This is the second in a three part series, published in the lead up to Standard Chartered’s Futuremakers Forum online events 2020. Join the conversation exploring innovative ideas and tangible solutions for financing young entrepreneurs.
Supporting youth-led enterprises is good for business and vital for inclusive economic growth. According to the World Bank, SMEs represent about 90 per cent of businesses and more than 50 per cent of employment worldwide.1 In emerging markets, SMEs create 7 out of 10 formal jobs and formal SMEs contribute 40 per cent of GDP. When informal SMEs are included, the contribution of SMEs is even more significant.1 SMEs also have an important role to play in delivering the Sustainable Development Goals2 by promoting inclusive and sustainable economic growth, creating employment and providing decent working conditions.
Entrepreneurship can catalyse the entry of young people into the labour market at the same time as developing skills, creating jobs, increasing innovation and fostering role models for others. Linking young entrepreneurs into the value chains of multinational enterprises and domestic firms is a powerful way to generate long-term, sustainable and productive livelihoods. In turn, this creates reliable demand and can facilitate the transfer of technology, knowledge and skills, and increase access to finance and markets.
Large businesses, both domestic and multinational, are ideally placed to make a dramatic difference to the success and impact of small and medium sized enterprises led by young people.
Large businesses, both domestic and multinational, are ideally placed to make a dramatic difference to the success and impact of SMEs led by young people.13 Intentionally creating space for youth- led SMEs in corporate value chains – as suppliers, distributors and service providers – can provide young people with transformative opportunities. This seemingly simple action enables young people to develop their businesses within an assured market, learn from other more experienced members of the value chain, and create secure livelihoods for themselves, their families and employees.
Despite the innovation and drive that youth-led SMEs can offer, these enterprises are often excluded by traditional procurement methods. In a survey of enterprises in Kazakhstan, Papua New Guinea, the Philippines, and Sri Lanka, SMEs identified five critical success factors for integrating into value chains. Whilst product quality was deemed the most crucial factor, the education, experience and international exposure of the owner were also cited as a key determinant of success. This may place youth-led SMEs, in particular, at a disadvantage when competing with larger and more seasoned suppliers. Besides this, access to finance and the ability to forgo significant expenditure to integrate into existing processes also presents significant challenges for all SMEs who wish to participate in large value chains.4
Diversity is a top trend in larger corporate personnel recruitment – LinkedIn’s 2018 report found that “78 per cent of companies indicated they are prioritising diversity to improve culture and 62 per cent are doing so to boost financial performance”.5 However, this thinking does not seem to have percolated into procurement policies and there are fewer examples of companies extending the demand for diversity to their suppliers and distributors.6
There are success stories of young entrepreneurs integrating effectively into value chains, but unfortunately these only represent a tiny proportion of young entrepreneurs globally. The majority struggle to make the leap into global, or even local, value chains. And yet with support and integration into networks that assist with enterprise development, these barriers can be overcome.
Bigger businesses that have already taken the lead to diversify their value chains are in a position to share best practice, both in terms of how to engage youth-owned enterprises and also how to help them grow and succeed – securing long term quality, scale, and reliability.
Recognising the economic benefits of more diverse value chains, some countries, for example Rwanda and Kenya, have legislated to require that a fixed percentage of government spending be allocated to procuring goods and services from enterprises owned by youth and women.7 In Zambia, a joint project between the Zambian Government, FAO and ILO engaged private sector actors within soybean and aquaculture value chains. They facilitated cooperation between different players within the chains, connected small growers to larger businesses and supported skills development. The Yapasa project created and improved nearly 3,000 jobs for rural youth in Zambia and helped over 5,000 youth-led rural enterprises achieve greater success.8
Young women find it particularly hard to integrate into existing value chains. They are already vastly under- represented in the active economy and often find it even harder to find places within established value chains and organisations, which are typically more male-dominated. According to the Business for Social Responsibility Report on Women’s Empowerment in Supply Chains, every sector benefits when women are empowered and every sector must do its individual and collective part if there is to be any chance of a sustainable future.9 An integrated and strategic approach is required to accelerate women’s engagement in domestic and global value chains.
THE COVID-19 EFFECT
COVID-19 has impacted value chains around the world, particularly in certain industries. According to the ILO, more than 436 million enterprises face high risks of serious disruption. These enterprises are operating in the hardest-hit economic sectors, including some 232 million in wholesale and retail, 111 million in manufacturing, 51 million in accommodation and food services, and 42 million in real estate and other business activities.10
Furthermore, Business Fights Poverty’s recently-produced COVID-19 Action Toolkit, entitled “Supporting Micro Small and Medium Sized Enterprises (MSMEs)”,11 provides guidance on how multinational corporations can help to address the severe impact that COVID-19 is having on MSMEs in every country in which it is present. The toolkit explains how, even in good times, small business owners and workers face many challenges, but the global health emergency is making these much worse. This effect is particularly pronounced in developing countries, where the impact of a short-term business closure is devastating because the company owners are likely to carry little or no cash reserves and cash flow shortages have brought businesses to a halt. The report goes on to highlight that even where large companies do not have SMEs integrated in their value chains, they can still provide support by partnering with suppliers, business partners, donors and NGOs who have established networks and relationships and are able to help and support young entrepreneurs.
The question is: can this global crisis present an opportunity for reconstructing value chains that better integrate young people and create new opportunities for jobs and employment?
Piecemeal projects to create jobs for young people, while useful for their individual beneficiaries, are not sufficient to create sustainable prosperity for young people in robust employment ecosystems. A systemic, strategic and well-integrated approach is required. So how can we best link young people and their good ideas into existing value chains or broader ecosystems to allow for longer-term success and greater job creation? And in order to support young people’s futures, what more can be done to grow value chain opportunities in particular for SMEs?
Conversations with stakeholders and thought leaders on this topic reveal that there are examples of how like- minded companies in the same value chain are coming together to integrate SMEs, employ and empower young people, and build sustainability. We invite participants in these value chains, and those who would like to be part of them, to engage with us in a robust discussion that can lead to new actions and commitments.
To read the other papers in this series and find out more about the Futuremakers program, please visit: https://www.sc.com/en/sustainability/investing-in-communities/futuremakers-forum/
1 World Bank. SME Finance. https://www.worldbank.org/en/topic/smefinance
2 Sustainable Development Goals Knowledge Platform. https://sustainabledevelopment.un.org/
3 OECD. 2008. Enhancing the Role of SMEs in Global Value Chains. https://www.ecb.europa.eu/home/pdf/research/compnet/ Enhancing_the_role_of_SMEs.pdf?9235c9ba9b76a6a403b- c10723d6dd11e
4 ADB. 2015. Integrating SMEs into Global Value Chains. https://www.adb.org/sites/default/files/publication/175295/smes- global-value-chains.pdf
5 LinkedIn. 2018. Global Recruitment Trends. https://news. linkedin.com/2018/1/global-recruiting-trends-2018
6 Supply Chain Digital. 2018. Diversifying the supply chain. https://www.supplychaindigital.com/scm/feature-diversify- ing-supply-chain
7 CTA. 2019. Why expanding value chain access is important for young agripreneurs. https://www.cta.int/en/youth/all/article/ why-expanding-value-chain-access-is-important-for-young-agri- preneurs-sid095e18780-12be-49da-867a-121a26eb90ee
8 FAO. 2019. Yapasa: Developing youth-led enterprises in rural areas of Zambia. http://www.fao.org/rural-employment/resourc- es/detail/en/c/1157805/
9 BSR. 2016. Women’s Empowerment in Global Value Chains. https://www.bsr.org/reports/BSR-Report-Womens-Empower- ment-Supply-Chains.pdf
10 ILO. 2020. As job losses escalate, nearly half of global workforce at risk of losing livelihoods. https://www.ilo.org/global/ about-the-ilo/newsroom/news/WCMS_743036/lang–en/index. htm
11 Business Fights Poverty. 2020. Action Toolkit: Micro Small and Medium Sized Enterprises (MSMEs). https://businessfight- spoverty.org/articles/covid-19-response-centre/