SPEECH: Delivered at the Africa Group Ministerial Roundtable Discussion on Driving a Social Entrepreneurship Agenda for Africa

Posted March 29, 2022

Speech by Dr Ayodele Odusola, Resident Representative of UNDP South Africa, and UNDP Africa Finance Sector Hub Director

 

Delivered at the Africa Group Ministerial Roundtable Discussion on Driving a Social Entrepreneurship Agenda for Africa

 

Courtyard Marriot Hotel Diplomatic Quarters, Riyadh,  Saudi Arabia

28 March 2022

Honourable  Ministers,

Excellencies,

Distinguished guests, ladies and gentlemen

I would like to thank the South African Government and GEN  for hosting with UNDP this important Africa Group Ministerial Roundtable Discussion on Driving a Social Entrepreneurship Agenda for Africa. As Africa’s financing requirements for COVID-19 recovery and the Sustainable Development Goals (SDGs) are enormous, leveraging social entrepreneurship to address the continent’s development challenges, build back better in post-COVID-19 recovery, and achieve the SDGs and Africa’s Agenda 2063 remain critical.

COVID-19 has upended livelihoods, damaged business and government balance sheets, and reversed SSA’s development gains and growth prospects over the past two decades. The economy contracted by 1.7% in 2020,[1] pushing 30 million people back into extreme poverty and worsening inequality not only across income groups but also within subnational geographic regions.[2] Although, economic growth turned positive in 2021 to 4%,[3] the African Development Bank estimates that 39 million additional people were pushed into extreme poverty.[4] Furthermore, this growth rate remains far below the levels required to address the increasing incidence of high poverty, unemployment and income inequality.

The COVID-19 pandemic has also exacerbated the financing gap for the implementation of the 2030 Agenda and the ambitious SDGs in SSA. While the pre-COVID-19 annual financing gap for the SDGs was estimated at US$200 billion,  estimates show that COVID-19 recovery will cost some additional  US$154 billion.[5]

The emerging realities on financing development in Africa underpin the imperatives of moving from funding to financing mechanisms.

Africa is experiencing a crisis of success. Traditionally, this financing would have come from government funding, aid, philanthropy and foreign direct investments. However, as more SSA countries move into middle-income status, aid flows decrease as they become less deserving of aid – a crisis of success. This has led to declining aid to SSA countries that have also been brought about by changing donor priorities, as many traditional aid agencies are shifting from aid to impact investing. Most SSA countries have also borrowed heavily over the last few years to fund infrastructure projects, as evidenced by a pre-pandemic debt level of 50.4% of GDP; which is expected to reach 56% of GDP in 2022.[6]  

Furthermore, most African countries are vulnerable to the ongoing Ukraine war’s effects because of higher energy and food prices[7] (which will push up inflation further), reduced tourism, and potential difficulty in accessing international capital markets. The conflict has come at a time when most African countries have minimal policy space to counter the effects of the shock. This is likely to intensify socio-economic pressures, public debt vulnerability, and the scarring effects of the pandemic that are confronting millions of households and businesses.

An emerging lesson from Africa’s development financing strategy is the urgent need for a blended financing modality.  Building an equitable post-COVID-19 recovery in SSA, reducing the SDG financing gap and containing the effects of the war requires SSA to leverage all sources of financing including the private sector and social entrepreneurs - a paradigm shift – from funding to financing.

Social enterprises are an organizational form that combines entrepreneurial behaviours with the legitimate quest for economic profits while pursuing social and environmental goals. Social enterprises put people and the planet on equal terms with profit. Social entrepreneurs re-invest their economic profits into social and environmental objectives. In this regard, social entrepreneurship can use the Triple Bottom Lines to address Africa’s triple development challenges of poverty, inequality and unemployment while simultaneously growing sustainable and profitable businesses.

This Ministerial Roundtable Discussion on Driving a Social Entrepreneurship Agenda for Africa is to give greater awareness and attention among governments and international development partners to the role of social entrepreneurs.

The development of the Social Entrepreneurship Ecosystem in Africa is still at an embryonic stage. As such, there is no clear policy toward social entrepreneurship in most African countries[8]. This is because little is known about social entrepreneurs, their activities and how they can positively impact communities.  Evidence from Egypt, Ethiopia, Ghana, and Kenya shows youth as the drivers of social innovation to solve social challenges.[9]

Yet, social enterprises provide full-time employment for up to 41 million people in Sub-Saharan Africa.[10]  They provide a positive impact on employment through three channels:

‐         Skill development: Providing education, running schools or working with youth to provide them with the skills they need to gain and create decent jobs.

‐         Jobs creation: Providing employment or self-employment opportunities, often for those who are marginalised or vulnerable or underserved. Evidence from a British Council study reveals that job creation is aimed by 78% of social enterprises compared to 27% in profit-first businesses.

‐         Enablers: Enabling others to start enterprises and supporting existing businesses, including smallholder farmers, to increase the quality and quantity of jobs they provide. By supporting other entrepreneurs, and developing businesses where commercial and profit-first businesses fail, it fosters a solidarity approach to development.

There are some good examples of social entrepreneurs in SSA such as Siyafunda Community Technology Centres (CTC) in South Africa,[11] Wecyclers[12] in Nigeria and Green Bio Energy (GBE)[13] in Uganda among others.

(i)                 Siyafunda CTC provides a network of community centres that extend access to computers, the Internet and digital technologies to local communities where such access may be lacking. It also provides accredited digital ICT courses and skills training, business and entrepreneurial skills development, adult literacy programmes and e-learning facilities.

(ii)              Wecyclers provides convenient recycling services in densely populated urban neighbourhoods. Wecyclers is a rewards-for-recycling platform that incentivizes people in low-income communities to capture value from recyclable waste.

(iii)            GBE designs produces and distributes innovative energy solutions to fight poverty, deforestation, and climate change. GBE emphasizes prevalent gender issues affecting women as they are typically the ‘managers of household energy’ and are by far the main beneficiaries of GBE’s products and services.

The UNDP’s Low-Cost Internet Access, using White Spectrum Technology (in partnership with Council for Scientific Industrial Research, CSIR), in four provinces which we intend to expand to 10 more communities by the end of 2022 is one of the examples of social entrepreneurship stimulated by international development partners. The British Council’s support for the development of Social Enterprise Networks and the mapping of social entrepreneurs in Ghana is another good example.

To provide investor intelligence for the private sector to take advantage of opportunities and align their investments with the SDGs/development needs, UNDP has developed a market intelligence tool - the SDGs Investor Maps that translates development needs into tangible investment opportunities. This market intelligence helps identify Investment Opportunity Areas (IOAs) at the intersection of national development needs and policy priorities.[14]UNDP also developed the complementary SDG Impact Standards,[15] which are the only management standards in the market that embed sustainability at the core of an organization holistically, and guide the private sector to make management decisions to optimize interrelated economic, social and environmental impacts – the triple bottom lines.

These maps have been completed in 19 countries globally - seven in SSA countries, namely Djibouti, Ghana, Kenya, Namibia, Nigeria, Rwanda, South Africa and Uganda. An analysis shows that energy (solar, wind and biomass), agricultural crops and processing, housing, and water and sanitation present the greatest opportunities. This initiative is being rolled out in eight countries[16] and it is expected to start in another four countries[17]. Some dividends are already emerging: in Colombia, a major financial institution is exploring financing possibilities; in Indonesia, it is serving as a tool for blended financing options to improve affordability; in Ghana, it helped an impact intermediary to identify a base value of USD 39 millions of potential investments in 15 Small and mid-size enterprises (SMEs); and in South Africa, it facilitated business to business engagement between South Africa and Japanese companies with seven South African SMEs benefiting from Government support.

Despite these positive employment and social impact,  the UNDP’s experience from SDGs Impact Investment Mapping on the continent reveal that social entrepreneurs in Africa face several challenges including:

(i)              Difficulty in sourcing viable investments that meet financial,  social, and environmental objectives,

(ii)             Limited innovative fund and deal structures among  exiting investments,

(iii)           Limited capacity of sustainable social enterprises and entrepreneurs,  

(iv)           Limited capital supply across the risk-return spectrum,

(v)            Unclear and inconsistent regulations,

(vi)           Poor linkages between sustainable social enterprises, entrepreneurs, investors and innovation networks, and

(vii)          Poor and inconsistent impact measurement practice.[18]

I would like to provide some illuminations on the experience from the SDGs Impact Investment Map across Africa. Deal flow in the impact investment market is significantly hindered by a limited number of viable investment options that can provide adequate financial returns as well as demonstrate social and environmental impacts. Particularly challenging is the low volume of potential impact investees that can demonstrate sufficient track record and capacity development to align with the risk appetite of investors.  Difficulties in sourcing viable impact investments also stem from inadequate measurement and reporting on social and environmental outcomes. Impact investors struggle to source funds and deals that meet their risk and return requirements. Institutional and other commercial investors find it particularly challenging to find funds and deals which can promise required market returns given the limited track record for many funds in Africa. Fund managers in turn have difficulties in sourcing enough deals that will fit investor requirements of both returns and risks. There are few conventional exit options for equity impact investments in Africa, which acts as a critical deterrent for investment in sustainable social enterprises on the continent and consequently hinders the supply of capital to impact investees.

How can we turn these challenges into social entrepreneurship opportunities for includive development?

De-risking social entrepreneurship in Africa remains critical to providing support to about a quarter of entrepreneurs in Sub-Saharan Africa (over 64 million entrepreneurs),[19] achieving national development plans and the SDGs.

 

First, there is an urgent need to improve the social enterprise policy space, including crafting regulations to drive corporate sustainability and scale corporate social investment as is emerging in South Africa and India[20]. Policy space can also take the form of tax exemptions and subsidies for social businesses, participation in public procurement (e.g. supply development programmes in Kenya),  tax relief for social enterprise investors, grant funding for social enterprises training and research, and accelerated social enterprise registration and accreditation.

Second, to overcome the small-scale nature of most social enterprises that makes it harder to deploy capital to them, providing grants and catalytic capital to de-risk social entrepreneurship investments is needed to crowd-in private capital into social enterprise. This calls for strengthening the pipeline of viable impact investment prospects that can meet both the financial, social, and environmental objectives of impact investors.

Third, fostering institutions for social enterprise capacity and practice. This includes institutionalizing social entrepreneurs in primary, secondary and tertiary levels curricula; addressing the skill deficits among youth; developing appropriate infrastructure for the impact investment sector (e.g. improving the ease of doing business); developing social enterprise intermediaries like incubators and accelerators; and enhancing impact measurement practice and standards.

Fourth, facilitating the social enterprise ecosystem development approach (EDA) – a process that brings together all players to concentrate efforts on creating a vibrant environment for impact investing on the continent by addressing key barriers that inhibit their growth and development.[21]  The UNDP works in Lesotho, Senegal and Uganda and the British Council work in Ghana are good examples that could be scaled up. Through this EDA, UNDP is helping youth to develop capability, confidence and connectedness in solving their problems.

Driving a Social Entrepreneurship Agenda for Africa is beyond what a development actor can achieve. It requires an ecosystem approach – with clear roles for governments, social enterprises and entrepreneurs, universities, and international organizations.

For instance, governments can focus on ensuring policy space and standards for social enterprises including promoting ease of doing business environment, incentivising social enterprises and their incubators and accelerators. The universities have a role to play in providing evidence, efficiency and impact of social enterprises while sharing best practices and providing business support to social enterprises remain critical to international organizations. Social entrepreneurs also need to invest sufficient time in training, coaching, peer-to-peer learning, and mentorship.

In conclusion,

I would like to seek your indulgence to encourage all ministers, top government officials, private sector representatives, international organizations and participants in today’s event to serve as ambassadors of social enterprise agenda in Africa.

UNDP, as the SDGs integrator in all countries, is ready to work with African countries to promote and advocate social entrepreneurship agenda on the continent.

And with your permission, UNDP is ready to work with you to organize Africa’s Social Entrepreneurship Agenda at the Margins of the UN General Assembly in September 2022 in New York as a way of deepening advocacy on this very important issue.

Thank you

[1] https://www.imf.org/-/media/Files/Publications/REO/AFR/2021/October/English/statisticalappendix.ashx

[2] https://www.imf.org/en/News/Articles/2021/10/21/sp102121-opening-remarks-at-the-ssa-regional-economic-outlook-press-briefing

[3] https://www.imf.org/en/Publications/WEO/Issues/2022/01/25/world-economic-outlook-update-january-2022#Projections

[4] https://www.afdb.org/en/knowledge/publications/african-economic-outlook

[5] https://unctad.org/webflyer/economic-development-africa-report-2020

[6] https://www.imf.org/en/Publications/REO/SSA/Issues/2021/10/21/regional-economic-outlook-for-sub-saharan-africa-october-2021

[7] Record wheat prices are particularly concerning for a region that imports around 85% of its supplies, one-third of which comes from Russia or Ukraine.

[8] For detailed exploration see (i) Littlewood, D., and  Holt, D. (2018). “Social entrepreneurship in South Africa: Exploring the influence of environment,”  Business and  Society, 57(3), 525-61. (ii) Dassah, M.O., and  Ngatse-Ipangui, R. (2019). “Impact of social entrepreneurs on community development in the Cape Town Metropolitan Municipality area, South Africa,” The Journal for Transdisciplinary Research in Southern Africa, 15(1), 1-10. (iii) Seda, A., and  Ismail, M. (2019). ”Challenges facing social entrepreneurship. Review of Economics and Political Science,” Review of Economics and Political Science, 5(2), 162-82.

[9] https://it-online.co.za/2021/12/07/social-enterprises-could-be-key-to-a-prosperous-and-equitable-future-for-africa/; https://citinewsroom.com/2020/05/social-entrepreneurship-is-the-future-really-now-for-ghanaian-enterprises-article/; https://www.makingmorehealth.org/content/kenya-social-entrepreneurship-and-youth

[10] https://www.britishcouncil.org/sites/default/files/social_enterprise_and_job_creation_in_sub-saharan_africa_final_singlepages.pdf

[11] https://www.siyafundactc.org.za/

[12] https://wecyclers.com/

[13] http://greenbioenergy.org/about-gbe/

[14]  https://sdginvestorplatform.undp.org/methodology

[15] https://sdgimpact.undp.org/practice-standards.html

[16] Eswatini, Gabon, Ghana (deep dives on target localities and sectors), Malawi, Mauritius, Tanzania, Seychelles and The Gambia

[17] Côte d'Ivoire, Lesotho, Togo and Zambia

[18] https://www.impactatafrica.org/sites/default/files/publications/undp-impact-investing-in-africa.pdf

[19] See British Council Global Social Enterprise.

[20] https://nextbillion.net/social-investments-africa-study/

[21] https://www.impactatafrica.org/