Enterprising Africa: Where Strong Systems Boost Business
This article was written by VEGA Member Global Communities’ President and CEO, David A. Weiss, and was originally published in the Huffington Post here.
This year in Tanzania, a business-to-business forum brought together nine buyers and processors, 15 sellers of non-refined sunflower oil and oil seeds, and 14 representatives from two agricultural cooperatives. This forum resulted in 10 sales agreements worth $31.5 million. This was one of six such forums; in total they yielded deals worth $105 million.
These are the kinds of businesses in emerging markets that are making a huge difference in the lives of thousands of people. They are wealth-creating and employment-generating, in this case combining the natural agricultural bounty of Tanzania to good business practices. Businesses, especially small and medium-sized firms, are vital to transforming market systems and fostering long-term economic growth. However, in many parts of the world, market systems do not function well enough to enable businesses to succeed. Barriers such as a lack of appropriate financial products and transparent regulations, as well as geographic challenges, can be too much for even the most determined business owner to surmount.
At Global Communities, we work with local communities and businesses to help them develop the connections and relationships they need to help themselves. We work with local actors to help link them to market opportunities, and then step aside once these connections are strong and stable. By taking a facilitative approach, we create opportunities for the poor and vulnerable to move out and stay out of poverty.
We recently held business-to-business forums in Kenya, Tanzania, and Malawi, where we are implementing a program that seeks to use this market systems approach in the vitally important agricultural sector. Agribusiness Investment for Market Stimulation (AIMS) is a five-year initiative to bolster trade in key agricultural sectors by increasing access to finance, markets and services for agribusiness small and medium-sized enterprises (A-SMEs). Partnering with both the U.S. Department of Agriculture Food for Progress Program and the Overseas Private Investment Corporation (OPIC), the program aims to help support A-SMEs by building sustainable market linkages to enable inclusive growth for businesses in the agricultural sector.
At these forums, producers, processors, banks, services providers, and other key players in the agricultural sector come together to learn, share information, and form new relationships. These relationships help to build trust and familiarity and increase trade. For example, in the wake of the recent drought that has devastated Kenya’s eastern coast, rainfall dependent farmers and livestock producers were severely affected. Droughts can be damaging for a country where 25 percent of the economy relies on rainfall-dependent water. To help address this, AIMS has led business forums that allow farmers to share important information such as how to preserve pasture and conserve water. The forums also brought stakeholders together to help promote smarter livestock management and water conservation and introduced farmers to financial service providers, a vital service during shocks like droughts.
AIMS also focuses on bolstering the financial service sector to better support A-SMEs. Banks in AIMS’ countries lack the capacity to design and provide appropriate products and services that are appropriate, accessible and affordable for these types of firms. They have high collateral requirements (as much as 150 percent of loan value) and high interest rates that prevent A-SMEs from accessing credit. In many cases, banks simply do not understand the nuances of agriculture and the unique risks and cash flows associated with farming or agriculture processing operations.
To help provide bankers with the knowledge they need to build their capacity and provide financial products to agribusinesses, we partnered with the Kenya School of Monetary Studies on developing a course that offers an Executive Certificate in Agricultural Finance to front-line loan officers. The banks have been enthusiastic about the course, and demand has been such that a higher level certificate has also been introduced. The fact that banks have to pay to take the course, and are returning multiple times, demonstrates a changing attitude among many of these institutions; they recognize the potential returns available from investing in agribusiness and are acting accordingly. This effort has been so successful that other countries such as Ghana have expressed interest in the course, hopefully creating further ripple effects for the entire agricultural sector in Africa.
Projects like AIMS are just one example of an approach to market systems and business environments that can have enormous impact in emerging economies. The goal across these efforts remains the same: to work with local systems to build up the capacity of the business-enabling environment and then leave, allowing the community to continue developing under their own direction.