Stimulating BDS - Lessons from the “Warm Heart of Africa”
This blog is based on experiences in Malawi – a country with perhaps one of the hardest (non-fragile state) business environments in which MSMEs can attempt to operate. I managed the Business Innovation Facility in Malawi (BIF) for four years, firstly as an inclusive business programme and then the inception of BIF2 which takes a systemic approach in the rice, pigeon pea and pico solar markets. BIF was one of the earliest DFID programmes to focus purely on technical assistance (TA) to the private sector.
One of the greatest challenges of delivering BIF was the lack of indigenous business development services (BDS). Firstly, there is a chicken and egg situation whereby businesses don’t demand BDS, so there is no supply. Secondly, local capacity levels in terms of ability to deliver BDS are also low. Malawi’s education system is woefully inadequate in serving the fast growing and largely rural population, and the small percentage who reach further education are often tempted abroad, or, ironically, follow careers into the development sector where salaries are inflated relative to the private sector.
The BIF pilot supported over a dozen businesses directly where my colleagues and I blended external expertise with local consultants to deliver TA, with mixed success. Western consultants often struggled to hit the ground running when faced with the unfamiliar context, particularly the local political economy, even when supported by local staff. Although the ideal scenario was some sort of skills transfer, consultants are not necessarily equipped with training skills, and are constrained for time.
One interesting model emerged from a small NGO that had developed expertise at providing business training and loans to micro businesses. The concept of partnering with a local bank was floated, whereby the NGO would de-risk micro-loan clients on behalf of the bank by identifying and training promising MSMEs. Essentially this would create a commercially viable BDS, but unfortunately the idea failed for other organisational reasons.
Some successful outcomes were also achieved by identifying BDS providers from other “similar” countries – e.g. Kenya, Tanzania, and Zambia. These countries have more mature BDS sectors and consultants are more likely to understand the Malawian context and local industries. In the longer term it would have been valuable to build stronger relationships with regional BDS suppliers.
One could argue that by funding TA through BIF in Malawi, we were stimulating demand for BDS. But how real and how sustainable was this? The development landscape in Malawi is now more crowded than ever with donor programmes targeting the private sector. Is this catalysing new behaviour among MSMEs to see the benefits of TA and invest in BDS? Or are the savviest businesses simply using one donor’s funds to leverage access to another? Is the quality and quantity of BDS improving and if so, will it be sustained when and if donor funding reduces?
I left Malawi eighteen months ago, however, a fellow Cranfield School of Management MBA alumnus, Kate Sutton, and her partner, Tim Doole moved to Malawi at about the same time to set up a BDS business Thrive. I thought Kate could offer some insight as to the current shape of the sector in Malawi, and I posed her the following questions:
Why did Thrive choose Malawi?
We came to Malawi in June 2014 for a short time as part of our MBA programme working with local businesses as business improvement consultants. I had been a “fly in and out” consultant before in the Pacific region and I had felt that it was important to “be there” with the clients as much as possible and work with companies over a longer period of time to get results. There were very few BDS providers based in Malawi and much of what was being provided was more focussed on training and less on growth and investment, so we decided to make the move.
Kate Sutton working with a Grow Movement Africa client
What are the challenges of running a viable BDS business in Malawi?
Finding businesses that want BDS and are willing to pay for those services is difficult. We have built relationships with businesses by doing work for free or very cheap and are now transitioning these companies to paying us which they are happier to do once they understand the value proposition. However, the amounts people are able to pay is unlikely to ever build a sustainable business for us, especially when there is so much free support from donors and NGOs.
Most of our paid business comes from donor programmes, which is the nature of the environment here. Malawi has a very small and shallow market with very few companies in the formal economy. Most businesses rely on government, donors or NGOs to survive in this environment of high inflation and high borrowing costs. Until this changes it’s hard to see how providing BDS services can be viable long term as a business. We have supported the set-up of the Blantyre Entrepreneurship Hub to try and stimulate more MSMEs in order to grow the economy however this work will take time to see outcomes.
How can effective BDS be delivered at present – is it possible to blend external expertise with local knowledge?
Our value proposition is the provision of international standard; locally-based business consultancy with a focus on growth strategy and investment readiness for Malawian and sub Saharan African businesses. We are happy to, and often do, bring in external and international expertise to support our assignments. Our dream was to partner and work with more local providers and we have worked with local consultants on some assignments. However, we haven’t managed to find local capability with the types of skills our clients are looking for, they are often working for donors or NGOs!
What do you see as the key things that need to change to create a sustainable supply and demand of BDS?
For any business to be sustainable you need your core clients and that is the same here in Malawi. Being part of a programme gives BDS services the chance to grow and bring on new people and train those people. Donors can de-risk the BDS service provision by paying for some services while the businesses pay for others or by using models whereby businesses pay the donors back once they have increased their profit or investment comes in. We have suggested this to donors, but the current systems just don’t seem set up for these kinds of partnerships.
Relationships are by far and away the most important thing, we have spent 18 months getting people to trust us. I come from a very high trust society (New Zealand) so coming here where people assume you are going to steal their business idea or have some kind of judgement on how much money they make was challenging. We have to know certain information or we can’t help businesses, and financial details are a key part of that. We have developed a diagnostic approach that means we do get more information but it has taken time. The approach is a series of questions tailored to the local market and culture and a questioning technique which involves information triangulation, it sounds tricky but it has been a process of trial and error based on consulting theory. People knowing what you can do as a service and valuing it is what creates sustainable demand.
Given the scale of donor influence on BDS, what message would you send to them?
Currently the BDS provision which is contracted by development programmes is often very focussed on small elements of technical assistance, usually chosen by a programme manager, defined through the mechanism of terms of reference (TOR). I don’t think we have worked on a single assignment in Malawi where the TOR accurately reflected what the programme/donor wanted, nor what the businesses needed. More flexibility and trust is what is required so that businesses can have self-determination in the processes of receiving support and own it, rather than it being “done” to them. I would like to see more and better partnerships with businesses. In developed countries BDS providers often are part of the implementation and walk alongside the clients, whereas in Malawi there seems to be a perception that businesses should be able to take the advice and implement recommendations with limited support. Seeing BDS service providers as part of the team would lead to far better outcomes.
It is frustrating for both us as a BDS provider and for the businesses when the donor has a very tight and inflexible agenda for the BDS, which is often decided far away from the recipients of the support. For example, a company we work with is receiving support from four donors on six donor programmes. None of these programmes are designed to support the business’s real challenges that they are face in a tough economic climate. It is very difficult for companies anywhere to take on new activities when their core business is under stress. In such a small market there could be far better coordination of companies, funding streams and TA services to ensure better outcomes for taxpayers and, most importantly, for Malawian businesses.
As we are writing this blog for an inclusive business blog series, I wanted to know your views on whether BDS for inclusive business is different than for other business?
I don’t think it is, I think that business is business. The systems and processes are the same. What is different is perhaps who the customer is, but big multinationals sell to low income customers too and they often include poor people in their value chains, but we don’t call them “inclusive businesses.” I personally think we do inclusive businesses a disservice if we provide them with BDS services that don’t understand the rigours of business or cannot support them to be commercially viable. I think it’s important to understand your customer and the ethics of your supply chain for any business, inclusive or not.
This blog is part of the September 2016 series on Inclusive Business Development Services, in partnership with the Inclusive Business Accelerator. Don’t miss the whole series on support available to inclusive business from practitioners, donors and intermediaries including Afrilabs, DFID, Endeva, EY and many more…