Written evidence submitted by the Department for International Development

Overview and Structure of the Evidence

1.                  Most of the 600 million new jobs that are needed globally by 2020 for a growing working age population are in developing countries (WDR 2013, p. xiii). These people will be absorbed into a labour market where they are likely to make a livelihood from a range of different sources. But this work risks being unproductive, uncertain or seasonal and even unsafe. Only 16% of people in Sub Saharan Africa work in waged employment in services or industry – less in the poorest countries. 900 million people who are currently working are living in poverty.
2.               Self-employment and higher incomes are the main pathways out of poverty. Most people working in low income countries currently work in subsistence agriculture or unproductive household businesses; they need to be able to earn a better living. But many people are in marginalised rural areas or cities, poorly connected with markets for their labour. They lack the right mix of skills, finance, land and information for them to find a job. For many, better incomes need to come from agriculture, but already – and increasingly over time – new jobs will come from better work in services and manufacturing, as in every country that has successfully developed.
3.             There are also serious inequalities in who gets job opportunities. Women are less likely to participate in the labour force, and will be paid less, often in unpaid or vulnerable work. Youth also fare badly which often poses a risk to social cohesion. This is not just unfair, it is inefficient and represents a huge potential loss to economies.
4.            Creating more productive employment for all requires economic development and transformation led by the private sector – a message that needs to come out clearly in the post 2015 framework. DFID’s role is to support this process through a range of partnerships and policy opportunities at country and international levels – strengthening the conditions for high, sustained and inclusive job-rich growth in developing countries.
5.              This evidence summarises what DFID sees as the main factors behind increasing jobs and livelihoods (Section 1) and summarises how DFID’s programming reflects these factors (Section 2). It then details the evidence relating to jobs in important sectors and themes and how DFID’s work is responding to this (Section 3). These include: (a) agriculture and rural transformation; (b) trade, regional integration and global value chains; (c) investment climate and infrastructure; (d) urbanisation; (e) International Climate Facility; (f) financial sector development; (g) land; (h) education and skills, including higher education; (i) women’s economic empowerment; (j) economic inclusion; (k) youth employment; and (l) conflict and fragility.
6.            Section 4 looks at: (a) how multilateral institutions are learning and improving their delivery on jobs; (b) DFID’s research on jobs; and (c) results and measurement. Sections 5 to 8 reflect priorities in the TORs, respectively, DFID’s engagement with the private sector on jobs (Section 5); the High Level Prosperity Partnership (Section 6); the role of returnable capital, Commonwealth Development Corporation (CDC) and Private Infrastructure Development Group (PIDG) (Section 7); and NGOs and professional associations (Section 8).

Section 1.           The main factors in increasing jobs and livelihoods in a sustainable and inclusive way

Where are people working in low income developing countries

1.               Jobs in their millions will come from healthy growth processes. In countries that have grown rapidly in the last 50 years labour has moved quickly from agriculture to services and industry[1]; productivity in all sectors has increased during this process including in agriculture.

2.               But employment in Africa and South Asia remains predominantly agricultural, rural, informal and operating at low productivity. Agriculture can provide productive jobs (‘stepping up’); rural economies also provide off-farm opportunities (‘stepping out’). But it is unrealistic to expect a rapid transformation of African economies into ones dominated by wage employment. Figure 1 below shows that in low income African countries (left hand column) about two thirds of the work force is in agriculture. For Africa as a whole (right hand column) only 16% of people are in waged employment.

Figure 1: Where are Africans working?

3.               Much of the work people do is not generating the income needed to escape poverty and transform their lives. Many people in South Asia and Africa are working but in poverty. People are ‘economically active’ – they have to be – they’re just earning very little. More than half of people in Sub-Saharan Africa are working, but are still in poverty (earning less than the $2 a day threshold).

Figure 2: Unemployment vs working poverty by region

DFID analysis using data from ILO Global Employment Trends, 2013

Overview of evidence on jobs, poverty and economic development

4.               Improvements in jobs and livelihoods are fundamentally linked to economic growth and development. This link takes place through productivity change[2]. People start working in new enterprises which have greater potential to be more productive[3]. Historically, this has been achieved by shifting from smallholder agriculture into commercial agriculture; and to manufacturing and industrial occupations[4]. This is what we mean by ‘creating better jobs’: people leaving marginal work for more productive work[5].

5.               Most well-paid and stable jobs are in larger firms, but smaller firms are also important. Firms create jobs and other jobs are lost (‘churning’) as some firms succeed and others fail[6]. Why there’s this difference is still debated: institutional factors, macroeconomic policy, and firm-level performance are important[7]. Many enterprises remain small and informal, preferring to avoid regulatory costs that come with formal registration such as unpredictable rules and legal protection[8]. Most informal firms are neither large nor productive enough to become formal, though some grow and eventually become so[9].

6.               Firms in low income countries and especially in Africa are significantly smaller than elsewhere (see Figure 3 below). Much of this is explained by weak business environments, poor electricity and water supplies and limited connectivity to markets, especially export markets[10]. Industrial wages are also higher in Africa than one might expect when compared with competitors in Asia meaning that investment and jobs may not relocate from East Asia on the scale required[11]. Attracting investment will require a predictable macroeconomic environment, better property rights and legal systems, access to finance, freedom from political expropriation, good infrastructure and reliable energy all still need further support.

Figure 3: in low income countries are employees are in small firms. Many more people are in even smaller, informal enterprises not reflected here

Note: Based on Enterprise Surveys. In this graph, small firms are 5-19 workers, medium 20-99, and large >=100.

7.               How firms increase productivity, jobs and incomes is different in different places. Often, the process starts with more productive agriculture in some form, increasing incomes and creating rural non-farm work – related to processing or packaging for example – accompanied by job creation in a ‘modern’ sector such as  manufacturing in urban or peri-urban spaces[12]. These firms innovate and expand with more capital intensive methods, ratios of employment to capital can change. But this process is incremental and the evidence does not support the notion of innovation reducing job rich growth over time.

8.               Small-scale agriculture and urban self-employment, the least productive forms of work, remain the largest (and often, growing) employers[13]. Some of these lines of work provide scope to increase productivity and earnings[14]. Transformation for many people and households will involve incremental steps to diversify sources of income including migration and other strategies – an important way to allow the majority of the population to share in the growth process[15].

9.               There are systematic biases against women, youth, and marginalised groups (which vary in different places)[16]. These biases are inefficient, as some productive workers cannot be matched to available jobs. Globally, 47% of women are likely to be in employment, compared with 72% of men. Youth employment indicators are particularly stark with higher proportions of youth in informal unemployment, self-employed and in working poverty. Figure 4 below shows the extent to which unemployment is higher amongst 15-24 year olds in a range of countries.

Figure 4: Comparisons of youth and adult unemployment

Source: African Economic Outlook, Promoting youth employment, 2012

10.           In the face of these complex problems, donors have a role to play on a number of levels. These include: (i) supporting a predictable macroeconomic environment in which investment can scale up[17]; (ii) active labour market policies, including targeted skills interventions, to help allocate workers to available jobs – and to ensure that when firms do expand, an appropriately skilled labour force is available[18]; and (iii) supporting private enterprise, particularly Micro, Small and Medium Sized Enterprises (MSMEs), some of which may expand to become larger, more stable employers, through support to management processes and other specific constraints[19].

11.           We can also support the institutions which govern the environment in which firms go about their business. This in particular relies on a detailed understanding of very diverse political economy processes, and we are learning what matters where, and how best to support change[20].

12.           There are examples of good policy and intervention efficacy. The Katalyst programme in Bangladesh has led to increased incomes amongst farmers and small businesses of £146-175m. It has achieved this through a combination of interventions including appropriate business development services and advocacy initiatives to improve public service delivery. Also in Bangladesh, the Business Innovation Facility’s partnership with Danone, has led to jobs for 4,700 poor women.

13.           But the evidence linking interventions to job creation and raised incomes is not always clear. A recent systematic review of interventions with MSMEs found that often the impact of programmes was either limited or short lived[21]. The message is that selectivity and careful design is essential; many conditions have to be met before interventions do not only improve business practices and performance but also lead to additional jobs.

14.           Attributing impact on jobs and incomes to specific interventions is also difficult to measure. There are technical challenges to monitoring the impact of interventions and policies; this is an area where DFID and partners are investing and coordinating.

15.           Across these issues, we are developing an increasingly sophisticated understanding of how economic transformation and the creation of jobs can be supported by governments, private sector and the international community, but there is much left still to learn.

Main jobs problems in developing countries and the factors behind them

16.           Productive jobs in the hundreds of millions will only come from healthy growth processes. The main jobs agenda in developing countries is about getting patterns of growth that create employment for the majority of people. The mineral sector, which has been a source of recent growth, can create employment but tend not to be job intensive..  The other main source of recent growth – public investment – has yet to feed through to wider growth. The contribution of minerals and public investment to poverty reduction will depend on whether they are allied to other reforms that are sufficient to encourage private investment.

17.           The problems in relation to job creation, retention, and quality in developing countries, especially DFID’s priority countries, can be summarised as follows:

1. There are too few productive waged jobs in modern, formal sectors
2. Most people are engaged in very low productivity, seasonal or subsistence work in both rural and urban areas
3. There are large gaps in job chances for women, youth and marginalised groups
4. Much work is in poor conditions or is unsafe or risky – including in formal employment
5. Many labour market-related institutions are ineffective, including skills institutions

18.           But what you ‘do’ about jobs is not obvious – or rather the obvious sounding actions may not have the impact we would like. There are scenarios where growth does not lead to adequate progress on jobs; jobs may lag growth or groups are excluded. But the main jobs agenda in developing countries is about getting growth in firms and patterns of growth that create employment for the majority of people.

19.           DFID’s work to increase jobs and livelihoods is based on the following general factors as well as sector and thematic evidence and factors detailed in the rest of the document.

(a)  High and sustained growth makes the task of increasing jobs and livelihoods in an inclusive way much easier. Unlocking labour intensive growth will provide a rising tide to make the biggest inroads into reducing poverty through higher incomes[22].

(b)  Non-aid work is critical; exports provide an important way to increase domestic demand. Trade policies and institutions have implications for job opportunities and conditions for traders. Country-led economic development ultimately creates jobs and the conditions for exit from aid.

(c)   There has to be ‘demand’ for labour from firms. Most jobs come from the private sector, whether we mean household enterprises, Small and Medium Sized Enterprises (SMEs) or large and multinational firms. Firms need access to markets (including exports) and improved business environment.

(d)  ‘Supply side’ constraints specific to labour also matter. Skills need to be relevant to the labour market and can represent a bottleneck on firm growth and countries gaining competitiveness in new sectors. Well-functioning labour markets are also important.

(e)  There is a need to balance policies to promote short term improvement in jobs and livelihoods (where poor are working now) with long term strategies (where people will be get jobs in the future through economic transformation)

(f)    ‘Enabling’ interventions that address the investment climate and legal framework matter. But interventions ‘targeted’ at particular vulnerable and excluded groups also have an important role. We won’t get to zero otherwise.

(g)  Specific interventions may alleviate one constraint; most only contribute to job creation rather than ‘create’ jobs.

(h)  Labour is the main asset of the poor – combinations of targeted interventions are sometimes necessary to help exit poverty (e.g. without good nutrition and health people cannot work their way effectively out of poverty)

(i)     Addressing systematic inequalities in job opportunities affecting women and youth require dedicated and sustained efforts.

(j)     Getting consistent results and value for money information on programmes in different sectors and addressing different constraints remains a challenge. Practice should be more consistent although there aren’t perfect answers when it comes to measuring jobs.

Section 2.           How DFID’s expenditure shows sufficient understanding of these factors including the balance of direct and enabling programmes

Country diagnostic, resource allocation processes and economic development

20.           Jobs is not a distinct area of programming as such although many projects have jobs-related objectives. DFID’s Economic Development Strategic Framework (EDSF) launched in January 2014 summarises DFID’s approach on this strategic priority that is key to eradicating poverty. The strategy is based on the evidence that this will require much higher growth rates in many countries, more inclusive growth – in particular for girls and women, and actions to tackle the structural barriers that deny poor people the chance to raise their incomes and find jobs. The EDSF has five pillars that contribute to supporting job creation:

(i)          Improving international rules for shared prosperity;

(ii)        Supporting the enabling environment for private sector growth;

(iii)       Catalysing capital flows and trade in frontier markets;

(iv)      Engaging with businesses to help their investments contribute to development; and,

(v)        Ensuring growth is inclusive, and benefits girls and women.

21.           The recent Resource Allocation Round process set the aim of scaling-up ambitions to spend £1.8bn in 2015/16 on economic development. DFID country office programming decisions were based on corporate priorities and a country poverty reduction diagnostic that looked at specific country constraints and what DFID should prioritise. Centrally managed programmes reinforce and complement this shift in bilateral spending priorities. Operational Plans for bilateral and central programmes will be available in late-2014.

22.           The growth analysis underpinning DFID’s economic development programming is to be deepened over the next year so that it is done in a more consistent basis in country programmes. Planned diagnostics will include analysis of the current pattern of growth for jobs and incomes, judgements on where there is the highest potential for labour-intensive growth in the future and how DFID should best support this, and provide a guide as to what are the best portfolio choices for DFID.

23.           Tools for understanding constraints on growth[23] have been enhanced in recent years to look more deeply at issues of inclusion and job creation[24]. DFID advisers will be able to draw on these tools and commission deeper studies where they aren’t available to inform the growth diagnostics that DFID will be rolling out in 2015 and wider policy work.

24.           In addition, a planned centrally managed programme will support DFID departments and international organisations, primarily the World Bank, to improve delivery on jobs by supporting better diagnostics, policy design, data and measurement.

25.           The factors and evidence behind jobs and livelihoods varies by sector and theme. Section 3 below summarises the main points for a set of policy and programming areas highlighting some of the ways that DFID programmes are responding to these insights.

26.           The table below summarises some of the different ways that DFID programmes impact on jobs. The policy and programme areas are split into two groups:

(A) Those that are more ‘direct’ or those that ‘target’ particular constraints; and

(B) More ‘enabling’ interventions that support the economy at large.

Table: Examples of policies and programmes for addressing different jobs problems

27.           DFID’s other work also contributes e.g. governance, health, education, climate change and social protection. DFID also invests in evidence on job creation, on estimating jobs impact of programmes and on diagnosing the best policies in developing countries for inclusive growth and job creation.
    

Section 3.           Programming to increase jobs and improve livelihoods: how this is based on evidence of what works and what has failed

3. (a)     Agriculture and rural transformation

28.           Over 70% percent of the poor reside in rural areas. Nearly two thirds of the extremely poor earn a living from agriculture. In Africa, around 60% of the population is employed in primary agriculture, the sector experiencing the largest productivity gap compared to other sectors. Recognising that agricultural and agrifood sector growth are likely to be an important, if not an essential driver of growth, DFID is currently re-emphasising its approach. In the scope of DFID’s Economic Development Strategic Framework (EDSF) the focus has shifted towards addressing the two main employment problems of the sector which are the vast number of low productivity jobs and the lack of waged jobs.

29.           In the long-term, agricultural transformation and rural transition is to be fostered through labour-intensive growth in manufacturing and services (including the agrifood sector), as well as by enhancing small-scale commercial agriculture with a focus on job creation, raising incomes and pulling labour out of subsistence agriculture. As a result of this rural transition there will over time be a reduction of small scale farms without commercial potential. Bilateral programming and support to regional initiatives[25] integrate (i) facilitation of inclusive and responsible private investment in agriculture that will directly target farmers, together with (ii) improving the enabling business environment to address market failures and making markets work for the poor[26].

30.           In the short and medium term, DFID’s strategy recognises that agricultural transformation and job creation outside of agriculture are long processes, and that the majority of the rural poor will continue to rely on farm production for the majority of their livelihoods and household food security in the foreseeable future. This is why DFID continues to enhance productivity of small-scale farms and works with farmers to protect their livelihoods and to increase their resilience to shocks. Work on land rights which will enhance their security and options enabling household members to lease out land to others if they no longer wish to farm themselves and to diversify. DFID approaches and programs include safety nets, adaptation of smallholders to climate change, diversifying existing livelihoods as well as research in agriculture.

3. (b)     Trade, regional integration and Global Value Chains (GVCs)

31.           The impact of trade liberalisation on jobs and livelihoods will be dependent on country context and may also differ between sectors. Increased market access for developing country firms gives them the best possible chance of integrating into global value chains, thereby creating demand for employment from local citizens. DFID has produced internal guidance to ensure that future trade programmes track impact on poverty and consider the case for mitigating actions. It recognise that trade programmes should never be designed with a good understanding of short- and medium-term winners and losers.

32.           DFID, in collaboration with other UK Government departments (notably through the Joint DFID-BIS Trade Policy Unit), uses the UK’s global and regional influence to advocate for developing countries to have the best possible level of access to global markets. This is done multilaterally through the World Trade Organisation (WTO), and through the European Union (EU)’s unilateral trade preference schemes[27] and its bilateral trade deals[28].

33.           DFID also works to support developing country firms maximise the benefits of global market access through building supply-side capacity to trade, which again facilitates employment and also ensures that there are quality jobs in firms engaged in international trade. For example, the Trade in Global Value Chains Initiative (TGVCI) strengthens employment prospects in export sectors in Bangladesh, Kenya, and South Africa, by encouraging companies, trade organisations, and other actors to initiate or scale up investment in improving the skills of workers and the wider labour force as part of firms’ mainstream business cases.

34.           DFID supports regional integration initiatives, particularly in Africa (such as TradeMark East Africa) and South Asia, which help countries to improve trade-related infrastructure and address inefficiencies at national borders. By facilitating the development of more open, integrated regional markets, these programmes aim to indirectly impact labour mobility.

3. (c)     Investment climate and infrastructure

35.           There is a wealth of cross-country studies that find strong links between better business environments and improved economic outcomes such as investment[29].  Some of this literature is contested, but there is also considerable case study evidence, finding, for example, that streamlining regulations has led to increased firm creation[30]. There is relatively little evidence on the direct impact of such reforms on jobs given the problems in attribution, but there are studies that have found employment growth from firm formalisation through tax[31] and business registration[32] reforms,

36.           In line with this evidence base, DFID’s investment climate programmes mostly aim to generate jobs indirectly by creating a good business environment. For example, our support to the Bangladesh Investment Climate Facility has saved business £40m in regulatory compliance costs, and released £19m caught up in legal disputes. In Nigeria, the DFID-funded ENABLE programme has supported business associations to advocate for tax reform, helping over 480,000 micro-enterprises in Lagos to experience a reduction in multiple taxation and official harassment.

37.           We are improving understanding of these issues by funding the World Bank to carry out eight rigorous impact evaluations of investment climate programmes, and to develop methodologies for assessing value for money.

38.           Infrastructure investment creates jobs in the short-term through the construction, operation and maintenance of the infrastructure asset, terms ‘direct’ job creation[33]. Evidence on direct job creation during the construction phase is relatively strong. However, the most significant job-creation effects of infrastructure improvement occur in the longer-term as a result of second-order growth effects (indirect job creation). However, empirical evidence on the impact on employment is weak due to the difficulties of attribution. To better understand the longer-term job creation impacts of their programmes, the Private Infrastructure Development Group (PIDG) commissioned a job creation impact study of Bugoye hydropower plant in Uganda, supported by the PIDG’s Emerging Africa Infrastructure Fund. PIDG is working with the World Bank Group and development finance institutions to improve consistency of indicators of indirect job creation.

3. (d)     Urbanisation

39.           Most DFID focus countries are experiencing rapid rates of urbanisation. There is a risk that urbanisation when driven by consumption and resource booms can lead to low quality employment in services[34]. But there is strong evidence that cities, under the right conditions, can generate large-scale, productive employment which can be a driver for growth and development for the city and the country beyond[35].

40.           There is evidence that rapid urbanisation is outstripping the capacity of local and national authorities in developing countries to provide adequate services to their urban citizens. This creates a range of challenges which often have the greatest impacts on poor people, including crowded, insecure and unsanitary living conditions and inadequate mobility which hampers the functioning of labour markets.

41.           DFID has a significant portfolio of research that aims to build the evidence base on urbanisation and economic development. One example is the recently-launched four-year Nigeria Urban Research Programme, which will examine links between growth, infrastructure and livelihoods.

42.           Much DFID urban programming to date has been designed to improve conditions for the urban poor, including by improving their livelihoods. For example, the South Sudan Urban Food Security, Livelihoods and Markets Project (UFSLM) supports a range of activities designed to improve livelihoods (with the final aim of supporting food security) by supporting businesses, apprenticeships, local production of high value commodities (e.g. vegetables), improved access to finance and public works. 

43.           DFID’s increased focus on economic development has led to new thinking on how we can support urban growth that benefits the poor and this is likely to be an area of increasing focus going forward. For example, the India Infrastructure Debt Partnership Programme (IDPP) aims to tackle inadequate urban infrastructure which creates a barrier to growth, productivity and job creation. IDPP provides debt via India’s Infrastructure Development Finance Company Ltd to promote infrastructure investments in the eight low income states of India in identified pro-poor sectors, including urban infrastructure, clean energy, agri-infrastructure and transport.

3. (e)     Catalysing investment: Investment Climate Fund

44.           Jobs and employment are an important co-benefit of low carbon, climate resilient development and research by the International Labour Organisation and United Nations Environment Programme indicates that green investment contributes positively to job creation.

45.           The UK’s International Climate Fund (ICF) has a strong focus on engaging the private sector and supporting programmes that create new jobs in green sectors. For example, the ICF supports the multi-stakeholder Forestry Programme (MSFP) in Nepal, which harnesses the economic potential of forests under community, private or government management.  This programme has provided jobs to over 14,500 people, including almost 6,300 women. 

46.           ICF projects also include the £150m Adaptation for Smallholder Agriculture Programme which is expected to help create jobs and livelihoods opportunities in the agriculture sector. The ICF also leverages other public and private finance catalysing investment in essential clean energy infrastructure, through programmes such as the Climate Public Private Partnership (CP3).  CP3 is expected to create 34,000 jobs in the renewable energy industry and leverage £4.2 billion of public and private investment through UK support.

3. (f)       Financial sector development

47.           According to an IFC study[36], there are four channels through which finance leads to job creation: (1) helps start new businesses—entrepreneurship, (2) helps businesses make larger investments, (3) provides businesses with liquidity, and (4) supports indirect job creation through supply and distribution chains. A study[37] based on 98 countries concluded that firms with access to finance had a 3.1% of higher growth of permanent employees than firms without. Firms that had access to external investment funds posted 4.2% higher employment growth than firms without.

48.           The financial sector programmes operate at all stages of the financing chain (from micro entrepreneurs to stock exchange listed companies), working with a range of institutions from Micro Finance Institutions, commercial banks to private equity funds (via CDC) and a range of capital market actors such as institutional investors, regulators and governments.

49.           Since micro and small and medium sized enterprises (SMEs) provide the bulk of employment in lower income countries[38] and often face the greatest problems in accessing finance, for example due to absence of collateral for loans, formal accounts or long track record, not surprisingly, DFID’s current financial sector programmes focus on provision of finance to MSMEs. The financial sector programme with the largest jobs target is the Global IFC SME Finance programme. This aims to create 1 million jobs over the 7 years, with at least 25% of the loans to be in fragile and conflict-affected states and 25% of loans to be given to businesses managed or owned by women. For microenterprises or households, microfinance programmes tend to have the objective of stabilising or increasing incomes rather than creating new jobs as they do not lead to significant new investment[39].

3. (g)     Land

50.           Land is a key factor of production. Security of land tenure improves productivity by creating conducive conditions for investment, encouraging people to allocate their labour where it can be most productive and reducing resources allocated to protecting land rather than using it for production.  Evidence suggests that de jure recognition of tenure boosts productivity by around 40% on average[40].  This effect varies somewhat between regions however and DFID continues to examine the underlying causes of difference and the best means of supporting effective land tenure systems in different contexts.

51.           Through its programming, DFID supports security of land tenure through a range of means, such as funding land titling programmes, supporting improved land administrations and facilitating the development of associated markets, such as mortgage finance.  In Rwanda, for example, DFID has supported a large-scale Government-led land titling programme which has transformed the land market.  In Mozambique, DFID supports communities in securing recognition for their communally held rights and in maximising the economic potential of their land, for example through linking them with suitable investors.

52.           Through its wider policy engagement, DFID contributes to the development of appropriate global frameworks covering the governance of land and investment in it.  DFID works with other parts of Government which oversee and support foreign investment by UK-based firms to drive forward their compliance with the globally negotiated best practice Voluntary Guidelines on Land Tenure wherever their investments take place.

3. (h)     Education and Skills

53.           DFID’s policy definition on skills development is centred around 3 categories – that skills are cumulatively built up at different levels of the education-employment system: (i) foundation skills, associated with literacy and numeracy; (ii) transferable skills, including problem-solving and the ability to transform and adapt knowledge and, (iii) skills in varying work contexts, including technical and vocational skills, associated with specific jobs. Strong early education is a prerequisite for effective adult learning later on in life as too is support to people to make the transition from education into jobs, which includes providing students with soft-skills. Relevant skills including entrepreneurial skills are central to raising productivity of all types of work – raising productivity in agriculture and non-farm household enterprises and improving competitiveness in the modern sector[41].

54.           The policy and programmatic work entails understanding the labour market structures and demographic trends to support the identification of skills’ gaps in different contexts – and labour market demand.  This has to be paired with concerns around equality of access, improved quality of training and better value for money.  Learning from earlier programmes these are better targeted at identified skills shortages, and to fully understand impact we will track students beyond the programme and into employment.  Programmes in Africa (Zambia and Nigeria) focus on improving the linkages between training and employment, targeting girls (through scholarships) and the most marginalised groups. In Bangladesh, there is a focus on reaching marginalised children, providing them with training in particular trades, as well as supporting them in finding employment. Our regional work will focus on implementing sector specific training in key industries identified by partner governments and partnering closely with the private sector to help in designing a curriculum that meets the demands of the job.  A regional oil and gas skills initiative for East Africa is under design in collaboration with industry and UK Trade and Investment (UKTI) partners.

Higher Education

55.           In light of growing evidence on the constraints on jobs and human capital at the highest skills levels in developing countries, DFID embarked on a new process of policy development on higher education (HE) by convening a taskforce of experts. Through this group, DFID explored issues of disconnection between HE and the labour market. DFID’s policy to improve jobs and livelihoods through HE is focussed on the relevance of degrees and other courses to ensure that graduates are able to take up meaningful employment upon entering the labour market. DFID is exploring options for working with employers in curricula design and delivery, along with employer accreditation. Recognising other market failures may prevent graduates from securing jobs, DFID is also looking at transferable skills developed through HE, particularly those centred around entrepreneurship, enabling graduates themselves to become job creators.

56.           Existing evidence on the impact of HE on improving jobs and livelihoods is varied but agrees that effective support to HE in developing countries requires a holistic approach, taking into account the system as a whole and engaging a range of actors. DFID is launching a range of new programmes that seek to explore further this holistic approach. Foremost of these is the HE Partnerships programme, which will support multi-level partnerships between higher education institutions (HEIs) in different countries. DFID is also considering an intervention for direct higher-level sector-specific skills development by brokering relationships between employers from key growth sectors and local HEIs. DFID also aims to support a new, large-scale innovation approach to HE. DFID will advance its research on the role of HE in development, with employment outcomes a significant strand of this.

3. (i)        Women’s economic empowerment

57.           Globally, 47% of women are likely to be in employment, compared with 72% of men[42]. Analysis by the International Labour Organisation (ILO) of 83 countries shows that women in paid work earn on average 10 to 30 percent less than men[43].

58.           We are addressing these issues through policy and programmes. Our Economic Development Strategic Framework pillar on inclusive growth has an explicit focus on women and girls, and we are working to incorporate analysis of gender-specific constraints in all other areas of the Framework.

59.           Our programmes work to support enterprise, asset ownership and employment of women.  The Global SME Finance Initiative is delivering £625m of commercial loans to 25,000 women headed enterprises.  The PropCom Mai-karfi programme in Nigeria addresses constraints, such as poor distribution services, to increase incomes of rural women.  The Nepal Employment Fund reached over 7,000 young women in 2013, providing them with market-oriented skills to improve employment prospects. 

60.           The literature analysing constraints to women’s economic empowerment is more comprehensive than evidence on the effectiveness of potential policy or programme solutions.  One evidence source is a recently completed review of evaluations on women’s economic empowerment interventions[44].  Its findings include that access to finance has strong impacts on economic outcomes but none on social outcomes.  It also finds that vocational training combined with life-skills training is very cost-effective. 

61.           We are continuing to build the evidence base on effective interventions.  The DFID-supported GrOW programme will provide further evidence in this area, as will the DFID-supported Africa Gender Innovation Lab, which has already produced working papers, journal articles and a report.

3. (j)        Inclusion

62.           Deprivation across multiple dimensions: low incomes, few assets, little education, poor health and social and political marginalisation combine to limit job and livelihood opportunities[45]. Economic inclusion requires higher growth rates in many countries, growth that is inclusive and delivers jobs and increased incomes, together with more effective action to tackle poverty and discrimination directly and reach marginalised population groups[46].

63.           The evidence points to the importance of increasing poor and marginalised peoples access to assets, markets and skills as well as addressing rights and providing social protection[47]/[48]. Economic inclusion is also dependent on improvements in political voice, addressing social barriers, and improving access to basic services[49]. Current research is also looking at the combinations of factors that contribute to better livelihoods outcomes e.g. combining grants with entrepreneurship training or inclusive business models such as micro franchising.

64.           DFID is improving peoples’ access to productive assets, including land and finance. Programmes have improved land and property rights for 1.57 million men and women across India, Nepal and Mozambique and reached over 31.7m people with financial services. The Poorest State Inclusive Programme in India is reaching 12 million poor people with access to finance.

65.           DFID is increasing peoples’ access to markets and skills. Programmes are increasing peoples’ access to markets through market systems approaches in 17 countries and investments in infrastructure across 19 countries. PropCom Maikarfi is increasing poor men and women’s incomes through market development in Northern Nigeria. The Infrastructure Equity Fund will provide better transport, energy and basic urban services to an estimated 280,000 people in India’s poorest states. Programmes are building skills in 9 countries. The Nepal Employment Fund provides short term market oriented skill trainings, and business and life skills training to disadvantaged young women and men.

66.           DFID also works to improve the quality of jobs as well as increasing jobs and livelihood opportunities, supporting the private sector and civil society organisations to improve working conditions and rights.

67.           DFID is supporting cash and asset (food and inputs) transfers in 15 countries, forecast to reach more than 7m people by 2015. In the short-term this supports consumption and can help protect (and to a limited extent build) productive assets, to avoid a deeper descent into poverty.  In the long term it can help increase human capital by increasing access to education, health and nutrition services, which can have positive impacts on long term economic outcomes. Transfers can be combined with other services. The Chars Livelihoods Programme in Bangladesh will reach 70,000 households with social transfers alongside intensive coaching and training contributing to improved incomes, assets and nutrition.

3. (k)     Youth employment

68.           Youth employment is a priority in most countries: the inequity, economic loss and social implications of youth not moving into productive work are enormous. The jobs and livelihoods problem is particularly severe for the young, manifesting in lower rates of waged employment; more informal, insecure employment; and, sometimes, high unemployment.

69.           This is firstly caused by the lack of structural change already cited as underlying the general ‘jobs problem’[50]. This affects the young particularly due to ‘queuing’ effects: the best jobs are scarce, so necessitate a long search period, and once secured, workers rarely vacate them – making job holders older on average. Without resolution through structural change, the underemployed youth will represent a failure to take advantage of the ‘demographic dividend’, when countries have an exceptionally large number of young, potentially productive people. This imminent moment will not be repeated.

70.           Youth may also be discriminated against even for what productive work is available – inefficient if some older workers are employed instead of more productive young ones. Lack of skills and of knowledge about where to find jobs, attitudes of employers and labour regulations are hurdles too. Youth lack the work experience, social networks and influence (social capital) to get decent job opportunities. This may also cause social tensions or violence, which jobs help to quell[51]. Policies such as wage subsidies for the young or improved skills-matching to employer requirements can be effective in some contexts if well designed[52].

71.           Tackling youth employment (as with other types of exclusion) is more feasible in a context of higher and more sustained growth. Much DFID programming therefore supports general job creation, reflecting the primary constraint. But many have a youth-specific focusing with targets for youth beneficiaries. Some provide support during or after conflict: Afghanistan, Kenya and Somalia. Others focus on skills training, as in Nepal and Northern Nigeria. To improve our knowledge of what works in this crucial area, DFID is also appraising support to the World Bank’s work on finding solutions to youth employment within a wider jobs programme aimed at improving intervention design and delivery by the donors, private sector and civil society actors.

3. (l)        Conflict

72.           DFID programmes in fragile and conflict-affected states (FCAS) attempt to address factors behind increasing jobs and livelihoods in the following ways:

i)          Tackling the economic exclusion of youth. DFID programmes aim to increase economic opportunities for young people in conflict-affected communities. For example, in Somalia the Sustainable Employment and Economic Development Programme (SEED) aims to develop markets and

create employment for youth.

ii)        Tackling economic exclusion of identity groups. DFID programmes promote an inclusive approach to job creation in an attempt to simultaneously reduce group grievances over economic opportunity. For example, the Nigeria Stability and Reconstruction Programme (NSRP) works with government-run employment programmes to ensure that they are inclusive.

73.           Evidence suggests that both supply side and demand side barriers to job creation in FCAS need to be tackled in parallel[53]. Evidence for the relationship between a lack of economic opportunities for youths and the likelihood of them engaging in radicalism is mixed. Phase II of the SEED programme aims, among other things, to test the effectiveness of sustainable employment as a way to reduce conflict. Evidence does suggest that significant differences in access to economic resources across groups provide strong motives to engage in violence. DFID’s programmes therefore work to reduce the opportunity costs to violence for disenfranchised groups. The new World Bank Jobs Trust Fund is also to include a window on jobs in fragile and conflict-affected states.

Section 4.           Multilaterals, research and jobs measurement

4. (a)     Multilaterals

74.           Multilateral partners are critical to the delivery of our wealth creation portfolio, with the World Bank responsible for 47% of all DFID’s bilateral and multilateral investment in wealth creation.

75.           Economic development has always been at the core of Multilateral Development Banks’ (MDBs) missions and operations. But recognising that not all sources of economic growth lead to poverty eradication, MDBs have recently reoriented their economic development approach towards inclusiveness and sustainability. In this view, their medium term strategies and operations give now more prominence to creating productive job opportunities for the poorest and increasing their income in a sustainable manner.

76.           As a major shareholder in and donor to many MDBs, the UK government is well placed to both shape and learn from MDBs’ work on jobs and livelihoods.

77.           The new World Bank Group (WBG) strategy gives more prominence to jobs and livelihoods as essential to achieving the twin goals of shared prosperity and zero poverty. With the strong support from the UK, the Group’s organisational reforms include a new focal area responsible for developing integrated solutions on jobs and the new Corporate Scorecard includes job indicators. The WBG plays an important thought leadership role on development and jobs, with the 2013 World Development Report on Jobs being the highest profile product recently. But the Bank falls short of the ‘how to deliver’ and ‘how to measure’. DFID’s planned centrally managed programme, Better Delivery on Jobs £10m will support UK efforts to improve WBG performance on jobs. It will underpin a strong cross-WBG offer on modern and informal sectors, youth employment, women’s economic empowerment, private sector and fragile states as well as on measuring jobs impact.

78.           The World Bank is strong at analysing the country context in which they work. DFID offices, alongside other donors and international institutions including the IMF, often look to the growth diagnostic work of the Bank to understand economies. DFID will now look to the new Systematic Country Diagnostics to ensure stronger growth and jobs analyses are feeding into these.

79.           The Asian Development Bank (AsDB) Strategy 2020 Midterm Review emphasizes on ensuring inclusiveness of operations to reduce inequalities as well as building up the economic resilience of vulnerable populations. The AsDB framework for inclusive growth focuses on three pillars: (1) creating economic opportunities through sustainable infrastructure development and private sector development; (2) improving access to economic opportunities, including through skills development and access to finance; and (3) social protection, which also includes labour market programs. Based on the 2013 MAR Update, we are pushing AsDB to improve their design and implementation of programmes and increase its private sector operations.

80.           DFID has strongly supported the African Development Bank’s ambitions to scale up private sector lending, and its new Private Sector Strategy (2013-2017) which is aligned with the Bank’s overarching vision of putting inclusive and green growth at its core. DFID’s priority for the AfDB is to help the Bank continue to improve its effectiveness in delivering results. The Multilateral Aid Review (MAR) identified areas of weakness on its approach to gender, fragile states and climate change. We have recently agreed a £2m technical assistance fund that will aim to improve its effectiveness in these areas. This in turn will allow the Bank to become more effective at delivering its operational priorities, and in turn increase jobs and improve livelihoods.

81.           Following the UK’s Multilateral Aid Review (MAR) in 2011 voluntary core funding is no longer provided to the International Labour Organisation (ILO). ILO may still receive support for specific projects on a case by case basis.

4. (b)     DFID’s work on Labour market research
 

82.           Labour is a key asset of the poor in all Low Income Countries. A better understanding of how labour markets function, and of appropriate policies, is critical to both facilitate growth and to ensure the benefits are shared. Demographics (a rising young population) in low income countries will make it increasingly important to ensure that more people are able to benefit from growth through the labour market.

83.           Evidence on labour market issues in Low Income Countries (LICs) is limited with evidence in developed and middle-income countries not necessarily applicable to LICs[54]. It will take many years to fully develop the evidence base in LICs but as a start DFID has partnered with the leading Labour Market research institution (The Institute for Labour Studies - IZA) to support the Growth and Labour Markets in Low Income Countries Programme (GLM | LIC) http://glm-lic.iza.org

84.           GLM-LIC is currently funding 30 competitively procured research projects which will begin to deliver research findings during the course of 2015 and beyond. The research is being conducted on issues related to Gender, Skills, Migration, Labour Market Institutions, Active Labour market policies and growth and labour market outcomes in LICs. A full list of call 1 and 2 programmes can be seen on the GLM-LIC website http://glm-lic.iza.org/?page=110 Call 3 programmes have just finished the competitive selection process and will be added within the next 2 months.

4. (c)     Jobs results and measurement

85.           DFID is investing in measuring the effect of interventions on jobs as it is important for working out the best use of aid as well as communicating its impact. It is a challenging issue, however, and efforts need to be better focused to get meaningful and comparable measures of impact for different types of investments, in different sectors and countries.

86.           Monitoring can focus on ‘direct’ jobs (people employed by the project), ‘indirect’ (changes in employment in benefiting firms or households) and ‘induced’ (the wider knock-on impact in an economy), although definitions vary between agencies. The dimensions of a job are broadly agreed on (that the wage rate should be above a certain level, numbers of hours worked and conditions of the work) but applying this in different countries, sectors and types of work leads to variation. What can be monitored is often driven by data availability (e.g. whether firms have records) and the budget that project managers have to spend on impact assessment. As underemployment rather than unemployment describes much work in developing countries, additional income, rather than job creation, is often more appropriate or feasible.

87.           Jobs/incomes are an outcome of firm and household decisions in complex systems. An increase in employment in a firm/household does not necessarily mean an increase for the whole economy. Jobs are also the outcome of many factors and isolating the impact attributable to a particular programme may require an evaluation rather than routine monitoring. Assessing economy-wide impact also requires an understanding of the local labour market. These factors mean that estimating jobs impact is challenging but we are continuing to strengthen approaches with others e.g. IFC/WB.

88.           There are also risks that targeting incomes results distort investment choices; agencies could be biased towards promoting labour intensive technologies which may not be the best path to transformational and job rich growth in the medium term. There could also be a bias towards ‘targeted’ rather than ‘enabling’ interventions as programmes focused on narrowly defined groups will be easier to report impact.

89.           DFID’s work on measurement includes internal guidelines on good current practice as well as investing in global knowledge. CDC has used a methodology for monitoring jobs in firms it supports and is reviewing its approach on jobs and wider development impacts of its investments. We support the Donor Committee for Enterprise Development (DCED) which is building on its impact tool with new work on the practicalities of measuring jobs/incomes impacts programmes. We also funded IFC 2013 Jobs Study which included new work on the techniques and practice of estimating economy-wide job impacts. This work is being progressed under the Let’s Work Partnership led by IFC which CDC and PIDG engage with. This will develop consistent approaches to jobs measurement in real sectors (agriculture, construction etc), financial sector and infrastructure for partners to adopt. DFID are appraising support to Let’s Work as part of a business case for to improve the international community’s delivery on jobs.
    

Section 5.           DFID’s engagement with the private sector and DFID’s understanding of the private sector’s view of development agencies role on job creation

90.           90% of jobs in developing countries are in the private sector[55]. DFID engages with the private sector through a combination of programming, dialogue, influencing and advice. We have taken a number of steps to increase our engagement to better understand the priorities of the private sector and what role they see DFID playing. 

91.           We have established an External Advisory Group on Economic Development to provide an opportunity for the Secretary of State to draw on private sector experience as we implement our Economic Development Strategy. The Group play a key role in steering concrete delivery of activities under the strategy’s five pillars and provide a useful challenge function.

92.           To facilitate greater dialogue with the private sector, we have redesigned our systems for managing relationships with priority companies with significant potential to help reduce poverty through their core business. Dedicated company contact points and senior sector leads take responsibility for fostering these relationships and understanding how company priorities can align with DFID objectives. We have conducted a series of roundtables with business representatives from the extractives, retail, infrastructure/construction and accountancy industries/professions to hear views on how commercial and development objectives can support each other, and to learn more from them about the constraints they face in frontier markets and how DFID can better support them. In the extractives sector, the frequent contact with companies has led to several streams of collaboration between companies and DFID. This has included research commissioned by DFID, but supported by technical input from companies on the oil and gas industry lifecycle and on the measurement of companies' social investments, and the intention to develop a programme supporting skills in East Africa which will be designed in collaboration with companies and will seek co-financing where appropriate.

93.           At the country-level, dialogue with the private sector can be both formal and informal. The focus is often on business environment issues and how DFID can support these. For example, in Ethiopia, DFID co-finance a public-private dialogue which enables members of the Ethiopian private sector to meet the Prime Minister on a regular basis to advocate for reform of the business sector. DFID Ethiopia also participate in the “British Investors Group”, and engage with the “European Union Business Forum” – and where appropriate will lobby government on issues raised. In Kenya, key actors from the Kenya Association of Manufacturing and the Kenya Private Sector Alliance are closely engaged in donor forums such as the Aid Effectiveness Group and the Trade and Private Sector Development Group.

94.           Dialogue with the private sector can also inform the design and implementation of DFID programming. In Bangladesh, DFID’s Katalyst programme was able to respond to the limited outreach and weak marketing capacity of agricultural input companies by supporting them to set up distribution channels and conduct marketing activities targeting small and marginal farmers. The programme also responded to the needs of a local seed company (Lal-teer Seed) and the seed market in general, by supporting them to develop and market smaller pack size of quality seeds, so that small and marginal farmers could use them. DFID Kenya’s Market Assistance Programme (MAP), which has core targets around jobs and income increases for poorer groups, has bolstered private sector representation of the Kenya Markets Trust.

95.           DFID is increasingly forging new partnerships with the private sector to achieve development outcomes. In Ethiopia, the DFID-funded Ethiopian Competitiveness Facility directly supports the private sector in increasing jobs and livelihoods. The facility enables any locally based firm working in key export sectors to look for part-financing of innovations and receive support to allow them to compete internationally. A number of DFID challenge funds partner with the private sector to build more resilient supply chains, including sourcing from firms in poor countries and improving working conditions for poor workers. For example, DFID’s Trade in Global Value Chains Initiative is working with major UK food and clothing retailers to improve the skills, health and working conditions of over 700,000 workers and smallholder farmers in Kenya, South Africa and Bangladesh.

96.           We support specialist intermediary organisations that provide services to business, to help them act responsibly in practice. For example, DFID supports Ethical Trading Initiative, Fairtrade International and the UN Global Compact. Our relationship with these intermediaries plays a part in informing us about private sector priorities, because these business-facing specialist organisations (although themselves not-for-profit organisations) need to reflect business priorities, in order to provide services that business wants – and will pay for. We also work on business accountability by encouraging transparency – which we see as an essential building block for accountability. Our engagement with issue and sector-specific transparency initiatives helps us understand business priorities. We support the Extractives Industries Transparency Initiative (EITI) and Construction Industries Transparency Initiative (CoST). We have begun work with other donors on land transparency, to take forward G8 commitments.

97.           A new programme – the Responsible, Accountable and Transparent Enterprise (RATE) – will enable us to take a systematic approach on responsible business. It will involve strengthening social and environmental risk management, so that standards organisations are better able to demonstrate their impacts; more businesses report on their social and environmental results; and more companies engage in dialogue and joint work with their peers. The programme will develop innovative ways to engage directly with companies on human rights impact assessments. It will develop collaborative initiatives for transparency, participation and remedy across different DFID country and sector teams working on economic development. In Bangladesh, we have acted collaboratively to support all the areas where action is needed to transform the garment sector: building safety; improving working conditions; empowering workers and urging buyers to take responsibility for their supply chain. On land transparency, we have acted collaboratively to improve company reporting.

98.           To respond effectively to increased engagement with the private sector, DFID is building its internal skills and capabilities. There are now over 80 Private Sector Development Advisers in the department, up from 30 in 2011. DFID’s Head of Profession for private sector development regularly assesses skills development needs to inform the Private Sector Department Learning and Development strategy. A team from PricewaterhouseCoopers are also supporting DFID on a pro bono basis to identify ways to broaden and deepen the Department’s engagement with business, including UK business. 

Section 6.           Role of the High Level Prosperity Partnerships in Africa

99.           The High Level Prosperity Partnership (HLPP) is a cross-government initiative to strengthen economic cooperation between the UK Government and five African Governments; Tanzania, Ghana, Mozambique, Côte d’Ivoire and Angola through improved government to government dialogue and joint HMG coordination with business. These partnerships aim to leverage support at the highest levels of government and business for cooperation on economic activity that contributes to mutual prosperity and sustained economic growth.

100.      The HLPP provides a strong platform for greater joint working between DFID, FCO and UKTI to support economic development in Africa and support UK and Africa to benefit from increased commercial links. The HLPP complements DFID’s Economic Development Strategic Framework and seeks to reinforce Africa’s path to prosperity through growth and jobs, fuelled by increased trade and investment, including from UK companies. The initiative does not directly fund programmatic work, but provides an effective framework for HMG departments to work together to enhance existing or new programmatic work that seeks to support prosperity in Africa or the UK.

101.      African Governments value the HLPP for forging stronger economic relationships which acknowledge what African countries offer as trading partners. The HLPP has received high level attention with regular visits in both directions by Ministers and senior officials. In November 2013, the International Development Secretary launched the HLPP in Tanzania with Prime Minister Pinda, and in May 2014 the Parliamentary Under-Secretary of State met Deputy Minister of Foreign Affairs, Banze to discuss progress of the HLPP during her visit to Mozambique.

102.      A set of priority economic sectors and objectives have been agreed under each HLPP with partner governments. To help deliver and track the HLPPs working groups have been set up in each HLPP partner country involving UK and African Government officials, which in the case of Tanzania is co-ordinated by the Prime Minister’s Office. Progress on the HLPP objectives and the way the framework is operating is tracked on a quarterly basis by a UK Project Board. The project Board provides progress reports to Ministers in the 3 Departments and recommendations for Ministerial engagement to further the initiative.

103.      DFID has bilateral programmes in three of the HLPP countries (Ghana, Tanzania and Mozambique) and contributes to HLPP objectives through policy and programmatic work. In Angola and Côte d’Ivoire DFID, through its global and regional programmes, is providing risk capital and mobilising private sector investment to build commercial activity and infrastructure.

104.      The HLPP facilitates greater dialogue with African governments in the five HLPP countries to foster the enabling conditions for economic growth and to address the barriers to private sector investment. In Tanzania the Big Results Now initiative, co-funded by DFID, provides a platform for government and business, both domestic and international, to address business environment challenges.

105.      DFID, FCO and UKTI have also been developing or strengthening links with existing business forums under the HLPPs. These forums provide the opportunity to exchange information on sectors and commercial activities, learn from business the constraints they face in HLPP countries and how HMG can support them, and encourage responsible investments in Africa through good business models.

106.      Through the HLPPs DFID in partnership with FCO and UKTI seeks to support the private sector in increasing local jobs and livelihoods. In Mozambique, DFID has launched a $20M 5 year “Access to Finance” Programme which supports key financial sector institutions partner with the private sector.  This programme will help facilitate financial sector development and expand access to financial services, particularly to those who are currently financially excluded. In Ghana, DFID is setting up a programme to ensure that the growing oil and gas industry benefits the local economy, working with local communities, authorities and extractives companies to ensure CSR funding has a positive impact on livelihoods, value chains and skills.

107.      Implementing the HLPPs has not been without challenges. The HLPP initiative has been warmly received by partner governments, but in some instances defining objectives around a mutual set of interests has taken time. However, the prime lesson learnt to date, is the benefits of closer joint working between DFID, FCO and UKTI. This has led to better understanding of each Department’s priorities and enabled Departments to add value to each other’s primary objectives to create new opportunities or generate greater impact. For example in Ghana, improved coordination has enabled Departments to achieve complementary objectives around Lonrho’s $600m investment in an oil and gas freeport. UKTI and FCO have helped to facilitate approval of the project, while DFID has worked closely with Lonrho’s CSR and supply chain work. In Mozambique cross-HMG coordination on the natural resource sector has involved DFID providing Mining and Gas Technical Assistance to the government, UKTI leading a High Value Project linking UK business with the emerging sector and now the three Departments are working together to strengthen skills development for the oil and gas industry in East Africa.

108.      We are in the process of working with FCO and UKTI to explore opportunities for replicating some of the successes of the HLPP joint working models and forums with business in other frontier markets in Africa.

Section 7.           The role of CDC and ensuring appropriate financial mechanisms available

7. (a)     Returnable Capital

109.      DFID has several well-tested instruments to deliver on its economic development objectives including the provision of jobs and livelihoods. We are also developing new instruments, and building the evidence base for which work best. These include investment vehicles, including new ways of working with CDC, innovative grant and technical assistance programmes, and partnerships with businesses. Our choice of instruments considers the ability of our partners to finance their own investments, targeting our grant funding to those most in need and where it will have most impact, and making increasing use of loans and investments to maximise value for money.

110.      We are gradually increasing our use of investment instruments to stimulate private investment that benefits poor people. Through returnable capital, including loans and equity, we will share some of the risk that would otherwise slow down investment and business growth. Where we are sharing the risk of launching or expanding a business venture, we will also seek to share the rewards. This enables us to redeploy our aid money many times over, multiplying the development impact and reducing the distortion to the private market. In the last year, DFID has launched several returnable capital investments including the DFID Impact Fund managed by CDC, and the Samridhi Fund, targeting inclusive growth in India’s poorest states. Investment instruments require additional skills and management processes to traditional grant programmes. We have been developing our capability, and will continue to do so as our use of investment instruments increases. We will be monitoring the financial returns and development impact of these investments closely.

7. (b)     Private Infrastructure Development Group (PIDG): Leveraging private sector finance for infrastructure

111.      The PIDG Group comprises nine donors who fund specialised companies to provide early stage equity and debt, guarantees and technical assistance to private sector infrastructure projects. DFID funds five investment companies and two grant facilities under PIDG.

112.      One of these companies, Emerging Africa Infrastructure Fund (EAIF), provides long term loans to projects in Sub-Saharan Africa to support infrastructure projects that would otherwise be difficult to finance, often because they are perceived to be very high risk. Commercial financiers and Development Finance Institutions (DFIs) have provided loans to EAIF to on-lend. Financiers also benefit from the long duration of loans offered by EAIF, and invested around $2 billion alongside $100 million of EAIF financing to five projects in 2012. Around 90% of these investments by value was in low income countries and 60% in fragile or post-conflict states. For example, EAIF provided $6 million of funding to SAEMS Nyamwamba Hydropower Station in Western Uganda, with co-investments of $30 million. This is a 14MW run-of-the-river hydro plant which is expected to improve energy supply for about 580,000 people and create short-term and long term jobs.

113.      The funds invested by EAIF will be repaid at a later date, and will be available for EAIF to reinvest in other projects. If EAIF were wound up, DFID would be able to deploy the repaid funds towards other development activity.

7. (c)     CDC

114.      CDC is the UK’s Development Finance Institution (DFI). It is a public limited company with an independent Board. DFID is not involved in the investment decision-making process.

115.      CDC’s mission is to support the building of businesses in Africa and South Asia, creating jobs and making a lasting difference to people’s lives. As sole shareholder of CDC, DFID agreed a new Strategic Plan for CDC in 2012. CDC has two objectives, which it weights equally. It seeks to achieve development impact which it has focused on job creation especially in the more challenging and poorer regions of its geographies. CDC also seeks to generate a minimum financial return on its portfolio both to protect taxpayers’ capital and to demonstrate to more commercial investors that these types of investments can be successful.

116.      The Strategic Plan specifically excluded richer countries and regions like China, South East Asia and Latin America from all future CDC investments. It also gave CDC new ways to invest, and the organisation has evolved from providing capital solely through funds to offering diversified products to support its partners with the most appropriate financial instrument. These include funds, and the direct provision of capital in all forms, including debt, equity, mezzanine and guarantees.

117.      CDC assesses every investment opportunity for its potential to generate employment and the difficulty of the geography. The potential to create employment includes direct employment (skilled and unskilled), employment through backward linkages in the supply chain, and impact from investment into essential infrastructure which removes business constraints and increases jobs across the economy. DFID and CDC worked closely with development academics and economists to identify sectors for investment with the highest potential for creating employment, and these are prioritised in investment decisions. CDC’s priority sectors, chosen because of their propensity to create jobs, are agribusiness, construction, financial institutions, infrastructure, manufacturing, health and education.

118.      In 2013, CDC’s 1,300 investee companies directly employed over a million people, and created more than 68,000 net new direct jobs. In 2013, CDC made 26 new investment commitments totalling £608.3 million, the highest level in the organisation’s 65-year history. The new investments included wind farms in India, an agribusiness in the Democratic Republic of Congo, a new fertiliser plant in Nigeria and the roll-out of low cost schools in Kenya.

119.      CDC adds value as a responsible investor, helping companies achieve strong environmental and social policies and good standards of governance. For all its investments, the process begins early, with potential investee companies rated for environmental, social and business integrity risk. Where opportunities are identified to improve performance, CDC develops legally binding action plans against which it can judge progress. For example, CDC is currently helping a company enhance labour standards in textile supply chains in India; has helped to enhance construction worker health and safety in an investee company in Kenya; and started working to improve the living conditions of communities and workers around three palm oil plantations in the Democratic Republic of Congo.

120.      CDC also manages DFID’s Impact Fund. Through the Fund, CDC is investing £75 million of DFID’s long term, “patient” capital in impact investment funds that invest specifically in enterprises which serve the poor as consumers, producers, suppliers or employees. The Fund aims to invest in activities that combine a clear and significant pro-poor impact with lower financial return requirements than the rest of CDC to allow greater risk to be taken.

Section 8.           DFID’s role facilitating work of NGOs and professional organisations

NGOs

121.      The NGO sector has, for a number of years, been increasing its focus on jobs and livelihoods as a route out of poverty. International NGO networks are proactive in both policy advocacy and in leading good practice on issues including youth employment. DFID aims to work with NGOs in the areas where we think they have a comparative advantage as a delivery mechanism and where their experience and learning can inform DFID policy and programming. Funding for NGO jobs and livelihoods programmes is provided from both centrally managed programmes and through country office bilateral programmes.

122.      Areas where NGOs have an advantage include providing services to the hardest to reach and most marginalised including groups such as women or rural communities. NGOs (particularly southern based NGOs) have a contextual understanding of their environment that DFID couldn’t hope to achieve. Working through them in challenging or fragile environments can prove an effective method. NGOs can also make a significant contribution to the quality of jobs available in the private sector by addressing issues such as poor working conditions, low pay and trading standards.

123.      How DFID engages and supports this:

• Central funding has focused around the latest round of the Global Poverty Action Fund (GPAF).  Launched in November 2013, the GPAF “Jobs and Livelihoods” funding round invited proposals from small and medium sized NGOs. Project selection is ongoing but is anticipated that grants totalling  £20m will be provided for projects in a range of DFID priority countries and other poor countries.
• DFID is also supporting work on jobs through the Programme Partnership Arrangements (PPA): funding to Ethical Trading Initiative and Fairtrade International supports the accountability of the private sector and works in partnership with firms to ensure quality jobs.
• Work at country office level is particularly focused around the ability of NGOs to reach the ultra-poor. For example in Bangladesh the Chars Livelihoods Programme has already helped 250,000 people to improve their livelihoods in areas such as the remote Char Islands and the Livelihood and Food Security Trust Fund in Burma has supported 27,000 women to start their own business.
• DFID’s policy engagement on jobs and livelihood has focused around the EDSF through which the agenda will be focused. This has primarily been around how to ensure growth is inclusive and the potential contribution NGOs can make to this.

124.      Where is DFID still learning? There is a need to increase the evidence on what is the most effective contribution NGOs can make to job and livelihood creation. Current assumptions are based on the strong results delivered through NGOs in the context set out above. However, a more systematic assessment of when and where NGOs contribute the most is needed. The GPAF Jobs and Livelihoods round monitoring and evaluation activities will contribute to this. 

Professional organisations

125.      DFID engages with a range of professional groupings with a particular contribution to make to our work on economic development. This year, the Secretary of State has held round table events with leading organisations in the fields of accounting, construction and law. These sessions have helped to inform and shape DFID’s strategy in these areas and have enabled a better understanding of the demand for particular skills sets in an economy, the training opportunities available and links to the job market. Investment by development agencies in professional skills will remain a development “best buy” for millions of the world’s poorest – offering a sustainable route out of poverty with, in many cases, a particular opportunity for women and girls. 

126.      All five of the UK Chartered Accountancy Institutes have joined DFID’s IFUSE programme, allowing the institutes to further their international remits and work with new partner organisations across DFID’s network. In a complementary initiative, DFID has recently launched a new partnership with the International Federation of Accountants, linking partner country professional accounting organisations with their established counterparts across the world. These partnerships will support accounting institutes in DFID countries to provide higher quality training and stewardship to the profession, increasing its profile in and value to, the business community.

127.      In the legal sector, DFID’s soon-to-be-launched UK Legal and Judicial Expertise Programme will be a partnership between the pro-bono legal community and HMG. This programme aims to  improve Rule of Law environments in developing countries by matching UK judicial and legal expertise, both private and public sector, with demand in developing countries to improve the policies, organisations and practices of legal and judicial systems.

128.      The construction sector provides large numbers of formal and informal jobs and employment opportunities, with a requirement for well-trained engineers and tradespersons. DFID is facilitating dialogue between the UK Construction Industry Training Board and skill development organisations in Tanzania for the training of construction personnel. DFID is also in discussions with the Institution of Civil Engineers about the possibilities for increasing their overseas activities relating to professional training and standards.

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