UNDP Serbia is experimenting impact investing through Youth Employment Bond together with Finnish Innovation Fund Sitra.
The high cost of youth unemployment
The youth unemployment rate is very high in Serbia, which requires more attention and also innovative ways to tackle the challenges. The youth unemployment rate in 2015 was 43.2 %, which is significantly above the general unemployment rate in the country (18.2 % for the population of working age 15-64).
Having 4 out of 10 young people (ages 15-30) neither in employment, education or training (NEET youth) costs the Government over EUR 1.6 billion a year. You read it right- EUR 1.6 billion. This figure includes costs of various unemployment related social benefits and foregone income taxes (EUR 0.6 billion or 0.5% of Serbia's GDP) and foregone wages and productivity loss (EUR 1 billion).
This cost outstrips current investment in active labor market aimed at the youth and does not even account for indirect costs such as social isolation, loss of skills and competences, cost to the health system resulting from worse health outcomes, or higher levels of crime and anti-social behaviour, which are much harder to monetize. Detachment from the labour market leads to skills degradation and loss of motivation that not only impairs the capacity to search for employment in the future, but also impacts the future job performance. If all the indirect costs would be added to the estimation, the cost to the society would multiply significantly.
Long-term unemployment has a particularly adverse effect on youth and their position on the labour market. Currently there are over 90.000 long-term unemployed youth in Serbia and only 25 % of them are included in the active labour market programmes. This leaves room for new and innovative ways of including youth in the labour market.
Engaging private sector through impact investing
To tackle the challenges and negative impacts of long-term youth unemployment, UNDP together with Finnish Innovation Fund Sitra and the Government of Serbia is designing a Youth Employment Bond pilot with the Social Impact Bond (SIB) mechanism. Social Impact Bond is a result-based financial instrument for impact investing, where private investments are intended to create a positive social or environmental impact as well as a financial return. Typically, SIBs have been designed to help reform public service delivery.
Impact investing opens up an innovative way to engage private sector to bolster global sustainability and SDGs further together with public sector and service providers. The impact investing industry is growingand impact investors are already aligning their investment strategies with SDGs, which creates a mutual framework for new partnerships to tackle the global development challenges together.
Social impact bond modality, one of the instruments of impact investing, reduces the funding risk of public sector as the outcome payers (usually the government or municipality) agree to pay and reward investors only if outcomes are achieved. Thus taxpayer's monies will be invested only in programs that have measurable impacts and that either create savings or improve social welfare. It also creates incentives for service providers to improve their performance through results-based contracting where the impact of the services has to be measurable.
Photo 1: A basic SIB structure
The first SIB was launched in 2010 in
There are successful examples of youth employment projects with SIB modality. For example, the ThinkForward
Finnish Innovation Fund Sitra has launched two SIBs in Finland on occupational wellness and fast integration and employment of immigrants. In addition, they are currently developing three more bonds focusing on
To justify the activities and estimate the impact that could be created through impact investing, Sitra has estimated the cost of some current welfare problems to the Finnish Government, which could be prevented with early interventions: For example, child in custody care EUR 100.000/municipality, social marginalized youth EUR 20.000/municipality or physical inactivity EUR 1-2 billion and smoking EUR 1.5 billion cost for the society annually. SIB modality shifts the focus from paying for activities to paying for results. "A change of
The Finnish example to promote integration and fast employment of immigrants through SIB to avoid a long unemployment period raised the interest of the partners in the Government of Serbia. The Government of Serbia is looking for new innovative ways to tackle the challenges Serbia is facing and creating jobs and promoting entrepreneurship is high on the agenda. The Youth Employment Bond is responding to this challenge.
To reach out to partners, UNDP Serbia together with Sitra and the Embassy of Finland organized an
In addition, a task force with relevant stakeholders, such as Office of the Prime Minister, Ministry of Youth and Sport, Ministry of Labour, Employment, Veteran and Social Affairs and National Employment Service, has been set up to support the development process of SIB.
UNDP and SITRA have embarked on designing the pilot for Serbia, based on similar principles of Finnish SIB modality, applied to Serbian conditions. Detailed analyses are under preparations on the financial and legal framework as well as on the service gaps in the youth employment services. The business rationale is that approximately only a fourth of the currently unemployed youth is covered by the active
The Youth Employment Bond brings together different actors from private, public and development sectors with