Q&A with Roland Michelitsch, Lead Author of the Job Study
When 60,000 poor people were asked what their best pathway out of poverty is, by a long shot the predominant answer was through a job. Click on the image to access IFC's report "Assessing Private Sector Contributions to Job Creation."
A:The report highlights how alleviating the constraints to job creation can have a huge impact. We’re talking about things like poor investment climate, inadequate infrastructure, insufficient finance for micro, small and medium sized enterprises, and also the lack of skills and training that leads to an unprepared work force.
We also found that combining investments with advice also tends to have better results.
Q: Can you give some examples?
A:Yes. One constraint is access to finance. IFC invests in a large network of financial intermediaries in developing countries, so they can lend in turn to local businesses and entrepreneurs. These financial intermediaries support 23 million micro, small, and medium sized enterprises in the developing world. We estimated that these enterprises employ 100 million people and we found that in Sri Lanka these small businesses―the ones supported by our financial intermediaries―had an annual job growth of 12 percent. That’s twice the country average. So imagine if more small businesses had access to finance. The effects would be great.
Another case. We also estimated that having reliable electricity from generators can increase annual job growth by over four percent in low income countries. Given that power from generators is very expensive and that some private sector development doesn't even start without reliable power, the effects of reliable power from the grid could be much larger.
These are just a couple of examples of constraints that keep small businesses in developing countries from growing into larger companies. I call it the phenomenon of "stunted growth."
It’s important to remember though that larger companies are typically more productive, offer higher wages and more training for their workers. And don’t forget, we are talking not just about direct jobs in these companies but jobs coming from supply chains and distribution networks that come as a result―which we have found are often a large multiple of direct jobs.
Q: And what about combining investments with advice? How does that help?
On combining we found that combining business entry reform with other regulatory reform has greater effects. Also engaging the private sector in vocational training curriculum design and combining education with on-the-job training leads to better results.
An example: extractive industries projects tend to have relatively low local employment multipliers. But where we combined our investment with advice―on strengthening the local supply chain and community development program―the multiplier for a mining project in Ghana was much higher than usual.
Roland Michelitsch, chief results measurement specialist at IFC and lead author of the jobs report
Q: How does the study and its findings relate to the Bank Group's mission?
A:So here’s the situation. 200 million people worldwide are unemployed today―the majority in developing countries. An additional 600 million jobs need to be created in developing countries by 2020, just to keep up with young people wanting to enter the labor force. Since the private sector provides 90 percent of the jobs in developing countries, the only sustainable solution can come from private sector-led growth. And when 60,000 poor people were asked what their best pathway out of poverty is, by a long shot the predominant answer was through a job. So clearly, jobs are at the heart our mission to end poverty and boost shared prosperity.
Q: How will the findings feed back into the Bank Group’s work?
A:The preliminary findings have fed into IFC’s annual strategy cycle, and quite a few departments have already identified areas where they can strengthen their impact on jobs. The jobs conference, going on yesterday and today, also focuses very much on implementation, and how we can step up our game in this area. And finally, this does not just relate to IFC. It’s part of a much broader implementation effort. And in fact, we collaborated closely with our colleagues in the World Bank on the WDR, and the taskforce for implementation. The same collaboration applies for the IFC’s Jobs study. I would also like to add that there is clearly a role for the public sector, in establishing a conducive environment for such growth, so this is a "World Bank Group" agenda.
Q: What’s the relevance of this report in a time of change inside the Bank Group?
A:Jobs are central to ending poverty, which is our mission and is at the heart of the change effort. As I said earlier it also shows the potential impact of providing integrated solutions our clients―countries and companies. Promoting synergies across the Bank, IFC and MIGA has to be a big part of the change effort.
Q: Are there any implications for external institutions?
A: At the launch of the report, a large number of other international development finance institutions pledged to do their utmost to create more and better jobs in a joint communiqué. We will all use the findings of the study to inform our work, and we also pledged to share our experiences and close knowledge gaps―because we clearly don't have all the answers yet. Where it makes sense, we also pledged to work together towards job creation, in operations, as well as in improving our knowledge base.