NAIROBI (Thomson Reuters Foundation) – African nations such as Somalia may be perceived as conflict-ridden and risky for business but “fragile states” can be an untapped opportunity for social enterprises that are flexible and think out-of-the-box, said industry experts.
The Organisation for Economic Cooperation and Development (OECD) lists 58 countries as “fragile states” – most of which are in Africa – based on indicators such as insecurity, social inequality, weak governance and high population vulnerability.
But social entrepreneurs and investors said these countries can still be win-win destinations for those seeking to run profitable businesses that also improve the lives of the needy.
“Of course you have to do things differently in fragile states compared to other countries, but it is possible to see your businesses grow,” said Fiona Lukwago from the Africa Enterprise Challenge Fund (AECF), an impact investment fund.
“You have to think out-of the-box when unexpected problems arise, and of course you have be more risk tolerant,” she told the Thomson Reuters Foundation.
The AECF has invested $11 million in agri-businesses in Somalia, Sierra Leone, the Democratic Republic of Congo and Liberia, said Ms Lukwago, adding they have attracted three times that amount of capital from other sources since 2011.
She said investing in fragile states was high risk, due to challenges ranging from conflict and poor infrastructure to weak legal frameworks and risk of disease outbreaks, but the benefits were there if businesses were willing to adapt.
For example, an AECF-supported firm in Sierra Leone was starting up when Ebola struck, so the company changed its business model from supplying food to local communities to becoming a key supplier to aid agencies in the quarantine zone.
Industry players said one of the best ways to boost economic growth and improve livelihoods in these markets was to invest in small and medium enterprises which would not only provide jobs, but also offer essential goods and services to local people.
Countries like Somalia – listed by the OECD as the world’s most fragile state with decades of conflict hampering development – is “a hive of opportunity” with the market wide-open to private sector, said industry experts.
“Somalia is often perceived as lawless and volatile. While there are pockets in insecurity, there are many areas which are peaceful and the country is teeming with opportunity,” said Andy Narracott from Finding Impact, a blog for social entrepreneurs.
“There are huge opportunities with mobile money, for example. More than 70 percent of Somalis use mobile money compared to 15 percent with people who have a bank account.”
This helps a heavily nomadic population facilitate trade, connects a large diaspora population through international remittances, and reduces security threats for businessmen by avoiding dealing in cash, he added.
Even “simple businesses” offer a wealth of opportunity in Somalia, such as dairy farming, where zero to limited competition means unlimited potential for growth, said experts.
“It takes time to build trust and relationships in order to do business in fragile states like Somalia,” said Mahad Awale, country director of One Earth Future which has raised $11 million from investors to fund 130 social start-ups in Somalia.
“This is not a normal place so you have throw the rule book out the window and be prepared to do things differently.”