SDG 8 – Decent Work and Economic Growth

How everyone benefits from balanced growth

Several hundred million people around the world are unemployed; others have work, but do not earn enough to make a living. Only a flourishing economy creates jobs, but the aim is not to promote work at all costs. Economic growth on its own is not sufficient to pave the way to a sustainable increase in prosperity for all. In addition to material prosperity, social harmony, an autonomous life, and a clean and intact environment are also essential elements of development that can be jeopardised when the pursuit of profit is the sole objective. Rather, it is about qualitative growth that seeks sustainable progress in economic, social as well as environmental terms.

An important basis for development is the creation of employment and income, because fairly paid and socially secure jobs offer a way out of the poverty trap. However, many employment relationships are still subject to exploitative conditions, forced and child labour as well as dangerous workplaces are widespread, and people can hardly live on their income. KfW Development Bank therefore promotes economic growth that enables decent work.

It invests, for example, in funds that give small and medium-sized enterprises (SMEs) access to loans. Prospering companies create employment and generate income. KfW also promotes the construction of infrastructure, which directly and indirectly secures jobs. In addition, it supports the expansion of vocational training systems that make it possible for employees to receive qualifications orientated toward market demands. Furthermore, KfW promotes innovation in partner countries and is financing a broad spectrum of technologies, as demand on the global market is primarily for high-quality products. KfW is supporting its partner countries as they expand value chains and improve products, thus creating more productive jobs with higher incomes.

A functioning financial system is the basis of every economy. To give companies and people in partner countries access to financial services like loans, bank accounts and insurance, KfW supports the strengthening of local financial institutions – which also contributes to a prosperous economy and thus stable employment.

Decent and adequately paid work not only offers the chance to escape a life of poverty and misery, it also contributes to social recognition and integration. Nevertheless, more than 190 million people worldwide do not have a job, and many more earn less than USD 2 a day in their jobs, which means they can barely live on it. KfW therefore promotes projects that contribute directly and indirectly to the creation of more and better jobs, for example through employment programmes or the provision of (micro) loans for companies, but above all through projects in the area of economic or social infrastructure.

Expanding infrastructure promotes employment in multiple ways. Building roads, railway lines, ports and utility infrastructure like power lines or wastewater treatment plants initially contributes directly to employment. Local workers are hired for construction. At the same time, the infrastructure promotes the settlement and growth of further companies, which in turn create jobs. Building infrastructure improves overall conditions for investments, including investments from abroad.

In turn, people's incomes, which benefit from building infrastructure, increase demand for local vendors, which initiates the economic cycle.

All KfW measures and the construction of infrastructure respect international labour and social standards, of course. Maintaining these standards is a critical prerequisite for ensuring that people are employed under decent working conditions.

Empirical data shows that in developing countries, SMEs are responsible for over 60 % of new jobs created. Studies also show a clear correlation between SME density and a country's per capita income. However, one of the biggest obstacles to investment for SMEs is still the lack of access to (needs-based) financial services. This is where KfW Development Bank comes in with its financial sector projects. They strengthen local financial institutions, for example through refinancing lines, equity investments or guarantees, and thus improve access to financial services for small and medium-sized enterprises, especially those run by women. But private households, especially poorer households, also benefit from sound financial systems because they can set up savings accounts, take out microloans, take out insurance or participate in payment transactions, for example through the cashless payment system e-zwich in Ghana, which is supported by KfW.

In addition to traditional financial sector projects, KfW now also offers direct corporate financing via funds. This makes sense if stable financial sector structures do not yet exist locally or if the target group does not receive suitable financing from the traditional financial sector due to high risks (e.g. fintechs). KfW participates in some funds which support social components of economic growth in particular, for example the Aavishkaar Frontier Fund, which promotes social entrepreneurship in Asia. Other funds specifically support mid-sized companies and small businesses or start-ups such as the Partech Fund, which provides seed capital for young technology companies in Africa.

Africa harbours great potential: abundant resources, cultural diversity, entrepreneurial spirit and capacity for innovation. In the coming years, many new jobs will be needed in Africa to give young people prospects for the future. KfW is involved in promoting the economy and employment in the African states.

During the German G20 Presidency in 2017, the German Federal Government initiated “Compact with Africa”, an initiative in which all G20 states participate. This partnership promotes improved overall conditions for private investments in the 12 African countries that are participating in the initiative to date. One of the important items on the “Compact with Africa” agenda is expanding infrastructure in the partner countries, which is also being promoted with aid from KfW. In return, the partner countries have committed to ambitious reforms aimed at improving the investment climate for African and European companies.

As part of the Federal Ministry for Economic Cooperation and Development's (BMZ) Special Initiative „Decent Work for a Just Transition” KfW Development Bank established the FC facility “Investments for Employment” in 2019. This will finance investments which will enable German, European and African companies to create more jobs and training opportunities.

More about Africa's potential on our “Focus on Africa” page

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