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The trouble with enterprise groups

Jacqueline Vrancken | 21 January 2015

When it comes to enterprise support in the development sector, there appears to be a discrepancy between the frameworks offered by NGOs and how people in the communities want to operate. There is too much obsession with the means of implementation rather than the end goals.

This contribution aims to extend the discussion on what the establishment of viable enterprises by the rural poor requires by looking at the effectiveness of group enterprises initiated and supported through an NGO project. The findings and ideas presented here are based on my experiences with implementing and evaluating small enterprise groups in pastoralist communities in post-conflict South Sudan. 1

The project plan

To provide some context for this review a brief explanation of the project is given first. The enterprise groups were part of a larger three-year project that aimed to improve food security and strengthen the livelihoods of vulnerable communities in two counties in South Sudan. The aim was to form 16 groups with at least 25 members to benefit 400 households. The groups were intended to diversify and expand their income-generating activities, directly improving the food security of their households and showing other households the opportunities available to them, reduce insecurity due to cattle raiding by involving young people, reduce household poverty by involving women and increasing their spending capacity, make the best use of natural resources in new economic activities 2 and identify enterprises that have potential to grow and provide employment in rural areas.

The target population consists of pastoralist communities leading a subsistence lifestyle, mainly by herding livestock and engaging in seasonal agriculture on semi-arid plains. Since access to food is seasonal and productivity and output are low, the majority of households incur food deficits and usually require partial food assistance. They struggle to survive in an area full of environmental challenges and where there is a lack of basic services – such as infrastructure, education and healthcare facilities. Most of these pastoralists are illiterate and have not been exposed to other lifestyles and livelihoods, other than seeing a few small basic businesses in the towns (which are mostly owned by people from neighbouring countries).

The project plan was built around the concept of a participatory approach; the target communities should be in the driving seat of the project as they are the ones to decide on the direction of peace-building and income generation. To ensure a sense of ownership the groups themselves identified the most suitable type of business for their community. The group members also had to contribute money to the business, after which they received funding from the NGO (in most cases the group and the project contributed an equal amount). The NGO gave advice on the business selection and sensitized the communities on the value and importance of diversified livelihoods and value-addition businesses. To ensure the sustainability of income-generating activities in the long term, the NGO supported the groups by providing business skills and group management training, regular monitoring and mentoring and market linkage activities.

As this project was the first of its kind in this area and in these kinds of community, this review should be seen first and foremost as a source of lessons for the future rather than a critical assessment of the project itself.

The added value of groups

Interestingly, although the project plan stresses a participatory approach to integrate the communities’ ideas in the implementation and direction of the project, the plan already includes a decision on an important part of the implementation: the formation of groups. Remarkably, the plan does not specify why this approach is deemed most appropriate in these communities and for the development of alternative livelihoods. The only  reference made in this regard is that producers and traders in live animals are not organized into production and marketing groups, have little market information and, as individuals, have very low bargaining power. One way to interpret the lack of elaboration on the choice for a group approach could be that there is a widespread belief in the development sector in the advantages of participatory groups.

According to a report from the Food and Agriculture Organization (FAO), 3 which provides guidelines on beneficiary participation in agricultural and rural development, a participatory approach offers benefits to both the rural poor and the implementing agencies: through groups the poor can engage much more in efforts to alleviate poverty and better meet their economic and social needs, while the project and/or delivery system can provide services and facilities more easily, on a wider scale and more cost-effectively. According to the report, by participating in an agricultural or rural development project, ‘the intended beneficiaries, in particular the rural disadvantaged people, contribute to the planning of a project or programme, participate actively in its implementation and evaluation and share fully in its benefits.’ The report states that there is overwhelming evidence that such participation cannot effectively take place on an individual basis but needs a structure consisting of existing or new self-created and self-managed groups or organizations.

However, the report also recognizes that participatory projects are not necessarily exclusively composed of elements of group formation/action and that many development activities will continue to emerge from individual initiatives and incentives. Group formation/action is not the panacea for achieving all development objectives, but groups can be instruments to better meet certain needs or perform certain functions. Also, group formation should not be compulsory or a sine-qua-non condition, but spontaneous and voluntary.

The report states that evidence has shown that predominantly ‘individualistic’ approaches bring benefits mostly to the better-off. However, in this regard it should be noted that people in the groups were also often the better off members of a community. As members were required to contribute money to the start-up capital, the most vulnerable were not included as they often did not have the money or time to contribute; they were too busy surviving. It was found that most group members were already involved in their own commercial undertakings, however small (e.g. selling chickens/goats/cattle or selling food or retail goods from their home).

Challenges in enterprise group implementation and operation

In my experience the formation of enterprise groups was a slow process and most groups were not able to establish viable businesses. There was no single or prime reason for this, as the implementation and the operation of the enterprises was subject to a complex interplay of a multitude of actors and factors, including the following: conditional factors (e.g. insecurity, lack of infrastructure, weak private/public/civil society institutions), economic factors (e.g. inflation, unfavourable exchange rates, high operational costs, competition) social/cultural factors (e.g. underdeveloped business spirit, low education level, gender imbalance), group dynamics (e.g. lack of group spirit, lack of strong leadership, prevailing personal interests), relationship with the NGO (e.g. lack of trust), strength of community-based organizations/facilitators (e.g. lack of motivation, high staff turnover) and NGO operational aspects (e.g. transport issues). It is beyond the scope of this article to elaborate on all these factors and actors; it zooms in only on aspects related to group dynamics.

Issues in enterprise group dynamics

After community sensitization the communities had to form groups themselves; they chose with whom they want to work, they elected their own management board (chairman, secretary, treasurer) and made their own group by-laws (as explained to them in their training). A criterion for the mutual selection appeared to be familiarity; people only wanted to be in a group with people they already know, so they know if they are capable and trustworthy. Even though the groups thus consisted of people that expected to be able to rely on each other there was an overall lack of group spirit. This was experienced in the lack of trust towards each other (especially in regard to money), regular group conflicts (e.g. about unequal commitment and efforts) and a prevailing self-centred approach. The fact that the concept of doing business in a group and owning a group account is a complete new phenomenon in these communities undoubtedly contributed to the challenges faced in the groups. This inexperience in combination with a lack of accountability – because of absent or poor record-keeping – fed mutual distrust to such an extent that it paralysed some groups. These issues are connected again to other concerns such as an overall lack of sense of ownership and responsibility; members mainly focused on their own activities and often expected other group members to solve issues at hand. Consequently, the group enterprises were not pushed for hard enough when challenges arose. For the women groups it seemed to be even harder to manage the relations inside the group. The women explained this themselves by saying that women have to deal with a big workload at home and have the responsibility to take care of their children, alongside showing commitment to the group. Many women struggled to balance the family and group interests, which made them distrust each other; they all knew that all of them chose their family income over group interests. This also became apparent in their group meetings; several women said that it was impossible to have effective group meetings as the members kept talking about issues at home until there was often no time or patience left to discuss group matters. Moreover, in many cases, group consolidation took up a considerable amount of time of the total project life span – time that could have been spent more constructively, e.g. on more training on record-keeping.

Many group members admitted that the only reason they were in a group was because the NGO told them to do so and because it was a precondition to receive funding. It is not clear whether the concerned community members actually believed this was the most effective way or what they preferred was not considered at the time of group mobilization and formation; the project plan had already been written and stated targets to be met. After the groups had been funded, group members often admitted openly that they found the groups too big and that they would prefer individual businesses instead. Group members were not shy to state – in front of their fellow group members – that they simply wanted to earn enough money through this project to start or extend their own business. Especially many women said to have joined the group to be able to attend training courses and learn new skills, to use for their own enterprises.

The outcomes  

At the time of this evaluation, 11 groups had been formed (and one was still being formed), nine of which had received funding and six were in business. Of the 11 groups, two were all-women groups, two were mixed and the others were all-male. Except for one women group consisting of 9 members, all the groups had 25 members. However, in none of the groups were all the members actively involved. Often only a small core (in most cases less than 10 people or even only 2 or 3) were concerned with all activities. According to the active members, the others rarely showed up for meetings and only stayed in the group to make up the 25. Although these inactive members were not aware of what was going on they still expected to share in the profits, to which they thought they had the right as long as their contribution was in the group account.

Although the NGOs tried to stimulate diversified businesses, the groups often chose familiar businesses (which they had seen other people in town be successful with) such as livestock trade or a retail shop. Of the all-male groups, five started a livestock trading business, one a small retail shop (which the one group still under formation also wanted to do) and one a grinding mill. Of the mixed groups, one also started a livestock trading business and one a gum Arabic business. Of the all-female groups, one started a restaurant/catering service and one wanted to start a milk processing business (which has yet to be set up). The desired value chain businesses thus remained limited to a grinding mill, an as yet non-existent milk-processing business, a individually operated restaurant and a gum Arabic business(which has ceased operating). The restaurant ended up being operated by only one woman at a time (the only two members left took turns to use the establishment for their personal business) as the members found they could not cooperate with or trust each other. The gum Arabic business ceased operating as the group was not able to supply the quantities and packaging required by the market and group members refused to collect more gum as long as the old stock was not sold and they could not see some profit first.

The retail shop suffered heavily from inflation, the unfavourable exchange rate, high costs of transportation and competition. The livestock trading businesses also suffered from the latter two problems, as well as high taxes and dwindling market prices. At one point the economic conditions were so bad that the livestock and retail trade came to a near or actual standstill. Profits were low and dividing them up among 25 people became particularly problematic for the non-value-adding businesses.  The reasons that, for example, the retail shop got approval for funding were that the groups themselves wanted a retail shop in their community (participatory approach) and as the shop would also sell some food items it could fit into the livelihoods and food security improvement framework. Groups were very hesitant to become involved in businesses they had not seen anyone else be successful with. As observation appeared to be their most common learning strategy, the absence of any existing value addition businesses in their communities contributed to this issue.

As it proved very challenging to allow the groups to function properly and generate household income, it was decided during an evaluation meeting two-thirds into the project life-span to put the formation of the remaining groups on hold and to be more flexible in the number of members in the existing groups.

Discrepancy between NGO approach and community preferences

The aforementioned FAO report says that beneficiary participation has become a fashionable and frequently used (and misused) concept that is applied in many projects in limited forms and ways. It can be argued that this was also the case for this project; a truly participatory approach would include asking the communities whether they prefer to operate a business alone or in a group. The report concludes that only through group approaches the large numbers of marginalized rural people can be reached effectively, but that ‘individualistic’ types of involvement in project formulation and implementation can work satisfactorily in various instances. The idea that a participatory approach thus requires people to be in a group at all stages of the project is erroneous; e.g. people may be sensitized, trained and mentored in groups and even share the same facilities on a rotating basis (e.g. restaurant or grinding mill) or a permanent basis (e.g. storage facilities) but they do not necessarily have to share ownership of a business and a money account.

Yet, in the development sector, gathering people in a group to provide them with funding or even a contract is still very common, even though the reality on the ground may call for a different approach. An example of this was also heard in a presentation by SPARK South Sudan at the IGNITE Conference. 5  They experienced that even though a cooperative is registered as such, it may be run by an individual; when they asked a cooperative member during a field visit where the other group members are, he replied: ‘I am the group.’ He wanted to do business on his own, but he found out that it was easier to get registered as a cooperative and that the World Food Programme – to which he wanted to sell his grains – only buys from groups/cooperatives.

In the interests of effectiveness and efficiency, rather than providing training on the importance of groups, organizing countless meetings to address group issues and letting group formation soak up precious project time, NGOs could function as a valuable link in creating a network that beginning entrepreneurs could tap into. They could link them up with successful entrepreneurs, not only for business connections but also to receive on-the-spot training and advice. Not only NGOs, but also donor and government institutions, should be more attentive to the notion that a participatory approach may include both group as well as individual types of involvement. If groups fail, even fewer households would be able to improve their income than if a few strong and durable individual enterprises had been established. This makes the discrepancy between the NGO approach and community preference both tricky and ironic.

Footnotes

1  For a Dutch development organization, I worked four months in 2012 on the implementation (mobilizing, training, monitoring and mentoring) of small enterprise groups and assessed the successes and challenges of their implementation through ethnographic research.

E.g. livestock marketing, hides and skins production, milk marketing, hay-making and non-timber forest products such as gum Arabic and honey production.

3  Heck van, B. (2003). Participatory Development: Guidelines on Beneficiary Participation in Agricultural and Rural Development. Rural Institutions and Participation Service, Rural Development Division, Food and Agriculture Organization of the United Nations. Rome, Italy.

4  As this evaluation was conducted when the project was two-thirds into its life span, it only includes the outcomes up to that point.

5 Presented by Lauren Blair Servin, Country Manager of SPARK South Sudan, in the workshop ‘Agricultural value chains for economic development’ at the 2nd IGNITE Conference, ‘Entrepreneurship Development for Stability in Fragile and Conflict Affected States’, November 19th 2014, Beurs van Berlage, Amsterdam.

Photo credit main picture: IPS Inter Press Service / via flickr

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About the author

Jacqueline Vrancken

Jacqueline Vrancken is an MSc student in International Development Studies – specialising in Disa...

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