ifc's report on jobs

IFC Jobs Study:

Findings , implications and next stepsFindings , implications and next steps

More information: www.ifc.org/jobcreation

1

Thanks to the donors supporting the jobs study:

� 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% ofjobs 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 otherfinance institutions focused on private sector – and privatecompanies.

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

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

4DRAFT

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

Why jobs matter…(2)

5

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

ifc.org/

jobcreation

MSMEs FI

study

Funds

analysis

Data from

IFC’s DOTS

Advisory

panel

ILO

experience

6

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

7DRAFT

WB Enterprise Survey for Nigeria (2007): Agriculture Excluded WB Enterprise Survey for Nigeria (2007)

Three distinct layers of policies are needed

8

Source: WDR

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 atleast 4-5% … and probably much more. Powerlinks: Effects from having power faroutweigh 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 sectorand combining education with on-the-job training works best.

o Programs that included both had 20% increase in probability of success

9

� 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

� Informal firms provide a large portion of jobs in developing countries.

Investment Climate

Info

rmal em

plo

ym

ent

agr

icultura

l em

plo

ym

ent)

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.

Info

rmal em

plo

ym

ent

(% o

f to

tal non-a

gricultura

l em

plo

ym

ent)

High poverty low

informalityLow povertylow

informality

Population living below the national poverty line (% of total population)

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 TaxesDB

2012 Rank138

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

� 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)

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� 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

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.

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%

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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

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.

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

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Strong direct job effects per $ billion invested – but regional/sectoralvariation.

� 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.

Finance: Smaller firms have less access to financing

Use of bank financing: �Small firms: 14%�Medium firms: 18%�Large firms: 25%

for work

ing ca

pital and fix

ed

investm

ent needs(%

)

18

Source: IFC (2010). Scaling-up SME Access to Financial Services in the Developing World.

Sourc

e of financing fo

r work

ing ca

pital and fix

ed

investm

ent needs

… and firms in poorer countries too

Ratio of domestic private sector credit to GDP

19

�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 turnemployed an estimated 100M+ people � huge potential. Growth: Sri Lankacase study – SMEs financed grew twice as fast (12%) as jobs in economy … butattribution 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.

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The SME Financing Gap is Significant

No Bank Checking &

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

21DRAFT

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)

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

22DRAFT

�Improve financial sector regulation: Liberalize to encourage entry andlending … but enforce prudential regulations and protect propertyrights (which helps lenders … and enterprises).

�Improve financial infrastructure to improve information (e.g.collateral registries). Example: 28%-40% higher likelihood for SMEs toget 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 asMSMEs and women entrepreneurs.

� 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

27.238.7 42.8 43.4

0

20

40

60

80

Small

Mediu

m

Larg

e

Low

Low

-m

iddle

Upper-

mid

dle

Hig

h

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)

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 SMEmanufacturers

export

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).

Where are the jobs?

� Particularly in poorer countries: Small businesses dominate

� Small firms have the highest share of employment. For higher countryincome 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

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

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

Partnership

s High

prio

rity

Business Environment

Financial Infrastructure

-Collateral registriesCredit Bureaus

29DRAFT

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 forcontribution

to IDGs / Reach

Corporate Value Chains

Banking on Women

ICT/ Entertainment

Manufacturing/ Construction

Leasing

Partnership

sHigh Levera

ge O

nly O

pportu

nitie

sHigh

prio

rity

Mobile Banking

-Collateral registries-Credit Bureaus

Business Plan

Competitions

Productivity

� Larger firms tend to be more productive

� Gains in labor productivity tend to be positively associated withmore 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

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 moretraining and often better working conditions.

Larger firms pay higher wages

Large is beautiful?

31

29.3

43.8

27.2

38.842.8 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

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

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.

Sector/IndustryTotal 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)**

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*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

� 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.

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.

Fem

ale

labor fo

rce p

articip

ation

(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 wagesF

em

ale

labor fo

rce p

articip

ation

(residual)

Number of legal differentiations (residual)

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

37DRAFT

Source: NBS – National Manpower Stock and Employment Generation Survey (2010)

� Some solutions include: � Support women-friendly

industries … and help women into leadership positions

� Encourage female participation in non-traditional fields

� Removing obstacles benefits women, theirfamilies, companies andsociety

� 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%

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

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 inoperations (e.g. applying a jobs lens at the country level; strengtheningvalue 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 contributionsof 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

What will it take? Collaboration

Private Sector

World Bank Group

Govern-ment

People

41

Int. Organi-zations

Civil Society Org’s

Academia Thinktanks

People

What will it take? CollaborationA joint report

by 31 IFIsIFC - 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-IFCIFC & 78 FIs

29 IFIs: Corporate Governance Development Framework -Trade Finance

-Agricultural Price Risk Management, GAFSP, …