Accelerating growth through support to youth enterprises

The Royal Norwegian Embassy in Malawi has partnered with United Nations Development Programme (UNDP) in a new project called Malawi Growth Accelerator who support financially and technically some Malawian youths running innovative enterprises. Our Business Editor CHIKONDI CHIYEMBEKEZA engaged Norwegian Ambassador, Kikkan Haugen, on the importance of the project:

Why is it important for innovative youths to be supported with money and advice in their businesses?

Malawian youths are innovative and have high interest in setting up entrepreneurship ventures. A 2016 study conducted by the Global Entrepreneurship Monitor found that a very high proportion of young Malawians believe they have both the appetite and the skills to set up their own businesses.  However, three quarters of those in business had financed their ventures out of their own pockets, with another 15 percent obtaining finance from family or friends. Only just over two percent of young entrepreneurs were able to raise funds from banks or other financial institutions.

In addition, lack of mentorship and coaching has been a key challenge facing potential youth entrepreneurs. Norway is, therefore, happy to support this programme which will help some young Malawian entrepreneurs access capital and advanced technical assistance to accelerate growth of their business. Currently, there are no growth accelerators in Malawi, this is the first of its kind and we have high expectations on the level of innovation and creativity from the applications that will be received.

To narrow it down, the key challenges faced by emerging entrepreneurs in Malawi are access to finance, lack of or inadequate business development services, lack of technical expertise and business mentors. Experience from other African countries shows that it is a combination of these resources rather than a single one of them that is missing for local entrepreneurs to grow and scale their ventures. Hence, we are doing a growth accelerator market test where we want to support the innovative youths of Malawi with finance and professional business mentorship. The market test is expected to support a very first cohort of companies with grant funding of up to $40 000 for each company and access to a one year business acceleration programme and tailored technical assistance. The participants of the programme will hugely benefit from technical assistance through the expertise and experience of our implementing partners, mHub and GrowthAfrica.

What is special with the 12 beneficiaries when there are millions of youths in the country looking for such kind of support?

This is a market test. The first cohort will consist of up to 12 companies. This does not mean that the Growth Accelerator will support only 12 companies. We are testing the market and the intention of UNDP as the operator of the Growth Accelerator, after successful implementation of the test and based on the results, is to roll out a five-year project which will benefit more cohorts of youth-led enterprises in Malawi who are struggling to raise capital for entrepreneurship activities. This is also an initiative that intends to test the appetite of other players to enter the market as funders of similar interventions. Very little investment is channeled to Malawian start-ups and we hope we can start reversing this trend.

Can only 12 supported youths accelerate growth in Malawi?

Certainly, the first cohort will not have noticeable effect on total growth in Malawi, but we hope and believe that we will see financially healthy companies with sound growth emerge from the programme. Together with UNDP, our partner, we have appetite for risk and are investing in start-up companies which is a niche area and quite risky. The work with the first cohort will be a learning process for the funders and other key stakeholders. Hopefully, in the longer run, successor programmes may also trigger behavioural changes in financial institutions that are currently reluctant to lend to startup companies. The spillover effects are multiple; hence, we shouldn’t look at the initial number of companies targeted as the absolute game changer in the market. Actually, a successful result of the test should also be a catalyst in bringing more funders to the programme which would translate into more support towards startups.

Why couldn’t the project be scaled up to reach out to more youths through various microfinance institutions?

The implementation of the project will help us with lessons on how best to partner with other players such as the microfinance institutions in Malawi. For now, the programme is bringing in an investor that can provide the opportunity for the selected companies to receive equity finance instead of the matching grant. The terms of investment will be duly explained when we launch the first “Innovation Challenge”.

Businesses in Malawi are facing problems beyond finance and advisory. How is Norway working with the Malawi government to address the other bottlenecks such as erratic electricity?

Framework conditions for the private sector is a topic we raise in our dialogue with Malawian authorities on both political and administrative level. Our Minister for International Development, Mr. Nikolai Astrup, visited Malawian businesses and discussed framework conditions with the President during his visit to Malawi in April this year. Recent surveys of Malawian businesses have shown that access to and cost of electricity, access to and cost of telecoms services and regulatory uncertainty are considered as the top obstacles to doing business. It is, therefore, only natural that these topics make up an important part of our business related dialogue with Malawian authorities.  Norway is not spending development aid money in the electricity sector in Malawi, but we are an important donor to the Malawi-Mozambique interconnector on the Mozambican side. Norwegian consultancy companies have done feasibility studies and produced an integrated resource plan for electricity supply in Malawi, commissioned by Malawian authorities. One of them—Norconsult—acts as supervising engineer on the upgrade of the Kamuzu Barrage in Liwonde. That project will improve the water flow on the Shire River, which is of course critical for the production of hydroelectric power.

With the Malawi economy showing some signs of stability and the IMF granting the country a new programme, can’t Norway re-consider budgetary support to Malawi?

Norway no longer considers budget support as a potential aid modality in Malawi and we are indeed moving away from this modality in most or all of our partner countries. Still, it is important for us that our aid is in line with Malawian priorities, and that as much as possible is aligned to government systems. n