Tuesday, January 17, 2012

Bringing businesses to rural Asia: What is working and what is not

SVRK Prabhakar, Senior Policy Researcher, Natural Resource Management Division, IGES, Japan
To be published in Business i. Eneco, March 2012

Asia is one of the fastest growing regions in the world, both in economic and population terms. In 2010, the economies in the region have grown at a rate of 8.2% while the rest of the world grew only at a rate of 5%. This story appears to be phenomenal by any standard. However, examining the role of rural Asia in contributing to the overall growth will reveal a different picture to us. The contribution of agriculture sector to the total GDP has been declining over the years in the region, standing at 10% in 2010. This means that nearly 58% of Asian population, of which 81% is dependent on agriculture for their livelihoods, that lives in rural areas contribute to only 10% of the total wealth produced in the region. This appears to be, by any standard, a gross mismanagement of valuable human resources in any corporate firm’s strategy book. As a result, rural Asia is characterized by highest unemployment rate, high poverty and resource-deprived.

The organized private sector employs 30-35% of the total work force in many ASEAN countries, which is second only to the unorganized agriculture sector putting government at third as an employer and similar trend could be expected in other Asian countries too. However, the penetration of organized private sector in rural Asia is almost negligent due to limited purchasing power in these areas and limited manpower that can cater to the services offered by the sector. Most governments in the region operate with limited financial resources and cannot offer gainful employment to rural population. This further leaves the rural areas out of mainstream economic activities and hence often don’t attract corporate attention for investments.

Reasons behind poor wealth creation in rural Asia

Several issues play a role in poor contribution of rural areas to the total wealth created in the region and most often these issues are interlinked with each other as in daisy chain. Some important issues include wide prevalence of manual- labor oriented agricultural production systems that engage only seasonal employment, poor infrastructure facilities such as energy and transportation, high poverty and most importantly the lack of educational and vocational training facilities that can produce the talent for the needy industrial production and service sectors. One important argument that explains the existence of these problems is the ‘growth-center approach’ adopted by many countries as a developmental model wherein developmental investments are often concentrated at a single or few locations in an administrative unit. Though this approach has helped in developing certain regions as industrial hubs and eventually urban growth centers, the rest of the areas were deprived of the talent with the talent available in rural areas migrating to these ‘growth-centers’ as internal migration and brain drain. Though the growth-center approach is expected to be undertaken at the initial phases of development and to be supported by income distribution policies, it is the later part that has failed in most Asian countries. As a result, much of the rural areas were deprived of the talent and other resources. This has continued over the years taking the rural Asia in a downward spiral depriving them of their fair share in the overall economic growth story of Asia.

Strategies for greater business penetration in rural areas

The situation in rural Asia is changing, though, as suggested by recent developments. Realizing the potential of rural markets for untapped markets (read consumers) and source of human resources, the private sector is devising new strategies to reach out to these areas. One example to be cited is the Grameenphone in Bangladesh. Grameenphone has achieved a 98% of coverage area in Bangladesh with 35 million subscriber base within few years of its establishment. For most people, Grameenphone is a telecommunication revolution while very few know that it created record revenue and employment from predominantly poor and rural subscriber base. Grameenphone has become a source of livelihood for more than 300,000 people (working as its dealers, retailers, scratch card outlets, vendors etc) in a country of 149 million while producing a revenue worth one billion dollars per year (a per capita income of 6.7 USD by Grameenphone itself). Such cases suggest several lessons for other corporate ventures that consider capturing potential rural markets in Asia. Technology ventures need to make products affordable for rural population, make them within the reach of technical and educational abilities of the rural consumers, design secondary services that provide local gainful employment, and stress the need for wider social benefits apart from the intended direct benefit of the product.

A multi-utility vehicle using water pump. Sustaining local innovations would be one of the greatest role that corporate sector can play in rural Asia.

The public-private partnerships are enabling the greater corporate penetration in rural Asia. In South Asia, self-help groups are being formed to utilize these emerging development opportunities. Micro-finance in Bangladesh and installation of bioenergy production plants in India can be taken as examples for this wherein financial institutions and energy technology firms work with local governments to support micro-finance schemes and installation of bioenergy based power plants. Here too, designing products and services simple and affordable has enabled rural consumers to accept them at a rapid rate. Combining capacity building programs along with product introduction is helping rural artisans to take up new income generation activities associated with the products being introduced. For example, as a part of the rural electrification program through solar power panels, technology firms and local NGOs are training rural artisans in assembling and repairing solar panels and servicing batteries. These approaches are creating an entirely new local economy that is supplementing the agriculture income in most rural areas. However, more could be done to further hasten the rural economic growth. Ideas such as ‘Pura’ (Provision of Urban Amenities in Rural Areas) put forward by Dr A.P.J Abdul Kalam, the President of India, have even greater potential to kick-start rural economies. Seen as an overarching concept, ‘Pura’ encourages greater public private partnerships between Gram Panchayats (lowest tier of self governance system in India) and private sector for developing urban amenities and advanced infrastructure such as warehouses, integrated business hubs, in rural areas while enhancing the rural income and skill base. There is even more potential for rural employment generation through schemes such as reducing emissions from deforestation and forest degradation (REDD), ecotourism and soil carbon sequestration wherein local communities can get benefit from related payments and from the employment generated through these activities while safeguarding the environment. 

To be published in Business i. Eneco, March 2012