Supporting SME Entrepreneurship for Sustainable Development

1. DRAFT UNDP Partnerships with the Business Sector Supporting SME Entrepreneurship for Sustainable Development

2. CATEGORIES OF UNDP SUPPORT TO SMEs • Activities can be carried out on a national or regional level, with separate initiatives or an integrated approach • Non-financial business development services: • Business centres • Business incubators • Supply chain initiatives supporting business linkages • Microfinance • Direct support to entre-preneurs • Enabling actions • Enabling actions to support healthy business environment – creating enabling policy environment GSB initiative • Catalyzing investments • Catalyzing and driving integration of investments in SME local country development

3. A FEW EXAMPLES OF UNDP SUPPORT TO SMEs • Atyrau Business Advisory Centre in Kazakhstan • Supply Chain Project in Mexico • “Enterprise Africa” • Angola Enterprise Programme • “Job Opportunities in Business Support” Project in Bulgaria • Network of Small Business Development Centres in Egypt

4. Results achieved: • Hundreds of local firms counselled • 280 business plans created, 25% financed • $2 million+ disbursed in loans • 530+ jobs created • 1000+ on-going credit clients (in 2002) • Role for private sector: • Financial support • Active role in developing model and monitoring implementation • Key lessons learned: • Convergence of project goals and partners’ interests is key • Long-term perspective is critical • Need to include local government to ensure support • Centre should be encouraged to generate own income KAZAKHSTAN - BUSINESS ADVISORY CENTRE AND MICRO-CREDIT PROGRAMME THROUGH CORPORATE PARTNERSHIP • Description of initiative: • Atyrau Business Advisory Centre and Micro-credit Programme, providing business training and lines of credit to SMEs • Location: • Kazakhstan • Partners Local government UNDP* ChevronTexaco Citibank • Role • Location for incubator • Project management and administration • Tested project model for SME development • Financial support • Credibility, relationships with local governments, trusted link to local community • Financial support (more than $900k overall) • Active participation in project formulation and monitoring • Participation in and support of local events (graduations etc) • Financial support ($125k over 2nd and 3rd phase) • Benefits • Realization of UNDP mandate to help countries promote sustainable human development, and alignment with MDG1 (Eradicate Extreme Poverty) • Government obligation fulfilled • Reputation and brand image enhanced • New vendors gained through enterprise development programme (38% of goods and services now procured locally) • Guarantee of reliable utilization of community development budget • Enhanced reputation • Long-term commercial advantage – early positioning of brand with local enterprises • Increased employment opportunities and higher local living standards • Main phases and activities • Business incubator • Establishment of business development centre • Expansion to include pilot micro-credit scheme • Future plans • UNDP gets support of local governor • 4 national counsellors recruited and trained • Services provided: seminars, trainings and workshops as well as drop-in services • Non-collateral peer lending offered to young adults and unemployed (all graduates of centre’s training seminar) • Involvement of Citibank • Provision of space (and business supplies) and professional services (secretary, accountant, lawyer) to start-ups • Micro-credit scheme to be registered with government as an independent micro-credit organisation * UN Volunteers also involved

5. Results achieved: • Project currently entering actual roll-out phase • Role for private sector: • Development of methodology • Active participation through own business linkages with SME suppliers • Key lessons learned: • Variety of partners needed to achieve results (large private companies, entrepreneur associations, governmental backing) • Importance of institutional support MEXICO - DEVELOPMENT OF SUPPLIER CAPACITIES AND BUSINESS LINKAGES • Description of initiative: • “Mexico Supply Chain Project: Suppliers Training and Promotion of Chains” - development of network of Supply Chain Consultants, to be followed with provision of technical assistance to large enterprises with clusters of SME suppliers • Location: • Mexico • Partners* • Private partners: Bimbo, Cementos Apasco, Firestone, 3M, Corporacion Internacional del Color, Cerveceria Cuauhtemoc Moctezuma UNDP** • Canacintra (National Association of Manufacturers) • Role • Development of approach, content and scope through technical assistance since 1998 • Financial sponsor • Monitoring of methodology, quality control • Testing of developed methodology with own groups of SME suppliers • Integrating SMEs into supply chain • Contribution to promotion through local network of associations • Benefits • Realization of UNDP mandateto help countries promote sustainable development and alleviate poverty • Productivity increases, improvements in purchasing volumes, optimized delivery, quality improvements, timely payments • Higher standards among SME suppliers benefiting larger manufacturers • Main phases and activities • Certification of Supply Chain Consultants • Development of supplier development methodology • Second phase • Assembly of best practices • Pilot • Gathering of national and international best practices on how to develop providers (1998-2002) • Development of methodology and testing in 6 large companies (see above) and 34 SMEs (1998-2002) • Finalization of training tools (CD-rom supplier development manual for virtual training) (2003-2004) • Virtual training of 112 consultants from 22 different states of Mexico (July-Nov 2003) • Certification of consultants – endorsed by Canacintra, NAFIN, Ministry of Economy and UNDP • Pilot diagnosis performed in 112 SMEs • Practical application of methodology – consultants provide technical assistance to 24 leading enterprises along with their respective SMEs, in total more than 260 enterprises will be covered • Phase planned to last 10 months beginning Feb 2004 * Ministry of Economy main financial sponsor ** NAFIN (Nacional Financiera, Mexico’s largest government-controlled development bank) as executing agency

6. Results achieved: • Over 4300 entrepreneurs benefited from EA skills development services • 750+ enterprises restructured and expanded • 725+ business plans prepared and access to credit facilitated • Accounting and financial management systems developed for 250+ SMEs • Innovative programmes/ services introduced • Role for private sector: • Financial donors • Involvement in Executive Placement Scheme • Design of key policies, marketing strategy, management systems • Key lessons learned: • Ability to adapt programme to local conditions is critical • Key success factors include: identification and selection of local entrepreneurs with the highest potential for success; establishing strategic partnerships to reinforce UNDP’s delivery capacity • Key challenges/risks include long gestation period for mobilizing resources, thus delaying roll-out “ENTERPRISE AFRICA” – REPLICATION OF PROVEN ENTERPRISE DEVELOPMENT MODEL • Pan-African not-for-profit consortium dedicated to establishing national programmes for entrepreneurship and enterprise development in Africa; Builds on Empretec model: integrated capacity-building programme promoting the creation of sustainable SME support structures to help promising entrepreneurs build innovative and internationally competitive SMEs • Description of initiative: • Location: • 14 countries* • 20+ donors (MNC, private foundations, business associations, multilateral and bilateral donors) • National counterparts • Partners UNDP • Role • Take-over of model • Requires excellent network of public and private sector contacts, profound under-standing of SME constraints in given country • National Advisory Board set up to establish policy and oversee implementation • Installed the Empretec model in 14 African countries through the “Enterprise Africa” initiative • Financial sponsors • Design of key policies, strategies, systems • Advisory Board role • Benefits • Realization of UNDP mandate to help countries promote sustainable human development, and alignment with MDG1 (Eradicate Extreme Poverty) • Improvements in general private sector environment • More reliable SME input suppliers • Expanded customer base for goods and services • Enhanced job creation, income generation, export development, skill levels of population • Direct support of entrepreneurs Future plans: • Roll-out to 11 other countries • Introduction of new products/services: e.g. Corporate Village Enterprise model (COVE) • Introduction of Export Round-table Initiative • Introduction of upstream policy-related services • Promotion of regional economic integration • Main phases and activities • Follow-up support • ETW • Two-week Entrepreneurship Training Workshop held for successful applicants (local entrepreneurs) • Differs per country, but typical range of fee-based services includes: diagnostic studies, business plan preparation, business counselling and advisory services, industrial consultancy, accounting assistance, credit sourcing • Enterprise Africa set-up • Origins • Roll-out in each country follows standard process • Programme becomes fully operational and sustainable in given country within 3-5 years • Empretec model (coordinated internationally by UNCTAD) rolled out successfully in 27 countries • Regional programmes instituted (other examples: “Med 2000”, IDB Partnership for Central America and Panama) • Building capacity within institutional context • Transfer of methodology • Capacity strengthening • Assistance in strengthening operations and service structure of local institution • To ensure continuation of training and follow-up support, transfer of methodology to local institution * Botswana, Benin, Cameroun, Congo DRC, Ethiopia, Ghana, Mauritius, Mozambique, Namibia, Nigeria, Senegal, South Africa, Uganda, Zimbabwe

7. Results achieved: • Project launched at end 2002, results not known prior to review • Targets for 18-month review: functional research unit, micro-finance unit in Central bank, increase in number of SMEs with access to credit (from 8 to 20 thousand by June 2005), 1000 clients of vocational courses, 1000 clients of 2 established Business Centres, 200 microentrepreneurs taught business skills by selected NGO, support to 30 enterprises from 2 incubators • Key lessons learned: • Avoid duplication of effort – risk if vast network of NGOs, donors etc working in given country • Watch out for little coordination of activities and proliferation of opportunity-driven activities (as opposed to strategically planned) • Role for private sector: • Financial sponsor • Organizational responsibility ANGOLA - PUBLIC-PRIVATE PARTNERSHIP: ANGOLA ENTERPRISE FUND • Description of initiative: • Establishment of Angola Enterprise Fund as public-private partnership for promotion of SME development in Angola and local capacity-building; key components: business support centres, business incubators, microfinance and vocational training • Location: • Angola • Partners • Government of Angola UNDP* ChevronTexaco • Role • Co-governor of the AEF – role in Management Committee and Advisory Panel • Financial co-sponsor – target contribution of $1 million • Project formulation • Project management/ coordination • Technical capacity • Financial sponsor – up to $5 million, with the intent to mobilize additional funding from other private donors towards initial target of $10 million • Organizational capacity to integrate expertise of international public and private sector organizations • Benefits • Reduction of high cost of domestic production (reduced dependency on imports) • Increased employment opportunities • Higher incomes • Realization of UNDP mandate to help countries promote sustainable human development • Alignment with MDG1 (Eradicate Extreme Poverty) • Proven model allowing ChevronTexaco to fulfill mission of its $50 million Angola Partnership Initiative, helping Angola with post-conflict reconstruction • Main phases and activities • Start-up • Launch of pilot projects • Expansion 18-month review • Timing: 6-12 months • Hiring and training of project staff • Selection of local institute to establish research unit to build SME sector knowledge base • Launch of national market studies to assess a) capacity of vocational training providers and b) demand for business development services • Negotiations to set up microfinance development unit together with Banco Nacional de Angola • Timing: 6 months (approx) • Launch of 4 pilot projects: 2 Business Centres, local NGO to pilot downscaling business services to micro-entrepreneurs, and incubator to support young graduate enterprises • Launch of vocational training pilots to assess different delivery mechanisms • Launch of micro-finance pilots • Based on availability of resources, replication and increase of successful pilot projects throughout Angola

8. Results achieved: • Over 2000-2003, JOBS has created approx. 8000 long-term jobs; trained 7000+ entrepreneurs/ companies • Financial leasing scheme has disbursed $1.5 million to almost 300 companies, including 40% start-ups • Role for private sector: • Support of local economic development projects • Key lessons learned: • Business Centre model must be adapted to local realities • Self-sustainability needs to be focused on from the start, but will take time to achieve • Selection of priority sectors enables focus BULGARIA - BUSINESS ADVISORY CENTRE AND BUSINESS INCUBATORS • “Job Opportunities through Business Support” (JOBS) - network of 24 Business Centres, including 11 Business Incubators and 3 Business Information Centres, aimed at stimulation and creation of SMEs • Description of initiative: • Location: • Bulgaria • Partners UNDP • Ministry of Labour and Social Policy • Role • Financial donor • Development and testing of concept • Support in roll-out • Financial donor* (96% of funding, total funding close to $15 million) • Implementation responsibility • Benefits • Realization of UNDP mandateto help countries promote sustainable human development • Enhanced economic development of regions with high unemployment levels – strengthened and developed local businesses • Main phases and activities • Future plans • Geographic expansion • Roll-out • Start-up • Launched in Oct 2000 • Based on previous experience of UNDP/ILO testing different tools for local SME promotion in remote communities over 1995-2000, resulting in set-up of 5 Business Centres • Development of Business Incubators, offering premises for rent at below-market rates, shared business services, start-up and business planning support and training • Strategic focus on 6 priority sectors (apparel and textile, wood processing and furniture, handicrafts, herbs and spices, tourism, alternative agriculture) • Set-up of IT Centres in each Business Centre, providing internet access, developing computer skills and supporting e-commerce • Financial leasing scheme – for maximum of $10,000, repayment period up to 36 months • May 2003 • 11 more Business Centres, achieving national coverage • Set-up of National Business Development Network (NBDN) associating all JOBS BIs and BCs – exit strategy for JOBS Project, support for entrepreneurship promotion policies • NBDN to offer support for private sector to prepare for EU accession • Planned increased focus on specific target groups (e.g. military officers pending separation) * Other financial donors include governments of Norway, Belgium and the Municipality of Torrevieja-Spain

9. ROLES FOR [LARGE] COMPANIES IN SUPPORTING SMEs Details Role • Support for programme/project allowing company to fulfill CSR mission or demonstrate commitment to the development of country in which it is operating • Financial sponsor • Involvement in preparation of concept, for example development of methodology • Programme/ project design • Application of own resources and management attention to ensure adequate implementation process • Monitoring and execution • Support for initiative by bringing in other private companies – for example to provide financial support or other resources • Support by leveraging existing media contacts • Support in awareness raising initiatives or participation in discussions with policy makers • Promotion/ convening stakeholders • Transfer of expertise to SMEs • Dedication of resources to build skill and knowledge base of SMEs through methods such as mentoring, coaching or training sessions – for instance suppliers to ensure timely and high quality deliveries • Access to finance/ credit guarantees • For example, providing guarantees to enable small suppliers to improve performance by equipment purchase • Integration of business partners/ suppliers etc. • Development of linkages typically will start with non-core product and service supplies, and transition to suppliers more critical to the company’s core production processes • Development of new commercial business models/ Provider of new business ideas • Development of initiative which will support core business needs, for example enabling access to new markets. Development of new appropriate and affordable products and services for developing countries

10. GOOD PRACTICE THAT GUIDE UNDP’S WORK IN SME SUPPORT • To have impact, interventions must be of long enough duration (5-10 years) to establish credibility and strategic partnerships with key policy makers and private sector leaders • Make use of qualified local staff (provide training if necessary) • Select counterpart organizations and local service providers in a transparent way • Identify key champions in the public and private sectors to support, lead, drive • Use an integrated approach for high impact (combine different services, including non-financial an finance) • Direct firm-level assistance is the quickest and best approach in conflict areas, or where government is weak / ineffective • Willingness of enterprise customers to pay fee for services is crucial for development of appropriate services that help improve productivity • Governments and donors are bureaucrats that do not understand commercial incentives well – channeling enterprise assistance through purely public agencies normally does not work (public-private cooperation is sometimes effective) • Successful projects broker commercial relationships between local service providers and client enterprises