About 12 years ago, one of my World Bank Group colleagues told me that his team had just launched an incubation program and I should join the unit. “Incubation?” I asked. “What does that mean?” I’ve always believed that a strong domestic private sector is the key to a sustainable development path for developing countries. So I decided to make the leap and, fast forward 12 years, terms like SMEs, start-ups, incubation, acceleration, and business development services have become part of my daily vocabulary.
Over the past 10 years, I’ve had the chance to meet many entrepreneurs, policymakers, and investors. I saw them succeed, and I saw them fail. Most importantly, from their experiences, I learned a few important lessons.
1) Growth aspirations
We should never forget to distinguish between entrepreneurs who have a small business to sustain their families — necessity entrepreneurs — and those who have ambitions to become market leaders — opportunity entrepreneurs. Why? Because they are driven by different incentives, face different challenges, and have different chances to scale their companies.
2) The lifecycle of an enterprise
The lifecycle of an enterprise refers to different stages that define the evolution of a business — from idea to prototype, from initial sales to profitability, expansion, and growth. This sounds very linear but it is, in fact, a roller coaster. And unfortunately, as opposed to real roller coasters, which are usually pretty safe, many firms fall off the ride and, among those who stay on, most don’t grow. In OECD countries, out of 100 firms that start, only seven actually grow.
Your project or program can target either segment of entrepreneurs but you need to be clear about which one you are targeting so you can manage effectively your — and your stakeholders’— expectations.
3) Unconscious incompetence
How do you know what will unlock the company’s ability to grow? How does the entrepreneur know what the company needs to scale?
The challenge with approaches that wait for the entrepreneur to identify the problem and ask for assistance — the business development services model — is what psychologists call “unconscious incompetence.” Basically, you don’t always know what you don’t know. Think about it: what do entrepreneurs always answer if you ask them what they need? ...finance! How about customers?! How about management and processes? I’m not saying finance is not needed, but it is an over-stated need …or perhaps as marketing professionals would say – a “want,” not a “need.”
A comprehensive diagnostic of the enterprise would identify the correct pain point. In many cases, the “need” is actually not finance, but rather “profitability” and “growth.” It may be external finance, or it may be more customers or higher efficiency that gets you there.
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In a first for Africa’s Sahel region, entrepreneurs from Senegal to Chad assembled in Niamey, Niger, for the SahelInnov Expo last month to showcase their businesses and exchange ideas. From livestock to drones, all sectors were on display as a new generation of entrepreneurs and start-ups emerges with bold and innovative ways to address the challenges facing their countries and communities. Increasingly recognized as a strategic path to economic growth, supporting SMEs and entrepreneurs has a key impact on development and is generating more interest from governments in the Sahel.
Michaëlle Jean, the Secretary General of the International Organisation of La Francophonie, His Excellency Mahamadou Issoufou, the President the Republic of Niger, and Almoktar Allahoury, the CEO of CIPMEN.
Photo Credit: CIPMEN
Hosting the event was Niger SMEs Incubator Center (CIPMEN) whose CEO, Almoktar Allahoury, lauded the initiative. “This is the first time all stakeholders have come together: entrepreneurs, public officials, investors, academia and development partners in one place to discuss the many opportunities and remaining obstacles for the private sector — this is just what we need to take the region to the next level.”
Indeed, entrepreneurship could be especially important for this extremely poor region, with half the population living below the poverty line. Burkina Faso and Niger, for example, are among the fastest-growing economies in the world, yet their GDP per capita are just $395 and $652 respectively, compared to the Sub-Saharan African average of $1,647. A vibrant and active entrepreneurial ecosystem would therefore not only boost economic diversification and improve productivity, it also could prove the vital lever to tackling two of the Sahel’s biggest challenges: youth unemployment and climate change.
The devastating combination of climate change, mass migration, trafficking and the rise of violent extremism has resulted in recurring humanitarian crises and massive food insecurity, affecting more than 20 million people across the Sahel in 2015. Enduringly high birth rates, furthermore, will require millions of jobs to be created to respond to the needs of a rapidly growing and increasingly young population. Institutional reach remains weak and a state of protracted insecurity has taken root over vast swathes of territory.
Following the Paris deal on international climate change, governments are beginning to explore new financing mechanisms for investing in the growing low carbon economy. Over the next decade . Recognizing the untapped potential of SWFs, two key questions emerge: how can SWFs increase their exposure to green asset classes? And what are the constraints?
Investors and financial institutions are becoming increasingly aware of the risks associated with fossil fuel projects and are showing growing interest in green bonds and other financing tools that facilitate investment in low-carbon energy solutions.
Being patient investors, with longer term investment horizons than many others in the financial services sector, . In the November 2016 annual meeting of the International Forum of Sovereign Wealth Funds in Auckland, participants highlighted that SWFs are particularly well-positioned to become trailblazers in green investment. The majority of members are oil-based SWFs which are looking to economic diversification of their finite carbon wealth into industries and sectors that would yield broader societal, economic and financial benefits.
A market in Ramallah, West Bank. © Arne Hoel/The World Bank
Snapchat made its historic initial public offering this month with a market valuation of $33 billion, which qualifies it as a decacorn (a firm valued at least $10 billion, compared to a unicorn, which is valued at a mere $1 billion). Snapchat, once the bane of parents as a teenage distraction, overtook Alibaba’s record of raising $22 billion in 2014 and has spawned two 26-year-old multi-billionaires.
It is tempting to be dazzled by the likes of Snapchat, Uber, Facebook and Airbnb and to conclude that the start-up scene is dynamic and thriving. However, the reality is rather different, and perhaps even somewhat grim: U.S. Census data released in 2016 show that new business creation is near a 40-year low. According to a number of researchers, the rate of business start-ups and the pace of employment dynamism in the U.S. economy have fallen over the past decades.
A critical factor in accounting for the decline in business dynamics is a lower rate of business start-ups and the related decreasing role of dynamic young firms in the economy. For example, the share of U.S. employment accounted for by young firms has declined by almost 30 percent over the past 30 years. This statistic has significant implications given that the churning effect of new firms is an important means of reallocating capital and labor from low-productivity to high-productivity activities, which in turn is required for long-term productivity-led growth.
If this were not worryisome enough, the data also shows that since around the year 2000, there are far fewer high-growth young firms being created in the United States. Most start-ups fail, but a very small percentage (between 1 percent and 5 percent, based primarily on data from OECD countries) are innovative and dynamic, grow rapidly and create the most jobs and value, thus making a disproportionate contribution to overall productivity growth.
The likelihood of a start-up in the United States becoming a high-growth firm is now lower than before the year 2000, which is counterfactual in the age of digital disruption. No one is quite certain of the economic, social, and demographic factors behind these trends of declining start-up activity and the dearth of high-growth firms in the United States, but there are a number of theories, including the effects of the Great Recession, generational cultural changes and changing risk appetite of young people, a burdensome regulatory environment, and the increasing importance of large, innovative firms that have adapted many of the appealing features of startups.
A World Bank Group team is exploring the topic of high-growth entrepreneurship in developing countries to examine whether there are similar patterns and trends as in the United States and OECD countries. This study looks at the prevalence and characteristics of high-growth firms in various economies, the attributes of the firm and the entrepreneur, the business environment, and other factors such as the role of foreign direct investment and spillovers/linkages and agglomeration effects. The focus of the study will be also to assess the policy instruments being deployed and how effective are these in providing targeted support to high growth firms.
The Global Entrepreneurship Congress (GEC) this week in Johannesburg, South Africa provides an excellent opportunity to exchange ideas and deepen insights on the challenges of identifying and nurturing high-growth firms. This year’s GEC theme is “Digital Disruption.” More than 4,000 disruptors — entrepreneurs, investors, policymakers and ecosystem builders from more than 160 countries — are coming together to exchange market-specific insights on how to identify and nurture the most innovative high-growth entrepreneurs from across the world to create high-quality jobs, drive productivity-led sustainable growth and find solutions to global challenges.
Photo: Visual News Associates / The World Bank
As we celebrate International Women’s Day, if there is one concept to keep in mind above all others, it’s that gender equity is vital 24-7-365, and not just as a once-a-year observance.
You have heard the argument before and you will hear it again: Economies cannot reach their full potential if half the population is systematically blocked from full participation. This fundamental idea motivates the World Bank Group as it redoubles its efforts to address gaps in gender equality.
Our deepening work to close key gender gaps shows that the issues go far beyond economic inequity. Barriers to women’s full economic participation also impose moral, emotional and at times even physical costs.
We see this in the laws that prevent wives from making autonomous decisions about their careers. We see it in instances of violence against women in the workplace. We see this when harassment occurs at rural border crossings where women traders can encounter threats, and worse, from border guards.
In developing and developed countries alike, women face obstacles to starting and managing a business, to accessing finance, to earning equal pay for equal work, and to owning land or other assets. Many countries maintain laws and regulations that advantage men while discriminating against women, often relegating them to the status of a legal minor.
As Emeritus Professor Linda Scott of Oxford University’s Saïd Business School told us recently, “Women are economically disadvantaged in every country on the planet” and “women’s economic exclusion imposes a significant drag on world economies and societies.”
A key part of the Bank Group’s gender effort revolves around the importance of leveraging the private sector to ensure that reform goes beyond policy statements and creates real economic benefits for women and men. The Bank Group’s Trade & Competitiveness Global Practice (T&C) has developed an approach to gender equity that focuses on expanding market opportunities, enabling private initiative, and developing dynamic economies.
The work we are doing recognizes the entrenched nature of the obstacles to fuller economic empowerment for women. Achieving results at scale will require sustained commitment. But we also understand the importance of realizing near-term progress to catalyze change, and we recognize how interventions in particular countries can show the way forward elsewhere.
The concept is simple: Good results generate more good results.
- women business and the law
- women's political empowerment
- women's property rights
- women's land rights
- women's empowerment
- women's economic empowerment
- International Women's Day 2017
- Law and Regulation
- Social Development
- Public Sector and Governance
- Private Sector Development
- doing business
Israel has one of the most admired innovation systems in the world. With the highest Research & Development (R&D) spending and venture capital investment as a percentage of GDP, the country has positioned itself as a global leader in research and innovation, earning the title of “start-up nation.”
Avi Hasson, Chief Scientist of the Ministry of Economy and Industry and Chairman of the Israel Innovation Agency, was at the World Bank Group last week to share some of the “secret sauce” behind Israel’s success in the innovation and entrepreneurship space.
Hasson highlighted the key role played by public-private partnerships over the last 40 years. Those partnerships have resulted in the establishment of an innovation infrastructure — including educational and technical institutions, incubators and business accelerators —anchored within a dynamic national innovation ecosystem built around shared social goals.
Specifically, to reduce the risk for investors, the government has focused on funding technologies at various stages of innovation — from emerging entrepreneurs and start-ups to medium and large companies. Strengthened by that approach, the Israeli ecosystem is maturing: according to Hasson, mergers and acquisitions have increased and exit profits have almost tripled over the last three years, with more and more new projects being started by returning entrepreneurs.
The global economy is stagnating, and uncertainty about its future is rising. These trends weigh heavily on countries that depend on the production and export of a small range of products, or that sell products in only a few overseas markets. Prices of the minerals and other basic commodities that dominate the exports of many poor countries have also declined sharply. All of this points up the need for diversification strategies that can deliver sustained, job intensive and inclusive growth.
The World Bank Group’s Trade & Competitiveness Global Practice (T&C), a joint practice of the World Bank and International Finance Corporation (IFC), is working with a growing roster of client countries eager to achieve greater economic diversification. This is a worthy goal regardless of economic conditions, but especially so now, as developing countries with sector-dependent economies face mounting pressures.
Chile is an example of a diversified economy, exporting more than 2,800 distinct products to more than 120 different countries. Zambia, a country similarly endowed with copper resources, exports just over 700 products — one-fourth of Chile’s export basket — and these go to just 80 countries. Other low-income countries have similarly limited diversified economies. The Lao People’s Democratic Republic and Malawi, for example, export around 550 and 310 products, respectively. Larger countries that export oil, such as Nigeria (780 products) and Kazakhstan (540 products), have failed to substantially expand the range of products they produce and export.
AJG Simoes, CA Hidalgo. The Economic Complexity Observatory: An Analytical Tool for Understanding the Dynamics of Economic Development. Workshops at the Twenty-Fifth AAAI Conference on Artificial Intelligence. (2011)
While the sluggish global economy is creating economic problems for traditional exports, other economic trends offer new routes and opportunities for poor countries to diversify. The trend toward the spatial splitting up of production across wide geographic areas, and the emergence and growth of regional and global value chains, offer new ways for developing countries to export tasks, services and other activities. Value chains offer developing countries a path out of the trap of having to specialize in whole industries, with all of the cost and risk that such a strategy entails.
Over the past five years, we have seen the emergence of a number of eGovernment applications and platforms in East Africa, leveraging the growth of internet and smartphone penetration to improve the reach and quality of government service delivery. While a number of these technology solutions, particularly in tax administration, trade facilitation and financial management systems, have been sourced from international providers – based in the United States, India and Singapore – African information and computer technology (ICT) firms have also played a major role in this surge in online service delivery to citizens and businesses.
The use of various “managed service” models, such as eGovernment public-private partnerships (PPPs) and cloud hosting, has allowed even governments with limited in-house ICT capacity to deliver services online in a sustainable manner. The World Bank Group (WBG) has also played an important role in developing the ability of local firms to effectively provide services to government clients by sharing good international practices and by funding the development of these locally grown technology solutions.
Kenya e-Citizen improves revenue generation as it cuts compliance costs for citizens and businesses
This digital services and payment platform – https://www.ecitizen.go.ke/ – was initially piloted in 2014 with seed funding from the Kenya Investment Climate Program of the WBG's Trade & Competitiveness (T&C) Global Practice. The technology platform was developed and is now managed through an outsourcing arrangement by government with a local ICT firm. It has grown organically, expanding from eight government-to-citizen (G2C) and government-to-business (G2B) services to more than 100 today, covering such areas as driver’s licenses, passport and visa applications, company and business name registration, work permit administration and civil registration. Citizens are able to register and obtain login credentials online, through a validation process involving the national ID and SIM card registry databases. They can also pay for services using a variety of methods, including bank transfers, credit cards, MPesa (“mobile wallet”) and other mobile money systems.
If you’ve opened a bank account in the last few years, you likely had to answer a bunch of more or less intrusive questions about yourself, your background and why you wanted to open the account. Annoying, but part and parcel of Anti-Money Laundering/Combating the Financing of Terrorism (“AML/CFT”) rules that all banks, in all parts of the world, are subject to.
The ostensible purpose is to enable banks to prevent bad actors using the financial system to launder their funds and, where bad actors are not identified at entry, to detect any suspicious financial activity and provide appropriate background to competent authorities. (Whether they are successful in this endeavour is another question.)
More recently large international banks have been upping the ante and have started to disengage altogether from clients from certain geographical regions or certain sectors because they consider the AML/CFT risks too great- a development known as “de-risking”. Often the business lines or countries exited are those that aren’t particularly profitable; the argument being that only a substantial profit margin justifies taking a larger than average risk. The amount of due diligence to be conducted on a customer cuts into that profit margin and the higher the perceived risk of that customer, the more the due diligence, the lower the profit.
One of the sectors particularly affected are non-profit organizations (NPOs). This is an unfortunate consequence of the mistaken and remarkably persistent idea that all NPOs pose a high AML/CFT risk. According to a report published earlier this month by the Charity and Security Network, two-thirds of U.S.-based NPOs working abroad are facing problems accessing financial services. Apart from account closures and account refusals, these also include delays in wire transfers and increased fees.
As a result of these delays, they are sometimes forced to move money through less transparent, traceable, and safe channels. The prevalence and types of problems vary by program area, with NPOs working in peace operations/peacebuilding, public health, development/ poverty reduction, human rights/ democracy building, and humanitarian relief reporting the greatest difficulties. One NPO was prevented from sending immediate relief to the persecuted Rohingya minority in Myanmar in the midst of a dire humanitarian crisis. Timely transmittal of those funds might have saved lives, the charity’s director explained.