NEW YORK — Poverty-stricken countries riddled with conflict are home to more than one billion people. In a recent report from the Organization for Economic Cooperation and Development (OECD), 50 countries defined as “fragile states” contain nearly half of those living on less than two dollars a day. These countries may soon contain more than 60 percent in the next 15 years.
The question is, how can these countries remedy issues of poverty and create a more stable environment conducive to development? A large part of the solution requires job creation. An increase in employment opportunities cannot be solely the burden of government; cooperation from the private sector is needed as well. A rise in the growth of small to midsize businesses would help to revitalize fragile economies, not only by creating jobs, but by making more goods and services available to the public.
The challenge in getting enterprise off the ground is the need for financing and loans, or “risk capital.” Small companies need investors that are willing to put their money on the line in hopes that they will be successful and see a return in their initial investment. This is no simple task in developing countries where investors with risk capitol are a rarity.
SME Ventures, an initiative of the International Finance Corporation (IFC), has been working to develop risk capital funds in several vulnerable African countries, as well as Bangladesh and Nepal. Fund managers are selected for each country, and the job of these managers is to stimulate business growth by making investments in new enterprises, while also tracking their progress. IFC helps to promote the success of these managers by providing support to those who are new to fund management and have not yet gained experience.
Based on one of SME Ventures’ successes in Liberia, Devex identified several essential components of achievement. Among these are strong partnerships, careful investment in startups showing potential and skill-sharing between fund managers. Devex also adds that the simple virtue of patience is required for growing businesses.
The Central African Republic, one of the countries with which the IFC has been working, has a long road ahead in stimulating development. According to the most recent available data from the World Bank, the country has been in continual economic decline for the past few years, eventually plummeting to a growth rate of negative 36 percent in 2013. While most other turbulent countries show growth that ranges from minimal to stagnant, none have rates as severely negative as this.
The Central African Republic is just one example of a country that would benefit greatly from the prosperity that comes from developing small enterprises. Wise investments made by educated and capable fund managers are crucial if fragile countries are to see the moderate economic growth that would help to alleviate poverty.
– Amy Russo
Sources: Devex, OECD, World Bank