Social Returns
World development agencies have found enterprise development to be the most effective, sustainable form of poverty reduction; particularly because of its ability to create sustainable jobs and economic growth.
Job Creation and Economic Growth
In South Africa, Enterprise Development is uniquely powerful in its ability to create jobs and economic growth . The government’s introduction of the Enterprise Development element of the BEE codes puts pressure on companies to spend 3% of NPAT on ED. This amount of money can reduce the current unemployment rate by half if it’s spent properly. Enterprise development in markets that are undersupplied, or can replace imports will reduce leakage, provide thriving local businesses and increase the net jobs in the country, boosting overall economic growth. These outcomes will significantly impact the quality of life for all South Africans, not only the poor; decreasing the need for social grants, increased taxes, reduce crime, instability and increased investor confidence.
Investing in high growth businesses in labour intensive markets
Enterprise development that does not have a positive effect on overall net jobs will fail to deliver any social impact at all. It is therefore important that enterprise development is performed on businesses that exist in markets that are either undersupplied, can compete with and replace imports or increase existing exports. This will result in an increase in overall GDP as opposed to merely shifting jobs from one owner to another (which would happen in an over supplied market or one operating at its capacity).
In addition to this, creating sustainable economic benefit to the most poor, would require investing in businesses that would create jobs for unskilled and semi-skilled workers. The poor themselves believe that this is the most desirable form of upliftment, providing the opportunity to sustain themselves through earning a living. (World development Report, Aryan and others (2000)) It is therefore imperative that enterprise development is focused on building businesses in labour intensive markets.
Investing in businesses with positive social outcomes
Traditional Venture Capital and Private Equity firms require certain financial returns in order to make their investments worthwhile. Some businesses may be financially sustainable, and provide high social benefits, yet not be able to produce high enough financial returns to gain them access to finance. The provision of assistance to these companies that would not ordinarily have access to finance would have a large social impact.
Read more about an example of a solid business case with a strong social benefit