82035 Assessing Private Sector Contribution to Job Creation Indirect Job Creation Among IFC Clients: Findings from micro case studies in MAS Ruchira Kumar (CDI) Hayat Abdo (MAS) Development Impact Department, IFC October 2012 1 Advisory Enterprise Technical Website Survey Micro Panel IFC.org Analysis Case Literature /jobcreation Studies review IFC smart – Macro Case Blog lessons Studies competition Meta IFC WEF-IFC Collaboration Evaluation Operational Youth Essay with WDR Experience Competition Outline • Strategic importance and objective • Methodology • Key findings • Case details • Lessons learnt and implications 3 JOBS! JOBS! JOBS! Strategic Importance & Motivation of Study Why Jobs? • The poor consider a job as the most important pathway out of poverty • The private sector – and IFC – play a pivotal role in fostering growth and job creation; it provides about 90% of jobs in developing countries. • Currently, about 200M people are unemployed, more than 600M additional jobs must be created by 2020 to halve the global unemployment rate (WDR 2013) How IFC? • IFC facilitates job creation through engagement with private sector clients. • Monitoring (DOTS) captures the direct jobs among clients. Indirect job creation effects are more difficult to track; special studies needed • MAS clients can be capital intensive; direct jobs are few but potentially significant employment effects in the value chains Micro case studies are an attempt estimate these effects, as part of IFC’s overall study on ‘Assessing Private Sector Contribution to Job Creation’ 4 Outline • Strategic importance and objective • Methodology • Key initial findings • Case details • Lessons learnt and implications 5 Methodology • Client Selection is easier said than done! Identification of clients done keeping in mind regional and sectoral coverage, and willingness of relationship managers and clients to engage • Follow the money…….or labor! Identification and analysis of the key cost drivers or most labor intensive components in the client’s supply and distribution chain • Distinguish main suppliers & distributors. Identification of suppliers and distributors for whom IFC clients are major share of business • Interviews and data collection. Face to face interviews with select identified suppliers and distributors on employment and growth trends from before year of IFC’s engagement, and with key client departments, secondary client financial data and country statistics 6 The Five Case Studies MRIYA (Agribusiness, Ukraine) PRAN (Agribusiness, Bangladesh) OCL (Cement, India) SAFAL ECOGREEN (Steel, Kenya) (Chemicals, Indonesia) 7 Outline • Strategic importance and objective • Methodology • Key initial findings • Case details • Lessons learnt and implications 8 Key Findings Direct Employment • Direct jobs created by the clients mostly skilled in nature • Established on the job and classroom training programs by all clients resulted in skill building Indirect Employment • Significant Indirect jobs compared to direct job creation after IFC’s engagement  Range of multipliers vary across clients from 7 to 25 • Share of incremental indirect jobs vary across clients in supply & distribution • Large unskilled share in indirect jobs compared to direct employment Poverty Reduction Effects • Jobs: Indirect jobs, mostly unskilled in nature or largely rural provided source of employment in areas with few alternate opportunities • Removing Access Constraints: Addressing access constraints likely helped improve productivity and hence incomes • Products for the Poor: Affordably products likely expanded reach to poor • Knowledge Spillovers: Likely transfer effects of training for client employees, and of exposure to best practices for labor in supply & distribution chain 9 Significant Indirect Job Creation * The indirect jobs for Safal do not include 24,000 jobs in distribution channels that were created due to inability to attribute to IFC investment 10 Range of Multipliers for Jobs Created Direct Jobs Indirect Jobs Multiplier Sector, Country Mriya 2505 7390 3 Agribusiness, Ukraine PRAN 294 2198 7 Agribusiness, Bangladesh Ecogreen 177 3646 21 Chemicals, Indonesia OCL 293 7156 24 Cement, India Safal* 4200 24000 6 Steel, Africa * For Safal, the multiplier is calculated on total jobs provided instead of incremental jobs due to difficulties with attribution. • Variation in multipliers reflecting sectoral and regional variations, labor intensity of operations, local labor regulations etc • Hence, emphasis should be on ‘total jobs’ and less on multiplier • ‘Attribution’ to project only has been attempted, but its difficult to ascertain 11 Spread of Indirect Jobs across Supply and Distribution Chains 12 Skilled and Unskilled nature of Indirect Jobs Created Compared to almost all additional direct jobs being skilled in nature, a large share of additional indirect jobs were unskilled or semi skilled 13 Outline • Strategic importance and objective • Methodology • Key initial findings • Case details • Lessons learnt and implications 14 Case Study 1 SAFAL (Steel,Africa) • Safal owns 4 manufacturing subsidiaries (Kenya, Tanzania, Uganda and South Africa) and 9 Roll-forming centers. • IFC and Safal have a long-term partnership since 1999. • In 2007, IFC provided $35 million to support a green-field up to 150,000 TPA* steel coating capacity in South Africa and expansion of coating capacity in Kenya by 35,000 TPA and in Tanzania by 40,000 TPA. This incremental capacity form the basis for estimating incremental job creation. *TPA-Ton per annum 15 Case Study 1 Safal Africa Safal Supply and Distribution Channels 16 Case Study 1 Safal Africa Significant Indirect Job Creation Effects in the Distribution Networks Type of Wholesalers and Retailers of Safal Safal: Direct and Indirect Employment Products 30000 Wholesalers/R Share of Number of total etailers Safal employees 25000 products 0 from total 20000 sales Exclusive 100% 20-55 15000 Wholesalers 24,000 10000 Non-Exclusive 50-60% 10-15 Wholesalers 5000 2450 Retailers 20-30% 5-7 0 1,750 Direct Employment Indirect Employment Multiplier of 5 indirect jobs per every direct job supported by Safal 17 Case Study 1 Safal Africa Potential impact on Poverty due to Job Creation Production Employees at Mabati Monthly wages for Production Rolling Mills (MRM), Kenya Employees of MRM 35000 30000 Unskilled 25000 24% Skilled Ksh/month 47% 20000 Lower 15000 Minimum wage for low-skilled category Skilled 29% 10000 Minimum wage for unskilled category 5000 Extreme poverty line ($1.25 a day) 0 Unskilled Semi-skilled Skilled 18 Case Study 2 ECOGREEN (Chemicals, Indonesia) • In 2004, IFC made its first investment in Ecogreen (US$30 million loan), which was solely used for the company’s working capital needs. • In 2005, IFC provided a US$25 million loan to support Ecogreen’s expansion plan in its Batam manufacturing facility (US$84 million investment). • Both IFC’s investments contributed to stabilizing the company’s financials and achieving its growth. • IFC investments helped Ecogreen double its capacity with the current total production capacity of 225,000 tpa. • An estimated incremental capacity of 115,00 tpa is used as a basis of estimating the indirect employment and induced impacts of Ecogreen’s operations due to Batam Manufacturing Facility IFC engagement. 19 Case Study 2 Ecogreen Indirect Employment Effects is Significant The incremental indirect job supported due to capacity expansion is estimated as follows: Category of Number (#) Percent (%) Ecogreen: Direct and Indirect Employees Employment 8000 7000 6000 3600 5000 Skilled 646 18% 4000 Incremental 3000 Low Skilled 2,245 62% Initial 2000 Unskilled 755 21% 1000 177 0 Total 3,646 100% Direct Indirect Employment Employment Job Multiplier (on Incremental Basis)-21 indirect jobs for every direct job Most of the indirect employment effects from suppliers of Palm Kernel Oil (86% of cost of goods sold) Since Ecogreen exports 95% of its products using its own jetties (near to the port), the indirect employment from distribution and transport is minimal 20 Case Study2 Ecogreen Poverty Impact through Direct and Indirect Job Creation Categories of Direct Employees at Ecogreen Ecogreen: Monthly Wages for Unskilled and low-skilled Employees Management 300 Other Admin. Staff Skilled Production Staff 250 200 US$/month 150 Minimum Wage Category for Unskilled 17 (2%) 36(5%) 48 (7%) 100 149 (22%) 50 442( 64%) 0 Unskilled Low-skilled Category of Workers Since more than 90% of the employees at Ecogreen are highly skilled, the poverty impact is mostly indirect and induced Most of the poverty impacts from indirect employment-73% of indirect jobs are unskilled and low-skilled, paid above the minimum wages 21 Case Study 3 MRIYA (Agribusiness, Ukraine) • Mriya is an agricultural group producing a diversified crops including wheat, corn, rapeseed, buckwheat, potatoes and sugar beets. • IFC provided Mriya two loans in 2010 and 2011, totaling $60 million, to help Mriya expand its capacity and finance working capital needs. • Mriya’s production volume went from 1.8 million MT in 2009 to 3.4 million MT in 2011. • An estimated incremental capacity of 1.6 million MT is used as a basis of estimating the indirect employment effects of Mriya’s operations due to IFC engagement. 22 Case Study 3 Mriya Mriya’s Food Supply Chain  Between 2009-2011, the number of domestic suppliers increased from 22 to 59, of which 16 companies rely on Mriya for more than half of their revenue. 23 Case Study 3 Mriya Employment Effect Due to Expansion Mriya: Direct and Indirect  Mriya’s expansion helped create about Employment 7,400 indirect jobs between 2009-11. 8000 50 7000 450 Seasonal workers includes subsistence 6000 890 farmers involved in the agricultural production and other manual jobs at the 5000 Mriya’s operations. Suppliers 4000 Construction Seasonal 3000 6,000 Distribution The multiplier: 3 indirect jobs created 2000 for each direct jobs 1000 2,505 0 Direct Indirect Employment Employment 24 Case Study 3 Mriya Poverty Impact Due to Job Creation  High level of rural poverty in areas Mriya operates: Western Ukraine has the highest poverty rate, with 24% living below the poverty line ($1 a day). Average monthly income of $250-275 in Western Ukraine compared to $525 in Kiev.  Job creation in rural areas as a way out of poverty: Mriya provides job opportunities to about 3,500 subsistence farmers in the region, creating a source of income other than farming. Mriya pays 5-10% more than the regional averages. All the construction contractors are also unskilled (30%) and low skilled (70%)  Strong gender impact: Expansion of Mriya’s operation resulted in greater participation of women in its work force (21% of Mriya’s employees are female). Also 30% of seasonal workers are women, who are mostly subsistence farmers.  Provision of training: Mriya set up a training school to provide in house training on high skilled processes that allowed staff to move to higher paid positions. Specialists inspecting seeds at a new silo in Derenivka 25 Case Study 4 OCL India (Cement, India) • In 2007, IFC part financed capacity expansion of one cement plant & setting up of another greenfield clinker grinding facility in Orissa in the eastern region of India • Loan size of $50 mn (project cost $196 mn) for incremental capacity of 1.9 MT. • Greenfield plant became fully operational in 2008 • Job creation effects studied for the period between 2008 and 2011 to attribute to IFC’s support 26 Case Study 4: OCL India Supply/Distribution Chain Components Studied And Incremental Job Effects IN PLANT CONTRACTING SERVICES 1150 292 Inputs Processing Bagging Distribution 288 300 4628 TRANSPORTATION AND LOGISTICS 790 Direct Jobs Indirect Jobs 27 Case Study 4: OCL India Employment Effects due to OCL Expansion • Based on jobs created, multiplier of ~ 25 indirect jobs per direct job • For every US$ mn invested, 1.5 direct jobs and almost 40 indirect jobs created 28 Case Study 4: OCL India Potential impact on Poverty due to Job Creation • Poverty Rate: 2nd highest rural poverty rate among OCL expansion between FY08 and FY11 has created Indian states: 60% close to 5000 unskilled jobs paying around state minimum wages; and another ~ 2000 semi skilled • One of the highest unemployment rates of ~ 10% jobs 29 Case Study5 PRAN (Agribusiness, Bangladesh) IFC Engagement • IFC provided financing to PRAN in FY08 and FY11 of cumulative US$21 mn. Of this, about US$ 9 mn was to dairy operations • Total project cost of US$65 million to expand operations and support working capital requirements. • Incremental capacity of milk processing of 50,000 liters/day between 2008 and 2011 form the basis for analysis PRAN’s Dairy Business • Dairy operations began in 2004 in small scale; only UHT • In 2009, PRAN was one of the top 3 domestic producers of milk; UHT, pasteurized and milk powder, yoghurt, ghee (clarified butter) 30 Case Study5 PRAN Dairy Value Chain & Jobs Created Milk Collection Centers & Dairy Hub 1438 294 675 Dealers Dairy Farmers Agents None 85 Retailers Packaging Direct Jobs Indirect Jobs 31 Case Study5 PRAN Employment Effects due to Expansion • Based on jobs created, multiplier of ~ 7 indirect jobs per direct job • For every US$ mn invested, 5 direct jobs and almost 35 indirect jobs created 32 Case Study5 PRAN Poverty Reduction Effects of Operations  Jobs as a path out of poverty: Large share of job creation in rural areas (rural poverty rates ~ 35 percent)  Improving farmer productivity with increased incentive to switch to dairy farming: Extension services provide access to market, access to training, state of art technology and processes with spillover effects  Access to affordable products to the poor: Provision of UHT milk and smaller sized packets with greater reach to the poor  Provision of training: PRAN’s dairy academy, recruitment of international dairy experts and on the job training provides access to skills with potential cascading effects across value chain Photo: Hygiene & sanitation assistants at a MCC in PRAN; women who consider working at PRAN the only stable and dignified employment option in the village 33 Lessons and Implications  Looking at direct jobs only may miss the point. Evidence suggests large indirect job effects of clients. Systematic assessment of these through similar case analyses along with more in depth evaluations would be useful  Replication of similar cases could prove beneficial in identifying viable multipliers for sectors as a tool for future tracking of indirect jobs  Value chain encompasses large employment effects. Explore ways to work with clients on strengthening the supply chain linkages by removing access constraints, which will also positively influence job creation  Evidence of poverty impact in value chains. Identification of direct and indirect transmission links to poverty reduction important while considering impact of a project, specifically in the value chains  Cases could highlight the competitive advantage of both IFC and client. Explore a collaborative approach to these studies. 34 THANK YOU! RUCHIRA KUMAR,rkumar10@ifc.org HAYAT ABDO,habdo@ifc.org www.ifc.jobcreation 35