Photo: Fruit juice business Fruttyzuluaga, in Colombia, one of some 24 small businesses supported through a project by CAFOD, the Colombian Catholic Church and the EC (European Commission) in southern Colombia. Photo Credit: Paul Smith
How Do We Achieve Pro-Poor Economic Development?
Sarah Montgomery, Economic Justice Analyst, CAFOD
The focus of economic development within DFID and other donors internationally is potentially very exciting, and undoubtedly, as the International Development Committee point out, the changing geography of poverty is an important factor affecting the future role and provision of aid.
This shift however, does not come without risks. Most importantly without a carefully conceived and rigorously critiqued theory of change around development and poverty impact, an attempt to achieve sustainable economic development through private sector expansion could look in practice very similar to the trickle-down theory employed in the 80s and 90s. A growth-first agenda, without a specific focus on inclusivity, employment, inequality and human development will not realise its potential to help poor people step up and out of poverty.
Engaging the private sector in these discussions is essential, as DFID have pointed out, given the high priority that people living in poverty give to the need for good jobs. The question is, which private sector? We believe that small businesses are a crucial, often over-looked and undervalued part of the economy which can, and does, play an important role in ensuring economic development that is inclusive even for the poorest – in short, as Alison Griffith highlighted in her blog, small business fights poverty.
In order to support these small businesses, a pro-poor enabling business environment is key. We welcome the inclusion of pillar 2 in DFIDs economic development framework and the 7 issues highlighted there are indeed valuable endeavours. We would however encourage DFID, and other donors such as the World Bank, to expressly focus on the poor within their enabling environment interventions. This is not about supporting the creation of hundreds of un-competitive small-scale, unproductive or informal businesses. It is about the need for a policy environment which ensures that this sector – where most poor people work – is able to flourish, provide more decent jobs, contribute more to the economy, and can support people to step up and out of poverty.
Research with CAFOD and JCTR in Zambia and 13 other developing countries shows that a pro-poor enabling environment needs to firstly focus on the right issues. This involves starting from the point of view of local entrepreneurs and understanding their specific business constraints rather than a one-size fits all approach. Small businesses owners or cooperative representatives need to be included in the policy and decision making process if these initiatives are to reflect their often unique needs. Our research highlighted that most interventions take a panacea approach to an enabling business environment, assuming that what works for large businesses will also work for small businesses. As the 336 business owners we talked to highlighted, this is often not the case.
Secondly, we need to employ the right approach when designing any enabling business environment interventions which aim to be inclusive and pro-poor. It’s not only what is done, but how that is important. Our research with small business owners found that there were five guiding principles that are central. Among these is the need for targeting; funds, advice or support interventions need to be specifically targeted at small and marginalised businesses, particularly rural businesses and women in business. Alexander Mtsendero’s call to re-prioritise small businesses is therefore important.
Overall, if we want to achieve economic development a three-prong strategy, similar to that suggested by the ILO, is needed. This involves firstly supporting small businesses where they are (ensuring this sector is recognised, has rights and protection and is represented in policy making); secondly supporting entrepreneurs to have more successful businesses so that they can step out of poverty (through a pro-poor enabling environment as mentioned earlier); and thirdly developing private sector development strategies that explicitly include a focus on inclusivity and decent employment. This is often the default position when discussing economic development but this should be seen as a longer term approach rather than a silver-bullet.
Realising sustainable development through proxies therefore may not give us the desired results. MSMEs need to be placed at the heart of private sector development strategies and enabled to contribute to sustainable development. Small businesses need to be given the right support and incorporated into private sector policy formulation processes as equal partners.
We recognise very clearly the positive contribution that the private sector can make to development. Our concern is that small businesses, one of the main sectors that can contribute to development and poverty alleviation, are currently under-represented in policy work and lack the prioritisation they deserve. This blind-spot needs to be urgently addressed. We encourage all donors and governments to ‘think small’ and place greater emphasis on small businesses in private sector and their economic development strategies to achieve the transformative private sector we’re all striving for.
 See pg 25 of CAFOD’s Report “Big ideas from Small entrepreneurs”