Private sector key to job creation—IFC

The private sector in developing countries including Malawi can create jobs at a faster rate if policymakers and development institutions make it a priority to remove the key obstacles to growth that they face, according to a new study.

The study released on Monday by the International Finance Corporation (IFC), a private sector financing arm of the World Bank Group titled, “Assessing Private Sector Contributions to Job Creation,” concludes that four obstacles pose a particular challenge to job creation in the private sector.

These are; a weak investment climate, inadequate infrastructure, limited access to finance for micro, small and medium enterprises; and insufficient training and skills.

It says removing these obstacles can significantly increase job creation, and the Economic Empowerment Action Group (EEAG), a grouping of small-scale local business operators in Malawi.

Malawi’s private sector have largely been facing the challenges cited in the report, and successive governments have made pronouncements to improve the climate for doing business, but to no avail.

The country slipped six steps to 157 from 151 on the 2013 World Bank Ease of Doing Business (DB 13).

In the report, Malawi dropped 28 steps on paying taxes, three on registering property, protecting investors and trading across the borders.

The study was released as a companion report to the World Bank’s World Development Report 2013 on Jobs which was released last October.

It says high levels of unemployment, especially among youth, and large numbers of low-quality jobs are problems in developing countries around the world and, therefore, creating more and better jobs is an urgent priority.

“Jobs are much more than monetary income; they are the cornerstone of development. Jobs boost living standards, raise productivity, and foster social cohesion, and they are the main path out of poverty,” says the report.

Currently 200 million people are unemployed globally, and the unemployment rate for youth is more than 2.5 times higher than that of adults, according to the World Bank Group, and that by 2020, 600 million jobs must be created in developing countries—mainly in Africa and Asia—just to accommodate young people entering the workforce.

“In developing countries, the quality of jobs is just as important. Almost a third of workers are poor, and about half—particularly women—are vulnerable, often working in informal jobs, which frequently provide fewer rights and protections for workers,” says the report.

In Malawi the extent of joblessness is not known as the numbers are not easy to compute because of a lack of national identification system, according to the National Statistical Office (NSO).

But it is evident that more deserving Malawians are not without jobs, moreso, with the current economic environment companies are going through.

Worldwide, figures show that private sector provides nine out of 10 jobs in developing countries, and plays a key role in creating the new jobs needed and fostering growth.

The IFC has called on governments and development finance institutions to help build an environment where these constraints are minimised or removed.

EEAG says it is critical that constraints are minimised because SMEs employ the largest number of people in an economy.

The IFC says SMEs account for more than half of all formal employment worldwide, and this is especially true in low-income countries, where small businesses represent on average about 66 percent of permanent, full-time employment.

“Small companies tend to have much higher rates of job growth (18.6 percent over a 2-year period in a representative sample from 106 countries, twice the average of all companies), but also are more likely to go out of business. Larger firms tend to be more productive, invest more in training, and offer higher wages,” says the survey.

But EEAG argues that despite small companies having higher job growth rates, financial constraints prevent the smallest enterprises from graduating into formal companies.

The survey argues that based on the responses on companies in 106 developing countries to the World Bank Enterprise Surveys—which measure perceptions about the business environment based on companies’ experiences—the top constraints facing their operations are a poor investment climate, including red tape, high tax rates and competition from the informal sector.

Others include inadequate infrastructure, especially an inadequate or unreliable power supply, but also transportation and water; lack of access to finance, such as credit lines, particularly for smaller businesses; and workers who lack adequate skills and training.