Financing in Cooperation with Development

D+C supplement/October 2012 Financing In cooperation with Development

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Productive

KfW employment

Minister Dirk Niebel: SANAD creates future Peacebuilding with “The best way to lift prospects for young jobs and infrastructure people out of poverty” people in the Arab world in the DR Congo prove the job markets in poor economies. Social peace “The first priority is to work towards rea- sonable labour conditions, creating a growth-friendly environment and pro- Access to decent jobs is vital for social stability and development. moting labour-intensive investments.” In addition, people have a better chance of getting a job if they are well educated and Since the beginning of the Arab Spring who work under gruelling, sometimes in- in good health. in Tunisia and the overthrow of Egypt’s humane conditions and still earn less autocratic President Hosni Mubarak, Afri- than two dollars a day to feed themselves What similarly matters, Heidebrecht can governments worry about unem- and their family. These “working poor” argues, is an efficient financial sector that ployed and underemployed youth. Over are the key issue for poor-country gov- supports the development of small and time, discontent among young people is a ernments, and accordingly for develop- medium-sized enterprises (SMEs). “Even recipe for political instability even in dem- ment cooperation too. in Germany, the SME sector is a key driv- ocratic systems. “People need real pros- er of job creation.” For private-sector in- pects, an acceptable standard of life and vestments to look attractive, a country social security,” says Joachim Heidebrecht, needs an adequate infrastructure, includ- head of KfW’s development research team. People need ing roads, telecommunications as well as real prospects. “They don’t want to slave away for 12 “ power and water supply. No dynamic hours a day or more as farm workers with- ” SME sector can develop without electric out rights or as rickshaw pullers, and still power and water, roads to the next towns be unable to make ends meet.” “A public bank such as KfW develop- or telephone lines. ment bank, which operates on behalf of Since the poor literally cannot afford Germany’s Federal Government, cannot While it is important to promote SMEs to be out of work, the problem in devel- create jobs abroad on a large scale,” Hei- and create a basic infrastructure for busi- oping countries is not so much formal debrecht points out. Jobs are generated ness, one must not forget that many econ- unemployment. The real challenge is an by the private sector. But what KfW can omies – especially in Africa – are still dom- estimated 900 million people worldwide do – Heidebrecht adds – is to help im- inated by the informal sector. As much as 80 % of the economically active population of a developing country work in informal settings – most out of sheer necessity. They toil as tailors, street vendors or car-wash- ers at road junctions to earn a few cents for the next meal.

Experts agree that the informal sector serves important functions. It cannot simply be banned or abolished. Efforts need to aim at harnessing the informal economy’s advantages – for instance by providing microcredit – as well as at reducing its downsides such as exploitative work conditions or unacceptable labour and social standards. Basically speaking, anything that improves the employment situation will also help to reduce poverty and ensure social peace. In other words, it will boost the chances of positive and sustainable development. Hans Dembowski // KfW Vocational training improves job opportunities. i http://www.kfw.de

2 D+C/Financing Development with private sector companies. More “The best way to lift than 100 million people have signed up, paying a small annual contribution in return for free access to inpatient and people out of poverty” outpatient treatment at hospitals. Some 50 % to 80 % of the economically active people in developing countries German development policy is geared to promoting growth and employ- work in the informal sector. They are ment in cooperation countries. The emphasis is on creating jobs and on denied fundamental rights. What can strengthening the rights of people working in the informal sector. The be done in their support? important thing, says Dirk Niebel, Germany's federal minister for eco Yes, the informal sector is very real in nomic cooperation and development, is to involve the private sector and the countries we cooperate with, and civil society. that will stay so for many years to come. In terms of employment, the informal Why does Germany’s federal govern- skills that are in market demand. Above sector matters very much as the ment consider it important to promote all, however, any lasting solution to this statistics show. So targeted action is employment in developing countries? problem depends on continuous and needed to improve the economic Our government’s new development sustainable economic growth – and the environment for small businesses and policy is very clear on one point: additional demand for labour such the people they employ. Other relevant sustainable development is impossible growth generates. We are resolutely policy levers are labour and social without economic development. For committed to this cause. standards defined in consultation with economic development to happen, the employers. In principle, such standards private sector and civil society must be apply to all forms of employment, but for involved. Secure employment is all practical purposes, they tend to demonstrably the best way to lift people benefit only employees in the formal from poverty. It generates more than 100 sector. Migrant workers, small farmers or just income; it also leads to self-esteem, million additional subcontractors and their staff usually social esteem and inclusion. Gainful health insured lose out. Whether agreed standards are employment benefits society as a whole in India effective crucially depends on whether too. Countries where people can earn a they can be monitored. But it is living wage tend to be more stable and extremely expensive and sometimes more peaceful. What is more, by According to the International Labour even impossible to monitor the labour specifically promoting female employ- Organisation, there are 200 million conditions of, say, homeworkers in ment, we can make an important people in the world with no work and India’s textile sector. Nonetheless, some contribution to gender equality. another 900 million with no kind of promising projects are underway. social safety net and an income of less Initiatives such as Social Accountability What is the best way to tackle the than two dollars a day. What should International (SAI) and the Ethical politically sensitive issue of youth be done? Trading Initiative (ETI), for example, unemployment? A large share of the people in developing have developed special programmes and In our cooperation countries in North countries cannot afford to be out of work training projects to help organise Africa, vocational schools and univer for long, so they look for jobs in the women homeworkers in stronger sities produce twice as many graduates informal sector. Their pay is very low, groups, make them aware of their rights as the economies generate jobs. The and they enjoy no social protection and inform them about governmental result is severe political volatility. Youth whatsoever. Some kind of basic safety insurance and loan programmes. I’ll unemployment can be reduced in the net should protect these people in the admit, however, that much more needs short term by some measures, including event of illness, infirmity, failed harvests the improvement of job placement et cetera. Accordingly, German develop- services, skills development programmes ment cooperation supports innovative and public employment programmes for insurance systems that focus particu- Dirk Niebel the low- and unskilled. In the long run, larly on people in poverty and in the is Germany’s federal however, the countries concerned need informal economy. One example is a minister for economic to reform their education systems. health insurance programme developed cooperation and development. Vocational education and training need in India with German support and

to be better geared to delivering the implemented in 2008 in conjunction BMZ

D+C/Financing Development 3 KfW Women’s employment serves gender equality. to be done to tackle the underlying action in this area? problems. Sustainable development The impact of infrastructure projects is “cannot be achieved without particularly sustainable when local What do you say about “jobless economic development. suppliers and workers are involved. If growth” – the phenomenon of eco projects additionally foster skills that are nomic growth that bypasses broad ” in market demand, they will have an sections of the people? it has proven effective to promote even greater impact because they will More jobs and less poverty can only medium-sized, small and micro-enter- boost the future employment opportu result from growing economies. At the prises and to boost the employability nities of those who initially constitute same time, the impacts of growth on the and employment opportunities of poorer a largely low-skilled workforce. In Algeria labour market may differ depending on people – especially women. In a growing alone, renewable energy and energy- the business environment and the economy, such a policy can facilitate lots efficient construction projects could dynamism of an economy. So efforts of productive new jobs for the poorer generate a million jobs by 2025. Our aim need to be geared to improving the sections of the population. is to tap that potential in cooperation business climate in general. At the same with the private sector. // time, they must promote those sectors Building infrastructure is normally and areas that have the greatest labour-intensive and serves a better Germany’s Federal Ministry potential for sustainably reducing business environment by improving for Economic Cooperation poverty and generating long-term production and marketing conditions. and Development gainful employment. In many instances, Where do you see the greatest need for i http://www.bmz.de

4 D+C/Financing Development More jobs for North Africa and the Middle East

The SANAD Fund supports micro, small and medium-sized enterprises, thus creating economic prospects.

The protests started in Tunisia. At “We aim to get as many young people the end of 2010, a growing number of into jobs as possible across North Africa people in the country were demon- and the Arab world,” says Matthias Zil- strating against high food prices and bauer of KfW. He points out that 20 to unemployment. Well trained and high- 35-year-olds make up around a third of ly educated young people took to the the population of Arab countries – and streets because they saw no opportuni- unemployment in their age group is high. ties for themselves. The Arab spring In Tunisia, Egypt and Yemen, one in three followed, leading to the overthrow of young people is out of work. Many others regimes in Tunisia, Egypt and later Lib- are underemployed and poorly paid. For ya and Yemen. But in many countries the future outlook of Arab youth, it is the road to democracy is still full of ob - vitally important to increase the number stacles. Autocratic Syria is currently of decent jobs. suffering from escalating violence.

In North Africa and the Middle East, KfW The SANAD Fund was initiated by micro, small and medium-sized enter SANAD supports jobs in the fast food KfW in August 2011 with money from prises (MSMEs) play a very important business and other industries. Germany’s Federal Ministry for Eco role. They account for 60 % to 70 % of economic Cooperation and Development nomic output and are the backbone of issue loans to MSMEs and business start- (BMZ) and the European Commission. local labour markets. Currently, however, ups – and thus make an important contri- Its mission is to support reforms and many MSMEs struggle to get loans. bution to employment promotion. SANAD help provide people with economic money allows greengrocers to buy new prospects and jobs. SANAD is Arabic for This is where the SANAD Fund comes sets of scales, dressmakers to buy sewing “assistance”. in. It refinances local partner banks, if they machines and owners of a car repair shop to hire an additional mechanic. As economic activity picks up, yet more jobs are created.

SANAD started with € 42 million from i Asparagus farming creates jobs the BMZ and another € 10 million from the European Union. In the long term, SANAD In Peru, the labour-intensive horticulture sector gives many unskilled workers jobs plans to raise funds from private investors and incomes. Vegetable exporter DanPer Trujillo provides employment to some too. 10,000 people. The company not only exports vegetables; it also grows its own asparagus and artichokes. DEG – Deutsche Investitions- und Entwicklungsgesell SANAD concluded the first loan agree- schaft – has provided DanPer with a long-term loan of $10 million to upscale its ment, for $ 5 million, with a Lebanese own farming operation. The exporter pays above-average wages and supports local bank early this year. A second agreement community projects, for instance by helping to refurbish schools, improving drink- worth $ 3 million was recently signed with ing water supply and upgrading waste disposal systems. DEG belongs to KfW bank- a microfinance institution in Jordan. ing group and supports private sector investments in developing countries. Around 2,000 micro-enterprises could benefit, and they will create jobs across http://www.deginvest.de their region. (loi) //

D+C/Financing Development 5 Conserving nature, creating jobs

KAZA in southern Africa: ecotourism contributes to fighting poverty. lodges are required to recruit at least 50 % of their staff locally. “Every seven to eight tourists create a job, which can feed up to 15 people,” Kadel calcu- goes according to plan, lates. All summed up, KAZA is expected new transnational habi- to provide employment for thousands tats will soon be created of people. allowing elephants, ze- bras, rhinoceroses and Subnational authorities will also other wildlife populations benefit because they will get a share of to resume age-old migra- profits the lodges in their area make. It tion patterns.

KfW development bank supports KAZA on behalf of Every seven to eight tourists create one job. Germany’s Federal Govern- “ ment to the tune of € 20 ” million. The purpose is not only to conserve nature but will be up to them to decide whether they also to reduce poverty and invest the money in new wells, schools or create jobs. “Human pres- health centres. ence used to be seen as a problem for nature conser Chris Weaver of the WWF, an interna- vation,” says Ralph Kadel of tional environmental NGO, developed

KfW KfW, “but that does the concept of “conservancies” for Na- Ranger Kennedy Tutalife finally has a permanent job. not help.” In his view, it mibia. He has witnessed local attitudes is much better “to give change. “Today, people perceive wildlife Kennedy Tutalife goes to work in a local communities a stake in wildlife protection as a livelihood bonus,” he re- green shirt with shoulder flaps and parks”. They should make some money and ports. And KfW project manager Kadel is matching trousers. When he is on pa- also be granted sustainable land-use pleased to note that government officials trol, he carries a rifle. He is a ranger in rights. from Botswana and Zambia are eager to a national park in Namibia. “The re learn more about the Namibian experi- gular salary has transformed my life,” A guiding idea of KAZA is that ence. “Word of success spreads fast,” he he says. Tutalife works in what is called tourists will be attracted to where wild- says. The conservancy concept is attrac- a “conservancy”, an area where nature life is free to roam. The conservation tive because it ideally combines two im- and wildlife are protected – and where area needs operators, drivers, tourist portant goals: it preserves biodiversity the local community benefits from guides and rangers – so it creates job and reduces poverty by creating lots of ecotourism. opportunities for local people. Tourist new jobs. (loi) //

In the meantime, five countries have embraced that approach: Angola, Bot- swana, Namibia, Zambia and Zimbabwe. Their borders are straddled by what is po- i “Green jobs” tentially the largest transfrontier conservation area on Earth. The name KAZA “Green jobs” help to protect the environment and mitigate the effects of climate comes from the Kavango and Zambezi change. Any job in an eco- and climate-friendly industry can qualify for the “green” rivers that flow through the protected or “eco” label, and so can jobs that contribute to the transformation to a sustainable zone. It has the size of Sweden. The heads economy. In the energy sector, green jobs are increasingly replacing jobs in fossil of state signed the KAZA treaty in August technologies. In other sectors, totally new jobs are being created – such as climate 2011, and the conservation area was change experts or tourist guides in sustainably managed national parks. (loi) officially launched in March 2012. If all

6 D+C/Financing Development No peace without jobs

Infrastructure reconstruction is creating new opportunities in centres. “Teachers and medical profes- the Democratic Republic of the Congo. sionals will be needed there,” Wyrsch points out. The fund has also ear- marked money for the construction of The road runs from economically ing creates short-term employment and 1,000 homes for returning refugees, advanced Africa to a crisis region: the helps refugees and ex-combatants to 13 water supply systems, 16 reservoirs highway from Rwanda’s capital Kigali re-integrate into society,” Wyrsch notes. and 100 kilometres of water pipes. to the Democratic Republic of the Con- Construction work can stop young men go (DRC) ends abruptly at the border. from re-joining marauding gangs for Thanks to the fund, the crisis areas “Many roads in Congo are still de- sheer lack of alternatives. It is estimated now have 116 rehabilitated bridges, stroyed or marked by potholes. Behind that the fund has helped generate functioning markets and more than the border, you cannot travel fast,” says around 2.4 million person-days of em- 1,500 hectares of land restored for agri- Philipp Wyrsch of KfW. After the mass ployment. That is equivalent to around cultural use. “We are creating gainful murder of minority Tutsis in 1994, 20,000 short-term jobs for four months. employment which helps people escape Rwanda is now considered an example the war economy,” Wyrsch explains. of political stability, whereas the eastern provinces of the neighbouring DRC To speed up progress and assistance continue to be plagued by unrest. There to the people, KfW is cooperating with is intermittent violence between rebel 1,500 non-governmental organisations. “In the groups, criminal gangs and the army. hectares of rehabilitated long run, however, government struc- farmland tures need to be strengthened”, the KfW The DRC is devastated, and there are project manager points out, “especially hardly any operational government in eastern Congo.” Trust in society can structures. The jungle is reclaiming farm- In the long run, better infrastructure only grow again once basic services like land, and there are not enough schools will stimulate the local economy, facili- school education and healthcare are and health centres. The only links be- tating inter-urban trade and promoting restored by the government. And trust tween towns tend to be muddy, pock growth and employment. Money from is essential for a healthy investment marked tracks. After years of civil war, the the peace fund will contribute to building climate in which more employment will DRC is a fragile state in need of support. 68 schools, five hospitals and 52 health be generated. (loi) // “The people long for peace and some sense of a better future,” says Wyrsch.

KfW development bank has contrib- uted € 50 million to a peace fund on behalf of Germany’s Federal Ministry for Economic Cooperation and Devel- opment (BMZ). This fund supports the rebuilding of social institutions, the reconstruction of economically relevant infrastructure and the rehabilitation of abandoned farmland, thus helping to stabilise three regions in the east of the country as well as the area around Kin- shasa, the capital. All its efforts boost employment.

So far, some 460 kilometres of roads have been restored for traffic in the three eastern provinces of North Kivu,

South Kivu and Maniema. Another Martina Ibata 400 kilometres will follow. “Roadbuild- Construction site in the eastern DRC.

D+C/Financing Development 7 Profile of Dhiraj Dolwani

Jobs for young people in rural India: a social entrepreneur is creating employment in a remote region.

As an entrepreneur, Dhiraj Dolwani ble villages, most people scrape a living is not merely interested in profit. He from farming and from the scant tourism wants to contribute to more social jus- their state attracts. “We have added other tice and employment. He deliberately vocational prospects, so our employees started his business, the digitised ser- do not have to choose between earning vices company B2R, in the north Indian money and staying with their family,” state of Uttarakhand, so it would create Dolwani reasons. jobs for young people and help stem rural exodus. “Business interests and so- B2R started out with just 19 em- cial goals can be reconciled,” the ployees and a single regular client. To- 42-year-old social entrepreneur says. day, it is working for 15 regular clients This is the spirit in which he and his and has hired nearly 250 men and partner Venkatesh Iyer started the com- women. All staff members at the company in 2009. pany’s five locations come from local villages. B2R does work on assignment from other firms. For instance, it maintains A whole region is benefiting from databases, performs bank transactions the entrepreneurial spirit of Dolwani and carries out administrative tasks. The and Iyer. Dolwani reckons that each em- company also produces e-books for ma- ployee’s wage feeds four people on aver- jor publishing houses. Most outsourcing age. He also estimates that the house- companies of its kind are located in big holds concerned have two to three cities like New Delhi or Mumbai, but they times more money than before B2R was usually recruit staff in rural areas. One started. Additional incomes boost the social consequence is that young people sales of local food stores, teashops and leave the provinces only to feel lost in an other retail businesses. Moreover, B2R

urban agglomeration. pays a third of its profits in taxes to local B2R municipalities. “This is our modest con- Dhiraj Dolwani (right) with his business B2R’s philosophy demonstrates a tribution to nation-building,” Dolwani partner Venkatesh Iyer. convincing alternative: “We bring work says. to the people.” Dolwani and Iyer decided plan anticipates expansion to 60 or against a metropolitan location for their The entrepreneur is grateful to the 70 locations in coming years and em- business; they want rural India to benefit KfW sponsored Aavishkaar Fund, which ploying up to 6,000 people. The bulk of from their industry’s boom. Continuous invested in his company. ”Without it, operations, however, will stay at the contact to their customers is guaranteed we would not have been able to grow foot of the Himalayas in Uttarakhand. via the internet. In hilly Uttarakhand, so fast,” he points out. And he sees Dolwani says that he is committed to with its small and sometimes inaccessi- further scope for growth. His business that goal. Stephan Loichinger //

Imprint Graphic design and typesetting: Nina Fischer Responsible: Michael Seyler, KfW Bankengruppe Publisher and printer: Frankfurter Societäts-Medien Editing: Dr. Hans Dembowski, Michael Ruffert P.O. Box, D-60268 Frankfurt, Germany Author: Stephan Loichinger This supplement is printed on PEFC-certified paper.