Meld. St. 25 (2012-2013)

Sharing for prosperity

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4 Sustainable growth that creates jobs

Good jobs are the best way of lifting people out of poverty and contributing to the fair distribution of public goods. Jobs must give families sufficient income to live on, not be hazardous to health, and should protect and respect workers’ rights – what is known as decent work.

Certain conditions need to be met in order to create new, decent jobs and ensure economic growth. Investments and reliable access to energy are often required for modern jobs. Investments entail risk – a risk that is often higher if a country is experiencing war and conflict or has an undemocratic form of government.

Figure 4.1 It was a big event when electricity finally came to the village!

Figure 4.1 It was a big event when electricity finally came to the village!

Photo: Guy Mansfield/Panos/Felix features.

Growth in the world economy is accompanied by corresponding growth in the consumption of natural resources. One-sided focus on economic growth without taking nature’s limits into consideration may be profitable in the short term, but could weaken the conditions for long-term growth and development. Growth that is not environmentally sustainable will also be most detrimental to the poorest people, since the livelihoods of the world’s poor are often based on natural resources. Good growth therefore depends on economic, social and environmental sustainability.

4.1 Jobs in focus

Textbox 4.1 Work and capital in India

The most expensive house in the world is found in Mumbai, but India’s capital city does not lag far behind in terms of wealth. In October 2012, the Times of India reported that a quarter-acre plot had sold for more than NOK 100 million in Chanakyapuri, a sought-after neighbourhood in New Delhi. This is equivalent to more than NOK 100,000 per square metre. Such land prices are bound to have an effect on the housing market. The rent for a 150-square-metre flat in this part of the city is about NOK 40,000 a month. Many residents in this neighbourhood employ security guards, who are paid NOK 1,200 a month to work 12-hour shifts seven days a week. This means that security guards would have to work for nearly three years to pay a month’s rent in the area where they work.

Regular income is a precondition for meeting a family’s fundamental needs. In many societies, it is also a precondition for access to education and health services. However, family income alone is not sufficient to ensure this. The power structure within families, particularly in relation to gender, greatly influences how the income is spent. Access to food, clothes and adequate housing also depends on many other factors, including security, infrastructure, the possibility of exerting influence and democracy.

The private sector is the driving force behind new enterprises, jobs, production and technological development. The sector accounts for 90% of the world’s jobs. The public sector must contribute to macroeconomic stability by means of regulation and a taxation system that ensures that value creation benefits everybody. The public sector also creates jobs, particularly in the health and education sectors, but also in areas such as infrastructure, the legal system and public administration.

Figure 4.2 Small and medium-sized enterprises create many jobs. Entrepreneurs, like this woman from the Ivory Coast, play an important role in the work to promote fair distribution and eradicate poverty.

Figure 4.2 Small and medium-sized enterprises create many jobs. Entrepreneurs, like this woman from the Ivory Coast, play an important role in the work to promote fair distribution and eradicate poverty.

Photo: ILO.

Many developing countries have extensive regulation and bureaucratic procedures that often hinder rather than facilitate trade and business start-ups. It is difficult to give general advice about what donors and national authorities should do, as an understanding of the context is paramount. The order in which measures are introduced often decides how they work. Even though it is sensible for a country to raise its tax level, it may be important to improve the tax administration and increase the tax base first. Control and regulation are necessary in many areas of society, but if public agencies and systems are permeated with corruption, they could end up supporting the very injustices they are tasked with counteracting. Whether allocating more resources will exacerbate or solve the problem will in such cases depend on the ability and will to eradicate corruption.

Agriculture is the most important industry in many poor countries, and poverty reduction will be closely linked to increasing productivity in this sector. That will not be enough, however. In the poorest countries, more than two-thirds of the population work in primary industries, and value creation per capita is very low. Increased productivity will result in less demand for labour in the agricultural sector, and many will have to find jobs in other industries. It is important to create alternative jobs before large groups of people are pushed out of agriculture.

No country has succeeded in strongly reducing poverty without industrialisation. If poor countries are to succeed in creating economic and social development, they have to establish industries that produce input goods for the agricultural sector, that process products from the primary industries and that manufacture products for export and domestic consumption at a profit.

The climate negotiations, and not least Rio+20, have put green economy and green growth on the agenda. Green growth is growth that ensures that environmental sustainability is also addressed. Technology transfer and new “green” investments create opportunities for many new and modern jobs. A global fund, the Green Climate Fund, has been established to fund climate measures in developing countries. It is important to pursue strategies aimed at designing new jobs in a way which can make them eligible for support from the Green Climate Fund later.

Textbox 4.2 The World Bank Development Report 2013: Jobs

The topic of the World Bank’s 2013 World Development Report is jobs. In the report, the World Bank describes jobs that are good for development.

Jobs that are good for development generate income in the form of money or other forms of payment without violating human rights. The work and income must be decent, and it can be in the formal or informal sector. Work is the key to development, economic as well as social. In addition to the value work represents for people’s personal development and self-esteem, it is also crucial in relation to poverty reduction, increasing productivity and social cohesion. Work also leads to development, as a result of individuals developing their skills and of women’s influence increasing, and through its stabilising effect on societies emerging from conflict.

The report emphasises that obstacles to creating good jobs do not necessarily fall under the scope of labour market policy. The report has four main messages to the authorities:

A vast majority of jobs are created by the private sector. The role of government is to support private sector job creation by ensuring macroeconomic stability, an enabling business environment, human capital accumulation and the rule of law. The public sector can contribute by providing sufficient educational and health services.

Labour policies. The role of the authorities is to ensure an appropriate level of labour market regulation – excessive or inadequate regulation will have a negative effect.

What works and what constitutes good jobs will vary from country to country. Individual countries must implement policies based on their own context. The authorities must identify major obstacles to job creation.

Priorities. It is necessary to identify the types of jobs with the greatest development payoffs given a country’s context, and to address the market imperfections that result in too few of those jobs being created. The main obstacles to job creation must be addressed, also those that lie outside of the labour market.

4.2 Economic growth in Africa

It is well known that many Asian countries have had high economic growth over a long period, and that countries in Latin America have also experienced strong growth since the turn of the millennium. In recent years, many African countries have also attracted attention for their high and prolonged economic growth.

Fewer conflicts, the absence of serious economic setbacks, greater political stability, better and more democratic forms of government and better economic policies have facilitated progress in Africa. Several research reports and evaluations show that aid has also made an important contribution to progress.

Africa’s challenges remain formidable, however. The growth is measured in relation to a very low baseline level, and, compared with other continents, Africa’s economy is still too one-sided, its educational level too low, its governance weak, and there are many fragile states. A lack of stable access to energy and poor infrastructure are two of the obstacles to economic growth and job creation.

The high growth in Africa has to a large extent been driven by an increase in revenues from the export of primary commodities. These increased revenues have been spent on consumption, and not to a sufficient extent on long-term investments. So far, Africa has been shielded from the financial crisis because large sectors of its economy are not global. If the global financial crisis persists and commodity prices drop, however, this will have significant consequences.

The population of Africa is growing twice as fast as that of the rest of the world, and it will double in 28 years. This will result in increased urbanisation and local and regional migration, among other things.

4.3 Investments

Figure 4.3 Although Africa is still lagging behind Asia and Latin America, more industrial jobs are being created in Africa as well. This enterprise in Tanzania manufactures fishing nets.

Figure 4.3 Although Africa is still lagging behind Asia and Latin America, more industrial jobs are being created in Africa as well. This enterprise in Tanzania manufactures fishing nets.

Photo: ILO.

Global economic forecasts show that the greatest growth in the time ahead will come in Africa, but that growth will also continue in Asia and Latin America. Europe and the other OECD countries will continue to experience low growth rates.1 The most developed of the developing countries, which are known as the emerging economies, are seeing a rapid increase in the number of new enterprises financed by a high level of domestic savings and foreign investment.

The propensity to invest is lower in poorer countries. Due to poor regulatory frameworks, weak infrastructure, low skill levels and quality of production, small markets and weak export capacity, many private investors feel that it is too risky to invest in those countries.

Norway has for a long time had public support schemes aimed at helping to trigger commercial investments in developing countries. Combined with the increased growth experienced by many such countries, this support has contributed to more Norwegian companies becoming involved in these countries over the past few years.

Textbox 4.3 Trade – an important factor for economic growth

Increased participation in international trade is an important factor in the efforts to generate economic growth, development and increased prosperity in the poorest countries. Trade forms an important part of many countries’ development strategies. Many developing countries have strongly increased their foreign trade in recent years. Many of the poorest countries, including African countries, have taken part in this growth. Nevertheless, the least developed countries still account for only a marginal proportion of global trade.

Aid for trade is one of the Government’s priority areas.Trade regimes define the most important premises for international competition for investments, production and employment. It has long been a key demand among developing countries that terms of trade be improved in order to enable them to participate more actively in international commerce. Market access alone is not enough. It has been established in many contexts that the poorest countries will be unable to benefit from an open, rule-based international trade regime without substantial and effective development cooperation. Our own experience in Norway shows that duty-free market access for the least developed countries does not necessarily increase imports significantly, among other things because of insufficient production capacity and competence.

Norfund is the Government’s most important instrument for the promotion of investment in developing countries. Norfund’s mandate is to contribute equity and other venture capital, and to furnish loans and guarantees for the development of sustainable businesses in developing countries. The objective is to establish viable, profitable enterprises that would otherwise struggle to obtain financing due to high risk. Norfund shall contribute capital in the period after establishment when the risk is greatest, and subsequently sell its holdings to the other investors or in the market.

The purpose of Norfund is to promote private sector development in developing countries, not to contribute to the internationalisation of Norwegian business and industry. The fund shall seek the most suitable partners globally in its priority sectors. At the same time, Norfund shall work actively to mobilise Norwegian companies as partners in its projects. By the end of 2011, just over half the fund’s capital had been invested in cooperation with Norwegian partners.

Norfund mainly focuses on equity investments, which account for 80% of its invested capital. By taking the high risk associated with equity in investment projects, Norfund has helped to enable the projects to achieve considerable loan financing. For each Norwegian krone Norfund has invested in renewable energy, an average of 10 Norwegian kroner has been invested by commercial sources in the form of equity and loans.

At the beginning of 2013, Norfund had invested a total of NOK 9.1 billion, directly or indirectly, in over 300 companies that employ more than 165,000 people in all. The fund’s investments in renewable energy result in the supply of electricity corresponding to the consumption of 11.1 million people in developing countries.

A capital infusion of NOK 1.18 billion has been allocated to the fund for 2013. At least half of this capital infusion is earmarked for renewable energy, and it is also the Government’s goal that Norfund increase its direct investments in the agricultural sector in the years ahead.

It is important to emphasise that public support can only provide limited relief. The investments must be commercially motivated, and the companies must carry most of the risk themselves.

There is a clear expectation that the Norwegian companies will exercise corporate social responsibility, also when investing or establishing production in, and trading with, poor countries where standards are lower and laws and regulations less stringently enforced than in Norway. Among other things, enterprises must apply good health, safety and environmental (HSE) standards and respect workers’ rights. The expectations of Norwegian companies are set out in the 2008 Strategy for Workers’ Rights within the Decent Work Agenda, in Report No 10 (2008-2009) to the Storting Corporate social responsibility in a global economy and inReport No 13 (2010-2011) to the Storting Active ownership – Norwegian State ownership in a global economy. The Government encourages Norwegian enterprises to make active efforts to recruit locally and to use local enterprises as contractors and suppliers in developing countries. Norwegian enterprises should also require their suppliers and business partners to comply with social and environmental standards in order to contribute to building capacity and competence throughout the delivery chain.

Norway also supports the implementation of the UN Guiding Principles for Business and Human Rights. These principles are threefold: 1) the state’s duty to protect human rights, 2) the corporate responsibility to protect human rights, and 3) access to legal remedies if these rights are violated.

In addition to Norfund, the Government provides aid for the promotion of investment, among other things in the form of feasibility studies for enterprises that are considering establishing operations in developing countries, for the training of employees in new enterprises and for improved working and environmental conditions. Funds are also channelled through multilateral institutions, primarily the World Bank, the regional development banks and the International Finance Corporation (IFC).

4.4 Energy for all

About 20% of the world’s population, 1.3 billion people, do not have access to electricity. Eighty per cent of these people live in sub-Saharan Africa and in India. Nearly 40% of the world’s population have to cook their food on poor cookstoves or on open fires. This is polluting and time-consuming and it contributes to deforestation. In addition, exposure to smoke causes major health problems. The WHO estimates that 1.5 million women and children die every year as a result of respiratory diseases caused by this practice.

The IFC has estimated that the poorest people spend the equivalent of NOK 220 billion a year on energy services, which are often ineffective and harmful to the environment. In other words, the market for energy services is big, even among the poorest people.

Figure 4.4 For many people, connection to the national power grid remains a distant dream. In the meantime, electricity from solar cell panels can be a good solution, as it is for this family in Mongolia.

Figure 4.4 For many people, connection to the national power grid remains a distant dream. In the meantime, electricity from solar cell panels can be a good solution, as it is for this family in Mongolia.

Photo: UN Photo/Eskinder Debebe.

Universal access to modern energy services remains elusive. It is still an important goal, however, as access to energy is necessary in order to stimulate the transition to a modern economy in developing countries. Good long-term management of the natural resources used in energy production is necessary in order to ensure that the energy benefits the whole population.

Stable access to better and more modern energy services makes economic and social development possible, and it is a precondition for more fair distribution. Entrepreneurs can start up enterprises and create jobs, pupils can read better and for more hours of the day, and the population can enjoy better health services. Medicines and vaccines can be stored safely in refrigerators. Access to electricity is a precondition for participation in the information society and in global development using the possibilities represented by television, radio, the internet, social media and mobile phones. Such information and communication tools are also becoming increasingly common among poor segments of the population. Making the agricultural sector more efficient depends on irrigation and on small enterprises that process agricultural products, and both these factors depend, in turn, on access to energy.

The world’s huge consumption of fossil energy causes climate change. We therefore have to reach a global agreement that secures the right of developing countries to economic growth and prosperity, while at the same time ensuring that the world’s overall emissions are reduced in order to limit anthropogenic climate change. According to the UN Intergovernmental Panel on Climate Change, global emissions must peak in 2015 and be reduced by 50-85% compared with 2000-levels by 2050 if the two-degree target is to be achieved. The current trend for greenhouse gas emissions is not consistent with the goal of keeping the average global temperature increase below 2ºC compared with pre-industrial levels. Extensive investments are therefore required in energy efficiency, development and the transition to renewable energy sources, as well as in carbon capture and storage.

Textbox 4.4 Electricity can save lives

Electricity is necessary for storing medicines and running an efficient health service. When Pemba Island was permanently connected to the mainland power grid in Tanzania, giving it a stable electricity supply, the first studies showed an improvement in hospital care. A senior doctor estimated that 90 lives were saved every month as a result of the improved electricity supply.

It is acknowledged at the same time that the poorest developing countries, in particular, must use the solutions and local resources available to them to secure the energy they need. Fossil fuels have an important role to play even in the two-degree scenario, and poor countries usually have low emissions per capita. In developing countries, much of the basic infrastructure is still being developed. This provides an opportunity to develop systems and use technology that meet economic efficiency requirements, but with a lower consumption and emission profile than in more developed economies. It is therefore a good climate strategy to support the efforts of developing countries to develop an energy sector that is based as much as possible on renewable energy.

Figure 4.5 The power supply can be a tangled knot.

Figure 4.5 The power supply can be a tangled knot.

Photo: ILO.

Norway’s support for investments in expanding the grid and increasing the production of renewable energy is based on a broad social and developmental perspective. We place particular emphasis on the role a stable and secure energy supply plays in relation to economic growth, employment and social development. Norway’s efforts to contribute to promoting fair distribution will focus on low-income countries and countries in the lower middle-income category.

The power sector is dominated by commercial actors, and electricity prices must therefore cover the actual production and transmission costs. This often makes electricity too expensive for the poorest segments of the population. For most developing countries, it will take several decades to develop a nationwide grid, and it will require a level of investment that is unrealistic at present. The grid will therefore have to be developed step by step, as growth and purchasing power increases. This means that it will take a long time before remote areas and the poorest segments of the population are able to connect to the national power grid. The International Energy Agency (IEA) has estimated that 40% of people who lack access to electricity can be connected to grid-based solutions, while the remaining 60% will have to rely on local grids or isolated power sources such as solar panels for a long time to come.

In parallel with our support for development of the national power supply, the Government will also support programmes for the development of local renewable energy production and energy supply in areas that will not be connected to a national grid. For the time being, the best way of meeting the power and energy needs of this group of consumers is via small local grids and solar energy, as well as improved cookstoves.

The investment risk in poor countries is often very high. This makes it difficult to achieve coherent energy planning at the national level and to involve public and private actors that can develop a functioning energy market together. The first step could consist of ensuring access to electricity for important public services in the local community, such as schools and health services. In fragile states, aid will often be the most important source of investment. Investments should be based on long-term societal interests, and steps should be taken to facilitate long-term operation in the energy sector.

Many countries in Africa, Asia and Latin America have large deposits of non-renewable natural resources such as oil, gas and/or coal. The challenge is to exploit these resources in a way that benefits the population as a whole. Studies show that there is a correlation between a country’s dependence on natural resources and the degree of income disparity. This is discussed in more detail in Chapter 5.

Textbox 4.5 Sustainable power supply

The pace of industrialisation in Norway picked up speed in connection with the development of hydroelectric power in the early 20th century. This was important both at the national and local level. One of the fundamental principles of Norway’s hydroelectric power policy has been to ensure good and stable regulatory frameworks for investors and a good distribution of the revenues generated to benefit society as a whole, and the affected local communities in particular. The preparation of a Master Plan for Water Resources ensured that the most economically and environmentally beneficial projects were realised first. Many rural municipalities have therefore enjoyed large and stable revenues in addition to getting a share of the power production at cost price. Local jobs were created and a competitive supplier industry developed.

In order to facilitate the best possible projects from an environmental and social perspective, a licensing system was developed that is characterised by transparency and the inclusion of affected parties. Many developing countries show great interest in the Norwegian experience of developing a sustainable hydroelectric power sector.

In addition to large non-renewable energy resources, many countries also have great potential in terms of renewable energy, for example hydroelectric, wind and solar power. It is important for the Government that energy resources are managed in a way that takes into consideration the best interests of the population as a whole. Management regimes must address long-term concerns, and we can contribute our knowledge of licensing laws, reversionary rights, environmental impacts and a consistent taxation policy. This results in regulatory frameworks that are stable in the long term, which is important in order to attract commercial investments. Political structures and redistributive mechanisms that have legitimacy and function as intended are necessary if the revenues are to benefit the nation and population as a whole.

Norway will continue to assist in the development of functioning management regimes and to share our experience of hydroelectric power development with developing countries, as we are assisting, for example, Bhutan and Liberia by using experts from the Norwegian Water Resources and Energy Directorate (NVE). At the same time, we will support the development of a broad range of renewable energy based on the potential renewable resources in partner countries.

In some countries, the authorities have chosen to subsidise petroleum to provide people with cheap fuel. Such subsidies result in a high petroleum extraction rate and cause climate problems as a result of increased greenhouse gas emissions. Studies also show that this is not a good distributive policy. The subsidies represent a major drain on the public coffers and primarily benefit people with high incomes. According to the IEA, fossil fuel subsidies amounted to NOK 3,138 billion worldwide in 2011, while renewable energy subsidies amounted to NOK 528 billion.

There is often strong popular opposition to the removal of such subsidies. Fossil fuel subsidies should therefore be phased out gradually through a strategy that highlights alternative uses of the money for the benefit of the general public. The Government will work to promote reform and the phasing-out of inefficient subsidies that are harmful to the environment and climate, and that counteract fair distribution and undermine sustainable development. A Norwegian strategy for international cooperation to promote reform of fossil fuel subsidies will be prepared in 2013.

Textbox 4.6 Sustainable energy for all

UN Secretary-General Ban Ki-Moon’s initiative Sustainable Energy for All (SE4All), which was launched in 2011, has helped to put access to energy and energy consumption on the international agenda. With NOK 12 million, Norway was the biggest contributor to the first phase of SE4All. Phase II was launched in 2012, and Norway plans to support the initiative with a further NOK 10 million a year. The initiative is technology- and energy source-neutral, which in this context means that it includes fossil as well as renewable energy. The goal is threefold:

  1. Universal access to modern energy services

  2. To double the global rate of improvement in energy efficiency

  3. To double the share of renewable energy in the global energy mix.

In recent years, the Government has launched two major initiatives aimed at improving access to energy and strengthening energy expertise in the development policy context, the Clean Energy for Development Initiative and the International Energy and Climate Initiative/Energy+. These initiatives will be poverty-oriented and will give top priority to countries in sub-Saharan Africa. They are both intended to facilitate increased private and commercial investments in the energy sector in poor countries. Energy must to an increasing extent come from renewable sources if we are to be able to meet the global climate challenges.

A separate budget line for renewable energy has been introduced in the national budget with effect from 2013. NOK 1.4 billion has been allocated for this purpose for 2013. Norwegian aid for energy in developing countries is planned to total approximately NOK 2 billion in 2013.

The main objective of the Clean Energy for Development Initiative is to increase access to clean energy at an affordable price, based on long-term natural resource management and efficient use of energy. The initiative is based on Norway’s expertise in the energy field and the long-term natural resource management Norway has developed. Support for Norfund, which was described in Chapter 4.3, is part of this initiative.

The International Energy and Climate Initiative/Energy+ was established as a two-year pilot project in 2011. It is an international partnership supported by the UN Secretary-General, donor countries, developing countries, private actors, multilateral development banks and institutions, international organisations and civil society. The initiative will be reviewed in 2013 with a view to continuing the work.

4.5 Well-regulated working conditions

Textbox 4.7 Collective bargaining as an instrument in the fight against inequality

Chile has no centralised or sector-based system for dialogue and collective bargaining between the social partners. Bargaining takes place in each enterprise. This contributes to reducing the relevance of trade unions in Chilean society. Only 14% of Chilean employees are organised at present, and only 11 out of 100 are covered by collective bargaining. Employees’ weak negotiating position affects their possibilities of influencing their working conditions and pay. The result is that, for the vast majority, wage growth systematically lags behind, which has contributed to consolidating the social inequality that characterises Chilean society.

The Fundación Sol foundation has studied the connection between labour market organisation and economic inequality in Chile. On the basis of historical data, the foundation has shown that the more centralised the collective bargaining system, the more equal is the national income distribution. In the same way, inequality in society is expected to decrease as more people join trade unions.

It is the responsibility of the authorities in each country to set the framework for and adopt policies for business, industry and employment. They have a particular responsibility for establishing legislation and supervisory bodies to promote decent work. It is important to have strong and responsible workers’ and employers’ organisations in order to ensure that the rights and interests of employees are safeguarded and to create good regulatory frameworks for business and industry. Well-regulated working conditions require open dialogue between the authorities, employers and workers.

Figure 4.6 Trade union meeting for tea workers in Malawi.

Figure 4.6 Trade union meeting for tea workers in Malawi.

Photo: LO/Terje Kalheim.

The social partners in developing countries are often characterised by weak organisation, a poor financial situation and undemocratic structures. This can impair their ability to play a clear role in society. In many African countries, there has been extensive government control, either through co-optation of the leadership or by oppression placing limits on unions’ political involvement. It is a mixed picture, however, and trade unions have played an active role in society in several countries, including South Africa, Ghana and Zimbabwe.

The role of the trade union movement varies from country to country. In countries with a high degree of urbanisation and a growing number of jobs in the formal sector, the trade union movement will often fight for freedom of assembly and association and against poor working conditions, and endeavour to prevent exploitation of workers. In societies with low urbanisation where many people work in the informal sector and primary industries, trade unions will often only have a role in relation to the minority of people who work in the formal sector.

In such countries, traditional trade unions and other organisations can expand their role in society by lobbying to ensure that more of the national budget is spent on basic services such as health and education, or on the development of universal social safety nets. If such organisations succeed in establishing a dialogue with the authorities about overall budgetary planning, they can contribute to more fair distribution by advocating development measures aimed at broader segments of the population.

One new challenge for trade unions in many countries is that, as a result of globalisation, the employers are to an increasing extent powerful international corporations. Trade unions need knowledge to be able to meet this challenge. Through the ILO, international training programmes have been developed for this purpose. Norway will support participation by trade unions from developing countries in such programmes.

Cooperation between Norwegian trade unions and employers’ organisations and their sister organisations can be an important contribution to ensuring well-regulated working conditions in developing countries. It will also strengthen civil society and democratic development in these countries. Partners in developing countries will gain access to a larger network of trade unions and confederations at the regional and international level, which will open up opportunities for inspiration, the exchange of experience and learning.

However, evaluations show that cooperation between the social partners in developing and industrialized countries is demanding. Extensive knowledge of the local context is necessary in order to be a useful partner. The cooperation can be improved by involving other parties, for example through South-South cooperation or by involving aid organisations that work in this field.

The Government wishes to encourage more trilateral cooperation with Norwegian and international NGOs. Good results can also be achieved by channelling support through regional associations for the social partners in several countries.

Textbox 4.8 Organisation in the informal sector

Efforts to improve pay and working conditions that are linked to formal income will not reach smallholders or others in the informal sector. In some countries, organisations have been established that work to improve working conditions in the informal sector. The Self-Employed Women’s Association, which organises women in the informal sector in India, is one example. Another example is the Maria Elena Cuadra Movement in Nicaragua, an association that organises unemployed and working women and that offers training and carries out awareness-raising work among these women using a rights-based approach.

Decent work

The ILO adopted the Decent Work Agenda in 2004. The agenda promotes social justice through employment and decent working conditions. This is followed up in four strategic objectives:

  1. Creating jobs: An economy that generates opportunities for entrepreneurship, skills development, job creation and sustainable livelihoods for men and women;

  2. Guaranteeing rights at work: To obtain recognition and respect for the rights of workers, in particular disadvantaged and poor workers, through the ILO’s fundamental conventions;

  3. Extending social protection: To promote inclusion and productivity by extending social protection;

  4. Promoting social dialogue: Involving strong and independent workers’ and employers’ organizations is central to increasing productivity, avoiding disputes at work and building cohesive societies.

The Decent Work Agenda is a priority for the Government, which launched its own Strategy for Workers’ Rights within the Decent Work Agenda in 2008. The purpose of this strategy was to strengthen and coordinate efforts to promote workers’ rights in other countries and to complement the efforts to combat social dumping in Norway.

Through its strategy, the Government wishes to promote decent work through Norway’s foreign, development, trade and labour policy, and to promote greater policy coherence at the global and international level. The ILO has the global mandate in this field, but it is important to apply the principles throughout the multilateral system and make sure that they are consistently incorporated in the efforts to increase investments and in business initiatives in developing countries.

Norway has increased its contribution to the ILO as part of its follow-up of this strategy. Norway’s cooperation with the ILO focuses in particular on strengthening workers’ and employers’ organisations, labour administration, the promotion of standards and fundamental principles and rights at work, gender equality and international policy coherence.

Textbox 4.9 The International Labour Organization (ILO)

The ILO, which was established in 1919, is the UN’s specialised agency for labour issues. The ILO differs from other UN organisations in its characteristic tripartite structure. Workers, employers and governments are full-fledged members with decision-making powers.

The ILO is responsible for developing and enforcing international labour standards, primarily through the adoption and follow-up of conventions and recommendations.

The ILO’s conventions form the basis for employee rights, and they are important tools in the global implementation of these rights. Eight conventions are normally described as fundamental conventions, and they can be divided into four main categories: Abolition of child labour (138 and 182), elimination of forced labour (29 and 105), elimination of discrimination (109 and 111) and freedom of association and the right to collective bargaining, including the right to strike (87 and 98). The ILO’s Convention No 169, the Indigenous and Tribal Peoples Convention, lays down, among other things, the right to be consulted and participate in decision-making. This is an important convention in cases where demands for the exploitation of natural resources come into conflict with indigenous peoples’ traditional use of nature.

The ILO engages in extensive development cooperation to help member countries to endorse, implement and enforce its conventions and recommendations.

Social dialogue

Tripartite cooperation and social dialogue have made an important contribution to ensuring equitable distribution and broad-based prosperity in Norway. Social dialogue is a flexible tool for achieving economic and social change and development. Dialogue can be bilateral or tripartite, with or without the direct involvement of the authorities, informal or institutionalised, and it can take place at the national, regional, local or individual enterprise level. The main goal is to promote consensus-building and democratic involvement among the social partners. There is growing interest in the Nordic model in international debate about systems of government, and the Government therefore wishes to draw on Norway’s experience of social dialogue in cooperation with interested countries.

Low- and middle-income countries vary greatly in terms of the conditions that exist for establishing a social dialogue. Among other factors, a certain balance of power between the parties is necessary. It is a particular challenge that a large proportion of the labour force works in the informal sector, but the employer and workers’ sides are often undeveloped in the formal sector as well. Some countries will have poor framework conditions for developing these parties into independent actors in society. Developing the social partners and a fundamental understanding of social dialogue and tripartite cooperation is a long-term process. In the dialogue with partner countries, emphasis will be placed on cultivating an understanding that, in the long term, the social utility will outweigh the costs of establishing such systems.

The Confederation of Norwegian Enterprise (NHO), the Confederation of Norwegian Trade Unions (LO) and other social partners have initiated cooperation with partners in several low- and middle-income countries. The aim is to strengthen the social partners and contribute to social dialogue. So far, organisational development and capacity-building have been the priorities in this cooperation. The increasing international orientation of Norwegian business and industry makes this cooperation more relevant. Norwegian-owned companies have a responsibility to promote labour rights in their international operations and they can also contribute by transferring expertise.

Social dialogue and corporate social responsibility are important topics when politicians participate in business delegations to countries that qualify for Norwegian aid. Before each visit, an assessment is carried out of how labour market issues and corporate social responsibility can be included in the programme. It is natural to cooperate with the social partners on the planning and implementation of such visits.

Textbox 4.10 Cooperation between LO and the Malawian trade union movement

Figure 4.7 Tobacco workers in Malawi cooperate with LO.

Figure 4.7 Tobacco workers in Malawi cooperate with LO.

Photo: LO/Terje Kalheim.

LO has cooperated with the trade union movement in Malawi since 1996. Back then, very few people in the country knew how an independent trade union movement worked. LO supported both individual Malawian trade unions and the Malawi Congress of Trade Unions (MCTU) by providing training in bargaining, gender equality, organisation and recruitment. The trade union movement is now a voice being heard in the new democracy.

One of Malawi’s most important export commodities, tobacco, was produced by workers under slave-like conditions. The workers resided on the plantations and lived on credit from the plantation owners. The research foundation Fafo’s report Smoking business from 2000 brought conditions in the tobacco industry to the attention of the international trade union movement. LO helped the tobacco workers to form their own trade union. After long negotiations, the plantation owners accepted the trade union, and they have gradually started paying wages for work done. LO has also contributed to establishing an annual conference where the three parties discuss labour issues in Malawi. In 2011, the parties visited Norway to learn about the Nordic model.

4.6 The informal sector

Figure 4.8 Domestic workers in India demonstrating for the right to decent working conditions.

Figure 4.8 Domestic workers in India demonstrating for the right to decent working conditions.

Photo: ILO.

The ILO and the Word Trade Organisation (WTO) have estimated that the proportion of the working population in developing countries that work in the informal sector varies from around 40% in Uruguay and Thailand to between 75 and 80% in Bolivia and India. Many of them work in the primary industries. Globally, approximately 60% of the working population earn their living in the informal sector. The informal sector includes both self-employment and employment in informal enterprises. A low degree of formalisation can be a symptom of low productivity in the workplace, but it can also be a cause of it.

In most countries, the informal sector will consist of two fundamentally different parts. The largest part by far is where the poorest people earn their living, for example in agriculture, which is essential in any society. The other part, which is criminal in nature, is where enterprises of varying size intentionally stay out of the formal systems, what is known as the black economy.

According to the ILO, the informal economy is characterised by poor job security, lower incomes, the absence of social services and fewer opportunities for participation in formal education and training programmes, all of which are important elements in the definition of decent work.

Textbox 4.11 Social security

In 2012, the ILO adopted a recommendation for a national social protection floor for people who lose their job or income. The ILO recommends that its member countries facilitate the provision of a basic income in the event of job loss, as a fundamental social security guarantee for those who need it.

This guarantee should provide basic income security for persons without sufficient income, including those who are unable to find enough paid work. This can be assured through various means, such as unemployment benefit, help to find work or other public employment measures.

Eighty per cent of the world’s population have no social protection if they lose their job or income. The attitude to social security schemes has changed in recent years, from primarily being seen as an expense to being considered a sound investment. Countries with good social welfare systems have fared best during the financial crisis. Such systems create stability, but they can also make the economy more vital. People are more willing to take risks if they know that they have a minimum income to fall back on if something goes wrong.

The informal economy may appear to be dynamic, since many people go in and out of work in a manner that represents a flexible response to changes in demand for labour. For the workforce, the informal sector can serve as a buffer for people who lose their jobs in the formal sector. There are many indications, however, that, because many enterprises remain very small, informal economies do not succeed in developing a robust and differentiated export base. Enterprises in the informal sector are incapable of generating enough profits to reward innovation and risk exposure, which are two key preconditions for long-term economic success.

The purpose of formalisation must be to improve the standard of living of the people who fall under the scope of labour legislation, while formal jobs also provide access to social protection. In the short term, however, formalisation can cause productivity to drop by changing people’s incentives or because requirements imposed on businesses have a cost-driving effect. Therefore, there will often be local resistance to the formalisation of the economy. In reality, many jobs will be created in the informal sector, and many developing countries depend on the informal sector in the short and medium term to be able to create jobs for their growing workforces.

Self-employment and small-scale agriculture account for nearly half of all jobs in developing countries. While this is classified as unpaid work, it nonetheless falls under the definition of work. The majority of this group are women. More than 80% of working women in sub-Saharan Africa work without pay. In addition, the definition of a “job” does not include housework (cooking and cleaning) or caring for children and elderly family members, unless the tasks are performed by someone who is employed and paid for the service.2

The Government will support processes aimed at strengthening the formalisation of the economy in poor countries. This is important, both in order to improve conditions for the many people who work in the informal sector and to improve the productivity and efficiency of the national economy.

4.7 More young people – both opportunities and challenges

Figure 4.9 Many people in developing countries work in the informal sector.

Figure 4.9 Many people in developing countries work in the informal sector.

Photo: Reuters/James Akena.

The proportion of young people in the world has never been higher. Approximately one in six people are between 15 and 24 years old, and this age group is expected to continue to grow strongly in some of the world’s poorest areas. In Palestine, more than 64% of the population are under 25 years of age, while in Uganda, which has the world’s youngest population, approximately 80% are younger than 30. This creates great challenges for the authorities, not least in the education sector, and a need for new jobs.

More and more young people take upper secondary and higher education. In principle, young people are a country’s most important resource, but high youth unemployment gives rise to social challenges. The youth unemployment rate is more than twice the average unemployment rate in several countries. According to the UN, global youth unemployment is 12.6% – and rising. It is expected to increase unless more jobs are created. In Africa, less than 10% of young people between the ages of 15 and 24 have paid jobs in the formal sector, and more than 10 million job-seekers join the labour market each year.3

The needs of the labour market change rapidly, and it is hard to predict demand for different types of know-how and skills in future. Close cooperation with business and industry on education and training is necessary in order to share equipment costs, to ensure the quality and relevance of the education provided, and to improve the availability of recruits with the qualifications that business and industry want. A broad range of measures is needed aimed at formal and informal education, from primary school education, vocational training and apprenticeships in various workplaces to courses in industrial relations. Measures that could prove very important include training in project work and project management, as well as training in entrepreneurship and relevant forms of higher education.

A lack of predictability and the rapid changes taking place in the world make it particularly important to include young people’s own perspectives when choosing political, economic and social measures directly or indirectly aimed at them. Democratic processes and systems that help to reduce the distance between the decision-makers and citizens, will also help to improve the situation for young people. New technology is rapidly changing the landscape of organisation, communication and opportunities to influence developments in society. Traditional institutions must include young people so that these institutions can be adapted to a greater extent to the opportunities young people have been given to participate in democratic decision-making processes.

Textbox 4.12 FK Youth

Fredskorpset (FK Norway) has integrated work by and among young people into its activities, and it has established a special exchange programme: FK Youth. FK Youth is an exchange programme for people between the ages of 18 and 25. Its objective is to teach young people and organisations to deal with today’s global reality and to promote knowledge and engagement around human rights and global development issues.

We find the leaders of tomorrow among young people, but they are also an important part of society today. Fredskorpset supports the increasing global trend of seeing young people as a group with an active role; they are actors that help to shape society.

Young people who have participated in an exchange programme become more involved internationally, but they also acquire tools to help them to participate in the workplace and in voluntary work. The involved partners strengthen their organisation and international network, improve their cultural and practical understanding and increase their membership rates. The programme helps to strengthen the individual participants’ competence – professionally, culturally and socially – in addition to strengthening civil society in both the global North and the global South.

The Government will:

  • promote social dialogue by helping to build up workers’ and employers’ organisations

  • increase its support for building up institutions that support decent work, such as labour inspection mechanisms, in developing countries

  • promote opportunities for women to participate in working life and decent work in all relevant settings

  • encourage closer cooperation between the Norwegian social partners and established aid organisations

  • promote South-South cooperation between national and regional social partners in the global South

  • invite the social partners to take part in the planning of business delegations in connection with state and official visits to countries that qualify for Norwegian aid, and, in consultation with the social partners, seek to utilise such visits to share Norway’s experience of social dialogue and corporate social responsibility

  • encourage the Norwegian business sector to increase its investments in developing countries, create decent jobs, and promote education and training opportunities for the local workforce

  • attach importance to the integration of gender equality and human rights considerations in allocations to the Norwegian social partners and Norfund

  • increase its support for renewable energy developments, with access for all as the overarching goal

  • provide assistance for reviews of national investment plans with a view to promoting sustainable growth that creates jobs

  • develop a Norwegian strategy for international cooperation on promoting fossil fuel subsidy reform

  • use aid funding strategically to attract commercial investment in the energy sector

  • support multilateral initiatives to increase global energy access through the World Bank, the regional development banks and in connection with the Post-2015 Development Agenda

  • support a coherent, climate-friendly approach to the development of the energy sector

  • assist developing countries in implementing their low-emission strategies.



United Nations, World Economic Situation and Prospects 2013.


The World Bank, World Development Report 2013: Jobs.


The African Development Bank, OECD, UNDP and UNECA, African Economic Outlook, 2012.
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