Studies have shown that a sustainable nation can only unfold when poverty is tackled from its root by improving the livelihood of the majority at the bottom of the pyramid. In last week’s edition, we reiterated that the combined effort of both the public and the private sectors is needed to eradicate poverty by 2030. It is thereby imperative for businesses to contribute, track and report on their poverty reduction efforts for the nation to attain sustainable development as a whole. In this edition, we bring you insights from our conversation with Ted London – the Vice President and Senior Research Fellow for William Davidson Institute’s Scaling Impact Initiative, who is also an internationally recognised expert on the intersection of business strategy and poverty alleviation. It relays how inclusive and sustainable businesses can be built in Africa; using them as a ladder to attaining sustainable development on the continent.
Africa’s progress towards eradicating poverty
Against all odds, Africa’s progress has been encouraging. There have been a number of positive steps and certainly, greater interest in addressing the continent’s challenging but critically important issues. Notwithstanding, this is a long journey. Hence, African leaders have to recognise that in the short term, there are going to be some ups and downs but the key is to remain committed to the long-term vision.
The major setbacks in eradicating poverty in low-income societies
Perhaps the biggest challenge is achieving sustainability at scale. There are millions and millions of people living in poverty in Africa, so we need to make sure we are achieving impacts at scale. This is what we haven’t seen enough of yet: sustainable, scalable businesses that can serve tens or hundreds of thousands – or even millions – of Africans.
To make these investments worthwhile, we need to better understand best practices and how to we build successful, scalable enterprises in low-income markets in the Base of the Pyramid (BoP) communities. When we think about best practices, we have to realise that operating businesses that serve low-income communities is different from operating ones that serve wealthier members of society. Thus, we need frameworks, tools, and practices that are specific to serving this segment. Until we do this, we will continue to see enterprises struggling to innovate, re-inventing the wheel, and making mistakes that they should be avoiding. To do well, enterprises need to realise what works and why and from that foundation, we can build a more robust set of enterprises that serve the low-income segments of Africa.
What can be done to support the expansion of small businesses in rural communities?
There are two pieces of the puzzle we need to think deeply about; one is co-creation and the other is collaboration. The idea of co-creation is that as these enterprises want to expand, they need a better sense of the business opportunities in other markets. To obtain that, they need to co-create a value proposition with those they seek to serve. And for that to happen, we need richer, more robust efforts towards collaboration where everyone is seen as an equal partner that is treated with respect. There aren’t donors and recipients, but colleagues and partners. We don’t need more models that are bottom up or top down, but rather, approaches that embrace collaboration based on mutual respect and co-creation. Only then can we unlock the power of enterprises in an even more significant way. The idea is that if those at the base of the pyramid could do it alone, they would have done it. The same is true for those at the top. It’s together, leveraging the best of each, where we can achieve great things; it is about co-creation based on mutual respect.
Moreover, we need to better understand the kinds of investments required to support enterprises seeking to reach BoP markets. While financial support and policy enhancements are important, they are not the only key levers. We must identify the other gaps that are preventing these enterprises from being successful. What are the types of partners and resources these enterprises still lack? We must avoid creating solutions that over-emphasise one limitation and fail to address others.
Attracting the Private Sector to CSR/Sustainability Practices
Although it seems that the African business environment is experiencing difficulty in incorporating inclusion, CSR, and even sustainability into their operations, they can be influenced to some degree based on how these issues are presented to these companies. If we think of them as expectations or responsibilities, then companies will achieve, but at a more modest level. If we present them as opportunities, we are going to generate more interest. These opportunities could be about identifying profitable new market entry openings, improving company reputation and employee retention, or building impactful legacy for the leadership team. If we frame this as an opportunity and not just a responsibility, we’ll have even greater success.
How governments can support inclusive and sustainable businesses
One thing countries can think more about is ensuring that the right ecosystem of partners and partnership support is in place to facilitate inclusive business development. Clearly, this involves policies and regulations, such as import duties and business registration, as well as how to enable more poor people to get bank accounts. These policies, however, also have to be wrapped around the idea of encouraging other partners, donors, multilaterals, and bilateral organisations to also invest in building the ecosystem needed to allow inclusive businesses to flourish.
Therefore, we need to get the policy environment right, and we need to have the other pieces in place to help build enterprises and to build the right ecosystem of partners requires the right policies and business environment.
How can businesses build standard models that can generate value (in terms of profit) and at the same time not burden low-income earners?
The idea here is that we need to build partnership ecosystems to support enterprises’ aspirations. In the United States and every developed country, the government and other interested stakeholders provide a variety of support to enterprises, ranging from free-of-charge business advice, to low-cost access to capital, to small-business-friendly regulations. In African low income markets, we need to think more about the full ecosystem of support that these enterprises require. Think of impact investing, which is providing a new type of capital to inclusive business. That is a great outcome, but we must go beyond that to understand all the types of support needed. We make sure that government is making smart investments – by identifying the most affecting portfolio of investments in supporting the growth of enterprises serving the base of the pyramid.
Start-up and ecosystem models that have worked for enterprise sustainability
From the perspective of eradicating poverty, what has worked is that these enterprises have thought of achieving sustainability at scale from the beginning. Their goal was not to launch a successful pilot but rather to build a sustainable scalable enterprise. While a pilot or a small initiative is fine, we also need scale if we are to reach the millions of Africans that remain poor and excluded.
Business leaders need to think about what it takes to achieve sustainability at scale and how they are going to achieve this, rather than focusing on what it takes to launch a pilot. These are two different approaches to launching an inclusive business. The enterprise leaders must focus on the opportunity for scale rather than the PR benefits of a small initiative. If these efforts are going to be of real interest to a business, there must be the prospect of significant scale and the enterprise needs to be managed with that perspective from the very beginning.
What about Inclusion Hubs?
We have seen inclusion hubs transform the lives of many people and nations, including the U.S and recently in Africa. However, they are mostly focused on technology. The inclusion hub model for inclusion can also be replicated in other sectors to improve lives, businesses, and nations albeit, with a couple of things that should be embedded in this approach. While we certainly need to think about technology, a bigger challenge is business model. Therefore, in addition to technology innovation, we need to make sure the hubs focus on understanding business model innovation; how we build business models that really work in low-income communities that serve the base of the pyramid effectively.
In addition, the hub has to embrace not only the promotion of enterprises but also building a learning orientation to continually explore what drives enterprise performance in these markets. Too often, the emphasis is on showing how well we are doing, rather than trying to understand what’s driving successes and disappointments. Without a learning agenda embedded in a hub, it’s going to be very difficult to provide the knowledge, tools and frameworks that will enhance enterprise success.
Subsequently, hubs need to think about business models as well as technology; they need to think about learning as well as success. Rather than being designed around sectors, such as agriculture, banking, energy, or health, they could be designed around target markets or different segments, such as rural or urban opportunities. These hubs can focus on collaboration across sectors; linking enterprises that are targeting the same market and helping them create a collaborative business model offers a powerful approach to achieving greater scale and success in BoP markets.
In conclusion, according to Business Call to Action (BCtA), “many inclusive businesses create innovative partnerships, whether between them and governments, NGOs or other non-traditional partners that underpin their value chains. Whether it is NGOs providing technical assistance to smallholder farmers resulting in improved yields for buyer corporations, or governments that act as anchor buyers for inclusive businesses and/or create pro-poor business policies; collaboration between the public and private sector now is the norm rather than the exception”.
*This publication is an excerpt from our Journal (CSRFiles): Building Inclusive and Sustainable Businesses in Africa. It can be accessed on www.sustainableconvos.com