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Employment, what is there to know?

Welcome back to Building Market’s analysis of how official development assistance (ODA) and foreign direct investment (FDI) from the extractive sector affect development in Africa. This week, we will explore how ODA and FDI affect employment.

There are mixed reviews regarding the impact of FDI and ODA on employment. Though experts from both fields have touted their sectors’ ability to create jobs, neither form of capital flow has convincingly demonstrated a positive effect on employment [1] [2]. In fact, both FDI and ODA have been criticized for their limited and fractured approach to employment and labor concerns [3] [4] [5].

So you’d think that proponents of both extractives and ODA would be collecting evidence of job creation and shouting about it, right? Wrong.  This week’s research uncovered a dearth of information regarding the effects of foreign capital flows on employment.

In a report published by the Organization for Economic Cooperation and Development (OECD), it was revealed that very few aid agencies contain specialized units dedicated to matters of employment [7]. Furthermore, the International Financial Corporation (IFC) found that in international economic evaluations conducted by prominent international organizations, including the World Bank, only 20% of evaluations address job creation [8]. This is surprising given that the creation of decent employment has been characterized as the most fundamental strategy for poverty reduction and development [6].

There are also significant gaps in the understanding of how FDI from the extractive sector affects employment. Many impact reports publish data on the number of positions that are created by extractive firms in the localities of their operations. For instance, the International Council on Mining & Metals found that 8,000 positions were generated in Placer Dome’s North Mara Mine in Tanzania [9]. However, this information is both limited and misleading. It is limited because it does not consider other important aspects of employment, including the stability of the jobs created, their wider impact on the economy, and whether the wages provide an adequate standard of living. The information is misleading because it portrays a narrow picture of extractive firms’ overall impact on employment, easily misinterpreted out of the context of other employment efforts in the regions where they work. While the positions they create are undoubtedly important, extractive firms generate less employment than other industrial sectors and operate as isolated enclaves relative to national host economies [10].

Unfortunately this week, we leave you with more questions than answers. This is disappointing, compared to the amount of material that was available for the “impact on infrastructure” blog. So, if there are any employment experts out there, let us know – why is the information on this topic so scarce? And, if there is any good evidence on employment that we have overlooked, where is this knowledge hiding?

[1] Riddell, Roger. “The End of Foreign Aid to Africa? Concerns about Donor Policies.” Oxford Journals 98.392 (1999): 309-35. Print. P 319.

[2] Pegg, Scott. “Poverty Reduction or Poverty Exacerbation?” Department of Political Science Indiana University Purdue University Indianapolis (IUPUI) (2003). Print. P 17.

[3] Organization for Economic Cooperation and Development. Promoting Pro-Poor Growth: Employment. Rep. 2009. Print. P 39.

[4] United Nations Conference on Trade and Development. Extractive Industries: Optimizing Value Retention in Host Countries. Rep. Geneva and New York, 2012. Print. P 18.

[5] Slack, Tim, and Leif Jensen. “Employment Adequacy in Extractive Industries: An Analysis of Underemployment, 1974-1998.” Society and Natural Resources 17.129 (2004): 129-46. Print. P 136.

[6] Karnani, Aneel. “Reducing Poverty through Employment.” Innovations 6.2 (2011): 73-97. Print. P 76.

[7] Organization for Economic Cooperation and Development, Promoting Pro-Poor Growth, P 39.

[8] International Financial Corporation. Assessing Private Sector Contributions to Job Creation: IFC Open Source Study. Rep. 2012. Print. P1.

[9] International Council on Mining & Metals. Tanzania Country Case Study – The Challenge of Mineral Wealth: Using Resource Endowments to Foster Sustainable Development. Rep. 2007. Print. P 42.

[10] United Nations Conference on Trade and Development, Extractive Industries, P 7.

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