How Argentina's first social impact bond transformed employment prospects for young people

Published: 7 December 2022

A group of young women crossing a street in Buenos Aires, Argentina.
Photo / Kevin Britos
Young people in the poorest parts of Buenos Aires face significant challenges in entering the labour market. The country’s first social impact bond sought to change that. 

This interview is part of a series on Argentina’s youth employment social impact bond (SIB, or VIS by its acronym in Argentina, and also known as payment by results), the second to be launched in Latin America. We spoke with Flavia Tinelli, Impact Director at Acrux Partners, to understand the SIB’s objectives, the results achieved, and the main challenges experienced during implementation. Through her participation in the SIB’s learning committee, Flavia followed the implementation and led the design and execution of the SIB’s learning agenda in close collaboration with investors, service providers and government teams. 

Social Finance and Acrux Partners led the design of this social impact bond in 2019, working alongside the IDB Lab, the Government of the City of Buenos Aires (GCBA) and a group of highly-committed social investors.

Flavia, tell us about the main challenge you wanted to address through the SIB, and the impact you wished to generate.

The SIB aimed to achieve job placement in formal jobs for young people classified as highly vulnerable in five communes in the south of Buenos Aires – one of the city’s most disadvantaged areas. According to official government data, in 2018, this population group had an unemployment rate close to 24%, a figure significantly higher than the 15.8% average for similar youth in the rest of the city. In addition, according to data from the City of Buenos Aires Youth Observatory, young people in these areas were 68% more vulnerable to employment compared to their peers in other regions. 

This population faced critical educational, personal and socio-economic challenges to enter the labour market. The programme sought to bring them closer to employment opportunities. The SIB was conceived as an innovative vehicle to transform public financing and make it more effective. The programme was structured as a pilot and focused on 1,000 young people (5% of the total population who met the eligibility requirements) to generate robust learning that would allow it to be scaled.

What are the main obstacles to quality jobs?

Young people in these communes face fundamental challenges in entering the labour market. The first barrier is related to not having completed secondary education: people targeted by the SIB live in low-income contexts and have limited access to educational opportunities. During the project’s design, we identified that dropping out of secondary education increased the difficulty of accessing formal jobs up to three times, and up to five times the likelihood of perpetuating trajectories of social and economic vulnerability when entering the labour market through informal employment. 

A second challenge related to the fact that the youth do not have the skills demanded by the labour market, nor the way to develop them in their daily lives. 

Finally, a certain degree of discrimination towards the inhabitants of these communes is also observed occasionally due to their place of residence and socio-economic situation, which results in less access to employment.

What specific results was the SIB seeking to achieve for the target population, and what was achieved?

Outcome payers paid for various types of outcomes to overcome these barriers. First, a payment was made when participants graduated from secondary school, as stakeholders had identified that this was one of the critical factors to accessing formal jobs. Additionally, it encouraged effective access to formal employment and retention for four and twelve months. Finally, as the SIB aimed to expand the universe of companies willing to hire vulnerable populations, it also included other payments conditional on increasing the number of employers employing this population in the design.

of beneficiaries completed the training satisfactorily 
of those enrolled found formal employment 
12 month job retention rate 

The SIB social results exceeded our initial targets and significantly impacted the participants’ lives. Of the total number of beneficiaries enrolled in the training, 89% completed it satisfactorily; and 36% of those enrolled in the training found formal employment. We also observed a four month job retention rate of 76%, much higher than initially estimated during the design (a rate of 69%). Moreover, the 12 month job retention rate was 59%, also higher than the projected 54%. These outcomes are outstanding, given the unfavourable context caused by macroeconomic variables in the country and the Covid-19 pandemic.

What were the main challenges faced to achieve these results?

During the SIB’s first phase, the main challenge was to attract the targeted number of eligible participants within the projected timelines. The government was contractually responsible for the participant’s referrals to the programme. Still, the targeted number of participants was not met due to a lack of potential candidates and because those interested in the programme did not meet the eligibility criteria. Additionally, one of the service providers, whose operational model required accessing secondary schools to work with the youth close to finishing their studies and entering the labour market, faced many difficulties when obtaining the required authorisations. Both situations delayed the implementation, increasing the workload of the implementing teams, which is essential to achieve the targets.

From a macroeconomic perspective, the SIB launched in a complex context aggravated by the Covid-19 pandemic. A few months after the project started, the programme operations had to be adjusted due to the sanitary measures imposed due to the pandemic, as participants couldn‘t move around the city or receive services in person. This situation forced the providers to adapt the training courses to a virtual methodology. Although service providers had extensive experience in the issue area, these changes were challenging as the providers had never worked directly with this target population – which was also facing increasing levels of unemployment and poverty due to the pandemic.

A man walking near the Obelísco, a tall, thin obelisk-like tower, in Buenos Aires, Argentina.

Stakeholders also faced significant contractual and financial challenges. The SIB contract was designed in a favourable economic context which drastically changed during the implementation, so achieving the expected targets was a considerable effort from all organisations. Moreover, due to the prevailing macroeconomic conditions during the operation phase – particularly the high inflation levels – the effective management of investment funding and financial monitoring was significantly challenging. Furthermore, the devaluation of the local currency, the Argentine peso (ARS) against the dollar by almost 200% aggravated this situation, as there was a partial discrepancy between the investment currency (USD) and the repayment currency (ARS). This situation prevented investors from recovering all the invested capital in real terms despite achieving all the expected employment outcomes.

What were the main factors that allowed the SIB to obtain positive employment outcomes despite all these challenges?

The SIB was very successful despite the deep uncertainty experienced during the operation. All the targets were achieved across all payment metrics, particularly for the labour insertion metric, enabling investors to receive all outcome payments despite harsh macroeconomic conditions. Five factors contributed to these positive outcomes: 

  1. The quality of the intervention to respond to the needs of the youth and their willingness to learn and adapt. Implementing organisations constantly adjusted their activities and, in some cases, provided additional services to help the target population achieve the outcomes.
  2. A very close collaboration between service providers and potential employers. Providers did a great job reaching out to potential employers and increasing their awareness to reduce negative perceptions about the target population.
  3. The versatility of the outcomes-based payment contract to respond to a context of high uncertainty. The SIB’s flexible structure proved very useful in coping with multiple operational difficulties and allowing service adaptations during the project life cycle.
  4. The institutional support and high-level commitment of the critical actors leading the project as outcome payors and investors opened the doors with potential employers and other partners and contributed to the project’s success.
  5. The existence of a performance manager leading the operations. The SIB had an active performance manager who, in addition to coordinating all the parties of this multi-stakeholder project, encouraged shared learning and continuous adaptation and ensured that all parties remained focused on results.

How did suppliers and investors evaluate their participation after closing the SIB?

We worked with a group of socially motivated investors who joined the SIB driven by the search for innovative tools to change the traditional logic of social investments (donations) and move towards a model that allows recycling and reinvesting capital in new social programmes after achieving outcomes. These investors also had a clear interest in understanding if this mechanism was more effective than the government’s traditional funding to contract services to address social problems. From their perspective, the SIB allowed them to test multiple hypotheses: that the tool works, that it enables them to recover the social investment and amplify its impact, that it achieves better outcomes than traditional funding, and that it opens a collaboration space with the government through a true public-private partnership.

A vital aspect of the service providers’ experience was learning. The motivation of these organisations, whose mission is to improve the lives of the youth through employment, was associated with working with a new fundraising and operational tool that enabled more financial predictability and flexibility to execute their programmes. Although the SIB achieved both objectives, the mechanism had a higher impact on the service providers in the long term, as it allowed them to work collaboratively with their peers and share learnings throughout the implementation, which resulted in greater installed capacity within each organisation.

SIBs are often presented as innovative instruments. Was this the case here?

The main innovation of this SIB is the tool itself and the changes that it promoted in how the value of social spending is understood and how many actors work. This is unquestionable.

A second innovation, which is equally important but sometimes less noticed, is that the SIB led to the development of concrete indicators that allow the measurement and monitoring of tangible employment outcomes for the participating population. When the SIB was launched, advances had been made in measuring environmental impact, but the country had less progress in quantifying indicators in the social field.

Finally, how the government allocates funds to social programmes is also a significant innovation. One of the main motivations of the public stakeholders involved in this project was to explore whether this tool could improve the effectiveness of public spending and attract private funding for social projects. Argentina’s SIB is the first and only region where the sub-national government pays for 100% of the outcomes. This achievement was possible since the GCBA managed to commit multi-year funding and adapt the regulatory norms to avoid penalties if service providers did not achieve the outcomes. The project is a significant precedent to encourage other public actors in the country to continue using outcomes-based funding mechanisms as part of their work. 

To what extent did this first SIB have a broader impact on the ecosystem? What kind of learning has it generated?

Beyond the direct impact on the population, the SIB generated essential lessons to improve employment in Argentina, created a small ecosystem of public and private actors interested in promoting outcomes-based approaches, and demonstrated a feasible route for outcomes-based contracts in the country.

A learning agenda aimed at facilitating the subsequent scaling of the program and identifying improvements that could be applied to other public employment programs accompanied the SIB. This learning agenda has been highly effective. On the one hand, the SIB generated key lessons learned to facilitate its adoption by public entities, including the importance of starting with short projects that could be scaled, the need to start with simple contractual structures to promote understanding of the model and the importance of political cycles. Additionally, the SIB created evidence around those critical elements of the intervention to achieve results, which the government has incorporated into other traditional funding programmes launched parallel to the SIB. An example is the labour intermediation programme Activá tu potencial laboral’ of the GCBA Ministry of Human Development and Habitat, launched in 2022 to strengthen the socio-labour potential of people in situations of social vulnerability in the City of Buenos Aires. The programme design incorporates many lessons from the SIB, from the definition of the target population and the training focus to the evaluation and monitoring metrics.

In which direction is Argentina’s payment-by-results ecosystem moving after this experience?

After finishing the first SIB, several of the stakeholders involved in the project began to consider scaling it through an outcomes fund – a vehicle that allows the issuing of several payment by results contracts simultaneously to scale the impact on the target population efficiently. The GCBA, as the outcome payer in the initial pilot, has shown great interest in supporting and financing new projects alongside international cooperation actors and private foundations that want to join this initiative. To respond to this increased interest, Acrux Partners is progressing with several conversations with potential funders interested in supporting the design of the fund.

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