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Making profit in Africa: A transforming role for NGOs 1

When I spoke on a World Bank panel earlier this year about the New Africa as we call it here, I was asked a question about what should development organizations do to remain relevant in a world where trade will trump aid very soon?

At the time, I gave a short answer because there are so many variables involved in answering that question.

But since then, I have come across the work of one particular non-profit development organization that catches the essence of what could be. World Hope International (WHI), which does development work in Sierra Leone, started a for-profit subsidiary which manages a new economic zone, or economic “opportunity” zone as they call it. The subsidiary is First Step and I recently interviewed the CEO, Richard Schroeder.

Economic zones are an obvious benefit to business people, both foreign and domestic, because they come with solid infrastructure, tax incentives, stronger business support services, and other advantages that may not be available in a country. National governments benefit because economic zones are a means to attract foreign investors and businesses to their countries.

Economic zones have been vehicles for economic growth for a while now. For example, Shenzhen in China was one of the first economic zones established and in less than 40 years it is a megacity with a population exceeding 10 million. So, it would seem that this would be a logical solution.

Unfortunately, there is a dark side to economic zones in Africa. On the whole, economic zones have not provided broad benefit by creating jobs and other economic opportunities. This is probably due to the focus on the extraction of natural resources versus other industries which would provide more jobs. Also, there are often questions about labor practices, environmental impact, etc.

Why would a humanitarian development organization like WHI take such a step outside their normal operations? Schroeder shared because they are serious about eliminating poverty. And in Sierra Leone, poverty is a serious issue as it is in many other developing nations. Sierra Leone, which is a post-conflict country, is categorized as a least developed country (LDC) by the United Nations. An LDC is a country in which there are low levels of socioeconomic and human development.

Schroeder was formerly the Director of Economic Development at WHI and heavily involved in microfinance, but admits he was looking for solutions that would do more. The idea of implementing an economic zone started when he was working in Bangladesh and saw the development of economic zones for garment and textile industries.

While an economic zone seemed plausible, First Step had to transform the business model and environment so that it would uplift people not create another opportunity for them to be exploited. Schroeder indicates that WHI, and other development organizations, will be there to “police” to ensure things are run as intended.

The first venture set up in First Step reveals a lot about the power of an economic zone to provide broad benefit. Africa Felix is a juice processing plant, which produces mango and pineapple juice. It hires about 80 people, but the fruit is sourced from over 1,500 farmers across Sierra Leone.

The fascinating part is how First Step developed the ecosystem to carry this off. WHI provides support in agricultural extension services throughout Sierra Leone, so they already had a network that reached many parts of the country, including rural areas.  They leveraged this network to create part of the value chain to source mangos.

However, there was another challenge. While the network existed, there was no operational value chain for harvesting and transporting mangos to the plant. WHI is a U.S.-based Christian development organization, supported by the Wesleyan congregation, so they were able to pull in an affiliated college, Houghton, to develop the supply chain.

The Africa Felix plant can process about 3 tons of fruit per hour, which is a relatively small operation, yet the team was concerned there would not be enough fruit delivered. The supply chain worked so well that the opposite happened – there was an overflow of mangos.

Another aspect to the mango story is the business model developed a market for something that was available in abundance but would go to waste because it was not harvested and processed. Many of the mangos that grow in the wild in Sierra Leone are stringy, which are not very good for eating, but work perfectly for processing into juice. So, by creating a value chain, First Step was able to take something considered of little or no value and make it into a product for which people would pay.

In fact, demand was already there, but because there were no processing facilities locally, the juice available in markets actually comes through Dubai or Pakistan, according to Schroeder. These juice products could also serve regional and international consumer markets.

The example of mangos in Sierra Leone illustrates a typical scenario in so many African countries. The countries have the natural resources but not the capacity to process those resources.

While First Step is designed to stimulate broad economic opportunity, it has the DNA to be a successful and profitable enterprise on its own. It earns revenue from rent on facilities, electricity provisioning, etc. First Step will also be developed into a franchising model.

Schroeder also indicated that First Step is structured to take on additional investors.  First Step is owned by WHI (75%) and Stephen Brown (25%), a social investor. As part of the agreement with the Sierra Leone government, WHI will always maintain a majority share of 51% and will re-invest its profits into development in Sierra Leone. Making profit works well because WHI is able to procure some of its own source of funding for its development initiatives instead of relying wholly on third parties.

The First Step example demonstrates how NGOs and development organizations can leverage their assets, including networks, in for-profit ventures that still meet their organizational objectives and actually can accelerate economic development. It is possible for non-profits to develop successful for-profit ventures for the social good, but it is first a matter of mindset as Schroeder has learned. He says, “the mindset of an entrepreneur needed to do this is much different than the humanitarian and development mindset.” But Schroeder demonstrates that the shift is possible and powerful.

By Lauri ElliottAfrica the Good News

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  1. In Africa today, individuals and communities are stretched too apart to a breaking point due to conflict, disease and poverty. Governments and thousands of organizations have placed themselves as champions in mastering people’s problems and that without their interventions, there is no survival. As a result, the masses have placed their hopes for their future in the hands of institutions and individuals and the current up raisings in most parts of the world is a clear testimony that this approach has failed.

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