At the FCV Forum, a focus on jump-starting job creation: Boosting SMEs amid woes of Fragility, Conflict and Violence

Jump-starting job growth is difficult enough when a country’s investment climate is supportive, when its government has clear goals and competent capabilities, and when its business leaders can make far-sighted plans. When an economy is wracked by the chaos of war, or when it is newly emerging from a severe social trauma, channeling capital toward private-sector job creation is even harder.

Amid this year’s FCV Forum at the World Bank Group – focusing on economies gripped by fragility, conflict and violence (FCV) – a seminar combining Financial Sector and Private Sector priorities heard a sobering picture from expert practitioners who have been on the front lines of promoting job growth in economies that are in turmoil. Moderated by John Speakman, the Lead PSD Specialist in the Bank Group’s practice on Trade and Competitiveness – who is the author of a new book on small-scale entrepreneurs in FCV situations – a panel explored the daunting challenges of promoting private-sector growth when countries are in turmoil.

Would-be job creators confront an enormously complex task in FCV situations. Yet the panelists agreed that there is reason for hope – even in the most tumultuous FCV conditions – if financing can be targeted toward promising startup companies, and especially toward potential “gazelle” firms that can energize new sectors of the economy.

“Ultimately, it’s all about money: Poor people are poor because they don’t have money,” said High Scott of KPMG, who leads the Africa Enterprise Challenge Fund (ACF). “It’s the delivery channel – the financing mechanism – that’s making the difference” in the 23 African countries where the ACF has offered grants and interest-free loans to about 800 private-sector firms, producing a net development impact of about $66 billion.

The difficult business environment and increased risk profile in FCV countries means that traditional lenders (primarily banks) are all the more hesitant to lend, said Scott – making such vehicles as “challenge funds,” which focus on promising small and startup firms, even more important. As Bank Group consultant Sadaf Lakhani noted, the “ecosystem problem” for Small and Medium-sized Enterprises (SMEs) and startups is all the more complex when countries face “a political economy of war.” As she had observed during her earlier work with a nonprofit financial intermediary, such frequent FCV afflictions as corruption, patronage, fragmented markets and capital flight make it even more difficult for managers and lenders to identify, evaluate and accelerate startups.

Bank financing, in fact, is not always a ready source of funds for startup ventures, as noted by Simon Bell, the Global Lead on SME Finance at the Bank Group. Banks weigh the historical profit-and-loss performance of would-be borrowers – yet the entrepreneurs who are behind the “small sub-set of firms,” like the so-called “gazelles,” that are destined to create jobs quickly have little or no financial track record. Startups are thus often viewed warily by risk-averse bankers. Drawing on his long experience in the MENA region, Bell underscored that a priority in FCV states is ensuring that there is “a continuum of financial institutions and services” – like early-stage financing, private equity, venture capital and angel financing – that can provide critically important financing at various stages of a dynamic company’s growth.

To help give a boost to startups and young firms, the International Finance Corporation has created several financing mechanisms that are having a positive impact on job growth. The SME Ventures Program, created in 2008 with a $100 million allocation from IFC, has aimed to reach businesses in the poorest of the poor countries, often in FCV situations, said its Program Manager, Tracy Washington. Having financed about 60 SMEs, and having already supported the creation of about 1,000 jobs, the SME Ventures Program has had a positive “demonstration effect,” inspiring new entrants to serve the marketplace once they have witnessed IFC’s strong performance. In addition, IFC’s Global SME Finance Facility, described by Senior Investment Officer Florence Boupda, has provided investment capital and advisory services to 27 financial institutions in 18 countries since 2007 – including 17 projects in seven FCV countries.

The challenge for the future, agreed Boupda and Washington, will be to find additional ways to combine Bank Group interventions in ways that continue to choose companies with the greatest potential and that maximize the impact of Bank Group support. Their insights were underscored by Bell, who emphasized that “globally, employment is our issue” – and who asserted that “there are points of light all around” in this “very exciting” area, as various arms of the Bank Group focus on “the employment imperative.”

Finding ways “to apply the most innovative solutions to the most challenging situations,” especially in FCV and other traumatized countries, remains the grand challenge for international financial institutions, concluded Michael Botzung, IFC’s manager for fragile and conflict-affected countries in Sub-Saharan Africa. Yet the determination of the energetic practitioners on the SME financing panel reminded the FCV Forum audience why there is cause for hope – and why, in Speakman’s words, the intensive WBG-wide efforts to promote job creation in the toughest FCV situations is “one of the things that makes us proud to be with the World Bank Group.”

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Wanted: Your innovative thinking around Public-Private Partnerships – essay competition

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Do you know of innovative Public-Private Partnerships (PPPs) in emerging markets that are delivering better services for people? We’re trying to find out about more of these examples through a Public-Private Partnerships (PPP) Short Stories Competition.

Experience shows that well-designed PPPs can be an important development tool, and can enhance delivery of basic infrastructure services to those who need it most. By allocating risks between public and private parties, introducing new technology and improving operational efficiencies, PPPs can help governments maximize the effectiveness of scarce public funding.

We also know that some PPPs haven’t met expectations. And we know that PPPs are not a panacea for solving all gaps in services. They need to be used selectively. So we’re trying to identify and share lessons from successful PPPs around the world, so that governments, civil society, consumers, investors and the environment can all benefit.

We’re sure that there are many good stories out there that not enough people know about. We’re hoping to hear from students, practitioners, policymakers and anyone interested in PPPs. From these submissions, we hope to identify practical solutions that can be applied by governments.

Here’s the competition website to submit your case studies, essays, and video submissions on innovative solutions for PPPs. Please forward this to your networks. We welcome submissions in English, French and Spanish. Submissions will be judged by an independent panel using several criteria, including the identification of actionable ideas, replication potential, and relevance to the World Bank Group’s twin goals: ending extreme poverty by 2030 and boosting shared prosperity (measured as the income of the bottom 40 percent in any given country).

The winner(s) will be invited to offer a presentation at a major PPP event in London in mid-June, and there is a cash prize as well.

The deadline for submissions is March 31, 2015. I invite you to follow us on twitter @WBG_PPP to keep up with our work and PPP-relevant news.

The competition is sponsored by the Public Private Infrastructure Advisory Facility (PPIAF).

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The Hype and Hustle of African Tech Startups

This article was originally published in SXSWorld Magazine

Hardly a day goes by without an African tech startup being featured in the mainstream media. CNN regularly updates its special report on the topic; The Guardian covers local debates surrounding emerging ecosystems; The Financial Times tracks Africa’s mobile revolution; Forbes has extended its “Top 10” series to include African female tech founders; Vanity Fair pins its hopes of “continental lift” on entrepreneurs. Blogs, opinion pieces and social media cover the sector in even more granular detail. Judging by VC4Africa’s 2015 report on venture finance, perspectives on African incubation and funding models, and the entrepreneurship program announced by Nigeria’s investor and philanthropist Toni Elumelu, it would seem that the African tech sector is among today’s most dynamic industries.

Amid the buzz, many investors are asking: “Is the hype warranted?”

According to VC4Africa, matchmaker of very-early-stage startups and investors, investments through the platform more than doubled in 2014, rising from $12 million to $26.9 million, while the average investment grew from $130,000 to more than $200,000. Their research shows that 49 percent of ventures start generating revenue in their first year and that 44 percent are successful in securing external investment. More than 75 percent of these are in the technology sector, with agriculture, health, finance and energy startups also represented.

Further along the growth path, a smaller number of startups have recently netted over $300 million from a very diverse set of investors, according to CBInsights. 

Recent Investments in African Tech Startups
Adapted from: https://www.cbinsights.com/blog/african-tech-startups

At least eight companies have acquired growth capital in Kenya in 2014, along others in Nigeria, Egypt, Ghana, Tanzania and South Africa and elsewhere.

New early-stage funds and angel networks in or focused on Africa are also on the rise. Among others, three models stand out: London-based NewGenAngels a collaboration between African and European networks (GAIN, EBAN and AAN); Kenya’s Savannah Fund, a partnership between Erik Hersman (iHub, Ushahidi and BRCK founder), i/o Ventures, 500startups and Draper Associates L.P.; and RENEW, linking American and African investors and startups.

Many early stage investors are still learning from their own experiences and adjusting their strategies accordingly. For instance, while most are bullish on Kenya’s tech scene, 88mph, an African seed fund has put further investments in Kenya on hold, while pursuing opportunities in Nigeria’s booming tech sector.

African entrepreneurship ecosystems have also benefited from a large number of technology incubators, accelerators and coworking spaces, connected through networks such as AfriLabs and backed by private sources, such as MEST in Ghana, and public-interest projects, such as infoDev’s mLabs and mHubs.

According to VC4Africa, the increase of capital is driven by three key trends: growing interest in startups from the African diaspora, the rise of local angel investors, and an increase in cross-border investments.

All of these instigate a positive change beyond investment returns; they set in motion a chain of opportunities in emerging and frontier economies. As Stella Kariuki, founder of Zege Technologies, once told me: “I want to be the change I want to see. [. . .] We build solutions that could be global but also solve African challenges practically.” Many of the startups serve consumers at the Base of the Pyramid — the three billion people globally who live on less than US$2.50 per day, a market that is still largely underserved when it comes to basic services such as energy, education, health and banking.

It seems clear that investors and startups in Africa are getting to know each other better and are making more and better matches possible. This is an important step in reducing “the missing middle”: the absence of financing beyond the earliest stages of a company’s growth. As enterprises enter national or regional markets, their capital requirements increase exponentially. Without private and public sources of investment, these requirements stifle all but the independently wealthy entrepreneurs and those with established business networks. A diverse resource base for early-stage firms democratizes the opportunity for growth-oriented entrepreneurs and increases the overall potential of the local creative class.

So is now a good time to invest in African technology startups? The answer is yes, as long as investment decisions are made with care, patience, and in partnership with local investment communities.

Maja Andjelkovic co-leads the Digital Entrepreneurship Program at infoDev, a global program in the World Bank Group that supports growth-oriented entrepreneurship in emerging and frontier markets in the tech, climate and agribusiness sectors. Maja is interested in the potential of entrepreneurship to contribute to economic, environmental and social development. She has spent over 13 years connecting these fields, including as product manager in a web startup. She is a PhD student at The University of Oxford’s Internet Institute.

infoDev / the World Bank Group is organizing two sessions at Startup Village at SXSW Interactive 2015; one on the dilemmas and questions surrounding investing in tech startups in emerging markets, and the other on scaling up and accelerating technology innovation in Africa.

Angel investors interested in forming or growing their own local networks can benefit from practical advice and templates in a guide for angel investor groups published by the World Bank’s infoDev program and the Kauffman Foundation.

Sean Ding, Angela Bekkers and Jeremy Bauman contributed to the article.

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The Genie in a Bottle: How Bottled Biogas Can Contribute to Reducing Kenya’s Dependence on Fossil Fuels

Growing up, I always dreaded to enter my grandmother’s kitchen in the village. She used firewood to cook: There was such a dark, thick smoke in the room that I couldn’t breathe or keep my eyes open. I really don’t know how my grandmother could spend hours and hours in there, every day, for so many years. And unfortunately, my grandmother is not an isolated case. More than 90 percent of Kenya’s population uses firewood, charcoal or kerosene for their daily cooking needs.

I always dreamed that clean sources of energy would make Kenyans more independent and less exposed to the serious health risks posed by fossil fuels. In rural areas, most women like my grandmother rely on firewood; its consumption not only depletes our forests but also emits hazardous smoke that causes indoor pollution and eventually respiratory illness. In areas where firewood is scarce, women have to use cow dung as fuel, an option possibly even worse in terms of pollution. Urban areas are affected too: The poor rely mostly on charcoal, another biomass that has the same negative effects and health risks of firewood.

Cleaner fuel options have already been developed but are often too expensive or too difficult to transport across the country to be adopted by a large part of the population, especially by the 40 percent of people at the base of the pyramid.

So what can be done? How can we make clean fuels more affordable and accessible?

I first heard about bottled biogas when I visited a “green” slaughterhouse in Kiserian, Kenya. I was really impressed: My dream of a cleaner, more affordable and easily accessible fuel was right there before my eyes.

The Keekonyoike Slaughterhouse found an innovative way to produce affordable biogas and package it for distribution all around the country. Using a special bio-digester, this business can turn blood and waste from a community-based Maasai slaughterhouse into biogas for cooking. To facilitate transport, the firm stores the fuel in recycled cylinders and used tires, reducing even further the environmental impact of the operation. Just to give me a better idea of the “green” potential of his business, the manager told me that this first biogas plant is expected to cut methane emissions by more than 360,000 kilograms per year (the equivalent of almost 2,000 passenger vehicles).

Indeed, “bottled” biogas (biogas compressed into a cylinder) has huge potential in Kenya: Farmers can directly produce it, recycling the waste from their farms; can use it for their cooking needs; and, thanks to the bottling process, can sell the excess on the local market, generating income while saving the environment.


The Genie in the Bottle

Keekonyokie is a company that began operations in 1982. It runs an abattoir that slaughters about 100 cows per day to meet the meat demand in Nairobi and its environs. In 2008, with the support from GTZ, the company constructed two 20-foot-deep biogas digesters that would help manage the abattoir waste, which was becoming a menace and a health hazard. Within a short time, the biogas being produced from the digesters was more than the company could absorb. The company managers started thinking of compressing and bottling the excess biogas, but they needed support to test the technical and commercial viability of their idea.

When infoDev’s Kenya Climate Innovation Center (KCIC) opened its doors in October 2012, Keekonyokie was one of the first companies to be admitted.

 

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Tumbleweed rolls through West African resorts: Ebola and tourism crisis management

Jean-Marie Gaborit has been operating his beautiful wetland lodge in the Delta de Saloum in Senegal for 12 years, but he says things have never been so quiet. The European winter months are usually the high season for popular West African destinations, with the beaches, hotels and restaurants packed full of sunshine-seeking tourists. “It’s this Ebola” he sighs, and then adds “even though there is none here.”

It’s the same story in the Gambia, and effects are even felt further afield in Kenya, Tanzania and Botswana. The Hotels Association in Tanzania (with over 200 members) says that business is down 30 to 40 percent on the year and advanced bookings, mostly for 2015, are 50 percent lower. In South Africa, some 6000 kilometers from the nearest Ebola outbreak, arrivals are down this period by as much as 30 percent. In some cases, airlines (such as Korean Air) have stopped running – even to non-affected countries like Kenya. Across the board, Share values of international tour operators have fallen, hotels have closed, and thousands of tourism-industry workers have been made redundant.

The Accommodation Manager at the Baobab Hotel in Saly, Senegal admits he has laid off 160 staff in the last few months: “When we are full, we have a ratio of one employee for one room. We have 280 rooms and right now 100 of them are occupied. I have 20 extra staff that I can’t afford, but their contracts mean that I can’t let them go.” About 80 percent of those staff members are from the local area, and they directly support seven to 10 dependents. For countries that rely on tourism for a large part of their GDP and foreign-exchange contributions, the loss of revenue is significant. In the Gambia, for example, where tourism accounts for 13 percent to 15 percent of GDP, the target of 7.5 percent economic growth for 2015 will be missed.

Misinformation lies at the heart of the problem. Although many foreign governments have declared Senegal and the Gambia to be Ebola-free, spreading this message to tourists has proved incredibly difficult. Noisier news reports of death tolls, medical-staff shortages and NGO-promoted appeals in affected countries have drowned out other voices. Moreover, those reports play to international prejudices. With the overwhelming foreign perception of Africa as one country, the problem has no boundaries.

The World Bank Group will be supporting the Government of Senegal in implementing a communications strategy with an emphasis on briefings for key tour operators and the provision of hard data. Best practice shows that such management is more effective if it is planned ahead, and if it includes the preparation of a task force involving decision-makers from both the private and public sector – including a public-relations team, a recovery marketing team, an information-coordination team and a fundraising team. Moving into crisis recovery, a series of medium-term resilience measures – such as incentives, matching grants, training and sustained promotion – may be appropriate.

Social media has played its part in trying to combat misunderstandings, with Twitter and grassroots campaigns pushing material such as this infographic, but there needs to be a much-better-coordinated response.



Crisis communications consultant Jeff Chatterton has been working with a number of African Tour Operators since the outbreak of the virus. He cites hard information and empathy as two of the most important tools to deploy at this stage of the crisis. According to Chatterton, prospective tourists who are hesitating over an African booking need to feel that their concerns are listened to, acknowledged and understood. Once this has been established, they will be more inclined to engage with fact-based information, which needs to be clear, transparent and accurate. He sees two big problems with tourism businesses: a reactive approach that is not reaching out and communicating to key audiences, and a downplaying of the problem that undermines and belittles consumer. “About the worst thing you can do is dismiss their reality as inconsequential,” he says.

There is a critical role for government to play in crisis management and disaster recovery. Lessons can be learned from the outbreak of Foot and Mouth Disease in the UK in 2001. The UK’s Department for Environment, Food and Rural Affairs (DEFRA) identified the direct costs to tourism as a loss of expenditure of between £2.7 and £3.2 billion. At the national level, the tourism industry’s representatives blamed the British Tourist Authority for failing to react sufficiently and effectively, without an appropriate crisis-management strategy in place before the outbreak.

For the World Bank Group and other development partners, a greater emphasis on crisis-management support at the sector level could be an important pro-active means of stepping up our engagement with client countries – before disaster strikes. With the rising threat of terrorism attacks across the world, along with their devastating impact on tourist demand, the most prepared destinations will have a competitive advantage and will be better equipped to limit the damage to the economy and to people’s livelihoods.

For now, hotels in Senegal have slashed their prices and are concentrating on supplying the small domestic market, but operating at a loss is not sustainable for long. The booking season for 2015 is almost over, with no sign of recovery – meaning that businesses such as Jean-Marie’s face at least another 12 months of empty beds.

 

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Mind, Society, and Behavior – and Financial Inclusion

Like many World Bankers, I took some time recently to look through the newly released 2015 World Development Report “Mind, Society, and Behavior.” From my perspective, in the Finance and Markets Global Practice, one thing jumped out immediately: The report is packed with insights that are directly relevant to our work on financial inclusion.

In the Overview alone, the reader is met with an abundance of findings related to consumer protection, financial capability, savings and other key topics involving financial inclusion (grouped together under the theme of “household finance,” which is fully explored in Chapter 6). We’re told of how changes to the framing of payday-loan terms dramatically altered borrowing behavior in the Unitedc States; how embedding financial messages in an engaging television soap opera in South Africa improved the financial choices of viewers; and how SMS reminders increased saving rates in Bolivia, Peru and the Philippines.

Of course, this is not the first body of work to summarize key behavioral lessons learned from decades of careful research on financial inclusion: See, for example, Chapters 6-9 of Banerjee and Duflo’s Poor Economics or the Bank’s 2014 GFDR on Financial Inclusion.) But these examples do help drive home the key message of the report: Paying attention to how people think, and to how history and context shape their thinking, can improve the design and implementation of development policies and interventions that target human behavior.

The report highlights that psychological impulses such as present bias, loss aversion and cognitive overload can lead to poor financial decision-making. For those in or on the edge of poverty, the ramifications of these poor decisions – low savings, chronic over-indebtedness, investment shortsightedness – can be devastating. We are reminded that most adults in developing economies do not benefit from the sophisticated financial tools such as automatic salary deposits, mandatory retirement contributions, or default insurance programs that help mitigate the effects of automatic thinking.

Yet, as outlined in Chapter 6, there are a range of interventions that have been shown to help address behavioral constraints on financial decisions in a developing-country context. Many of those interventions take advantage of what we know about the natural processes of the mind, using techniques such as framing, default settings and emotion persuasion to nudge people toward better financial decisions.

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The Telecom Sector Leads Private Participation in Infrastructure

Recent data from the World Bank’s PPP Group and PPIAF show that the telecommunications sector led private participation in infrastructure in emerging markets in 2013. At $57.3 billion, the telecoms sector barely edged out energy, with both representing 38 percent of total PPI. Although total PPI sank by 24.1 percent in 2013 compared with 2012 levels, the telecom sector fell by only 7 percent, demonstrating its relative resilience.

Unsurprisingly, more than half of PPI telecom investment is in the mobile access segment. The top five projects in the telecom sector in every region are in mobile. The next-largest segment is multi-service providers, with 44 percent of all investments.

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