Historical archive

Job creation is the key to fighting poverty

Historical archive

Published under: Solberg's Government

Publisher: Ministry of Foreign Affairs

The most effective way to reduce poverty is to create jobs. That is why we need bold, forward-looking partners who are prepared to take the risk of investing in poor countries.

The World Bank is estimating that over the next 15 years, it will be necessary to create at least 40 million new jobs worldwide every year.

If we fail to create growth and jobs in developing countries, we will be creating breeding grounds for more poverty and instability. It is particularly important to boost growth and employment in countries in Africa and the Middle East where there is a high proportion of young people.

Commercial investments

For 20 years, Norway has provided funding to create jobs and strengthen the private sector in developing countries through Norfund, Norway's development finance institution. These efforts are giving tangible results, which are provide inspiration and motivation to continue this approach.

Since 2014, the Norwegian Government has therefore increased its annual allocation to Norfund by NOK 300 million. Experience has shown that Norfund's investments have a catalytic effect. They pave the way for other investors and play a part in making countries less dependent on other forms of aid. Investments in infrastructure, renewable energy and job creation are long-term and sustainable.

A lack of access or unreliable access to energy is one of the greatest obstacles to development in poor countries. There is a significant shortage of risk capital to develop and implement plans for new clean energy production capacity. Both public and private investments need to be increased to ensure that developing countries can meet their energy needs.

Marking 20 years

Norway is playing a leading role here. Norfund was one of the first investors to take the risk of investing in the Lake Turkana Wind Power project in Kenya. Once the project was well under way, major actors such as Google also came on board. Today, 365 wind turbines stand ready to produce 15 % of the electricity Kenya needs. The project is an example of an initiative that that successfully combines renewable energy production with poverty reduction and social development.

Today it is 20 years since Norwegian politicians decided to establish Norfund and use commercial investment as a tool in Norway's aid efforts. After several decades during business development rarely featured in Norway's aid efforts, Norwegian politicians realised in 1997 that they could learn a lot from Norway's own history. Our own prosperity and welfare are the result of targeted private sector and infrastructure development that created jobs and income.

Public funding was used to mobilise private sector actors. Institutions such as the Norwegian Bank for Industry, the Regional Development Fund and the State Bank for Agriculture were important building blocks in the development of Norwegian society.

Creating stable jobs

Norway's own history is relevant in the aid debate. Traditional aid has led to progress in many areas, but has been less effective in creating stable jobs. It is important to improve tax systems and promote social and economic equality in developing countries, but this does not solve one of the most important challenges we face in the fight against poverty: how poor countries can boost growth substantially.

South Korea and Singapore have shown that this is possible; in the space of a few decades, they have made huge strides in economic growth. And China is well on the way. They have done this by investing in companies, roads and infrastructure, developing markets, increasing electricity supplies and ensuring that there is a well-functioning financial sector.

A vital condition

Today, there is broad international agreement that investing in business development is vital for reducing poverty. Mobilising the private sector has a central place in the UN Sustainable Development Goals. It is a paradox that despite close-to-zero interest rates and excess liquidity in capital markets in the West, there are indications that capital flows to developing countries are stagnating.

There are several reasons for this. Investments in developing countries often carry a high level of risk and working conditions are frequently difficult. In order to succeed, it is vital to have in-depth knowledge of local conditions and extensive experience of working in unfamiliar markets. Stricter rules and reputational risks are other reasons why many companies are wary of investing.

Support courageous investors

We must support companies that are willing to invest in developing countries. Through their investments in Asia and Africa, Telenor and Yara are making an important contribution to social development. KLP, currently the only Norwegian financial institution that is making long-term investments in the banking and renewable energy sectors in developing countries, is paving the way for other investors.

If we are to achieve the SDGs, the world needs more investors of this kind, investors who are bold enough to seize the opportunities to be found in developing countries.

It is impossible to create growth without capital. That is why we are using this occasion to call on more courageous investors and partners to play a part in building up the private sector in poor countries, and thus in creating a better world.

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(English version of an article in Aftenposten 7 September)