Inclusive Business can transform Poverty into Prosperity:
Experiences by UNDP’s African Facility for Inclusive Markets (AFIM)
Jürgen Nagler, Programme
Specialist
United Nations Development
Programme (UNDP)
The need for inclusive growth and inclusive market
development
Economic growth, which is
essential for development, is largely driven by the private sector – from micro,
small and medium-sized enterprises to multinational corporations. Six of the
ten fastest-growing economies in the world over the past decade are in Africa, and
the overall GDP growth rate of sub-Saharan Africa is expected to reach 5.4 per
cent in 2013, making it the fastest-growing region in the world.[i] However, Africa’s impressive recent economic
growth has been largely ‘jobless’ growth and has failed to provide job and
income opportunities for the majority on the continent.
Therefore, inclusive growth must
address the phenomenon of ‘jobless’ growth and must tackle critical issues to create
inclusive employment and income-generating opportunities for the majority in
Africa. Jobs are first and foremost created in the private sector, and as Helen
Clark, the head of the United Nations Development Programme (UNDP), states: “Businesses
are engines of growth and have the potential to help improve the lives of
people through their investments and activities.”
The landscape of global human
development and official development assistance is changing rapidly. Especially,
the area of engaging and partnering with the private sector has received a significant
increase of interest over the recent years, as recently embodied in discussions
at the Busan Forum for Aid Effectiveness[ii]
and the statement issued by 11 of the world's largest bilateral donor agencies.[iii]
There is a paradigm shift from traditional
aid to sustainable development, from official assistance focusing on
governments to the inclusion of the private sector with its core business. This
stresses the importance of inspiring the private sector to use inclusive
business models, and governments and development partners to develop inclusive
markets.
The UNDP’s Inclusive Market Development (IMD) approach
The UNDP has been a leading
agency in promoting private sector partnerships and inclusive market
development through projects and initiatives such as the Growing Sustainable
Business (GSB) initiative which started 2003. The UNDP´s ambition is to foster broader
and more strategic alliances with the private sector around key development
challenges of common concern, such as the provision of energy, job creation and
supporting green growth.
IMD focuses on developing private
sector markets to make them more inclusive of and beneficial to low-income groups
as producers, consumers and employees. Specifically, IMD seeks to strengthen
value chains to empower small enterprises, producers and distributors to
participate in and benefit from the existing and potential markets in which
they do business.[iv]
The UNDP’s global private sector
strategy for IMD combines private sector development and private sector
engagement.[v]
The objective is to stimulate the sustainable economic growth that creates jobs
and thereby reduces poverty – primarily by ensuring that small enterprise
owners and their employees participate in the growth of expanding markets. The
most frequently employed approach to IMD is the development of value chains
with growth, job and income generation potential.
IMD is a useful approach to employ
when partnering with the private sector to inform, inspire and initiate
inclusive business models and to integrate low-income populations into their
value chains. To support IMD implementation, the UNDP published an IMD handbook
and three related tools: Assessing Markets, Inclusive Business Models and
Brokering Partnerships.[vi]
The power of inclusive business models and value chains
Inclusive business is a relatively
new approach, encompassing those businesses that consciously include low-income
people into their value chains as producers, consumers, employees and entrepreneurs.
Such
businesses are not only profitable, but also improve the lives of low-income people
and communities. Therefore, it
is key for scale and sustainability to engage the private sector as a strong partner,
i.e. with their core business - beyond philanthropy and corporate social
responsibility (CSR).
In 2008, a global UNDP report noted that
inclusive businesses include low-income people
on the demand side as clients and customers, and on the supply side as
employees, producers and business owners at various points in the value chain.
They build bridges between business and the poor for mutual benefit. The
benefits from inclusive business models go beyond immediate profits and higher
incomes. For business, they include driving innovations, building markets and
strengthening supply chains. And for the poor, they include higher
productivity, sustainable earnings and greater empowerment.[vii]
Inclusive business models by the private sector and supported by public
sector and development partners, can turn poverty into prosperity. The UNDP
promotes exactly such business models, where the pursuit of wealth creation,
human development and environmental sustainability
are seen as fully compatible.[viii] What can the private sector do to
contribute to sustainable development?
First,
businesses can benefit low-income people by including them in their core
business operations, whether as suppliers or business partners in their value chains,
as employees in the workplace, or as consumers in the marketplace. There are
many examples of companies which have successfully integrated low-income people
into their business models.
For
example, A to Z Textile Mills of Tanzania is an African producer of
long-lasting insecticide bed nets. Its products help in the fight against
malaria, and the production provides work for more than 3000 women. This was
made possible by a broad public–private partnership involving, among others,
the Japanese chemical company Sumitomo, which is member of the UN Global Compact and the Business Call to
Action (BCtA), a UNDP-supported initiative challenging companies to develop
innovative business models.[ix]
Second,
the private sector can make important contributions to advancing sustainable
development by bringing low-cost innovations to market. The low-cost mobile
technology exists to conduct life-saving heart scans; there are energy-efficient
LED lamps which enable children to do their homework at night; there are smokeless
stoves which support better health; and mobile phone and Internet applications
which help small farmers and fishermen get access to better information and prices.
One
such innovative product solution in the agribusiness field comes from Amiran
Kenya, which won the 2011 Youth Empowerment Millennium Development Goals (MDGs)
award in Kenya. Amiran’s Farmers Kits offer local small-scale farmers
affordable access to modern agricultural technologies, methods and inputs to
suit the climate, terrain and agricultural experience of the farmer.
Innovations like these, when accessible to low-income people, have the
potential to significantly contribute to making
markets more inclusive.
Third
and perhaps a more traditional way for businesses to support development goals,
is giving back to the community through CSR activities and philanthropy. The
scope and magnitude of these kinds of activities have grown exponentially in
recent times – and indeed they need to be brought to scale more consistently,
to have a wider and more sustainable impact.
In
conclusion, inclusive business models and inclusive value chains generate jobs,
help low-income populations increase their productivity and income, and enable
people to access affordable products and services. Several prominent examples
show that this paradigm shift towards a new way of doing business is possible,
and that it pays off in sectors as diverse as agriculture, healthcare and
financial services.
UNDP’s continental platform: The African Facility for
Inclusive Markets (AFIM)
In November 2010, the UNDP launched
the AFIM, specifically for Africa. This project constitutes a continental
platform working in partnership with the public and private sectors,
development partners and UN agencies in Africa. AFIM works to reduce poverty
and accelerate progress towards sustainable development, by supporting inclusive
growth and inclusive market development across sub-Saharan Africa.
The facility aims to achieve four
main goals:
- Increase
private sector-related capacity of targeted, regional institutions and
governments;
- Strengthen
regional and country-level initiatives;
- Build a
broad-based alliance of partners for IMD in Africa (private sector, regional
institutions, UN agencies, donors and other development partners); and
- Improve
access to finance for small producers and micro, small and medium enterprises (MSMEs).[x]
AFIM, which builds on the work of
existing pro-poor national and regional initiatives, serves as a platform for
coordinating inclusive growth activities between various partners. The platform
also facilitates knowledge sharing and access to finance, advances tangible
value chain projects, and disseminates best practices in inclusive market
development where the emphasis is on creating opportunities for low-income
groups – especially women and youths.
The project’s particular focus is
on promoting inclusive market development in Africa through developing and
expanding regional value chains in job-creation sectors. Due to the importance
of agriculture (which employs about 60 per cent of people in sub-Saharan Africa)
and its key relevance for food security, AFIM focuses on agriculture and agribusiness.[xi]
Thus far, AFIM has undertaken and
published several mappings and studies on the ‘Roles and Opportunities of Private
Sector in Africa’s Agro-Food Industry’ and ‘Inclusive Business Finance’. The
AgriBusiness Forum 2011 (in Johannesburg) and 2012 (in Dakar) were co-organised
with the NGO EMRC, and aimed to boost Africa’s agricultural sector by bringing together
African agribusiness representatives, investors and policy makers from all
over Africa and beyond.
More specifically, the UNDP-led
high-level public–private dialogue held in Johannesburg in October 2011 led to the
adoption of the Johannesburg Declaration: “Engaging the Private Sector in
Furthering Africa’s Agribusiness, Food Security and Nutrition Agenda”. This, the
first joint declaration by the public and private sectors, calls for joint
action to advance Africa’s agro-food agenda.[xii]
AFIM has built an alliance of Inclusive
Market Development partners, including African Development Bank (AfDB), the African
Union Commission (AUC), the New Partnership for African Development (NEPAD)
Planning and Coordination Agency (NPCA), the NEPAD Business Foundation (NBF), the
Pan-African Agribusiness Consortium (PanAAC), Regional Economic Communities
(such as EAC, ECOWAS, COMESA), UN agencies and bilateral development partners.
AFIM’s innovative way of engaging the private sector
through project facilitation platforms (PFPs)
AFIM has been establishing PFPs in
East, West and southern Africa to boost food production as well as job and income
opportunities for farmers, through engaging the private sector to advance
agriculture value chains. Through these platforms, government stakeholders, UN
agencies, the private sector, farmers, financiers and civil society discuss
partnerships and their respective value-add as partners, in terms of strategic
agri-food value chains.[xiii]
For example, the first such platform
for East Africa was launched in Nairobi, bringing together East African
Community (EAC) partners from Kenya, Tanzania, Uganda, Rwanda, Burundi and
Ethiopia. Project promoters presenting planned interventions included Africa
Harvest, East Africa Dairy Development Project and UNIDO/UNDP to advance
specific value chains of sorghum, dairy and soy.
The platforms are unique in that
they focus on cross-border and regional value chains, bringing together all the
relevant players and building the capacity of regional institutions to organise
such platforms themselves in the future. Furthermore, bridges are built between
the public and private sectors, and resolve issues arising between policy level
and practical project implementation. The West Africa platform, attended by representatives
from 13 countries and launched together with ECOWAS in Dakar, Senegal, has been
advancing the value chains of cassava, mango, onions and palm oil.
To catalyse the field
implementation of selected regional value chains, AFIM has put in place a
catalytic funding programme for promising value chain projects, in addition to developing
an African Supplier Development Programme (SDP). The SDP aims to develop the
capacities of African suppliers, i.e. smallholder farmers and SMEs in
agricultural supply chains, to increase their productivity, reduce post-harvest
losses and thereby increase income and production levels. The programme has
received strong interest from African and international lead firms which want
to strengthen and grow their supply chains.
Increased importance of innovation for transformational
results
To achieve greater development effectiveness
and unleash the power of the markets and of people, innovation and inspiration
are increasingly recognised as key drivers. Leading thinkers on the theory of development
change pose the question: ‘How are transformational results achieved?’ As yet there
are no widely accepted answers.
What seems to come to the fore is
a recognition of the importance of people, societies and institutions in
developing their own innovations, sometimes inspired by leading examples which
are shared rapidly through communication technologies. Transformation differs
from change in the sense that it is more fundamental, sometimes even ‘disruptive’
(e.g. the Arab Spring), an (r)evolution that has grabbed the attention of many
African governments.
Transformation comes from a
deeper level within the entity being transformed, and gives rise to a change in
status level, just as a caterpillar transforms into a butterfly. In terms of
international development, this could see one form of governance changing into
another, typically not without difficulties and periods of disruption. In terms
of business it could mean a drastically different business model applying a new
way of thinking and doing business. ‘Breakthrough’ innovations and related
shifts in awareness can inspire such transformations.
Transformation from jobless to inclusive growth through
inclusive markets
A paradigm shift is taking place in
the spheres of both business and development actors. Inclusive business models
provide a useful new approach in advising new business thinking beyond CSR and base
of the pyramid (BoP) approaches. For development and government actors, IMD represents
an innovative, holistic conceptual framework integrating economic and social
development elements into a pragmatic multi-stakeholder development approach.
There is a clear need for
inclusiveness and collective action, because no single actor alone can develop
new markets in an inclusive way. Only through inclusiveness and (self-)empowerment
will the transformation from jobless to inclusive growth happen. Further
research is recommended to build the evidence base of inclusive business
models, related value chain development and the more holistic inclusive market
development paradigm.[xiv]
Advancing both the evidence base and practical action-oriented implementation
will build the envisaged future on a step-by-step, leap-by-leap basis.
Looking forward, one of the UNDP´s
ambitions is to build broader and more strategic alliances with the private
sector and other partners around key development challenges of common concern,
such as the provision of energy, job creation and supporting green growth. In doing
so, not only is development stimulated, but the potential of as-yet-unrealised
markets is unlocked. Innovation and new ways of development and doing business
will increasingly play vital roles in achieving transformative results, towards
an envisaged and desired future.
References:
[v]
See UNDP’s Private
Sector Strategy (2007),
www.undp.org/content/undp/en/home/ourwork/partners/private_sector/OurStrategy/
[vi]
For UNDP’s Inclusive Market Development (IMD) handbook and related tools (2010)
see www.undp.org/africa/privatesector
[x]
For more information on UNDP’s African Facility for Inclusive Markets (AFIM)
see www.undp.org/africa/privatesector
[xii]
For the Johannesburg Declaration and the conference report on the AgriBusiness
Forum see www.undp.org/africa/privatesector
[xiii]
See article on UNDP’s Project Facilitation Platform on Business
Fights Poverty,
www.businessfightspoverty.org/profiles/blogs/undp-s-innovative-way-on-private-sector-development-through
[xiv]
UNDP AFIM and GIM have been working on documenting African inclusive business
cases and will launch a major report on this topic in 2013.
Note:
This article was originally written for the publication of the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) "Value chain development by the private sector in Africa: Lessons learnt and guidance notes" due to be published in March 2013.
See a key diagram by Enrico Giovannini, former OECD economist pioneer, mapping the links between needs, skills, forms of capital, well-being and happiness with the new development paradigm (see also at the bottom the resource library giving an overview of other initiatives presented).
