Cover Image
close this bookJobs for Africa - Towards a Programme of Action - Report of the ILO/UNDP Programme on Employment Generation and Poverty Reduction (ILO - UNDP, 1997, 107 p.)
close this folderChapter 2: Technical assistance for the generation of employment and reduction of poverty
close this folder2.2 Technical Assistance at the National Level
close this folder2.2.2 Small and medium enterprise development
View the documenti. Local Economic Development and Employment creation through Micro and Small Enterprise Promotion
View the documentii. Access to Financial Services
View the documentiii. Support to the development of the Informal economy

i. Local Economic Development and Employment creation through Micro and Small Enterprise Promotion

In Africa, unemployment, under-employment, international competition and failed development initiatives have heightened the importance of entrepreneurship and small enterprise development. Decentralised decision making has increased the need for endogenous development, “controlled development from within” which focuses on local resources, institutions and economic activities. Controlled development from within increases the importance of small firms as generators of employment. Thus small enterprises, local communities and their surrounding regions are key units of development and job creation.

Local Economic Development (LED) Approach

Taking into consideration the full advantage of existing assets and the potential for economic development potential in a given area, the promotion of SME constitutes a means of generating employment. This, however, has to be done in a balanced and comprehensive way, following the logic of the market and according to common guidelines and recommendations for local and regional development.

The main elements of the LED Methodology are:

· consensus building;
· bottom-up approach;
· human and institutional capacity building;
· search for synergy and catalyst effects;
· globalisation of the local level; and
· public awareness raising.

True to the LED methodology, 'Consensus Building' has to be done through an active participation of the relevant socio-economic and political actors at the local level. This means that a process which unites and creates collaborative linkages amongst local actors across political and cultural differences has to be created, ensuring a constructive exchange of ideas and opinions aiming at designing policies for sustainable development of the project area.

The 'bottom-up' approach mobilises to the utmost the local human potential making them part of and responsible for the local economic development process. As these activities are conceived as endogenous rather than exogenous processes, the sustainability of initiated project and programme activities is ensured.

Synergy and catalytic effects must be used in order to create trust and co-responsibility amongst the local actors the long-term goals of programmes. Therefore, it is of extreme importance to make sure that short-term, concrete and visible results (impacts) are achieved. Setting of 'good examples' contributes to raise the level of motivation and awareness of the target population. These examples though, must have such characteristics that they can be easily repeated.

'Globalisation of the Local Level' refers to the incorporation of the local experiences into a wider frame work of laws and regulations at the national level. The LED methodology wants to prevent the creation of isolated technical exercises which can not be repeated or united in overall strategic development policies.

In the context of the actual project 'Public Awareness Raising' will lead to the creation of a more appropriate entrepreneurial culture and a low-risk atmosphere. It is one of the most difficult aspects of the LED as it is dealing with the mentality of the people at all levels. It is exactly there that the major changes have to be established in order to guarantee sustainability of development. It is also at this point that the major obstacles and problems are to be found.

In order to attain the global sustainable development of the local economy, consensus and discussion are the main requirements among different local actors in the private and public sector, between the members of these sectors and at the local and national level. This consensus should lead to the provision of a supportive policy framework, the development of financial schemes to enable entrepreneurs to take up small enterprises and the provision of training to develop entrepreneurial and technical skills, which are considered necessary conditions to develop the local community.


The target group consists of representatives and decision makers of local public bodies responsible for local economic and social development, potential business starters, entrepreneurs of all branches (men and women) and business associations.

Small and medium enterprises are characterised by their flexibility which permits them to evolve even in small markets. Beginning with the regional market's potential by using their regional comparative advantage, the SMEs have the possibility to grow and expand their markets in the regions. Branches with high potential of development based on local resources, food processing, textile, repair and services offer good possibilities for growth. Tourism (in a broad sense) also offers a great opportunity of allowing the development of family-owned and managed enterprises that can provide income-generating work for many, including women and young people.

SME support and promotion through Business Promotion and Support Centres (BPSC)

An enabling political environment, the development of financial schemes to enable entrepreneurs to take up small enterprises and the provision of training to develop entrepreneurial (mentality) and technical skills are considered to be three basic conditions to guarantee a sustainable development of the local economy. In order to attain this, consensus and thus discussion are one of the main requirements; consensus and discussion among different local actors in the private and public sector, between the private and public sector and between the local and the national level.

In this context Business Promotion and Support Centres will be promoting and supporting SME's, with a view to maximizing employment growth and improving the standards of competitiveness of the SME's in the given area. This will be done by:

1. Promoting an entrepreneurial culture, where potential business men become aware of what is means to have a proper business, learn about the responsibilities, risks and possibilities. The lack of a market oriented 'Business Mentality' can partly be overcome by introducing very practically oriented training material, introducing the basics of entrepreneurship on a step-by-step basis. In the context of the Action Plan training material will be further developed and up-graded. The process to develop the practical oriented training material will be based on a constant dialogue with and feedback from the target group, the business starters. Apart from the development of new training material, and the introduction of participatory training activities, an effective monitoring and follow-up mechanism will have to be established in order to guarantee to the most the success of the business starters;

2. Providing locally-based comprehensive support to potential or actual small and medium entrepreneurs, introducing information, new management techniques, as well as new technologies. These services will facilitate guidance and assistance in formulating business ideas and selecting feasible business projects, implementing new enterprises or rehabilitating existing ones, following up and counselling on the entrepreneurs' operations with a view to consolidating their sustainability and assisting in the promotion and marketing of the product on an international level;

3. Mobilising opportunities and resources, setting up guidelines and procedures to facilitate access to credit and incentives for employment generation and training. As there are several special credit schemes for micro and small entrepreneurs in the pipeline with different international programmes and organisations, a special credit fund or financial mechanisms are foreseen in the context of this proposal;

4. Stimulating and supporting a 'dialogue' at the local level, between public and private sector aimed at promoting private entrepreneurship, in order to create a relation of confidence between the local public organisations and the private sector; and

5. Contributing to and facilitation of a more appropriate environment at the national level by creating Association of Development Agencies and Business Centres, through which the interests of the SME's will be regulated, protected and represented at the national - political - level.

The basic orientation of BPSC's activities will be towards the identification and implementation of profitable, efficient and organised entrepreneurial activities, that contribute to a local economic and employment development. It will support those activities or projects which associate best with the economic potential of the area, utilising endogenous resources, stimulating multiplier effects towards the local economy.

In other words, the main tasks of the BPSC's will be:

· orientation and motivation to stimulate local economic initiatives;
· assist in the preparation of business plans for private enterprises;
· intermediate in the provision of credit;
· support and strengthen already existing enterprises;
· stimulate product diversification;
· provide training and technical assistance; and
· maintain relations with national and international institutions for technical and/or financial support.

These tasks will have to be performed within a by-all parties agreed logical frame work for the development of the local economy. The BPSC's will operate as a catalyst in a discussion forum or as a Local Planning mechanism, operating as a canal, from the bottom up, for the interests of the local entrepreneurs (maximising the utilisation of local resources and potentials and aiming at the satisfaction of local economic needs, always on the basis of consensus).

The BPSC's will though only be capable of entering into a valuable partnership with national and international partners and can only contribute to the increasing problems of unemployment, underemployment, poverty and the deterioration of living and working standards, if they receive the appropriate technical and financial assistance in local capacity building. This means that assistance is required to up-grade and develop the institutional, human, managerial and financial capacities and skills at a local level which will lead to an “empowerment” of the local societies as a whole.

ii. Access to Financial Services

Financial resources are indispensable for employment creation by enterprises and governments, be it in the form of debt or self financing. Safe and attractively remunerated deposit facilities do not exist: either personal savings are kept liquid at no return, or they are invested in other activities with a return that is lower than its equivalent deposit in banks or credit unions. As a result, there is little capital accumulation that could serve the formation of productive assets like machines, equipment and stocks. Most enterprises have no access to other financial services such as lease finance or guarantees.

The reasons lie largely in the organisation and functioning of financial markets, in the institutional culture of banks, information asymmetries and the scarcity of investment opportunities. The situation is not entirely bleak: Africa's financial sector is also characterized by a wealth of innovative techniques in financial intermediation that help to reduce risks and costs. This applies particularly to the informal sector, be they group-based like tontines and other ROSCAs or undertaken by individual operators like moneylenders. They operate in a personalized manner which allows them to do without written contracts, while keeping up social pressure to ensure compliance with repayment obligations. The problem is that the financial services provided in the informal sector are often too small, too short and sometimes too expensive to be of interest to investors with job-creating opportunities.

A programme of action in this domain must focus on key constraints in Africa's financial sector that have a direct bearing on jobs: collateral constraints, lender transaction costs, governance and performance of social funds, savings mobilization and an inappropriate or non-existing regulatory environment. Such a programme must engage the policy dialogue with central macroeconomic institutions (Central Bank), while at the same time it must support grass roots initiatives. The one reinforces the other, and only implementation at these two levels would be effective.

The following strategies, that generalize lessons learnt and best practices tested in ongoing ILO and other field projects, are:

Expansion of member-based financial organisations

This strategy would enlarge and generalize the lessons of an ongoing successful partnership of the ILO with the Central Bank of West African States (BCEAO). The joint programme, PASMEC, supports at the macro - and institutional level decentralized financial systems (village banks, women savings groups etc.), i.e. precisely those suppliers that the informal sector operators and micro entrepreneurs turn to when making small investments. The PASMEC spans a very formal monetary authority and very informal grassroots initiatives: it is an attractive illustration of how the ILO can influence policy-making with an enormous outreach effect, namely through national coordination fore in each of the seven member countries of the monetary union bringing together NGO networks, banks, governments, Central Bank and donors. The success of the PASMEC has triggered recently a request by the monetary authority of the other CFA zone, the BEAC, to replicate the support programme in the five central African countries there.

Strengthening Social Development Funds

Social Funds have sometimes a micro credit window, that is most often administered by Government. The performance of such an arrangement has not been satisfactory and the ILO has therefore favourably responded to a request by the Government of Zimbabwe to turn around their micro credit facility within the Social Development Fund at the Ministry of Labour. The challenge is to set up a genuine APEX structure that lends through national retailers (banks and financial NGOs) and thus reaches more micro enterprises and the self-employed. It is of particular relevance to those who lost their jobs as a result of Structural Adjustment measures. The ILO has been contacted by the AFDB to generalize the rehabilitation programme.

Support to micro finance professional organisations

Jobs in Africa will be mostly created in the private sector. Employment policies make sense only if they address the constraints faced by private sector operators to undertake investments and create jobs. A key player in this respect is the private financial sector that acts according to cooperative principles. It is mutual savings and credit associations and cooperative banks that are most sensitive to the financial needs of the SMEs anywhere in the world, including Africa. The ILO has been testing an approach to help mutual savings and credit organisations acquire a genuine power and advocacy status. In Madagascar, for example, the ILO discovered a genuine need, and demand for, a professional association to represent members vis-a-vis public authorities, other financial institutions and donors. This policy dialogue is going to alter radically the financial conditions of participants, thus indirectly increasing employment in the rural areas and the informal urban economy. These best practices derived from the support programme in Madagascar show that viable micro finance institutions (MFIs) can indeed combine outreach and sustainability objectives, but they have to (i) be independent, (ii) impose strict recovery conditions; (iii) search flexibility on collateral requirements; (iv) charge positive real interest rates; (v) offer deposit facilities; and (vi) maintain a diversified portfolio.

iii. Support to the development of the Informal economy

One of the most effective ways of combatting poverty is by examining ways of enhancing the quality, the productivity, and the social protection of workers in the informal economy. An action programme in this field must include the following six main interrelated elements:

Improving the enabling environment and social protection in the informal economy

Appropriate measures must be taken to ensure that policies are aligned with the more productive development of the sector. Rules governing zoning, registration, access to land, and work sites must be reviewed in the light of their probable impact on the workings of the informal economy. The overall regulatory environment relating to such issues as legislation, taxation and fees will also need to be streamlined and made more sector-friendly. This calls for actions to strengthen the capacity of the authorities responsible for drafting these regulations or designing policies affecting the sector.

Efforts must be made to promote collective action at the grassroots level by strengthening or supporting the formation of associations based on sectoral activities within the informal sector. This will assist informal sector operators to articulate their needs and provide the basis for participating in policy and programme design and implementation which affect informal sector workers.

Increasing access to financial services and marketing opportunities

Sub-section ii, covers the proposed suggestions in this domain.

Promoting industrial and manufacturing activities and improved technologies

A particularly important sub-sector of the informal economy is the production of manufacturing and industrial products and the provision of engineering services such as repair services largely for the benefit of the poorer segments of the population. Hence he promotion of this sector is not only aimed at raising the productivity and incomes of the poor producers, but also improving the consumption and welfare patterns of the poor. Support for the upgrading of technical managerial and marketing skills for producers of this sector will also be essential, as well as easier accessing of production inputs. Pilot experiences show that there is great demand for business advisory services. Most of the NGOs who work in the informal sector lack the capacity to develop training programmes on business management and business practices. The provision of consultancy services in the fields of business regulations, management and skills training would be highly useful and appreciated by NGOs and informal sector operators.

Improving sectoral backward and forward linkages and subcontracting

Productivity and employment will be enhanced and poverty further reduced, if both forward and backward inter-linkages between formal sector enterprises and establishments in the informal economy are specifically identified. The role of the state as a major contractor could be a major instrument in this connection, by encouraging its larger contractors to sub-contract to informal sector operators.

Intensifying infrastructural development using labour-intensive technology

Section 2.2.4, illustrates the mechanisms that could be adopted for this sector.

Improving basic education, technical skills and managerial training

Section 2.2.1, includes strategies to assist in the development of the human resources in the informal economy.