Jobs in developing countries can be created at a faster pace than is currently the case if four key obstacles to private-sector job creation are addressed, a new study by the World Bank’s International Finance Corporation (IFC) shows.
It estimates that 200-million people are unemployed globally and that 600-million jobs will have to be created by 2020, mainly in developing countries, simply to keep up with population growth.
The IFC also stresses that private-sector job creation is critical, as nine out of every ten jobs are created by private enterprises.
Entitled ‘Assessing Private Sector Contributions to Job Creation’, the report’s findings are based on the responses of more than 45 000 companies in 106 developing countries to the ‘World Bank Enterprise Surveys’.
The results show that weak investment climates, inadequate infrastructure, especially electricity, limited access to finance for micro, small, and medium enterprises, and insufficient training and skills are all serious impediments to higher firm-level employment.
Cumbersome and costly regulations, the report states, are preventing companies from operating and growing in the formal sector.
It, therefore, suggests comprehensive investment climate reforms, dealing with multiple issues, from business registrations to tax reform and competition policy.
The lack of infrastructure, especially a reliable power supply, is viewed as another key constraint, particularly in sub-Saharan Africa, where one-fifth of companies identified access to power as their biggest obstacle.
The report argues that interventions to bolster reliable power supply could increase yearly job growth in low-income countries by up to 5%.
Facilitating access to finance, meanwhile, could generate significant numbers of jobs, especially for small enterprises.
Currently, about 70% of the 365-million to 445-million micro, small, and medium enterprises in developing countries, including informal and formal establishments, do not use external finance. That translates to an unmet credit need of about $2.5-trillion, or around 14% of gross domestic product in the developing world.
The IFC says measures that can improve access include reform of financial sector regulation, policies that help financial institutions broaden their lending activities to underserved groups, increased competition in the financial sector, and enhancement and development of financial infrastructure.
The report also proposes a comprehensive approach to deal with the mismatch between available skills and those required by the market.
It notes that, while 45-million job seekers join the labour force yearly, more than one-third of companies in 41 countries around the world report an inability to find the workers they need. “This dynamic suggests a global mismatch between the demand and supply of workers, and the availability of relevant job training.”
The IFC believes the remedy lies in designing a comprehensive approach to decrease the mismatch between existing skills and the employment opportunities available, including through vocational training systems, which combine classroom with on-the-job training.
“Joblessness is a global crisis that is especially urgent in the poorest countries,” IFC executive VP and CEO Jin-Yong Cai asserts.
He adds that job creation offers the surest path out of poverty and that promoting job creation in developing countries “is a top priority for us.”