Private sector investment is critical to end extreme poverty

Jim Yong Kim

Blog post by Jim Yong Kim

President of the World Bank Group
Share this page: 

Six months ago, the World Bank Group established our two goals: to end extreme poverty by 2030 and boost shared prosperity for the bottom 40 percent of the population in developing countries. Meeting these goals has become the central purpose of our institution. The goals are ambitious, but we can achieve them -- if we engage all partners.

Governments must lead the way, while civil society, foundations, and multilateral organizations such as the World Bank Group will all play key roles as well.

To reach our two ambitious goals, we also need the private sector. Our strategy, which our Governors endorsed this month, includes the role of the private sector as a central focus in our fight to end extreme poverty.

Earlier this month, at a World Bank/IMF civil society forum, Oxfam International’s Executive Director Winnie Byanyima asked whether greater private sector engagement might weaken World Bank Group support for our existing social and environmental policies. As someone who co-founded an NGO that serves the poor in some of the most difficult environments in the world, I understand these concerns.

I strongly believe, though, that engaging the private sector helps protect the interests of the poor. The World Bank Group has been working with the private sector in the context of our social and environmental performance standards. Many businesses have embraced our standards. If they want to benefit from our deep local knowledge and relationships--or to use our technical expertise, investment dollars, and risk insurance--then these performance standards are the requirement of our collaboration. We don’t compromise on that.

In the past decade, the creation of millions of new jobs has driven poverty reduction worldwide. Indeed, 90 percent of all new jobs come from the private sector. Today, 200 million people in the world are looking for work, and we need to create 600 million jobs by 2020 just to keep employment constant.

We have been working with many governments to support their efforts on shaping the business environment for the private sector, which includes strengthening the regulatory environment and greater transparency to fight corruption. At the same time, we will continue working to identify private sector investment that can have a major impact in creating jobs and lifting people out of poverty.

Private sector investment at work

There are several examples of how this is working.

In Kenya, our private sector arm, IFC, has worked for nearly two decades with Vegpro Group and 1,700 small-scale farmers who supply its vegetables. Vegpro exports to Europe, complying with environmental and safety standards--which usually means higher incomes for suppliers. About three-quarters of its 7,000 employees are women who enjoy starting wages that are almost 50 percent higher than the average daily minimum.

A second example is the Ethiopia Commodity Exchange, which developed a new model focused on helping small farmers. In just three years, the Exchange grew from a small project to annual trading of $1.2 billion, with 325 members and 12,500 clients.  It has doubled some farmers’ share of the final price, and given them easier access to loans.

We must capture lessons from these types of projects in all countries. The World Bank Group must acknowledge as well that not all our private sector investments have had the success we envisioned. We are learning from failure as well.

There is no arguing the point that private sector investment is needed to stretch scarce development resources. Official development assistance, now $125 billion a year, alone won’t fund the critical investments needed to create enough jobs for the poor or to meet developing countries’ growing infrastructure needs.

Today, about $1 trillion per year in private investment flows into developing countries. If a fraction of the additional trillions of dollars currently invested in low-yielding assets were invested instead in developing countries, we could fund crucial investments that create good jobs for the poor.

Oxfam and others in civil society have worked to support private sector entrepreneurship for years now, with great success in helping the poor and vulnerable. Engaging the private sector is not about how we feel about business; it’s about how high our aspirations are for poor people. If we rely only upon foreign aid, then our aspirations are far too low.

But if we engage responsibly with the private sector, to leverage their investment and their talent, we can create far more good jobs for the poor. If we create more jobs, we can lift more people from poverty. And if we create enough jobs, we can for the first time in human history lift the stain of extreme poverty from our collective moral conscience.

Jim Yong Kim is president of the World Bank Group.

Please see also A vision in need of some clarity, by Ray Offenheiser, President of Oxfam America

You may also like

Blog: Universal Health Coverage: key to the success of the World Bank’s new vision

Oxfam at work: Connecting villages in northern Uganda: Internet Now!

How Oxfam fights poverty -- a six-sided strategy