Kathryn Taetzsch: Investing in Frontier Markets of Fragile Contexts: A New Way of Working with SMEs to Tackle the Refugee Crisis


By Kathryn Taetzsch, Senior Relief Coordinator & Private Sector Engagement Lead, Global Humanitarian Operations, World Vision International

The scope of the challenge… a people-centered approach with “new actors”

Out of about 65.3 Mio people who have been forcibly displaced, 21.3 Mio refugees worldwide require humanitarian assistance in recurrent or protracted crises. The international community is unable to address the financing gap – for example, for 2017, US$ 1.4 Bn were required for lifesaving interventions for S.Sudan refugees in 6 neighboring countries (with Uganda hosting 1 Mio S.Sudan refugees in settlements in the North of the country by mid-August 2017) and only 28 percent of required funds to address increasing needs have been committed by August 2017. As complex and dire this situation and the incredible suffering is – the funding crisis warrants a new way of working to sustainably address needs, so - why not turning challenges into opportunities?

Is it only about funding? “Shrinking the need and therefore reducing the cost of response” requires a foundation for systematic socio-economic interaction, contributing to growth

The UN, Governments, civil society and others like business are aiming at forging Global Compacts on Refugees and Migration with the “Comprehensive Refugee Response Framework” (CRRF) as a concrete implementation roadmap (UNHCR 2016, Bringing the New York Declaration to Life)  for countries hosting large numbers of refugees, moving from short-term and unsustainable interventions, to enable both, displaced and hosts to interact, share and benefit mutually and contribute to increased self-sufficiency of displaced populations through a UN facilitated wider "whole-of-society-response"”(UNHCR Annual Partners' Consultation, Walk The Talk Panel Discussion, 15 June 2017) given that refugees are displaced for an average of 17 years in countries of transit or “new” host countries. These years can either be spent in a very unproductive way for individuals, families – the human, social and economic capital further weakened, in many cases, children and young people betrayed of their present and future, unless they and new actors are meaningfully and strategically engaged. As more than than 50 percent of the affected refugee population globally are below 18 years of age, humanitarian and development actors, like World Vision, are committed to fully meet the needs of "children on the move" as part of the Global Compacts on Refugees and Migration – addressing child protection, youth education and livelihood opportunity needs of displaced and hosts for mutual benefit and context-appropriate long-term solutions.

This warrants new investment schemes and host Governments providing enabling legal and policy frameworks – e.g. the right for refugees to settle, work and move freely and to engage in business activities, as offered by the Government of Uganda to refugees within its country’s boundaries.

With Small and Medium Enterprises (SME) comprising 90 percent of companies, generating more than 50 percent of total employment worldwide, a deepened understanding of local business,  further local business investment, mentoring and leveraging of skills, markets and new producer and customer base is a core element for the CRRF’s future success.

Many countries that host hundreds of thousands of refugees over years - if not decades - are on the low ranks of the Human Development Index (HDI) with chronic poverty, limited economic growth, challenges with governance, socio-political tensions and significant pressure building up on their own systems, resources, capacities and populations. They may continue to absorb increasing influx of refugees without a clear sustainable strategy to further prepare for and address displacements into often underserviced parts of their countries - possibly contributing to socio-economic tensions. Therefore, demanding for a stronger connection between humanitarian and development engagement in displacement crises requires also easing the pressure on host countries by enhancing refugee self-reliance – which is easier said than done. Given the predominance of SMEs for example in Africa, companies will need a clear plan how to serve this new customer group, including tailored offerings, targeted sales forces, and distribution and supply chains appropriate to their needs but to engage with nascent commercial activity between refugees and hosts in existing economic ecosystems. Thus, SMEs in displacement contexts will be a core driver, enabled to join other local business to make significant contributions to Africa's growth.

Here, social impact investment can make a difference for local and displaced entrepreneurs. Recent data suggests that innovative financial delivery models including commercial investments build on strengthened SME as well as other financial inclusion tools for vulnerable host community and refugees and represent a new opportunity as part of “frontier investment”. Building resilience and promoting social inclusion – are the new key topics to help host Governments in Sub-Saharan Africa not only to absorb but to effectively promote economic interaction between skilled refugees and host community members. It is critical to support youth and female entrepreneurs among refugee and host communities to access upskilling and financial assets – as the story of 18 year old Jackson shows. After having fled South Sudan, he has saved some cash to invest into establishing his own shop in a refugee settlement in N.Uganda, only few months after he escaped violence in S.Sudan – he is now the breadwinner for his Mum and his five siblings. With access to micro-loans, an impact investment opportunity, he would have had a much easier startup, and many others would follow this opportunity.

A study in 2014 found US$ 46 billion in sustainable investments and estimates indicate the impact investment market could grow to US$ 3 trillion. And as the more socially conscious millennial generation of entrepreneurs build impact-driven businesses, you can be sure the supply of impact investment opportunities will vastly expand – also to the frontiers of traditional investment geographies - into protracted humanitarian displacement crises. Local SMEs play a significant role in this emerging trend - often nimble, locally trusted and interconnected organic part of communities. If they are even part of social enterprise initiatives, that enable micro-franchising and thus facilitate more Bottom-of-the-Pyramid entrepreneurs to start business, they multiply impact, contributing (e.g. in the case of household solar energy solutions) to better access to lighting, increasing productivity including study hours for children, as well as better protection – e.g. in refugee settlements or camps.  

Overcoming obstacles – how to create meaningful coordination and partnerships for impact generating economic growth by:

  • Systematic information mapping of market needs and market demands among disaster-prone or -affected vulnerable households and communities and SME, national and multi-national business’ offerings of relevant goods, services, assets – linking refugee social entrepreneurs with relevant networks (as already successfully demonstrated by Syrian refugees in Europe)
  • Clarity on risk analysis and Return on Investment,  agility working with a potentially “trans-border mobile” customer- and business partner base, business preparedness and continuity in the face of fragility
  • Pre-positioning partnerships, visibility of local businesses, knowing “each other’s (humanitarian) principles, values, business objectives and modi operandi” to create shared value based on sound due diligence processes, mutual accountability and improve the conflict-sensitivity of businesses
  • Documentation of synergy, identification and promotion of strong scale-up capability of SMEs and social enterprises and impact measurement metrics
  • Enabling legal/ regulatory environment – e.g. incentives (for business: tax breaks, employment subsidies, social brand recognition, multilateral investment capital), flexibility to shift between transactional and transformational business engagement, depending on context; joint advocacy and policy options (e.g. lobbying for accelerated issuing of work and business permits by host Governments to refugee entrepreneurs

Complexity and funding constraints in refugee crises should not stop us – the role of national actors with regional bandwith – can help to re-invigorate the localization agenda with and through multi-stakeholder platforms, impact investment, engaging with SMEs and connecting business committed to improved preparedness, emergency response and recovery, as initiated in Kenya, and recommended by the Ugandan Refugee Solidarity Summit hosted Private Sector Side Event in June 2017.

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