THE ROLE OF ENTERPRISE
DEVELOPMENT IN THE PROVISION OF RURAL INFRASTRUCTURE SERVICES IN DEVELOPING
COUNTRIES
By
Malcolm Cutler
Managing Director
FSC Development Services Ltd
(A paper presented to the annual TAA/IAgrE/ICE joint seminar 'The Tractor Factor - Ploughing a road out of poverty' held at the Institution of Civil Engineers in November.)
INTRODUCTION
The
previous speakers have ably demonstrated the uses and roles, of tractors and
other agricultural based equipment in agriculture and road maintenance in two
developing country scenarios. This
shows the potential, through the use of such equipment, to increase both farm
productivity and improve rural infrastructure.
However, as we all know, in developing countries most farmers and rural
entrepreneurs do not have the income to purchase such expensive equipment.
In
the past many of the tractors and equipment found in developing countries,
particularly Africa, have been provided through direct aid from international
donors. In most cases lack of sustainable
business opportunities and little or no care and maintenance, has resulted in
them being quickly consigned to the scrap heap. Therefore, if local people are going to benefit from the
introduction of such equipment new ways have to be introduced to help ensure
both their affordability and their long term sustainable use.
Fortunately
there is now a growing realisation in the international donor community that
the private sector can positively contribute to their development programmes.
In
this short paper I would therefore like to illustrate the potential for new
Public - Private Sector Partnerships (i.e. donors and the private sector
working together to promote growth in developing countries). The benefits may
include the introduction of new business initiatives, together with enterprise
and business development programmes, that can strengthen the private sector,
leading to increased job opportunities, income generation/flow and help to
improve living standards and reduce poverty, in rural areas.
ENTREPRENEUR
& BUSINESS DEVELOPMENT
Why
do we need entrepreneur and business development?
Rural
areas often provide few business opportunities and many of the entrepreneurs
and businessmen/women are unaware of how to run a modern and sustainable
business. Therefore, if only business opportunities are introduced the
local entrepreneurs will not have the capacity to take advantage of them. Conversely, if we only upgrade the
capacity of the entrepreneurs i.e. through training, their hopes will be raised
and the training will be largely wasted as there are no business opportunities
or jobs i.e. a “Catch 22" situation.
Therefore it is essential that the introduction of business
opportunities and entrepreneur development go hand in hand.
I
would like to give an example from Ghana as to how entrepreneur support can
assist in a business’s development. In
Ghana my company has helped to implement and manage an enterprise development
programme, EMPRETEC, on behalf of the
UK Department for International Development
(DFID). One of the early
applications the programme received was from a local entrepreneur who ran a
small tyre repair business and had managed to attract donor funds and acquire
some new tyre retreading machinery.
However, he did not know how to assemble it nor could he raise the money
from local banks for working capital e.g. tread rubber. He then enrolled on the EMPRETEC training
course for entrepreneurs. This not only taught him business and management skills,
but also provided him with assistance with approaching the banks for finance
and short term technical assistance through BESO (British Executive Services
Overseas). As a result of this
assistance the equipment was ready for operation within 6 weeks and the banks
had the confidence to lend him the required working capital. Within weeks his company was fitting tyres
onto British High Commission vehicles and subsequently the company has gone
from strength to strength.
Another
example is an NGO in Kenya which is training farmers in conservation farming
techniques, introducing simple business and financial training and organising
local markets where the farmers sell their “conservation quality”- often
pre-packed - produce.
You
can see from these examples that given appropriate business training, access to
finance and technical assistance, entrepreneurs (who are not necessarily good
businessman) can develop their business and management skills and thereby
provide jobs which lead to increased incomes and higher living standards. I must stress that although subsidised, the
entrepreneur has to contribute to the costs of the services provided, thus
learning the first lesson in business - nothing worthwhile comes for free!
Therefore,
to assist the private sector and specifically local entrepreneurs to
successfully expand, assistance largely financed through the public sector i.e.
donors, needs to be given in the following areas:
·
Entrepreneur/Business
Training
-
Financial
management, marketing and quality
-
Delegating,
building teams and people management
-
Business
planning/strategy and business plan production
·
Business Support Services
- General business advice and
support
- Legal and accounting support
- Financial support i.e. links with
banks and other financial institutions
- Mentoring e.g. through larger
local businesses
- Peer support e.g. through local business clubs,
mutual guarantee
schemes
- Communication e.g. internet
facilities, business references library
·
Technical Training and
Support
- Provision of short term expertise
in e.g. production, marketing, finance
- Longer term management support
- Market access
·
Labour Skills Development
Expanding
businesses need an increasing pool of skilled labour and "middle"
management. The facilities therefore
need to be in place to train local people, who previously may not have had
employment experience, in accepted employment practices e.g. time keeping,
loyalty and honesty, as well as the skills required by all business, for
example secretarial, bookkeeping and general administration.
·
Local Enterprise Support
Infrastructure
As
the number of businesses in an area grow there will also be a need for
independent support services which are businesses in their own right e.g.
financial services who understand the needs of small businesses, secretarial/copying/communication
services, accountants, lawyers and consultants.
As stressed at the beginning
of this paper equipping entrepreneurs with business and management skills will
be largely wasted unless the opportunities are available to put their new-found
skills into practice.
Where
business opportunities do exist entrepreneurs often either do not have the
money to pay for the equipment needed to deliver the services or the
customer, although wanting the service, cannot afford to pay for it. Both of these restrictions are commonplace
within rural communities in many developing countries. Many people would argue that this is a situation
that can only be changed by the people themselves, through their own endeavours. Whilst I would not necessarily argue with
this, time is not on their side with the result that living standards continue
to fall and poverty increases.
In
the past the public sector has been very suspicious of business and its profit
motive. There is, however, a new wind
blowing through the donor community which now recognises the need to develop
partnerships between the private and public sectors through which new business
opportunities can be generated, resulting in increased rural employment and
incomes.
Previously
those governments/donors, who recognised the need for business
development, often introduced enterprises that were inappropriate to both a
particular region and people e.g. in Tanzania.
This resulted in a high proportion of business failures, the destruction
of people's ambitions and the waste of taxpayers money. A positive alternative would be the introduction of businesses which
not only build on existing rural enterprise skills such as farming and
agricultural contracting and utilise local labour, but which also enable people
to upgrade their own, mainly agricultural enterprises, through widening the use
of agricultural equipment.
Taking
the greater use of tractors, power tillers and other machinery as an example,
their use in both the agricultural sectors and in the maintenance of the rural
environment could generate additional opportunities to increase rural
incomes. At the present time tractor
usage in developing countries is very low, due largely to the low levels of
income in the agricultural sector.
However, it is widely accepted and proven that their use could greatly
improve agricultural production and productivity. Therefore there is a need
to introduce other, compatible, opportunities which could broaden the use of these
tractors and allied equipment and provide local entrepreneurs with the
potential income base to enable them to purchase them in the first instance.
Such
an opportunity could develop through the wider use of agricultural tractors and
equipment in local road maintenance and construction, power/telephone line
laying and the construction of water storage/distribution and sewerage
services, as examples.
If
local entrepreneurs were given the necessary entrepreneur and business
development support and encouraged to deliver these services, sustainable enterprises could be created. As I will later explain an all-important
component of these services is that they are based on fixed contracts.
Many
schemes involving road maintenance and construction are already financed by
donors so the additional costs of involving and equipping local entrepreneurs
to enable them to provide services to these schemes, would be relatively
low. In many countries there are also
existing donor funded enterprise development programmes e.g. Mwazi Khali in
Kenya, which could be used to deliver the enterprise development component.
Therefore, the “kick starting” of local enterprises, to provide services to the
new business initiatives in the region, need not necessarily result in excessive
cost to the donors.
However, the introduction of new business initiatives will only be successful if the entrepreneurs also have access to the relevant financial and technical facilities:
As
we are well aware most banks are not known for their generosity towards small
and medium sized businesses (SMEs), particularly those in rural areas. This is
understandable given their lack of collateral and, in many cases,
credibility. However, new business
initiatives will provide the local entrepreneur with fixed contracts, which
will help to give the banks the confidence required to finance the purchase of
the necessary equipment. Where there is
still a problem because of the lack of collateral, especially for the purchase
of larger equipment, other financing sources such as leasing need to be
explored, together with a combination of donor based guarantees and/or mutual
guarantee schemes i.e. guarantees provided by a group of people.
Smaller
entrepreneurs, such as individual farmers, could still find it difficult to
afford expensive capital equipment so additional enterprises renting equipment
and providing service facilities, also need to be encouraged.
Equipment
Supply and Support
These
new initiatives will provide additional sales opportunities for equipment
manufacturers and suppliers, however, their support over and above simply
selling their products is essential if the new initiatives are to be
sustained. In particular manufacturers
and importers must assist with:
·
Providing
the right product, built for the use and conditions and ensuring local staff
are competent in advising the buyers.
·
Ensuring
efficient and affordable service and spares parts back up.
·
Working
with donors and local financial institutions to provide practical and flexible
finance packages.
·
Working
with local manufacturers in order to offer affordable additional equipment e.g.
trailers, grader blades etc.
In
addition to the direct benefits to the local community, that will result from
the introduction of new business initiatives in the area, new employment and
agribusiness opportunities will also develop.
The
local enterprises “kick started” by the new business initiatives will provide
additional employment opportunities for local people through a number of
different channels:
·
Direct
employment by the local enterprises e.g. local labour, drivers, etc.
·
As
the money earned filters through into the local economy more jobs will be
created, either directly related to the new enterprises e.g. equipment service
and supply, or in the consumer sectors e.g. shops, food stalls.
·
Local
skills usage.
·
The
presence of new jobs in the area will give people more incentive to actively
seek work and training and to stay and work locally.
·
New
jobs will be created which women can undertake.
As
a result of the new business initiatives new equipment and increased business
knowledge will be introduced. The local entrepreneurs e.g. farmers and
contractors, will also be able to use this equipment and business
understanding, to improve local farm production and productivity. This will have a direct effect of raising
not only their incomes, but also increasing the amount of money circulating within
the local economy.
Rural
economies, especially in developing countries, are stagnating due to lack of
business opportunities and investment and need to be “kick started” if they are
to survive and grow. Neither the public
nor the private sector can solve this problem on its own. Therefore, it is suggested that new
public-private sector initiatives as discussed in this paper, will help to
broaden the commercial opportunities for rural entrepreneurs whilst at the same
time equipping them with the business and technical skills to take full
advantage of these opportunities.
Such initiatives could
contribute greatly to sustainable employment and increased incomes in rural
areas and in turn would have a direct effect on reducing poverty and raising
living standards.