- Youth unemployment is bad and threatens to get worse.
- If the necessary jobs are to be created, the private sector must provide them.
- The International Finance Corporation (IFC) has identified several key barriers to the creation of private sector jobs in emerging markets.
- A new coalition of business groups and international agencies has launched a programme to spur job creation by addressing these problems.
Millions of young people currently find themselves out of work around the world, and millions more will be joining the global job market in the coming years. Based on evidence that the private sector is the source of almost all job creation, the International Finance Corporation (IFC), the World Bank’s private investment arm, launched a study to identify the main constraints to private sector job growth in emerging markets. That sparked the founding of an IFC-led coalition of private sector groups and international agencies, called Let’s Work, to attack the problem.
Four key factors hold back private investment in emerging markets:
- the investment climate – things like tax rates, regulatory regimes, etc.;
- infrastructure deficits – energy leads the way, but roads, ports and railways also play a role;
- shortage of finance, especially for small and medium-sized enterprises (SMEs); and
- lack of training and skills in the labour force, especially for larger firms, and particularly when a country begins to move up on the scale of development.
All of these factors lead to sub-par productivity, a phenomenon that is exacerbated by the fact that SMEs create most new jobs; SMEs are generally less efficient than their larger counterparts. Deficits in quality and productivity can be partly addressed by having larger firms work with suppliers along their value chains. On the training front, one solution would be greater engagement of the private sector by education officials so that students graduate with the skills that both they and companies need.
The IFC report determined that women face additional obstacles, and that efforts to eliminate them benefit not only the women themselves but also their families and society in general. One of the mandates for Let’s Work is to develop the ‘business case’ for providing more opportunities to women. ‘I believe in the role that women can play in the transformation of Africa,’ said Walter Gelens, Secretary General, Private Investors for Africa.
Even for large multinationals that have been active in the region for decades, there is still room for expansion in Africa. Few companies operate in every country of the region. The first prerequisite for a country to encourage outside investment is peace. After that come governability and a reasonably welcoming business climate. The IFC’s Doing Business report, which ranks countries on the basis of how easy it is for the private sector to operate, demonstrates that countries that make an effort to create favourable environments can successfully attract business.
Financing is only an input. Its effectiveness must be measured by whether it leads to specific benefits in the larger economy, notably job creation.
‘Before the World Bank and IFC had to go to countries to try to convince them to improve their business conditions,’ said Roland Michelitsch, Head, Let’s Work, IFC. ‘Now they come to us asking for help.’