Navigating the Cultural Norms of Informal Businesses to Increase Agribusiness Investments
According to a 2016 World Bank report, Kenya’s informal sector — or businesses without official registration — makes up 95 percent of the country’s businesses and entrepreneurs. While informal businesses typically afford business owners more control of their operations, the informality of non-registered businesses also creates more risks and less productivity. Key constraints for those working informally include limited access to finance, increased vulnerability to crime and corruption, bribery solicitations from key actors outside of the business and poor infrastructure. These obstacles can create a difficult environment for entrepreneurs to formalize or expand their ventures resulting in production losses for society at large.
SNV’s Catalytic Sustainable Agribusiness Investment Project (CSAI), funded by USAID through Feed the Future, focuses on creating an enabling environment for public and private sector investment in climate-smart agriculture (CSA) and works to mitigate the effects of these obstacles. CSAI identifies and assists climate-smart, inclusive agribusinesses to navigate private investment in Kenya and Ethiopia, followed by coordinating accelerated private and public capital flows into scalable agribusinesses. The project’s three, mutually reinforcing interventions are key to its success: i) Identify and promote sustainable agriculture innovations; ii) Incubate businesses; and iii) Scale-up private and public investment into business models.
CSAI’s collaboration with the informal sector has produced illuminating insights concerning cultural norms surrounding business owners, with a focus on garnering external investments. CSAI staff have enabled the program to advance the interests of small agribusinesses by assessing the impact of cultural norms and helping owners overcome investment barriers rooted in these cultural norms. Four of these primary barriers include:
- Informal, minimal record keeping
- An assurance of wealth traditionally passed down to the next generation resulting in difficulty ceding or sharing business ownership
- Lack of separation of personal and business transactions complicate financial records and accountability
- High rates of unemployment that put pressure on business owners to prioritize the recruitment of family and friends over relevant skills and knowledge. The trend is further complicated by compromised professionalism in supervision due to informal ties between staff and their supervisors
These hurdles to investment can be daunting for NGOs, including SNV and its partners Climate Focus and Unique, as well as donors, all working towards a positive impact on connecting fledgling entrepreneurs to financial capital and other enriching business services. CSAI is working to overcome these barriers through a variety of interventions, including:
- Coaching entrepreneurs to separate business and personal expenses
- Conveying the importance of formal books in order to attract investors
- Partnering with other organizations to quickly reach and pair entrepreneurs at match-making events
- Providing technical expertise on CSA businesses
- Mentoring entrepreneurs on interfacing with potential investors
Currently, CSAI has reached valuable milestones incubating agri-businesses for investment, including:
- 31 businesses currently being supported
- 13 businesses actively seeking funds
- 3 businesses have secured almost USD 1.2 million
- More than 10 investors actively seeking partnerships with CSAI-supported organizations
One example is Mr. Yemane Gebremeskel, an entrepreneur with over 12 years of experience in apiculture and natural resource preservation. His business, Amba Private Limited Company (PLC), is already sizable (USD $208,695 in FY 17). To scale up, he is seeking capital to invest in a honey processing plant capable of servicing honey and by-products from an increased out-grower scheme of more than 30,000 farmers within the next five years. His inclusive business currently contributes to the livelihoods of over 1,000 smallholder farmers, with 685 beekeepers trained in modern apiculture, 115 of which were female-headed households. SNV helped to bolster investment attraction by working with Yemane to develop and maintain a professional, formal business identity. This included completing a business plan, coaching in investor pitching and overall business development with an emphasis on "what investors are looking for." Mr. Gebremeskel was able to connect with potential investors during the 2018 Africa Sankalp Investor Forum.
To learn more about CSAI, please visit our website here.
To learn more about SNV’s global solutions in sustainable development, visit our website here.