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At the FCV Forum, a focus on jump-starting job creation: Boosting SMEs amid woes of Fragility, Conflict and Violence

Christopher Colford's picture



Jump-starting job growth is difficult enough when a country’s investment climate is supportive, when its government has clear goals and competent capabilities, and when its business leaders can make far-sighted plans. When an economy is riven by the chaos of war, or when it is newly emerging from a severe social trauma, channeling capital toward private-sector job creation is even harder.

Amid this year’s FCV Forum at the World Bank Group – focusing on economies gripped by fragility, conflict and violence (FCV) – a seminar combining Financial Sector and Private Sector priorities heard a sobering picture from expert practitioners who have been on the front lines of promoting job growth in economies that are in turmoil. Moderated by John Speakman, the Lead PSD Specialist in the Bank Group’s practice on Trade and Competitiveness – who is the author of a new book on small-scale entrepreneurs in FCV situations – a panel explored the daunting challenges of promoting private-sector growth when countries are in turmoil.

Would-be job creators confront an enormously complex task in FCV situations. Yet the panelists agreed that there is reason for hope – even in the most tumultuous FCV conditions – if financing can be targeted toward promising startup companies, and especially toward potential “gazelle” firms that can energize new sectors of the economy.

“Ultimately, it’s all about money: Poor people are poor because they don’t have money,” said Hugh Scott of KPMG, who leads the Africa Enterprise Challenge Fund (ACF). “It’s the delivery channel – the financing mechanism – that’s making the difference” in the 23 African countries where the ACF has offered grants and interest-free loans to about 800 private-sector firms, producing a net development impact of about $66 billion.

The difficult business environment and increased risk profile in FCV countries means that traditional lenders (primarily banks) are all the more hesitant to lend, said Scott – making such vehicles as “challenge funds,” which focus on promising small and startup firms, even more important. As Bank Group consultant Sadaf Lakhani noted, the “ecosystem problem” for Small and Medium-sized Enterprises (SMEs) and startups is all the more complex when countries face “a political economy of war.” As she had observed during her earlier work with a nonprofit financial intermediary, such frequent FCV afflictions as corruption, patronage, fragmented markets and capital flight make it even more difficult for managers and lenders to identify, evaluate and accelerate startups.     

Bank financing, in fact, is not always a ready source of funds for startup ventures, as noted by Simon Bell, the Global Lead on SME Finance at the Bank Group. Banks weigh the historical profit-and-loss performance of would-be borrowers – yet the entrepreneurs who are behind the “small sub-set of firms,” like the so-called “gazelles,” that are destined to create jobs quickly have little or no financial track record. Startups are thus often viewed warily by risk-averse bankers. Drawing on his long experience in the MENA region, Bell underscored that a priority in FCV states is ensuring that there is “a continuum of financial institutions and services” – like early-stage financing, private equity, venture capital and angel financing – that can provide critically important financing at various stages of a dynamic company’s growth.

To help give a boost to startups and young firms, the International Finance Corporation has created several financing mechanisms that are having a positive impact on job growth. The SME Ventures Program, created in 2008 with a $100 million allocation from IFC, has aimed to reach businesses in the poorest of the poor countries, often in FCV situations, said its Program Manager, Tracy Washington. Having financed about 60 SMEs, and having already supported the creation of about 1,000 jobs, the SME Ventures Program has had a positive “demonstration effect,” inspiring new entrants to serve the marketplace once they have witnessed IFC’s strong performance. In addition, IFC's Global SME Finance Facility, described by Senior Investment Officer Florence Boupda, has provided investment capital and advisory services to 27 financial institutions in 18 countries since 2007 – including 17 projects in seven FCV countries.

The challenge for the future, agreed Boupda and Washington, will be to find additional ways to combine Bank Group interventions in ways that continue to choose companies with the greatest potential and that maximize the impact of Bank Group support. Their insights were underscored by Bell, who emphasized that “globally, employment is our issue” – and who asserted that “there are points of light all around” in this “very exciting” area, as various arms of the Bank Group focus on “the employment imperative.”

Finding ways “to apply the most innovative solutions to the most challenging situations,” especially in FCV and other traumatized countries, remains the grand challenge for international financial institutions, concluded Michael Botzung, IFC’s manager for fragile and conflict-affected countries in Sub-Saharan Africa. Yet the determination of the energetic practitioners on the SME financing panel reminded the FCV Forum audience why there is cause for hope – and why, in Speakman’s words, the intensive WBG-wide efforts to promote job creation in the toughest FCV situations is “one of the things that makes us proud to be with the World Bank Group.”

Tax reforms in South Asia: broader, simpler and pro-growth

Tehmina S. Khan's picture
As discussed in the January 2015 edition of Global Economic Prospects, raising more in tax revenues is critical for the South Asia region. Firstly, fiscal buffers have diminished since the 2008/09 global financial crisis. Although efforts to consolidate are underway, evident for example in the recent fuel subsidy reforms in India, replenishing buffers will also require raising more in revenue.

Engaging citizens: a game changer for development?

Mario Marcel's picture



Nearly every week, I read news stories about citizens clamoring for change in governance- citizens who want their voices heard and acted upon. In countries all over the globe, citizen groups are working (sometimes with governments and sometimes against them) to build a more citizen-centric approach to governance. Why? People—ordinary citizens—are at the heart of good governance, and governments are genuinely more effective when they listen to and work with citizens to tackle development challenges.

Engaging citizens can help improve transparency and accountability of public policies, promote citizens’ trust, forge consensus around important reforms, and build the political and public support necessary to sustain them.  

The PISA for Development initiative moves forward: Have my wishes been fulfilled?

Marguerite Clarke's picture



About a year and a half ago, I wrote a blog about the Organisation for Economic Co-operation and Development’s (OECD) PISA for Development initiative.
 
Most of us are already familiar with the OECD’s PISA exercise, which is a test that assesses the reading, mathematics, and science competencies of 15-year olds around the world. The aim of PISA for Development is to identify how PISA can support evidence-based policy making in developing countries that, until now, have been unable or unwilling to participate. The expected outcome is to produce a set of enhanced student assessment instruments that are tailored to the needs of these countries, but which also produce reading, mathematics, and science scores on the same scale as the main PISA survey. In that earlier blog, I made three wishes for the initiative. 

Have any of my wishes been fulfilled?

Helping farmers prevent hunger in Ebola-hit countries

Abdoulaye Toure's picture
Photo credit: Guido Fuà


Most people are aware of Ebola's devastating impact on human health. To date, over 22,800 people have been infected and 9,000 have died. Its effects on West Africa's economy have also been well-documented. According to recent World Bank estimates, Ebola will cause at least US$ 1.6 billion in lost economic growth in Guinea, Liberia and Sierra Leone in 2015.

Weekly Wire: The Global Forum

Roxanne Bauer's picture

These are some of the views and reports relevant to our readers that caught our attention this week.

Millions of Facebook users have no idea they’re using the internet
Quartz
It was in Indonesia three years ago that Helani Galpaya first noticed the anomaly. Indonesians surveyed by Galpaya told her that they didn’t use the internet. But in focus groups, they would talk enthusiastically about how much time they spent on Facebook. Galpaya, a researcher (and now CEO) with LIRNEasia, a think tank, called Rohan Samarajiva, her boss at the time, to tell him what she had discovered. “It seemed that in their minds, the Internet did not exist; only Facebook,” he concluded. In Africa, Christoph Stork stumbled upon something similar. Looking at results from a survey on communications use for Research ICT Africa, Stork found what looked like an error. The number of people who had responded saying they used Facebook was much higher than those who said they used the internet. The discrepancy accounted for some 3% to 4% of mobile phone users, he says.

Time to Act on the G-20 Agenda: The Global Economy Will Thank You
iMF direct- blog post by Christine Lagarde
Implementation, investment, and inclusiveness: these three policy goals will dominate the G-20 agenda this year, including the first meeting of finance ministers and central bank governors in Istanbul next week. As Turkish Prime Minister Ahmet Davutoğlu recently put it: “Now is the time to act” – şimdi uygulama zamanı. There is a lot at stake. Without action, we could see the global economic supertanker continuing to be stuck in the shallow waters of sub-par growth and meager job creation. This is why we need to focus on these three “I’s”:

The Social Observatory Field Notes: Documenting the stories of Self-Help Group (SGH) leaders

Shruti Majumdar's picture

Location: Sarfuddinpur, Bihar
December 2014
 
In June this year, I was in Sarfuddinpur, a village in Muzaffarpur district in north-central Bihar. This was my tenth round of qualitative data collection in this village and I wanted to document the stories of a few Self-Help Group, or SHG, leaders; Shakuntala Devi was one of them. I first observed her presiding over an SHG meeting under the village peepal tree in July 2013. She was expertly facilitating a discussion with other SHG members around loans, but also around child health issues and the challenges faced by women in the marketplace. She disciplined free riders and rewarded contributors with a respected leader’s ease. Since then, I have seen her conduct many other meetings.
 


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