Job Creation: Developing Countries

Philip Hollobone Excerpts

Tuesday 24th June 2014 Westminster Hall

[Mr Philip Hollobone (in the Chair)]

Before we start, let me make it clear to all those assembled here that I am not late; I am the emergency replacement in the Chair. It is an honour to be here this afternoon for the debate in the name of Mr Jeremy Lefroy.

[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.

--- Later in debate ---

[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.

[Mr Philip Hollobone (in the Chair)]

If the House was not aware previously of how much the hon. Gentleman knows about international aid, it will certainly be now.

--- Later in debate ---

[Lynne Featherstone]

That is absolutely the case. There are some benign circles that we need to get going in, for example, higher education in developing countries, because skills in health and education need to be supplied locally. We need to up the quality of teaching and professionals in the health service. Indeed, that is how we are moving forward, and I believe I will be giving evidence to the IDC on health system strengthening. The need is great, because the numbers are enormous and those jobs must be filled by training individuals within countries and not “borrowing” them, as has happened in the past.

As for monitoring and evaluating DFID’s work, we are scaling up efforts to monitor and evaluate the impact of our work on economic development. Some areas of this agenda, such as job creation, investment and trade, are quite complex to measure. The International Finance Corporation’s “Let’s Work” initiative, which DFID, CDC and the Private Infrastructure Development Group engage with, is working to develop an agreed approach to estimating the impact of private sector infrastructure interventions on job creation. DFID funded the IFC’s study in 2013 of the private sector and jobs, and a whole chapter is devoted to the difficult issue of measuring net additional job creation. Measuring it exactly is one of the challenges, but it is our ambition both to measure it and to ensure that the jobs being created are additional and would not have been created in any case.

Under the economic development scale-up, we are looking to increase the relevance of education and skills for the changing job market, as I have said. That goes for foundational skills and technical skills, so that skills taught in school and technical training institutes have to be right and join up what is needed for industry in the country with the skills that are available. New interventions for marginalised groups in rural and urban areas provide combinations of interventions, such as entrepreneurship skills and finance and innovative business models—we are trying to create another benign circle. I have visited some of the larger pilot entrepreneur skills awareness training projects, where an inspirational speaker talks to 700 or 800 young people at a time, who all seem absolutely fired up and up for going out and becoming entrepreneurs in their own right. It is very exciting work.

My hon. Friend the Member for Stafford mentioned power. The Public-Private Infrastructure Advisory Facility is delivering technical assistance to unlock private investment in developing countries and the EU is investing in the EU-Africa Infrastructure Trust Fund.

As for ports, in Mombasa in Kenya we are helping to tackle problems with port management to improve trade and regional integration. Most importantly, of course, as Mozambique’s ports develop, the corridors that will open up to neighbouring landlocked countries will be incredibly valuable, both to those countries and the ports themselves.

As for work, I hear what the hon. Member for Wirral South, my opposite number, was saying. I can assure her that I go to the International Labour Organisation every three months and I work closely with the unions. They have raised the issue of our stopping their funding many times with me. However, as I have explained, we work in different ways. We are working with them on a project on trafficking in Asia and we have given £4.8 million to an ILO programme to improve working conditions in the readymade garment sector in Bangladesh. That was launched in October to help to conduct safety inspections of the 1,500 factories that are not covered by existing initiatives and to help the victims of the disaster.

In a similar field, the trade and global value chains initiative encourages buyers, factories and workers to work together to improve productivity and working conditions. Our overarching message and narrative on working conditions—in all businesses and in all ways, and with Governments—is that they should be good and professional. It is no good a Department such as DFID not caring about standards; we care very much about standards and responsible business. We encourage companies to respect voluntary global standards, which improve labour standards and reduce harmful working practices. We provide funding and support that strengthens mechanisms that ensure that companies comply with their commitments on labour standards and working practices, such as the ethical trading initiative. We have also funded and supported the extension to the global fair trade system and are building evidence about its impact on wages and working conditions.

As for ensuring that poor people are not being excluded from any newly developed markets, which obviously is important, we support inclusive growth, benefiting women and girls in particular. That is an essential pillar of DFID’s economic development strategic framework. Although occasionally one sees “economic development” written in a report, it is always meant to read “inclusive economic development”. There is no point developing a country if the process is not inclusive, because if it leaves people behind, it will simply repeat the worst mistakes that have been made in other parts of the world. I am pleased that the overarching principle of the high-level panel report on the post-2015 agenda is exactly that. “Leave no one behind” is the most important message.

In conclusion, I thank my hon. Friend the Member for Stafford, who covered the issues and subjects in better detail, perhaps, even than myself. I think all hon. Members would say that we are all committed to the creation of useful employment and work and the improvement of subsistence work and agriculture. That is important, right across the developing world, because if we do not do it right, we will be guilty of leaving many people behind. Ultimately, it is in our own interests—in the country’s and everyone’s interests—that we get this right and support the developing world in the creation of the right sort of jobs, the right environment and the right economy.

[Mr Philip Hollobone (in the Chair)]

I thank all hon. Members who contributed to this important debate. I now suspend the sitting until 4 pm, or earlier if both the Member whose debate it is and the Minister responding arrive earlier.