Social Enterprises as Job Creators: Four Ways the Sector Can Boost Employment Opportunities in Africa

According to the African Development Bank, by 2030, there will be about 1 billion people in Africa of working age (between 15-64) – an increase of approximately 40% when compared to 2018. Naturally, this means more jobs will urgently be needed in order to improve living conditions, reduce unemployment and create sustainable economic growth in the region.

Impact-oriented entrepreneurs can play a key role in creating these jobs. According to a comprehensive analysis of 12 selected countries in Africa conducted and published by Siemens Stiftung, social enterprises (SEs) could create about 1 million direct jobs in the analyzed countries – but they need backing to maximize their untapped potential.

The study, “Social Enterprises as Job Creators in Africa – The Potential of Social Enterprise to Provide Employment Opportunities in 12 African Countries 2020-2030,” looked at the factors advancing and inhibiting job creation by SEs, based on different country contexts. It also assessed demographic trends related to the African job market, and quantified SE job creation potential in each country of focus. At a granular level, the research also included case studies for five SEs operating in different African countries and in different sectors, to identify the individual conditions they faced that supported or inhibited job creation.

Based on this research, Siemens Stiftung has recommended a set of interventions to support SE job growth in Africa, including: financial support, technical support, improvements to the enabling environment and improvements to data availability. Below, we’ll discuss each of these recommendations in more detail.

Financial support for job creation

Access to appropriate finance can allow African social enterprises to grow and create more jobs, but this remains out of reach for the vast majority of them. Financial ecosystems that support early- to growth-stage SEs are often characterized by a lack of appropriate funding – and significant gaps in where those funds are directed. There is a particular issue with medium-size investments – they are not sufficiently available, resulting in the much-discussed “missing middle.”

In response, we suggest that financial support for SEs focus on different types of capital, from equity or debt to grants, and that it include measures that support enterprise growth in general and, in particular, job creation. This could involve:

• Increasing the amount and allocation of funding to fit SE needs: Impact-oriented venture capital funds or performance-based funding schemes like Development Impact Bonds could be utilized to create more ways for SEs to access appropriate (patient) capital. Debt funding could be made more accessible by changing collateral requirements, or by establishing guarantee funds or on-lending facilities.
• Launching challenges and competitions to pilot new business lines: In all stages of growth, SEs require grants in order to test new ideas when seeking to diversify their product or service portfolio. From a job creation perspective, this type of investment could play an important role in allowing SEs to enter new markets while, at the same time, helping entrepreneurs prepare for – and minimize the risk of – investments for later-stage funders.
• Financially supporting SEs in recruiting and retaining employees: SEs often compete with established NGOs and private sector organizations for talent. Support programs could assist them with recruitment, and help them develop their attractiveness as employers through employee benefits or social protection schemes. Stipend support for trainees or apprentices recruited to be social entrepreneurs are a recommended intervention.

Technical support for social enterprises

Technical support is essential for social enterprises in all stages of growth. These enterprises often begin as founder-centered operations that need to build out capacity in areas such as governance, operational excellence and/or financial management in order to operate efficiently. To support SEs in leveraging their job creation potential, the following recommendations have high potential:

• Supporting SEs in strengthening their product/market fit: SEs could benefit from conducting market research and refining their products or services to fit customer and market needs. Mentoring, strategic partnerships and other support programs could aid SEs in tapping into neglected topics and areas, such as education and healthcare in rural areas. Bespoke partnerships with technology providers would also enhance SEs’ capacity by enabling the adoption of new technologies and supporting technology transfer.
• Improving operational efficiency and HR management: Many SEs lack the know-how or time to implement efficient organizational structures and/or processes. Specialized HR firms could support SEs in developing strategies and best practices to find and keep talent.

Improvements to the enabling environment

Strengthening the environment in which social enterprises operate is a fundamental prerequisite for their ability to grow and create more and better job opportunities. However, the majority of SEs around the world operate in settings with a scarcity of resources (e.g., finance, technology, etc.) and fragmented infrastructures. This is particularly the case in rural areas, where conditions are often much more challenging than in urban centers. To address this, we suggest:

• Strengthening the position of SEs: Specific legal forums for SEs exist in only a few countries worldwide. Accrediting or otherwise validating SEs would raise local communities’ awareness of their existence, while also promoting support mechanisms and financing vehicles specifically tailored to their characteristics.
• Promoting the preferential treatment of SEs in public procurement tenders: Given SEs’ focus on impact creation and the development of sustainable business models, this type of enterprise could be given greater consideration/priority treatment in public procurement tenders, in order to provide them with more opportunity and the security to make plans on a mid- or long-term basis.
• Promoting the creation of HR pools that fit SEs’ needs: The search for skilled labor is challenging for many SEs, as they compete with many other players and, typically, have tight budgets. Interventions are needed to improve the matchmaking process between SEs and job seekers.

Addressing the challenge of data availability

The poor quality/availability of data pertaining to SEs globally is a significant obstacle, especially as it relates to the development of interventions that can be tailored to advance job creation. This is especially common in emerging economies. Experts often point to the need to improve the research database for SEs, in order to help funders make informed decisions about which enterprises to support. Our recommendations here include:

• Standardizing research and establishing a definition for “social enterprise”: There are multiple definitions for “social enterprise” across different (and even within single) contexts. That’s why developing a common definition is essential to improving the quality and comparability of data about these organizations. Standardization is also necessary in data collection: This could be pursued via survey templates shared on an open-source basis, which could allow for a standard to be set.
• Deepening research on factors affecting the quality of jobs and job creation potential: More research is needed to validate, deepen, further specify and complement existing findings about SE job creation – both in general and also on specific questions such as job security, gender equality and inclusion. Such efforts could motivate further initiatives among development partners focused on investing in SEs as creators of impact and providers of decent jobs.

As mentioned, the aforementioned recommendations, analyses and case studies are outlined in further detail within the study, which presents its findings in three parts: Main Report, Country Profiles and Case Studies. The study was commissioned by the Special Initiative on Training and Job Creation of the German Federal Ministry for Economic Cooperation and Development (BMZ), which is implemented, among others, by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ).

As we work to share these recommendations with the broader social enterprise sector, the time for action is now. This three-part report is the first step in a multi-stakeholder journey that seeks to support SEs in creating significantly more and better jobs in Africa – but it won’t be possible without assistance from the international development community. Therefore, we’ll be actively disseminating and validating these learnings at sessions and panels with relevant ecosystem players. Various stakeholders will need to be unified in bringing the recommendations to life by way of concrete projects that help unleash SEs’ job creation potential. If key stakeholders come together around this goal, they can substantially increase the systemic impact SEs have on their communities, providing invaluable benefits for those directly impacted while encouraging more participation and equality in our society at large.

This post was originally published on NextBillion.