Technical Assistance Consultant’s Report
Project Number: 46240-001 May 2018
Asia-Pacific: Inclusive Business in the Association of Southeast Asian Nations (Cofinanced by the Government of Sweden)
Prepared by Markus Dietrich
This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design. 2
ACKNOWLEDGMENTS
The Association of Southeast Asian Nations (ASEAN) was established on 8 August 1967 and is currently composed of 10 members—Brunei Darussalam, Cambodia, Indonesia, the Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Viet Nam.
The ASEAN Community Vision 2025 places the realization of a people-oriented and -centered community at its core. Governments and businesses in ASEAN are increasingly interested in finding new, innovative ways to make economic growth in the region more inclusive and sustainable.
In 2017, the Government of the Philippines chaired ASEAN, and made inclusive business (IB) one of its deliverables toward the ASEAN vision of a region that is “outward-looking, living in peace, stability, and prosperity, bonded in partnership in dynamic development, and in a community of caring societies.” This study emerged from cooperation between the Department of Trade and Industry of the Philippines, Asian Development Bank (ADB), and the ASEAN Secretariat. This study, addressed to policymakers of ASEAN and the ASEAN Business Advisory Council, describes the markets for IB in ASEAN economies, and recommends further actions by ASEAN, the ASEAN Business Advisory Council, and ASEAN members to promote IB.
This study was written by Markus Dietrich, consultant, ADB. Technical advice came from Armin Bauer, former coordinator of the ADB IB Initiative; Felicitas Agoncillo-Reyes (assistant secretary, Board of Investments, Department of Trade and Industry of the Philippines); Aissa Hermoso (IB focal point, Board of Investments, Department of Trade and Industry of the Philippines); and Priya Thachadi, Southeast Asia IB expert. Gratitude is also extended to Yukiko Ito , Imelda Marquez, Jeffrey Gerobin and Mary Grace Santos (consultant) of ADB, and Nora’in Ali, ASEAN Secretariat, for their guidance in preparing this study. This report was funded by the Government of Sweden through its support for ADB’s Inclusive Business Initiative.
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EXECUTIVE SUMMARY
Economic growth is strong in the Association of Southeast Asian Nations (ASEAN) region, but income levels are still low compared to other emerging markets. The ASEAN Community Vision 2025 seeks to address critical issues of those living at the base of the pyramid (BOP) and places the realization of a people-oriented and -centered community at the core of its vision. Inclusive business (IB) is not only business for and with people, it is the deliberate promotion of inclusive growth, as it puts poor and low-income people (i.e., the BOP) at the core of its business model by providing higher income opportunities and affordable and relevant products and services at scale.
The BOP in ASEAN numbers 348 million or 56% of the total population and forms a market of at least $320 billion. It represents a massive pool of potential customers, suppliers, distributors, and retailers who can be engaged by private companies with IB approaches. This collective spending power as estimated in 2010 represents a sizeable opportunity for businesses that are seeking to enter new markets and to expand their customer base.
IB is currently practiced across ASEAN, albeit at varying levels, and exists in all major industry sectors. The models with the highest impact and scale are found in agribusiness. Many companies actually practice IB models without knowing so or classifying themselves as IB companies. There is therefore a need for better clarifying IB and social enterprise initiatives that achieve profit through business models aimed at generating social impact for society and separating them from traditional businesses models with profit first (or only) motives.
This study estimates that the number of mature, investment-ready IB models has reached 90 and projects this number to triple to over 300 by 2025. Based on this projection, the number of commercially viable social enterprises is expected to increase from 200 to more than 900 in 2025. Taking all IB approaches in the region, the number is projected to grow by about 350% in ASEAN, from about 400 to more than 1,400 IB approaches.
Financing IB through impact investing in ASEAN is projected to reach $6.3 billion by 2025. The study estimates $1.8 billion in IB investments in ASEAN by 2016 and projects this number to increase to $6.3 billion by 2025. Large opportunities for investment in IB are expected in Indonesia, the Philippines, and Thailand. Despite the fact that there are also many social enterprises in need of investment, investment opportunities are much higher in IB models because they are larger in scale and have greater commercial viability, whereas social enterprises more often require smaller investments and grant funding.
This study also estimates that IB created more than 500,000 new income opportunities by 2016 and served 21 million people in the BOP. This is projected to increase to 1.8 million income opportunities and over 70 million served by 2025.
Based on the G20 definition of IB, the study distinguishes between IB core business models (mostly promoted by medium-sized to large companies), IB activities (often commercially oriented corporate responsibility work that is not the scaled-up core business of a company), and social enterprise initiatives (typically small in impact and investment, and mostly promoted through for-profit social enterprises). While IB models account for only 22% of the investments, they are responsible for 70%–90% of the impact due to their larger size.
The private sector is increasingly engaging with IB in ASEAN; however, progress to scale, replicate, and mainstream IB has been slow to date. The majority of impact investments comes from development finance institutions and banks. Existing impact funds highlight that despite the 4
large size of existing BOP markets, the sourcing of IB deals, particularly larger IB deals of more than $1 million, is still a challenge. Many impact investors focus on early-stage capital, and often provide grant-financed incubation support with capital investments, and only a few focus on more established companies to help them grow further, mature, and reach scale. Corporate venture funds are a new and promising source of funds in the impact investment space in ASEAN.
Similarly, in the banking industry, impact investing remains a tiny niche business for most banks. Of the 150 larger banks in ASEAN, only about 18 banks do some form of impact investing, and this is estimated to be less than about 3% of their investment business. Also, only a small amount of the wealth of high net-worth individuals is used for impact investments. Given their poverty eradication mandates, long-term view, and cost of capital, development banks, however, are well placed to invest in IB and leverage private capital. Governments have also begun to set up IB promotion institutions, policies, and programs to develop an enabling ecosystem for IB.
IB contributes to the development agendas of ASEAN. IB can support many aspects of the ASEAN Economic Community Blueprint 2025, as IB is the private sector’s contribution to more equitable and inclusive economic growth in ASEAN. IB contributes significantly to all four characteristics of the blueprint: creating a highly integrated and cohesive economy; making a competitive, innovative, and dynamic ASEAN; enhancing connectivity and sector cooperation; and developing a resilient, inclusive, people-oriented, and -centered ASEAN.
Indeed, IB contributes to the ASEAN Strategic Action Plan for Small and Medium-Sized Enterprise (SME) Development, 2016–2025. The study found that IB is strongly aligned with the policy agenda in all five strategic goals: (i) Strategic Goal A: Promote Productivity, Technology, and Innovation. Productivity increases are evident in IB models in the agribusiness sector where they are the main contributor to significant income increases for smallhold farmers. (ii) Strategic Goal B: Increase Access to Finance. Access to finance is also a key topic for IB for own-funding and funding for value chains that include micro and SMEs. (iii) Strategic Goal C: Enhance Market Access and Internationalization. Market access and internationalization for micro and SMEs can be ensured through companies with IB models due to their integration into the value chain. (iv) Strategic Goal D: Enhance Policy and Regulatory Environment. Developing an enabling policy and regulatory environment for IB are major initiatives of the international community to facilitate and to scale up the private sector’s contribution to inclusive growth. (V) Strategic Goal E: Promote Entrepreneurship and Human Capital Development. Social enterprises offer unique and meaningful entrepreneurial opportunities, especially to youth and women in the ASEAN region. The promotion of entrepreneurship and human capital development is undertaken by IB companies through technical assistance programs inherent in the business model.
This report has six major recommendations: (i) ASEAN should promote IB as part of its inclusive growth and micro and SME agenda. (ii) ASEAN should develop an ASEAN IB framework to provide guidance on IB promotion, development, and implementation. (iii) ASEAN should increase and improve coordination within ASEAN for IB support. (iv) ASEAN should encourage business associations to play a more active role in promoting best practices in IB. 5
(v) ASEAN should increase and improve coordination and collaboration with development partners for IB support in ASEAN. (vi) To further enrich the development of a global IB framework, ASEAN should also enter into discussions with G20 and the Asia-Pacific Economic Cooperation (APEC).
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ABBREVIATIONS
AEC – ASEAN Economic Community ADB – Asian Development Bank APEC – Asia-Pacific Economic Cooperation ASEAN – Association of Southeast Asian Nations BOP – Base of the pyramid CSR – Corporate social responsibility GIIN – Global Impact Investment Network GIZ – Deutsche Gesellschaft fü r Internationale Zusammenarbeit GNI – Gross national income HNWI – High net-worth individual IB – Inclusive business ICT – Information and communication technology IFC – International Finance Corporation KfW – Kreditanstalt für Wiederaufbau Lao PDR – Lao People’s Democratic Republic NGO – Nongovernment organization PPP – Public–private partnership PRC – People’s Republic of China SMEs – Small and medium-sized enterprises TA – Technical assistance
NOTE
In this study, "$" refers to US dollars unless stated otherwise
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CONTENTS
ACKNOWLEDGMENTS ...... 2 EXECUTIVE SUMMARY ...... 3 ABBREVIATIONS ...... 6 CONTENTS ...... 7 I. DEFINING INCLUSIVE BUSINESS ...... 8 A. THE G20 INCLUSIVE BUSINESS FRAMEWORK ...... 8 B. CHARACTERISTICS OF INCLUSIVE BUSINESS ...... 8 C. ROLE OF GOVERNMENTS IN CREATING BETTER ENABLING ENVIRONMENTS FOR INCLUSIVE BUSINESS ...... 15 II. DEFINING THE MARKET AT THE BASE OF THE PYRAMID IN ASEAN ...... 16 III. INCLUSIVE BUSINESS IN ASEAN ...... 23 A. COMPANIES WITH INCLUSIVE BUSINESS MODELS AND ACTIVITIES, AND SOCIAL ENTERPRISE INITIATIVES IN ASEAN ...... 25 B. INCLUSIVE BUSINESS SECTOR TRENDS IN ASEAN ...... 29 C. SOCIAL IMPACT OF INCLUSIVE BUSINESS ...... 31 D. PRIVATE AND PUBLIC SECTOR SUPPORT FOR INCLUSIVE BUSINESS IN ASEAN ...... 32 1. Private Sector ...... 32 2. Impact investors ...... 33 3. Public Sector ...... 37 IV. THE RELEVANCE OF INCLUSIVE BUSINESS TO ASEAN ...... 41 A. CONTRIBUTIONS OF INCLUSIVE BUSINESS TO THE ASEAN ECONOMIC COMMUNITY BLUEPRINT 2025 ...... 43 B. IMPORTANCE OF INCLUSIVE BUSINESS TO ASEAN’S MICRO, SMALL, AND MEDIUM- SIZED ENTERPRISE AGENDA ...... 44 C. SUPPORTING THE ASEAN STRATEGIC ACTION PLAN FOR SME DEVELOPMENT, 2016–2025 ...... 45 V. RECOMMENDATIONS TO PROMOTE INCLUSIVE BUSINESS AS PART OF ASEAN’S INCLUSIVE GROWTH AND MICRO AND SME AGENDA ...... 48 PROFILES OF INCLUSIVE BUSINESSES IN ASEAN ...... 53 A. BRUNEI DARUSSALAM ...... 53 B. CAMBODIA ...... 55 C. INDONESIA ...... 58 D. LAO PEOPLE’S DEMOCRATIC REPUBLIC ...... 61 E. MALAYSIA ...... 63 F. MYANMAR ...... 66 G. PHILIPPINES ...... 69 H. SINGAPORE ...... 72 I. THAILAND ...... 74 J. VIET NAM ...... 78 REFERENCES ...... 82
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I. DEFINING INCLUSIVE BUSINESS
A. The G20 Inclusive Business Framework
1. The Group of Twenty (G20) Inclusive Business (IB) Framework provides the most comprehensive, accepted definition and classification of IB. According to the framework, IBs “provide goods, services, and livelihoods on a commercially viable basis, either at scale or scalable, to people at the ‘base of the economic pyramid,’ making them part of the value chain of companies’ core business as suppliers, distributors, retailers, or customers.”1 The framework was adopted in 2015 at the G20 meeting in Turkey, and further refined in 2016 under the G20 leadership of the People’s Republic of China (PRC). In May 2017, the Inclusive Business Action Network (IBAN) and the G20 Global Platform on Inclusive Business (GPIB) organized a policy dialogue in Germany. It discussed, among other topics, how regional cooperation institutions such as the Association of Southeast Asian Nations (ASEAN) could promote the IB agenda. The G20 IB framework can be used as a foundation for ASEAN to encourage IB in the region, as it has a unifying approach toward IB, taking into consideration its multidimensional landscape.
2. The G20 IB framework describes three approaches to implementing IB for companies: (i) they can operate directly as scaled-up IB models; (ii) companies can pilot IB activities (e.g., through core business-related corporate social responsibility [CSR] programs), which can be scaled up into IB models; and (iii) companies can start social enterprise initiatives, which can be scaled up to become IB models (Table 1).
Table 1: Inclusive Business Approaches
Inclusive Business Social Enterprise Inclusive Business Models Activities Initiatives BOP relationship to Core value chain Ancillary Ancillary or core value business chain Financial return Market returns Market returns or Not profit-maximizing below-market returns Primary funding type Commercial Commercial Mixed Investment size $5 million–$200 million $300,000–$3 million $100,000–$3 million Type of company Large and medium, often family- Large and medium Small promoting the model owned, sometimes multinational Type of business Inclusive business Strategic corporate Impact funds, high net social responsibility worth individuals BOP = base of the pyramid. Notes: 1. Investment sizes are derived from observed investments and revenues of inclusive business in Asia. 2. Mixed funding comprises commercial and grant funding. Source: Author, adapted from G20 Development Working Group. 2015. G20 Inclusive Business Framework. http://g20.org.tr/wp-content/uploads/2015/11/G20-Inclusive-Business-Framework.pdf
B. Characteristics of Inclusive Business
3. It is important to distinguish IB from other modes of private sector engagement and investment in development and to highlight the connection and convergence points between existing engagement modes and IB.
1 G20 Development Working Group. 2015. G20 Inclusive Business Framework. http://g20.org.tr/wp- content/uploads/2015/11/G20-Inclusive-Business-Framework.pdf 9
4. IB differs from the larger macroeconomic concept of inclusive growth by emphasizing the role of the private sector in developing business models that directly generate new income opportunities and relevant affordable services for the poor and low-income population (i.e., the base of the pyramid [BOP]). IB does not focus on public infrastructure or other investments with trickle-down effects for the poor.
5. Social enterprise initiatives are different from IB models in terms of scale of impact, relation of the BOP to the business, commercial viability, and primary source of funding. A study conducted by the Asian Development Bank (ADB) concluded that “social enterprises under the category of leading social enterprises can be nurtured and supported to become IBs. Not all social enterprises can or need to be IBs. However, leading social enterprises…can become IBs with appropriate and sustained support,” implying a potential for social enterprises to scale up into IBs.2 Social enterprise initiatives can also be integrated into an IB value chain, and provide community organizing, technical assistance (TA), and aggregation services. They are also a source of social innovation and business model development and piloting, which larger companies can adopt and scale up.
6. IB emphasizes the establishment of systemic business solutions to relevant problems of the BOP, while the shared value approach has a much broader societal impact mandate. Shared value concepts currently resonate with the global business community as a management strategy, and have been adopted by multinational corporations such as Nestlé Global, and domestic conglomerates, such as CJ Foods. The popularity of the shared value approach among business leaders provides an entry point for the development of and support for IB models, as in Singapore, which hosted the Sharing Value Asia Summit in 2016.
7. IB also differs from CSR projects by the nature of the business investment (i.e., core business versus peripheral activities) and the general lack of financial sustainability in CSR projects. However, companies increasingly realize that “CSR can become more strategic and add financial value to a business. Being strategic and linking CSR to core business (rather than an add-on activity) can increase the value of CSR to a business, enable the company to manage a broader range of externalities, [and] extend social impacts through larger and more sustainable investments.”3 CSR thus becomes an effective pathway toward the development of IB models and activities, as showcased by Jollibee Group Foundation’s Farmer Entrepreneurship Program in the Philippines.
8. Investments in IB models are expected to generate commercial returns through sustainable business cases with clearly articulated social goods for the BOP and direct impact chains, while impact angel investors also expect financial returns, albeit often lower and at much earlier (and riskier) investment stages. Along with venture philanthropy, impact angel investors play an important role in funding early-stage social enterprises as well as complementary activities (e.g., TA and capacity-building activities for BOP stakeholders) needed by a business for its IB model development. Grant-giving organizations are increasingly supporting for-profit initiatives aligned to their mission through blended financing facilities,4 because they value the effective use of funds. Additionally, platforms, such as the Asian Venture Philanthropy Network, support
2 ADB. 2017. Are Social Enterprises the Inclusive Businesses of Tomorrow? Consultant’s report. Manila. (TA 8550- REG). https://www.adb.org/sites/default/files/project-documents/46240/46240-001-tacr-en.pdf 3 ADB. Corporate Social Responsibility and Inclusive Business in ADB: Recommendations from the Markets. Unpublished. (TA 8550-REG). 4 Blending4AG. Examples of Blended Finance Facilities. http://blending4ag.org/en/media/examples-of-blended- finance.html
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members in pooling resources for collective impact efforts and contribute to building IB ecosystems.
9. Impact investments made by impact investors, development banks, and mainstream institutional investors are increasingly financing IB and driving IB ecosystem services such as impact measurement and assessment through private sector collaboration and organization initiatives. It should be noted that investment for social impact forms only part of the larger impact investment category, which also includes investment for environmental impact.
10. IB is distinct from micro and small and medium-sized enterprises (SMEs) because IB emphasizes not only the involvement of the poor in value chains but also in more efficient and innovative income-generation models where the poor can earn more compared to traditional business models. Micro and SMEs connect to IB on four important levels: (i) subsistence farmers can develop into micro entrepreneurs in an agricultural IB value chain; (ii) microenterprises can be integrated into IB model value chains in a BOP-as- distributor-mode of engagement, taking care of last-mile distribution; (iii) social enterprise initiatives and some IBs start as small enterprises and, therefore, belong to the micro and SME category; and (iv) most national IB companies belong to the medium-sized to large enterprise sector.
11. Innovative contract farming is the main mode of engagement in agricultural IB value chains, and includes access to affordable and relevant finance; access to land; and provision of TA and secure and fair formal contracts, which lead to significant improvements in the productivity and incomes of farmers. IB contract farming models differ from traditional contract farming because they allow farmers to earn more with their produce, and to integrate innovations that systematically increase their income opportunities.
12. IB needs to be innovative and to broaden the understanding of value chains to deliver higher-quality products. For example, technology advances and market development are driving down the cost of solar energy products worldwide, including solar home systems that address BOP needs. While these may be sufficient for the general global market to grow, BOP market innovations in last-mile distribution, access to finance, and payment schemes are required to scale up these products. Notably, technology and mobile innovations are major drivers in overcoming IB barriers. Initiatives that support public and private sector innovation recognize the potential and need to develop BOP market solutions, and increasingly integrate social innovation and IB programs into these initiatives.
13. While traditional business looks at financial bottom-line returns, IB combines financial return and growth expectations with relevant social impact. Within the IB market, companies are diverse in size, ownership, focus, financial returns, and inclusion of people, and are characterized by (i) Diversity in company size and legal status. Companies that have developed business activities combining financial returns and social impact can include nongovernment organizations (NGOs) with income-earning activities, cooperatives, social enterprises, SMEs, large national companies, and multinational companies. (ii) Relevancy. The relevance (i.e., centrality) of the IB model and activity to the company’s overall revenue, procurement requirements, or distribution channel—which is a distinguishing feature of IB—can vary widely, from 1% to 100%. Depending on the size of the company, an IB model with low relevancy can still have substantial social impact. For example, a large company, which sources only 5% of its raw material 11
requirements from smallholders in an IB model may still engage with tens of thousands of farmers due to its huge purchasing requirements. (iii) Scale of impact. The scale of impact to qualify as IB can range from a few communities deeply impacted (i.e., effectively lifted out of poverty), to improvement in the lives of millions of people at the BOP through access to relevant products and services (e.g., access to clean and cheaper energy via solar home systems, food and nutrition supplements, and health and education services). (iv) Financial return expectations and timelines. These also can vary widely, and are dependent on the sector in which the IB operates. (v) Varying contexts. IB takes place globally in emerging and developed countries, with very different political and socioeconomic systems and BOP populations.
14. Studies from ADB and other organizations have shown that IB is mainly undertaken by medium to large domestic companies. While global IB case studies focus on large multinational companies, the majority of IBs—often undocumented, with their IB-related activities not communicated—are medium-scale enterprises operating domestically.
15. There are four modes of BOP engagement: supplier, distributor, retailer, and customer. Engaging the BOP as supplier, distributor, and/or retailer results in more stable and secured income opportunities for them, while engaging them as customers provides them with more affordable and appropriate products and services. Strategies and models for these four modes of IB engagement have been developed across different sectors of the economy. The most promising sectors for BOP supplier engagement are agribusiness, tourism, and manufacturing. For BOP distributor and retailer engagement, fast-moving consumer goods and products designed for the BOP, such as solar home systems and water filters, are well established. BOP customer engagement can be mainly seen in finance, energy, housing, health care, education, information communication and technology (ICT), and water and sanitation sectors.
16. While many IB models are currently found in agribusiness, IB models can actually be found in all sectors. There are innovative IB solutions for transport, energy, housing, water and sanitation, and food. Manufacturing has fewer IB models, as the mode of engagement of “BOP as employee”—the main potential area in which manufacturing companies engage with the BOP—has been difficult to characterize.
17. Figure 1 shows the investment by sector provided by impact investors. Note that this study only estimates the sector distribution of impact investments on a global basis, as there is no registry on IB in any ASEAN economy.
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Figure 1: Assets under Management according to Sectors
AUM = assets under management, ICT = information communication and technology; WASH = water, sanitation, and hygiene. Notes: 1. Outer circle: full sample is n = 156; total AUM = $77.4 billion. 2. Inner circle: excluding outliers, n = 153; total AUM = $49.5. 3. Other includes arts and culture, timber, forestry, waste management, pollution control, humanitarian assistance, community revitalization, and child care. Source: GIIN. 2016. Annual Impact Investor Survey 2016. New York.
18. IBs are often financed by impact investments that aim to achieve both social impact and financial returns without trade-offs between the two. Impact investing is defined as “investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.”5 It is therefore a special form of investment that is different from development investing and commercial investing (Table 2). Impact investing in IB targets the BOP and aims to achieve both financial and social return. IB investments aim to create results at the outcome and impact levels rather than only at the output level; they are therefore sector-agnostic and can be found in all sectors. They create economic returns for society beyond contribution to economic growth, tax revenues, and bottom-line financial returns.
Table 2: Purpose of Impact, Development, and Commercial Investments Investment Purpose and Results Impact Investing Development Investing Commercial Investing/Investment Banking Investment area All sectors All sectors All sectors Investment size Small to medium Medium to large Small, medium, or large Targeted BoP All population in a specific No specific target beneficiaries area or sector Financial return High Mixed, mostly low to High medium Social return Small to high depending Small to high depending on Not the focus on the size the project design
BOP = base of the pyramid. Source: Author, adapted from G20 Development Working Group. 2015. G20 Inclusive Business Framework. http://g20.org.tr/wp-content/uploads/2015/11/G20-Inclusive-Business-Framework.pdf
5 GIIN. Impact Investing. https://thegiin.org/impact-investing/ 13
19. IB and social enterprise initiatives differ in achieving scale of impact and realizing financial returns. Figure 2 denotes the positioning of IB models, social enterprise initiatives, and IB activities through strategic CSR along the dimensions of financial return and social impact. It compares them to traditional CSR, philanthropy, and small-scale nonprofit social enterprise work6 and to traditional businesses.
Figure 2: Financial Return and Social Impact—Inclusive Business, Social Enterprise, and Corporate Social Responsibility Financial return and social impact of IB, SE, and CSR
25% Traditional commercial Inclusive Business 15% company (trade off between bankable financial return and (impact drives return and vice-versa)
10% social impact; focus profitable on financial bottom line) 6% financially viable
financial return 3% Social Enterprise (impact first) 0% CSR
not not for profit Philanthropy
systemic social impact (scale, relevance, depth) for the poor and low income people
CSR = corporate social responsibility. Source: Adapted from ADB.
20. Table 3 summarizes the key characteristics and differences of the three IB approaches, social organizations, and traditional business along the dimensions of business model, commercial returns, and social impact. It shows that of all approaches, IB models have financial and social impact return.
6 There are three major forms of social enterprises: (i) revenue-generating but unviable enterprises with small social impact, which are the most common; (ii) social enterprises that scale with the potential to become IB; and (iii) social enterprises as large service providers for governments, which are primarily found in developing economies (e.g., ASEAN). 14
Table 3: Types of Inclusive Business Approaches and Their Impact
Social Enterprise IB Activity Initiative Traditional (core (for-profit Social CSR business social Enterprise (noncore Traditional IB Model CSR) enterprise) (nonprofit) business) Business Business Model BOP targeting in business line: Is the IB business line central to the commercial viability of the company? Core Ancillary Mixed Mixed Ancillary No Innovation: Is the business model innovative in addressing solutions for the BOP? Mostly Often Often Sometimes Seldom No Consumer, Value chain: How supplier Supplier Supplier, Consumer does the business (sometimes (sometimes Supplier, distributor, (sometimes model integrate the also also consumer, laborer supplier BOP into the value distributor distributor distributor, (sometimes and Mostly chain? and laborer) and laborer) laborer consumer) distributor) laborer only Financial Viability Commercial viability: Is the supporting company financially viable, and the business line (in the future) financially viable (i.e., positive EBITDA)? Yes Yes Yes No No Yes Reliance on grants: Is the business line perpetually reliant on grants? No Usually no No Yes Yes No Use of profits: What Shareholders n/a n/a are the net profits or (negative (negative reserved for? Shareholders Shareholders reinvestment EBITDA) EBITDA) Shareholders Bankability Return on investment: Can the company generate return on investment within 3–5 years? Yes Yes Yes No No Yes Return expectation: Can the company meet the return expectations of the No return No return investor? Yes Usually yes Usually no expectation expectation Yes Social Impact Social reach and targeting: Does the model intend to reach the BOP? Yes Yes Yes Yes Not always No Scale: Is the model scaled up or scalable? Yes Yes Mixed Mixed Usually no Yes 15
Social Enterprise IB Activity Initiative Traditional (core (for-profit Social CSR business social Enterprise (noncore Traditional IB Model CSR) enterprise) (nonprofit) business) Business Depth: Does the model provide high income (i.e., more than competitors) and better services/goods? Yes Yes Yes Yes Yes No Systemic solution: Is the solution aimed at the relevant problem of the BOP? Yes Yes Mixed Mixed No No BOP = base of the pyramid; CSR = corporate social responsibility; EBITDA = earnings before interest, taxes, depreciation, and amortization; IB = inclusive business. Source: Author, adopted from ADB.
C. Role of Governments in Creating Better Enabling Environments for Inclusive Business
21. As detailed in Figure 3, the four major supporting function categories for IB of rules, capacity building, financial resources, and knowledge development and information dissemination (i.e., the IB ecosystem) are provided by financial institutions, multilateral development banks, individuals, the media, intermediaries, development partners, nonprofit organizations, research institutions, and international organizations.
Figure 3: G20 Inclusive Business Ecosystem
Source: G20 Development Working Group. 2015. G20 Inclusive Business Framework. http://g20.org.tr/wp- content/uploads/2015/11/G20-Inclusive-Business-Framework.pdf
22. The G20 IB framework emphasizes that governments and companies are key drivers of IB development and promoting. They can help (i) Establish rules and regulations conducive for inclusive business. Governments can review existing regulations that limit BOP participation in market activities, embed pro-poor targets into government contracts, introduce appropriate regulations for IB companies, and favor procurement from IB or social 16
enterprises; while companies can encourage IB development in their corporate strategies, and establish certification programs. (ii) Enhance access to financial resources, and provide financial incentives. Governments can improve access to finance for the BOP, and improve access to finance for IBs by providing financial incentives to these types of companies; while companies can provide financial services to the BOP, and establish investment products targeting them. (iii) Provide information and raise awareness about inclusive business. Governments can compile and share BOP data, provide information to the BOP, and raise awareness on IB (e.g., through awards); while companies can leverage both public and private information to deepen or expand business engagements with the BOP. (iv) Strengthen the capacity of the base of the pyramid population and inclusive businesses. Governments can align vocational training for the BOP with private sector needs, implement inclusiveness projects in partnership with the private sector, and support business services for IBs; while companies can develop capacities for the BOP through the provision of training, education, and business support services.
II. DEFINING THE MARKET AT THE BASE OF THE PYRAMID IN ASEAN
23. Economic growth has been and remains strong in the Asia and Pacific region, but income levels are still relatively low. ASEAN members have experienced 3 decades of strong economic growth, which has lifted millions out of poverty and created a large middle class. Still, the number of people living in poverty in the ASEAN region remains higher than in other emerging regions, such as Latin America. Moreover, rapidly rising income inequality, lack of well-paid income opportunities, and insufficient access to affordable services relevant for the poor have become pressing challenges for ASEAN members.
24. Socioeconomic development is diverse across ASEAN members. Indonesia, the world’s fourth most populous nation, is a member of the G20 but has a gross national income (GNI) per capita of only $3,440, placing it in the lower-middle-income group. Cambodia, the Lao People’s Democratic Republic (Lao PDR), Myanmar, and Viet Nam have GNIs per capita of less than $2,000. However, the poverty incidence in these countries is not necessarily higher than, for example, the Philippines, which has a GNI per capita of $3,540 and had persistently high economic growth rates (around 6% per year) since 20127.
25. According to this study, the BOP in ASEAN numbers 349 million, or 56% of the population. On average, the BOP segment of the socioeconomic pyramid is the lowest 40%–60% of the population, but the actual BOP cut-off differs per country. As the economic development of a country and social status of its people are different, so is the ceiling for the BOP in each country. Richer countries have higher BOP thresholds than poorer countries, and in upper-middle-income countries with well-established social systems (e.g., Brunei Darussalam and Singapore), the BOP provides fewer market opportunities for IB scale-up. In such countries, mainstream businesses provide relevant solutions through targeted services and goods to low-income segments of the population, and social enterprises target niche markets for social service provision, such as elderly care and education for poor children.
7 GNI per capita, Atlas method (current US$), 2015 figures, https://data.worldbank.org/ accessed 07 May 2018 17
26. In Cambodia, Indonesia, the Lao PDR, Malaysia, Myanmar, Philippines, Thailand, and Viet Nam, 59% live on less than $6 per day according to this study. This $6 threshold for the BOP in Southeast Asia (equivalent to the old poverty line of $4 per day) can be applied for the ASEAN region but should be adjusted in individual country discussions. When using the $6 threshold throughout ASEAN, the BOP numbers 367 million (59%). When employing a country-by-country analysis, the BOP reaches 349 million (56%). Table 4 below gives a country by country comparison of poverty numbers in ASEAN.
Table 3: Poverty, Population, and Gross Domestic Product in ASEAN The Base of the Pyramid (BoP) and the Poor and Low Income People in ASEAN member states Population GDP per capita Poverty incidence Number of (million (% of population, based on the new and old poverty lines) people at people, national international poverty line the BoP 2015) Atlas (PPP, poverty very poor poor vulner- low income middle survey (million) method USD, line able class year (2015) 2015) $1.9 $3.1 $4.6 $6.1 $12.2 $15.2 ($1.25) ($2) ($3) ($4) ($8) ($10) ASEAN 626.5 56% 348.6 Brunei Darussalam 0.4 $36.783 $59.956 n/a n/a n/a n/a n/a 3% n/a n/a 0.0 Cambodia 15.1 $1.070 $3.610 13% 2.2% 21.6% 52.6% 72.3% 95.1% 97.50% 2012 7.9 Indonesia 255.2 $3.440 $11.138 11% 8.3% 36.4% 60.4% 74.5% 93.7% 96.70% 2014 154.1 Lao PDR 6.5 $1.730 $5.945 24% 16.7% 46.9% 71.9% 83.5% 96.4% 97.70% 2012 3.0 Malaysia 31 $10.570 $26.317 1% 0.3% 2.7% 9.2% 16.6% 43.8% 53.90% 2009 13.6 Myanmar 52.5 n/a $5.384 36% n/a 60.0% n/a n/a n/a n/a n/a 31.5 Philippines 101.4 $3.540 $7.350 26% 13.1% 37.6% 58.3% 70.9% 87.0% 94.60% 2012 59.1 Singapore 5.5 $52.090 $85.209 n/a n/a n/a n/a n/a 5.0% n/a 0.3 Thailand 67.2 $5.620 $16.476 10% 0.0% 0.9% 6.0% 15.9% 55.5% 67.10% 2013 37.3 Viet Nam 91.7 $1.980 $6.022 7% 3.1% 12.0% 28.5% 45.6% 82.6% 89.80% 2014 41.8 The Base of the Pyramid (BoP) is highlighted in yellow. ASEAN = Association of Southeast Asian Nations, BOP = base of the pyramid, GDP = gross domestic product, Lao PDR = Lao People’s Democratic Republic, n/a = not applicable, PPP = purchasing power parity. Notes: 1. The $ in brackets is referring to the old poverty line before the revisions by the World Bank in 2015. 2. The definition for the respective national poverty lines are given in ADB. 2016d. Key Indicators for Asia and the Pacific 2016. Manila; and ADB. 2017a. Key Indicators for Asia and the Pacific 2017. Manila. 3. Poverty lines used for this calculation are different depending on the GDP status of a country; this study states the sum of the poverty incidences in ASEAN and individual countries as those marked in yellow. 4. Specific numbers may vary with supporting statements in the appendix; this is due to different time bases and assumptions, as well as issues with statistical rounding. 5. The economic and poverty data are taken from World Bank. In October 2016, the World Bank published new poverty dates based on PPP data for 2012. It set the new international line for severe poverty (i.e., the very poor) at $1.90 per day per capita. This poverty line is comparable to the former $1.25 poverty line. Furthermore, people living on less than $3.10 per day are classified as poor, people living on less than $4.60 per day are classified as vulnerable, people living on less than $6.10 per day are classified as low-income (also BOP), and people living on less than $15.20 per day form the middle class. Source: Author’s calculations, based on ADB data and World Bank. PovcalNet. http://iresearch.worldbank.org/PovcalNet/povOnDemand.aspx (accessed January 2017).
27. The market for IB in ASEAN are those with family incomes of less than $1,000 (or $6 per capita per day expenditures). While their purchasing power is small on an individual basis, if taken as a group, the BOP in ASEAN represents a massive pool of potential customers, suppliers, distributors, and retailers that can be engaged by private companies.
28. The International Finance Corporation (IFC) and World Bank publishes the Global Consumption Database,8 which indicates the annual spending power of the BOP and is a source
8 World Bank. Global Consumption Database. http://datatopics.worldbank.org/consumption/ (accessed January 2017). 18
of data on household consumption patterns in developing countries.9 The database distinguishes four income groups, of which two (i.e., the poor and vulnerable, as well as the low-income group) are relevant to this IB discussion. It categorizes people who have less than $2.97 per capita per day based on 2005 purchasing power as the lowest income group; this is comparable to today’s $4.60 poverty line describing the poor and vulnerable segment. The low-income group is composed of people who live on $2.97–$8.44 per capita per day.10 As the database does not have a dataset for $6 per capita per day, which forms the BOP in ASEAN, these two categories are of interest since the consumption power of the BOP matters for IBs serving this market.
29. It is important to note, however, that the Global Consumption Database does not have data from Malaysia and Myanmar; these two countries, therefore, were excluded from the analysis that follows, as were Brunei Darussalam and Singapore.
30. Based on the figures for 2010 (i.e., the latest reference available), the poor and vulnerable segment of the BOP in ASEAN comprises 316 million people, who have a purchasing power of $220 billion (Table 4). When adding the low-income segment, these numbers increase to 478 million people with purchasing power of $540 billion. By country, the BOP and its market sizes are given in Tables 5 and 6.
Table 4: Population and Purchasing Power of the Base of the Pyramid in ASEAN
Poor and Vulnerable Low-Income Total Segment Segment BOP (million people) 316.2 478.8 509.4 % of population 62.1 94.0 100.0 Purchasing power 220,071 540,179 701,148 BOP purchasing power in % of 29.2 46.9 100.0 total population
ASEAN = Association of Southeast Asian Nations, BOP = base of the pyramid. Notes: 1. The BOP are defined as the poor and low-income population in the respective countries and areas. Different poverty lines are used depending on the economic status of the society (see the yellow marked data in Table 3). 2. This summary for ASEAN excludes Brunei Darussalam, Malaysia, Myanmar. and Singapore, as no data for those countries were available. Source: Author’s compilation based on World Bank. Global Consumption Database. http://datatopics.worldbank.org/consumption/ (accessed January 2017).
9 The database offers information for 92 countries; rural and urban locations; and level of consumption, including the lowest, low, middle, and higher spending segments for 12 sectors, 25 subsector categories, and 107 specific products and services. The data are based on national household surveys, which collect information from a group of households representative of the entire country, mostly conducted in 2010. For each country covered, the resulting datasets have been used to calculate the share of the population at different levels of consumption. The database is designed to serve a wide range of users, from researchers seeking data for analytical studies to businesses desiring a better understanding of the markets into which they are expanding or those that they are already serving. 10 For example, the $8 ($12) poverty line, used in Latin America, would comprise 94% of the population of ASEAN. Hence, this poverty line is too high to compare it with the base of the income pyramid, as the base cannot be more than 40%–60%. 19
Table 5: Base of the Pyramid Population in ASEAN ASEAN Population in Poor/Vulnerable and Low Income Consumption Segment Poor/Vulnerable Low Income Total Number % of Total Number % of Total (million) (million) Brunei n/a n/a n/a n/a n/a Cambodia 9.6 68% 3.8 27% 14.1 Indonesia 177.4 74% 58.5 24% 239.8 Laos PDR 4.8 77% 1.2 19% 6.2 Malaysia n/a n/a n/a n/a n/a Myanmar n/a n/a n/a n/a n/a Philippines 59.6 64% 29.4 32% 93.3 Singapore n/a n/a n/a n/a n/a Thailand 5.5 8% 44.1 64% 69.1 Viet Nam 59.3 68% 25.6 29% 86.9 Total 316.2 62% 162.6 32% 509.4 ASEAN = Association of Southeast Asian Nations, Lao PDR = Lao People’s Democratic Republic. Notes: 1. The BOP is defined as the poor and low-income population in the respective countries. Different poverty lines are used depending on the economic status of the society (see the yellow marked data in Table 3). 2. This summary for ASEAN excludes Brunei Darussalam, Malaysia, Myanmar, and Singapore, as no data for those countries were available. Source: Author’s compilation based on World Bank. Global Consumption Database. http://datatopics.worldbank.org/consumption/ (accessed January 2017).
Table 6: Purchasing Power of the Base of the Pyramid in ASEAN (purchasing power parity, 2010)
Poor and Vulnerable BOP Market Low-Income BOP Market Total Market $ million % of total consumption $ million % of total consumption $ million Brunei Darussalam n/a n/a n/a n/a n/a Cambodia 6,472 37 13,567 77 17,552 Indonesia 120,406 49 105,369 43 244,066 Lao PDR 3,051 40 3,320 44 7,549 Malaysia n/a n/a n/a n/a n/a Myanmar n/a n/a n/a n/a n/a Philippines 39,693 34 56,444 49 116,350 Singapore n/a n/a n/a n/a n/a Thailand 5,597 3 95,271 44 215,321 Viet Nam 44,853 45 46,137 46 100,311 Total 220,071 31 320,108 46 701,148 ASEAN = Association of Southeast Asian Nations, BOP = base of the pyramid, Lao PDR = Lao People’s Democratic Republic. Notes: 1. The BOP is defined as the poor and low-income population in the respective countries. Different poverty lines are used depending on the economic status of the society (see the yellow marked data in Table 3). 2. This summary for ASEAN excludes Brunei Darussalam, Malaysia, Myanmar, and Singapore, as no data for those countries were available. Source: Author’s compilation based on World Bank. Global Consumption Database. http://datatopics.worldbank.org/consumption/ (accessed January 2017).
31. The BOP in the lowest consumption segment in ASEAN has a collective annual spending power of $220 billion, based on annual household consumption in 2010. Those in the low-income segment, part of them belonging to the BOP, have a collective spending power of $320 billion. This represents a sizeable opportunity for businesses that are seeking to enter new markets and to expand their customer base. The poor and vulnerable market segment comprises 31% of total ASEAN household spending, and the low-income segment accounts for another 46%.
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32. The Global Consumption Database provides data from various household surveys on the BOP spending patterns by sector as well. Analyzing these data in-depth by country helps companies understand the BOP’s consumption behavior and preferences, and indicates the potential market. According to the data, the food and beverages sector comprises 58% of the poor and vulnerable segment’s consumption. This is followed by housing (8%), energy (6%), and transport (5%). In the low-income group, the importance of food and beverages is reduced to 46%, while housing, ICT, and transport rises as a percentage of household expenditure.
33. In some countries, education and health care costs are particularly worrisome for the poor, and because of the low incidence of public sector structures, the poor look for innovative private sector solutions to reduce costs and to obtain adequate service. Companies that can bring these products and services to the BOP at affordable prices have the potential to grow their customer base and to generate good profits. Table 7 provides more sector information by market share, Table 8 by BOP group, and Table 9 by country.
Table 7: Purchasing Power of the Base of the Pyramid in ASEAN by Market Share (purchasing power parity, 2010)
Poor and Vulnerable BOP Total Market Low-Income BOP Market Market % of total % of total $ million consumption $ million consumption $ million Food and beverage 127,912 39 147,561 46 324,117 Clothing and footwear 7,582 34 12,875 57 22,494 Housing 18,015 15 49,875 42 118,343 Energy 14,028 37 17,425 46 37,870 Transport 12,598 19 29,658 46 65,038 Water 913 18 3,514 69 5,059 Education 5,172 31 8,514 52 16,429 Health 5,000 35 6,235 44 14,261 Personal care 4,618 30 7,410 48 15,489 Information communication and 4,234 19 11,489 50 22,801 technology Financial services 615 14 2,512 56 4,447 Others 19,383 35 23,041 42 54,800 All Sectors 220,071 31 320,108 46 701,148 ASEAN = Association of Southeast Asian Nations, BOP = base of the pyramid. Notes: 1. The BOP are defined as the poor and low-income population in the respective countries. Different poverty lines are used depending on the economic status of the society (see the yellow-marked data in Table 3). 2. This summary excludes Brunei Darussalam, Malaysia, Myanmar, and Singapore, as no data for those countries were available. Source: Author’s compilation based on World Bank. Global Consumption Database. http://datatopics.worldbank.org/consumption/ (accessed January 2017).
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Table 8: Purchasing Power of the Base of the Pyramid in ASEAN by Group (purchasing power parity, 2010)
Poor and Vulnerable BOP Market Low-Income BOP Market % of total $ million % of total consumption $ million consumption Food and beverage 127,912 58 147,561 46 Clothing and footwear 7,582 3 12,875 4 Housing 18,015 8 49,875 16 Energy 14,028 6 17,425 5 Transport 12,598 6 29,658 9 Water 913 0 3,514 1 Education 5,172 2 8,514 3 Health 5,000 2 6,235 2 Personal care 4,618 2 7,410 2 Information communication and 4,234 2 11,489 4 technology Financial services 615 0 2,512 1 Others 19,383 9 23,041 7 All Sectors 220,071 100 320,108 100 ASEAN = Association of Southeast Asian Nations, BOP = base of the pyramid. Notes: 1. The BOP are defined as the poor and low-income population in the respective countries. Different poverty lines are used depending on the economic status of the society (see the yellow-marked data in Table 3). 2. This summary excludes Brunei Darussalam, Malaysia, Myanmar, and Singapore, as no data for those countries were available. Source: Author’s compilation based on World Bank. Global Consumption Database. http://datatopics.worldbank.org/consumption/
Table 9: Purchasing Power of the Base of the Pyramid in ASEAN by Country (purchasing power parity, 2010)
Annual Household Consumption Data (Poor and Vulnerable) by sector and country (million USD PPP)
Cambodia Indonesia Lao PDR Philippines Thailand Viet Nam Total
Food and Beverages 3,675 67,684 2,065 23,935 3,127 27,427 127,912 Clothing and Footwear 229 4,299 89 928 114 1,923 7,582 Housing 701 10,879 245 4,177 1,226 787 18,015 Energy 445 7,502 137 2,802 228 2,914 14,028 Transport 406 7,083 229 1,926 323 2,631 12,598 Water Utility 29 397 3 299 67 119 913 Education 69 2,790 30 677 2 1,605 5,172 Health 422 2,317 47 585 35 1,594 5,000 Personal Care 84 2,211 13 1,367 156 786 4,618 ICT 35 2,524 52 556 116 951 4,234 Financial Services 0 48 0 331 11 225 615 Others 376 12,673 141 2,109 193 3,891 19,383 All Sectors 6,472 120,406 3,051 39,693 5,597 44,853 220,071 22
Annual Household Consumption Data (Low-income) by sector and country (million USD PPP) Cambodia Indonesia Lao PDR Philippines Thailand Viet Nam Total Food and Beverages 7,008 45,696 1,622 24,913 45,402 22,920 147,561 Clothing and Footwear 3,250 3,691 107 1,461 2,426 1,940 12,875 Housing 200 14,262 531 8,777 23,379 2,726 49,875 Energy 1,153 5,371 79 4,289 3,752 2,781 17,425 Transport 377 11,555 481 4,610 8,664 3,970 29,658 Water Utility 869 671 10 710 945 309 3,514 Education 50 3,599 51 2,324 94 2,396 8,514 Health 149 2,635 69 1,037 1,020 1,325 6,235 Personal Care 382 1,832 21 1,786 2,527 861 7,410 ICT 63 4,548 104 1,734 2,968 2,071 11,489 Financial Services 65 407 0 1,399 252 389 2,512 Others 0 11,103 244 3,403 3,842 4,448 23,041 All Sectors 13,567 105,369 3,320 56,444 95,271 46,137 320,108
ASEAN = Association of Southeast Asian Nations, ICT = information communication and technology, Lao PDR = Lao People’s Democratic Republic. Notes: 1. The base of the pyramid is defined as the poor and low-income population in the respective countries. Different poverty lines are used depending on the economic status of the society (see the yellow-marked data in Figure 7). 2. This summary excludes Brunei Darussalam, Malaysia, Myanmar, and Singapore, as no data for those countries were available. Source: Author’s compilation based on World Bank. Global Consumption Database. http://datatopics.worldbank.org/consumption/ (accessed January 2017).
34. In ASEAN, 52% of the population live in villages and smaller towns11. Up to 72.2% of the labor force is active in agriculture in these areas, with a large population employed in low-productivity agriculture that has little value chain-forward linkages (Figure 14).
Table 10: Employment Situation in ASEAN
Informal Time-Related Unemployment Labor Force in Informal Employment Underemployment Rate Agriculture Employment in Agriculture (ages 15–64 years) % Year % Year Brunei 6.9 2014 n/a 5.0 9.7 5.5 Darussalam Cambodia 0.2 2014 64.3 2014 77.3 98.0 Indonesia 6.2 2015 32.9 2015 51.9 n/a 7.8 Lao PDR 1.4 2014 72.2 2010 n/a n/a 11.5 Malaysia 3.1 2015 12.5 2015 n/a n/a 3.6 Myanmar 0.8 2015 70.0 2014 67.4 72.7 5.5 Philippines 6.3 2015 29.2 2015 n/a n/a 8.9 Singapore 2.6 2015 0.1 2015 n/a n/a 2.8 Thailand 0.9 2015 32.3 2015 18.6 36.5 1.0 Viet Nam 2.1 2015 44.0 2015 n/a n/a 1.6 ASEAN = Association of Southeast Asian Nations, Lao PDR = Lao People’s Democratic Republic. Note: Time-related unemployment means people who are out of work for some time, especially during agriculturally lean seasons. Sources: ADB, ILO, and World Bank.
11 The Nielsen Company. 2015. The Age of ASEAN cities, http://www.nielsen.com/content/dam/nielsenglobal/vn/docs/Reports/2015/Nielsen-age-of-asean-cities.pdf
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35. Despite the reasonably low unemployment rates in the formal sector (i.e., 0.2%–6.9%), informal employment in ASEAN economies is very high (5%–77%), and wages in rural areas are very low. Engaging the rural poor in value chains with high-productive agribusiness would offer much better income opportunities. While there are many business relations between local traders and supplying farmers, as well as some contract farming arrangements, such business relations are either exploitative to the farmers or linked to low-value production. While they create jobs, such supply chains do not create well-paid income opportunities for the poor.
36. Engaging the BOP also has a strong gender dimension. This is not, however—as often claimed in the literature—due to more women being poor. It is more often because women determine consumption behavior in the BOP, as in most ASEAN member states, women make essential spending decisions for food, clothing, education, and health—the main consumption blocks of the BOP. Furthermore, women comprise the majority of the suppliers of IB, and this is particularly important for agribusinesses. For example, in Indonesia, the Philippines, and Thailand, women provide up to half of the labor input in rice production. This puts women at the forefront of any strategy that aims to engage the BOP as consumers and/or agricultural suppliers. IBs, therefore, have greater potential to contribute to the development and empowerment of women than traditional companies.12
37. In summary, the BOP in ASEAN represents a market opportunity that is worth at least $220 billion. Indonesia has the largest BOP market, worth at least $120 billion. The least developed BOP markets in ASEAN are education, housing, and health. The diversity of BOP markets per country and per sector is a good jumping-off point for further dialogue among ASEAN members. For IBs, the Global Consumption Database provides critical insights into the BOP market opportunities in ASEAN.
III. INCLUSIVE BUSINESS IN ASEAN
38. IB models have been developed to tap into the unmet needs of the BOP with relevant and affordable products and services, as well as to enable the BOP to transition from informal and subsistence livelihoods to more formal and stable business relationships. While outstanding examples of IB models have been developed, implemented, and documented globally over the last decade, the BOP market in ASEAN is far from being saturated. While the number of IBs in ASEAN is still relatively small, this number is growing fast.
39. In ASEAN, with the exception of Brunei Darussalam and Singapore,13 the BOP forms the majority market. As such, IB models and activities are present in those countries that provide relevant, affordable products and services, as well as income opportunities at scale.
40. Investments in IB often come from an entrepreneur’s own resources and from development banks, impact investors, and other development agencies. Impact investment is not yet formally classified as a separate asset class in ASEAN, in contrast to more developed impact investment markets, such as India. Therefore, many banks or entrepreneurs are not yet aware of
12 This is further elaborated in ADB. 2016e. How inclusive is Inclusive Business for Women? Examples from Asia and Latin America. Manila. https://www.adb.org/sites/default/files/publication/183942/inclusive-business-women.pdf 13 In Brunei Darussalam and Singapore, established companies serve the domestic BOP market; social enterprise initiatives serve domestic niche markets of poor and marginalized sectors such as the homeless, out-of-school youth, elderly without families, people with disabilities, and indigenous communities. Governments often support these social enterprises because they help deliver welfare services more efficiently, drive social innovation, and provide more cost-efficient and sustainable solutions to moving the poor and marginalized off social welfare service dependence. 24
this investment and funding opportunity. However, investing in impact is becoming a new asset class, and is developing from niche to mainstream practice.14 This assessment is underscored by the annual Global Impact Investing Network (GIIN) study of the impact investing market,15 which showed an 18% compound annual growth rate in assets under management between 2013 and 2015, from $25.4 billion to $35.5 billion. The study also showed that 85%–95% of impact investors met or exceeded return expectations each year, highlighting further financial return opportunities for investors.
41. IB is practiced in all ASEAN economies and exists in all industry sectors, but the models with the highest impact and scale are found in agribusiness. Case studies show that millions of the BOP have already benefitted from the positive social impact of IB. The examples in Table 11 are an indication of the range and breadth of IB throughout ASEAN. While the focus is on IB models, social enterprise initiatives are also mentioned where relevant.
Table 11: Inclusive Business Examples in ASEAN
Brunei Annur Harapan Community Service Centre (Ray of Hope Centre) is Brunei Social Darussalam Darussalam’s first for-profit social enterprise founded in 2015. It is active in enterprise solving social issues related to single parents, former inmates, the elderly, people initiative with disabilities, the poor, and destitute communities. Cambodia Kamworks is Cambodia’s leading solar energy company, which started as a IB model social enterprise initiative and has now reached the scale of an IB model. It was founded in 2006 and has since provided solar power to over 150,000 people, mostly from the BOP. Furthermore, its products have been exported to Africa, Europe, North America, and South America. Indonesia PT Peradaban Land, formerly Elang Group, developed a profitable business IB model model selling standardized housing to the BOP in Indonesia. In 7 years, Elang Group grew from a startup with a vision to sell affordable homes to a profitable company that built and sold nearly 7,000 housing units and employed 300 workers. Indofoods, one of Indonesia’s largest fast-moving consumer good companies, has IB model several IB models along its upstream and downstream value chain involving smallhold farmers and over 50,000 micro entrepreneurs. Lao PDR Ironbark Lao, a subsidiary of Australia-based Ironbark Citrus, has set up an IB in IB model Lao PDR to increase farmers’ incomes six-fold and to create entrepreneurship opportunities for local communities throughout the citrus supply chain. It exemplifies the potential of foreign investment in IB. Malaysia Nestlé Malaysia, through its shared value commitment, engages in rural IB model development through the integration of smallhold farmers in its value chain of chili, rice, red rice, and sustainable oil palm initiative. Nestlé also operates IB in Indonesia, the Philippines, and Viet Nam, planning to reach close to 100,000 farmers. Myanmar Mandalay Snacks works with 3,000 farmers to produce organic spices for the IB model export market.
OnDoctor provides medical services to mainly the poor, free of charge. The business model has high commercial returns, as it finances itself through screened medical advertisements and knowledge advisory services. Philippines Manila Water, part of the Ayala Group, is one of two water utilities in Metro IB model Manila. Its award winning IB model, Water for the Poor, provides millions of low-income households in informal settlements with clean piped water at affordable rates.
14 The Economist. 5.1.2017. Impact investing inches from niche to mainstream,” http://www.economist.com/news/finance-and-economics/21713839-more-and-more-investors-are-looking-beyond- just-financial-returns-impact-investing 15 Annual Impact Investor Survey, Global Impact Investing Network, 2016 25
Kennemer Foods International has developed an IB model and grown into a IB model major producer, buyer, and processor of cacao beans, providing high-quality planting materials, training, and agri-technologies to over 10,000 smallhold farmers, increasing their income fivefold. Singapore Bettr Barista is a B corp-certified social enterprise that empowers marginalized Social women and youth at risk via its coffee barista training program. enterprise initiative Singapore also hosts regionally active impact investors financing IBs, such as LGT Impact and Bamboo Capital Partners. Thailand The Premier Group of Companies Thailand sources all food and service IB model requirements for its tourism resorts from social enterprises, which in turn engage with smallhold farms and other BOP communities. The Urmatt Group has engaged with over 3,000 smallhold farmers to produce IB model organic jasmine rice, chicken eggs, and coconut water, sharing the premium afforded to organic produce in domestic and export markets with farmers. It recently ventured into the Lao PDR, exporting its IB model and providing an example of cross-country IB expansion. Viet Nam Topica Edtech Group is a leading online education provider in Viet Nam and is IB model expanding into Southeast Asia, offering affordable, high-quality online degrees and English tutoring. Viet Nam is also host to extensive IB models in the coffee industry in a public– IB initiatives private partnership model facilitated by Grow Asia, reaching 20,000 farmers. BOP = base of the pyramid, IB = inclusive business, Lao PDR = Lao People’s Democratic Republic.
42. IB is still a relatively new concept in ASEAN, and only a few overview studies have been conducted at the country level. Most references to IB present only individual company experiences. ADB has conducted IB landscape studies on Indonesia, the Philippines, and Viet Nam, but there are no comparative IB studies across Asian economies. This makes this study the first regional overview of IB models, activities, and social enterprise initiatives in ASEAN.
43. This study used available background material as well as interviews with key informants from development banks and impact investors. Based on the information gathered, it developed data on existing IB models in ASEAN and estimated their future growth. While the estimates reflect the regional trend, the numbers should not be taken as absolute. For future comparisons and analysis, it is recommended that ASEAN help set up an IB database where information can be maintained and regularly updated, as well as an IB accreditation system based on the G20 IB framework so that business models in ASEAN can be clearly categorized and tracked.
A. Companies with Inclusive Business Models and Activities, and Social Enterprise Initiatives in ASEAN
44. The BOP not only have low incomes and/or suffer from precarious employment, they also face harsh daily realities because of limited access to basic goods and services. The BOP uses a large portion of their income for services that are being provided free of charge by the public sector in developed countries. Quality health, education, housing (including water and sanitation), and transport in ASEAN are mainly provided by the private sector, and these services are expensive compared to international price standards and in terms of percentage of income.
45. For most businesses, it is not easy to penetrate the BOP market in ASEAN given the high cost of last-mile distribution; unfamiliarity with the purchasing behaviors and living conditions of the poor; large informality of this segment; high perceived risk; and difficulties in finding ways to reduce prices, despite significant developments in promotion and delivery mechanisms due to the ICT revolution.
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46. Successful IB companies typically employ innovative approaches to improve or reimagine business processes, production, product development, pricing, and social impact targeting. Developing and implementing these innovations, however, takes time and incurs additional costs, which brings up the need for impact investors to complement investments with long-term support in the form of TA, regular dialogues with clients and BOP stakeholders to constantly improve the business model, and new ways of structuring project financing.
47. Unlike micro and SMEs, IBs are not registered as a separate class of companies, and information on IBs is nascent in ASEAN economies compared to, for example, India or Latin America. Hence, it is difficult to refer to other studies to estimate the market. Rather than repeating general observations, this study conducted estimates based on existing studies including ADB market-scoping studies, information from impact investors, interviews with key informants, and observations of the market trends.16 This study estimates in percentages, rather than absolute numbers, the growth of the IB market in ASEAN and the distribution among IB models, IB activities (focusing on strategic CSR investments), and social enterprise initiatives (focusing on social enterprise in the growth phase with proven financial returns and commercial sustainability).
48. In ASEAN, investments in businesses that provide more efficient and cheaper quality services to the poor are urgently needed. At the same time, significant underemployment in the region requires businesses that create income opportunities for the poor. While philanthropic giving is widespread in ASEAN, and governments are reforming their social service delivery mechanisms for the poor, these initiatives are not enough to improve the lives of large numbers of people in the BOP in a comprehensive way.
49. Compared to South Asia and Latin America, IB in ASEAN is still at the very early stages of development. Although market opportunities are huge, the actual number of IBs is still small. This study estimates that the number of mature, investment-ready IB models reached 90 in the region, and projects that this number will triple to over 300 companies by 2025. Further, the number of commercially viable social enterprises is expected to increase from 200 to more than 900 in 2025. Taking account of all IB approaches in the region, the number should grow by about 350% in the ASEAN region, from about 400 to more than 1,400. Figure 3 shows these projections, which should be considered indicative for the growth of the market segment.
Figure 3: Projection of Inclusive Businesses in ASEAN
ASEAN = Association of Southeast Asian Nations, IB = inclusive business, SE = social enterprise.
16 Note that the potential growth of IB in Myanmar was not incorporated into this study, as the major shift came only in 2017 due to the recent liberalization of the Myanmar economy. 27
Source: Author.
50. The majority of potential investments in IB models (i.e., 40%–100%) is expected to be small (i.e., $3 million–$15 million); 20%–30% are estimated to be medium-sized (i.e., $15 million– $50 million); and about 10% are large investments (i.e., over $50 million). This translates to a potential investment opportunities of $6.3 billion in the next 10 years, up from $1.8 billion by 2016 (Figure 4). Large, new opportunities for investment in IB are expected in Indonesia, the Philippines, and Thailand. Although there are also many social enterprises in need of investment, investment opportunities are much higher in IB. IB models are larger in scale and have greater commercial viability, whereas social enterprise initiatives often require smaller investments and grant funding.
Figure 4: Projection of Investment in Inclusive Business in ASEAN ($ million)
ASEAN = Association of Southeast Asian Nations, IB = inclusive business, SE = social enterprise. Source: Author.
Table 12: Projection of Inclusive Business Investment Opportunities in ASEAN
ASEAN = Association of Southeast Asian Nations, IB = inclusive business. aIB models are commercially viable companies with investment of $3 million–$50 million. For-profit social enterprise initiatives have investments of $0.2 million–$3 million. Data on IB models does not comprise multinational companies that have regional quarters. b$3 million–$15 million, average $8 million. c$15 million–$50 million; average $20 million. dMore than $50 million; average 80 million. eThe number of firms or nongovernment organizations that call themselves social enterprises is much higher than the number of commercially viable social enterprises. fInvestment data for social enterprises are culmulative for own-economy plus AMS. g$0.1 million–$0.5 million; average $0.2 million. h$0.5 million–$1.0 million; average $0.5 million. I$1.0 million–$3 million; average $1.5 million. Source: Author’s estimates based on ADB market-scoping studies and other information.
B. Inclusive Business Sector Trends in ASEAN
1. Agriculture
51. In most ASEAN economies, over half of the population is still dependent on agriculture and/or fishing, but work in these sectors is often paid very little, and decent income opportunities for farmers are few. This is because of the relatively low productivity, high risks, and long maturity for business investments in the agricultural sector. As a result, while many of the BOP depend on agriculture, and while farmers have strong business relations with traders and agribusiness companies, most of these engagement models do not provide solutions to poverty and inclusiveness.
52. IB models in agribusiness differ from traditional contract farming models. Only business models that substantially increase income opportunities for farmers, making strides to lift them out of poverty, can be considered IB. Given the generally low productivity levels in the sector, only selected agribusinesses achieve this goal. IBs innovate along their supply chain to engage more farmers with income opportunities higher than the market rate. They also innovate the products and markets, and often produce high-value, new, and essential food and nutrition products for export, creating higher income that they then share with their supplying farmers. One notable example is the growing organic market, which achieves premium pricing.
53. Contract farming, in which the purchasing company secures a guaranteed supply of agriculture products from farmers via sourcing and market agreements, is the most common arrangement employed by IB companies. Under such arrangements, the farmers also often obtain other benefits, such as skills training and access to loans and to farming inputs, which enables them to increase yields, the major driver toward a substantial increase in income.
2. Finance
54. IB in the financial sector has seen fast growth over the past decade, initially taking off because of the microfinance industry. Many investments in IB are in this sector because of the low coverage of formal financial intermediaries, and the low-cost opportunities for large volume by using ICT. The population share in ASEAN that has an account at a financial institution is low— 13% in Cambodia, 23% in Myanmar, 28% in the Philippines, and 36% in Indonesia.17 Based on these figures, only 3 out of 10 people in emerging and developing ASEAN economies save money in financial institutions.
55. Digital finance models are potential solutions to engaging the unbanked. Digital financing saves people time and money in receiving and sending money. It also builds financial records for these customers, which will also allow them to access credit more easily.
56. Moreover, there are only a few IBs in the insurance sector despite high need. Products for the BOP that cover health costs and livelihood insurance from crop shortfalls and accelerating environmental and climate change risks represent a potential area for IB development. The Japanese insurance company Sompo International has innovated an insurance model for rice farmers in Thailand. The biggest obstacles to creating and selling insurance products to the BOP are their low awareness about insurance policies and products, and a lack of reliable data and information available to them.
17 Oliver Wyman, ADB, and MicroSave. Accelerating Financial Inclusion in South-East Asia with Digital Finance. Manila: ADB. https://www.adb.org/sites/default/files/publication/222061/financial-inclusion-se-asia.pdf 30
3. Manufacturing
57. The manufacturing sector has few IB models. While most medium-sized and large companies in the manufacturing sector pay good wages and observe labor and environmental standards, innovations to pay better than the market rate are uncommon. The best examples for potential IB models would be in the furniture and garment industries. The garment industry could especially use more outsourcing models to provide income opportunities in rural areas. Artisan industries are more characterized by low income, but also have good potential for IB.
4. Housing
58. Between 21% (Indonesia) and 55% (Cambodia) of urban populations across ASEAN live in slums. 18 Along with rapid urbanization comes increasing urban poverty and informal settlements. Slum upgrading is typically a domain for public investments, but housing services for the poor are increasingly being provided by the private sector or through public–private partnerships (PPPs). In Indonesia, for example, about 1 million new homes are required, of which the private and public sectors have only built about 600,000.19 Urban housing shortage is also a major problem in Cambodia, the Philippines, and Thailand, and it is an emerging issue in Myanmar. In Viet Nam, high housing prices are the main reason for urban poverty and vulnerability.
59. While the market for low-cost housing is huge, investments are few because of perceived high investment risks, land disputes, lower commercial viability than traditional investments, and lack of innovative IB models that give sufficient financial and social returns. Successful companies like 8990 Housing Development Corporation in the Philippines and First Finance PLC 20 in Cambodia stress the importance of understanding BOP customers and the need to invest in their financial literacy to ensure mortgage or housing loan payments. If done correctly, cities in ASEAN present major opportunities for innovative IB models in housing (including water and sanitation) and transport services.
5. Health
60. In most developing ASEAN economies, health services delivered by the government are of lower standard than those delivered by the private sector. People in all income groups also accept that they have to pay out-of-pocket for quality health care. Retail of generic medicines at affordable prices, mobile clinics, and special facilities for maternal and child care are examples of health care services that have huge IB potential. More investments in PPPs, where at least part of the services are subsidized for the poorest clients, are promising solutions.
6. Education
61. While most ASEAN members have a comprehensive system for basic education, institutions and centers for tertiary education, especially technical and vocational training, are managed and operated largely by private entities. Innovative business models in this sector
18 ADB. 2016d. Key Indicators for Asia and the Pacific 2016. Manila. 19 World Bank. 2015. October 2015 Indonesia Economic Quarterly: In Times of Global Volatility. 22 October. http://www.worldbank.org/en/news/video/2015/10/22/october-2015-indonesia-economic-quarterly-in-times-of- global-volatility 20 A joint venture company established between locally incorporated First Finance PLC, Singapore-based PhillipCapital, and Luxembourg-based Insitor Impact Fund. 31 incorporate job placement in their programs, and reduce the risks of student loan provision by private banks.
62. Technology will be a major disruptive force in the education market benefitting the BOP. Online education will overcome obstacles that have previoulsy hindered this market, such as quality assurance and teaching materials, last mile delivery and affordability. Companies, such as Topica from Viet Nam is expanding from its home base and is already present in five ASEAN countries. Online education is also providing new income opportunities for the BoP, as Genashtim Innovative Learning shows, which engages persons with disabilities as online english tutors.
63. Offering low cost and affordable quality secondary education for the BoP thereby competing with the public school system is an inclusive business model developed by global education giant Pearson. It was brought to ASEAN in the form of the APEC schools in the Philippines and its growth showcases the potential private education has to be a profitable business while delivering profound positive social impact.
7. Energy
64. Last-mile energy solutions combine social impact with climate change adaptation and mitigation measures. Remote areas and islands are dependent on alternative decentralized energy solutions. Solar and wind systems, as well as small hydropower, present good opportunities for IB model development that will target the demand and purchasing power of the poor. In countries with high energy prices, such as the Philippines, these systems offer cheaper and often more reliable energy supply to poor households. New forms of PPPs and specific incentives for energy provision for the remote poor would be helpful for companies. Most IB companies in the sector, however, find that existing regulations limit investments in this space.
C. Social Impact of Inclusive Business
65. Estimating the market size for IB is difficult, and measuring the social impact is even more challenging. This is mainly because of the lack of impact assessment metrics for IB, tendencies to double-count and to inflate figures, and problems in the attribution of results. The nearest approximation is to find the number of people benefitting from IBs, especially when the IBs engage the poor as consumers of targeted goods and services (i.e., the IB reach). Measuring income generation opportunities via IB is even more difficult because of the lack of actual data, but informed assumptions can be used to arrive at sound estimates. To derive better-quality data, company monitoring, accreditation, and/or impact studies are necessary, and ASEAN could promote such activities.
66. This study made a number of assumptions: (i) The overview of social impact considers impact on the BOP in ASEAN economies. (ii) This study assumes that about 30% of IB models and 50% of IB activities were aimed at creating income opportunities for the BOP, while 40% of social enterprise initiatives were. Further, it is assumed that each IB model created about 15,000 new income opportunities, IB activities created 2,000, and social enterprise initiatives created about 700. With these assumptions and taking the previously estimated and projected number of IBs into consideration, more than 500,000 income opportunities were created by 2016 by all 400 IB approaches. By 2025, it is expected this will substantially increase to 1.8 million income opportunities, due to the larger number of IB approaches by then. 32
(iii) For product and service delivery, it is assumed that 70% of IB models, 50% of IB activities, and 60% of social enterprise initiatives engaged the BOP as customers. The lower number of BOP beneficiaries among social enterprises is derived from the observation that many social enterprises also worked with lower-middle-class people in rural areas, while their products are for the poor. Using this estimation, about 21 million people at the BOP were served by IBs in 2016, and this is projected to grow to more than 70 million people in 2025.
67. Although IB models account for only 22% of all IB approaches, they are responsible for 70%–90% of the impact due to their larger size (Table 13). This is due to the much higher engagement (i.e., reach) of the BOP in IB models compared to social enterprises or IB activities. For example, agribusiness-based IB models need to create scale in production; therefore, they often engage 3,000–20,000 farmers, while social enterprise models mostly work with much lower numbers, up to 500 people.
Table 13: Estimating Social Impact by Reach
Total Average BOP Total Number of BOP Reached Number of Reach per Job and Income Service and Product Companies % Engaged in Investment Creation Delivery Service Service Job and and Job and and Income Product Income Product 2016 2025 Creation Delivery Creation Delivery 2016 2025 2016 2025 IB model 91 312 30 70 15,000 300,000 409,500 1,404,000 19,110,000 65,520,000 IB 91 195 50 50 2,000 30,000 91,000 195,000 1,365,000 2,925,000 activities Social 235 905 40 60 700 10,000 65,800 253,400 1,410,000 5,430,000 enterprise initiatives All IB 417 1,412 566,300 1,852,400 21,885,000 73,875,000 BOP = base of the pyramid, IB = inclusive business. Source: Author.
D. Private and Public Sector Support for Inclusive Business in ASEAN
68. The following sections discuss the current situation to support IB in ASEAN, as provided by governments, investors, and business associations. In sum, the support for IB is still nascent, but governments and business associations find it increasingly interesting to engage with IBs and to provide specific incentives. Governments in some ASEAN members like Indonesia, the Philippines, Thailand, and Viet Nam have already come up with specific incentives for IB, and others, such as Myanmar, are discussing incentives. Singapore is actively promoting social enterprises.
1. Private Sector
69. Scaling, replicating, and mainstreaming IB approaches are three ways to advance IB. Scaling refers to the organic growth of an IB approach mainly in terms of reach. It accompanies business growth (i.e., increasing sales to or sourcing from the BOP). Replicating, in a narrow meaning, refers to the adoption of an IB model of another company in a partnership model with the original proponent, or the expansion of the model by the same company into another country or context. Mainstreaming is the widespread adoption of IB as the standard way of doing business.
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70. Replicating IB models across ASEAN countries is still rare. Replication of IB models across countries requires deep insight into local markets and building cooperation with local partners. Currently emerging are a few successful cross-country IB investments in agriculture (e.g., Urmatt Group moving from Thailand into the Lao PDR) and energy, which gives some optimism that model replication, at least through the same company, is achievable. Replication via a partnership model has not been documented yet in ASEAN, but examples in other regions exist, such as the transfer of the Aravind Eye Hospital in India to salauno in Mexico.
71. Multinational companies—some with regional headquarters in Singapore—are increasingly replicating and expanding their IB activities and models from initial pilots across ASEAN. Examples can be seen in the agribusiness sector, where multinational corporations such as Covestro, Mars Incorporated, Nestlé, Syngenta, and Unilever are stepping up efforts in developing and implementing IB in several ASEAN countries.
72. Social enterprise initiatives rarely replicate to other ASEAN members. Many remain small and, therefore, do not create social impact at scale. Moreover, most are also not interested in or not equipped to expand and replicate their models in other countries.
73. IB mainstreaming has yet to be seen in ASEAN. National business associations in the region are not yet very active in promoting IB. While they understand CSR and the need for responsible business, knowledge about IB is still low, which makes the adoption of IB beyond pioneering companies slow. Business awards and business networking events could be powerful formats to raise awareness of IB and to promote models for potential adoption and mainstreaming. The inaugural ASEAN Inclusive Business Award in 2017, supported by ADB, the ASEAN Business Advisory Council, Credit Suisse, and IFC is a good example of current efforts to promote IB in the region.
74. Companies are also increasingly willing to share IB experiences and lessons with other companies. For example, in Indonesia, large agribusinesses formed PISAgro in the Grow Asia initiative to promote inclusive agribusiness. In Myanmar, the Myanmar Agricultural Network started various initiatives to include IB in its working agenda. Twenty member companies now use this platform to align themselves to a common agenda of achieving social impact. Further, the Global Agribusiness Alliance, Inclusive Business Action Network, and Grow Asia are encouraging peer learning on IB models. Similar peer learning can be further encouraged by national business associations in each ASEAN economy.
2. Impact investors
75. There are just over 10 impact investment companies active in each country in Southeast Asia. Some of these investors, such as LGT Impact and SOW Asia, are active in ASEAN. The relatively low number of impact investing companies in the region shows that, contrary to the large size of existing BOP markets, impact investing is a nascent asset class in ASEAN. In fact, ASEAN has fewer impact investment companies than South Asia. While it is difficult to obtain data on the total impact investment portfolio in ASEAN, many of the impact investment companies are managing only a small number of investments. The sourcing of IB deals, particularly large IB deals, is still a challenge.
76. In ASEAN, many investment companies focus on early-stage capital, and often provide grant-financed incubation support with capital investments. This reflects the growing number of startups in the region and limited number of investment-ready IB deals. Nonetheless, investment companies like Bamboo Finance, LGT Impact, and LeapFrog Investments focus on more 34
established companies to help them grow further, mature, and reach scale. This is an indication of a good variety of financial instruments with sector and country focus that can support IB and social enterprise initiatives in ASEAN. Table 19 provides an overview of impact investing in ASEAN.
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Table 19: Overview of Impact Investing by Different Actors
Commercial Development Angel Investors/HNWIs Impact Funds Banks Banks Grants, debts, and equity Mostly equity, Mostly debts Mostly debts, some some debts equity, some TA Funding type grants Size of investment $0.05 million–$1 million $0.2 million–$3 $1 million–$200 $5 million–$100 per deal million million million Startups Startups and Established Growth phase scaling business lines Company stage companies Primary investment Impact first Impact and Financial return Impact and financial objective financial return return Number of actors Many Some Few Selected Share of total impact About 2% About 12% About 30% About 55% investments in the region Partly with GIIN, partly with Partly GIIN No Partly Impact investing in own networks, many not aggregate reporting published GIIN = Global Impact Investing Network, HNWI = high net-worth individual. Source: Author.
77. Various studies have shown that the market return of impact investing and investing in IB is at least equal to traditional investments. Figure 5 gives an overview of investment returns by GIIN-reported impact investing institutions globally.
Figure 5: Performance of Impact Investing Globally
Source: GIIN. Impact Investing. http://thegiin.org/impact-investing/
78. The figures above mainly represent impact funds, and barely capture investments made by commercial banks and development banks in IB, which account for the main volume of impact investments in IB. Hence, data cited by impact investment networks such as GIIN underestimate the total size of the transactions. This study estimates, therefore, that the majority of impact investments comes from development finance institutions and banks.
79. Impact investing is still a niche business for most banks. Of the 150 larger banks in ASEAN, this study estimates that only about 18 conduct some form of impact investing, and this 36
is estimated to be less than about 3% of their investment business. ASEAN’s commercial banks typically lack a specific objective to create social impact. Further, the high returns that commercial banks realize through investing in mainstream companies and government bonds do not help initiate a change in their objectives.
80. Local banks, therefore, represent a supply of potential impact investment capital that could play a much larger role in supporting IB as these mature financial providers become more familiar with their business models. Encouraging models have emerged in Singapore with the DBS Foundation and in the Philippines with the BPI Foundation, which sponsor social enterprise awards and thereby generate a pipeline for their commercial operations.
81. High net-worth individuals (HNWIs) typically have a net worth of more than $1 million, and ultra-high net worth individuals have over $50 million of wealth. In 2016, there were about 33 million millionaires on the world, up from 13 million in 2000. They own more than one-fifth of global wealth, and the richest 1% own half of all household assets in the world. After North America and Europe, the Asia-Pacific region has the third-largest number of HNWIs, with 4.9 million HNWIs (15% of the global total).21 Indonesia and Thailand have close to 150,000 HNWIs, with collective wealth of over $600 billion.22
82. However, very little of HNWI wealth is used for social impact investments. Most is invested in projects with cultural, environmental, and other social purposes that are not necessarily designed to benefit the poor. GIIN and JP Morgan estimate that the share of HNWIs in total impact investments in East and Southeast Asia is tiny (i.e., less than 1%), while foundations account for 6% ($216 million).23
83. Development finance institutions, such as ADB, Islamic Development Bank, and IFC,24 and bilateral development banks, such as CDC Group, KfW, PROPARCO, and SNV play unique roles as impact investors. They increasingly perceive IB deals as an investment opportunity for their private sector operations. Given their poverty eradication mandates, long-term views, and cost of capital, development banks are well placed to invest in IB and leverage private capital in blended finance models. While the provision of capital is important, there is great potential for development banks to act more broadly and assist the entire IB ecosystem.
84. IFC, the private sector arm of the World Bank, has been the most active impact investor. Since 2006, IFC has committed more than $14 billion to IB, and has invested in more than 450 companies with IB initiatives in over 90 countries. Of the $14 billion IB investment, $3.19 billion went to East Asia and the Pacific.25 In addition, ADB committed funding to eight IB projects in 2017, and two IB projects with committed funding in 2016.26
85. Corporate venture funds are the latest newcomer to the field of impact investors. One of the largest Thai companies, Charoen Pokphand, recently launched an impact fund to invest in social enterprises, joining a global trend of corporate venturing.
21 Credit Suisse Research Institute. 2016. Global Wealth Report 2016. Zurich. http://publications.credit- suisse.com/tasks/render/file/index.cfm?fileid=AD783798-ED07-E8C2-4405996B5B02A32E 22 Capgemini and RBC Wealth Management. 2015. World Wealth Report 2015. Paris. 23 The amount channeled by HNWIs to social enterprises and IBs may be higher, but data are difficult to find. 24 The Inter-American Development Bank is a key promoter of impact investments in Latin America. It ran its Opportunities for the Majority Initiative from 2007 to 2015 and invested more than $400 million in 60 IBs. 25 International Finance Corporation (IFC). Inclusive Business. http://www.ifc.org/wps/wcm/connect/Topics_Ext_Content/IFC_External_Corporate_Site/Inclusive+Business 26 ADB.2018. 2017 Development Effectiveness Review. Manila. 37
3. Public Sector
86. IB policy making has gained recognition only recently, as policy makers are increasingly realizing how IB can help fulfill and accelerate the achievement of public policy objectives. Companies, however, are often discouraged in investing in IB because of the high cost of entry, long investment time horizon, and high risk and uncertainty. Over the years, IB policies have emerged globally and in a few ASEAN economies that seek to remove these barriers.
87. Highlighting the challenges in developing IB policies, a recent Donor Committee for Enterprise Development study pointed out that setting up an enabling environment for IB is a complex undertaking. It found that [it] cannot be easily addressed based on generic recommendations and checklists. While many “standard” regulatory reforms to stimulate private investment are likely to benefit IB as well, the market entry and scaling up of innovative IB models will often require additional, tailor-made government responses based on an assessment of the target sector, and the needs of individual businesses. There are, however, lessons or effective alternatives for promoting IB that are emerging from the wider field of targeted policies for private sector development.27
88. Some examples of traditional business environment reforms for private sector development that also support IB are simplifying business registration and licensing, enabling better access to finance for SMEs, improving land titles, broadening public–private dialogue, and developing appropriate quality standards.
89. According to the Donor Committee for Enterprise Development study, the most effective targeted government interventions are using public–private dialogue as a feedback mechanism; establishing clear economic rationale for intervening, in addition to social objectives; favoring support to subsectors, activities, or technologies over individual firms; and making support time-bound and conditional based on performance. While preferential procurement may be effective if implemented well, mandatory inclusion rules are ineffective in promoting IB.
90. Governments, as well, can promote IB by setting up better enabling business environments. While IB is subject to specific private sector investments and typical business challenges in emerging economies, governments can establish rules and regulations that will enhance access to financial resources and/or provide financial incentives, provide relevant information and raise awareness of IB, and strengthen the capacity of both the BOP and IBs.
91. Governments in ASEAN have already set up specific IB promotion institutions, policies, and programs to develop an enabling ecosystem for IB. Below are examples. (i) Brunei Darussalam’s SME development support includes promoting social enterprise. (ii) In 2016, the Government of Indonesia established the Inclusive Business and Innovation Task Force under the Coordinating Ministry of Economic Affairs. Supported by ADB, the task force conducts IB market scoping for targeted agriculture and forest products. (iii) Indonesia, the Lao PDR, Malaysia, and Thailand have strong CSR laws and
27 M. Heinrich-Fernandes. 2016. How to Create an Enabling Environment for Inclusive Business? London: Donor Committee for Enterprise Development. http://www.enterprise-development.org/wp- content/uploads/DCED_Creating_An_Enabling_Environment_For_Inclusive_Business.pdf 38
requirements to encourage greater disclosure of corporate environmental, social, and governance performance, which could provide a template and stepping stone toward promotion policies for IB. (iv) Malaysia’s Inclusive Innovation Programme supports the development of products and services for the BOP and is integral part of its SME development master plan. (v) The Myanmar Investment Commission, a body chaired by the Ministry of Planning and Finance with support from the Ministry of Commerce and selected sector agencies, is considering a strategic framework paper on IB.28 (vi) The Philippines has the most elaborate IB promotion framework. Here, IB was integrated in the Philippine Development Plan, 2017–2022, and the Department of Trade and Industry approved tax incentives for IB under its Investment Priorities Plan, 2017–2019, making it the first ASEAN member to develop IB-specific policy in line with the government’s agenda of promoting rural and agricultural value chain development. The Board of Investments also performs a kind of IB accreditation to identify eligible companies with IB-related business plans. (vii) Singapore has institutionalized support for social enterprises providing identification, funding, research, incubation, and funding services for domestic social enterprises, which could serve as an example for IB promotion in other ASEAN countries. At the same time, it could extend support to Singaporean companies with IB models implemented outside of Singapore. (viii) Thailand has an active social enterprise promotion policy, including funding for social enterprise initiatives. It is considering the Social Enterprise Promotion bill, which could, depending on its final form, encourage more companies to adopt IB models. (ix) In Viet Nam, the Ministry of Planning and Investment is considering including IB in its SME promotion policies.
92. Many economies in ASEAN do have strong CSR policies in place, which—considering that CSR is becoming more strategic and could potentially develop into IB activities—can support the emergence of IB models. Policies supporting social enterprises have the potential to be used as best practices for IB policies, as well.
93. Various measures relating to IB along the spectrum of government interventions have been developed, providing opportunities for shared learning and development of best practices. Indeed, the G20 IB framework outlines four areas of policy intervention: rules and regulation, capacity development, information and knowledge promotion, and finance (Tables 15–18).
28 The paper was written as part of a market-scoping study prepared by the DaNa Facility, a promotion program for responsible and inclusive private sector interventions, funded by the Department for International Development of the United Kingdom. 39
Table 15: Government Programs to Support Inclusive Business—G20 Framework I, Establishing Conducive Rules and Regulations
1. Review existing regulations that limit BOP participation in market activities. 1.1 Legal framework for market participation of the BOP Mexico: Flexible requirements to open low-value, low-risk accounts Mexico: Simplified rules to encourage formalization of businesses in the information sector Mexico, Philippines: Adjusting financial service regulation for mobile operators 2. Embed pro-poor targets into government contracts 2.1 PPPs and concessions Philippines: Partnering to bring water to BOP communities Canada: Include CSR activities in trade agreements 3. Introduce appropriate regulations for IBs 3.1 Legal framework for businesses with a social mission United States: Benefit corporations, low-profit limited liability companies, social purpose corporations Canada: British Columbia Ministry of Finance, community contribution company Republic of Korea, Taipei;China: Certification schemes for social enterprises People’s Republic of China: Accreditation for IB agribusiness and financial incentives Colombia: Public policy for social and productive inclusion Taipei;China: Social enterprise action plan Thailand: Social Enterprise Bill (pending) Philippines: Social Enterprise and IB bills (pending) BOP = base of the pyramid, CSR = corporate social responsibility, IB = inclusive business, PPP = public–private partnership. Source: G20. 2016. G20 Inclusive Business Report for the 2016 Summit. http://www.g20.utoronto.ca/2016/inclusive- business-report.pdf
Table 16: Government Programs to Support Inclusive Business—G20 Framework II, Enhancing Access to Financial Resources and Providing Financial Incentives
4. Improve access to financial resources for the BOP 4.1 End-user subsidies Colombia: Subsidized student loan rates for low-income students pursuing higher education 4.2 Insurance programs Mexico: Public insurance fund, Agroasemex, extends insurance to rural smallholder practices Philippines: The Insurance Code allows cooperatives providing insurance to also register for insurance purposes 4.3 Credit facilities Mexico: Subsidized housing mortgage credits 5. Enhance access to financing for IBs and provide financial incentives 5.1 Challenge funds and matching grants Australia, Canada, United States: AgResults incentivized innovation in agriculture, health, and nutrition Australia: Enterprise Challenge Fund for Pacific and South East Asia Mexico, Republic of Korea: Grants and matching grants Canada: Social Enterprise Demonstration Fund Hong Kong, China: Social Innovation and Entrepreneurship (SIE) Development Fund 5.2 Public procurement Chile: Opening up government procurement markets to micro and SMEs Canada: Public procurement rules that give preferential treatment to businesses operated by disadvantaged groups People’s Republic of China: Preferential procurement policies for SMEs in an effort to support SME development Republic of Korea: Programs to increase SME participation in government procurement 5.3 Priority lending programs 5.4 Credit guarantees Global: Mobilizing private sector investment in infrastructure 5.5 Emerging instruments: factoring, financing-leasing, equity financing Canada, United States: Laws that reduce barriers to allow foundation to invest capital in mission-aligned investments 40
Canada, Mexico, Republic of Korea: Improved access to financing and insurance services Australia, Japan: Social impact bonds Republic of Korea: Tax incentives Philippines: Tax incentives for agribusiness IB models in the context of the Investment Priorities Plan Mexico, Republic of Korea: Subsidies and other nontax incentives BOP = base of the pyramid, IB = inclusive business, SMEs = small and medium-sized enterprises. Source: G20. 2016. G20 Inclusive Business Report for the 2016 Summit. http://www.g20.utoronto.ca/2016/inclusive- business-report.pdf
Table 17: Government Programs to Support Inclusive Business—G20 Framework III, Providing Information and Raising Awareness
6. Compile and share BOP market data 6.1 BOP market data Global: International Finance Corporation Global Consumption Database Canada: Data on low-income communities for market research, intelligence, and diagnostics 7. Provide information to the BOP 7.1 Awareness raising with the BOP 8. Raise awareness on IB 8.1 Award programs Global: G20 Challenge on IB Innovation Australia, Canada, Republic of Korea, ASEAN: IB awards Canada, Republic of Korea: Awareness campaigns and information about IB-related services of the government 8.2 Research on models Global: United Nations Development Programme Growing Inclusive Markets Initiative Australia, Canada: Research aimed at identifying new IB cases, opportunities, and enabling technologies Viet Nam, Philippines, Indonesia: ADB IB country studies 8.3 Forums for peer learning, such as Strengthening the Capacity of the BOP and of IB Colombia: Creating a network for learning around IB Global: The Practitioner Hub for IB, an online forum Global: IFC’s IB Leaders Forum Mexico, Republic of Korea: Peer-to-peer learning and public–private dialogue for improved information sharing on IB Russian Federation: Forum on Social Business APEC: High-level dialogues ADB = Asian Development Bank, ASEAN = Association of Southeast Asian Nations, BOP = base of the pyramid, IB = inclusive business, IFC = International Finance Corporation. Source: G20. 2016. G20 Inclusive Business Report for the 2016 Summit. http://www.g20.utoronto.ca/2016/inclusive- business-report.pdf
Table 18: Government Programs to Support Inclusive Business—G20 Framework IV, Strengthening the Capacity of the Base of the Pyramid and of Inclusive Businesses
9. Align vocation training for the BOP with private sector needs 9.1 Vocational training programs Republic of Korea: Meister high schools providing skills development Canada, Mexico: Skills development and vocational training 10. Implement projects in partnership with the private sector People’s Republic of China: Improving education through partnerships Australia, Canada, Republic of Korea, Japan: Development partnerships and PPPs with IB focus Mexico, Republic of Korea: Consulting and TA 11. Support business services for IBs 11.1 Align business development services Peru: High-quality standards and monitoring for smallhold coffee farmers BOP = base of the pyramid, IB = inclusive business, PPP = public–private partnership, TA = technical assistance. Source: G20. 2016. G20 Inclusive Business Report for the 2016 Summit. http://www.g20.utoronto.ca/2016/inclusive- business-report.pdf 41
94. Having a functioning institutional system for IB support, with clear government anchors and actively funded programs, as in the Philippines, is an important condition for the success of IB policy development and establishment of an enabling IB ecosystem. This study recommends that ASEAN economies institutionalize IB, and that ASEAN—as a regional institution—create a common IB framework to monitor the implementation of IB institutionalization, IB models, and IB activities.29
95. The following institutions in ASEAN are already leading or could potentially lead in IB development: (i) Brunei Darussalam, DARe (Darussalam Enterprise); (ii) Cambodia, Ministry of Industry and Commerce; (iii) Indonesia, Task Force for Inclusive Business and Innovation under the Coordinating Ministry of Economic Affairs; (iv) the Lao PDR, SME Promotion in the Ministry of Planning and Investment; (v) Malaysia, Malaysia Global Innovation and Creativity Centre; (vi) Myanmar, Directorate of Investment and Company Administration under the Ministry of Finance and Planning; (vii) Philippines, Board of Investments, Department of Trade and Industry; (viii) Singapore, Singapore Centre for Social Enterprise; (ix) Thailand, Thai Social Enterprise Office (currently being reorganized); and (x) Viet Nam, SME Promotion in the Ministry of Planning and Investment.
IV. THE RELEVANCE OF INCLUSIVE BUSINESS TO ASEAN
96. The ASEAN Community Vision 2025 places the realization of a people-oriented and -centered community at the core of its vision.30 IB is not only business for and with people, it is the deliberate promotion of inclusiveness, as it puts the BOP at the core of its business model by providing higher income opportunities, and affordable and relevant products and services at scale.
97. IB can support many aspects of the vision of the ASEAN Economic Community (AEC) Blueprint 2025.31 IB is the private sector’s contribution to more equitable and inclusive economic growth in ASEAN. It narrows the development gap, is the main private sector contribution to reduce income and social poverty, and sustains high growth rates of per capita income through its social impact focus on the BOP.
98. Micro and SMEs are important contributors to economic growth in ASEAN economies. As previously stated, they account for more than 95% of all business establishments, and are responsible for about 23%–58% of local gross domestic product.32 IB offers an innovative, private sector-led approach that supports the recognized need to link SMEs, vertically and horizontally, with enterprises, traders, suppliers, manufacturers, and consumers within ASEAN member states and trade partners so that by enhancing their market access and paving the way for their internationalization, SMEs are able to take advantage of the trade and investment opportunities and benefits from regional economic integration.33
29 The G20 IB framework has not yet captured the institutionalization of government support for IB. 30 ASEAN Secretariat. 2015a. ASEAN 2025: Forging Ahead Together. Jakarta. 31 ASEAN Secretariat. 2015b. ASEAN Economic Community Blueprint 2025. Jakarta. http://www.asean.org/storage/images/2015/November/aec-page/AEC-Blueprint-2025-FINAL.pdf 32 ASEAN Secretariat. 2015c. ASEAN Strategic Action Plan for SME Development 2016–2025. Jakarta. 33 ASEAN SME Service Center. About Us. http://www.aseansme.org/aboutus 42
99. IB delivers financial returns and social impact at scale and can therefore create a bridge between the visions of the AEC and ASEAN Socio-Cultural Community in terms of private sector contribution to improving the quality of life of the population in ASEAN. IB addresses the concerns of poverty eradication; decent work; and equitable access to entrepreneurship, finance, education, and information. It also includes in its approaches social enterprise and CSR initiatives, which were identified in the ASEAN Socio-Cultural Community Blueprint 2025 as implementing partners.
100. IB is a private sector contribution to the Sustainable Development Goals, which complement the blueprint as well. An increasing number of companies globally and in ASEAN are rallying behind the call to achieve the Sustainable Development Goals, as they increasingly realize that business really needs the Global Goals: they offer a compelling growth strategy for individual businesses, for business generally, and for the world economy. Second, the Global Goals really need business: unless private companies seize the market opportunities they open up and advance progress on the whole Global Goals package, the abundance they offer won’t materialize.34
101. ASEAN can engage with existing IB platforms and associated discussions in G20 and the Asia-Pacific Economic Cooperation (APEC). It can also engage closely with promoters of the IB agenda such as ADB, IFC, the Organisation for Economic Co-operation and Development, Inclusive Business Action Network and the Business Call to Action Programme. On a firm level, strategic engagement with global multinational companies in developing IB models could help broaden the commitment in ASEAN to sustainable sourcing and responsible investments.
102. IB has the potential to become the point of convergence between the AEC and private sector toward a people-oriented and -centered ASEAN community. IB promotion can bring a new dimension to the PPP discussions beyond infrastructure investments. PPPs in IB are ideally situated to leverage the strength of both sectors to achieve economic and social development. Grow Asia, a multi-stakeholder partnership platform that catalyzes action on inclusive and sustainable agricultural development in Southeast Asia, is a prime example of a successful PPP approach in collaboration with ASEAN, which has now scaled up to five country partnerships.
103. Official development assistance, TA, and funding to ASEAN members from development partners are increasingly targeted toward private sector initiatives, as in the case of Department of Foreign Affairs and Trade, Government of Australia programs. Merging private sector dynamics with government objectives of poverty reduction and inclusive development is a new opportunity for attracting new development finance to emerging Asia.
104. Under the theme of ASEAN Women: Leading Change, women in trade and IB programs have been promoted by ASEAN in 2017. ASEAN aims to promote women entrepreneurship and women’s involvement in micro and SMEs by helping address constraints in accessing markets, assets, and finance that limit their participation in the economy, international markets, and global value chains. Moreover, ASEAN seeks to help identify and share best practices and case studies of innovative and IB models; gender-sensitive businesses; and other new ways of thinking that integrate and support women’s participation as consumers, sellers, suppliers, distributors, and workers.
34 Business and Sustainable Development Commission. 2017. Better Business, Better World. London. https://www.unglobalcompact.org/docs/news_events/9.3/better-business-better-world.pdf 43
105. In summary, IB in ASEAN is developing into a major force for inclusive and sustainable development. IB extends viable opportunities for ASEAN to deliver positive economic and social impact at scale, as more businesses begin to implement IB models, a growing number of investors and financial institutions develop special funds for social impact, and governments establish enabling environments through IB promotion policies and programs.
A. Contributions of Inclusive Business to the ASEAN Economic Community Blueprint 2025
106. IB contributes to all four characteristics of the AEC Blueprint 2025 as outlined below.
107. Highly integrated and cohesive economy. Financial inclusion is at the core of IB models in the finance sector. Innovative, weather-based, micro crop insurance in Thailand developed by a Japanese insurance company, and mobile money schemes in the Philippines, are two examples of such models. Access to finance and financial literacy for micro and SMEs in the agricultural value chain are key components often developed and facilitated by IB companies, as in the case of cacao farmers in Indonesia and the Philippines.
108. Competitive, innovative, and dynamic ASEAN. For IB models to be successful, they need to be innovative in addressing the markets of the BOP as well as business risks related to such investments. Hence, companies with IB models typically use innovation as a key driver of their business success. IB innovation often goes beyond technical innovation and ICT, and includes innovative financial structuring of the investments, business process innovations, social innovations, and environmental innovations. (i) IB companies strengthen the competitiveness of micro and SMEs through the application of science and technology tools and methodologies, such as the development of solar home systems and their subsequent distribution to the BOP through micro entrepreneurs. (ii) Social entrepreneurship is growing in popularity, and is increasingly supported by academic programs. These offer career paths to meaningful entrepreneurship and social innovation. Business incubator programs for social entrepreneurship that offer awards, funding, and business support are also thriving in Malaysia, the Philippines, Singapore, Thailand, and Viet Nam. (iii) IB in agriculture often contains strong capacity-building elements (e.g., financial literacy training, productivity training, and establishment of market linkages) to develop farmer entrepreneurs .
109. Enhanced connectivity and sector cooperation. Innovative e-commerce and logistics solutions can enable IB models to connect farmers and micro entrepreneurs directly with their consumers, removing middlemen in farm-to-table or artisan-to-consumer models. (i) Many IB models are in renewable energy, which is crucial to achieving access to energy for all. Solar home systems and biomass cookstoves are two examples of technologies developed for and distributed to the BOP through IB models. (ii) IB models broaden agricultural value chains. The majority of IB companies are in agribusiness, which creates the largest employment and income impact of all IB models. Given that still more than half of ASEAN’s population lives in rural areas and is dependent on agriculture, IB in agribusiness is crucial in promoting the ASEAN agenda of more inclusive economic growth. These IB models develop sustainable value chains that contribute to increasing the productivity of smallholder farmers through targeted TA. 44
(iii) IB models in tourism have been developed in ASEAN, in which local communities connect directly with tourists, and resorts directly source products and services from local communities or indirectly through social enterprises. (iv) IB companies in the health care sector offer affordable products (e.g., generic drugs) and services (e.g., maternal health delivery). (v) IB models in education, particularly in technical training, are closely linking their education curriculum to the demands of the private sector, placing students in decent jobs.
110. Resilient, inclusive, people-oriented, and -centered ASEAN. Some IB models are triple-bottom-line models and include environmental goals in their missions, which contribute to sustainable development in ASEAN. IB models, by definition, focus on including the BOP in social and economic development through private sector solutions. Strengthening the role of the private sector under the ASEAN Business Advisory Council can ensure the dissemination and mainstreaming of IB in ASEAN economies. (i) Agricultural and agro-forest products based on certified organic and sustainable farming demand a premium price in retail markets. This translates to higher income shared with farmers, as demonstrated by IB companies based in the Philippines and Thailand. (ii) Official development assistance, TA, and funding from development donors are increasingly targeted to private sector IB initiatives to narrow the development gap in ASEAN. (iii) The promotion of more strategic CSR activities, which integrate social impact and inclusiveness into core business processes, could eventually scale up to become IB models.
B. Importance of Inclusive Business to ASEAN’s Micro, Small, and Medium-Sized Enterprise Agenda
111. As in most regions in the world, IB models in ASEAN are mostly implemented by highly productive and innovative medium-sized to large companies, which, by definition, puts some of them inside of the micro and SME category. Multinational companies are often engaged in shared value propositions and strategic CSR initiatives leading to IB activities. However, micro and mainstream SMEs, although often working in the markets of the poor, do not predominately employ IB models that make the BOP part of the value chain. To be relevant for them, such solutions must be innovative to address risk, small margins, peculiarities of the markets, affordability, and consumption behavior of the BOP.
112. As important as it is to distinguish conceptually IB from other modes of private sector engagement in development, it is equally vital to highlight the connection points between them and to discern how those concepts contribute to IB. While IB models are mostly employed by medium-sized to large businesses, micro and SMEs are also linked to IB through (i) Micro and SMEs that are part of the value chain of IB models. Indofoods supported the establishment of small enterprises that produce semi-finished products from agricultural produce sourced from smallholder farmers. It also engages over 50,000 micro entrepreneurs in retailing and distributing its products. (ii) Social enterprises that predominantly start as small businesses. These can potentially scale up into IB models (see footnote 2). (iii) Subsistence farmers. They could become micro entrepreneurs, as exemplified by Jollibee Group Foundation’s Farmer Entrepreneurship Program in the Philippines. The program has enabled over 1,000 farmers to supply market-grade 45
vegetables to fast food giant Jollibee, by providing them capacity building and by organizing them into functional and self-managing groups to engage with big corporate clients.
C. Supporting the ASEAN Strategic Action Plan for SME Development, 2016–2025
113. A review of the ASEAN Strategic Action Plan for SME Development, 2016–2025 underscores the high level of alignment between it and the IB agenda. The following actions could be further initiated in plan to promote IB in ASEAN.
1. Strategic Goal A: Promote Productivity, Technology, and Innovation
114. Productivity, technology, and innovation are at the heart of successful IB models. For example, productivity increases are evident in IB models in the agribusiness sector where they are the main contributor to significant income increases for smallhold farmers. Knowledge of good agricultural practices, planting material, and farming inputs can increase income manifold even in commodity crops, such as coffee and cacao, in which prices are set by global markets. Promoting more innovation for success in IB models requires changes at the level of various actors, as outlined below.
115. At the business level: (i) Companies with IB models are at the forefront of technology development benefiting and sought after by the BOP, providing innovative products and services, like solar home systems and micro grids that enable access to energy. The last-mile distribution of such products and services are often performed by micro enterprises providing income opportunities. Initiatives, such as Grow Asia’s inclusive agribusiness country programs, are examples in which IB is the theme, bringing together the private and public sectors in roundtables to improve the use of technology and to identify drivers for innovation. To enhance productivity, innovations are needed at the levels not only of product and service development but also in the business model itself. Micro and SMEs, and especially family-owned IB models, can have a strategic advantage to innovate due to their ability to rapidly adapt changes. (ii) Technology is a key driver for successful IB model development and implementation. ICT innovations have been employed in providing access to finance to millions of previously unbanked people through mobile money. Micro entrepreneurs have increased their income through retailing such mobile money funds. Energy innovations have also provided millions access to energy through solar home systems, often retailed by micro entrepreneurs. The leverage effect of product and service innovations that benefit the BOP are tremendous, as the last-mile distribution of such solutions is also leading to income opportunities for micro and SMEs. (iii) The government and companies can promote micro and SMEs as part of the value chain of larger companies promoting an IB model. For example, Indofoods engages with more than 50,000 micro entrepreneurs retailing and distributing its products.
116. At the investor level, productivity, technology development, and innovation needs to be financed. Impact investment is an emerging asset class on the verge of becoming mainstream, seeking investment opportunities with financial return and positive social impact. The impact 46
investment sector is well organized in global and regional networks, providing access to identify funding sources and best practice models. ASEAN can unlock this capital investment opportunity through the promotion of IB.
117. At the ecosystem level, institutional support for promotion of IB-related productivity, technology, and innovation is developing in ASEAN through the following. (i) The ASEAN Business Awards established a special category, IB, in 2017, raising awareness of and promoting IB in ASEAN. (ii) Micro entrepreneurs in the value chain of companies with IB models can be capacitated by NGOs and incubators to contribute to IB value chains and thus increase the income opportunities of their poor clients. The skills training provided by IB companies is often documented and shared in case studies and through networks such as Business Call to Action and the Inclusive Business Action Network.35 (iii) Under the theme of IB, a thriving ecosystem of challenges, incubators, and accelerators has developed globally and in ASEAN supporting small social enterprise initiatives with the potential to scale up to become IB models. Set up by donor organizations (e.g. the Inclusive Business Accelerator Vietnam by SNV); impact investment platforms (e.g., Impact Accelerator IIX by Impact Investment Exchange in Singapore); and academe (e.g., Global Social Venture Competition organized by Thammasat University in Thailand), they provide support for early- and growth-stage social enterprise initiatives and incentives and support for young entrepreneurs.36 (iv) IB, notably through the social enterprise initiative approach, is an attractive theme for business–academe collaboration. Many universities in ASEAN already offer social entrepreneurship courses, attracting students to entrepreneurship. Some courses even have the objective to kickstart small businesses with social impact. Next to teaching, research into social entrepreneurship is conducted by universities such as the National University of Singapore, which has partnered with the DBS Foundation to host DBS–NUS Social Venture Challenge Asia, attracting submissions from over 700 social enterprises and collaboration with multinational corporations such as Unilever.
2. Strategic Goal B: Increase Access to Finance
118. Access to finance is also a key topic for IB, both its own funding and that for the value chains that include micro and SMEs.
119. For its own funding, an asset class of impact investment has emerged, serving the market with debt and equity products. For value chain financing, IBs seek custom-made financing targeted at its value chain participants. For example, Kennemer Foods International in the Philippines co-created, with a public finance institution, a specific cacao loan that fits the needs for the farmer entrepreneurs in terms of size, tenure, and interest rate. As IB models often include guaranteed market access, they reduce the risk of financing, making them attractive partners for financial product development and deployment. Impact financing offers a unique and innovative opportunity for companies with IB models to receive funding outside of the traditional banking community.
35 Business Call to Action. About Us. http://www.businesscalltoaction.org/about-bcta; and Inclusive Business Action Network. http://www.inclusivebusinesshub.org/micro-site/inclusive-business-action-network/ 36 SNV. SNV Vietnam. https://iba.ventures/snv-vietnam/ 47
120. Impact investment is an emerging asset class with much room for growth in ASEAN. It complements traditional banking community products with emphasis on social impact next to financial return. Integrating impact investment in studies, roundtables, and policy discussions, and raising awareness for this kind of funding among stakeholders, will lead additional flows of investment into the region. Additionally, multilateral financing institutions, such as ADB, are considering blended finance models to facilitate private sector investment in IB and can be engaged on a national level.
121. One action line of SAPSMED (B1.2-2) already explicitly includes IB by mentioning BOP funds: “Organising business matching events of local SMEs and investors including angel investors, venture capital companies, BOP (Base of the Pyramid) fund, individual, etc.” IB- matching events are already being organized by various IB stakeholders in the region, such as IIX and ADB, and can be integrated on a national or sector level.
122. Financial inclusion and literacy are key components of IB models. Mobile phone operators have developed IB models to offer financial products to the unbanked population and micro enterprises. Financial literacy programs are often part of capacity building in IB models to enhance the ability of the BOP and micro enterprises to transact with a company as well as to ensure that the increased income is spend in a responsible way. IB companies often develop specific access to finance and financial literacy programs for micro entrepreneurs in the value chain.
3. Strategic Goal C: Enhance Market Access and Internationalization
123. Market access and internationalization for micro and SMEs can be ensured through companies with IB models through their integration into the value chain. For example, companies in the agricultural commodity market, such as Nestlé, are scaling up IB models in ASEAN, reaching over 100,000 BOP farmers. Indeed, IB offers partnerships on many different levels between multinational corporations with micro and SMEs. IB companies can be seen as the gateway for micro and SMEs into international markets assuring shared value.
124. Business associations are also increasingly promoting IB, as, for example, the ASEAN Business Awards. Such awards, as well as global knowledge platforms, will raise the awareness of IB in micro and SME development and subsequently lead to a higher adoption rates of such models.
125. E-commerce offers unique opportunities for IBs to connect micro and SMEs directly with customers, such as through farm-to-table models. Combined with enhanced and sophisticated last-mile logistics models, middlemen can be removed from the value chain, and a larger share of the added value remains, with micro and SME producers increasing their income.
126. IB models are characterized by high productivity. To ensure high quality, however, IB companies must emphasize the quality of the product and spend considerable own-resources for capacity development in their supply chains and for rationalizing business processes. They are also investing more in risk mitigation. Many IBs also follow international certification systems to achieve higher prices in the international markets, which can then be shared with value chain participants.
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4. Strategic Goal D: Enhance Policy and Regulatory Environment
127. Developing an enabling policy and regulatory environment for IB is a major initiative of the international community to facilitate and scale up the private sector’s contribution to inclusive growth. The G20, supported by United Nations Development Programme and IFC, developed its IB framework in 2015 and launched the Global Platform for Inclusive Business37 in 2016, which opened it up to non-G20 countries. ASEAN members, such as the Philippines, have already contributed to the policy discussion under this platform. The potential to collaborate under this platform opens opportunities for IB knowledge sharing and capacity building, and for strengthening intergovernment and intragovernment cooperation around IB.
5. Strategic Goal: Promote Entrepreneurship and Human Capital Development
128. Social enterprises offer unique and meaningful entrepreneurial opportunities, especially to young people and women in ASEAN. An increasing number of educational institutions are offering social enterprise courses, and organizations are setting up social enterprise competitions at the national, regional, and global levels that provide incentives to engage in such activities. The promotion of entrepreneurship and human capital development through TA is extended by IB companies to micro and SMEs as an inherent part of the IB model. Such capacity development entails the establishment of strong value chain relationships and partnerships around product and service knowledge, financial literacy, automation, mobile communication, and value formation among IB partners.
V. RECOMMENDATIONS TO PROMOTE INCLUSIVE BUSINESS AS PART OF ASEAN’S INCLUSIVE GROWTH AND MICRO AND SME AGENDA
129. IB is emerging as a private sector contribution to achieving the AEC vision of a “resilient, inclusive, people-oriented, and -centered community.” Since the term “IB” was coined in 2005, IB models have been developed and implemented globally, leading to more inclusive growth. IB models leverage the huge opportunity to engage with BOP markets in ASEAN, which cover over 300 million people across the region.
130. IB can also make key contributions to strengthening micro and SMEs and the private sector, narrowing the development gap within and across countries, opening new areas for PPPs, and achieving the targets set by the Sustainable Development Goals. Governments, international institutions, and investors in ASEAN are beginning to recognize the potential of IB in fostering more inclusive economic growth and developing enabling environments for IB in the region. While IB ecosystems have already begun to develop in ASEAN, IB is still far from reaching its full potential, however, and requires greater and strategic support by governments, businesses, and other business development actors.
131. The promotion of IB in ASEAN should be institutionalized and championed by the ASEAN Coordinating Committee on Micro, Small and Medium Enterprises, recognizing that IB is a means to achieve its strategic goals. It should be organized along the five strategic goals under the strategic action plan for SME development (Table 19).38
37 G20. 2016b. G20 Inclusive Business Report for the 2016 Summit. http://www.g20.utoronto.ca/2016/inclusive- business-report.pdf 38 ASEAN Secretariat. 2015c. ASEAN Strategic Action Plan for SME Development 2016–2025. Jakarta.
Table 19: Five Strategic Goals under the Strategic Action Plan for Small and Medium Enterprise Development 2025
Country Strategic Goal Champions Notes A: Promote productivity, Thailand, Viet Nam IBs could be supported in their development of innovative technologies and provision of capacity building technology, and innovation to the BOP and micro and SMEs along the value chain, which lead to significant productivity, subsequent income increase, and improvement in quality of life. The public sector programs of ASEAN members that target the BOP (e.g., agricultural outreach programs) could be reviewed to integrate IB in a PPP model. A thriving ecosystem of stakeholders supporting IB is emerging in ASEAN members, and should be tapped to leverage IB models and activities. B: Increase access to Malaysia, Lao PDR IBs could be supported in their efforts to provide or facilitate access to finance for the BOP and micro and finance SMEs. The significant contributions of IBs in value chain development make them efficient, effective delivery instruments for value chain financing while reducing risk. Government programs for micro and SME and BOP financing could be reviewed for potential IB integration.
Impact investments in IB should be encouraged through enabling financial regulations in ASEANs, ushering in a new stream of funding into the region. Companies with IB models should be made aware of this growing opportunity for financing.
Business-matching events for local micro and SMEs and investors (including angel investors, venture capitalists, and funds) are already programmed in action line B-1-2) 2] and are already taking place. These activities would benefit further from ASEAN support and endorsement. C: Enhance market access Singapore, Thailand IB provides market access for the BOP and micro and SMEs as an inherent part of its business models. and internationalization The increasing use and application of e-commerce have the potential to integrate the BOP and micro and SMEs into value chains at an unprecedented rate and scale (e.g., through the use of mobile phone technologies in last-mile distribution of various social services). ASEAN members could support IBs further by linking them with BOP communities under government programs. D: Enhance policy and Cambodia, IBs help meet and achieve important public policy objectives, but firms are often discouraged from investing regulatory environment Indonesia in IB because of existing policy restrictions. ASEAN members could consider reviewing existing business regulations and programs and introducing appropriate measures for IB companies. Incentives could include (i) establishing special IB and social enterprise focal points in government, and, if possible, the private sector; (ii) embedding pro-poor targets into government contracts, and prioritizing procurement from companies that have IB models; (iii) developing IB-specific financial products and incentives to stimulate IB investments; (iv) providing business development services to IB companies and for-profit social enterprise initiatives to continuously develop new business solutions to poverty issues and needs; and (v) creating IB-specific innovation exchanges, and IB and social enterprise innovation hubs.
Policies and regulations could include (i) creating a registration or accreditation system for IB to identify and subsequently monitor IB investments and the social impact of the private sector; (ii) integrating IB in industry promotion policies, especially in micro and SME programs; and 50
Country Strategic Goal Champions Notes (iii) reviewing regulations that limit BOP participation in market activities, proposing policy changes, and implementing programs to better integrate the BOP into the economy.
Reporting and information sharing could include (i) reporting to ASEAN how members identify IB models, IB activities, and social enterprise initiatives, and how they monitor the outcomes and impacts of IB investments; and (ii) systematically report on the contributions of IB investments to the Sustainable Development Goals. E: Promote Brunei Darussalam, Social enterprise initiatives offer a unique opportunity to capture the imagination of the young and women entrepreneurship and Myanmar, the entrepreneurs in ASEAN. Educational institutions could be encouraged, through ASEAN endorsement, to human capital development Philippines offer social enterprise courses and competitions that could provide appropriate training for and incentives to engage in such activities, and eventually provide a pipeline for growth into IB models. ASEAN = Association of Southeast Asian Nations, BOP = base of the pyramid, IB = inclusive business, Lao PDR = Lao People’s Democratic Republic, SMEs = small and medium-sized enterprises. Source: ASEAN Secretariat. 2015c. ASEAN Strategic Action Plan for SME Development 2016–2025. Jakarta.
132. In addition, an ASEAN IB framework should be developed to provide guidance on IB promotion, development, and implementation in relation to the five strategic goals of the strategic action plan for SME development, with the following objectives: (i) strengthen the enabling policy environments for IB in ASEAN members, thereby helping IB companies maximize opportunities in terms of economic growth and development; (ii) foster regional collaboration by encouraging cross-country adoption of IB practices; and (iii) connect the AEC and ASEAN Social Cultural Community visions to IB practices, economic growth, and positive social impact.
133. The following key principles are suggested to provide guidance and direction for the interpretation, further development, and implementation of IB initiatives in ASEAN: (i) Private sector orientation. As IB is primarily a private sector activity, ASEAN members should strive to engage the business sector and community-based organizations in providing feedback on key components that constitute an enabling environment for IB. (ii) Common understanding of IB. ASEAN members should raise IB awareness and deepen IB knowledge among key actors. (iii) Promotion of IB models. IB is implemented through IB models, IB activities, and social enterprise initiatives. However, ASEAN should focus on the promotion of IB models, and consider support for the other two approaches in the context of scaling them up into IB models.
134. IB models in ASEAN should support the development of micro and SMEs along three tracks: medium-sized to large enterprises as the main proponents of IB in ASEAN; small enterprises with social impact, classified as social enterprises; and micro and small enterprises as part of the value chain of bigger IB companies, thereby allowing access to market, finance, and technical capacity building.
135. Government support is also crucial for the widespread adoption of IB. To support the development of an enabling IB environment, the G20 IB framework encourages establishing conducive rules, regulations, and definitions; enhancing access to financial resources and providing financial incentives; providing information and raising awareness on IB; and strengthening the capacity of the BOP and IBs.
136. IB should be considered a cross-cutting theme for private sector engagement. While anchored in ASEAN’s micro and SME agenda, close cooperation with other ASEAN institutions such as the ASEAN Business Advisory Council—which engage larger enterprises—is recommended to achieve its full potential. Indeed, because IB is a cross-cutting theme that engages all sectors of the economy, it offers unique opportunities for ASEAN Coordinating Committee on Micro, Small and Medium Enterprises to collaborate with other ASEAN working groups and partner organizations.
137. Notably, the ASEAN Business Advisory Council has been identified as a prime partner and has already confirmed its intention to work with the ASEAN Coordinating Committee on Micro, Small and Medium Enterprises on IB. The ASEAN Women Entrepreneurs’ Network is another strong proponent of IB in ASEAN, championing women in trade and IB as a theme during the 2017 ASEAN Women’s Business Conference. Partner organizations such as ADB, Organisation 52
for Economic Co-operation and Development, and Inclusive Business Action Network also support IB development in ASEAN. Other support organizations are the ASEAN CSR Network, and accredited civil society organizations such as the AirAsia Foundation.
138. Business associations can play an important role in promoting best practices in IB. ASEAN—through the ASEAN Business Advisory Council—could build onto the pilot run in 2017 of the ASEAN IB award, and increase its scope by recommending that business associations in ASEAN members (i) integrate IB into their work agenda, and develop specific action plans; (ii) disseminate information about IB to their members; (iii) encourage and engage the financial sector to invest more in IB models; (iv) support governments in establishing IB promotion programs and incentives; (v) continue the ASEAN IB award and recognition program; and (vi) report to the ASEAN Business Advisory Council every 2 years on their IB promotion work.
139. ASEAN can increase and improve the coordination and collaboration with development partners for IB support. ASEAN can build onto existing projects and programs to continue the implementation of key IB-related work, such as through IB awards, seminars, conferences, publications, and strategic advice to governments and companies. ASEAN could also discuss the coordination of bilateral aid around IB to achieve greater collective impact. Australia, Germany, the Netherlands, and United Kingdom have been actively supporting IB companies in ASEAN.
140. ASEAN could also enter into a discussion with G20 and APEC on the development of a global IB framework. IB is now part of the agendas of G20, APEC, and ASEAN, which offers an opportunity to discuss and develop a common global framework that builds upon the G20 IB framework. Bringing the lB experience of ASEAN members into the discussion will further enrich and inform IB development initiatives at the global level.
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PROFILES OF INCLUSIVE BUSINESSES IN ASEAN
A. BRUNEI DARUSSALAM
1. Overview
1. Brunei Darussalam is high-income country that has seen steady growth, primarily from its oil and gas sector. The country has a strong, rich economy with a gross domestic product (GDP) of $12.93 billion in 2015,39 further strengthened by large financial reserves and a highly educated population. The country has many natural resources and a small population.
2. The economy’s dependence on the oil and gas sector has created an economy of mostly state-owned enterprises (SOEs) and a limited private sector role.40 Growth has fallen in recent years, prompting the government to encourage increased foreign direct investment. It is focusing on promoting small and medium-sized enterprises (SMEs) and other private sector growth.41 The government launched Wawasan Brunei 2035, a long-term development plan, which also emphasizes diversifying the economy by expanding its manufacturing, construction, and service sectors.42
Table A1: Brunei Darussalam
Indicator Rank Year Human Development 31 / 187 2015 Index Ease of Doing Business 97 / 190 2016 Index of Economic 35 / 178 2016 Freedom Sources: UNDP. Human Development Index. http://hdr.undp.org/en/content/human-development-index-hdi (accessed June 2017); World Bank. Doing Business. (accessed June 2017); The Heritage Foundation. 2017. Index of Economic Freedom. https://www.heritage.org/index/
3. Brunei Darussalam has one of the highest per capita incomes in Southeast Asia, along with an extensive welfare system that provides free education and health care. While there is no official poverty line, a small segment of the population remains vulnerable, mainly low-income-earning women or women who are divorced, widowed, mentally or physically challenged, victims of domestic violence, or have debt due to failed businesses and bankruptcy.43
2. Micro, Small, and Medium-Sized Enterprises
4. SMEs are defined as enterprises having 1–100 employees. Micro enterprises have less than 4 employees, small enterprises have 5–19 employees, and medium-sized enterprises
39 World Bank. GDP. http://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=BN (accessed June 2017). 40 OECD. 2016. Structural Policy Country Notes: Brunei Darussalam. In OECD. Economic Outlook for Southeast Asia, China and India 2014: Beyond the Middle-Income Trap. Paris. http://dx.doi.org/10.1787/saeo-2014-en 41 Oxford Business Group. Economy. https://www.oxfordbusinessgroup.com/brunei-darussalam-2016/economy 42ADB. 2016a. ADB Member Factsheet: Brunei Darussalam. https://www.adb.org/sites/default/files/publication/27756/bru-2016.pdf 43 Borneo Bulletin. 2015. MKM joins social enterprise event in KL. https://borneobulletin.com.bn/mkm-joins-social- enterprise-event-in-kl/ 54 employ 20–100 persons.44 Currently, SMEs contribute 58% of the total employment in the private sector and 22% to GDP in all sectors.45
5. Wawasan Brunei 2035 includes a local business development strategy, which aims at “increasing opportunities for local SMEs and encouraging competitiveness and leadership in business.”46 These initiatives, undertaken by different government ministries and agencies and led by the Brunei Economic Development Board, promote SME development through “various grant, subsidy and loan schemes; investment funds; training programs; and information services.” 47 Initiatives like the setting up of Darussalam Enterprise (DARe) to support local enterprises, and a Syariah-compliant SME bank to improve access to finance for local SMEs, show that the government is prioritizing the SME sector.48
3. Inclusive Business
6. Inclusive business (IB) models could not be identified in Brunei Darussalam. As mentioned, the majority of the economy comprises SOEs. While there have been recent moves to increase the private sector role, it is still small. However, the government is keen to diversify the economy and to move away from dependence on oil. It wishes to focus on the service sector, like business and financial services, hospitality, and tourism, as well as manufacturing, agribusiness, and food-related industries.49
7. Corporate social responsibility (CSR) initiatives are common. Recently, many CSR activities have begun focusing on promoting startups and entrepreneurship. For example, Progresif Cellular supports entrepreneurs through its startup lab.
8. Social enterprise initiatives are new, although there is strong interest from youth and the government. An example is the Brunei Council on Social Welfare (MKM Charity), an enterprise that supports vulnerable women through economic empowerment programs to create sustainable livelihoods through vocational skills training. However, the size and impact of this social enterprise is small, and it functions more like a nongovernment organization (NGO) rather than a business.
9. A startup ecosystem is also growing with support from the government. The government’s focus is to improve the business environment and to promote entrepreneurship to help expand the economy. Recent initiatives like introduction of business incentives as well as measures aimed at improving processes for startups have been a push in that direction. iCentre Brunei is the country’s first information and communication technology (ICT) incubator, and Startup Brunei
44 ASEAN Secretariat. 2015c. ASEAN Strategic Action Plan for SME Development 2016–2025. Jakarta. 45 P. Polsaram et al. 2011. A Survey Research Project on “Small and Medium Enterprises Development Policies of 4 ASEAN Countries:” Brunei Darussalam, Cambodia, Lao PDR, Myanmar. Bangkok: The University of the Thai Chamber of Commerce. http://www.asean.org/storage/images/documents/SME%20Policies%20in%204%20ASEAN%20Countries%20- %20Brunei%20Darussalam.pdf 46 Government of Brunei Darussalam, Energy and Industry Department. 2017. SMEs Need to Demonstrate Agility and Responsiveness to Change: Minister. 16 May. http://www.ei.gov.bn/Lists/Industry%20News/NewDispForm.aspx?ID=564 47 OECD. 2016. Structural Policy Country Notes: Brunei Darussalam. In OECD. Economic Outlook for Southeast Asia, China and India 2014: Beyond the Middle-Income Trap. Paris. http://dx.doi.org/10.1787/saeo-2014-en 48 Energy and Industry Department, Prime Minister’s Office, Government of Brunei Darussalam. SMEs need to demonstrate agility and responsiveness to change: Minister. 2017. http://www.ei.gov.bn/Lists/Industry%20News/NewDispForm.aspx?ID=564 49 Embassy of Brunei Darussalam in Tokyo. 2017. Business in Brunei
55 aims to support startups. With the growth of the social enterprise ecosystem in the region, there is growing interest in private sector solutions for social issues.
4. Summary
10. Brunei Darussalam’s economy continues to be one of the richest in the region, despite recent economic slowdown. The government’s economic reforms are currently looking to promote entrepreneurship and SME growth. As poverty is very low and the government traditionally plays a leading role in social welfare, IB models and initiatives are uncommon. However, given the strong CSR awareness among companies, there is scope to reorient companies’ traditional CSR to more strategic IB activities. Deeper reforms aimed at facilitating the development of new companies could help accelerate the SME and startup ecosystem.
B. CAMBODIA
1. Overview
11. Cambodia is one of the fastest growing economies in the region, leaving behind decades of conflict. It is a lower-middle-income economy, with a GDP annual growth rate of 7% in 2015 with a gross national income (GNI) per capita of $1,070.50 The economy has seen an influx of foreign direct investment into the production of garments and footwear for export.51 However public service delivery, land and resource management, and governance are still challenges.52 The positive demographic dividend is a huge advantage, with 64% of the population ages 15–64 years.53
Table A2: Cambodia
Indicator Rank Year Human Development 143 / 187 2015 Index Ease of Doing Business 179 / 190 2016 Index of Economic 94 / 178 2016 Freedom Sources: UNDP. Human Development Index. http://hdr.undp.org/en/content/human-development-index-hdi (accessed June 2017); World Bank. Doing Business. (accessed June 2017); The Heritage Foundation. 2017. Index of Economic Freedom. https://www.heritage.org/index/
12. Cambodia was one of the best performers in reducing poverty as part of the Millennium Development Goals, with its poverty rates falling from 53% of the population in 2004 to 22% in 2011.54 Poverty is overwhelmingly a rural phenomenon in Cambodia, with about 91% living in rural areas in 2011.55 Most of the poor depend on agriculture for their livelihoods, but at least 12% are landless. Small-scale farmers practice subsistence farming, using traditional methods. With the increase in manufacturing jobs, many have moved to work in the garment sector. Although
50 World Bank. Cambodia. http://data.worldbank.org/country/cambodia (accessed June 2017). 51 ADB. 2016c. Here Comes Cambodia: Asia’s New Tiger Economy. 10 May. https://www.adb.org/news/features/here- comes-cambodia-asia-s-new-tiger-economy 52 World Bank. Cambodia. http://data.worldbank.org/country/cambodia (accessed June 2017).
54 World Bank. 2014b. Poverty Has Fallen, Yet Many Cambodians Are Still at Risk of Slipping Back into Poverty, New Report Finds. Press release. 20 February. http://www.worldbank.org/en/news/press-release/2014/02/20/poverty- has-fallen-yet-many-cambodians-are-still-at-risk-of-slipping-back-into-poverty 55 ADB. 2016b. Cambodia Country Poverty Analysis 2014. Manila. https://www.adb.org/sites/default/files/institutional- document/151706/cambodia-country-poverty-analysis-2014.pdf 56 poverty has fallen, many are still at risk of falling back into poverty, driven by high exposure to health and climate change risks.
2. Micro, Small, and Medium-Sized Enterprises
13. Micro and SMEs are defined as enterprises having 1–100 employees. Micro enterprises have less than 10 employees, small enterprises have 11–50 employees, and medium-sized enterprises have 50–100 employees.56 Cambodia has more than 500,000 SMEs, which form 99% of all businesses in the country and provide 1.67 million jobs. 57 In 2004, as part of the government’s Rectangular Strategy for Growth, Employment, Equity and Efficiency, the government set up an SME subcommittee and SME development framework to accelerate and support SME growth. The subcommittee identified three main barriers to SME growth: a weak legal and regulatory framework, limited access to finance, and a lack of support for SME activities.58 In Phase II of the strategy, the government also pledged to continue to improve the business climate for SMEs.59
14. Some strides have been made in the business registration process, with reduced minimum requirements and company registration fees and a simpler accounting system and financial report mechanism. The government also promotes innovation and technology as well as financing for SMEs. Another focus area has been integrating SMEs into the global value chain, but SMEs still struggle to grow. The government needs to continue to lead the support for SMEs, especially due to the lack of readiness of SMEs in the Association of Southeast Nations (ASEAN) Economic Community (AEC) context.60 Further areas of support suggested are formalizing micro and SMEs through registration; improving technology adoption among SMEs; creating SME-specialized banks or guarantee schemes with commercial banks; and establishing comprehensive, systematic data of micro and SMEs along with a monitoring and evaluation framework.61
3. Inclusive Business
15. IB models are few but have the potential to grow. In 2013, SNV, in collaboration with the International Center for Tropical Agriculture (CIAT), launched an IB model program to promote sustainable smallholder cassava production. The project was designed to improve the income security and livelihoods of 2,000 smallholder farming households in Cambodia, the Lao People’s Democratic Republic (Lao PDR), and Viet Nam by strengthening market linkages, including relationships with producers and processors.62 Another platform, Innovations against Poverty Challenges, was launched to support IB models that impact the low-income population while
56 ASEAN Secretariat. 2015c. ASEAN Strategic Action Plan for SME Development 2016–2025. Jakarta. 57 Barrett, L., and M. Nhean. 2017. Much More to CSR than Meets the Eye. Phnom Penh Post. 31 May. http://www.phnompenhpost.com/post-plus/much-more-csr-meets-eye 58 D. Nhean. 2015. Small and Medium Enterprises (SMEs) Development in Cambodia: Human Resource Is Key. Khmer Scholar. http://khmerscholar.com/small-and-medium-enterprises-smes-development-in-cambodia-human-resource- is-key/ 59P. Polsaram et al. 2011. A Survey Research Project on “Small and Medium Enterprises Development Policies of 4 ASEAN Countries:” Brunei Darussalam, Cambodia, Lao PDR, Myanmar. Bangkok: The University of the Thai Chamber of Commerce. http://www.asean.org/storage/images/documents/SME%20Policies%20in%204%20ASEAN%20Countries%20- %20Brunei%20Darussalam.pdf 60 V. Roth. 204. Are We Ready? Cambodia’s SMEs in the Context of AEC 2015. Paper prepared for the National Conference on Integration of ASEAN Economic Community 2015. Phnom Penh. 16–17 December. http://www.mih.gov.kh/File/UploadedFiles/1_19_2015_7_3_21_10%20Roth%20Vathan%20CDRI_en.pdf 61 Ibid. 62 SNV. n.d. Inclusive Business Models in Cambodia. https://asia.ifad.org/documents/10751/893e87b1-9145-4bff- b949-135b5880fcd3
57 being profitable.63 The Asian Development Bank (ADB) also invested in an agribusiness company producing spices with female farmers as its suppliers. Other known IBs are Akay, Joma Bakery Café, and the multinational Ryohin Keikaku (Muji).
16. In 2012, CSR was only seen in a very limited scale and mostly focused on philanthropic education activities. An example is communication services provider EZECOM, which worked with the Ministry of Education, Youth, and Sport to provide free internet services and computer equipment to 50 schools around the country.64 Led by multinationals like Unilever, sustainability has also become a key part of CSR initiatives.
17. In 2017, CSR Platform Cambodia65 had 37 members. While acknowledging that CSR is still perceived as a cost and in terms of philanthropic donations, some companies, such as ANZ through its financial literacy program, are moving to more strategic CSR, which could be classified as an IB activity.66
18. Co-working spaces, as well as accelerators and incubation hubs, have started appearing in Phnom Penh and Siem Reap. A women-focused business incubator, WECREATE, an initiative of the Government of the United States, Department of State, focuses on the Lower Mekong Region to ensure sustainability for the women-led businesses.67 Cambodia has also seen a rise in fintech companies servicing those not connected to mainstream banking. The wide mobile penetration and low cost of data connectivity have propelled an increase in digital transactions as well. The largest player is WING, set up by ANZ, while others like ACLEDA Bank, AMK, Amret, EMONEY, and TrueMoney are active.
19. Development aid funds are increasingly being used to support startups. For example, Development Innovations Ventures, funded by the United States Agency for International Development (USAID), and USAID–Social Innovation Lab’s Kampuchea provide innovation labs for technology professionals and entrepreneurs creating social change.
20. The government recognizes the importance of the private sector in addressing social issues, although there is no specific legislation to promote IB. Some impact investors are active in Cambodia through regional funds. ADB and AusAid fund the Mekong Business Initiative with $10 million to support SMEs in Southeast Asia, which will give a boost to the region. Cambodia has some advantages over other regional economies as far as ease of registering a company. For example, foreigners can open companies with similar ease as locals.68
4. Summary
21. Given the relatively large size of the base of the pyramid (BOP) market in Cambodia, there is potential for IB in the agribusiness, manufacturing, housing, tourism, and education sectors.
63 Innovations against Poverty. https://iba.ventures/iap/ 64 A. Renzenbrink. 2012. Cambodian Companies Aim for Corporate Social Responsibility. Phnom Penh Post. 25 September. http://www.phnompenhpost.com/business/cambodian-companies-aim-corporate-social-responsibility 65 CSR Platform Cambodia. About the Platform. http://csrcambodia.org/about-the-platform/ 66 L. Barrett. and M. Nhean. 2017. Much More to CSR than Meets the Eye. Phnom Penh Post. 31 May. http://www.phnompenhpost.com/post-plus/much-more-csr-meets-eye 67 S. Charles. 2016. Women’s Center Aims for Sustainability. Khmer Times. 9 October. http://www.khmertimeskh.com/news/30972/women---s-center-aims-for-sustainability/ 68 M. de Gaudemar. 2017. Startups Discuss Local Challenges. Phnom Penh Post. 25 April http://www.phnompenhpost.com/business/startups-discuss-local-challenges 58
With more collaborative efforts from ecosystem players and enabling policies, IB could help spur growth that is more inclusive for Cambodians living in the BOP.
C. INDONESIA
1. Overview
22. Indonesia is one of the fastest-growing countries in the world. It is the 16th-largest economy, with a population of 256.7 million driven by an emerging middle class with increasing consumption and domestic production.69 The economy has seen steady growth at 4.8%, with GDP per capita at $11,138 in 2015.70 Nominal per capita GDP is expected to quadruple by 2020, and the economy is projected to grow fivefold by 2025. Indonesia could potentially become the world’s seventh largest economy by 2030 after the People’s Republic of China, United States, India, Japan, Brazil, and Russian Federation.71
Table A3: Indonesia
Indicator Rank Year Human Development Index 110 / 187 2015 Ease of Doing Business 91 / 190 2016 Index of Economic Freedom 99 / 178 2016 Sources: UNDP. Human Development Index. http://hdr.undp.org/en/content/human-development-index-hdi (accessed June 2017); World Bank. Doing Business. (accessed June 2017); The Heritage Foundation. 2017. Index of Economic Freedom. https://www.heritage.org/index/
23. Despite strong macroeconomic indicators, 21 million Indonesians (8.3% of the population) still live in extreme poverty (i.e., on less than $1.90 per day), and a further 94 million (36.4% of the population) are vulnerable to poverty with daily available expenditures of less than $3.10.72 Based on the national poverty line (i.e., $25 per month income per person), about 11.2% of the population lives in poverty,73 and much of the population moves in and out of poverty various times during their lifetimes. According to ADB, around 55% of households who were classified as poor in 2014 were not poor 1 year earlier, which shows vulnerability.74
24. Micro and SMEs have been identified by the government as key drivers in promoting growth, creating jobs, and alleviating poverty. Micro enterprises are those with less than Rp50 million ($3,600) in assets, and sales less than Rp500 million ($36,300); small enterprises are those with Rp50 million ($3,600)–Rp500 million ($36,300) in assets, and sales Rp300 million ($21,900)–Rp2,500 million ($181,800); while medium enterprises are those with less than Rp10,000 million ($727,000), in assets, and sales less than Rp50,000 million ($3.6 million).75 Micro and SMEs account for 99% of all enterprises, employ 89% of the private sector`s workforce,
69 World Bank. Poverty Headcount Ratio at National Poverty Lines. http://data.worldbank.org/indicator/SI.POV.NAHC?locations=ID (accessed June 2017). 70 Ibid. 71 ADB and SNV. 2013. Developing the Business Case for Investing in Inclusive Business in Indonesia: A Market Scoping Study. Manila and The Hague. https://www.adb.org/sites/default/files/related/32751/INO%20-%20IB.pdf 72World Bank. Poverty Headcount Ratio at National Poverty Lines. http://data.worldbank.org/indicator/SI.POV.NAHC?locations=ID (accessed June 2017). 73 ADB. Poverty in Indonesia. https://www.adb.org/countries/indonesia/poverty 74 Aji, P. 2015. Summary of Indonesia’s Poverty Analysis. ADB Papers on Indonesia. No. 4. Manila: ADB. https://www.adb.org/sites/default/files/publication/177017/ino-paper-04-2015.pdf 75 ASEAN Secretariat. 2015c. ASEAN Strategic Action Plan for SME Development 2016–2025. Jakarta.
59 and contribute 57% to the country’s GDP.76 When compared to the corporate sector, in 2013, 5,000 corporations contributed 38% to the GDP, while 700,000 SMEs contributed 22%.77 The low productivity of SMEs has been attributed to the challenges in regulatory systems and access to finance, as a majority of micro and SMEs operate informally.
25. The government’s economic reforms in 2007 and 2008, the New Economic Policy Package, aimed to strengthen the micro and SME sector through improvements in the finance and infrastructure sectors. Also in 2008, an SME law (No.20/2008) provided a single national definition for the benefit of all government authorities and the Bank of Indonesia. In 2012, more enabling initiatives like the MFI Law (No.1/2013) and National Strategy for Financial Inclusion for Indonesia were established, which aims to improve coordination among various government agencies and access to finance for micro and SMEs.78
26. In addition, the government recognized the lack of financial literacy levels and needs of micro and SMEs. To address this, micro and SMEs are targeted within the Indonesian National Strategy for Financial Literacy 2013, taking financial education initiatives to youth, women, and rural workers.79
27. The SME sector has been growing organically, but a lack of investments has limited productivity. Improving access to finance could boost its growth and contribution to the economy. The initiatives could also enhance IB through improved access to finance and last-mile infrastructure.
3. Inclusive Business
28. Indonesia’s economy is made up of many large corporations, with many displaying a strong CSR culture. However, the CSR investments are typically not strategic in the way that companies use them for developing core business models with the BOP. Therefore, these CSR investments are not generating much systemic development impact.
29. There is no specific legislation recognizing social enterprises. Most social enterprises take the form of private limited companies. Both the SME and social enterprise sectors have been growing, with many entrepreneurs working in multiple sectors. Leading global and regional impact investors are also active in Indonesia, funding social enterprises that are building profitable businesses. LGT Impact invested in Kakoa, a social enterprise that improves livelihoods of smallholder cocoa farmers by providing training, paying premium prices for crops, and managing an integrated value chain. 80 Unitus Impact has made two investments in agribusiness in enterprises that work with smallhold farmers as suppliers, and a third in a technology platform that provides financial services to small shopkeepers. 81 Regional impact investor Aavishkaar has expanded to Indonesia with its investment in North Atlantic, Inc., a company sourcing seafood from Indonesian artisanal fishers and marketing frozen seafood products to supermarkets and
76 IFC and USAID. 2016 Women-Owned SMEs in Indonesia: A Golden Opportunity for Local Financial Institutions. Washington, DC. 77 Ibid. 78 N. Burger, et al. 2015. Reforming Policies for Small and Medium-Sized Enterprises in Indonesia. Santa Monica, CA: RAND Corporation. https://www.rand.org/pubs/research_reports/RR1096.html 79 OECD. 2017. Financial Education for Micro, Small and Medium-Sized Enterprises in Asia. Paris. https://www.oecd.org/finance/Financial-education-for-MSMEs-in-Asia.pdf 80 LGT Venture Philanthropy. 2015. Portfolio Overview. https://www.lgtvp.com/en/portfolio/portfolio-overview/ 81 Patamar Capital. http://unitusimpact.com/portfolio/ 60 restaurants in North America and Asia.82 Peer-to-peer lending platform Kiva supported Ruma, a tech platform that has also received funding from Unitus,83 while organizations such as Ashoka, British Council Indonesia, and UnLtd are active in awareness creation and capacity-building programs for social entrepreneurs.
30. No specific IB-focused funds exist, and so far, very few banks have shown interest in supporting IB.84
31. According to a market scoping study by ADB, more than half of the IB models in Indonesia are in agribusiness.85 An example of a successful IB model is Indofoods, a large food solutions company in Indonesia, which has integrated close to 60,000 smallhold farmers in its supply chain to produce snacks and sauces and has supported them with access to finance. Indofoods also supports the establishment of small manufacturing businesses to which it outsources pre- production manufacturing processes and engages over 50,000 micro entrepreneurs in the distribution of its products.86 The scale of business model of Indofoods is a prime example of how the agribusiness value chain can be more inclusive downstream and upstream.
32. Tourism is another sector in which IB could be promoted. In fact, the Ministry of Tourism has made inclusive tourism a priority and is developing interventions in different areas of the country to create linkages between communities and tourism companies. Between 2013 and 2016, GIZ ran the Responsible and Inclusive Business Hub from Jakarta, supporting inclusive tourism projects.
33. Business associations like Kadin and APINDO are increasingly interested in becoming involved in information dissemination, IB accreditation, and IB support programs. Organizations like Indonesia Business Council for Sustainable Development, a chief executive officer-led association of companies operating in Indonesia, are active advocates for IB. Indonesia is one of five GrowAsia country partnerships, which develop agribusiness IB models with its members through a public–private partnership model. Under the PISAgro business association, 28 large national and multinational agribusiness companies have united to share information and to promote investments, many of which have IB characteristics.
34. An enabling policy ecosystem to promote IB is also taking shape. In April 2016, the government set up the IB and Innovation Task Force under the Coordinating Ministry of Economic Affairs to promote IB in the country. Since 2016, the task force has focused on exploring the promotion of IB in the agri-commodity sectors of onion, chilies, fisheries, and forestry. However, no specific IB support program has been implemented yet. In 2017, it organized a national workshop on IB, which emphasized technology as a driver for IB models.
4. Summary
82 Aavishkar. 2016. Aavishkaar Announces Its First Investment in Indonesia with North Atlantic Inc., a Seafood Company Committed to Sustainable Fishing. Press Release. https://www.aavishkaar.in/images/download/publications/Aavishkaar%20Press%20Release-Nov%2017.pdf 83 Kiva. Kiva Lending Team: Indonesia. https://www.kiva.org/team/indonesia 84 ADB and SNV. 2013. Developing the Business Case for Investing in Inclusive Business in Indonesia: A Market Scoping Study. Manila and The Hague. https://www.adb.org/sites/default/files/related/32751/INO%20-%20IB.pdf 85 Ibid. 86 Indofood. http://www.indofood.com/sustainability
61
35. In 2015, a new national framework for poverty reduction was launched, with a focus on making the growth process more inclusive. This framework recognizes that it is important to improve the investment climate for labor-intensive industries and small businesses, as well as to improve connectivity and to accelerate the development of basic infrastructure to support economic activity and sustainable livelihoods in rural and border areas. 87 To spur entrepreneurship, the government has increased support to micro and SMEs88 and launched the Program for Eastern Indonesian Small and Medium Enterprise Assistance in collaboration with the International Finance Corporation. Combining such SME promotion efforts with IB could unlock further inclusive growth in Indonesia.
D. LAO PEOPLE’S DEMOCRATIC REPUBLIC
1. Overview
36. The Lao PDR has experienced fast growth over the last 2 decades, with GDP growth at 7.0% in 2015, after growing by 7.5% in 2014.89 Key drivers of the economy have been power generation, services, and construction, as well as mining. While many sectors are dominated by SOEs, the government has also promoted private sector investments. Both the agriculture sector, with increased foreign investments, and the tourism sector have grown significantly.
Table A4: The Lao People’s Democratic Republic
Indicator Rank Year Human Development Index 138 / 187 2015 Ease of Doing Business 136 / 190 2016 Index of Economic Freedom 133 / 178 2016 Sources: UNDP. Human Development Index. http://hdr.undp.org/en/content/human-development-index-hdi (accessed June 2017); World Bank. Doing Business. (accessed June 2017); The Heritage Foundation. 2017. Index of Economic Freedom. https://www.heritage.org/index/
37. Poverty rates have declined from 34% to 24% in the last decade, lifting 500,000 people out of poverty. This poverty reduction was made possible by increasing levels of skills and knowledge, access to land, and growth in nonagricultural jobs. Around 24% of the population live below the international poverty line of $1.90, while 46% of the population live below the international poverty line of $3.1090 and 16% live below the national poverty line. The biggest challenge is that many live close to the poverty line and remain vulnerable. According to household consumption data, 5.4 million people in the BOP spend the most of their income on food and beverages, housing, and transport.91
2. Micro, Small, and Medium-Sized Enterprises
87 Aji, P. 2015. Summary of Indonesia’s Poverty Analysis. ADB Papers on Indonesia. No. 4. Manila: ADB. https://www.adb.org/sites/default/files/publication/177017/ino-paper-04-2015.pdf 88 G20. 2016b. G20 Inclusive Business Report for the 2016 Summit. http://www.g20.utoronto.ca/2016/inclusive- business-report.pdf 89 World Bank. 2016a. New World Bank Report on Lao PDR: To Turn Economic Growth into Poverty Reduction. Press release. 24 May. http://www.worldbank.org/en/news/press-release/2016/05/24/new-world-bank-report-on-lao-pdr- to-turn-economic-growth-into-poverty-reduction
91 World Bank. Lao PDR. http://datatopics.worldbank.org/consumption/country/Lao-PDR (accessed June 2017) 62
38. Small enterprises are defined as those with less than 19 employees, less than KN250 million ($30,300) in assets, and sales less than KN400 million ($48,412); while medium-sized enterprises are those with less than KN2,000 million ($242,100) in assets and sales less than KN1,000 million ($121,000).92 SMEs accounted for 40% of the country’s total employment.93 SMEs, along with the mining and hydropower sectors, were the main contributors to the average annual 8% GDP growth rate in recent years and provided 63% of all jobs in 2013.94
39. The government established its first national SME development strategy in 2006–2010, leading to the Small and Medium-Sized Enterprise Promotion and Development Office, which has been instrumental in monitoring progress and implementation of policy for SME promotion. However, challenges remain, and less than 20% of SMEs can access long-term credit, restricting their growth and competitiveness.95 In 2014, the International Finance Corporation and World Bank extended support to establish a risk-sharing facility to encourage commercial banks to lend to SMEs with limited collateral through the SME Access to Finance project, which is aligned to the government’s national SME development plan and the trade and private sector development road map.96
3. Inclusive Business
40. Given the growing agribusiness sector, there in substantial opportunity for IB models to be implemented. One early example is the IB pilot project of Ironbark Citrus, an Australian company, which engages with 500 smallhold farming families in the Lao PDR to grow citrus fruits for export to the Asian market. With technical assistance support from the Government of Australia and implemented by Business for Development, Ironbark Citrus provides access to seedlings, agricultural inputs, and good farming practices in its IB model.97
41. CSR is a nascent concept, but leading companies across sectors are implementing CSR policies and programs. Business groups, including the American Chamber of Commerce, Australia New Zealand Business Association, European Chamber of Commerce and Industry in Lao PDR, and Lao National Chamber of Commerce and Industry, are promoting CSR.98 Overall, awareness and practice of CSR is mainly seen in a philanthropic sense, but recent promotional activities from regional actors have helped bring responsible business and CSR to the forefront. For example, the Responsible Business Summit in 2015, organized by the ASEAN Foundation was well received by the government and the private sector.99 Foreign companies that are setting
92 ASEAN Secretariat. 2015c. ASEAN Strategic Action Plan for SME Development 2016–2025. Jakarta. 93 P. Kyophilavong, P. 2008. SME Development in Lao PDR. In Lim, H., ed. SMEs in Asia and Globalization. Jakarta: Economic Research Institute for ASEAN and East Asia. http://www.eria.org/SMEs%20Development%20in%20Lao%20PDR.pdf 94 GIZ. 2014. SME in Laos. Bonn. https://www.giz.de/en/downloads/giz2014-en-sme-laos.pdf 95 World Bank. 2014a. Lao PDR’s Small and Medium Enterprises to Benefit from New World Bank Financing. Press release. 9 June. http://www.worldbank.org/en/news/press-release/2014/06/09/lao-pdr-small-medium-enterprises- benefit-new-world-bank-financing 96 Ibid. 97 Business for Development. Ironbark: Laos. http://businessfordevelopment.org/impact/project-impact/ironbark-laos/ 98 GIZ and BGR. 2014. Corporate Social Responsibility in Lao PDR: Baseline Assessment of Social and Environmental Regulations and Standards. Bonn. https://www.giz.de/en/downloads/giz2015-en-corporate-social-responsibility- laos.pdf 99 ASEAN CSR Forum. 2015. Lao Responsible Business Forum: CSR Has a Significant Role in Realizing Equitable, Inclusive and Sustainable Development in Lao PDR and in ASEAN. 19 June. http://www.asean-csr- network.org/c/news-a-resources/csr-news-from-around-asean/230-lao-responsible-business-forum-csr-has-a- significant-role-in-realizing-equitable-inclusive-and-sustainable-development-in-lao-pdr-and-in-asean
63 up in the Lao PDR are also engaging the community and are building more strategic CSR programs.
42. Social enterprises are fairly new. Traditionally, cooperatives and community organizations have engaged with the poor. Social enterprises typically focus on employment opportunities, like Makphet, which is run by the Peuan Mit program for street children. The enterprise trains young and at-risk youth in hospitality through curriculum and on-the-job training at its restaurant. Impact investment is also growing, with increasing opportunities in agribusiness, energy, and education.
43. There have been no specific government initiatives to promote IB, but the government has expressed interest in responsible business. In addition, the government has begun promoting CSR by encouraging voluntary CSR activities by the private sector.
44. ADB has made IB investments in the Lao PDR, and the government has expressed an interest in joining regional IB initiatives for more responsible investments in the Greater Mekong Subregion led by ADB. While regional investors are also interested in the Lao PDR, there are no specific Lao impact funds.
4. Summary
45. With the Lao PDR’s economy growing and the country receiving increased foreign investments, there is much potential in the agribusiness and tourism sectors for IB models. In addition, foreign companies can engage the poor as customers, retailers, distributors, or suppliers. With stronger government support, IB could become a tool to help the poor out of poverty, with SMEs playing a key role, especially in rural areas.
E. MALAYSIA
1. Overview
46. Malaysia was one of 13 countries identified by the World Bank’s Commission on Growth and Development as recording average growth of more than 7.0% per year for 25 years or more.100 From an economy dominated by the production of raw natural resource materials, such as tin and rubber even as recently as the 1970s, Malaysia today has a diversified economy and has become a leading exporter of electrical appliances, electronic parts and components, palm oil, and natural gas. Malaysia was hit by the global financial crisis but recovered rapidly, posting growth rates averaging 5.7% since 2010, with a GDP growth rate of 5.0% in 2015.101 To spur the transition in restructuring its economy, Malaysia has a large demand for knowledge and skill- based human resources in capital-intensive and high value-added activities.102
100 World Bank. Malaysia. http://data.worldbank.org/country/malaysia (accessed June 2017). 101 Ibid. 102 A. Z. Hatta. and I. Ali. 2013. Poverty Reduction Policies in Malaysia: Trends, Strategies and Challenges. Asian Culture and History. 5 (2). http://www.ccsenet.org/journal/index.php/ach/article/viewFile/25475/15802 64
Table A5: Malaysia
Indicator Rank Year Human Development Index 62 / 187 2015 Ease of Doing Business 23 / 190 2016 Index of Economic Freedom 29 / 178 2016 Sources: UNDP. Human Development Index. http://hdr.undp.org/en/content/human-development-index-hdi (accessed June 2017); World Bank. Doing Business. (accessed June 2017); The Heritage Foundation. 2017. Index of Economic Freedom. https://www.heritage.org/index/
47. Economic growth has been relatively inclusive, with only 0.28% living below the international poverty line of $1.90 and 3.30% living below the $3.10 line.103 Although extreme poverty is less than 1.00%, pockets of poverty remain, and income inequality remains high relative to other developed countries. Malaysia’s Gini coefficient of income inequality stood at 0.41 in 2014.104
48. Despite the steady economic growth, some vulnerable sections of the population remain poor due to several disadvantaged circumstances. Some sectors stand out for lack of inclusivity, like health care, due to higher out-of-pocket expenditure. Malaysia’s gender gap is the fifth highest among upper-middle-income countries in education and pay, and third highest in labor force participation. Malaysia has the most inadequate social assistance among peers, and among the poorest, coverage of old-age pensions and the lowest spending on social protection. Therefore, targeted government interventions and strong IB models can help the country achieve higher levels of inclusive growth.105
2. Micro, Small, and Medium-Sized Enterprises
49. The government redefined SMEs by sector in 2013. For the manufacturing sector, SMEs are defined as enterprises with sales turnover not exceeding RM50 million ($13 million) or the number of full-time employees not exceeding 200, while for the services and other sectors, SMEs are defined as firms with sales turnover not exceeding RM20 million ($5 million) and the number of full-time employees not exceeding 75.106 Malaysian SMEs form 97% of businesses, and they contribute to 36% to the GDP and 65% of the country’s employment, and nearly 18% of exports.107
50. As Vision 2020’s deadline nears, the government is keen to develop the SME contribution to GDP, from its present 36% to 41%, and the share of SME exports must go up to 23%, according to SME Corporation Malaysia, the central coordinating agency under the Ministry of International Trade and Industry.108 The corporation has also drawn up the SME Masterplan, 2012–2020 in line with the Economic Transformation Programme, that has 32 initiatives aimed at supporting SME growth. One initiative, Inclusive Innovation, encourages innovations that lead to affordable access to quality goods and services, creating livelihood opportunities for the excluded population, primarily in the BOP, on a long-term sustainable basis with a significant outreach. As
103 World Bank. Malaysia. http://data.worldbank.org/country/malaysia (accessed June 2017). 104 World Bank. Gini Index. http://data.worldbank.org/indicator/SI.POV.GINI (accessed June 2017). 105 WEF. 2015. The Inclusive Growth and Development Report 2015. Geneva. http://reports.weforum.org/inclusive- growth-report-2015 106 ASEAN Secretariat. 2015c. ASEAN Strategic Action Plan for SME Development 2016–2025. Jakarta. 107 World Bank. 2016b. “Small Is the New Big”—Malaysian SMEs Help Energize, Drive Economy. 5 July. http://www.worldbank.org/en/news/feature/2016/07/05/small-is-the-new-big---malaysian-smes-help-energize-drive- economy 108 SME Corp, Malaysia. SMEs Are the Backbone of the Economy. http://www.smecorp.gov.my/index.php/en/policies/2015-12-21-09-09-49/sme-statistics
65 of October 2017, the program has resulted in 15 innovations ready for diffusion, reaching 12 communities.
51. Some of the top challenges for SMEs in Malaysia are a limited use of technology, lack of technical and management expertise and entrepreneurial skills, and inability to explore market opportunities. 109 The government hopes to address these challenges through the various initiatives to grow SMEs and to achieve Vision 2020.
3. Inclusive Business
52. Given the small size of the BOP market in Malaysia, the potential for IB models is low. There is also no government support policy for IB models. Sectors with potential for IB models are agribusiness, financial inclusion, and technical training. Some IB models can be seen in financial inclusion, with the government promoting it through its banking institutions. A holistic framework was formulated as part of the Central Bank’s Financial Sector Blueprint, 2011–2020 to improve the overall well-being of communities toward convenient accessibility, high take-up, responsible usage, and high satisfaction of financial services.110
53. While IB is not a familiar concept, CSR first gained momentum in Malaysia when Prime Minister Abdullah Badawi introduced numerous incentives for companies to practice CSR, including tax breaks and guidelines provided by the national investment company, Khazanah Nasional. This initiative resulted in CSR awards, conferences, workshops, and seminars but has not extended to building IB models. In 2007, it did become compulsory for companies listed on the Bursa Malaysia to disclose their CSR activities or practices. The government also established a fund of RM50 million to promote CSR activities and announced that in the future, inclusion of CSR in state-owned investment funds will be a criterion for future investments.
54. Businesses that demonstrate exceptional CSR practices are recognized by the government and presented with the Prime Minister’s CSR Award at the end of each year, since 2008. However, most of these CSR activities are not core to the business of the providing firms so far. Increasingly, however, more companies are adopting CSR as part of their strategy and core values. This can be leveraged to build knowledge around IB models and how companies can integrate the BOP into their businesses.
55. In 2015, about 20 of these for-profit social enterprises existed, while there were many more social enterprises with low commercial returns. Social enterprises that could qualify as IB initiatives focus mainly on education, environmental sustainability, rural development, and poverty. Many social enterprises have shown that they are able to blend profits and impact. Examples include Earth Heir, an ethically driven business that sells handmade scarves and clothing, which donates 10% of its revenue to charities that support victims of human trafficking. Another social enterprise, Epic Homes, builds relationships between Malaysia’s indigenous Orang Asli population and urban communities through the construction of homes.
56. The government-backed Malaysian Global Innovation and Creativity Centre (MaGIC) was launched with a mission to spur the entrepreneurial ecosystem in Malaysia, bringing together resources from partners and communities, and to develop entrepreneurs of enduring, high-growth
109 M. Hoq, N. Che-Ha, and S. Mohd-Said. 2009. SMEs in the Malaysian Economy. International Journal of Marketing Studies. 1 (2). 110 Bank Negara Malaysia. 2015. Unlocking Shared Benefits for All through Inclusive Finance. In Financial Stability and Payment Systems Report 2015. Kuala Lumpur. http://www.bnm.gov.my/index.php?rp=wba_unlocking_shared_benefits_fo 66 startups that will make a positive impact at a regional or global scale. Prime Minister Datuk Seri Najib Razak announced a plan to grow the sector by allocating RM20 million to MaGIC to increase the number of social enterprises to 1,000 by 2018, from around just over 100.111 Accordingly, MaGIC has committed over RM500,000 to five social enterprises—Epic Homes, Mabul Skills Project, MakanLah, TONIBUNG, and Arus Academy—under the Amplify Awards.
57. The government is also encouraging the formation of a strong, supportive ecosystem of social entrepreneurs through incubators and accelerator programs that offer business consulting, legal advice, recommendations for co-working spaces, and networking opportunities with others in their industries. In June 2015, MaGIC launched its first accelerator program for social enterprises. Social Enterprise Alliance Malaysia also runs its own incubator programs, which are typically long term. Another player, Tandemic, helps foster connections between social entrepreneurs and industry experts. Social enterprises from Malaysia have been participating in regional social enterprise competitions like DBS–NUS Social Innovation Challenge as well.
4. Summary
58. Malaysia’s focus on social innovation as part of its SME policy instruments catalogue is unique among ASEAN members. Its support for social enterprise has the potential to support the scaling up of those to IB models, and the increase in more strategic CSR activities will be a source for further IB activities. For example, the government could extend its CSR tax incentives to businesses that implement IB models, with a clear accreditation of models.
F. MYANMAR
1. Overview
59. An economy with potential and in transition, Myanmar's GDP growth in 2016 was around 6.4%, down from 7.3% in 2015 but is expected to rise.112 Myanmar is the largest country in mainland Southeast Asia, with one of the lowest population densities in the region. The country is rich in oil, gas, and precious minerals, and could once again play a role as a regional trading hub, at the intersection of the People’s Republic of China and India.113 Since 2015, the country has had a new civilian government, which is progressing in business and economic development, especially in 2017. However, Myanmar is still one of the worlds’ most difficult countries to do business, ranking 170 out of 190.
Table A6: Myanmar
Indicator Rank Year Human Development Index 145 / 187 2015 Ease of Doing Business 170 / 190 2016 Index of Economic Freedom 146 / 178 2016 Sources: UNDP. Human Development Index. http://hdr.undp.org/en/content/human-development-index-hdi (accessed June 2017); World Bank. Doing Business. (accessed June 2017); The Heritage Foundation. 2017. Index of Economic Freedom. https://www.heritage.org/index/
111 MaGIC. About SEHATI. https://se.mymagic.my/en/sehati/ 112 World Bank. The World Bank in Myanmar. http://www.worldbank.org/en/country/myanmar/overview 113 World Bank. Myanmar. http://data.worldbank.org/country/myanmar (accessed June 2017).
67
60. With a population of 53 million, 25.6% lives below the national poverty line.114 The BOP market is big in terms of number of consumers, but is marred by weak purchasing power. The poor primarily live in rural areas and are dependent on agriculture and informal employment for their livelihoods.115 However, there is increasing demand from the poor for health, education, housing, access to finance, and renewable energy products. With the recent opening up of the economy, mobile and internet penetration has increased significantly, from less than 20% and 10% in 2014, to 60% and 25% today, respectively. 116 This provides a huge opportunity for companies developing ICT-related IB models.
2. Micro, Small, and Medium-Sized Enterprises
61. The economy is characterized by small and informal businesses, with SMEs playing a critical role in economic development and the promotion of inclusive growth. Small enterprises in manufacturing are defined as enterprises with less than 50 employees and capital not exceeding MK500 million ($377,000), while medium-sized enterprises have less than 300 employees and capital not more than MK1,000 million ($753,000). For the service sectors, small enterprises are defined as enterprises with capital not exceeding MK100 million ($75,000) and number of employees not exceeding 30. Medium-sized enterprises are defined by less than 100 employees and sales not exceeding MK200 million ($151,000).117 The new government introduced a new definition of SMEs in 2015 as part of the Small and Medium Enterprise Law, broadening SMEs to sectors such as industry and services; labor-intensive manufacturing such as textiles, apparel, leather, furniture, and toys; and wholesale and retail sectors.118
62. As Myanmar’s economy is just opening up and undergoing transformation, no consistent data are available on SMEs. However, World Bank reports suggested that SMEs face deep challenges such as lack of access to finance, poor infrastructure, and a weak business and investment climate.119 A survey on SMEs in 2015 identified a lack of skilled workers, high labor turnover, political instability, and prices of raw materials as the main challenges to SME growth.120
63. The government released an SME policy in 2015, which will serve as a basis for “implementing short-term, long-term plans, to formulate SME Development Strategy Framework, to be regarded as the road map of SMEs.”121 The new policy will enable Myanmar to address challenges in growing the SME sector and implementing activities for the AEC.
3. Inclusive Business
64. There are very few IB models in Myanmar, but social enterprise initiatives are growing. There is interest from the government and local organizations, like the national business association and the Myanmar Young Entrepreneurs Association, in promoting IB models, although no dedicated policy exists. Another example is Kool Kiwi Pure Milk, a private company that plans to produce affordable pasteurized cow milk in Kayin State. It aims to sell this milk at a
114 ADB. 2017b. Poverty in Myanmar. https://www.adb.org/countries/myanmar/poverty 115 World Bank. The World Bank in Myanmar. http://www.worldbank.org/en/country/myanmar/overview 116 Ibid. 117 ASEAN Secretariat. 2015c. ASEAN Strategic Action Plan for SME Development 2016–2025. Jakarta. 118 OECD. 2016. Strengthening SME Policy Development through Data Collection Enhancement in Myanmar. Paris. https://www.oecd.org/southeast-asia/regional- programme/Strengthening_SME_Data_Collection_Myanmar_2016.pdf 119 M. Ayyagari, A. Demirgüç-Kunt, and T. Beck. 2003. Small and Medium Enterprises across the Globe: A New Database. Policy Research Working Papers. No. 3127. Washington, DC: World Bank. 120 Deval. 2015. Small and Medium Enterprise Survey Myanmar 2015. Bonn. 121Government of Myanmar. Small and Medium Enterprise Development Policy 2015. Naypyidaw. 68
44% lower price compared to competitive products, through building an efficient supply chain. The company plans to sell in Myanmar and neighboring Thailand.122
65. The CSR Asia report125 identified agriculture, financial services, and tourism as key sectors for IB in Myanmar. At the end of 2017, DaNa, a development program for responsible and IB, supported by the Department for International Development of the United Kingdom, is preparing an IB market study, which will be released in 2018.
66. CSR is not widespread in Myanmar, but giving for temples and for staff in companies is rather gracious. Although development-oriented CSR has traditionally not been considered due to the relevance of Buddhist beliefs and merit-making culture, organizations like the Union of Myanmar Federation of Chambers of Commerce and Industry are dedicated to promoting CSR and view the role of the private sector as critical to sustainable development. The Advisor to the President’s Office and Myanmar Investment Commission are also highlighting the importance of the private sector in sustainable and equitable development strategies. Companies investing in Myanmar now must submit business plans that include commitments to CSR.123 Many local companies have also begun signing up to the United Nations Global Compact.
67. The concept of social enterprise is fairly new, and very few recognize themselves as social enterprises; those that do take the form of private companies or cooperatives. 124 The social enterprise sector is growing, with a large number of entrepreneurs looking to create impact and profit. Proximity Designs develops affordable, income-boosting products and services for rural smallholders and people living in poverty such as irrigation products (i.e., foot pumps, drip irrigation sets, and water storage containers), loans, farm advisory services, and solar lanterns. The company creates rural stimulus projects that improve infrastructure in rural areas and provide additional income opportunities through employment. 125 Incubators and accelerators are beginning to appear as well, along with capacity building from organizations like the British Council and foundations from Europe and the United States.
68. The government is developing policies to create a stronger ecosystem for small businesses to operate, in addition to a push to attract investors. Organizations like Myanmar Centre for Responsible Business are working to promote CSR and IB.126 Local organizations like Green Waves Social Enterprise, Loka Ahlinn, and PS Business School, which has run social enterprise business plan competitions, are promoting social entrepreneurship and demonstrating proof of concept across Myanmar.127 Moreover, foundations such as the Skoll Foundation and Schwab Foundation for Social Entrepreneurship have provided grant-based funding to social enterprises.
69. The government and business associations, particularly the Myanmar Business Council, have also shown some interest in IB models. Other impact investors and development finance institutions are interested in Myanmar; for example, the Department for International Development of the United Kingdom supports the Myanmar Centre for Responsible Business and DaNa Facility,
122 R. Welford, and M. Zieger. 2013. Responsible and Inclusive Business in Myanmar. Hong Kong, China: CSR Asia. http://www.csr-asia.com/report/CSRA2013_Responsible_and_Inclusive_Business_in_Myanmar.pdf 123 CSR Asia. 2013. New Practical Guide for Sustainable and Inclusive Business in Myanmar. Hong Kong, China. 124 Government of the United Kingdom, British Council. 2013. Social Enterprise Landscape in Myanmar. Rangoon. https://www.britishcouncil.org/sites/default/files/burma_report.pdf 125 R. Welford, and M. Zieger. 2013. Responsible and Inclusive Business in Myanmar. Hong Kong, China: CSR Asia. http://www.csr-asia.com/report/CSRA2013_Responsible_and_Inclusive_Business_in_Myanmar.pdf 126 Myanmar Centre for Responsible Business. http://www.myanmar-responsiblebusiness.org/about.html 127 Government of the United Kingdom, British Council. 2013. Social Enterprise Landscape in Myanmar. Rangoon. https://www.britishcouncil.org/sites/default/files/burma_report.pdf
69 which is providing $6 million to encourage responsible business activities across the country.128 Other international impact investments funds are exploring the market, as are development banks like ADB and the International Finance Corporation.
4. Summary
70. With a large BOP population, Myanmar‘s economy has great potential for IB, especially in agriculture, national resources, and textiles. With the government’s push for responsible businesses, IB could play a critical role in inclusive growth. Social enterprise initiatives are growing in number with a host of investors, incubators and accelerators, and interest from donors. Given that in the past international companies were sometimes seen as exploitative, it will be important for large companies to build trust with responsible IB activities.
G. PHILIPPINES
1. Overview
71. The Philippines is one of the fastest-growing economies in ASEAN. GDP growth remained strong in 2016 with higher investments and consumption, with growth at 6.4% in 2016 and forecasted at 6.2% for 2017. 129 The economic growth is also spurred by remittances from overseas Filipino workers, with around 12 million Filipinos living abroad contributing over 10% to the GDP in 2015. GDP per capita reached $7,387 in 2015. Otherwise, the economy is mainly oriented toward the service sector, with many low-paid jobs and a large share of informal workers.130
Table A7: Philippines
Indicator Rank Year Human Development Index 115 / 187 2015 Ease of Doing Business 99 / 190 2016 Index of Economic Freedom 70 / 178 2016 Sources: UNDP. Human Development Index. http://hdr.undp.org/en/content/human-development-index-hdi (accessed June 2017); World Bank. Doing Business. (accessed June 2017); The Heritage Foundation. 2017. Index of Economic Freedom. https://www.heritage.org/index/
72. Poverty is falling slowly but remains high, especially due to lack of income opportunities in rural areas. The national poverty incidence in 2015 was estimated at 21.60%. At international standards, 13.10% of the population lives below the international poverty line of $1.90 and 37.61% below $3.10.131 While poverty declined, millions remain vulnerable, especially in rural areas. The government is maintaining a massive conditional cash transfer program, which is successful in promoting social development goals in education and health; however, it is not targeted to reduce income poverty. 2. Micro, Small, and Medium-Sized Enterprises
73. Micro and SMEs play a critical role in inclusive growth. Micro enterprises are defined as those entities with assets less than P3 million ($58,000), small enterprises are those with assets
128 Chau, T. 2017. DFID Continues to Fund MCRB via DaNa Facility. Myanmar Times. 26 June. http://www.mmtimes.com/index.php/business/26968-dfid-continues-to-fund-mcrb-via-dana-facility.html 129 World Bank. Philippines. http://data.worldbank.org/country/philippines (accessed June 2017). 130World Bank. Personal Remittances, Received. http://data.worldbank.org/indicator/BX.TRF.PWKR.DT.GD.ZS?locations=PH&start=2015 131 World Bank. Philippines. http://data.worldbank.org/country/philippines (accessed June 2017). 70
P3 million ($58,000) –P15 million ($289,000), and medium-sized enterprises have P15 million ($289,000)–P100 million ($2 million).132 Micro and SMEs generated a total of 4.8 million jobs in 2015 (about 62%) versus 3.0 million for the large enterprises. Of these, 2.3 million jobs (29.4% of all) were generated by micro enterprises, 2.0 million (25.3%) by small enterprises, and 0.5 million (6.8%) by medium-sized enterprises. 133 There are 900,914 business establishments in the Philippines. Of these, 99.5% (896,839) are micro and SMEs, and the remaining 0.5% (4,075) are large enterprises.134
74. The government’s micro and SME development plan focuses on promoting the business enabling environment, enhancing access to finance, enhancing access to markets, and improving productivity and efficiency. To support micro and SMEs, the government created the Micro, Small and Medium Enterprise Development Council, with members from various government agencies. Another flagship program is the Go Negosyo Act that promotes “ease of doing business and facilitates access to services for MSMEs” through Negosyo Centers, which provide enterprises with business registration assistance, business advisory services, business information and advocacy, and monitoring and evaluation.135 The government has also built some public–private partnerships, like PLDT’s partnership with the Department of Trade and Industry, in which Negosyo Centres get Wi-Fi connectivity, enabling SMEs to gain more access to training.136
3. Inclusive Business
75. Traditionally, CSR has been strong among corporations. The majority of CSR activities are still mainly philanthropy- and event-driven, with employee engagement a key feature. Only recently have some started making a shift from philanthropy to more strategic CSR.
76. Social entrepreneurship is growing as seen in the number of startups; SMEs; and intermediaries like incubators, accelerators, and angel investors. The social enterprise ecosystem comprises an estimated 6,000 social enterprises and 14,000 civil society organizations. 137 However, more recently, social enterprises are building for-profit market-based models to impact the poor. For example, BagoSphere is a social enterprise vocational training company that trains highly motivated, rural BOP youth to become employed in call centers, increasing their incomes fourfold.138
77. Although still at the early stage of development, IB is a recognized concept. Companies and the government have been actively engaging in IB development since 2013. An IB market-scoping study identified more than 70 companies with IB models in the Philippines engaging the BOP mainly as consumers, suppliers, and distributors. 139 There are many well-known examples, especially from the agribusiness sector. Jollibee Group Corporation, one
132 ASEAN Secretariat. 2015c. ASEAN Strategic Action Plan for SME Development 2016–2025. Jakarta. 133 Government of the Philippines, Department of Trade and Industry. 2016 MSME Statistics. http://www.dti.gov.ph/dti/index.php/2014-04-02-03-40-26/news-room/179-workshop-on-market-access-for-smes- set. 134 Ibid. 135 Government of the Philippines, Department of Trade and Industry. 2017. SME Development in the Philippines. http://www.dict.gov.ph/wp-content/uploads/2016/07/8.-SMEs-in-the-Philippines-_Empowering-LGUs-through-ICT- Partnership-with-SUCs.pdf 136 Ibid. 137 Government of the United Kingdom, British Council. 2015. A Review of Social Enterprise Activity in the Philippines. https://www.britishcouncil.ph/programmes/society/skills-social-entrepreneurs/report 138 BagoSphere. http://www.bagosphere.com/our-program/ 139 ADB. 2013b. Inclusive Business Study: Philippines. Consultant’s report. Manila (TA 8550-REG). https://www.adb.org/sites/default/files/related/32074/phi-2nd-ibf-business-study.pdf
71 of the largest food service companies in the Philippines, is one. Faced with the opportunity to promote rural development while meeting its daily need for raw ingredients, the company decided to source vegetable directly from small farmers. Another prominent example is the investment of the International Finance Corporation in Manila Water.
78. The major business organizations in the country actively support the IB concept as well. The Makati Business Club and Management Association of the Philippines is often part of IB events. The Cagayan de Oro Chamber of Commerce established an IB promotion center for Mindanao. Philippine Business for Social Progress (PBSP), an association of more than 270 member companies aiming to professionalize CSR activities, established the Inclusive Business Imperative, a platform to provide the private sector resources to plan, monitor, and measure the social impact of IB activity.140 The Philippine Center for Entrepreneurship and business schools are also actively promoting social entrepreneurship training, and various IB and social entrepreneurship incubators are active. Furthermore, there are various impact funds. Commercial banks are starting to show interest in IB and social enterprise investments; the Bank of the Philippine Islands is utilizing its corporate foundation’s social enterprise competition as a pipeline generator.
79. In 2014, the Philippine Board of Investments, Office of Senator Bam Aquino, and ADB came together to pursue IB approaches.141 The government made IB a part of its investment priorities plan (IPP) and offered specific tax incentives for companies with IB models in the agribusiness sector.142 While IB was included as a cross-cutting theme in the IPP 2014–2016, in the IPP 2017–2019, IB models are now part of the priority sectors eligible for incentives.143 IB is seen as one of the pathways in the government’s new poverty reduction strategy to reduce poverty by 1.25%–1.50% per year.
80. Major legislation is in the works that actively advocates for social enterprise and IB. All three laws are promoted by Senator Bam Aquino. One is the Poverty Reduction through Social Entrepreneurship Bill, and another is a more comprehensive IB bill that “provides for the establishment of a national strategy for the promotion of Inclusive Businesses to be implemented by a new office, the Inclusive Business Center.” The bill also provides policies for “IB accreditation, and support and incentives for IBs and their community partners, including social enterprises.”144 A third bill, the Social Value Bill, proposes the inclusion of social value into all government procurement.
81. The government, as chair of the Asia-Pacific Economic Community (APEC) 2015 and ASEAN 2017, is also promoting IB at the international level. Together with the ASEAN Business Advisory Council, it created the ASEAN Inclusive Business Awards to recognize successful IB models in the region and to create a pipeline of IB projects for replication and funding by impact investors and commercial banks.
4. Summary
140 Philippine Business for Social Progress. Our Flagship Programs. https://www.pbsp.org.ph/?page_id=467 141 G20. 2016a. Country Case Studies on Inclusive Business: Philippines. http://www.g20inclusivebusiness.org/sites/default/files/reference- attachments/Philippines%20Case%20Study_FINAL.pdf 142 Ibid. 143 Ibid. 144 B. Aquino. 2016. Senate Bill No. 349: Inclusive Business Promotion Act. 5 September. http://www.bamaquino.com/senate-bill-no-349-inclusive-business-promotion-act/ 72
82. The Philippines has developed into a leader on IB not only domestically but on a regional scale with their strong commitment to promoting the IB agenda in ASEAN and APEC. The national enabling policies on IB are expected to further support the growing numbers of IB models, contributing to the government’s inclusive growth and poverty alleviation agenda.
H. SINGAPORE
1. Overview
83. Singapore has a highly developed and successful free-market economy, known for being corruption-free, with a per capita GDP higher than that of most developed countries at $85,382 in 2015.145 The economy depends heavily on exports, particularly of consumer electronics, ICT products, medical and optical devices, and pharmaceuticals, and on its vibrant transport, business, and financial service sectors. From 2000 to 2010, the GDP nearly doubled, from S$163 billion ($124 billion) to S$304 billion ($231 million), with unemployment rates averaging less than 2%–3% during this period.146
Table A8: Singapore
Indicator Rank Year Human Development Index 11 / 187 2015 Ease of Doing Business 2 / 190 2016 Index of Economic Freedom 2 / 178 2016 Sources: UNDP. Human Development Index. http://hdr.undp.org/en/content/human-development-index-hdi (accessed June 2017); World Bank. Doing Business. (accessed June 2017); The Heritage Foundation. 2017. Index of Economic Freedom. https://www.heritage.org/index/
84. In the next 25 years, Singapore’s challenge will be its aging and declining population. It is already facing a demographic crisis, with its 2014 population growth rate at 1.3%, the slowest in 1 decade.147 While every five working adults support one senior citizen in Singapore today, two adults will support one senior citizen by 2030.148 Like most developed countries, Singapore’s social challenges are around the elderly, persons with disabilities, and high costs of housing.
2. Micro, Small, and Medium-Sized Enterprises
85. Singapore’s 180,000 local SMEs make up 99% of the enterprises and contribute to nearly half of the GDP while employing 70% of the workforce.149 SMEs are defined as enterprises with operating receipts not more than S$100 million or employment not more than 200 workers, for all sectors.150
86. The government has a wide range of initiatives to support SMEs. Government SME centers help SMEs obtain customized business advice and understand government initiatives. A new online SME portal supports the work of these centers, acting as a “touch-point for SMEs and
145 World Bank. Singapore. http://data.worldbank.org/country/singapore (accessed June 2017). 146 Monetary Authority of Singapore. The Singapore Economy. http://www.sgs.gov.sg/The-SGS-Market/The- Singapore-Economy.aspx. 147 Parameswaran, P. 2015. Can Singapore Overcome Its Future Challenges? The Diplomat. 2 July. http://thediplomat.com/2015/07/can-singapore-overcome-its-future-challenges/ 148 Government of Singapore, Department of Statistics. Singapore Residents by Age Group, Ethnic Group and Gender. https://data.gov.sg/dataset/resident-population-by-ethnicity-gender-and-age-group (accessed June 2017). 149 SPRING Singapore. n.d. Grow Your Business. https://www.spring.gov.sg/Resources/Documents/Corp_Marketing_Brochure_Eng.pdf 150 Ibid.
73 useful information and services suitable for SMEs at various business stages.” 151 Another government agency, SPRING Singapore, under the Ministry of Trade and Industry, is tasked with helping Singapore enterprises grow.152 It also acts as the accreditation body by developing and promoting internationally recognized standards and quality assurance infrastructure. The government recognizes the significant role that SMEs play in the development of Singapore’s future and good jobs, hence continues to build strong initiatives to support and grow them.
3. Inclusive Business
87. Singapore has a limited number of companies with IB models, and many companies consider “inclusivity” as being inclusive of people with disabilities. There are currently 11 companies with existing and potential IB models. 153 Most are regional headquarters of multinational corporations and therefore do not necessarily qualify as Singaporean IBs. The other IB models are implemented outside of Singapore, with the majority in the agribusiness sector engaging the BOP as suppliers. Exceptions were in the housing, water, and financial sectors.
88. Singapore is known for its innovative and strong startup culture, actively promoted by impact and angel investors and the government. However, most business models are not aimed toward solving BOP issues and are not implemented in neighboring ASEAN developing economies.
89. The CSR culture is fairly strong, with the government emphasizing it as well. However, the number of CSR initiatives that count as IB activity is small. In 2005, Global Compact Network Singapore, a national society, was formed to promote sustainable development among businesses and stakeholders.154 It organizes annual conferences, both stand-alone and with partners, and launched Enabling CSR Journeys, an online portal, for CSR-related research information and case studies from Singapore and the region.155
90. Social enterprises are building solutions to solve challenges facing Singaporean society, with many focusing on the elderly and persons with disabilities, while others are expanding to mental health issues and working with vulnerable groups like former offenders and migrant workers. Successful examples include (these)abilities, a design and technology company that “aims to ‘Disable Disabilities’ by designing and building products that level the playing field for Persons with Disabilities at work, at home and during play.”156 One of the company’s successes was designing a wheelchair for public transport, which was subsequently adopted by the Singapore public transport system. Despite the growing number of companies, a significant challenge for Singapore social enterprises is to scale up as they are focused on the Singapore market and hence limited by its size.
91. The Ministry of Social and Family Development in 2003 began promoting policies that aim to provide job opportunities for the socially disadvantaged to move them off of welfare. To deal with these challenges from the bottom up, the Singapore Centre for Social Enterprise (raise) was
151 Government of Singapore. 2017. SMES Are at the Heart of Our Economy. 3 March. https://www.gov.sg/microsites/budget2017/press-room/news/content/smes-are-at-the-heart-of-our-economy 152 SPRING Singapore. n.d. Grow Your Business. https://www.spring.gov.sg/Resources/Documents/Corp_Marketing_Brochure_Eng.pdf 153 Business Call to Action. 2015. Analysis of inclusive business landscape in Singapore, Australia and Indonesia. 154 CSR360 Global Compact Network. Singapore Compact for Corporate Social Responsibility. http://www.csr360gpn.org/partners/profile/singapore-compact-for-csr/ 155 CSR Singapore. 2017. Enabling CSR Journeys. http://www.csrsingapore.org/c/enabling-csr-journeys 156 (these)abilities. 2015. Our Work. http://www.theseabilities.com/blog/category/projects 74 launched by President Tony Tan Keng Yam in May 2015 as the central body for the social enterprise sector in Singapore. It took over the existing work undertaken by the Ministry of Social and Family Development, Social Enterprise Association, and Social Enterprise Hub supported by the Singapore Totalisator Board (Tote Board). raiSE brings together the public and private sectors to develop the social enterprise ecosystem in Singapore. It has had a strong impact on the growth of social enterprises in the country, with 340 social enterprises registering as members, which have 2,900 beneficiaries and created 205 jobs. The total social enterprise sector is estimated to have created up to 800 jobs and served 20,000 beneficiaries. About 30% of the social enterprises are financially sustainable, while others are still dependent on government funding or are in start-up mode. Most social enterprises come into the raiSE portfolio with private capital; out of the 340 raiSE members, 40 companies are receiving grants of S$20,000 ($15,200)–S$300,000 ($228,800). In addition, raiSE has an investment portfolio of up to S$2 million ($1.5 million) financing with five investees.157
92. No specific legislation regarding social enterprises has been enacted in Singapore nor has an explicit definition for social enterprises been established. However, the government supports social enterprises with funding and capacity building through raiSE. More enabling rules and regulations, like social procurement, could help promote social enterprise in Singapore.
93. Singapore has increasingly become a regional impact finance hub, with many players setting up base in the country, although their investment focus is on regional deals rather than domestic deals due to the small size of the domestic market. Singapore’s academic institutions have also been actively engaged in promotion of social enterprises, including the Asian Centre for Social Enterprises at the National University of Singapore, Institute for Social Innovation, and INSEAD Asia Campus. The DBS–NUS Social Venture Asia challenge has been another active player, awarding funds to both local and regional social enterprises.158 Impact Hub Singapore has been a big supporter of social enterprises, which provides co-working space and support for social enterprises and has recently launched a S$1 million fund ($762,000) for social enterprises.159
4. Summary
94. In sum, Singapore, a global financial center, has strong support for domestic social enterprise and can be a strong leader for promoting IBs in the region. It can encourage additional incentives for corporations as well as investors operating outside of the domestic market.
I. THAILAND
1. Overview
95. Thailand is one of the biggest success stories of the region, moving from a low-income to an upper-income country in less than a generation.160 However, average growth slowed to 3.5% over 2005–2015, with challenges in political stability and barriers in the agriculture sector, in which the majority of the rural economy is engaged. The economy grew at an average annual rate of 7.5% in the boom years of 1986–1996, and 5.0% following the Asian financial crisis during 1999– 2005, creating millions of jobs that helped pull millions of people out of poverty.161 The country’s
157 raiSE Singapore. https://www.raise.sg/ 158 DBS–NUS Social Venture Challenge Asia. http://socialventurechallenge.asia/competition/ 159 Impact HUB Singapore. http://singapore.impacthub.net/homepage 160 World Bank. The World Bank in Thailand. http://www.worldbank.org/en/country/thailand/overview
161 Ibid.
75 progress along human and social development indicators have been strong, with huge strides made in education, health insurance, and other forms of social security.162 The GDP per capita stood at $16,340 in 2015, and the 2013 Gini Coefficient at 37.8. The manufacturing industry dominates Thailand’s economy, with micro and SMEs accounting for around 70% of the total manufacturing employment and producing 30% of the manufacturing output.
Table A9: Thailand
Indicator Rank Year Human Development Index 93 / 187 2015 Ease of Doing Business 46 / 190 2016 Index of Economic Freedom 67 / 178 2016 Sources: UNDP. Human Development Index. http://hdr.undp.org/en/content/human-development-index-hdi (accessed June 2017); World Bank. Doing Business. (accessed June 2017); The Heritage Foundation. 2017. Index of Economic Freedom. https://www.heritage.org/index/
96. Poverty in Thailand has declined substantially over the last 30 years, from 67% in 1986 to 10% in 2014 during periods of high growth and rising agricultural prices. However, poverty and inequality continue to pose significant challenges, due to varying levels of economic growth, falling agricultural prices, and ongoing droughts.163 Poverty is primarily a rural phenomenon, with over 50% of the country's 7.3 million poor living in rural areas. Moreover, an additional 6.7 million live within 20% above the national poverty line, remaining vulnerable to falling back into poverty.164
97. Successive governments, along with NGOs, international NGOs, individuals, and corporations, have tackled these issues in recent years in the pursuit of sustainable development. Anti-poverty campaigns have included the government’s Blue Flag program, which endorsed shops that sell good-quality, low-priced consumer goods; Energy Credit Card scheme; minimum wage policies; bonuses for those holding higher education certificates; village community funds; Thai Women’s Empowerment Fund; and Thai Business Fund. Social security programs have also been expanded to include the informal sector.165
2. Micro, Small, and Medium-Sized Enterprises
98. SMEs form 99% of all enterprises. With over 2.8 million SMEs in Thailand, SMEs contribute 97.2% of the GDP. SMEs comprised 11.4 million employees or 81% of the total workforce in 2013.166 SMEs are defined by sector. In the manufacturing sector, small enterprises are those with less than 50 employees with fixed assets less than B50 million ($1.6 million), and medium-sized enterprises are those with 50–200 employees with fixed assets B50 million ($1.6 million)–B200 million ($6.4 million); in the wholesale sector, small enterprises are those with less than 25 employees with fixed assets less than B50 million ($1.6 million), and medium-sized enterprises are those with 25–50 employees with fixed assets of B50 million ($1.6 million)–B100
162 The Heritage Foundation. 2018 Index of Economic Freedom. Thailand. http://www.heritage.org/index/country/thailand 163 World Bank. Poverty and Equity Data Portal: Thailand. http://povertydata.worldbank.org/poverty/country/THA (accessed June 2017). 164 World Bank. The World Bank in Thailand. http://www.worldbank.org/en/country/thailand/overview 165 Oxford Business Group. Thailand Pursues Sustainable Development through Inclusive Growth. https://www.oxfordbusinessgroup.com/analysis/improving-equality-pursuing-sustainable-development-addressing- challenges-inclusive-growth 166 ADB. 2015. Asia SME Finance Monitor. Manila; Office of Small and Medium Enterprise Promotion (OSMEP). 2015. White Paper on Small and Medium Enterprises in Thailand 2015. Government of Thailand. https://www.adb.org/sites/default/files/publication/173205/asia-sme-finance-monitor2014.pdf 76 million ($3.2 million).167 About 81% of SMEs operate in the service sector, particularly retail and wholesale.168
99. The government’s economic reform program includes SME promotion through initiatives like SME tax incentives and creating enabling technology for SMEs with e-payments. 169 Thailand’s business environment is critical to the competitiveness of SMEs that dominate the business sector.170
100. Government agencies, such as the National Board of SME Promotion and Office of Small and Medium Enterprises Promotion, promote SME policies in the country. The Office of Small and Medium Enterprises Promotion has created three master plans to promote SMEs, with the third plan spanning 2012–2016 and comprising “four strategies that address conducive business environment, competitiveness, balanced growth across the country, and the business capability of Thai SMEs for international economic integration.” Promoting SME access to finance is one of the strategic actions under the pillar of developing a conducive business environment for SMEs.171
101. In addition, about 30 commercial banks and 6 specialized financial institutions are active in Thailand and provide loans to SMEs.172 To create a smooth transition to AEC, the national SME policy is now focused on “strengthening the knowledge base and international networks, so that Thai SMEs can operate easily in the integrated regional economy.”173
3. Inclusive Business
102. While the number of BOP and their spending potential are high, the actual market opportunity for IB is smaller, owing to the smaller size of the low-income market as well as strong government programs for the poor. There are about 20 companies with IB models in Thailand. An example is the Urmatt Group, the world’s largest producer of organic jasmine rice, which works with thousands of small farmers to grow and procure organic jasmine rice, chicken eggs, chia, and coconuts through contract farming models.174
103. Several corporations, especially in the agribusiness and fast-moving consumer goods sectors, have adopted sustainable sourcing practices. For example, Nestlé Thailand, through its cocoa plan, intends to increase the sustainable supply of quality cocoa by sourcing from small farmers, who receive seedlings and training. Globally, the company committed to sourcing 15% of its cocoa directly from small farmers.175 Another example is Sompo Japan Nipponkoa Group, a Japanese insurance company, which has introduced insurance products to help low-income farmers in Thailand mitigate against the adverse impacts of climate change. The group has
167 ASEAN Secretariat. ASEAN Strategic Action Plan for SME Development 2016-2025. 2015. Jakarta. 168 World Bank. 2016. Thailand Economic Monitor: Services as a New Driver of Growth. http://pubdocs.worldbank.org/en/254491482124123659/Thailand-Economic-Monitor-Summary.pdf 169 ADB. 2015. Asia SME Finance Monitor. Manila; Government of Thailand, Office of Small and Medium Enterprise Promotion (OSMEP). 2015. White Paper on Small and Medium Enterprises in Thailand 2015. Bangkok. http://www.sme.go.th/en/download.php?modulekey=94 170 World Bank. 2016c. Thailand Economic Monitor: Services as a New Driver of Growth. Washington, DC. http://pubdocs.worldbank.org/en/254491482124123659/Thailand-Economic-Monitor-Summary.pdf 171 ADB. 2015. Asia SME Finance Monitor. Manila; Government of Thailand, Office of Small and Medium Enterprise Promotion (OSMEP). 2015. White Paper on Small and Medium Enterprises in Thailand 2015. Bangkok. http://www.sme.go.th/en/download.php?modulekey=94 172 Ibid. 173 Ibid. 174 Urmatt. 2017. The Story behind Urmatt. http://www.urmatt.com/our-company/ 175 Nestle. Managing Responsible Sourcing. https://www.nestle.co.th/en/csv/responsible_sourcing/managing- responsible-sourcing
77 expressed a commitment to enhance the resilience of 30,000 small-scale farmers in Southeast Asia by 2025 through its weather index insurance.176 More enabling legislation and awareness of IB models could enable a significant rise of IB in Thailand, especially given that the country is already focused on making growth more inclusive. Given that Thai companies operate abroad, the country is also interested in promoting responsible investments abroad, especially in the Greater Mekong Subregion.
104. Thailand’s corporate social commitment is an extension of the Thai culture of doing good, which has made companies engage in philanthropy for local communities. This is changing with some leading companies in Thailand pursuing CSR as a core strategy for their sustainable business development, blending both new concepts and traditional cultural elements. Siam Cement Group, one of the largest cement manufacturers in Thailand, promotes recycling of the cement bags by turning them into usable handbags in an effort to reduce environmental waste.
105. CSR in Thailand is also based on the Sufficiency Economy philosophy promoted by the former King Bhumibol Adulyadej, which focused on local community development. In addition, there is growing interest from corporations to set up, invest, or support social enterprise. A key driver of this approach is the Stock Exchange of Thailand, which offers incentives for companies to shift their CSR approach to social enterprise. Furthermore, the current government encourages corporations to co-create social enterprises through public–private partnerships.177
106. According to Change Fusion, a leading social enterprise intermediary, there are around 116,000 social enterprises in Thailand, which are growing steadily. The support of the Thai National Social Enterprise Committee and Thai Social Enterprise Office has spurred this development. Young Thais are also embracing the concept of social enterprise. Thailand is home to intermediaries such as Change Fusion, Ashoka Thailand, and NISE Corporation that work as capacity builders to stimulate social enterprise startups and growth. New players like Unlimited Thailand have also sprung up. An example of a social enterprise is Siam Organic, winner of a regional social enterprise award. The enterprise currently provides 800 farmers with Jasberry rice seeds and guarantees a premium price for the organic crop output.178
107. As one of few countries that has a strong, explicit commitment from the government to develop the social enterprise sector, social enterprises in Thailand have benefited from expertise and consultancy provision, workshops, and promotion activities to help grow their companies.179 In 2009, the government and civil society organizations formed the National Social Enterprise Committee to increase awareness of the sector and access to finance. Encouraged by the growth of social enterprise internationally, the government supported the establishment of a national sector body, the Thai Social Enterprise Office, which was active from 2010 to 2016, and developed the Social Enterprise Promotion Act, offering tax relief for corporations setting up social enterprises and tax incentives for social investment. In 2011, it set aside $3.2 million of funding.
176 ADB and SNV. 2010. Vietnam: An Inclusive Business Venture Fund Feasibility Study. http://www.snvla.org/resource/items/2/0/2010%20ADB%20Vietnam%20Inclusive%20Business%20Feasibility%20S tudy%20FINAL.pdf 177 Government of the United Kingdom, British Council. Social Enterprise Is Set to Take Off in Thailand. https://www.britishcouncil.org/society/social-enterprise/news-events/news-social-enterprise-set-to-take-off-in- thailand 178 Asia for Good. Siam Organic. https://www.asiaforgood.com/siam-organic 179 Government of the United Kingdom, British Council. 2016 Social Enterprise in a Global Context: The Role of Higher Education Institutions. https://www.britishcouncil.org/sites/default/files/thailand_- _social_enterprise_in_a_global_context_-_final_report.pdf
78
108. Following the new government coming to power in 2014, the National Reform Council Committee proposed a bill on social enterprise to promote continued support. The bill advocated the establishment of a new independent regulating body, the Office of the National Social Enterprise Promotion, a social enterprise commission to coordinate policy, and a new social enterprise fund to provide financial support. The bill also proposed that a regulatory framework be established to encourage the development of social enterprises and that tax incentives for private businesses be awarded to encourage them to spend a portion of their profits on addressing societal needs.180 In 2016, social enterprises were given tax-exemption status, and the law also specified a definition of social enterprise.
109. While there are a number of seed funding options for startups offered through incubation program and business plan competitions, this funding is often too short term. In 2015, the Thai Social Enterprise Office collaborated with two state-owned banks to set up a social enterprise loan program of $57 million, but there is insufficient funding for social enterprises that are moving from the validation to growth stage.
110. Impact investors are invested in social enterprises in agriculture, tourism, education, and technical training. Regional and global impact investors are active, like LGT Impact that has invested in in Hilltribe Organics, an agribusiness working with organic poultry farmers with an equity investment of $80,000, while providing loans to Grassroots Innovations and New Haven Partnership Environment of $50,000 and $14,000, respectively.181 LeapFrog Investments and Kiva have also made investments in Thailand. Investments in large IB companies are uncommon, which highlights the need for strong knowledge sharing on IB in Thailand. The government can also work with development finance institutions and donors to support IB models like it has collaborated for social enterprise.
4. Summary
111. In sum, with a robust social enterprise ecosystem backed by the government, Thailand is a role model for many economies in the region for impact investing. However, IB is yet to take off, which means the scale of impact still remains small. IB has strong synergy with the government’s goal for inclusive growth and stronger awareness creation can help Thai companies scale their impact both at home and abroad.
J. VIET NAM
1. Overview
112. Viet Nam is one of the strongest economies in the region, with the country seeing steady GDP growth reaching 6.7% in 2015, with GDP per capita income at $6,034.182 Apart from oil and gas, the apparel and footwear sector is important for economic growth, accounting for 23% of exports. While a growing economy has brought with it opportunities for poverty alleviation, the benefits created so far have not been enough to address the needs of marginalized communities. Economic development, marked by rapid and steep growth, can be related in large part to the industrialization and liberalization that has successfully transitioned the country’s historically agrarian-based economy to one based on manufacturing of finished products. 183
180 IBP, Inc.. 2016. Thailand: Doing Business and Investing in Thailand Guide. Volume 1: Strategic, Practical Information and Regulations. Washington, DC. 181 LGT Venture Philanthropy. 2015. Portfolio Overview. https://www.lgtvp.com/en/portfolio/portfolio-overview/ 182 World Bank. Vietnam. http://data.worldbank.org/country/vietnam?view=chart (accessed June 2017). 183 Ibid.
79
Table 10: Viet Nam
Indicators Rank Year Human Development Index 116 / 187 2015 Ease of Doing Business 82 / 190 2016 Index of Economic Freedom 131 / 178 2016 Sources: UNDP. Human Development Index. http://hdr.undp.org/en/content/human-development-index-hdi (accessed June 2017); World Bank. Doing Business. (accessed June 2017); The Heritage Foundation. 2017. Index of Economic Freedom. https://www.heritage.org/index/
113. The poverty headcount in Viet Nam fell from nearly 60% to 7% in the past 20 years. However, rapid economic transformation and growth have contributed to rising inequality in income and opportunities. About 12.02% of the population falls under international poverty line of $3.10, while 3.06% fall under the poverty line of $1.90. 184 The poor lack access to quality education and health services, and to income opportunities, especially in rural areas.
114. With the rapid pace of urbanization, the urban poor also pose a new challenge.185 A growing number of workers from rural areas are migrating to the cities to work in private industry and services, and many of these jobs are informal and lack employment benefits such as health insurance and pensions.186 The domestic private sector is the biggest employer (over 90%), and the public sector accounts for 9% of the total employment. In terms of sectors, manufacturing is the largest employer (51% of employees) followed by construction, trade, and transport.187
2. Micro, Small, and Medium-Sized Enterprises
115. In 2012, there were 333,835 micro and SMEs active in the country, accounting for 97.7% of total enterprises, which consisted of SOEs (0.5% of total active micro and SMEs), private enterprises (97.2%), and foreign-invested enterprises (2.3%), with over 5.1 million workers employed in the micro and SME sector, accounting for 46.8% of the total workforce.188 Micro and SMEs are categorized by sector: in the agriculture and manufacturing sector, micro enterprises are those with less than 10 employees, small enterprises are those with less than 200 workers and capital of D20 billion ($880,000), while medium-sized enterprises are the with less than 300 workers and capital of D100 billion ($4.4 million). In the service sector, micro enterprises are those with less than 10 employees, small enterprises are those with less than 50 workers and capital of D10 billion ($440,000), while medium-sized enterprises are the with less than 100 workers and capital of D50 billion ($2.2 milllion).189
116. The government has initiated support to SMEs, such as the Ministry of Industry and Trade’s Buy Vietnamese campaign, which promotes Vietnamese goods in the country, and the National Trade Promotion Program, which aims to expand export markets for SME exporters. The Ministry of Finance provided several tax incentive schemes and preferential measures for
184 Ibid. 185 World Bank. 2012. Well Begun, Not Yet Done: Vietnam’s Remarkable Progress on Poverty Reduction and the Emerging Challenges. Hanoi. 186 World Bank. 2013. Poverty Reduction in Vietnam: Remarkable Progress, Emerging Challenges. 24 January. http://www.worldbank.org/en/news/feature/2013/01/24/poverty-reduction-in-vietnam-remarkable-progress- emerging-challenges 187 ADB. 2015b. Country Partnership Strategy: Viet Nam, 2012–2015—Private Sector Assessment Summary. Manila. https://www.adb.org/sites/default/files/linked-documents/cps-vie-2012-2015-psa.pdf 188 World Bank. 2016c. Thailand Economic Monitor: Services as a New Driver of Growth. Washington, DC. http://pubdocs.worldbank.org/en/254491482124123659/Thailand-Economic-Monitor-Summary.pdf 189 ASEAN Secretariat. 2015c. ASEAN Strategic Action Plan for SME Development 2016–2025. Jakarta. 80 enterprises to expand business investments and to reduce business costs, and the Ministry of Planning and Investment launched an SME-supporting information system and is also preparing a new law to support SME development, including new guidelines for micro and SMEs.190
3. Inclusive Business
117. The private and public sectors, development agencies, and investors have significant interest in IB. However, given the low level of awareness of IB models, it is essential to undertake specific awareness and promotional activities.191 IB intermediary organizations, like the Viet Nam Business Council for Sustainable Development, have created mechanisms like ranking top sustainable businesses to promote IB. Others, like SNV, are working with companies to build inclusive models in agriculture, health, and tourism.
118. However, IB models are not reported widely or discussed in mainstream commercial activities. Viet Nam has seen a few IB investments so far, and there is potential especially in the agribusiness and seafood industries. Companies are beginning to include the BOP in their value chains; for example, EcoFarm trains local farmers to switch from solely rice to both rice and corn production. Orient Dragon increases the access of farmers to technical services for safe, clean tea, which improves their income. Both companies then buy produce from the farmers.
119. In 2012, a Viet Nam Business Challenge Fund funded by the Department for International Development of the United Kingdom and managed by SNV was launched. The fund supports private companies operating in Viet Nam to develop innovative IB in agriculture, low-carbon growth, and infrastructure. The Vietnam Business Challenge Fund pledged nearly $9 million to 21 IB ventures, and the expected social returns include 9,000 new jobs created and 70,000 people with increased income. ADB did its first investment in 2016 in an agribusiness company for flower and vegetable production.
120. Although CSR was originally deployed by international companies, more domestic corporations are undertaking CSR activities today. Traditionally, these took a philanthropic route, but now, companies are engaging in more strategic CSR. In 2014, the first Viet Nam Corporate Sustainability Forum was organized by the Vietnam Chamber of Industry and Commerce in collaboration with the British Council and Vietnam Business Challenge Fund. 192 Inclusive Business Accelerator Viet Nam was designed to both consolidate and scale up private sector engagement in low-income markets. In 2016, the Viet Nam Business Council for Sustainable Development in cooperation with the Ministry of Labor, Invalids and Social Affairs; Ministry of Industry and Trade; Ministry of Natural Resources and Environment; Viet Nam General Confederation of Labor; and State Securities Committee of Viet Nam launched the first Program on Benchmarking and Ranking the Most Sustainable Companies in Viet Nam in 2016 to promote and recognize companies actively addressing sustainability.
121. The social enterprise ecosystem is still at a nascent stage. According to the Center for Social Initiatives Promotion, an organization supporting social enterprises based in Hanoi, the total funding of social enterprises in 2012 was estimated at $2 million. This amount is modest compared to the current needs of social enterprises, most of which are at an early stage and need
190 World Bank. 2016c. Thailand Economic Monitor: Services as a New Driver of Growth. Washington, DC. http://pubdocs.worldbank.org/en/254491482124123659/Thailand-Economic-Monitor-Summary.pdf 191 ADB and SNV. 2012. Establishing an Inclusive Business Private Equity Fund in Vietnam: A Market Scoping Study. Manila and The Hague. https://www.adb.org/sites/default/files/related/32728/ib-market-study-viet-nam.pdf 192 CSR Vietnam. http://www.csr-vietnam.eu/index.php?id=9
81 to capital to fuel their growth.193 Social enterprises number about 167,000, with the majority being not for profit, with around 200 for profit, and about 1,300 community-related.194 Cooperatives that support economically disadvantaged people are at the forefront. However, this trend is changing, with more social enterprises using market-based models. An example is Medical Technology Transfer and Services, which provides affordable and easy-to-use medical equipment to pediatric doctors for newborn babies.195 To date, Unitus Impact has also invested in four companies in Viet Nam.
122. Recognizing the role that social enterprises play in the country’s growth, Viet Nam’s Enterprise Law was revised in 2014 to provide a legal definition of social enterprises, and the government promised to “encourage, support and promote the development of social enterprises.”196 The government has also begun developing policies and incentives for business to become more inclusive. The SME team in the Ministry of Planning and Investment is specifically interested and pursuing IB.
4. Summary
123. Viet Nam’s economy is expected to continue to grow with a strong push for inclusive growth. With the government supporting the growth of entrepreneurship, the IB market has great potential to expand, with more companies looking to include the BOP in their value chains. Donors and companies should work with government agencies like the Ministry of Agriculture and Rural Development, Ministry of Planning and Investment, and other platforms for development to execute strategic projects. Legislative and regulatory support, through strong legislation and policy that would accelerate the growth of social enterprises and inclusive models, are necessary, in addition to the 2014 new changes in the Enterprise Law. Accreditation and incentives from the government will help push companies to integrate inclusivity into their business models.
193 CSIP. 2012. Impact Investment Overview: Vietnam. http://csip.vn/en/content/impact-investment 194CIEM, CSIP, and British Council Vietnam. 2012. Social Enterprise in Vietnam: Concept, Context and Policies. Hanoi: British Council Vietnam. https://www.britishcouncil.vn/sites/default/files/social-enterprise-in-vietnam-concept- context-policies.pdf 195 MTTS. LifeKit by MTTS. http://www.mtts-asia.com 196 CIEM, CSIP, and British Council Vietnam. 2012. Social Enterprise in Vietnam: Concept, Context and Policies. Hanoi: British Council Vietnam. https://www.britishcouncil.vn/sites/default/files/social-enterprise-in-vietnam-concept- context-policies.pdf 82
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