Powering private sector job creation
Updated: 2013-01-29 07:54
By Hyun-Chan Cho (China Daily)
Six hundred million is a staggering number. Yet, that's how many new jobs the world needs by 2020 just to keep up with its surging population. And about two-thirds of those jobs need to be created in Asia - that's some 25 million jobs a year.
Globally, about 200 million people are unemployed, the majority of them women and young people living in developing countries. Without jobs, they can't care for themselves or their families. The result: poverty and social and economic unrest.
Joblessness is a global crisis and a top priority for policymakers and the International Finance Corporation, the World Bank Group member focused on private sector development.
In China for example, the IFC has been helping the country generate jobs through its investments and advisory services for the past two decades. China is now our third-largest client and we have an outstanding portfolio of $2.5 billion in more than 100 Chinese companies. Last year, these companies created around 600,000 jobs across China in sectors such as manufacturing, infrastructure and financial markets.
According to a jobs study released by the IFC in January, micro, small and medium-sized enterprises generate the most jobs in developing countries, but they are also less productive, pay less, and do not offer as many training and development opportunities for staff. What they need is financing and other assistance to grow their businesses and realize their full potential.
One way the IFC helps these smaller enterprises is by funding the financial intermediaries. In China, financial institutions supported by the IFC provided financing to nearly 1 million smaller enterprises last year. Globally, the IFC helped finance 23 million micro, small and medium-sized enterprises, which in turn employed more than 100 million people in emerging markets.
The story of entrepreneur Zhang Yan in China's western province of Sichuan shows how small loans can make a big difference in helping micro-enterprises get off the ground and create employment for the jobless.
Zhang and her husband were once unemployed workers who struggled to make a living when they decided to set up a small car repair shop in the city of Deyang. In 2009, the couple eventually received a loan of 150,000 yuan ($23,890) from the Bank of Deyang, an IFC client. With that and subsequent loans from the bank, they quickly expanded their business and now own two shops and a sales company, securing jobs not only for themselves, but for as many as 150 people.
The private sector provides nine out of every 10 jobs globally. Empowering entrepreneurs such as Zhang and others like her is one of the most efficient ways to address job creation and poverty reduction.
Another way the IFC helped improve access to finance was by advising the Chinese government to pass a regulation in 2007 enabling banks to accept so-called movable assets, such as inventory, machinery or future income, as collateral, thereby making it easier for them to lend to small and medium-sized enterprises. The IFC helped China's central bank set up a centralized online system for banks to register movable assets from borrowers, who can now obtain loans from banks more easily.
The effect has been phenomenal: The value of commercial loans secured with movable assets has grown 24 percent in the past four years. So far, more than $3 trillion in loans have been granted through movable-asset financing and most of the beneficiaries are small businesses.
Apart from limited access to finance for micro, small and medium-sized enterprises, the IFC has identified three other obstacles that impede job growth in the private sector, namely a weak investment climate, inadequate infrastructure, and insufficient training and skills.
An IFC study, which drew on the experience of more than 45,000 businesses in over 100 countries, found that women and youth are two groups that face specific employment challenges. Young people are almost three times more likely to be unemployed, while women are often forced to take poorly paid and insecure jobs.
To tackle these problems, governments, financial institutions and businesses need to work together to improve investment climates, infrastructure and access to finance and address the skills gaps among workers. Only by working together can we tackle the global crisis of joblessness.
The author is the country manager for China and Mongolia, IFC.