There is big potential in Household Enterprises
The World Bank recently published an interesting report about Rwanda which brought to light a new force behind the country’s impressive 8% economic growth.
The report, titled “Resilience in the Face of Economic Adversity: Policies for Growth with a Focus on Household Enterprises,” is interesting because this is the first time this economists have prominently featured real drivers of growth in non industrialized economies.
While the report says that Rwanda’s economic growth was led by strong performance in the industrial and service sectors, it however noted the role played by what it describes as Household Enterprises (HEs). It turns out that HEs together with agriculture cushioned the economy from adverse effects of global economic turbulence.
So, as a result of the role played by HEs and to a larger extent increased agricultural production, Rwanda is the only country in the east African region to maintain price stability with inflation being contained at single-digit (7%) and stable exchange rate.
So what are Household Enterprises?
According to the report, these are enterprises involved in non-farming activities and are operated by individuals (the owners) often supported by family members.
The most interesting aspect of these HEs, according to the report, is that they are a source of livelihood for more than 30% of households in Rwanda.
In rural areas, they cushion farmers incase of poor harvest due to bad weather by providing money to buy food while for the urban employed, it is a source of extra income for investment.
HEs also provide primary employment for 9% of the labor force. In a country where unemployment is a problem, this is food for thought for our policymakers.
According to the report, about 86 % of HEs are in the service sector, reflecting both high growth and the importance of the service sector. It has been noted that in wholesale and retail trading, the biggest number of operators of HEs are women. This brings an interesting dimension to this new phenomenon. Traditionally, women have been disadvantaged when it comes to employment in the formal and informal sectors. The emergence of women HEs owners therefore opens a very important window through which policymakers can develop policies that can support women in their quest for financial and economic independence.
The number of male operators of HEs is said to be highest in transport and communication, while both male and female operate in basic manufacturing fields such as making crafts, brewing, and grain milling.
This is an indication of how natural economic forces can group people according to potential economic activities best suited for their localities and gender. Rather than policymakers scratching their heads on how to empower women and other disadvantaged groups, the emergence of HEs has simplified the burden.
Often, interventions aimed at poverty eradication have tended to originate from the top and taken to the bottom—an approach that has not worked well because the ideas are alien to the implementers.
There is therefore need to exploit this opportunity and support HEs as real driver of economic development. They provide a real opportunity to promote growth through job creation and boost people’s income as the country strives to build a middle-income economy under vision 2020.
According to the World Bank, HEs will form an essential part of Rwanda households’ livelihood, even with continued high growth rates and excellent progress in primary and secondary education. This is because, according to the World Bank, only about 20% of the labor force will have completed secondary education by 2020 and therefore be able to qualify for jobs in the formal sector. That means that the other 80% of the young people joining the labor market can only be employed in the informal sector—and that is HEs.
Financial institutions therefore need to come develop financial products and services suitable HEs. This is not only good for HEs owners but for banks as well because this is the only sure way to bring most these unbanked small businesses together with billions of their francs to the formal banking sector.
Local associations and village cooperatives can also play a role here by organizing HEs to have a collective voice especially in marketing.
With more support and innovations, these can lead to the development of cortege industries on which the country’s industrial base can be built.