Harvard Business Review: Promoting Entrepreneurship in Vulnerable Economies

June 28, 2012

In a global, hyper-connected economy, where security failures in one corner of the world can lead to an economic catastrophe on the other side of the world, it’s in everyone’s best interest to promote greater security and prosperity everywhere. Especially in the world’s most fragile states, economic development is critical to stability, as I argued in a recent paper for the Council on Foreign Relations.

For countries that are struggling to recover from war, negative economic shocks of just 5% can increase a country’s risk of civil war. Foreign aid, which can account for to up to 97 percent of a nation’s GDP, is neither a long-term nor a sustainable solution to help the citizens of these fragile countries. Promoting entrepreneurship, particularly among small- and medium-sized enterprises (SMEs), fosters more lasting, stable economic growth in the world’s most vulnerable economies. Boosting SME growth has the power to diversify economies and make them far less vulnerable to sector-specific shocks and fluctuations in private capital flows.

Small- and medium-sized companies currently account for nearly 30% of formal GDP in low-income countries, but they often struggle to compete against larger firms for contracts and clients. SME owners face a slew of obstacles in conflict zones. Chief among these are access to capital, access to markets, and access to networks and skills development. What’s more, microenterprise development programs traditionally leave out SMEs by focusing on the smallest businesses. And while both male and female entrepreneurs face these obstacles, women tend to experience these challenges more acutely, thanks to social structures that leave them out and a perceived or actual lack of business experience.

Skills training is key to fostering successful development efforts in these zones. Entrepreneurs often lack formal training in bookkeeping and may not have the experience or the knowhow to secure a bank loan. These entrepreneurs have often gotten by without any formal training in customer service, business plan writing, or in meeting quality standards. Recognizing these challenges, several organizations have thankfully begun to address this knowledge gap:

The Business Council for Peace (Bpeace), operates on the principle that job creation can foster peace. Its Fast Runner program pairs entrepreneurs in Afghanistan, Rwanda, and El Salvador with volunteer U.S. business professionals who give time and knowhow, rather than cash. They advise entrepreneurs on areas including finance, marketing, customer service, and human resources. DOSTI soccer balls, a company founded by two Afghan women, is one such Bpeace-backed firm. DOSTI’s hand-stitched soccer balls are sold online to U.S. customers and made by Afghan women, often in their own homes. Bpeace reports that stitching just two balls a day for twelve months can offer workers enough income to support a family of six for a year. DOSTI has grown over the past three years and now has more than 400 part-time employees.

The International Finance Corporation (IFC) also offers business training for SMEs in fragile zones such as Afghanistan and Iraq. Since May 2010, it has trained over 135,000 individuals using the tool Business Edge. This approach grows more sophisticated as the entrepreneur does, and brings skills training to both founders and their employees.

The Cherie Blair Foundation for Women and Goldman Sachs’ 10,000 Women Initiative focus on the potential of women entrepreneurs in post-conflict zones. Goldman Sachs’ initiative, which provides management training to women in 42 countries, has gained attention from local governments, helping, for example, to strengthen lobbying efforts for economic infrastructure in Liberia. Participants have gone on to build their own alumnae network and have even created a male support group for women in business in Afghanistan.

While hardly a panacea for age-old development challenges, skills training is an essential part of bolstering entrepreneurs as they work to build their own, more stable economies. Training that is hands-on and tailored to the varied skill levels of entrepreneurs can help them tackle the slew of challenges they face in conflict and post-conflict zones. The development community and its funders should adopt a comprehensive approach, focusing on training as part of a suite of programs to promote entrepreneurship.

In a future post, we’ll tackle the topic of access to markets — another key piece of promoting SME growth in some of the world’s most difficult economies.

Gayle Tzemach Lemmon is author of the New York Times best-seller The Dressmaker of Khair Khana, which tells the true story of a girl whose business supported her family under the Taliban. A fellow at the Council on Foreign Relations, she is a graduate of the Harvard Business School. Find her on Twitter at @gaylelemmon.