It should come as little surprise that social entrepreneurs across the Middle East and North Africa have become rather lackadaisical over the state their sector — and with good reason.
Much like a teenager who has come of age, the mindset change required for the sector to enter the next stage of its life has presented itself: if social enterprises are to alter the socio-economic status quo, they will need to get beyond the hype, enter the halls of government, the meeting rooms of investors, and prove that they are mature enough to produce social change.
For starters, there is a need to take stock of what has taken place.
Blurred lines: NGO or business?
Ten years ago, no one in the region spoke of social enterprises, at least not in the way they do now. Today support ecosystems in place; home-grown businesses focused on social change and income generation are budding across the region.
Throughout this process, development has also come with an identity crisis: it is telling that the enterprises which have garnered the most success are also those who are least enthusiastic about the concept of ‘social enterprises’.
Indeed, the lines between social enterprises, traditional enterprises and NGOs have become so blurry that 30 percent of enterprises and support organizations we spoke to during our last piece of research on social enterprise development don’t believe the term ‘social enterprise’ describes their business — some even refuse to accept the concept exists. Its likely not incidental that those same enterprises are those which have proven the most successful and, by and large, contain a tech component as part of their core business model.
Often keen to play father figure, governments in the region have not stepped in to provide guidance. Indeed, without a clear regulatory framework to govern social enterprises separately from traditional business or NGOs, the distinction between them remains abstract.
For entrepreneurs who have to contend with the region’s decrepit regulatory regimes, their balance sheet shows no material difference between an enterprise and a ‘social’ enterprise.
The same is true for entrepreneurs who choose the NGO-model: if enterprises are not profit oriented, they can hardly be classified as enterprises to begin with. Creating a legal space for social enterprises won’t necessarily resolve the issue either.
Big brother’s tool
When the hype around the social benefits of cooperative business models began to take hold decades ago, governments in the region created a separate regulatory regime for cooperatives.
Almost immediately, political parties saw an opening, began to abuse cooperatives to dodge taxes and funnelled money towards their constituents.
Today, with some exceptions, cooperatives in the region are largely ineffective at best, and tools for patronage at worst.
So while introducing a legal regime for social enterprises would provide clarity, confidence and incentivise the social enterprise sector, doing so will need to avoid a repeat of the cooperative experience.
Change the basics first
Regulatory tools such as asset locks, conflict of interest legislation and sector-specific reporting requirements have proven effective in other places, and would help the region’s social entrepreneurs focus their aims and measure their impact. But before embarking on a years-long new regulatory endeavour, simple long-awaited reforms can to be introduced today.
Other than stifling competition and impeding access to enterprise development to protect market share for existing businesses (and their interests), there is little justification for governments to uphold draconian bankruptcy laws which expose entrepreneurs to a jail cell if they bounce a check.
In an age where entrepreneurs in Kenya (not to mention more developed economies) register their businesses online, requiring new businesses to hire lawyers, auditors and put up large amounts of initial capital before they can even contemplate revenue amounts to exclusionary protectionism and oligarchy.
Investors in the region must also think outside of the box if the social enterprise sector is going to mature.
The common adage among investors has been that social enterprises don’t have the capacity to scale because their business models are more about social change than the bottom line. In part, they are right.
Many of the region’s social entrepreneurs still don’t have a solid understanding of how their businesses can create value in the long term. But investors are also wrong to think social enterprises cannot scale: there is no greater ‘market opportunity’ in the region than the value added by turning social ills into positive cash flow.
Instead of investing in 10 tech companies with a five-year 70 percent return on investment (ROI), hoping that one of them hits jackpot, investors can also consider funding a social enterprise with a long term ROI of 20 percent. There is enough money, resources and rationale for both approaches.
What’s more, without institutional investor interest social enterprises have to look to donor funding to stay afloat. Instead of focusing on longer-term financial sustainability, social enterprises need to spend donor money quickly to produce short-term outputs which fit the often fickle agendas of various donors.
None of that is going to produce the kind of social change or enterprises the region needs.
We need a change of attitude
Without substantive change, the wave of social entrepreneurship which began in earnest after the Arab uprisings now risks washing up on the rocks.
It’s hard to imagine region’s governments and institutional investors somehow changing their attitudes toward social enterprises because they suddenly feel a streak of altruism.
Instead, social entrepreneurs and support organizations need to interpret ‘developing the ecosystem’ as something which goes beyond boot camps, incubators and workshops which only the well-educated minority of the region can access.
That will entail admitting that there is an ‘access-to-entrepreneurship’ problem for lower-income and rural populations as well as opening up the space for those populations to enter.
With more people on board with the idea of social entrepreneurship, creating pressure groups to lobby government for structural reforms will be more effective, as will the effect of those reforms on the mindset of investors.
Much has been achieved and the social enterprise sector has grown up, but now it’s time to be an adult.
Originally published by Wamda on March 30, 2017.