How DFIs can help create more decent jobs in Africa

The COVID-19 pandemic has taken a heavy toll on countries around the world. African economies have been hard hit with growth contracting by 2.1% in 2020, which is expected to recover to 3.4% in 2021. About 20 million formal and informal jobs are estimated to have been put at risk as a result of the pandemic. For those that kept their job, it is estimated that incomes declined by 10% in sub-Saharan Africa.

The role of the private sector and Development Finance Institutions (DFIs) in supporting resilience has been highlighted during the pandemic. DFIs provided the private sector with funding and absorb risks, aiding the pandemic recovery. Whilst other capital inflows like foreign direct investment sharply declined, DFIs were able to continue to support businesses and in turn, livelihoods. In response to the pandemic, DFIs have committed to invest $80 billion in Africa’s private sector over the next five years.

In 2020 ONE launched the Africa Jobs Campaign, which aims to push for policy changes that could create 15 million decent jobs annually on the continent by 2025. DFIs have great potential to help meet this goal. It is estimated that DFIs already directly or indirectly support over 6 million African jobs in the private sector. DFI investments can accelerate job creation and productivity growth, improve informal job quality, or increase productivity and job availability for vulnerable groups (e.g. women, youth, and people living in poverty).

ACET and ONE recognized the opportunity to influence policy and decision-makers in Africa and European and North African markets and commissioned the report Shifting and Accelerating DFI Investments for More Decent Jobs in Africa to understand how our advocacy can ensure that DFIs help us reach our Africa jobs campaign targets.

These are the key findings and recommendations from the study.

Key Findings
  • DFIs appear to be investing where the jobs are—in agriculture and micro-, small, and medium-sized enterprises (MSMEs)—although they omit details about jobs created through financial institutions, which make up 41-61% of their
  • DFIs have failed to sufficiently report the quantity and quality of employment created in all sectors, especially for marginalized groups. Jobs for youth were only reported by one DFI, and wages and measurements of the quality of the jobs were not reported by any.
  • Africa’s future jobs will be green and digital, which will modernize the agriculture sector and increase the productivity of MSMEs and the informal sector.
  • Opportunities exist in manufacturing as the domestic market grows, and capitalizing on the African Continental Free Trade Agreement (AfCFTA).
  • Productivity gains from investing in women and youth employment will only grow, as existing sectors modernize and new opportunities in trade, digitalization, and climate adaptation transform sectors across the economy.
  • DFIs still do not take enough risk investing in low-income countries (LICs) or fragile states, some marginalized groups, or businesses in new and existing sectors identified a transformational for Africa’s future jobs.
  • DFIs can contribute to job quality, through capacity building programs and implementing environmental, social, and governance (ESG) and health and safety standards for private companies.
  • Challenges remain for DFIs to create decent jobs, including a skills gap, insufficient legal and regulatory environment, inadequate supporting infrastructure and market access, and wider structural barriers, which African governments need to address.

Recommendations

Donor governments
  • Must recognize the potential for DFIs to create quality jobs at scale. They should empower them to take more risk in their investments, particularly for Africa’s youth and women and in challenging geographies and transformative sectors.
  • Should increase publication, use, and monitoring of technical assistance grants for capacity building, which can have a sustained impact on investment for job-creating sectors and businesses, increasing productivity and quality.
Development finance institutions
  • Need to ensure better reporting of job quantity and quality indicators, especially in high job-creating sectors such as MSMEs (reached through financial institutions), transformative green and digital sectors, and jobs for women and youth. Reporting on these priority areas is important for transparency, and enables better targeted job creation policies for DFIs, and African and donor governments.
  • Can impact job quality through the implementation of ESG, labour, and other international standards, such as the IFC Performance Standards. Yet this must happen alongside better monitoring and reporting of their use and implementation.
African governments
  • Must invest in the education and skills of their youth, to enable them to improve their productivity and to take advantage of future opportunities created by the private sector in transformational sectors such as digitalisation, green jobs, including agriculture, and
  • Need to support laws and regulations to enable better participation of the private sector in job creation.
Read the full report

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