Posts Tagged ‘SME’

Ensuring an Energy Sustainable Development Goal (SDG) delivers for poor people and the planet

March 25, 2014

 

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Collecting water from a solar-based purification system supplied by
CAFOD. Chila Union, Mongla District, Bangladesh.

In late February, discussions over the post-2015 development agenda reached a milestone. The co-Chairs of the Open Working Group (OWG), the body tasked with preparing a Sustainable Development Goals (SDGs) proposal for consideration by the UN General Assembly in September 2014, issued a “Focus Areas Document”.

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Helping Developing Economies Grow: the UK Government Approach

March 10, 2014

By Geoffrey Chongo: Head of Programmes, Jesuit Centre for Theology Reflection

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The last week of February has been an eventful week for me. I have had a rare privilege of participating in a trade out of poverty event in Parliament, an event that was graced by the Minister of State for International Development, Mr. Alan Duncan. My role in the event was to give a Zambian perspective as a response to the UK’s new approach of supporting developing countries’ economic development agenda.

The UK’s new focus on economic growth through private sector development is welcome. Like they have rightly put it, economic growth is an important means of raising people’s incomes and reducing poverty in the developing world – it creates jobs and opportunities for poor people to support their families and build more stable futures. However, I hasten to say that from my experience, the manner of this growth will determine whether it will raise incomes and reduce poverty in an equitable way. Growth alone is not sufficient to reduce poverty unless it is guided so that it is inclusive. Otherwise it creates other concerns like income inequality.

UK Government should therefore ensure that the growth it supports is inclusive by way of including small businesses, where most poor people work, in its growth approach. Small businesses should be consulted on the support that the UK Government intends to give to private sector development so as to incorporate their needs.

It is also important to note that small businesses in developing countries particularly Zambia have developed entrepreneurial mindsets and thus any support given to them is not likely to be treated as aid simply for consumption but for applying in their small businesses. Reflecting on the blog comments on the article that we wrote on how to achieve pro-poor economic development it is evident that the role of small businesses in equitable economic development cannot be ignored. Small businesses’ challenges need to be addressed if they have to be helped out of poverty.

It was interesting to see Government agreeing to an open discussion on a very important government policy. It is my hope that CAFOD will continue to work in this area to effectively influence government policies as they relate to the poor.

Thinking small… who, me?

November 13, 2013

In February this year I walked into our Freetown office, in Sierra Leone, and was greeted with “Think Small! You’re here! Welcome!” – who needs a name when one has a project so closely associated with you? (more…)

Private Sector and development at the World Bank

November 1, 2013

Written by Tina Chang with inputs from Anne Lindsay and Sarah Montgomery

“Engaging the private sector is not about how we feel about business; it’s about how high our aspirations are for poor people. If we rely only upon foreign aid, then our aspirations are far too low.” (Jim Yong Kim)

President of the World Bank Group, Jim Yong Kim made the above statement in a recent Oxfam blog. Similar statements were made at this year’s annual meetings in Washington and the Bank is increasingly seeing a central role for the private sector in the fight against extreme poverty.

It may be stating the obvious to say that the impacts of the private sector on development are as diverse as the private sector itself but it does bear repeating. Ultimately this understanding is important for unlocking the (we would agree with Dr Kim) significant role of the private sector in development.

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Let them do it for themselves: the Compass revolution

October 16, 2013

By Christina Chang

The idea that having a decent income would be a priority for someone living in poverty might seem screamingly obvious rather than revolutionary. But the shift in approach to economic development strategies that this would require is, in fact, rather radical.

The need to help poor men and women to help themselves by supporting their livelihoods was a key finding of the Compass project, which asked 1420 poor men and women across four countries, what was their agenda for a new global deal to fight poverty.

“The first thing that anyone needs is a job. We all need to be employed to fight poverty” Mrs Bhebhe, 58, Bulawayo, Zimbabwe

Over recent decades, economic development strategies have focused on getting the macro-economic conditions right, putting in place a good regulatory framework and helping countries to attract foreign firms and develop export industries that can help to transform their economies.

Helping local small businesses has at best come a sorry second to these efforts. Sometimes these “livelihoods” interventions have been seen as more social endeavours to help people out but not really relevant to economic development. Sometimes they have been criticised as counter-productive – distracting from the real business of economic development or locking people (and countries) into low-grade jobs. Sometimes policy makers have argued that the best thing to help small businesses is to focus on those more glamorous, big win economic development outcomes –having bigger GDP growth or export figures than your neighbours.

Getting the big stuff right is still important, but evidence is mounting that this is not enough to ensure that jobs are created or poverty reduced.

Compass research points to another economic development strategy proposed by poor men and women to help them get themselves out of poverty and contribute to their local, national and, yes, global economy, rather than wait for benefits to “trickle down” to them.

The first element of this strategy is unsurprising – many poor men and women still lack the basics to participate in economic life. These range from a lack of land to farm to a lack of access to health and education services that enable you to be fit and skilled enough to earn living.

“Those who live well have more land”  Wage worker, Charagua, Bolivia

“..when you have gone to school and got a job, you will be getting a regular salary”  Uganda farmer, 25

Getting the basics right is something governments have committed to do and making progress on – notably over 180 governments committed to a “social protection floor” giving all citizens the right to a basic income and access to essential services. Our job now is to make sure that these promises are realised in a way that supports poor people’s livelihoods.

Perhaps more surprising is the emphasis that Compass participants put on addressing issues of power and risk as critical to successful livelihoods.

Just having access to land is not enough, if you then don’t have enough power to ensure a profit from what you grow there. Farmers often had to share their income with landowners and to sell to middlemen on unfavourable terms so that:

“no matter how we work hard in the farm, our standard of living still remains low.”  Ricardo, 45, farmer, Philippines

Risk, and the measures that people need to take to deal with it, undermines livelihoods. Risks were described as multiple and increasing – risks of ill health, poor labour conditions, volatility in global markets and also due to climate change.

“When the price of nuts drops, it affects us all, us, the traders, the pickers. All the village is affected when the nut price drops because the entire economy works around this.”

Poor communities are ill-equipped to deal with such risks, which can have devastating and long-term impacts as a result. To cope, some take on several jobs and extra work (or over-exploit themselves, as one participant explained it), undermining their longer-term earnings or even their health. Others migrate, which can provide much needed income, but which can also increase the vulnerability of the migrant, as well as create new problems for those they leave behind.

The views of the men and women participating in the Compass research, chime with the findings of CAFOD’s Thinking Small work with hundreds of poor, small-scale entrepreneurs. This research found that traditional donor priorities and approaches did not match well with the needs and priorities of poor entrepreneurs. For example, initiatives often helped them to become better at producing things – such as handicrafts or honey – but they didn’t succeed because didn’t pay enough attention to demand, as one Compass participant put it: “There is not much selling, there is no money”.

With initiatives such as Compass and Thinking Small, we begin to hope that the era of assuming that overall economic development will benefit poor men and women and of assuming that others know best what they need and what works for them, is beginning to come to a close. It’s a slow revolution, but it’s a start.

Damp start or bright future? Some next steps for the new World Bank strategy

October 11, 2013

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By Tina Chang and Sarah Montgomery

As another downpour drenches us in a very wet Washington, DC, it is very tempting to say that it is a damp start for the new World Bank strategy, launched this week at its 2013 annual meetings. But it’s been a very interesting few days for CAFOD’s economic justice team (both of us!) who are here to discuss ideas of how the Bank’s new, noble aspirations – of ending extreme poverty by 2030 and ensuring that the poorest get their fair share in prosperity gains – can be realised.
There are a lot of new and not so new buzz words flying around.

Poverty rates will not fall enough, we are told, unless there are top growth performances in developing countries and unless the poorest men and women benefit from those gains disproportionately – so the Bank needs to be “transformational”, take “smart risks” and promote “inclusive growth,” adopting the jobs mantra of the G20 governments. Just one disaster, we hear, can undo all progress, so we also need “resilience” and, of course, “sustainability”.

It is easy to be cynical about the World Bank. It is a large institution, contradictions are rife and change is difficult. As President Jim Yong Kim announces that one of the three pillars of the Bank’s climate agenda is sustainable energy for all (the other two are climate smart agriculture and low carbon more liveable cities), we learn that the Bank’s spending on fossil fuel projects, that have had at best mixed results for energy access for the poorest, rose again last year (Bit.ly/15udzv9). A major tool for the new inclusive growth agenda, is the old and highly-flawed Doing Business project.

But there are reasons to be optimistic this time around. Jim Kim has launched the first major reorganisation at the Bank for more than a decade, partly to promote the Bank as a facilitator to help countries learn from each others experience and to pull together evidence of what has worked. A big change for an institution often accused in the past of peddling ideologies and using its financial clout in developing countries to tell them what to do. One of Kim’s first actions as President was to launch an independent review of Doing Business, which has resulted in a radical agenda to overhaul this flagship project.

Of course, it is early days and CAFOD and civil society groups from around the world are here to try to ensure that the new impetus for change results in real improvements for poor men and women.

That’s why we gathered together experts from inside and outside the Bank to discuss how it can get better at “thinking small”.

Small and micro firms play a key role in economic development, inclusive growth and poverty alleviation (see our new Think Small report which will be online soon). Unless we include them as a target and support them as an important contributor to development we will continue to exclude the poorest from economic development and ‘shared prosperity’.

The Bank recognises the importance of small and micro enterprises (see their World Development Report 2013: Jobs) but does not have a coherent strategy for these key players in achieving its new corporate objectives. It does not even have a decent standard definition of what a small business is, it varies from study to project to department, with one working definition being a firm receiving a loan Dampof less than $15 million!

There is still much for the Bank, CAFOD and others to do. The process for reform of Doing Business is not yet mapped out and the discussion on a possible strategy on small businesses has only just started. Looks like there will be more trips to rainy Washington for us.

 

What would ‘thinking small’ look like in global value chains?

July 9, 2013

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The challenges I face are obviously affected by being a small business. Middlemen buy my product and sell it to the big company. They impose their price. (Jose Luis, Nicaragua)

Big business only rarely listen to our needs because they don’t need us (Abdul, Afghanistan)

Whilst it is never as simple as “big” versus “small”, small businesses do describe a view that they are often exploited in their supply chains. The above two views were expressed by small business owners that we talked to in our (second) Think Small research that’s currently underway (see our first Think Small research here). The question is, can Global Value Chains (GVC) ever be beneficial?

The promotion of GVCs has become a hugely popular approach to enterprise development and one which is becoming a bigger focus for donors. The argument for inserting small businesses into GVCs is that this will help them to develop as businesses and thus provide jobs and benefit the economy overall; and ultimately, be good for poverty eradication.

But, given the views of small and micro enterprise (MSE) owners, we think this enthusiasm needs some tempering. It is clear, that the lived experiences of small businesses in GVCs are not automatically positive. Fairtrade research, for example highlights how value does not reach the ‘bottom’, stating;

“…there is clear desire among some to get more value out of their product. From experience, this desire comes from producers’ experience of long-term declining farm gate prices, their sense of powerless in the face of this decline, and, for those with access to the information, a painful knowledge of how their income represents an ever smaller fraction of the final retail price.”

So the question should be how can GVCs be made to benefit MSEs (who generate most of the jobs and a significant proportion of the GDP of developing countries)? Our research has highlighted 3 things that are important to consider towards this end;

1) POWER

The relative power in GVCs can determine whether these will be a negative or positive experience for MSEs. All too often, small business’s lack of voice and power leads to market marginalisation or unfavourable terms on which to do business.

In Zambia small businesses often found that they had to do business on poor terms because they needed customers and had limited options. They were also in a precarious position when things went wrong as they lacked resources, (especially financial) skills and expertise to enforce contracts when agreements were broken. Ultimately, their lack of political, social and economic power kept them trapped in this weaker position.

It’s essential to consider voice and power when inserting MSEs into GVCs to avoid exploitative relationships. Initiatives which seek to improve the bargaining position of MSE suppliers, to reinforce their rights to land and water or to tackle social and political exclusion rather than simply ‘integrating’ them into supply chains have lead to greater benefits for those participating in these GVCs.

2) RISK & VULNERABILITY 

Being included in global markets and supply chains can result in higher risks for MSEs (as the example from Zambia highlights). MSEs are often the most risk sensitive and vulnerable and short term risks can have long term impacts for them. Unfortunately, in some cases, buyers are able to pass risk down the chain, so that the MSE can bear the majority of risk in the bad times, whilst reaping a smaller portion of the gains in the good times. (Vorley & Fox write an interesting, if slightly dated, paper on this).

Initiatives which consider risk and vulnerability, on the other hand, can mean that GVCs can have a much more positive impact on MSEs. There are various activities which could help people cope with risk and so mitigate their vulnerability, for example;

  • Social protection schemes can provide a safety-net when times are difficult.
  • Macro-economic policies can reduce risk and decrease vulnerability of small-scale traders and businesses. Small scale producers and traders in our research talked about the importance of price stability as a tool to help in managing and planning their finances.

3) SUPPLY and DEMAND
Demand is a key consideration which is often neglected in livelihood development programmes but which our research found is a major issue for many MSEs. GVCs can potentially be a really good mechanism in addressing this demand challenge by providing stable and good buyers for MSEs (provided issues of risk and power have been addressed!).

However, GVCs are not the only solution and other, often more appropriate options, should not be neglected.

Focussing on local and regional markets can bring more widespread benefits. MSEs often produce goods and services that are more locally appropriate and are better able to compete at a local than global level. Inserting small businesses into global markets requires intense efforts to meet standards and other demands, and only benefits a small proportion of MSEs. Improving access to and conditions in local and regional markets is more likely to have more widespread benefits more easily. A critical problem in many of these is a lack of demand – quite simply it is harder to sell when most of your customers are poor. Again, social protection can be a way of injecting cash and boosting demand in these local markets. [See footnote: 1] 

Another useful tool in this regard would be encouraging countries to use public procurement to support local businesses or encouraging countries or localities to develop trade and investment strategies that support MSEs and have a local and regional focus and which prevent enclave development.

Supply issues are also a major concern for small businesses. The supply constraints that most MSEs face can make it difficult for them to be inserted into GVC as they can’t provide the goods or services in sufficient quality or quantity to meet the demands of the buyer. Helping MSEs to meet these supply constraints requires comprehensive and proactive support, based on local needs and context. This is often inadequate or neglected in favour of size-blind policy reforms.

These three considerations are essential to making sure that the effects of GVC are positive for small businesses.

With these three considerations in mind, the role of Government can’t be ignored; government needs to play a proactive role if we’re going to see GVCs being more positive for MSEs. They need to play an important role in guiding national development and trade and investment strategies so that MSEs are able to benefit. They also need to play a role in supporting MSEs and facilitating discussions between big and small business to ensure that MSEs are not marginalised.

And so we come back to the voice of a small scale entrepreneur…

Those representing small-scale fishing to the government are the big companies, not us fishermen… and that’s when the fisherman loses. (Edmundo, Nicaragua)

For GVCs to work for small businesses there needs to be change around the three issues raised here. The role and contribution of MSEs in these systems needs to be valued and rewarded fairly. Power, risk and vulnerability need to be addressed and strategies to include them fairly need to consider issues of supply and demand. The benefits of GVCs may not be automatic; but with some work and careful consideration the benefits can be there.

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[1] These can be beneficial because that injection of money into local markets is likely to stay within that local economy – through people buying local goods and services.  These transfers can stimulate and support the local economy during difficult times and also have significant multiplier effects – the cited Malawian study for example, found that for every $1 transferred; at least an extra $2 was generated within that community. (Davies, S & Davey, J. 2008. “A regional approach to estimating the importance of cash transfers on the market: the case of CTs in Malawi.”)

Making Small Business a Big Deal at the G20

May 29, 2013

By Sarah Montgomery & Tina Chang

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Small Businesses in Sierra Leone

To Mariamata Sbangara, struggling to sell groceries on the streets of Kenema, Sierra Leone, the world’s “premier economic forum” must seem a world away.

But there are good reasons for President Putin and his G20 colleagues to put small businesses such as Mairamata’s front and centre of the agenda for their St Petersburg summit this September.

At this Summit the G20 will revisit its agenda on supporting the economic development of low income countries, as the Seoul action plan expires. Improving the focus on small businesses within this work plan would do a lot to improve the development impact of the G20. For example, the G20 has paid a lot of attention to infrastructure – a key constraint to most small businesses in poor countries. In recent research that we have conducted in 12 developing countries, access to markets due to poor infrastructure provision is a major barrier. In Kenya one livestock business owner reported that getting customers could be a problem for him as ‘sometimes customers are unable to reach markets due to bad roads.”. In Mondul Kiri, Cambodia a rice farmer reported that “the road to our community is bad and so the rice collectors don’t want to come to buy from us.” The message from small enterprises was clear; you cannot be successful if you cannot get goods to market. (more…)

Will women always be a bit on the side for the World Bank?

November 23, 2011

At the London launch of the World Bank’s latest report on gender today, one of its contributors praised the report as being a departure from previous “just add women and stir” approaches to gender in development policy and practice.

 There is much to be welcomed in the new report, in particular recognising the importance of the economic empowerment of women and tackling the barriers in formal, informal, economic and social institutions that can prevent it.

But the report is short on action – a challenge that needs to be picked up by Bank staff, member countries and civil society to make sure that the good analysis gets put into practice.

As the title of this blog suggests, this doesn’t mean just doing a few extra things to help women, but instead truly shifting thinking, policy, practice and the incentives, measurements and targets that guide policies and reforms.

A good example of a case for reform are the Doing Business rankings of the World Bank. Back in 2008, these were criticized as being gender-blind. A lack of data and methodological limitations of constructing the rankings have meant that three years on, they remain that way – although we now have a side report on business women and the law. It doesn’t receive a fraction of the marketing support, media attention or policy influence that the main rankings do. Despite making up a significant majority of small-scale entrepreneurs in poor countries, women remain a bit on the side.

Does it matter if we are doing both sets of things – the ones for women and the ones for the “mainstream” business community? The answer lies in opportunity costs, an issue raised by one of the commentators at today’s launch.

This year’s gender report lays out a raft of things that should be done to help women become more successful in their economic life – they are only marginally touched upon by the Doing Business rankings. If the profile of these essential reforms is sidelined by gender-blind, conventional economic policy tools like the doing business rankings, governments simply cannot do their best – either for women or the economy at large – with the limited financial and human resources at their disposal.

OECD Better Life Index: Counting what’s measured or measuring what counts?

May 24, 2011

Today the OECD launched its better life index – a big leap forward in measuring progress and a move on from GDP for those fortunate enough to live in OECD countries. OECD citizens can use it to  focus their governments on improving their well-being, not just inflating growth figures.

And to its credit, the OECD is taking its index on the road. But one of the biggest problems for GDP in developing countries is who is left out. The economic activities of most poor people – subsistence farmers and small informal enterprises do not count towards GDP. This has led to them being marginalised in economic development and private sector strategies – their contribution to these quite simply did not count.