Household Enterprises Are Key to Inclusive Growth

02/11/2012
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Economists studying the role of household enterprises in economic growth are advising governments to discontinue ignoring the sector in their development strategies.

Instead, they should scale up their understanding of how these enterprises are organized, how they operate and what sort of support they require to strengthen their contributions to growth in respective countries.

This is because not only are they not about to go away. They remain viable as a source of employment for people without a secondary-level education who constitute the majority of people who may be entering the labour market in sub-Saharan Africa for at least the next 10 years.

“Governments need to support the development of the household enterprise sector and encourage the growth of enterprises and their stability,” said Louise Fox, a lead economist in the World Bank’s Africa Region, at the 7th edition of the African Economic Conference in the Rwandan capital of Kigali.

Fox and Thomas Pave Sohnesen are co-authors of a paper that attempts to answer why household enterprises (HEs) in sub-Saharan Africa matter for growth, jobs and livelihoods by analyzing them as sources of employment, their commercial potential, and their impact to people’s livelihoods.  

Their research argues that there’s a role in economic growth to be allocated to household enterprises and to the extent that is possible, one can design appropriate development strategies that would be crucial to enable markets to work for the benefit of low-income households trying to climb and stay out of poverty.

“Even in countries with double-digit growth in the non-agricultural, non-mineral sectors, HEs have been responsible for the majority of the non-agricultural employment growth, and this trend is likely to continue for several decades owing to high projected labour force growth, low education levels, and the difficulties of growing employment fast enough in large, modern firms,” Fox and Sohnesen note in their research.

According to their findings, up to 50 per cent of households in sub-Saharan Africa are, on average, engaged in non-farm enterprises. This percentage, they add, is growing and so, “any investments which result in more households having a viable HE or higher incomes for even half of the HEs would have a substantial impact on GDP and poverty.”

Currently, household enterprises are constrained by their location, usually in rural or semi-rural areas; by their seasonal nature, running most times for only half a year; by their exclusionary nature, which mostly affects women; by their inability to create employment for young people, since they often lack what it requires to start one; and by their inability to easily access capital.

Fox and Sohnesen claim that “contrary to popular belief, the majority of HE owners are registered, licensed, or in other ways known to the local authorities. Many report paying taxes or licence fees to these sub-national governments, and often the traders pay a fee to have a place in the public market."