Realizing Africa’s Wealth: Building Inclusive Businesses
Inclusive Business, Impact Investment, Pro-poor economic growth, value chain approaches and improving ecosystems are just a few buzz words floating around in current development debates. They all have one overarching key question in common: How to bring previously excluded people into the marketplace and share economic benefits with low-income communities? The UNDP major report “Realizing Africa`s wealth – Building Inclusive Businesses for Shared Prosperity” sheds light on these terms and provides a comprehensive stocktaking of best practices around sub-Saharan Africa.
Sub-Saharan Africa`s number of young people in its population is expected to double by 2045. Already by 2015, 75% of its population will be below the age of 30. African societies and especially their young members are struggling with elementary existential problems, including extreme poverty, hunger, disease and unemployment. Just to name a few of the most alerting indicators: Half of the sub-Saharan Africa’s population lives of less than $1.25 per day, around 239 million people in sub-Saharan Africa are malnourished, more than 31 million African children do not attend school, two-thirds of the working-age population hold vulnerable, informal jobs and a life expectancy of 52,5 years compared to 69,2 years worldwide cries out for more and concerted action. It is time for recognizing the continent’s economic potentials and opportunities, which have been neglected the last decades. Fortunately, private, public and civil society sector acknowledge business opportunities as key to economic and social development. The recently published UNDP report clearly shows that it is the right time for a joint action. A growing number of best practices in inclusive business are worth to be highlighted and considered for up-scaling.
The young, growing population holds great economic potential as household incomes are rising and consumer spending is expected to grow to $1.4 trillion by 2020, $520 billion more than in 2008.
Inclusive businesses integrate low-income individuals into value chains in various capacities, be it as consumers, producers, employees and entrepreneurs. Investment is the fuel of business. Impact investments, which generate measurable social and environmental impact alongside a financial return, are vital to economic development in the interest of all stakeholders.
But low-income markets lack many of the conditions that enable functioning markets. Entrepreneurs rely in particular on four enabling functions to start and implement a business. Entrepreneurs need information about business opportunities and other market characteristics; commercial incentives to provide a reason to engage in the business activity, access to financial investment and technical support during implementation. A survey of 100 participants from various organizations reveals that these challenges have to be addressed by a network including companies, development partners, Civil Society Organizations, research institutions and intermediaries. More than half of the survey’s respondents saw big or very big gaps across all four categories, and few respondents believe that no gap exists in any of these categories. The biggest improvements appear to be needed in the area of investment, where more than half of respondents see a very big gap. This is a call for action in favour of an improved ecosystem which fosters inclusive businesses.
But much is already on the way and some inspiring examples are worth to be mentioned. Out of 400 inclusive business cases identified by the study, most of them engaged in the agricultural and forestry sector (106) followed by energy (77) and financial services (47). Private and public sector are both conceivable as driving forces behind the initiatives.
For example, on the one hand the private international cosmetic company L’Occitane en Provence set up a Civil Society Organization to provide capacity-building support and training in shea butter production, general business management, bookkeeping and fair trade standards to thousands of rural women in Burkina Faso who convert shea nuts into butter.
On the other hand, Mali’s government created regulation that allowed private operators to offer energy services. The Malian Agency for the Development of Household Energy and Rural Electrification (Amader) provides subsidies of up to 70% for expansion of the services provided by the Rural Energy Services Companies. Subsidies are cut when the companies’ profit margins exceed 20%. In this way, the government supports the creation of a market for energy services.
Thus, inclusive businesses bring the benefits of growth directly to low-income communities. This is not charity. Inclusive businesses create a strong foundation for profit and long-term growth by creating a win-win situation for different actors including smallholders and previously marginalized people. Inclusive businesses are therefore a decisive step towards economic and social development in sub-Saharan Africa. The report “Realizing Africa`s wealth – Building Inclusive Businesses for Shared Prosperity” provides a lot of interesting and motivating insights and is a must for practitioners and people interested in the current developing debates.