Lack of infrastructure, finance, skills and training are key obstacles to growth for the private sector in developing countries and formalizing informal economic activity is the path to higher quality employment, according to a new study.
The World Bank's private sector lending arm, the International Finance Corporation (IFC), launched Jobs Study on 14 January 2013, the culmination of 18 months research to understand how private sector activity and IFC loans contribute to job creation.
The study found that IFC investments do very little to create direct jobs, but claims the multiplier effect in creating indirect employment is significant. The study found that the investment climate, infrastructure, access to finance and skills & training are critical factors for job creation in developing countries, and that labour regulation is not a major obstacle according to enterprises that responded to the survey in this study.
One of the conclusions of the study is that formalizing informal economy activities is the path to higher-quality employment creation, which is an effective way of attacking poverty. The study also identified the positive impact resulting from respecting workers’ rights on reduced accidents, reduced worker turnover and improved product quality. Respect of these rights is now a formal requirement of all IFC borrowers through IFC Performance Standard 2 (PS 2) on labour and working conditions.
Reviewing the report, Peter Bakvis of ITUC/Global Unions Washington Office, writes, “the Jobs Study provides only fragmentary and approximate assessments of the jobs impact of IFC loans and investments, and in a few cases seems to gloss over valid critiques of some types of IFC investments… Despite this, the report provides several analyses and recommendations that are supportive of "quality jobs" where the ILO's core labour standards are respected.”
Bakvis also notes that while the requirement of IFC borrowers to respect workers’ rights is a positive development and is recognized as such in the study, “the report does not refer to weaknesses in the IFC's enforcement mechanisms for PS 2; the gaps in application created notably by IFC's lending through private financial intermediaries; and the fact the Equator Principles, based on PS 2 and other standards and adopted by 77 private financial institutions, are devoid of any monitoring or reporting requirements.”
A 47-page summary version of the IFC Jobs Study is available on-line in English only here:
The full 148-page report is available here: