon-agricultural employment) High poverty low informalityLow poverty low informality Population living below the national poverty line (% of total population)
  12. 12. Investment Climate constraints The table on the right ranks some of the key constraints drawn from the range available from the enterprise survey which includes corruption, credit, crime, electricity, interest, labor, legal, land, macro-economy, monopoly, regulation, tax administration, tax rate, ICT, trade, and transport. Shows that power is the main concern for in-zone firms, particularly for those in the machinery, garments (and textiles), and agro-business sectors. 12 Starting a Business DB 2012 Rank 116 Indicator Nigeria Sub- Saharan Africa OECD Procedures (number) 8 8 5 Time (days) 34 37 12 Cost (% of income per capita) 70.6 81.2 4.7 Paying Taxes DB 2012 Rank 138 Indicator Nigeria Sub- Saharan Africa OECD Payments (number per year) 35 37 13 Time (hours per year) 938 318 186 Profit tax (%) 22.3 18.1 15.4 Labor tax and contributions (%) 9.7 13.5 24 Other taxes (%) 0.7 25.5 3.2 Enforcing Contracts DB 2012 Rank 97 Indicator Nigeria Sub- Saharan Africa OECD Time (days) 457 655 518 Cost (% of claim) 32 50 19.7 Procedures (number) 40 39 31
  13. 13. Business entry reforms: Evidence of job creation, particularly when combined with other reforms. Mexico one-stop shop reform increased jobs (including self-employed) by 2.8% in eligible industries in one year Business entry reform alone may not be not enough to formalize : Business owners “Out of aspiration” 14.3% more likely to register. Business owners “ Out of desperation” less likely to register, but 20.4% Selected Findings: Investment Climate (IC) 13 Business owners “ Out of desperation” less likely to register, but 20.4% more likely to become wage workers Some evidence of benefits from IC reforms (e.g. competition reform); but more data and impact evaluation needed. Special economic zones (SEZs/EPZs), industry specific reforms: Potential … and challenges
  14. 14. Infrastructure: Increasing private investment Infrastructure investment by sector using PPP arrangements (US$ billions) 40 50 60 70 80 Energy Telecommunications Transport Water and sewerage Need to improve urban infrastructure, 14 Source: Private Participation in Infrastructure Database. 0 10 20 30 40 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 infrastructure, as more people move to cities.
  15. 15. Access to Infrastructure: Power Second-order (“growth”) effects Improved/more firm services and inputs (e.g. reliable power) more output/jobs Current focus on direct jobs, but larger job effects through enabling economic growth Reliable power supply could increase job growth in low income countries by at least 4-5% 15 Indirect and induced jobs Direct Indirect/induced jobs often larger than direct jobs Important, but often ignored New power transmission lines in India, jobs created: Construction and maintenance ~2K direct, and ~8K direct/induced in 25 yrs Improved power supply: ~75K jobs from 2006-12
  16. 16. Key constraint in Nigeria is Power Growth remains challenged significantly by the country’s poor infrastructure framework i.e. bad roads, poor power supply, an inefficient transport system etc. • Constrained by inadequate infrastructure, Nigerian firms report the second highest rate of product losses in all SSA. • Regardless of size, ES firms have overwhelmingly identified electricity as the main obstacle. SMEs also identified access to finance and the next biggest constraint. • Power is the main concern for in-zone firms, particularly for those in the machinery, garments (and textiles), and agro-business sectors. INFRASTRUCTURE DEFICIT CONSTRAINS GROWTH & COMPETITIVENESS Large firms and SMEs in low-income countries cite power as the most important constraint. In Nigeria, Infrastructure and especially power is 16 Source: Nigeria Enterprise Survey 2007 In Nigeria, Infrastructure and especially power is the critical factor affecting competitiveness for manufacturing and agribusiness. Getting Electricity DB 2012 Rank 176 Indicator Nigeria Sub- Saharan Africa OECD Procedures (number) 8 5 5 Time (days) 260 137 103 Cost (% of income per capita) 1056 5429.8 92.8As size increases, % of firms identifying electricity as main obstacle also increases.
  17. 17. Selected findings: Infrastructure – other sectors Telecoms/IT: Significant employment effects – especially for young people – and use of technology can help spur job growth. Strong job effects also from other infrastructure services (e.g. water– irrigation), and huge needs from urbanization. In LAC: water/sewer (100K), rural electrification (23K): Strong direct job effects per $ billion invested – but regional/sectoral 17 Strong direct job effects per $ billion invested – but regional/sectoral variation. Direct job creation is the focus of most studies, but “growth effects” can be much larger – and women often benefit disproportionately more. Summary: Infrastructure – a big contributor to jobs, and the biggest effects often come from improved infrastructure.
  18. 18. Finance: Smaller firms have less access to financing Use of bank financing: Small firms: 14% Medium firms: 18% Large firms: 25% forworkingcapitalandfixed investmentneeds(%) 18 Source: IFC (2010). Scaling-up SME Access to Financial Services in the Developing World. Sourceoffinancingforworkingcapitalandfixed investmentneeds
  19. 19. … and firms in poorer countries too Ratio of domestic private sector credit to GDP 19
  20. 20. SMEs that have access to finance show significant job growth mainly as a result of expansion of operations and technology investments o 3.1% - 4.2% higher job growth with loans/overdraft, external financing • Firms in developing countries: Less access to finance. Financial markets are less developed. • 45-55% of formal SMEs unserved, over 20% underserved, 70% don’t use external finance. Gap: $2.5 trillion Selected Findings: Access to Finance (A2F) o 3.1% - 4.2% higher job growth with loans/overdraft, external financing o “Footprint”: In 2011 IFC’s client FIs “reached” 23M MSMEs … which in turn employed an estimated 100M+ people huge potential. Growth: Sri Lanka case study – SMEs financed grew twice as fast (12%) as jobs in economy … but attribution is difficult. o Macro case studies: High job creation through FIs: Per $ million invested: Estimated 228 jobs in Ghana, 107 jobs in Jordan o From 2000 to 2010, 494 Firms financed by IFC’s private equity funds created, net of job loss, ~300K jobs Strong growth compared to small portfolio. 20
  21. 21. The SME Financing Gap is Significant No BankChecking & SME Banking Relationship SME Financing Gap • 1 M SMEs are estimated to be unserved or underserved by banks, resulting in a 22MM financing gap in Nigeria • 87% of SMEs already have a bank account, creating the foundation for a banking relationship • 75% of SMEs would like bank credit but only 14% have access to a loan or overdraft account • Suppliers and customer credits meet 25% of SMEs’ financing needs • Bank lending to SMEs constitutes only [3%] of assets in the banking system • Leasing market grow by 30% in CY2011 21 DRAFT No Bank Relationship 13% Checking 73% Checking & Overdraft/ Loan 14% Does not Need Credit 25% Unserved 61% Underserved 10% Well-Served 4% Source: Assessing and Mapping the Gap in MSME Finance McKinsey and IFC (2012)
  22. 22. SME Borrowing Constraints are also Significant • SMEs with varying levels of informality have difficulty providing adequate documentation • Interest rates are significantly higher for smaller firms, reducing demand • High collateral requirements and lack of movable collateral registry reduces security options • Risk aversion of banks results in short loan terms that sometimes are insufficient for SMEs • There is a lack of capacity among entrepreneurs to develop and present bankable proposals Less financing at higher cost for SMEs 22 DRAFT
  23. 23. Improve financial sector regulation: Liberalize to encourage entry and lending … but enforce prudential regulations and protect property rights (which helps lenders … and enterprises). Improve financial infrastructure to improve information (e.g. collateral registries). Example: 28%-40% higher likelihood for SMEs to get a loan in countries with credit bureaus. How to improve access to finance? 23 get a loan in countries with credit bureaus. Step up competition – increases the incentive to reach out to SMEs. Increase funding to FIs: Particularly for under-served groups, such as MSMEs and women entrepreneurs.
  24. 24. Not enough workers for high-skilled jobs ~1/3 of companies can’t find the workers they need.* Not enough jobs for low-skilled workers Business owners/managers can lack skills to manage firms Limits potential for firm growth and job creation. Training and Skills Small firms are less likely to offer training to their workers, even though many identify skills as a constraint 29.3 43.8 67.1 27.2 38.7 42.8 43.4 0 20 40 60 80 Small Medium Large Low Low- middle Upper- middle High Firm size Income group% of firms offering training to their workers Source graph: IFC Jobs Study using Enterprise Surveys. *ManPower Group (2012) sample of 41 countries ; **McKinsey Global Institute (2012)
  25. 25. Linking Skills, Technology and Competition Studies show <20% of SME Some observations: • In terms of skills, some form of education/technology competence is common for SMEs • Competition in the SME space is relatively high, and is at the local/national/regional level • Sectors range from retail, manufacturing and services Characteristics of SMEs differ by business size and a review of several of their attributes is useful to inform discussion of their demand for and the supply of financial and non-financial services. 25 SMEs represent 90% of the manufacturing/ industrial sector <20% of SME manufacturers export
  26. 26. Training and Skills Training, technology, and innovation can create jobs Innovating firms attain more productivity and job growth than non-innovative firms. This employment growth is inclusive* But programs show mixed results on jobs; combining training with work experience works best Employment effects more significant in longer-term, and focused on disadvantaged groups (e.g. women, low-income youth). Combination can increase probability of employment up to 25% in urban areas and 26 Combination can increase probability of employment up to 25% in urban areas and up to 20% in rural areas.** Comprehensive approach is needed Dual vocational training systems - Germany and Switzerland – successful examples Requires collaboration with private sector and relevant stakeholders Clusters facilitate investments in training, technology, and innovation E4E Initiative for Arab Youth: Jointly supported by IsDB and IFC - focuses on preparing young people for the work place. Sources: *Dutz et al. (2011). **Fares, Puerto (2009).
  27. 27. Where are the jobs? Particularly in poorer countries: Small businesses dominate Small firms have the highest share of employment. For higher country income groups, large firms become much more important. In addition: High informality … also small firms Signs of “stunted growth” Impedes income growth Job growth rate of smaller 27 of smaller companies is twice the average of all companies. However, small companies are more likely to go out of business. Source: IFC Jobs Study using Enterprise Surveys data
  28. 28. Key Sectors Retail/ Wholesale/ Light Manufacturing • Pharmaceuticals • Paper Products • Food Processing Health and Education • Hospitals & Clinics • Equipment Financing • Pharmacies • Private Schools Agribusiness • Outgrower Finance • Agri Finance Vehicles • Grocery Suppliers Retail/ Wholesale/ Services • Hotel Supply Chains • Consumer Goods Distribution Chains • Restaurant Franchises • Shopping Centers • Food Processing • Packaging DRAFT 28
  29. 29. Where can we get the most “bang for the buck”? • To prioritize new activities, the team has looked areas where IFC has a comparative advantage: (1) what is desirable based on the jobs and growth imperative and IFC’s development goals? WIP: To factor in development results for comparable projects (2) what is feasible based on ease of implementation and resource availability? WIP: To factor in resource requirements for comparable projects Prioritization of programs High Agribusiness SME Banking Partnerships Highpriority Business Environment Financial Infrastructure -Collateral registries Credit Bureaus 29 DRAFT Upside Potential Growth Employment Indirect Devt Impact Feasibility: Speed of execution and Availability of resources Health Education SME Capacity Building Low High Low Size of bubble is potential for contribution to IDGs / Reach Corporate Value Chains Banking on Women ICT/ Entertainment Manufacturing/ Construction Leasing PartnershipsHighLeverageOnly OpportunitiesHighpriority Mobile Banking -Collateral registries -Credit Bureaus Business Plan Competitions
  30. 30. Productivity Larger firms tend to be more productive Gains in labor productivity tend to be positively associated with more job growth than destruction. Why growth - into larger companies – matters Many firms are born small and grow little in India and Mexico 30 Source: Hsieh and Klenow (2011) 30
  31. 31. 67.1 60 80 Firms offering training to workers (%) by firm size and country income group Productivity Larger firms tend to be more productive, pay higher wages, offer more training and often better working conditions. Larger firms pay higher wages Large is beautiful? 31 29.3 43.8 27.2 38.8 42.8 43.4 0 20 40 Small Medium Large Low Low mid Upper mid High Country Income GroupFirm size Source: WDR 2013 team based on Ayyagari, Demirguc-Kunt, and Maksimovic (2007), and on Montenegro and Patrinos (2012) Source: IFC Jobs Study using Enterprise Surveys data
  32. 32. Macro-case studies: - Jordan: 9,100 jobs from IFC investment (0.6% of labor force) plus 3,200 from financing mobilized - All: Tradeoff between value added per job and number of jobs Estimating effects … and tradeoffs Transformations • Invest in labor intensive sectors and Financial Institutions (FIs) • Invest in larger non-FIs & sectors facing international competition … and develop value chains Short-term job growth Long-term job growth 32
  33. 33. Other selected findings Direct job creation – net of losses - tends to be small However, large job creation in supply/distribution chains (indirect), and in whole economy (induced jobs) Indirect jobs tend to be unskilled, providing opportunities for the poor Multipliers in IFC Projects Direct Jobs Indirect Jobs Multiplier Sector, Country Micro-case studies in Manufacturing, Agribusiness and Services 33 * Safal: multiplier calculated on total jobs provided instead of incremental jobs due to difficulties with attribution. Mriya 2,505 7,390 3 Agribusiness, Ukraine Safal* 4,200 24,000 6 Steel, Africa PRAN 294 2,198 7 Agribusiness, Bangladesh Ecogreen 177 3,646 21 Chemicals, Indonesia OCL 293 7,156 24 Cement, India Total jobs, not just multiplier! Mriya 2009 vs. 2011: more direct jobs (increased quality), multiplier declined.
  34. 34. Sector/Industry Total jobs (direct, indirect, induced) in the economy for each direct job in a sector Agriculture 1.2 (Chile) 2 (US and Scotland) 3 (Tanzania) Mining 2.5 (Scotland) 5 ( US) 7 (Chile) 28 (Ghana) Financial Services 14.9 (Indonesia) 19 (Ghana) Large variation for indirect and induced job creation effects Multipliers … and how to strengthen them Oil and Gas 7.5 (US) 13.4 (Scotland)* Hotels 1.24 (Scotland) 2.66 (Tanzania) Retail 1.27 (Chile) 1.31 (Scotland) 1.89 (US) Cement 2.47 (Scotland) 4.45 (US)** 34 *This number considers only petroleum refineries. **This number is for California only, not the whole country. Source: Literature Review for IFC Jobs Study. IFC-supported supply-chain linkage and community development programs
  35. 35. IFC’s Performance Standard 2: Labor and Working Conditions: IFC sets standards for the private sector Through the Equator principles, other private sector actors and IFIs are adopting these standards too. IFC works with clients to improve understanding of labor standards through training and advisory services Not just number of jobs; quality matters Quality of Jobs Business case for higher standards: Less accidents, less turnover, higher product quality, lower insurance premiums … higher profits For maximum poverty reduction create good jobs in supply/distribution networks, e.g. Antea Cement, Albania; Mindanao Bananas, Philippines. 35 IFC’s sustainability policy and performance standards: Ensure high standards for IFC clients and influence global standards for project finance through the Equator Principles.
  36. 36. When there is greater legal differentiation based on gender, fewer women work Gender: Unequal treatment … Legal differences: 102 of 141 countries Lack of access to finance: Less likely to get a loan … and paying more for it. Femalelaborforceparticipation (residual) 36 Source: Women, Business and the Law database; World Development Indicators; Enterprise Surveys. Correlation between the two variables, after controlling for per capita income. paying more for it. Cultural norms, less access to education, childcare … Work in less productive areas, lower wages Femalelaborforceparticipation (residual) Number of legal differentiations (residual)
  37. 37. Where are women most active? • Women have 2/3 the jobs in retail/trade services and a majority of jobs in manufacturing • Women only have 1/3 of the jobs in the agriculture sector • Women are more likely than men to be unpaid, clerical or casual workers in the informal sector • Women head 38% of formal enterprises and are active business partners more often than men • Women-owned businesses receive only 15% of the SME financing available in the market 37 DRAFT Source: NBS – National Manpower Stock and Employment Generation Survey (2010)
  38. 38. Some solutions include: Support women-friendly industries … and help women into leadership positions Encourage female participation in non- traditional fields Removing obstacles benefits women, their families, companies and society Women reinvest 90% of income in families With women-friendly policies … and benefits from removing the obstacles 38 traditional fields Connect women to markets, support women- owned SMEs Further develop business case for women as workers and leaders With women-friendly policies higher productivity … and profits Turkey: Increase female participation in the labor force from 23% to 29% Reduce poverty by 15%
  39. 39. Some implications for IFC … and others IFC’s overall strategic focus on IC, infrastructure, A2F, and training and skills is consistent with the key constraints to private sector … and job growth. Use a “job lens” to identify and focus on the key constraints in the country, region or sector (including gender/youth issues). Help strengthen client companies’ linkages to domestic suppliers and distribution networks Opportunities to support people at base of pyramid. Assess private sector needs on training and skills, and support private providers’ programs, particularly where education is combined with workproviders’ programs, particularly where education is combined with work experience. Focus on helping SMEs (upgrade skills of managers & workers). Working conditions (through E&S standards): Affect IFC’s clients, but also look beyond: (1) work with “linked” companies; (2) industry standards (e.g. “Better Work”), (3) global standards (“Equator Principles”). Reduce obstacles to formality, particularly in low-income countries, support emerging entrepreneurs … and create opportunities in formal enterprises. Opportunities for collaboration – within the WBG, with IFIs and others. 39
  40. 40. Next Steps: Implementation( along with partners) Emerging priorities (based on ongoing consultations within the WBG, with IFIs and others) 1. Operational support: E.g. how best to strengthen jobs focus in operations (e.g. applying a jobs lens at the country level; strengthening value chains, making training more relevant for private sector needs, etc.) 2. Better data: Apply, refine & harmonize methodologies; better under-2. Better data: Apply, refine & harmonize methodologies; better under- stand formalization; better data on employment effects and standards; develop “business case” for better standards and monitoring, etc. 3. Improved communication: Improve ability to articulate contributions of private sector activities to creating more and better jobs 4. For all, enhanced collaboration: With IFIs and with others (e.g. ILO, academia, private sector, civil society organization) 40 Consolidating a Joint Work Program along with interested partners on creating more and better jobs
  41. 41. What will it take? Collaboration Private Sector World Bank Group Govern- ment People 41 Int. Organi- zations Civil Society Org’s Academia Thinktanks People
  42. 42. What will it take? Collaboration A joint report by 31 IFIs IFC - G20 G20 Challenge SME Innovation Finance Fund 28 IFIs - Joint Communiqué: Contributing to Creating More and Better Jobs (IFC Jobs Study) IFC-WEF: Essay Competition Youth Unemployment 29 IFIs: 42 G20 Challenge Inclusive Business Innovation JOBS? ILO-IFC IFC & 78 FIs 29 IFIs: Corporate Governance Development Framework -Trade Finance -Agricultural Price Risk Management, GAFSP, …