Economic Development

Refugee Crisis: Capitalism to the Rescue?

Solving the problem means taking an inclusive approach to foster sustainable development in the countries of origin.

European leaders are fighting to cope with tides of people coming from regions where prolonged and recently escalated conflicts have fostered hopelessness so intractable that entire populations have no better survival option than to risk their lives in flight. They all agree that an important component of any successful strategy must be real and meaningful economic development in Syria, Afghanistan, Iraq, and other countries from which the mass exodus of refugees originates. But in the post-recession world, governments (as well as philanthropists and business working individually) do not have the resources to address poverty by traditional means.

One light on the horizon: This crisis is occurring at a time of tremendous innovation in development. And whether it’s Bill Gates talking about “creative capitalism,” billionaires and industrialists and government officials putting their heads together at the Clinton Global Initiative, or grassroots activists teaming up with corporations to expand markets and fight poverty in struggling or conflict-torn regions, most development actors are casting aside traditional categories to pursue development innovation, united in the understanding that what really matters right now is outcomes.

If there is a unifying theme to all the activity, it is this: inclusiveness. Those involved in development understand that, to be sustainable, economic growth must include everyone—it must reflect and incorporate the full range of stakeholders in a given economic context. Is that Idealism? Maybe 20 years ago. Now it’s the essence of Realism. A business plan can no longer be true even to its own earnings projections if it is built on practices that marginalize large segments of society.

Two promising growth strategies

Inclusive business and impact investing are two of the most innovative approaches to inclusive growth in practice today. Both deliver real progress, and are embraced by many as sustainable and scalable strategies for integrating low-income citizens into the formal economy and thereby fueling economic growth.

Inclusive business describes strategies under which national and multinational companies working together with foundations, civil society, and government bring more struggling local producers and providers into their value chains. The idea is to benefit—and benefit from—the so-called Base of the Pyramid (BoP): the vast reservoir of creativity and purchasing power residing latent worldwide in the people who are not yet integrated into the formal economy. In the process, wherever they are applied, inclusive business models also seek to solidify governance to provide legal frameworks that lend stability, fairness and transparency to enterprise.

It’s a win-win: global companies gain local expertise and new markets for their goods, and the producers gain access to global economic opportunities. Organizations including the Bill and Melinda Gates Foundation, the Ford Foundation, USAID, DFID, the World Bank, have already embraced this approach. National and multi-national companies such as Coca Cola, PepsiCo, INTEL, Walmart, SC Johnson, Vodafone, and Unilever are working with academic economists on inclusive business initiatives as well.  And finally, global alliance and membership organizations such as InterAction, SIDW, CGI, CGD are also working to increase awareness of inclusive development approaches.

The size of this potential market is staggering. According to figures provided by the World Resources Institute and the International Finance Corporation in their report The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid, the four billion individuals at the BoP have incomes below $3,000 in local purchasing power. Yet taken together, they represent a $5 trillion global consumer market.

Impact investing, for its part, aims to solve social or environmental challenges while generating financial profit for funding entities. This approach brings together a diverse group of stakeholders: investors, philanthropists, venture capitalists, NGOs, governments, small and growing businesses, banks, multilateral corporations, and more. The list is potentially endless, and so is the potential. According to the Global Impact Investing Network, impact investing could attract $2 trillion in the next 5-10 years.

Impact investors affect poverty directly by seeing partners where agents of traditional aid see only people who need hand-outs. And where institutional lenders may be prevented by the absence of conventional ratings structures from supporting a new enterprise, impact investors can realize significant returns by structuring deals to meet the requirements of the situation, all the while achieving social goals.

During the past 24 months, a growing number of multi-lateral and bilateral organizations as well as foundations and philanthropists have embraced this integrated “triple bottom line” model as the most effective way to address numerous global challenges.

From the ground up

Contrary to what some development dreamers desire, after today’s crises have passed, in Afghanistan, Iraq, Tunisia, Syria, and elsewhere, there will be no blank slate on which to create a development utopia from scratch. History doesn’t work that way. Instead there will be “facts on the ground”—factions, traditions, institutions, habits, faiths—that can trump the best imported intentions. But this can be a good thing. Through thoughtful consideration of these “facts on the ground,” and by focusing on inclusivity, developers and others can set the stage not only for sustained prosperity, but also for lasting peace. Case studies from around the world demonstrate the viability of these emerging, inclusive strategies for capitalizing development in ways that may broaden economic opportunity and expand participation in civic institutions.

Will they work in the countries currently hemorrhaging refugees to Europe? In some cases, they already are.

In Afghanistan, the Roshan mobile telephone company has brought thousands of mostly illiterate, rural individuals into its high-tech value chain by making important information—agricultural market news—accessible via voice-response technology.

In Pakistan, Engro Foods, a processed milk company, has built a broad-based procurement system that now includes more than 300,000 small-scale producers, who also receive entrepreneurial and hygienic training to help them improve the quality of their product, and increase output.

In Tunisia, the enda inter-arabe microfinance institution has enrolled more than 265,000 borrowers in an effort to empower women to participate in business and political life. These initiatives and others demonstrate that innovative development can take hold in the most adverse contexts, and provide a holdfast for a society in turmoil.

The Middle East and North Africa (MENA) Investment Initiative in Syria and Iraq, funded by USAID, and the United Nations, World Bank Group, and Islamic Development Bank Group’s recently announced investment initiative to help countries in conflict, recovering from conflict, or hosting refugees, both include a strong emphasis on economic and social inclusion. But we don’t know how the current European refugee crisis will play out. Nor can we anticipate when or where the next such crisis will take place. What we do know is that building sustainable economies is a mission for development professionals energized by a new surge of creative thinking, and also a job for investors able to recognize opportunity where others might see only ruin. We also know that effective new tools are available to those who seek to tackle economic issues from the ground up. We hope that they are used.

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COMMENTS

  • Bob Johnson's avatar

    BY Bob Johnson

    ON January 24, 2016 01:04 AM

    No, just no! The problem will be solved when the USA and NATO stop bombing, arming the Mujahedeen/Al-Quida/Al-Nusra/ISIS/ISIL/IS and other groups. It will stop when bleeding hearts such as Merkel who helps in these campaigns stops going on TV and stoos advertisement campaigns in these countries saying the EU is open too all.

    But then PNAc would never be realized. Quite the conundrum.

  • Manoli Strecker's avatar

    BY Manoli Strecker

    ON February 3, 2016 01:52 AM

    Very nice article. You can also look at the example of Vietnam, a country that emerged from its own civil war and massive refugee crisis in the 1980s and has now experienced huge economic growth in large part due to the development of a strong , innovative and inclusive private sector. For example the Rang Dong company has created a very low-cost, yet effective LED light bulb, specifically targeted at low-income markets in ethnic minority and mountainous areas. They have reached over 4 million new customers, while providing poor end-users with a major electricity cost savings.

  • BY Neil Ghosh

    ON February 3, 2016 10:16 AM

    Thank you for your comment. Any successful development strategy presumes security and stability. It is not the purpose of this piece to take sides in a debate over how that security and stability should be achieved. Once political solutions are found that enable a climate conducive to investment, it is the hope of this author and others in the development field, that inclusive strategies for economic growth may foster a greater degree of participation in governance by civil society actors, and that this participation my lead to a stronger voice for the “bottom of the pyramid” in the sphere of public policy. This, in turn, may encourage ever greater inclusion and participation of previously excluded economic actors in the global value chain.

  • Have you just discovered these “new” financing models? Triple Bottom Line has been around since the late 1990’s. The GIIN has been fostering the impact investing field since 2009. “Bottom of the Pyramid” no longer requires quotes, it’s a veritable segment of the population. I’m sure we’d all prefer articles that actually address the real issues facing blended and private financing today - measuring social impact, balanced portfolios, connecting financial inclusion to institutions, gathering reliable data, etc. Please, let’s elevate this conversation.

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