kevin keepper

Local Capacity Building and Business Development at the Base of the Pyramid

Q: Local capacity building has become something of a buzzword in recent years. Could you please take a moment to introduce the topic as it pertains to the Base of the Pyramid?

A: An important component of any development work is the establishment of effective and sustainable local institutions. In the realm of economic development these might be physical organizations like private sector enterprises, training organizations, or public sector departments that encourage investment. Other critical institutions include ethical and governance norms, the legal system as well as civil society. Some international organizations like TechnoServe, are focused on developing small and growing enterprises, given a belief that they are key to broad based economic development. However, in order to ensure such firms can become sustainable it is critical that they become embedded in a web of local organizations that can serve and assist them into the future.

For example, in Mozambique we are helping to develop the poultry industry to not only grow their own businesses, but also to have a voice with the government to improve the sector. In addition, we are working to strengthen a range of local supporting institutions – including those in the public sector. If we want to create a sustainable ecosystem, it is more and more about programs like this. Most importantly, we believe that, where possible, local support capacity should be built on commercial lines so that it gets away from the fundraising or public finance challenge and creates a base for local accumulation of capital that can be invested in staying current and innovative. For services that face challenges over affordability by BoP consumers, however, then the initial answer may have to be a non-profit one.

Q: What value-add does an International NGO (INGO) bring to the local capacity building effort?

A: The process of catalyzing change to create effective local capacity over time is what INGOs like TechnoServe, SNV and Swisscontact are designed to do. We play that role because our type of organizations have a unique ability to bring together international skills from leading private sector organizations, including individuals with specific technical skills, as well as people in the local society that understand how to make change happen. And we also have access to large international corporate partners where we can source skills.

At the moment, it appears from recent discussions with some of our donor partners that “local capacity building” seems to center around creating local versions of such catalytic organizations. The reasons include that the local NGOs are going to be more likely to stick around as part of the local eco-system, be more in touch with local needs and are expected to be cheaper.

The questions that arise here are how would such local institutions get access to the best practices, knowledge and top-line skills that INGOs are able to source? How would the local organizations raise their core funds? From where would they raise such funds? and so on… It is possible that such local organizations can take over the work of organizations like TechnoServe at a certain point in time, , but the migration path is not clear at this point. A more focused assessment of the appropriate local institutional models, including the potential for local NGOs to replace INGOs, has to be undertaken to shake out the theories of change and firm-up a realistic strategy and approach.

At this stage, I believe that there is only space for such actors to evolve in providing the more common business development services where there is an adequate local demand for such services (accounting or financial management are good examples of this). Service enterprises such as technical agriculture consulting in global best practice phytosanitary requirements, however, are unlikely for now to be able to win business, build on best practice skills and grow in a small country like Rwanda. Such institutions will need international partners for now to help them with access to knowledge, skills and funding. Finding the best way of transitioning to an ecosystem of local organizations supporting SGB growth is a nascent concept that needs further analysis, testing and focused planning.

Q: What is your reaction to “Dead Aid” vis-à-vis local capacity building?

A: This issue is currently one of my biggest bugbears as suddenly everyone in the last couple of years discovered that you need to have local capacity, local ownership, local leadership and a vibrant culture and society based on local entrepreneurs, but have not articulated a path to get there. This concept has become somewhat out of control in terms of the potential ramifications. In response to the shortcomings of aid that critics have surfaced-Dambisa Moyo’s Dead Aid or Bill Easterly’s White Man’s Burden-people are saying we should junk aid altogether. Yet the same folks are not denying that SMART subsidies are needed to support the development of local capacity. The unaddressed reality, however, is that local capacity building is not going to be financed privately- especially when you’re talking about improving local public sector capacity. People are right to criticize the traditional aid model of flying into country X to execute a bunch of trainings and leaving on the next plane as not actually creating sustainable local capacity, but withdrawing aid and simultaneously expecting local capacity to emerge like a phoenix that can catalyze a broad based impact on poverty without any subsidized support has not been proven either.

Q: What needs to be done to facilitate local capacity building?

A: To do this well, it seems to currently be believed, is to embed the creation of local capacity into everything we do in development… and to do it all at the same time. In TechnoServe’s world of trying to create sustainable and competitive value chains and support the development of local small and growing businesses, this means simultaneously finding good entrepreneurs, the right business models, helping the entrepreneurs grow their businesses, and ensuring that the institutions supporting this effort are local – with us as an international development agency merely facilitating and guiding the entire process. This is really a fundamentally flawed concept. It’s difficult enough to do this stuff when you’re sequencing it sensibly-finding the entrepreneurial lead businesses first and helping to strengthen them, then helping to strengthen the entire value chain-but to try and do it all at once is asking for the impossible and sharply raising the risk of failure.

The danger in this discussion is that you start to sound neocolonialist when supporting the continuity of aid – however SMART that might be – and associated development programming; and you start sounding patronizing because you’re saying “don’t try to do it all at once.” Well, if that’s how it sounds, that’s how it sounds. What I can say is that we know from proven successes where we have sensibly sequenced our interventions, such as in the cashew sector in Mozambique, is that this path can and does create commercially sustainable local capacity. To achieve this (in the context of TechnoServe’s work) you do have to start with the right business models, a handful of entrepreneurs who want to grow a new sector or revive a sector in an economy, and help those SGBs reach success. Then you can go on helping those SGBs form an industry association so that they can strengthen their industry. And it’s not as though you have to wait until the enterprise is fully profitable to begin building the industry association; many activities can be undertaken in parallel processes, but there has to be a prioritization within that model.

At the end of the day, local capacity is a critical element of economic development and for sustainable BoP-aimed programming. So the critique is right in that attention needs to be directed to this effort. Much more carefully nuanced and thoughtful response needs to be generated to this critique than what has become prevalent in the current rhetoric.

Base of the Pyramid