Growing from within

A study into creating an inclusive economy in Africa suggests a new way of tackling the local challenge of including the marginalised in the property development and construction sector writes Richard Clacey, Programme Manager for the Vuthela iLembe LED Support Programme.

The commitment to creating an inclusive economy is strong in the private and public sector in the iLembe District Municipality, with both conducting several enterprise development programmes and support initiatives aimed at transforming the local economy.

But many previously marginalised business owners are still finding themselves on the sidelines of the mainstream economy.

Like many other districts in South Africa, municipal structures and business organisations within the iLembe District Municipality have been grappling with the challenge of creating an enabling environment for inclusive business development.

Private business owners and operators are driven by the necessary market imperative to make profit and create wealth if they are to be commercially sustainable. Public representatives are driven by a social policy mandate to include and uplift those who have been kept out of the economy in the past, which will lead to transformation and greater equity.

South Africa’s national challenges in forging inclusive business growth are part of broader issues facing the entire continent. Solutions to the South African problem can be found by considering the experience of inclusive business interventions in Africa.

Shared point of departure

A recent study among 100 companies and organisations in Africa offers potential to resolve this persistent challenge by blending social and economic aspirations to create a shared point of departure for inclusionary strategies that could satisfy South Africa’s urgent need for growth.

In their post on “The 10 key drivers for inclusive business in Africa”, Rob van Tulder and Siri Lijfering argue that “we need to fundamentally reshape the way we think about growth: from a focus on GDP as the single (and misleading) metric for development to inclusive societies as the basis for sustainable development and growth”.

Their research was published in a book titled Inclusive Business Strategies in Africa. A Business Model Perspective(1), which details the 10 driving factors that turn societal challenges into opportunities and create shared value through inclusive business practices. More on these factors will be expanded on later in this article.

This will enable the continent to tackle some of the greatest challenges that Africa is facing such as extreme inequality, poverty, food insecurity, access to health and education, and climate change.

Private sector role

“The private sector plays a vital role in facilitating this transition,” they concluded, after conducting research into 100 companies and organisations in Africa at The Partnerships Resource Centre of the Erasmus University in Rotterdam.

The research has reference to South Africa’s current unsustainable economic trajectory: growth has stagnated, unemployment is rising, inequality remains high and the poverty that prevails in many communities is yet to be eliminated.

Economic conditions in the iLembe district reflect national circumstances, and the construction and property sectors appear to be particularly hard hit.

The Business Confidence index published by the iLembe Chamber of Commerce, Industry and Tourism states:

“Business sentiment in the construction, property development, property sales sector continues to slump, with this key sector in the iLembe District’s economy becoming the 5th least confident business sector.”

Reasons for the decline in confidence in the construction and property sector included delays in planning approvals, unwieldy building control processes, inadequate development of infrastructure, and high developers’ contributions for infrastructure development.

A recent survey conducted by the Chamber found that the main constraints to conducting business in the iLembe district were the market size amidst the prevailing economic decline, the district’s competitiveness and its adaptability, service delivery and infrastructure provision, regulations and compliance, and property rates and taxes.

Other factors that constrained business activity and growth included skill shortages and labour-related issues, crime, and access to finance and liquidity.

Interventions underway in the iLembe district to address inclusive business growth include various municipal Enterprise Development programmes to upskill entrepreneurs and SMME operators in the region.

The electricity supply network is being upgraded to meet development demands and the impact of loadshedding is being addressed with the implementation of a SCADA (Supervisory Control and Data Acquisition) system that will allow the KwaDukuza Local Municipality to predict and manage outages better. The KwaDukuza Local Municipality is also examining the potential of an Independent Power Producer programme to alleviate disruptions due to loadshedding.

Business accelerator

The iLembe Chamber’s programmes to address the challenges facing small local business operators include a business accelerator for small business owners with an annual turnover of less than R6 million, and an Emerging Contractors programme supported by the Master Builders’ Association (MBA), which includes a one-year free membership to the MBA.

Many private property developers conduct Enterprise Development programmes aimed at bringing small emerging local businesses into the property sector and some have a local economic development policy which sets aside a percentage of total spend for small and medium businesses.

Private companies also subscribe to the national YES Programme to enhance employment opportunities for youth and programmes are in place to promote the participation of women in the sector.

Despite these efforts, significant inclusive participation of youth, women and small black-owned businesses in the construction and property sector remains elusive for many in the district.

The challenge of growing the local economy can be addressed by including previously marginalised small businesses in a manner that expands operations, opens up new markets and supports long-term market expansion in the property and construction sector.

This requires combining the business-minded imperative for profitability with socially minded aspirations for transformation, equality, and an end to poverty.

Solutions to the South African challenge can be found by considering the experience of inclusive business interventions in Africa.

Driving factors

The research-based book Inclusive Business Strategies in Africa. A Business Model Perspective details the driving factors that can turn societal challenges into opportunities and create shared value through inclusive business practices.

The driving factors that emerged from the African study bear close resemblance to the challenges and the opportunities to create solutions that are prevalent within the iLembe district.

The first step involves formulating an inclusive value proposition that strives towards a triple bottom line – a positive social and environmental impact in addition to a financial return on investment.

This allows a process of co-creation to cater for the needs of low-income and marginalised groups, working with partners that can complement resources.

“Contributing to inclusive development requires moving from stand-alone initiatives to innovation ecosystems in which a variety of partners work together to reach greater societal impact,” say the authors.

“Engaging in cross-sector partnerships can provide businesses with complementary resources and capabilities needed to create and deliver value in novel ways while minimising costs and risks.

“The notion of inclusive business calls for additional focus and innovation in the way companies do business. It involves creating new forms of employment, new markets, and affordable products and services. This spurs economic growth and encourages entrepreneurship.”

These insights offer many potential solutions for municipalities throughout South Africa.

Combined business-social mandate

Apparent gaps in the current public and private strategies appear to be the acknowledgment that the social mandate for sustainable transformation through inclusion is an essential part of business operations and process, and the depth of partnerships and collaboration needed to execute inclusive growth strategies is yet to be attained.

Combining the business and social mandates offers potential to develop a unique exercise for inclusive economic development in the iLembe district. It also has the potential to turn the challenge of social transformation into a solution for economic growth by bringing in innovative entrants, expanding markets for goods and services and serving local needs with non-traditional products.

An intensive level of collaboration and coordination between the private sector, the public sector and communities within the iLembe district will be required to implement such an over-arching enabling intervention and to create additional ones that will support future economic reforms in the district.

This suggests the need for a fresh look at creating a growth coalition that will include municipal officials, private property developers, Enterprise iLembe, public regulators, business and community representatives with a shared mandate to formalise, lead and coordinate projects and systems interventions for inclusive, transformational growth in the district.

By crafting a combined social and business mandate as their point of departure, such a coalition could set off on the right footing on the long haul towards inclusiveness and the final destination of greater equity.

In summary, the 10 factors detailed in the book are:

1. Inclusiveness as a process rather than an outcome

Formulating an inclusive value proposition and striving towards a triple bottom line that aims for a positive social and environmental impact in addition to a financial return on investment, and designing processes of co-creation to cater for the needs of low-income and marginalised groups and working with partners that can complement resources.

2. The importance of a societal mission-driven identity

Developing a mission statement and connecting it to the Sustainable Development Goals (SDGs) helps organisations to become more focused and able to connect with others that are set out to work on the same issues.

3. Long-term strategy and vision

Inclusive business is not a quick-fix and entrepreneurs need to be in it for the long haul. Inclusive business entrepreneurs need a long-term investment horizon and commitment to work on institutional as well as business development.

4. Creating space for intrapreneurship

Inclusive businesses are made up of inclusive business entrepreneurs that develop innovative solutions for pressing societal needs. Creating a business environment where ‘intrapreneurship’ can flourish is crucial for inclusive business success.

5. Organising last mile distribution

Rural areas are often accessible only by poor quality road infrastructure; products and services providing essential societal value often do not reach the intended customers or are more expensive and of lower quality than the products available to other populations. Organising last mile distribution, either by leveraging existing retail channels or developing new distribution channels, is a critical aspect of inclusive business success.

6. Serving local needs

Contextual factors determine to a large extent the uptake of the inclusive business model. To develop a business model that caters to specific local needs and requirements, inclusive businesses need to have a thorough understanding of the local context.

7. “If you want to go fast, go alone. If you want to go far, go together”

Contributing to inclusive development requires moving from stand-alone initiatives to innovation ecosystems in which a variety of partners work together to reach greater societal impact. Engaging in cross-sector partnerships can provide businesses with complementary resources and capabilities needed to create and deliver value in novel ways while minimising costs and risks.

8. Scaling

Scaling is important both from a business perspective: to reach commercial viability by compensating for low margins, and from a development point of view: to meet the needs of the four billion people living in poverty. Inclusive businesses can employ different scaling strategies that focus on developing new products or services, entering new markets or a combination of both.

9. Managing by measuring

Many inclusive ventures often have longer expected payback periods and standard business protocols, and evaluation methods are not fit for purpose. Inclusive businesses need to formulate and evaluate environmental and social key performance indicators as well as financial targets to reach triple bottom line impact.

10. Creating a learning environment

To develop a successful inclusive business model, inclusiveness needs to be institutionalised within the core business by creating a learning environment that captures and shares lessons from inclusive business success and failures.