1. Submitted for Consideration to:
Research Proposal
Developmental Entrepreneurship in Sub-Saharan Africa:
Identifying and Assessing Microenterprise Opportunities
Dale S. Fickett
16th June 2010
This document contains the preliminary research proposal for identifying developmental
entrepreneurship opportunities that will generate both social and financial value. It includes a broad
discussion of contextual factors associated with this research, and it proposes a methodology for
developing a casual theory for predicting these social and financial returns a given entity would generate
when addressing a given opportunity. Lastly, it delineates a range of benefits associated with the
intended findings – foremost of which is enhancement of the alleviation of global poverty. Those living
in embryonic markets, especially those in extreme poverty, will benefit from a powerful lever to improve
standards of living, increase incomes and employment opportunities, and propagate a range of broader
societal and developmental benefits. It is for these people – those in greatest need – that this work has
the most value and why it is right that we undertake it.

2. Table of Contents
I. Executive Summary ................................................................................................................... 3
II. Research Context ....................................................................................................................... 3
Economics and Management Literature ........................................................................................ 3
Development Stakeholders ............................................................................................................ 5
Economic Development in Sub-Saharan Africa ............................................................................... 8
Private Investment & Economic Growth ...................................................................................... 11
Poverty Alleviation through Developmental Entrepreneurship .................................................... 12
Research on Addressing Developmental Entrepreneurship Opportunities ................................... 14
Required Research....................................................................................................................... 17
Context Conclusion ...................................................................................................................... 18
III. Purpose ................................................................................................................................... 19
IV. Audience ................................................................................................................................. 20
V. Hypothesis ............................................................................................................................... 21
Poverty Alleviation ...................................................................................................................... 21
Commercial Viability .................................................................................................................... 23
VI. Methodology ........................................................................................................................... 26
Refine the Hypothesis (1)............................................................................................................. 26
Assumptions & Preliminary Research Design (2) .......................................................................... 27
Determining a Representative Sample (3) .................................................................................... 27
Observation (4)............................................................................................................................ 28
Interpretation & Categorisation (5 & 6) ....................................................................................... 29
Correlation (7) ............................................................................................................................. 29
Causal Framework (8) .................................................................................................................. 30
VII. Expected Outcomes ................................................................................................................. 30
VIII. Benefits ................................................................................................................................... 31
IX. Bibliography ............................................................................................................................ 32
2

3. I. Executive Summary
There is a small, but growing body of research on developmental entrepreneurship, or the support of
small business in developing countries, as a tool to alleviate global poverty. This tool is utilised by a
cross-section of the global development community, and as such includes a number of stakeholders
from the public, private and civil sectors. Over the past 65 years this community has worked in various
capacities to help alleviate the poverty in Sub-Saharan Africa. This region, with 51% of the population
living under the global poverty line and having the largest cluster of countries with low development
indicators, is arguably the region in greatest need of these efforts. One of the key levers in fighting
poverty is the stimulation of private investment to generate economic growth, however not all
economic growth helps the poor. Developmental entrepreneurship is a method for economic growth
which does, and in Sub-Saharan Africa it is increasingly a key lever for building markets that include the
poor as employees, venture owners, and consumers.
An array of research is required to greater understand how to best apply the developmental
entrepreneurship tool. Currently, interventions take place on three levels: those which seek to shape
the enabling environment in which microenterprises operate (i.e. policy advocacy), those which seek to
build markets by providing support along a value chain, and those which seek to support the individual
microenterprise. The microenterprise sits at the centre of this research proposal, as she/he requires an
ability to: (1) identify and assess new venture opportunities; (2) design the right strategy to address the
selected opportunity; and (3) execute that strategy effectively. The subject of this research is point 1 –
identifying and assessing developmental entrepreneurship opportunities.
The findings of this research proposal will be utilised across the aforementioned global development
community in a range of ways so that effort and resources may be prioritised and applied to those
opportunities with the greatest likelihood of yielding financial returns and poverty alleviation outcomes.
The described methodology for conducting this research includes: gathering and analysing existing
research and data, observing and measuring existing microenterprises, and developing a causation
framework which ascribes deterministic characteristics to the developmental entrepreneurship
opportunities. It is expected that a small subset of all opportunities will be the outliers which have
highest financial and social potential, and thus most deserving of entrepreneurial attention, funding, and
other incubator-type supports. It is the pursuit of these opportunities which will have the win-win of
social outcomes without sole reliance on government or donation funding. Marshalling resources to
address these opportunities, those of highest potential, will produce significant benefits for those living
in abject poverty – higher standards of living, increased incomes and employment opportunities, and
more indirect societal and developmental benefits. It is for these people – those in greatest need – that
we undertake this work.
II. Research Context
Economics and Management Literature
“Developmental entrepreneurship”, or “enterprise development”, sits at the intersection of
development economics theory and entrepreneurship theory, of the economics and management
disciplines, respectively. From the economics literature, Naude summarises that both fields have
3

4. developed rapidly over the past fifty years, but did so in relative isolation from one another; and that it
is now widely recognised that it is “of great practical importance to understand if and when
entrepreneurship is a binding constraint on economic development...in developing countries.”16 Areas
of particular interest in relation to entrepreneurship within the development economics community
include: structural change and economic growth, income and wealth inequalities, welfare, poverty
traps, and market failures.17 From the management literature, Bruton et al summarise that although
there have been tremendous strides in the entrepreneurship literature, it is largely based on evidence
from developed country markets.18 With only 43 articles (of 7,482 published during 1990 – 2006 in the
defined ‘leading management journals’) addressing entrepreneurship in emerging economies, it remains
an area of great importance and “woefully under-examined.”19 In sum, development entrepreneurship
is the study of utilising the establishment of small businesses as a lever to alleviate poverty in countries
with low levels of economic development, and requires research attention.
Broadly, the existing research from both disciplines can be viewed within two categories – ‘top-down’
policy recommendations, such as those to foster environments more conducive to entrepreneurial
activity; or ‘bottom-up’ examinations seeking to describe various insights relating to the individual
entrepreneur, which tend to emanate from the management discipline. In the former, there have been
an array of findings, in relation to: developing country strategies to promote enterprise development20,
financial regulatory change to increase access to financial institution accounts (for the benefit of small
African firms)21, the growth effects of government strategies for pursuing trade and investment
liberalisation in Least Developed Countries (LDCs) and their concomitant effects on small firms22, social
entrepreneur development programmes to “attract back” developing country diaspora with
entrepreneurial competencies23, and policy mobilisation to capacitate greater access to domestic,
regional and global agro-markets as a poverty alleviation mechanism.24 These findings have generally
been promulgated by the development economists, as they fall near the core scope of the discipline –
providing policy recommendations regarding governance, utilisation of aid, trade, investment and
markets regulation.
Conversely, the ‘bottom-up’ research provides insights which are derived from examining the start-up
firm or the entrepreneur in a developing country context, including descriptive characteristics, success
determinants, work outputs, and social contributions. Examples of such work, include: Kiggundu’s
description of the African entrepreneur, typical start-up models, and the external contexts of which they
are a part25; Mbaku’s observations regarding corruption, and specifically entrepreneurs’ propensity for
trading bribes for political favours26; Jackson’s construction of a firm-level, rather than government- or
16
Naude, W. (2010), p. 1
17
ibid.
18
Bruton, G., Ahlstrom, D. and Obloj, K. (2008), p. 1
19
ibid., p. 3
20
Adeoti, J. (2000), p. 57
21
Honohan, P. and Beck, T. (2007), pp. 141-142
22
Siddiqi, M. (2008), pp. 42-43
23
Prieto, L., Osiri, J. and Gilmore, J. (2009), p. 53; Murphy, R. (1999), p. 661
24
Regnier, P. (2009), p. 121
25
Kiggundu, M. (2002), p. 239
26
Mbaku, J. (1999), p. 309
4

5. donor-level view of the market context (based on research of textile and garment entrepreneurs in
Zimbabwe)27; and Valliere’s & Peterson’s extension of the economic growth model to reflect differences
between developed and emerging markets as regards new venture impacts on Gross Domestic Product
(GDP) growth.28 In short, development entrepreneurship literature has shifted over the last two
decades from specific, supply-driven interventions for small enterprises, to broader market
development methods; as microfinance and business development services (BDS) are increasingly
demand-led and treated holistically through a value chain approach.29 Jones and Miehlbradt provide a
comprehensive timeline of the enterprise development literature (see figure 1).30
Stage Description
Beyond Credit Support for small enterprise is understood to go beyond provision
(early to mid-1990s) of finance and includes ‘market development facilitation’, requiring
an understanding of the systems in which the enterprise exists
Subsector analysis approach is developed and applied
Commercial Service Business Development Services (BDS) paradigm evolved to formalise
Delivery a range of non-financial inputs to support indigenous entrepreneurs
(1995-2002) – training, transportation, technology, market access and
information
Renewed focus on monitoring, evaluation and impact assessment
Systems Approaches Under a range of names (e.g. pro-poor enterprise development,
(2002 – present) value chain development, market development, and making
markets work for the poor31) focus began to shift to how community
and government organisations can play a role in promoting
entrepreneurial activity
Subsector analysis and BDS are blended to achieve new insights on
industry competitiveness, value chain development, programme
design and market demand assessment
Developing Inclusive Practitioners are starting to focus on the poor as producers,
Systems consumers and workers
(2004-present) Some agencies are focused on the enabling environment, or
external market context; and have greater integration of multiple
functions and multiple players – policy level, value chain / meso-
level, and micro-enterprise level interventions
Current analytical frameworks focus on various aspects of poor
people’s lives, such as culture and economic incentives
Figure 1: Four Stages of Enterprise Development Theory and Practice
Development Stakeholders
Developmental entrepreneurship stakeholders are a subset of the broader global development
community. This community is comprised of: (1) inter-governmental organisations; (2) national and
local public sector policy makers in developed and developing countries; (3) civil society; (4) the private
sector; and (5) beneficiaries (see figure 2).
27
Jackson, P. (2004), p.769
28
Valliere, D. and Peterson, R. (2009), p. 459
29
Steel, W. (2009), pp. 286-290
30
Jones, L. and Miehlbradt, A. (2009), pp.304-314
31
“Making markets work for the poor” is often abbreviated “M4P.”
5

6. The subset of these stakeholders that participate in the utilisation of developmental entrepreneurship
for poverty alleviation is shown in figure 3. Each of the five stakeholder groups is represented within the
map. Within inter-governmental organisations there are various efforts to develop economies by
spurring the growth of inclusive markets through various market
United Nations
Inter-governmental
Trade & Development
Organisations
Development Banks
Inter-Parliamentary
UN Conference on
UN Development
Organisation for
Monetary Fund
Co-operation &
Commissions
Development
Organization
International
World Trade
World Bank
Programme
Economic
Regional
Regional
Union
National & Local
Beneficiaries
Public Sector
Donor Governments Recipient Governments
Academic & Research
Community Groups
Indigenous Groups
Non-Governmental
Labour Unions
Organisations
Organisations
Organisations
Civil Society
Associations
Foundations
Faith-Based
Professional
Charitable
Institutes
Private
Sector
Multi-national Small-to-Mid-
Micro-Businesses
Corporates Sized Businesses
Figure 2: Global Development Stakeholders
32
development programmes. In the public sector, government agencies sit on opposite sides of the
Official Development Aid (ODA) flow – those that provide funding, and those that receive it. In civil
society there are a range of organisations that prioritise sustainable livelihoods approaches in their
global poverty alleviation efforts, some of whom could also be classed as social entrepreneurs, based on
the maturity level of the organisation and their use of a not-for-profit model.33 Other social
entrepreneurs have grown their organisations to significant scale (as distinct from indigenous
microenterprise beneficiaries) and are making a contribution to poverty alleviation – such as Grameen
Bank and International Development Enterprises.34 These stakeholder groups have traditionally
marshalled private donations and government funding to address developing country poverty through
not-for-profit models, however new for-profit models are emerging.
New for-profit social entrepreneurs are harnessing competitive capital to scale their operations. As
these social entrepreneurs compete in private sector markets, so to are more traditional multi-national
corporates. For example, microfinance institutions span both for profit and not-for-profit models;
32
See Kinda, T. and Loening, J. (2008); UN Development Programme (2008)
33
See Coates, B. and Saloner, S. (2009); Ewalt, D. (2009); and O’Brien, J. (2008)
34
See Yanus, M. (2007) and Polak, P. (2008)
6

7. include start-ups and mature corporates; have core businesses in banking, retailing, and mobile
telecommunications; have local versus global footprints; centre on a double bottom line versus sole
commercial motive; and offer basic versus complex product ranges.35
Within the private sector, other for-profit models have been introduced to fight global poverty. As
mentioned, microfinance institutions, and other social entrepreneurs are using for-profit SME models
that provide finance, training, or other inputs required by the micro-entrepreneur. SKS Microfinance
stands as a good example of a microfinance provider, modelled as ‘for-profit’ from inception.36 These
social entrepreneurs are innovating ways to contribute to poverty alleviation, and there is increasingly a
body of research on social entrepreneurship which is relevant to its utilisation as a tool to achieve global
development outcomes.37 In the private sector, more mature multi-national corporates have launched
various Corporate Social Responsibility programmes which contribute to local entrepreneurship to
varying degrees. These programmes range from making traditional donations to the establishment of
foundations to leveraging core capabilities that achieve social outcomes as a pillar of corporate
strategy.38 These corporate philanthropic activities occur on an industry backdrop that includes
Inter-governmental Private Sector
Organisations Emerging Market
Programme Owners
Microenterprise and Market
Development Programme Corporate Social
Directors Responsibility
Leaders
Beneficiaries
Creditors Microfinance
Shareholders Institutions &
BDS Providers Entrepreneurs Customers Other Social
Employees Entrepreneurs
Suppliers
Developed
Country
ODA Agencies Sustainable
Livelihoods
Developing Country Advocates
Finance Ministries
National & Local
Civil Society
Public Sector
Figure 3: Map of Developmental Entrepreneurship Market Participants
35
See Annibale, R. (2009), p. 263
36
See Akula, V. (2008)
37
See Harris, J., Sapienza, H. and Bowie, N. (2009); Prieto, L., Osiri, J. and Gilmore, J. (2009); Zahra, S., Gedajlovic,
E., Neubaum, D. and Shulman, J. (2009); Hockerts, K. and Wustenhagen, R. (2009); Dean, T. and McMullen, J.
(2007); Maier, J. and Schoen, O. (2007); and Dorado, S. (2006)
38
Porter, M. and Kramer, M. (2008), pp. 451-477
7

8. competition, amongst Western and (increasingly) emerging market multinational organisations, to tap
local pools of natural resources, talent and consumers in new markets.39
All of the participants may play a role in the process of developing indigenous entrepreneurs, and as
such may be included in the beneficiaries category (hence the overlap depicted in the Venn diagram).
Of course, core to the beneficiaries category are the poor themselves, who play different roles along the
value chain. The ‘beneficiaries’ category can be split into three sub-categories. First,
those that provide required input include the providers of debt and equity financing, those providing
capacity building training and other BDS services, employees that provide required labour, and goods
suppliers. Moving left to right, the entrepreneurs transform these inputs, through value-creating
activity, into outputs for indigenous populations. In so doing, these entrepreneurs improve their own
livelihood and those of their family through increased income and thus expanded economic choices.
Lastly, on the right, the end-users or customers, benefit through the availability of, and the direct
purchases of, a good or service which improves their standard-of-living.
Clearly, there is a set of complex relationships amongst global development community, especially as
various organisations play differing roles in various engagements. This complexity also applies for the
subset of stakeholders that participate in developmental entrepreneurship initiatives. Whether viewed
through the lens of the economist, management theorist, entrepreneur, corporate leader, policy-maker,
beneficiary, or global development practitioner – developmental entrepreneurship is a significant tool
for generating organic and pro-poor economic growth, building sustainable livelihoods, and alleviating
conditions of poverty in these embryonic markets where the benefits are most needed.
Economic Development in Sub-Saharan Africa
In 2005, 51% of the Sub-Saharan African (SSA) population was living below the global poverty line of
$1.25 per day (measured in purchasing power parity), the world’s highest regional poverty rate.40 Of the
1.4 billion people that live in this extreme state of poverty globally41, approximately 400M42 are in SSA,
or 28.5% of the global poor.43 In fact, despite having 11.4% of the world’s population, the region
produces only 0.023% of global GDP.44 Moreover, the region has the lowest average GDP per capita at
only $2,031.45
The hardships of extreme poverty in SSA are exacerbated by the lack of opportunities for improving
one’s standard of living. It is one thing to be extremely poor in an environment in which one has hope
due to the opportunities presented by his/her environment, but quite another when the environment
presents few opportunities to improve one’s condition. The UN has classified countries based on their
level of economic development, and SSA is the largest collection of ‘Low’ developed countries,46 or
39
Accenture (2009), p. 7
40
UN Development Programme (2009a), p.7
41
ibid
42
Based on calculations from UN Development Programme (2009a), Statistical Annex, pp. 191-194
43
ibid
44
UN Development Programme (2009a), pp. 191-194, 198; measured in PPP
45
UN Development Programme (2009a), p. 174; measured in PPP
46
Based on calculations from UN Development Programme (2009a), Statistical Annex, pp. 191-194
8

9. those with depressingly few opportunities to escape poverty. Globally, there are 385.1M living in these
24 countries, and 357.4M of them are in SSA. 401.6M of the SSA population lives in countries of
‘Medium’ development,47 or where conditions are somewhat better. SSA suffers the lowest
Sector
Agriculture, Fishing & Forestry
Education
Energy & Mining
Finance
Health & Other Social Services
Industry & Trade
Information & Communication
Law, Justice & Public Administration
Transportation
Water, Sanitation & Flood Protection
Economic Management
Environmental & Natural Resource Mgt.
Financial & Private Sector Development
Human Development
Theme
Public Sector Governance
Rule of Law
Rural Development
Social Development, Gender & Inclusion
Social Protection & Risk Management
Trade & Integration
Urban Development
Figure 4: World Bank Lending Activity Categorisation
development rankings on every primary measure – the lowest overall human development index, lowest
life expectancy at birth, lowest adult literacy rate, and lowest educational enrolment rate.48 In sum, the
poor of Sub-Saharan Africa face the harshest living conditions, and most of these people lack
opportunities to escape this extreme poverty by nature of the low levels of indigenous economic
activity.
The causes of extreme poverty, or a lack of economic development, are highly debated; and the
prescribed solutions even more so (see section III – Audience). Interventions have ranged in size and
scope, and both ‘top-down’ and ‘bottom-up’ efforts have been driven by the stakeholder groups
mentioned. These efforts fall within an umbrella process that includes: (1) Harnessing required inputs –
human capital, financial capital, social networks, and intellectual capital; (2) Ensuring policy
effectiveness in input utilisation (primarily at national level), in setting development priorities, in
promoting and regulating markets conducive to inward foreign direct investment (FDI), in setting
domestic (e.g. agriculture, education, health) and international policy (e.g. security, trade, monetary);
and (3) Measuring and reporting the achievement of outcomes in the areas of poverty and hunger,
health, education, economic growth, gender equality, environmental sustainability, and governance.
47
ibid
48
UN Development Programme (2009a), p. 174; measured in PPP
9

10. The sheer breadth of the World Bank’s lending activity provides a useful framework for categorising
global development initiatives (see figure 4).49
Interventions also occur within a complex and dynamic development environment (see figure 5). There
are a range of existing economic, demographic, geo-political and socio-cultural factors to consider.
These change over time, and vary across countries and regions. To some extent, this change is driven by
external ‘globalisation effects’. Placed on the backdrop of the increasing pervasiveness of connective
technologies, propagation of corporates’ expansive global operating models, and the increasing
prevalence of open market policies, this set of effects impacts the country-specific factors mentioned.
Moreover, this dynamic has been recently impacted by the extent of the 2008-09 financial markets crisis
and resultant global economic recession (labelled ‘current economic disruption’). A range of
development challenges remain, and these Millennium Development Goals (MDGs) were agreed upon
by the international community in 2000, with a set of specific targets for improvements by 2015.50
Current Continuing
Economic Globalisation Effects Development
Disruption Increased Growth in Challenges
New Pockets of Multi-directional
Resources Emerging Market War for Talent
Innovation Capital Flows
• Capital constraints Constraints Consumers
– national debt,
aid and
investment
• Extreme Poverty &
• Commodity price Complexity of Country-Specific Development Factors Hunger
volatility
Degree of Growth in Improvements in Improvements in Wealth • Primary Education
• Weakening global
Commodity outward FDI to Macro-economic Agricultural Distribution / • Gender Equality
trade
Dependency Developed Stability Productivity Inequality
• Child Mortality
Economic
• Credit Constraints Countries
and Banking • Maternal Health
Variability in Under- Diversification of
Sector Re- Constraints on Poverty
Fiscal Health and • HIV/AIDS, Malaria
regulation New Inward FDI Employment Export Base Reduction Trends
Current Accounts and other Diseases
• Asset Devaluations • Environmental
(e.g. Equities, Real Sustainability
graphic
Health &
Demo-
Population Profile Rural to Urban Emigration / Life
Estate) Education
& Growth Rate Migration Immigration Expectancy • Global Partnership
• USD Currency Trends Levels for Development
Devaluation and
political
Monetary Democracy & ODA Climate Change Food
Geo-
Pockets of Armed Human Rights
Implications Reductions Vulnerability Crises
Conflict Progress Levels
• Unemployment
Growth Attitudes Shaped
cultural
Socio-
History of Aid Tribal and Community Religious & by Disaster
National
• Slowing Economic Spiritual Beliefs Identity
Dependency Norms Survival
Output
Figure 5: Complexity of Development Challenges
49
See World Bank (2009a), pp. 33, 37, 41, 45, 49 and 53; this categorisation is derived from the World Bank’s
method of classifying their lending activity from 2004 to 2009
50
See United Nations (2009)
10

11. On balance, it’s encouraging to note that since the establishment of the MDGs, progress in SSA has been
made in certain areas (see figure 6).51 Between 2002 and 2007 SSA economic growth topped 6.5% - the
highest rate in 30 years. For 2009, growth is expected to have slowed to 1%, as demand abroad for
traded goods decreases and capital flows shrink on the back of the global economic downturn. The
International Monetary Fund’s (IMF) outlook includes growth of 4% in 2010 and 5% thereafter. There
are a number of downside risks to the estimate, and policy recommendations centre on the continuance
of fiscal measures to promote countercyclical stimuli and additional monetary loosening until recovery
Percentage of people living on less than $1/day has
decreased from 58% in 1999 to 51% in 2005
Proportion of undernourished population has
decreased from 32% for 1990-92 to 29% in 2008,
despite the challenges of severe food price spikes
Proportion of children under five that are underweight
decreased from 31% in 1990 to 28% in 2007
Enrolment in primary education has increased from
58% in 2000 to 74% in 2007
Gender parity in primary education is improving, but
worsening at secondary level; and women’s
representation in national parliament has doubled
Child mortality has decreased from 183 deaths per
1000 births in 1990 to 145 in 2007
Only marginal improvements in maternal deaths
New HIV infections have decreased since 1996, but
two-thirds of the 33M infected live in SSA
Continued rise in greenhouse gas emissions, and
increased effects of drought
Aid to Least Developed Countries falls far short of the
2010 target
Figure 6: Sub-Saharan Africa Millennium
Development Goal Progress
gains momentum. In the medium term, recommendations focus on maintaining sustainable budget
deficits, spending on infrastructure and human capital development, and programmes to improve public
sector effectiveness.52
Private Investment & Economic Growth
One of the key factors of developing countries’ economic growth, and an environment conducive to the
developmental entrepreneurship opportunity, is the ability to attract FDI and deploy it for productive
use within the private sector.53 Countries need a sound business environment in the form of good
government regulations to benefit from FDI; however excessive regulation can discourage foreign
investment.54 Necessary conditions to attract FDI also include infrastructure relevant to the proposed
project, stability of property rights, and democracy insofar as it provides a deterrent to expropriation
51
ibid
52
IMF (2009), pp. 1-3
53
OECD (2006a), pp. 11-14
54
Busse, M. and Groizard, J. (2006), p. 1
11

12. and corruption.55 There is also research indicating a correlation between good governance and
economic performance.56 Furthermore, the Organisation for Economic Co-operation & Development
(OECD) recommends that in order to attract increased investment, developing countries should foster a
diversified financial sector, lower the costs of investment, reduce risks, improve competition, and
develop capacity.57 In order that developing countries harness financial capital and other inputs as
productive means towards economic growth ends, policies must focus on creating climates most
conducive to inward investment. “What ultimately count are the productivity gains that result from
product and process innovations brought about through investments, as well as the extent to which jobs
and capital flow from declining industries to expanding ...economic activities.”58
Fox and Sekkel Gaal summarise that SSA growth was stimulated by policies in the 1980s and 1990s that
provided macro-economic stability and expansion of the domestic sector.59 However, SSA remains the
least attractive region for inward investment, based upon the World Bank’s Doing Business 2010 ranking
of business-related regulation (i.e. ease of obtaining a business license, ability to enforce contracts, etc.).
Importantly, this does not capture other factors related to investment climate, such as the robustness of
physical and financial infrastructure or regulation of the markets in which the entrant would compete.
On the basis of business regulation alone, SSA as a region has one of the lowest rates of reform, with
63% of countries instituting a regulatory change. However, this is up substantively from 22% in 2005;
and with 12 reforms in place, Rwanda has instituted the most change of any country, globally.60 As the
poorest region in the world, and despite relatively poor physical infrastructure, Sub Saharan Africa has
made large progress in promoting economic growth, in large part, through macro-economic stability,
political reforms, and, increasingly, regulatory changes – all aimed at improving investment
attractiveness. Consequently, the environment for developmental entrepreneurship opportunities is
improving.
Poverty Alleviation through Developmental Entrepreneurship
Economic growth does not equal economic development, or improvements in the alleviation of poverty,
health services, education, etc. Income is one of the primary metrics used in economic analysis.
Economists utilise several methods for measuring income distributions – size distribution of income, as
measured by the Gini coefficient; functional distributions, or factor share distributions (i.e. returns to
land, labour, capital); and measures of absolute poverty, as measured by the Human Poverty Index.61
These measures provide insight into the nature of economic growth, and specifically who is benefiting
from that growth. Economic growth may alleviate poverty and address income inequalities, but not
necessarily. For example, historic growth constrained within extractive industry segments in developing
countries led to increased gross national incomes, and with constant demographics, per capita incomes
55
Khan, M. (2005), pp.77-82
56
See Hall, R. and Jones, C. (1999)
57
OECD (2006a), pp. 15-17
58
ibid
59
Fox, L. and Sekkel Gaal, M. (2008), pp. 1-2
60
World Bank (2009b), pp. 1-5
61
Todaro, M. and Smith, S. (2006), pp. 195-207
12

13. naturally rose as a mathematical consequence; but this income was highly concentrated and relatively
few people escaped poverty as a result, hence growth without development.62
The economic growth which does assist in poverty alleviation for broad portions of the population has
been termed ‘pro-poor growth’ or the development of ‘inclusive markets.’ There is a significant body of
research supporting the assertion that entrepreneurial activity is critical to developing economies, and
that it contributes to poverty alleviation. The OECD promotes the “central role” of the private sector in
poverty alleviation, and provides an analytical framework and set of policy recommendations to
facilitate pro-poor growth, including providing incentives for entrepreneurship and investment by
fostering: (1) low market entry and exit barriers; (2) predictable rules of exchange; (3) secure and
transferrable property rights; (4) enforceability of contracts; and (5) low levels of corruption.63 Azmat
and Samaratunge found that a range of factors brought about the prevalence of small-scale individual
entrepreneurs (i.e. microenterprises), which form a major part of the informal workforce and contribute
significantly to economic growth in developing countries.64 Debrah concludes that SSA governments
should promote the informal sector as a significant source of employment.65 Furthermore, Lado &
Vozikis posit, “That entrepreneurship is vitally important to economic development of a nation is
indisputable.”66; and Morris concludes that sustainable economic development does not occur without
entrepreneurship, and higher levels of entrepreneurship are directly correlated with increases in GDP,
societal wealth, and quality of life.67
Fox and Sekkel Gaal observe that most poor households derive income through the sale of their labour
to themselves or to others, and that earning more money faster is the key factor in increasing the
impact of economic growth on poverty reduction. Furthermore, to overcome existing challenges to job
creation, African economies need to be more globally competitive, by focusing policy initiatives on
creating climates attractive for investment. Finally, they conclude that the high growth in the informal
sector (or micro-enterprises) is a supply-side response to weak demand for labour amongst medium and
large enterprises; and prospects for increasing productivity in small hold agribusiness provides a viable
route for working out of poverty.68 According to the UNDP, “The poor harbour a potential for
consumption, production, innovation, and entrepreneurial activity that is largely untapped.”69 They also
site many examples of businesses that are creating “value for all” by buying from, and selling to, the
poor.70 Benefits are significant, as businesses have enjoyed profits (microfinance institutions earning
23% return on equity, as an industry average), growth potential in new markets, innovation capability
enhancements, and an expanded labour pool. Likewise they reference a range of benefits for the poor –
income, improved standards of living, higher productivity and increased empowerment.71 Challenges
associated with conducting business in SSA are noteworthy – infrastructure shortfalls, difficulties
62
Ibid, pp. 15-20
63
OECD (2006a), pp. 14-15, 20
64
Azmat, F. and Samaratunge, R. (2009), p. 437
65
Debrah, Y. (2007), p. 1063
66
Lado, A. & Vozakis, G. (1997), p. 55
67
See Morris, M. (2001)
68
Fox, L. and Sekkel Gaal, M. (2008), pp. 1-2
69
UN Development Programme (2008), pp. 1-12
70
ibid
71
ibid
13

14. enforcing contracts, lack of market information, and skills gaps. In some instances, these challenges can
be overcome through the utilisation of the five strategies provided (see figure 7).72
Although there are a range of entrepreneurial activities that are likely to contribute to poverty
reduction, private investment in the agriculture sector is one of the highest priorities.73 Agricultural
growth is now thought possible in SSA, as high growth rates in certain regions have fostered hope that it
can be replicated, and as food prices have risen, there is increasingly a realisation that new
opportunities may be opening to utilise land and labour as global agriculture supply is near full
capacity.74 Also, the World Bank determined that, “Private investment reduces poverty when
investment rates are high and occurs in sectors that intensively use factors owned by the poor. In Sub
Saharan Africa that means land and unskilled labour.”75 Lastly, Competitive Commercial Agriculture for
Africa (CCCA) found that opportunities abound for African small hold farmers, especially given rising
demand forecasts due to changes in food consumption patterns and demographic shifts.76
In short, development entrepreneurship in Sub Saharan Africa is thus a key lever for poverty alleviation,
as it develops inclusive markets that utilise land and labour to alleviate conditions of extreme poverty.
Moreover, those opportunities with the highest correlation to poverty alleviation in SSA are believed to
be agricultural and set within a conducive regulatory environment.
Research on Addressing Developmental Entrepreneurship Opportunities
Microenterprises require a set of resources, which differ from their developed world counterparts, and
leverage those resources differently, as a function of the substantive constraints of their environment.
Trulsson categorises these constraints as: access to finance, financial management competencies,
market orientation, human resources, physical infrastructure, policies & regulations, and information &
networks.77 Duncombe & Heeks find that poor rural entrepreneurs also rely heavily on informal, social
and local information systems, especially shared telephony services. Nichter & Goldmark find small firm
growth factors in four areas – the entrepreneur, the firm, relationships & networks, and context &
environment.78 Similarly, Okpara concludes that an entrepreneur’s pro-activity in engaging in export
markets, and related financial commitments, cause higher firm profitability and growth.79 Micro-
entrepreneurs must use innovative techniques to garner required inputs in contexts of significant
constraints, and in the pursuit of profit they leverage those scarce resources in unique ways that are
predominantly context driven.
Access to finance is a key obstacle for the micro-entrepreneur. Overall trends indicate a significantly
constrained flow of capital to emerging markets – decreasing from $890B in 2007 to $390B in 2008 and
$140B projected for 2009.80 Micro-entrepreneurs, especially in this environment, find it difficult to
72
ibid
73
World Bank (2009c), pp. 1-3, 5-7
74
ibid
75
Kochendörfer-Lucius, G. and Pleskovic, B. (2005), p. 1
76
World Bank (2009c), pp. 2-4
77
Turlsson, P. (2002), p. 331
78
Nichter, S. and Goldmark, L. (2009), p. 1453
79
Okpara, J. (2009), pp. 1281-1282
80
Cline, W. (2009), p. 2
14

15. access credit and equity financing to expand their ventures. Mushinski & Pickering observe that
microenterprises have virtually no access to formal credit markets.81 Microfinance provides a
substantial form of debt financing for the micro-entrepreneur. Hossain and Knight argue in favour of
microcredit due to its role in expanding micro-enterprises and fighting rural poverty.82 However, there
is a debate regarding microfinance’s effectiveness. Smith & Thurman in A Billion Bootstraps argue for
the expansion of micro-credit, while Amsden & Ha Joon Chang argue against such expansion in some
over-supplied markets as new entrants may displace existing enterprises and have net worsening
effects. 83 Datar et al levy another attack on microfinance providers, concluding that in their push to
alleviate poverty, they should focus on assisting their clients build sustainable enterprises, rather than
on providing greater volumes, and ever larger loan amounts.84 Financial capital is a primary input for
the microenterprise, and microfinance providers are well positioned to providing this crucial step out of
poverty.
Microenterprises are also dependent on other facets of the enabling environments, including regulatory
support from their governments. Such supports include: efficiency in acquiring business permits or
closing a business, property rights and contract enforcement protections, efficiency in taxation
administration, and the regulations applicable to the market in which a given entrepreneur operates.
Other domestic regulatory supports are often more indirect, but of consequence – financial sector
stability, domestic infrastructure and human capacity investments, fiscal sustainability, public sector
governance, and stances on human rights. Indirect international policy is often more remote to the
entrepreneur, but still relevant based on the entrepreneur’s competitive market (e.g. extent of
importing/exporting). These factors include: ODA expenditures, trade agreements, security, and
monetary stability. Examples of related research, include: Beck et al on financial market policy to
broaden access85; the World Bank’s Doing Business series covering cross-border comparisons of reforms
related to improving efficiency in operating businesses86; Aubert on promoting developing world
innovation87; Ayele on investment incentives and resultant market distortions88; the World Bank working
paper on regulatory conditions required to attract FDI89; Phillips et al on policy recommendations to
foster entrepreneurial activity90; and Bennett’s argument for government support of informal firms.91
Social capital, or relationship networks, is also a critical input for micro-entrepreneurs. Wheeler
observes that developing world entrepreneurs who build sustainable, successful enterprises rely upon
informal networks that include other private sector players, non-governmental organisations (NGOs),
and other community groups, as developed with the Sustainable Local Enterprise Network Model.92
81
Mushinski, D. and Pickering, K. (2007), p. 567
82
Hossain, F. and Knight, T. (2008), p. 155
83
See Smith, P. and Thurman, E. (2007); Amsden, A. (2007); Ha-Joon Chang (2007)
84
Datar, S., Epstien, M. and Yuthas, K. (2008), pp.38-45
85
Beck, T., Demirgüç-Kunt, A. and Honohan, P. (2009), p. 119
86
See World Bank (2009b)
87
See Aubert, J. (2005)
88
See Ayele (2006)
89
See Busse, M. and Groizard, J. (2006)
90
See Phillips, C. and Bhatia-Panthaki, S. (2007)
91
See Bennett, J. (2009)
92
Wheeler et al (2005), pp. 36-37
15

16. Networks can also facilitate the recruitment of the start-up team recruitment, and Ibeh posits that these
firms can overcome barriers to entry to international markets through recruitment.93 Likewise, Zhu et al
found that developing country SMEs can increase their internationalisation capabilities by leveraging
embedded networks with local governments and business groups.94 Conversely, Bernard et al
demonstrate the limitation of certain network nodes, as market-oriented and community-oriented
organisations in rural settings are constrained by geographical remoteness, social conservatism, lack of
access to resources, and limited management capacity.95
Incubators and other BDS providers supply microenterprises with a range of services, including access to
mentors, management advisory services, training, increased access to financing (especially routes to
equity financing), and access to technology and process innovations. These providers stretch across the
referenced stakeholder groups, and include not-for-profit and for-profit models. The effectiveness of
incubators in spurring developmental entrepreneurship is currently debated. Ayers & Harman report
the findings of infoDev, a network of 300 such incubators: (1) successful incubators were led by
visionary leaders with influence on policy; (2) important contributions were made by universities,
foundations and corporations in mentoring, sharing facilities, research access and board memberships;
and (3) most clients had difficulty accessing private investment.96 Tulchin and Jones debated the
effectiveness of microenterprise incubators in addressing poverty, with Tulchin in favour of the support
incubators provide, and Jones arguing that most developing world incubators are structured to support
ventures with high growth potential, and benefit relatively few people. However, Jones also comments,
“I do believe that it might be possible for certain new models of incubators to exist that could catalyse
pro-poor economic advancement.” She also proposes that they would have to demonstrate clear
connection to pro-poor impacts, be well monitored and the models tested. Moreover, these incubators
would focus on the creation of labour intensive businesses, or accelerate equitable growth across the
value chain.97
Given the appropriate opportunity, and provided access to needed resources, what strategy should a
micro-entrepreneur employ to successfully launch and grow his/her enterprise? There is a new and
growing body of research on micro-enterprise strategy, including: Akula’s summarisation of micro-
finance institutions’ recommendations on what businesses should do that serve the poor98; several
research findings in relation to market definition and international trade by micro-enterprises99; and
Porteous, as well as Frishammar & Anderssen, provide insights in relation to market access and
marketing strategy.100 Lastly, significant work by the UNDP, released in 2008, led to the identification of
five common constraints that microenterprises face and well as five strategies that are used with varying
incidence to address them (see figure 7).101 The UNDP provide a summary of solutions within each of
93
See Ibeh, K. (2004)
94
Zhu, H., Hitt, M. and Tihanyi, L. (2007), pp. 1-2
95
Bernard et al (2008), pp. 2188-2190
96
Ayers, S. and Harman, P. (2008), p. 12
97
See Tulchin, D. and Jones, L. (2009)
98
See Akula, V. (2008)
99
See Aldonas, G. (2008); Williams, D. (2008); Mai Thi Thanh Thai and Li Choy Chong (2008); Brettel, M., Engelen,
A. and Heinemann, F. (2008); and Ratten, V. (2008)
100
See Frishammar, J. and Anderssen, S. (2009); and Porteous, D. (2008)
101
UN Development Programme (2008), p. 6
16

17. the five strategies, and summarises that the solutions are not mutually exclusive, and are, in fact,
commonly used in combination to overcome the challenges inherent in operating businesses in
developing markets.102 Additionally, work from the Monitor Group has provided four business models
on servicing poor countries – “A pay per use approach”, “No frills service”, “Para-skilling”, and “Shared
channels”; and three on engaging low-income suppliers – “Contract production”, “Deep procurement”,
and “Demand-led training”.103 In combination, these studies provide significant insight into strategies
that developmental entrepreneurs should consider in addressing the opportunities which sit at the
centre of this research.
Of course, microenterprises must marry the opportunity, the resources, and the strategy with effective
execution. The area of micro-enterprise implementation has also benefited from research:
Kodithuwakku’s and Rosa’s conclusions regarding the importance of creativity and perseverance in
mobilising scarce resources in Sri Lankan village enterprises104; Liedlolm’s findingss regarding the
importance of location in small firm survival105; Hung Manh Chu et al on entrepreneurial motivations,
challenges faced, and success determinants in Ghana and Kenya106; Bear and Field on micro-enterprise
participation within industry development and contributions to value chain competitiveness107; Bekkers
et al on internal monitoring and knowledge management systems, as well as external reporting for
developmental entrepreneurship projects108; and Thassanabanjong’s, Miller’s and Marchant’s research
in relation to employee training.109
Required Research
Many developmental entrepreneurship researchers have provided their views regarding future research
required to either advance the insights of their work, or more generally, regarding what would be
beneficial for the field as a whole. Recently Jones and Miehlbradt identified several areas for future
research on developmental entrepreneurship110, some of which lead to several key questions that
surface as a result: How can we distil best practice into a set of common industry approaches and tools?
How can we determine and combine the most appropriate intervention level for a given community –
value chain interventions or macro-business enabling environment interventions? How can we harness
the productive capacity of rural Sub-Saharan Africa to alleviate
102
Ibid, pp. 8-10
103
Karamchandani, A., Kubzansky, M. and Frandano, P. (2009), pp. 3-7
104
See Kodithuwakku, S. and Rosa, P. (2002)
105
See Liedholm, C. (2002)
106
See Hung Manh Chu, Benzing, C. and McGee, C. (2007)
107
See Bear, M. and Field, M. (2008)
108
See Bekkers, H., Miehlbradt, A. and Roggekamp, P. (2008)
109
See Thassanabanjong, K., Miller, P. and Marchant, T. (2009)
110
Jones, L. and Miehlbradt, A. (2009), pp.315-318
17

18. Strategies
Invest in Combine Engage in
Adapt Leverage the
removing resources and policy dialogue
products and strengths of
market capabilities with
processes the poor
constraints within others government
Market
information
Regulatory
environment
Constraints
Physical
infrastructure
Knowledge and
skills
Access to
financial
services
High Incidence Medium Incidence Low Incidence
Figure 7: Growing Inclusive Markets Strategy Matrix
poverty and to meet increasing global demand for food and biofuels? What are the connections,
overlaps, and synergies between developmental entrepreneurship and sustainable livelihoods
approaches? Similarly, Zezza et al call for research required to identify mechanisms to promote
productive investment, as opposed to social investment, especially in non-farming activities in rural
areas.111 Also, Sievers and Vanderberg look to future research that examines the synergies to be gained
by combining BDS and microfinance.112 Other areas cited for future research, include: understanding
the current state of developing country markets’ size and structure, strategies for successful inclusive
business model deployment, driving projects to scale and overcoming short budgetary timelines,
technological innovations pertinent to the poor, reaching the extreme poor with no assets, topics
around areas of overlap with environmental sustainability research, and the effects of migration.
Context Conclusion
Developmental entrepreneurship, or enterprise development, is a powerful lever for lifting the global
poor from extreme poverty by supporting their efforts to build businesses. Research on the topic has
come from two directions – the development economists that have identified small business as one
method for improving livelihoods, and entrepreneurship theorists that have identified global
development challenges as a place in which to apply their knowledge of start-up management for
societal good. Aside from these academics, many practitioners engage within enterprise development
initiatives, including those in the public, private and civil sectors.
111
Zezza et al (2008), p. 1297
112
Sievers, M. and Vanderberg, P. (2007), p. 1341
18

19. These stakeholder groups have built over 65 years of development experience in Sub-Saharan Africa,
arguably the poorest region on earth. Here conditions of extreme poverty, or living below the global
poverty line, are the daily reality for 51% of the population. This situation is exacerbated by the severe
limits to personal opportunities to escape this poverty, due to the overall low level of development
across most of these countries. The development efforts have, in some instances, focused on income
growth. However, not all national income growth translates to improvements in living conditions for
the poor. Developmental entrepreneurship is demonstrating that microenterprises play an important
role in grass roots initiatives to sustain livelihoods. This is especially true in SSA, one of the regions in
greatest need, where opportunities for agri-business and aquaculture look particularly attractive.
Further research is required in this fledgling field, to bolster the effectiveness of such initiatives. These
initiatives focus on supporting the microenterprise at three levels: enabling environment / policy space,
value chain or markets development, and the micro-entrepreneur him/herself. As described below, this
research will focus at the level of the individual enterprise.
III. Purpose
There are currently three primary schools of thought related to developmental entrepreneurship: (1)
Systems Approaches (e.g. pro-poor market development, M4P and others); (2) Inclusive Markets
Approaches; and (3) Sustainable Livelihoods Approaches – each with its own focus and related tools.113
First, systems approaches focus on community and government institutions, and the required
capabilities they must command to foster entrepreneurial activity. Second, inclusive markets
approaches promote interventions at various levels (government, value chain, and individual micro-
enterprise) to build markets from the ground up using subsector analysis and BDS. Third, sustainable
livelihoods approaches are people-centric, holistic methods for creating means of income for the poor
through sustainable and productive work.
As opposed to building an entire value chain or enhancing institutional efficacy in promoting
entrepreneurship:
How can we identify and assess those opportunities for the individual entrepreneur that
will lead to poverty alleviation outcomes and provide sufficient financial returns?
How might we look across markets for these opportunities, so that we can direct entrepreneurial
attention, funding and other resources to them? How can we help an existing microenterprise focus
their efforts on these opportunities to supplement existing operations? What are the specific
measurable characteristics of these opportunities? Under what conditions do they develop? Once an
opportunity is identified as having the potential to meet both criteria, how might we screen it to ensure
viability?
This research proposes to address these questions in SSA through the methodology described below,
and in part, will leverage the tools of the approaches described above. Namely, this will include: the
113
See Jones, L. and Miehlbradt, A. (2009); Johnson, S. (2009); UN Development Programme (2008); and Elliot, D.,
Gibson, A. and Hitchins, R. (2008)
19

20. value chain mapping frameworks to define market systems (of the systems approach); frameworks for
determining intervention level and frameworks for markets impacts on the lives of the poor (of the
inclusive markets approach); and sustainable livelihood methodologies on identifying individual and
community competitive strengths.
IV. Audience
As set out in section I – Development Stakeholders, there are a range of stakeholders within the
developmental entrepreneurship landscape. Views regarding the right priorities and approaches vary
across the groups (see figure 8). These positions are useful when considering the use of the findings of
the proposed research. First, for inter-governmental agencies providing policy advice and making
funding decisions on related projects, this research will provide a useful tool for assessing the
desirability of funding development entrepreneurship projects. For example, when making a decision to
provide funding for a proposed entrepreneurial intervention, the decision-maker will have a tool to
assess the opportunities that the micro-enterprises are pursuing – the likelihood of sustainability based
on profit potential and a robust method for projecting poverty alleviation outcomes. Second, within the
public sector, the research will provide developing world policy makers a tool to foster economic growth
by focusing entrepreneurship efforts on those activities that yield strong financial performance. When
efforts are correctly aligned on prioritised opportunities, this activity will also yield concurrent social
improvements. For public sector aid agencies in the developed world facing budgetary constraints,
funding developmental entrepreneurship or sustainable livelihoods programmes is becoming more
difficult. The tool resulting from this research can contribute to the process criteria set for prioritising
funding. It provides a method for evaluating whether a given project will meet the dual requirements of
demonstrably alleviating poverty and doing so in a financially sustainable way. Third, within civil society,
social entrepreneurs will have a tool to properly assess developing world new venture
Inter-governmental National & Local Private
Organisations Public Sector Civil Society Sector Beneficiaries
• Economic downturn is • Tightening of aid • Building sustainable • CSR should move • Local ownership of
set to reverse years of budgets due to fiscal livelihoods rectifies from philanthropy to self-sustaining
progress, and requires constraints102 inequalities and the utilisation of core businesses is critical
access to funding99 • Entrepreneurial provides access to capabilities to serve to poverty relief112
• Food crises are likely solutions offer a tool choices105 higher purposes108 • Aid dependency
to re-emerge due to to build cross-border • Private sector • Progressive players distorts incentives,
population growth ties103 contributes to establish CSR at their exacerbates
and climate change • African governments development, core, and from corruption, creates
impacts100 must be accountable especially indigenous inception109 debt burdens and
• Inclusive private for leading the small business 106 • NGOs must improve weakens indigenous
sector solutions must solutions to eradicate • Social investors use to collaborate on businesses113
be fostered within a poverty104 VC methodology and global issues110 • New positive images
supportive public patient capital to spur • Emerging markets of Africa must be
policy context101 development provide vast pools of used to counter
outcomes107 resources, talent and negative
consumers111 stereotypes114
Figure 8: Current Positions of Development Stakeholder Groups
opportunities, and social investors will have a way to assess an opportunity’s likelihood of achieving
social value core to their mission. Existing NGO practitioners that utilise developmental
20

21. entrepreneurship to alleviate poverty will leverage the research insights to gauge the effectiveness of
existing interventions, and to prioritise future endeavours. Fourth, from the private sector for-profit
microfinance providers, and incubators will have a tool for assessing market opportunities and threats,
again strengthening a critical step in the due diligence process in capital allocation decisions. For the
micro-entrepreneur, it should enable focus on the most viable opportunities, and inform the
development of business
strategy. For larger corporates it may serve as a useful tool for analysing developing market
opportunities, and thus informing market entry decisions. In the case of emerging market growth
programmes, it will provide a tool for determining those grass roots opportunities in which financial
value is to be attained, and indicators of opportunity alignment to existing core strategy and capabilities.
For CSR programmes in related countries, the tool will provide a method for demonstrating projected
financial and social returns, and for reporting outcomes. Fifth, beneficiaries, including the micro-
entrepreneur, BDS providers, and value chain partners will utilise the outputs of the research to focus
their efforts on developing the most viable opportunities.
V. Hypothesis
Developmental entrepreneurship opportunities exist which will alleviate poverty and generate
sufficient profitability; and the levels of resultant social and financial returns can be projected
with validity.
As a key lever of pro-poor, inclusive economic activity, developmental entrepreneurship should be
embraced for its capacity, to not only alleviate poverty, but to do so in a substantively scalable way
through the generation of profit. Therefore, efforts to address these opportunities are inherently not
entirely dependent on donation-based or public sector funding. To harness this lever, research at
microenterprise level to address the extreme poverty of SSA, should provide insight into: (1) the
identification of opportunities for poverty alleviation and financial returns; (2) the strategy the local
entrepreneur should take to achieve both outcomes; and (3) the set of implementation tools a given
entrepreneur needs to execute that strategy. The research of this proposal seeks to address point 1.
Considering the entire landscape for developmental entrepreneurship opportunities, it could be
assumed that these opportunities would vary across a number of dimensions – size of investment
required, industry sector, extent of labour utilisation, size of the target market, extent of standard of
living improvements, etc. These dimensions fall into two categories: (1) the extent of poverty
alleviation attributable to the given venture which addressed the opportunity, or the social return; and
(2) the extent of the financial return generated for creditors and shareholders in the given venture. For
each of the two dimensions, there is a body of research referenced that demonstrates the prima facie
validity of this hypothesis.
Poverty Alleviation
As discussed, developmental entrepreneurship opportunities, when effectively addressed, provide
poverty amelioration outcomes. It is believed that the extent of these outcomes for a given venture
21

22. addressing one such opportunity is based on a number of contributing factors. First, there are a range
of primary benefits that will result to varying degrees – income increases for the entrepreneurs that own
a new business, standard-of-living improvements for customers that purchase goods or services, and
increased employment/livelihood opportunities. Second, there are several secondary benefits, which
are relevant based on the nature of the opportunity – purchases of locally procured goods and services
from value chain partners, improvements in life expectancy and child/maternal mortality rates,
increased educational enrolment, improved gender equality, improvements to food supplies, and new
benefits related to environmental sustainability. Third, the tertiary benefits include skills and knowledge
spillovers in target communities (or the building of human capacity); the growth in social capital, or local
networks that attract future investment, trade, and mentorship; benefits associated with future uses of
new intellectual property resulting from new technologies/innovations; and cultural benefits of
producing models worth highlighting to influence policy changes and attract people to entrepreneurial
undertakings.
A number of examples in the literature demonstrate the validity of the hypothesis’ reliance on the
referenced primary benefits. Tamvada documents that increases in income for micro-entrepreneurs,
and the route out of poverty that entrepreneurship provides.114 Similarly, Morris draws broader
conclusions related to the importance of entrepreneurship to an economy and shows correlations in
GDP increases, improvements to societal wealth, and quality of life enhancements. 115 Research by the
UNDP provides evidence regarding standards of living improvements for those availing of the offerings
micro-entrepreneurs provide.116 Regarding labour utilisation associated with a given developmental
entrepreneurship opportunity, Koo provides evidence regarding the upward social mobility
entrepreneurship and related employment opportunities provide, Ahmed and Peerlings find that labour
productivity, incomes and welfare are all correlated to improved working conditions in related SMEs,
and Kellogg develops a scorecard to measure employee poverty rate improvements in the small
business customers of a non-profit microfinance provider.117
Regarding the secondary benefits Milder provides evidence of the benefits related to value chain
partnering.118 Broader economic development, such as effects related to improvements in health,
education and hunger are also documented, such as the World Bank on household welfare related to
rural infrastructure projects, Reardon on the impacts of the agribusiness on rural poverty alleviation for
small hold farmers, and Mair & Marti on the poverty reduction impacts related to those entrepreneurs
that work to fill “institutional voids”.119 de Mel, Benzing & Chu, and Prasad all separately address the
role of gender in micro-entrepreneurship and its impacts.120 Lastly, Tremblay & Neef, as well as Dean &
114
Tamvada, J. (2010), p. 65
115
Morris, M. (2001), p. v
116
See UN Development Programme (2008); and Milder, B. (2008), pp. 301, 316
117
See Koo H. (1976), Ahmed, N. and Peerlings, J. (2008); and Kellog, C. (2009)
118
Milder, B. (2008), pp. 301, 316
119
See Songco, J. (2002); Reardon, T. et al (2009); and Mair, J. & Marti, I. (2008)
120
See de Mel, S., McKenzie, D. and Woodruff, C. (2008); Benzing, C. and Chu, H. (2009); and Prasad, R. (2009)
22

23. McMullen, examined the role of micro-entrepreneurship, and related opportunities for environmental
sustainability improvements.121
The tertiary benefits related to micro-entrepreneurship are also covered in the literature. Papagiandis
et al discuss the role of innovation and technology, and social networks, as they relate to spurring
entrepreneurial activity.122 Endeavor, a U.S. based not-for-profit in the developmental entrepreneurship
space, documents outcomes related to their engagements, including outputs related to knowledge
capital transfer, cultural capital benefits, and social networks development.123 Regarding policy impacts,
in 2007 the World Bank documented outcomes related to pro-poor aquaculture in rural Asia, including
policy influence, adaptive technologies and knowledge dissemination.124
The poverty alleviation outcomes are apparent, and as shown, well documented. One of the primary
challenges of this research is in the area of effective measurement, and then the extrapolation thereof
in defining a valid casual framework that can be used to predict the outcomes of a given venture’s
effective utilisation of resources to address the opportunity. Measurement of social returns is notably
difficult, but possible. Early work in this area was undertaken by Jed Emerson, Melinda Tuan and Fay
Twersky, as they developed the social return on investment framework. Also, balanced scorecards have
been used to gauge social outcomes by Acumen Fund and New Profit; while Venture Philanthropy
Partners and Robin Hood are noted for blending quantitative and qualitative measurements to assess
project efficacy. Also, Kramer synthesized a number of evaluation techniques in “Measuring Innovation:
Evaluation in the Field of Social Entrepreneurship” to define practical and balanced measures of impact.
125
Commercial Viability
The second leg of the hypothesis is the dimension of financial returns. Developmental entrepreneurship
is inherently concerned with leveraging the growth of small, private sector ventures to lift people from
poverty. In many instances, larger corporate undertakings, namely those in extractive industries and in
manufacturing, have been criticised for their exploitive practices in developing markets. For these and
other reasons, and despite the advances in CSR agendas in a significant number of organisations, many
stakeholders outside the private sector are loathe to engage private sector partners in joint
undertakings. However, it is precisely the generation of profit that enables these ventures to be
brought to scale, without sole reliance on donation or public sector funding, and thus expand the reach
of their socially beneficial activity.
121
See Tremblay, A. and Neef, A. (2009); Dean, T. and McMullen, J. (2007)
122
Papagianndis, S., Li, F., Etzkowitz, H. and Clouser, M. (2009), p. 215
123
Endeavor (2008), pp. 26-31
124
See World Bank (2007)
125
Trelstad, B. (2008), pp. 116-117
23

24. Return on
EBIT (1 – t)
Invested Capital
D+E
(ROIC)
Spread =
(ROIC –
WACC) Weighted
Average (1 – t) KDD + KEE
Cost of Capital D+E
Total Return to (WACC)
Shareholders /
Economic Value
Added
ˆ(1/n)
Organic Growth (Vn + Accumulated Draw)
-1
(CAGR) V1
Growth
Rate
Growth through
Vpost + Accumulated Dividends
Mergers & -1
Vpre
Acquisitions
Figure 9: Disaggregation of Total Return to Shareholders126
In order to attract sufficient competitive capital through debt and equity sources, a venture must
demonstrate its capacity to repay the debt, or the extent of returns on equity invested, including
appropriate risk premiums. For start-up businesses in these markets, access to microfinance is vital, and
lending criteria are typically based upon the size of the loan amount, collateral requirements, interest
rates and other service fees, compulsory savings or group contribution requirements, and other terms
and conditions.127 For the equity investor, the most holistic yardstick of firm performance is financial
returns as measured by total return to shareholders (TRS) – a measurement inclusive of spread (return
on invested capital less the weighted average cost of capital), and firm growth (see figure 9). This
measure of financial returns is a useful tool for understanding the projected ‘end result.’ However, a
range of underlying factors contribute to the new venture’s ability to perform. The due diligence
process undertaken by an angel investor, venture capitalist or creditor in considering a potential
investment would rely heavily upon the business plan, including a range of analyses and projections
related to market size, ability to differentiate, risk mitigation, and others. These analyses, although
separate to, are also closely related to the financial performance projections. In essence, these factors
for screening opportunities are the generally accepted indicators of the financial performance, as
measured by TRS. The underlying factors related to a venture’s ability to generate these financial
returns, and hence their attractiveness, is detailed in figure 10:128
126
Taken, in part, from Higgins, R. (2007), pp. 53-56, 294-296
127
Think Microfinance (2010) , p. 2
128
Timmons & Spinelli (2004), pp.91-103; Cochrane (2004), p.1
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25. Industry & Market Economics Competitive Advantage
• Structure & size • Time to break even • Fixed and variable costs
• Growth rate • ROIC potential • Value chain control
• Market capacity • Capital requirements • Barriers to entry
• Market share attainable • Free cash flow projections • Strength of customer value
• Cost structure • Sale growth proposition
• Reach-ability of customers • Asset intensity & Cap Ex • Strategic flexibility
• Durability of product life • Gross margins • Room for error
• Strength of user benefits • After-tax profits
Harvest Management Team Risk
• Valuation multiples & • Complementary fit • Demand risk
comparables • Relevance of experience • Payment risk
• Exit mechanism and • Integrity • Performance risk
strategy • Opportunity costs • Political risk
• Capital market context • Desirability • Regulatory risk
• Risk / reward tolerance • Foreign exchange risk
• Stress tolerance • Liquidity risk
• Investment concentration
risk
Figure 10: Criteria for Evaluating Venture Opportunities
There are several studies related to the financial feasibility of developmental entrepreneurship. Ferh e
al utilise corporate finance techniques to estimate the difference between market rates of returns and
actual rates of return in determining the outcomes of microfinance initiatives.129 Finn provides a case
study on Village Enterprise Funds, a provider with over 9,000 micro-grants in developing countries, and
shows the prevalence of micro-entrepreneurs to repay loans and to start subsequent businesses.130 De
Mel et al calculated the real (i.e. net of inflation) return to capital at 5.7% per month for micro-
enterprises in developing countries.131 In 2009, Raiz published a case study on a for-profit incubator
based in South Africa, which is profitably investing in local start-ups.132 Similarly, Copeland provided a
case study on a new venture providing lighting solutions in India and Africa, which recently received
$6M in venture funding.133 Lastly, Masakure et al utilised the resource-based theory of the firm to
assess financial performance of Ghanaian SMEs.134
In support of the financial viability leg of the hypothesis, a number of studies have also been conducted
on developmental entrepreneurship opportunities, and those specific industry sectors and geographic
markets that are attractive due to their social benefits and investment returns. The World Bank
produced two relevant reports on opportunities in SSA – one on the opportunities associated with
129
Ferh, D. and Hishigsurren, G. (2005), p. 133
130
See Finn, B. (2005)
131
de Mel, S., McKenzie, D. and Woodruff, C. (2007), pp. 1-2
132
Raiz, A. (2009), pp.61-62
133
See Copeland, M. (2009)
134
See Masakure, O., Henson, S. and Cranfield, J. (2009)
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