New paper on African investments: The limits of job creation and social metrics
Metrics are useful, and the widespread use of standardised metrics and ratings have been helpful over the years. Still, many of the claims of the social impact from investments tend to focus on good news stories or a narrow set of metrics, such as jobs created. With the increased interest in mobilising private capital to address poverty and sustainable development, perhaps it’s time to be more evaluative about social impact?
In this qualitative research, we demonstrate the usefulness of a theory-based approach: in effect mapping out an explicit logic to explain how an investment is expected to improve a firm’s performance, direct and indirect job creation, as well as other social effects on employees, households and society more broadly.
But this was not enough!
We soon discovered that the sample of investments was far more diverse than first anticipated. Commonly used metrics like job creation were not equally applicable to all investments, with some firms creating relatively few jobs but seemingly having a social impact in other important ways.
We found it helpful to develop a smaller set of typologies to capture different impact pathways – a more efficient way to assess and report on social returns. We distinguished between investments that were ‘job creators’ from ‘service providers’ and ‘market makers’: highlighting those whose primary aim was to contribute to work; those firms that provided a social service; and those that were at the frontier of new markets. The latter often created few jobs but had a potentially greater impact over decades.
Indeed, if one added up all the jobs created for our sample, it seemed tiny for the amount of investment. The simple aggregation of such metrics appears to mask (and undervalue) the diversity of social change across the investment portfolio.
For example, ‘job creators’ were often distinguished by their indirect job creation, not direct employment (e.g. the rural supply chain of a food processing plant for dried chilli peppers and ginger). Others, like a cancer care centre, was the first in Ghana and provided an alternative to flying out to places like Nigeria, Morocco, Egypt, Turkey and India. With cancer set to increase, the centre is a first mover for an ecosystem of providers – both public and private – that will, unfortunately, be needed over the decades.
To conclude, metrics like job creation have a place. It’s helpful to locate any metrics within a more evaluative assessment of how an investment contributes to change. Otherwise, as our paper highlights, there is a real risk of undervaluing the diversity of social impacts that African investments can make.
Chris Barnett, November 2018
Read the paper here.#AEJ #CDI #IMPACT INVESTING #JOB CREATION