04 October 2009
Ladies and Gentlemen,
First of all, let me express my gratitude to Lars Thunell, Chief Executive Officer of the International Finance Corporation, for giving me the opportunity to share with you a few thoughts on sustainable employment in the context of the current economic crisis. Whether or not it is true that “nothing will ever be the same” after the current turmoil subsides, I think one primary action, indeed a duty, for all of us should be to reflect on how best we can pass through these difficult times. What measures can we conceive, what processes can we initiate, that will give reasonable hope that the picture, after the crisis, is not bleak for those who have lost their jobs and for those entering the job market having completed their education?
The Aga Khan Fund for Economic Development (AKFED), is primarily active in the Third World, and particularly in Sub Saharan and West Africa, the Middle East and Central and South Asia. In most of these countries, the effects of the current crisis can be compared to those in the wealthier countries of the West and indeed, in many cases, they are probably worse: businesses, with profits shrinking and cash flows that are all too frequently stretched to breaking point, are laying off employees at all levels. And this is happening within a context that was already difficult to begin with, one of substantial unemployment and underemployment, of economies that are largely agrarian, with difficult climates where the people frequently work small holdings, contend with arid soils and have a limited capacity to increase their productivity. Moreover, these areas are plagued by a lack of skilled labour, low standards of education, frequent currency devaluations, weak infrastructure, cumbersome legal systems and, all too often, rampant corruption at many levels. These countries suffer from a difficult and unpredictable business environment even in good economic times. Moreover, given their limited industrial capacity and productivity, the lower net private capital flows and monetary tightening that are now taking place are seriously reducing the liquidity available to nascent small and medium-sized enterprises – a sector whose development is essential if employment is to be increased and the national economies of these countries is to be strengthened. Even microfinance institutions are currently experiencing serious liquidity constraints after several years of asset growth, and the whole progression up from micro economic initiatives through small and medium-sized enterprises to larger scale economic activity is being constrained and constricted and, with it, the opportunities for entrepreneurship and for private enterprise.
The rising poverty levels in many of the countries of the developing world, frequently accompanied by social and political instability, is leading to a mounting dependence on overseas development aid and direct foreign investment and, in some cases, even food aid. And yet, over the past two years financial flows have dropped precipitously [from some 890 billion US Dollars to 141 billion]. In the West, we are seeing lower contributions to development assistance, decreasing discretionary funds to multilaterals and, generally speaking, a reduced readiness to embrace new initiatives.
Jobs, and the creation of jobs, in both traditional and new sectors in these countries have become more important and urgent than ever. This is the essential element for improving the quality of life of the citizens of these countries. We know, from past experience, that improving the quality of life of the poorer populations is the best guarantee of achieving political and social stability and of avoiding an even longer list of failed democracies.
It is my view that to achieve sustainable employment in the Third World, it is necessary to embrace a broad philosophy of development that brings together social, economic and cultural initiatives. Single sector initiatives, though certainly useful, have to be placed in a wider context if they are to have a lasting effect on the quality of life of populations and if those populations are to embrace them as reflecting their own aspirations and are to carry them forward so that the desired multiplier effect is achieved, and mutually reinforcing improvements far exceeding initial inputs or investments are attained.
High on the list of requirements is education, which must include technical as well as adult education. It must also include women so that they, too, can play an appropriate role in the development effort, just as it must help the older generation to play their part (and a more independent part) in that effort. Equally, solutions are needed to the problem of educated young people having to go abroad to find suitable employment and career development. Educational programmes should encompass teaching teachers and training trainers to increase the national pool of skilled and qualified persons, especially in outlying on rural areas. They should concentrate on areas of economic activity that are recognized to be labour intensive (infrastructure is an example and seems to me to constitute a priority area), as also on the creation of cadres of entrepreneurs, people who will be capable of setting up and running, successfully, small and medium-sized enterprises. Non-traditional fields of practical expertise also offer new sources of employment and are critical in the developing world: for instance so called “green” technologies need to be applied in construction and other industries in order to mitigate the lack of local sources of energy, the rising insufficiency of water and chronically difficult living conditions. I think it can be argued that investments in education and in appropriate training offer the only sustainable long-term solution to increasing and ensuring employment.
The health sector is another one where increased human capacity is necessary and employment opportunities could be created, providing more nurses and doctors in the cities and more medical staff in outlying and rural areas. Referral systems (the so-called hub and spoke systems) offer the most promising solutions to the medical needs of most developing countries and they imply, despite a growing recourse to telemedicine, that a substantial increase in manpower become available.
In almost all the countries in which we work, there is a marked insufficiency of primary health facilities just as there is a lack of schools offering pre-primary, primary and secondary education and yet improved health, education and living conditions are all basic elements for improving quality of life.
As I have said earlier, creation of a growing number of viable small and medium-sized enterprises is also a sine qua non to creating jobs and to forming a strong back-bone for a stable national economy. Microfinance is a basic requirement, but it must reach down to the ultra poor and means must be found to accelerate the creation of small and medium sized enterprises keeping in mind the risk element inherent in them. Sound business practices and good governance are essential in this endeavour and the challenge is to define and ensure these. Here too trainers and supervisors are required.
Many of the Third World countries are gifted with cultural treasures, the restoration or conservation or reutilization of which can underpin the development of a new or expanded tourism industry, and other culture-related industries, such as handcrafts. These activities are not only labour-intensive, themselves, but they create even more jobs in fields such as infrastructure and services.
The tools for initiating and implementing the initiatives I have listed are numerous. Perhaps the most important of these is the creation of viable, credible and transparent civil society organizations. Such organizations could include Rural Village Organizations, setting their own priorities and implementing those priorities through essentially self-help initiatives which are aided and guided by limited outside advice and input. Or they could take the form of Advisory Services on investment opportunities. Or they could involve purchasing and selling cooperatives. The possibilities are manifold. Civil society organizations can be vehicles of economic recovery just as they can launch social and cultural initiatives, and they form a crucial tool in countries with weak or dysfunctional governments.
The general framework for the creation and efficient operations of such Civil Society Organizations lies, in our view, in what we call an Enabling Environment and here local governments have a role to play, by ensuring legislation and its enforcement that encourages and protects private initiative and entrepreneurship and by supporting, with all the means at their disposal, the creation of an active and buoyant private sector.
Furthermore there are possibilities for collaborative efforts which bring Government and the private sector together in public/private partnerships. These are proving to be an increasingly useful tool, one that is resilient and permits the assets and abilities of each party to be most productively used. Public private partnerships have launched in many instances quick improvements in both the health and education sectors. Cross-border partnerships and initiatives are another tool just as are regional approaches despite potential political complexities. They also have, as often as not, an effect on precisely those parts of national populations that are poorest or most ex-centered, while allowing the surplus assets of one country to improve the quality of life of a neighbouring country. Obviously, they are also a means of increasing trade and of easing the tensions that may have resulted from arbitrarily drawn borders. For instance while it takes up to 30 hours to drive a truck down an uncertain road from Dushanbe to Khorog in the Pamirs, it takes less than half that time, to take it from Khorog to the urban centres of neighbouring Afghanistan.
In the same manner area development plans and programmes, particularly if they are multi-input, permit inter-locking development requirements to be approached by interdisciplinary teams and such programmes stimulate buy-in, and ultimately take-over, by the local peoples concerned. I am struck by the evolution, for instance, of our rural support programmes in the Northern Areas of Pakistan. The greening of entire valleys and hillsides and the creation of food self-sufficiency has stimulated and has been amplified by the creation of new health and education facilities and the construction of new roads and mini-hydroelectrical plants. My view is that, similarly, when we restore one of the mud mosques in Mali, for instance, we must look into the up-grading of the infrastructure in the area surrounding the Mosque, we must review the health and education facilities in that area, we must provide a microfinance programme for the local residents and we must consider forming a residents group or committee to help implement and then to manage this multi-input area development initiative. The hope is that such an initiative will be copied by other groups elsewhere in town and will thus effectively play the role of a pilot project.
It seems to me that institutions such as IFC should consider broadening their mandates to include a wider spectrum of “social” interventions and could give greater emphasis to multi-input approaches. I would welcome too an increasing IFC activity in helping us put together groups of shareholders. And all of our economic initiatives should be required to undertake and to report on corporate social responsibility or outreach programmes.
Perhaps the most essential tool, however, is the resilience and determination of people to improve their own condition, their own quality of life. In many ways development assistance is about giving people hope and giving them the courage to take charge of their own lives and well-being. A recent example comes to mind. AKFED launched, some 35 years back, a tourism venture which now boasts some 29 hotels, lodges and resorts, the majority in Africa and Asia, known under the brand name Serena. In East Africa alone Serena employs some 3 000 local workers and only one expatriate. Like most other companies in the hotel industry, Serena has experienced a drop in both occupancy and revenues this past year. But while in other companies large-scale lay-offs have taken place, or various types of voluntary separation schemes have been experimented, the staff at Serena in East Africa, independently and of their own volition, informed Management that they had decided to ask for a pay-cut until sales improved in order to maintain their jobs. Management thanked them for this initiative and undertook to reimburse them their sacrifice as and when demand started to return to previous, normal levels – and then Management itself felt obliged to take a pay-cut. The incident takes on its full significance when one remembers that the Serena chain provides livelihood for literally tens of thousands of local people when the family of staff, suppliers, small businesses, artisans and handicraft-makers who depend on Serena are included.
I think it is appropriate that I should finish this talk by offering congratulations to IFC, who have been an admired and valued partner of AKFED for over 40 years. IFC has concentrated over all those years on a number of significant objectives: on advancing the private sector in developing countries, on developing local, financial markets, on new initiatives in microfinance, trade and infrastructure and on the creation of truly sustainable, viable entities. These efforts have all been of vital importance for job creation. May I commend you for your efforts and thank you for this opportunity to join in your discussions?
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