Most of these rural non-farm enterprises are family businesses, running some form of trade business. Trade in household goods and foodstuffs are pretty low-risk and easy to start since they don’t require huge equipment costs. These families are still getting most of their income from farming and 91-100%(!) are informal, and operating during the times of the year when farming is less demanding.
Because these families still are focused on farming, if the crop is going well, families in Malawi and Nigeria are not as likely to start new business, using their labor hours in the field. On the other hand, if a recently-educated person returns to rural life, they will probably create their own business, since there are very few opportunities for more formal employment (except perhaps teaching).
Professional services, transportation, and bars and restaurants were the least common types of business activity in Malawi, each representing less than 1% of household enterprises. Though there is demand for these businesses, they require higher start-up costs. This is where SIA’s Small Business Fund (SBF) grants can help out. A few of the new SBF groups we visited in Malawi in July were in this category – including Malumbo Restaurant, Fikani Transportation Services, and FirstSteps Nursery and Day Care. Each owner saw the demand for these services, and SIA grants give them the money to help cover the larger up-front costs.
Importantly, rural non-farm businesses that are started out of opportunity, rather than necessity, are much more productive. Our SBF Needs and Opportunities Assessment, conducted by the local coordinator along with the family receiving the grant, helps foster this success by focusing on the skills of all household members (including women and older youth). They then consider how best to incorporate those opportunities into the new business.
Businesses tended to fold, according to the study, because of shocks (such as illness or death) or because of low profitability and lack of finance. While SIA isn’t directly addressing the first challenge, our local SBF local coordinators do provide mentoring to help with marketing products and improving profitability. And several of our SBF communities have savings groups and low-interest loans that help with longer term financing for the businesses.
It was great to read the article and understand the larger picture of rural non-farm enterprises in Africa. I got to see how SIA is integrated into this small family business reality and how we are helping families to have more productive and long-lasting businesses.
*Non-Farm Enterprises in Rural Africa: New Empirical Evidence. by Paula Nagler and Wim Naudé. Available at http://elibrary.worldbank.org/doi/pdf/10.1596/1813-9450-7066