Evaluation SDG8

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Evaluation of SDG8

FMO’s progress towards SDG 8: Decent Jobs, productivity and a solid base for larger impact 

Every year, the FMO Evaluations team conducts a corporate evaluation on the development impact of FMO. The 2021-2022 Corporate Evaluation focused on one of FMO’s core SDGs: SDG 8. 

The aim of the evaluation was to understand what results were achieved on stimulating economic growth and (decent) jobs in our markets as well as to provide suggestions for the development of FMO’s Strategy 2030 on how to further increase FMO’s contribution. 

The executive summary of this evaluation is now available here 

Contributing to stimulating a significant volume of economic growth and jobs in developing markets…. 

SDG 8 calls for two broad and interlinked development goals: (i) promoting sustained, inclusive and sustainable economic growth, as well as (ii) full, productive and Decent Work for all. In 2017, FMO set SDG 8 as one of three overarching corporate goals to support. Five years on, the Evaluations team finds that FMO contributed in important ways to promoting this goal. 

Firstly, all FMO transactions contribute (and have contributed) to promoting economic growth in developing markets by helping the private sector finance business expansion or helping the private sector become more productive. Everything else equal, this supports the creation of value added in developing economies, stimulating their economic growth. To illustrate the magnitude of this impact, In 2019, FMO, by supporting customer activities, supported the creation of 2.5 bn GDP in developing countries approximately equal to a quarter of the size of the economy of Rwanda in that year. 

By supporting companies to expand production, FMO’s portfolio companies can sustain and grow their employee base. In this way, FMO has supported jobs at our customers as well as in the wider economy. To illustrate, in 2019, FMO supported approximately 400,000 jobs, consisting of jobs both directly at its clients (~30% of the total) as well as indirectly in related supply chains and the wider economy (~70%). Thiseffect on jobs per million euro invested is in line with other development banks, although jobs supported per million were slightly below the median when investing in FIs and Energy projects.  

It is important to note that FMO’s ability to mobilize other DFI capital as well as commercial finance plays an important role in realising this impact: approximately 45% of the total impacts achieved can be attributed to mobilized volumes of finance.  

....as well as making economic growth more productive and jobs better 

Besides supporting growth in number of jobs and expanding production, the evaluation notes that FMO also actively contributes to more productive economic growth and higher quality jobs. As the main long-term driver of economic growth, increasing productivity is of key importance for developing countries. FMO supports productive economic growthby increasing investments in energy (which e.g. help to reduce black-outs), supporting productivity in the agri-food sector (e.g. increasing yields) as well as supporting innovation (e.g. through FMO’s Ventures program that targets fintech, ag-tech and en-tech). FMO also engages with clients to increase their productivity through its Capacity Development offering (targeting amongst others digitization), supporting capital investments and through funding support to early-stage and innovative tech start-ups. The evaluation provides an indication that most FMO corporate clients increased in productivity (defined as revenue per employee) after entering in its portfolio. 

A separate evaluation into the socio-economic development effects of supporting an electricity power plant on Lake Kivu in Rwanda explains more practically how FMO supports better growth and jobs. 

Illustration: How does FMO support better economic growth and jobs? The case of KivuWatt 

The KivuWatt project is the world’s first floating gas extraction platform on a lake. Lake Kivu lies in Rwanda and produces methane through the anaerobic digestion of organic nutrients and from nearby volcanic activities. The KivuWatt project extracts the methane from the lake and produces 26MW of power on shore.

How does this electricity stimulate more economic growth and better jobs in Rwanda?

  • Improving reliability of the grid – Rwanda has one of the fastest growing economies in Africa, requiring power. Before 2016, Rwanda’s electric system could not meet domestic energy demands, often requiring back-up diesel generators using expensive imported diesel. With KivuWatt operational, daily power outages were reduced by 39%-points, monthly load shedding by 26%-points and periods with limited capacity by 11%-points.

  • ….which increases the economic activity in Rwanda - The evaluation finds that average revenues of a sample of businesses on the grid in Rwanda almost doubled and weekly hours of operation increased by 11% since operation of the plant.

  • Also increasing competitiveness – The increased supply of electricity also meant that cost of power to the grid dropped by 3%, helping Rwandan firms compete more effectively internationally, which can further boost long term economic growth.

  • And increasing quality of jobs – Villages that could newly connected to the grid witnessed a decrease in the share of farming jobs and an increase in the shre of better paid jobs. Also working time increased among individuals in newly electrified households.

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Photography: Contourglobal

Furthermore, FMO recognizes that supporting any kind of job is not sufficient for sustainable development. Jobs supported need to be of decent quality for development effects on livelihoods and the wider economy to materialize. By applying IFC Performance Standard 2 on Labour and Working Conditions, FMO works with its customers to ensure jobs supported meet certain conditions. The evaluation illustrates that FMO invests in clients that already meet (most) international standards on labour as well as those that do not yet. The split is approximately fifty-fifty in FMO’s E&S high-risk client portfolio.  

This matters because global progress towards SDG 8 is not strong enough 

The evaluation thus highlights FMO’s positive contribution to SDG 8. But overall, global progress towards the SDG is slow. After a promising period of economic growth in developing countries in the 2000s, it slowed down after the 2010s. COVID has had further downward effect on growth prospects and so does the current interest rate and inflation environment. Unemployment is still high in parts of the world, especially in the Middle East, North Africa and Latin America, where 10-12% is looking for a job. Having a job is not always a guarantee out of poverty - still 22% of employed people earn less than $3.2 per day. Especially young people and womensee their talents and potential unused by being idle or in low quality jobs. Finally, resource use has been growing 7% faster than GDP growth and 39% faster than population growth in the past 20 years.  

Using the evaluation to further improve: Following up on recommendations 

FMO has reconfirmed its commitment to SDG 8 in its latest Strategy 2030 and wants to improve over time. Evaluations are considered a very important asset for learning at FMO. The evaluation on SDG 8 provided six recommendations on how FMO can further increase its impact on SDG 8 going forward. FMO management is using the recommendations from the evaluation to further improve FMO’s impact. Read more on how they intend to do so in this management letter. 

Most importantly, the evaluation made clear that FMO’s SDG 8 impact strategy should be clarified and strengthened. Even though SDG 8 is at the core of FMO’s mandate, there are no clear impact objectives that help understand the extent of FMO’s contribution to SDG 8. The evaluation recommends setting out a strategy that includes clear impact objectives, and an approach to steer towards those objectives, create value, measure, report and evaluate our impact to feedback into the strategy. To align with the SDG 8 as closely as possible, FMO’s specific impact objectives should ideally follow the SDG 8 ambitions as closely as possible (“Promoting sustained, inclusive and sustainable economic growth, and more jobs that are decent").  

The evaluation also concluded that there was not enough information to fully assess the decency of jobs supported for the whole portfolio. FMO directly manages the decency of jobs at its customers, but has less information and influence about the jobs supported beyond its direct customers. The challenge there is that many such indirectly supported jobs are expected to be informal, especially in Africa. Moreover, job quality is a continuum where increasing performance is possible and desired given the world progress in this area. FMO will continue to explore how to strengthen its contribution to job quality and decency. 

Finally, to make sure the economic growth we promote is sustainable, the evaluation recommends that FMO’s strategy for climate includes resource efficiencyas an important element. It is also recommended to consider whether our monitoring of IFC PS 3 adequately covers FMO’s ambition for a minimum impact level in this area. As a result, FMO will further assess both the minimum level of resource efficiency it will require for future investments and how it can promote more resource efficiency as part of its SDG 13 strategy for 2030.  

The executive summary contains more details and the full set of recommendations. Find it here. 

Downloads 

Executive summary

Management letter

More Links

Reporting site

In picture: employees of Mawingu Networks, Kenya