Uganda has seen strong economic growth with a threefold increase in per capita GDP over the past generation. Extreme poverty has also been eliminated to one-third of the population.
There is visible evidence of this growth in the increasing traffic on our roads, the increasing number of storey buildings in the central business district and all the suburbs of Kampala, the ever “happening” high-end social places and the mushrooming posh homes and bungalows in residential areas. Over the past few years, President Museveni has taken an extra mile to catalyze this economic growth by creating artificial investors to boost the economy. All this has brought a sense of optimism and has helped reduce poverty in the country.
Nonetheless, rapid economic progress in Uganda has not brought prosperity to all. The benefits of economic growth have not been equally shared. A large part of our population is struggling with elementary existential challenges, including extreme poverty, hunger, disease, and unemployment. Most of the bottom of the pyramid (BOP) population has been left behind. In rural areas, farmers still use primitive farming techniques (think rake-and-hoe type painstaking labor) on the increasingly eroded soil in small farmlands, barely making ends meet.
Access to clean water, latrines, functioning health facilities, passable roads, meaningful education and a balanced meal is not guaranteed to many living in rural and urban areas. Stories of starving citizens in almost all regions of the country, fundraising to provide adolescent girls with sanitary towels, women dying in labour due to either delay to seek healthcare or lack of it are in sharp contrast to the rosy economic statistics provided by the Ministry of Finance, Planning and Economic Development and the prefects of economics; the World Bank and the International Monetary Fund.
It is very clear that the development agenda has left a majority of the citizens out of the equation and such development is not tenable. This has increased the case for “Inclusive Business” which is defined by the World Bank as a private sector approach to providing goods, services, and livelihoods on a commercially viable basis, either at scale or scalable, to people at the base of the pyramid by making them part of the value chain of companies' core business as suppliers, distributors, retailers, or customers. Inclusive business, as a feature of inclusive market development, represents a promising approach to bringing the benefits of economic growth directly to low-income people by including them within value chains.
As asserted by Ms. Christine Lagarde, IMF Managing Director on her most recent visit to Uganda, inclusive societies tend to grow faster and more sustainably. The United Nations Development Program (UNDP) Report “Realizing Africa’s Wealth: Building Inclusive Businesses for Shared Prosperity, 2013” clearly demonstrates the potential of inclusive business in contributing to poverty alleviation and achieving the Millennium Development Goals and now the Sustainable Development Goals.
Inclusive businesses integrate low-income individuals into value chains in various capacities, be it as consumers, producers, employees, and entrepreneurs. Thus, they bring the benefits of growth directly to low-income communities. This is not charity. Inclusive businesses create a strong foundation for profit and long-term growth by bringing previously excluded people into the marketplace.
Low-income people can play various roles in business value chains, as customers, producers, employees, and entrepreneurs. Often, they are integrated into more than one role. Having access to formal value chains can enable people to fully use their potential, to express their choices, to make their most of their talent, and to gain access to goods and services for a better life.
- As customers: Low-income people benefit from access to goods and services that increase their well-being and productivity, while companies expand their markets.As producers: Smallholder farmers or small manufacturers can find stable buyers and provide formal enterprises with new sourcing channels. Businesses also transfer skills, create employment and increase productivity. Heineken and SABMiller, two global brewers, for example, have both been steadily increasing the local content of their products in recent decades.
- As employees and entrepreneurs: low-income people offer enterprises a source of labour, local knowledge, and connections. In particular, Uganda’s entrepreneurial young people, a large number of whom are seeking opportunities for jobs and income, can benefit from improved incomes and new skills.
Therefore, Inclusive Businesses provide low-income people with access to opportunities for income, basic goods and services, and choice. In addition, inclusive businesses are often associated with “green” business practices that conserve resources and protect the environment. Several prominent examples demonstrate not only that this paradigm shift is possible, but that it can be both profitable and beneficial for a wide range of stakeholders. For instance, SAB Miller sources ingredients from around 50,000 smallholders in Zambia, Zimbabwe, South Sudan, Uganda, Mozambique, and Tanzania.
However, there is need create a conducive environment for inclusive business models to take shape and be able to overcome the challenging market conditions characteristic of low-income communities.
The information provides businesses with the awareness, knowledge, technology, and know-how required to operate in low-income markets. However, collecting data and putting data in context are often significant challenges within low-income markets. Solid market data is often absent, as are market intermediaries such as consultancies or research institutes. In addition, knowledge on how inclusive business works is often difficult to access in Africa, especially for local companies and entrepreneurs. Academic institutions, market intermediaries such as consultancies, think tanks or market research institutes, as well as development agencies and their local private-sector programmes, can play an important role here.
Incentives provide businesses with the impetus to engage with low-income communities by rewarding positive externalities and reducing the cost of doing business.
In Uganda and Africa at large, the cost of doing business is often high, particularly within low-income, informal markets. Regulatory conditions are poor, and administrative processes burdensome. Negative social or environmental externalities associated with business activities are rarely priced into the cost of doing business, while positive externalities generally receive no financial reward.
By improving the business environment, enabling low-income people to participate in markets, and creating rewards for social and environmental benefits, the incentives motivating entrepreneurs to seek and implement market-based solutions to social problems can be augmented. Public policy plays a critical role here, but private policies and public-private ordering can also make a difference. Investment provides the financial backing that enables businesses to venture into challenging low-income markets. Investment is the fuel of business.
Although capital flows into Africa are increasing, debt and risk capital either remains comparatively scarce or is ill-adapted to local needs. In general, inclusive business projects can have difficulty fitting into established financing frameworks, as they can take longer than traditional projects to break even and are often considered to be risky or insecure. Development partners both in the public and private side have developed targeted impact investment mechanisms designed to tackle these issues. Banks are stepping up efforts to serve SMEs. Finally, micro-finance can ease some of the financing needs of inclusive businesses by serving entrepreneurs and producers directly.
Implementation support provides the logistics, transaction, marketing and communication, and micro-business support services that allow inclusive businesses to function in a variety of dynamic environments. Implementation support helps to translate inclusive business models into a ground-level reality. Businesses require efficient transaction systems, distribution and sourcing channels, marketing and communication services, and small business support in order to operate. In low-income communities, these services are often initially provided by CSOs, development agencies or other intermediaries.
Companies, governments, development partners, civil society organizations (CSOs), research institutions and intermediaries all can contribute to strengthening each of the diamond’s four functions.