Job Creation: Developing Countries

Fiona Bruce Excerpts

Tuesday 24th June 2014 Westminster Hall

[Jeremy Lefroy (Stafford) (Con)]

Thank you, Mr Hollobone. It is an honour to serve under your chairmanship. I would like to draw attention to my various entries in the Register of Members’ Financial Interests. The debate is about supporting job creation in developing countries and much of my working life has been spent in that area, so it is inevitable that I have some interests to declare.

Last week, the Select Committee on International Development visited Sierra Leone and Liberia. In both countries, we had the honour of meeting the President. Both, without prompting, listed unemployment, particularly among young people, as something they needed to tackle, and tackle quickly. They see the need particularly clearly because of their recent experience of terrible civil wars that were fuelled by the resentment of people who had no real income, felt divorced from any development taking place in the country and saw an elite disconnected from the needs of the population. As a result, they are both determined to do whatever they can to avoid that situation arising again. As the UN says in another context: create more jobs or risk unrest.

[Fiona Bruce (Congleton) (Con)]

I commend my hon. Friend and colleague on the International Development Committee for his dedication to this subject and for bringing forward this debate. Does he agree that in Rwanda we now see a genuine example of job creation, growth and stability, which has come out of a very traumatic period for that country, proving that that can indeed happen?

[Jeremy Lefroy]

I am most grateful to my hon. Friend for that intervention. She is absolutely right. Of course, in Rwanda people would say that they have much further to go. They want to concentrate on developing the skills of their population, and in particular young people. They are looking at, for instance, the IT sector, because Rwanda is a landlocked country without large natural resources, apart from its own people and the beauty of its landscape. As I said, my hon. Friend is absolutely right.

High levels of unemployment or underemployment, especially among young people, are a problem in most countries in the world. When we ourselves have a youth unemployment rate approaching 20%, we recognise that this is a shared problem and there may well be—in fact, there should be—shared solutions. It is estimated that 1 billion additional jobs will be needed in the next decade for those who are currently out of work and those who will be coming into work over that time. Throughout my remarks, I shall use the word “job” to include self-employment and work in the informal sector, particularly in agriculture.

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[Jeremy Lefroy]

My hon. Friend and the hon. Member for Upper Bann (David Simpson) have obviously read my notes in advance—either that or they are most prophetic—because I will come on to that subject in a moment.

Jobs, in the widest possible sense, will need to bring in more than merely an income on which people can barely survive. The World Bank has set two goals for 2030: to eliminate absolute poverty, which is vital, and to promote inclusive growth by concentrating on the lowest-income 40% in each country. I commend the World Bank president, Dr Jim Yong Kim, on his relentless focus on that. He sees that we must not only eliminate absolute poverty, vital though that is, but raise the living standards of everybody, particularly those at the lowest end of the income scale.

[Fiona Bruce]

My hon. Friend is being generous in giving way so much. Does he agree that one way to raise the living standards of the poorest is to ensure that women in some of the poorest communities in Africa have the opportunity to develop businesses and access finance, even if only small amounts of finance? All the evidence shows that when women are given such an opportunity, the benefits of their businesses are returned to their local communities and are exponential.

[Jeremy Lefroy]

My hon. Friend is absolutely right, and I will say a little more about that. It is vital that those benefits are spread throughout the community. Let us not forget that since the International Development (Gender Equality) Bill, which was introduced by my hon. Friend the Member for Stone (Sir William Cash), received Royal Assent a couple of months ago, Britain’s international development work must now show equality towards men and women, boys and girls.

Work at subsistence level may take someone out of destitution, but it will not bring inclusive growth. That is not to say that subsistence work is pointless, but we must aim higher. As the head of the International Monetary Fund, Madame Christine Lagarde, has said, in far too many countries the benefits of growth are being enjoyed by far too few people. There are ways in which we can help to counteract that, and the Department for International Development does so. One way is to promote fair trade, which began in agriculture but has spread through a number of industries, most recently the garment industry. DFID has done some excellent work in Bangladesh on labour standards among garment workers, together with the British companies that those companies supply. As my hon. Friend the Member for Congleton (Fiona Bruce) has said, it is vital that such work extends throughout the community, particularly to women. As she rightly says, they will probably reinvest the most back into their communities, because they see that as the best safeguard for their children and families.

Let me set out briefly how I believe we can support developing countries to create the jobs that they and we need—our economies are increasingly interrelated. The UK continues to run a large trade deficit, and one of our best hopes for dealing with that lies in trading with developing countries as they grow. I will start by setting out something that I take for granted: a stable and secure state and an economy that is relatively open to the private sector are essential, given that 90% of jobs in the developing world are created in the private sector. Work to improve security and economic governance helps to develop an environment in which jobs can be created. DFID is doing a tremendous amount of work in that area, and I commend it on that. However, I will not dwell on that, because it is the subject of another debate.

A large number of the 1 billion jobs that are needed will, at least initially, be in the informal and agricultural sectors. In 2018, 63% of jobs in developing countries are forecast to be in agriculture still, which will represent a fall of only 8% since 2000. Industry will account for 10% and services for 27%. That is why I believe that one of the most important ways of supporting job creation in developing countries is to teach business skills at school. If most students will be earning their living in some form of self-employment, whether in agriculture or informal sector services, it makes sense to give them the right tools.

Last week in Liberia I met graduates and teachers of the Be the Change academy from Paynesville. Along with David Woollcombe, one of the founders of the organisation, I met Zuo Taylor, who runs the academy’s operation in Liberia, and some young British volunteers who were there as mentors and supporters on the programme, which was exclusively for young business women. I met two young women who had just finished the course, Manjee Williams and Mattee Freeman, who both had businesses already, one as a hairdresser and the other as a caterer. Both said not only that the training and support they had received would help them to organise and run their businesses in a more professional way, but that it had enabled them to consider giving work to others. The caterer already employed several other people—six, I believe—and planned to employ many more.

I believe it is vital to teach self-employment skills not only in schools in the developing world, but right here in the UK. That is done, and it is often done well, but it is supplementary to the curriculum rather than an integral part of it.

[Fiona Bruce]

My hon. Friend and I have experience of teaching business skills, in Rwanda and Burundi. Does he agree that there is an enormous hunger on the part of those who are in business or starting up a business in Africa to learn such skills? Does he also agree that there is a real opportunity, which we need to highlight, for those who have been in business in this country to help to mentor and support growing businesses in Africa, whether by travelling there or by using electronic communication? We must focus on that and encourage it much more.

[Jeremy Lefroy]

My hon. Friend is absolutely right, and it has been a great privilege and pleasure to share that work with her over the past few years. I reiterate that I believe such work to be essential for the UK as well. It is not simply a matter for developing countries. As I have said, we must learn from some of the work going on elsewhere in the world, and I believe we must integrate that sort of business education into our schools. We are not talking about sophisticated business education; we are talking about basic skills that are relevant to the self-employed or those in the informal sector. Many of our young people who are at school will end up being self-employed or working in the informal sector; that is true more than ever in the modern economy. We need to give them those skills, not just through excellent programmes such as Young Enterprise—I am proud to support that programme in my constituency, and I have no doubt that several colleagues do likewise—but as a core part of our curriculum.

One might argue that such training has little relevance to someone involved in small-scale agriculture, but I absolutely disagree. I have seen many examples of how farmers who have just a small amount of land can, using business acumen, create vibrant businesses that are based on agriculture, but go beyond it into activities such as food processing, retail and feed manufacture.

[Jeremy Lefroy]

I absolutely agree with my hon. Friend. Such events are vital. The more connection we have with markets in the developing world, the more we can trade and invest—both ways, these days—and the closer our relationship, the better. That is why I welcome DFID’s focus on livelihoods and on bringing in British business. My right hon. Friend the Secretary of State took British businesses to Tanzania to help with development work in that country through enterprise. That is absolutely vital.

My hon. Friend the Member for Reading West (Alok Sharma) has already mentioned finance. Once someone wishes to start a business, or take a business on to the next stage, they soon find that the next obstacle is finance. Banks provide very little credit to businesses other than those that are well established and fairly large. One might think that that is a familiar refrain even in this country, but what is true of this country is far truer of developing countries, where it is almost impossible for anyone other than a fairly well established, medium to large-sized business to obtain much credit from banks. There are various reasons for that. Bank overheads are high, which means that minimum loans are often far greater than the loan required by a business because the banks need to generate enough income from the loan to sustain their overheads. Bank salaries in some developing countries are not far short of bank salaries in this country, certainly at branch level.

In my experience, banks are also reluctant to lend without substantial security, which is often worth far more than the value of the loan—perhaps 200% of its value. Indeed, central bank rules in some countries may make that compulsory, so any business that does not have a lot of additional security to offer against a particular loan is almost shut out of the market.

Additionally, in countries where the Government run a substantial deficit and dominate bank borrowing, it is often safest and simplest for banks to buy Government bonds. As we learned last week, until recently that was the case in Sierra Leone, where Government bonds were offering something like 30%, well above the rate of depreciation, so it was easiest and simplest for the banks to sit back, buy Government bonds and watch the money come in. There was no need to take the risk of lending to small or even medium-sized businesses.

Of course, there are many good initiatives that assist the provision of finance to businesses in developing countries, although at the moment those initiatives provide just a fraction of what is necessary. Microfinance has been around for some time; although people tend to think of it as more about lending for consumption, microfinance has increasingly been involved in lending to micro and small enterprises—MSEs—as well as for personal consumption, which I am glad to see. This morning I was speaking to the chief executive of a microfinance bank based in Botswana that has operations all over sub-Saharan Africa and is now entering the MSE market.

[Fiona Bruce]

My hon. Friend may remember that we visited the Women’s Initiative for Self Empowerment, the establishment for microfinance in Bujumbura. The initiative informed us that, because of the personal relationship between the women who borrow small amounts of money and the administrators of the lending, the default rate is very low. Should that not encourage us to look further at such microfinance organisations, and perhaps to encourage them through DFID?

[Jeremy Lefroy]

My hon. Friend is absolutely right. The default rate is often lower in such organisations, which rely on a substantial element of trust, as well as on prudent lending and investigation of borrowers. We have seen that default rates of less than 5%, considerably lower than some banks take, are common. Default rates are sometimes as low as 2% in such organisations.

There is also internet-based lending, which is increasing substantially. We see that in this country with peer-to-peer lending, but there are also organisations such as Kiva and Lend with Care, which is run by the charity CARE International. Such lenders typically provide very small loans in which donors from across the world can invest as little as £20 or £30 in loans to MSEs. Such is the power of technology these days that they are able to run such schemes without extremely large overheads.

Furthermore, there are initiatives such as DFID’s programme in Pakistan in which local banks, as we saw, were given a guarantee by DFID so that they could lend to businesses. That means that DFID does not have to do the lending itself, but, as the risk is taken out of the lending, a local bank is able to lend to businesses to which it would not otherwise have lent.

In this case, I believe the guarantee of some £10 million, if I remember rightly, was not drawn on at all, which shows it was an excellent example of lending at no cost to the British taxpayer, with the British taxpayer giving a guarantee. Banks will still carry out the same degree of due diligence, but the guarantee gives them a bit of extra confidence to go and lend to businesses to which they would not otherwise have lent. The key in all those areas is to find cost-effective ways of reducing risk so that financial institutions are prepared to lend, or investors are prepared to commit equity, to a project.

I will mention one particular fund because I have personal experience of being an investor in a company that took advantage of it some years ago. The Africa Enterprise Challenge Fund was set up under the previous Government, with substantial funding from DFID—I believe that DFID currently funds more than 50% of the entire fund. The fund focuses on investments of which the primary beneficiaries are people earning less than $2 a day. Those people may be suppliers to a business or consumers who now have access to a reliable source of seeds or fertiliser, for instance. The fund matches the entrepreneur’s investment up to a certain amount. In Sierra Leone, we visited a chicken farm that is expanding production through support from the AECF. One of the new investments was a modern feed mill that will not only improve the quality of feed, and hence chickens, which have hitherto been imported, but provide a regular customer for many small farmers from whom maize and other crops are purchased.

The AECF effectively acts as a catalyst, and its various funds now total more than $200 million. I have said in the past in the House that I believe that the AECF should provide less in the form of outright grants and more as returnable capital, loans or equity, which can be reused to help other businesses. I am glad to see in the latest figures that just over half the funds advanced by the AECF have been loans, and I encourage it further to increase that proportion because the more it does, the more that can be recycled in to other businesses. If a business is successful, it is right that those who have helped it—in this case, the British taxpayer and taxpayers from other countries that contribute to the fund—should share in that success.

I now come to the point well made by the hon. Member for Upper Bann. Without adequate infrastructure, it is almost impossible for businesses to grow and reach their potential. I recall visiting a road project in the Democratic Republic of Congo near Bukavu with the International Development Committee. The project was substantially funded by DFID, and the road was connecting Bukavu with a town several hundred kilometres away that had been cut off from the rest of the world for some 20 years. That town is not small, and people travelled from there to Bukavu, one of the major population centres of the Democratic Republic of Congo, with great difficulty.

We travelled on the first 60 km to be completed, and people told us that it now takes just two hours for people, generally women, to bring their produce to market in Bukavu, whereas previously it had been a five-day walk carrying produce, in which time a lot of the produce probably would have gone off and become unsalable. The road project is a clear example of rural infrastructure that directly benefits farmers and the rural poor and creates jobs in the widest possible sense. There are many other examples, but that is the clearest example I have seen in which so much difference has been made in such a short space of time.

We heard that Sierra Leone and Liberia have some of the highest electricity prices in the world. That is extraordinary in countries where income is so low. Capacity is another issue. There are many countries in which the entire generating capacity is a fraction of the 900 MW output of Rugeley power station in my county of Staffordshire. As far as I know, Rwanda has less than 500 MW of output, and we were told that Sierra Leone has less than 100 MW of output, although it is currently building more capacity. Those substantial countries have electricity supplies on which a medium-sized town in the UK would not be able to survive. Without electricity, business clearly cannot flourish, and jobs cannot be created. Of course people can buy generators, but as anyone who has ever run a generator will know, the cost is prohibitive and adds enormously to the cost of doing business.

One final infrastructure issue is ports, which are a hindrance in many countries instead of an asset. We can see how, for countries that have invested in ports and run excellent ones, they become an entire competitive advantage in themselves; I think of Singapore, which has become a hub of trade in the far east and globally. Almost anything going in that direction transits through Singapore. I think of one or two ports in the middle east that have been developed into enormous entrepôts. Earlier still, the classic example in Europe is Rotterdam, through which effectively everything transited. We lost a lot of trade to Rotterdam because we were not fast enough in developing our own ports here in the UK, although that has been reversed to some extent since.

There are a number of problems with ports, not least corruption. I have personally experienced the problems with theft and corruption in ports, but it is clear that many ports are simply too small: they need more quays and they need dredging. The difference that better ports can make to job creation and business is enormous, particularly for landlocked countries. Many countries in sub-Saharan Africa are landlocked. In order to give them access to markets, the countries that house ports have a business opportunity, but also a responsibility, to make those ports as efficient as possible. It is estimated that sub-Saharan Africa needs a minimum of $100 billion a year for its infrastructure, and that the whole of Asia needs perhaps $1 trillion. Given that total overseas development assistance is less than $150 billion a year, it is clear that such investment can be done only through Government and private financing.

That is where initiatives such as the Private Infrastructure Development Group come in. Today I checked the results of that initiative, which was set up by the previous Government and continues under this one. The 2012 report stated that 39 projects were operational at the time, employing about 200,000 men and women in their construction and operation and providing services to 97.6 million people. Every $1 contributed by members through the PIDG facility—I am proud to say that the UK is by far the biggest donor—mobilises $39 in finance from other sources for projects. That is a tremendously effective use of money. Even if we take some of the figures with a little scepticism, as I always do, we would have to be extremely sceptical not to acknowledge that that is good value for taxpayers’ money in terms of the return created and the jobs generated.

I will come to the end of my remarks fairly shortly, but I will touch on a few areas that I believe are extremely important to supporting job creation in developing countries. The first is agriculture. We have already heard how many people are employed in agriculture in developing countries, but what must we do to make it work for them so that it is much more than just a subsistence livelihood? We need to help them invest in productivity. I have spoken about productivity before, as have others in other debates, so I will not go into it in great detail, but the issue is about processing, both on-farm—much is lost through poor processing—and post-farm, when raw food is made into finished products that can be sold. Post-farm processing creates a tremendous number of jobs. When we were in Afghanistan, we noted that many raw products from Afghanistan were going to Pakistan for processing and then coming back to Afghanistan in processed form, so we encouraged Afghanistan to invest in its food processing facilities.

Marketing is also important, as are land rights, which come up time and again. Land rights are essential to developing an economy. We have mentioned on a number of occasions the excellent DFID programme in Rwanda in which some 10 million plots of land were given titles, meaning that people have security over their land and can invest in it. They are therefore able not only to borrow against it but to gain additional productivity from it.

Green jobs are also relevant, and not only to the UK and developed countries; they are important in developing countries, because they link sustainability and growth. I was pleased to see that one of the more recent infrastructure projects funded through PIDG was a solar farm in Rwanda. Sometimes one wonders whether solar farms built in the UK are of much use, although I am glad to say that, over the weekend, I was able to have a couple of baths from the hot water solar panel on the roof of my house, even in Staffordshire. However, in countries such as Rwanda that have the benefit of the sun, it is great to see projects such as solar farms being developed to provide low-cost electricity for tens of thousands of homes.

Another way of encouraging job creation that might seem slightly difficult, particularly to those of us on this side of the House, is tax creation. You might share with me, Mr Hollobone, a scepticism about whether collecting taxes can create jobs, but I believe that it does, as long as it is done fairly and rationally. There are a number of reasons why. First, it creates a level playing field. Many countries that I have seen have an arbitrary way of collecting taxes. For various reasons that I will not discuss, some businesses are let off paying the whole amount and others are penalised, perhaps because they are more honest. A proper tax collection system should be neutral. It should enable everybody to flourish in the right way, paying what one would hope is a fairly low rate of tax while contributing to the benefit of everybody.

Secondly, taxes fund security and good governance. As we said at the beginning of this debate, without good governance and good security, business cannot be conducted. Finally, taxes fund public services. To refer again to the remarks made at the beginning, education is absolutely critical to the success of business, as is a health system in which people are looked after so they do not get sick with malaria every other week and go missing from work or, if they are self-employed, end up destitute because they simply cannot get out into the fields.

I have not attempted to do more than provide a brief overview of what I see as the most important areas in which job creation in developing countries can be supported. I have spent most of my working life trying to support it; I remember that when I first went to Tanzania, the business that employed me had about 20 employees. My ambition was that it should have 100 employees after four years, and we succeeded. We had some ups and downs afterwards, but by and large, that was my biggest source of satisfaction: not necessarily the bottom line, but the fact that more and more people—hundreds and hundreds—could get a livelihood from the kind of work in which we were involved.

The stakes could not be higher. If we solve this, we will solve so much else in terms of peace, security, development, the elimination of poverty, and shared prosperity for both developing countries and, as I have said, for ourselves. It is not beyond us, with committed and visionary leadership.