What Young Malawian Entrepreneurs Need
Draft Template/ Working Document/ Collection of thoughts. Introducing the Youth Development Cooperative (YDC).
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Young people across Africa are hungry for success. From the technology clusters currently popping up in Kenya, to those in Ethiopia young Africans want to do well.
As a small landlocked country, Malawi is disadvantaged in many ways. But those geographical challenges also present the country with an opportunity. It means we must work smarter than our neighbours to not only survive, but to thrive. It means we must innovate.
Thus, there is hope in that the government can enact several laws, pass executive orders and generally assist in creating a climate which would improve the business environment for many young people, as long as they have a desire to succeed, and are willing to work hard for it. I hope Peter Mutharika’s government does this because such will in the long-term stimulate growth, employment, and contribute to poverty alleviation across Malawi and neighbouring countries.
The text below is a collection of thoughts, ideas and inspiration from multiple sources, and should be understood to be a working document, or template that can be improved, and not a perfect suggestion. Any critique is welcome.
Firstly a public body [Youth Development Cooperative (YDC)] would need to be created that has:-
- An executive branch made up of seven salaried senior positions (Director, Company Secretary, a Commercial Director, a Business Development Adviser, a Human Resources Director and two Administrative assistants) each on a 3 year once-renewable contract. They will be appointed on merit based on their qualifications.
- They will be the face of the organisation, and in charge of management and other functions as outlined below, including employment (each of the centres described below will need a Manager, a Business Adviser and five or six employees to work shifts in running the centres).
- The YDC will have a Board of Governors made up of nine people (for example 3 from CSOs, 2 from clergy, 2 from the Business Community, and 2 diplomats from foreign embassies) who will serve an unsalaried maximum term of 3 years. While this may seem like a random and unusual collection of people, the thinking behind is to create a board that is resistant to ‘interference’, or as resistant as can possibly be, and that is truly interested in the development of the youth, as opposed to financial gains / allowances. From my experiences, and close observation of boards of parastatals in Malawi, patronage can disable / destroy an organisation which would otherwise thrive.
- The Board of Governors will have the power to make appointments of the executive of the cooperative (by vetting & voting). They will be responsible for reviewing the individual performances of each of the members of the executive, and decide whether to renew their contracts or not.
- The seven members of the board of Governors (excluding the diplomats) must be selected by a public vote (on a district majority basis) in which any Malawian aged 16 years and above can participate. No more than one candidate may be selected from each of the 28 districts of Malawi AND no more than 3 people can be selected from each region (South, Central, North). The 2 posts offered to diplomats will rotate among foreign embassies who elect to take part, and they will be free to send a person they choose.
The importance of such an arrangement is to ensure that the organisation is truly independent, and not be politically aligned. In this case, it is in the interests of all Malawians for young people from across the country to thrive irrespective of political party affiliation, thus the board should be representative of the country.
The organisation will be created to tackle five primary areas in which the Malawi government can intervene in stimulating growth, and helping young people thrive.
1. Lower barriers to entry for Malawian Nationals
The government must ensure that they lower barriers to entry for young people in Malawi:-
- Information Technology – We live in the information age, and IT is critical to the growth of our country’s economy. So the government must establish Public IT Centres providing free internet (satellite or other reliable service with minimal outages) and hot-desking facilities to support any Malawian under the age of 35 who wants to start a business. It should be a place where young people can receive free advice and teaching on web technologies and other subjects. It should be a place where young people can go and exchange ideas, a place to read national and international newspapers, and get exposure about what is happening across the business world across Africa and internationally. This will help in inspiring young people of promise about where the opportunities are, and how to take advantage of such opportunities locally. It will also be a place where they can learn how to code and write software, including networking with other like-minded folk. Each YDC centre must be equipped with 2 or 3 classrooms, 3 meeting rooms, an IT room with at least 30 desktop computers in it, printing facilities (a paid service), a canteen (to sell drinks and snacks), a common room stocked with everyday newspapers in English from Malawi and from across the world, a news room with 3 or 4 TV sets showing different channels, a storage basement, and toilets.
- Following a successful pilot run in 3 centres, (Blantyre, Lilongwe and Mzuzu), if 7 additional centres can be created across the country (one in each of the following towns/ cities: Chikwawa, Zomba, Mchinji, Salima, Kasungu, Nkhotakota, and Karonga) to begin with, that would be a promising start.
- Such centres would create direct employment, initially for around 77 people, and could later be expanded to include specialist science and business libraries (to encourage reading and for dissemination of information, and to teach modern technologies).
- They could be used as bases for visiting foreign health specialists to hold community clinics. Additionally, the classrooms can be let out to Aid Agencies (for a fee) for community work or rented out to others needing space to hold meetings.
- Software will be installed to block social networks, and ensure the facilities are used for educational / business purposes, and critical bandwidth is not wasted on downloading entertainment videos. Wi-Fi would be provided for free for those with laptops / smart phones, although depending on bandwidth, computer time will be capped to only 6 hours per person each day to give access to moree people.
- In order for each centre to be functional, it must run on both the energy grid, and eco-friendly energy like solar panels, and have backups in the form of diesel generators, so that services should be up and running even when ESCOM power supply is down.
- Business Support – Many young people in Malawi feel powerless and disillusioned. They leave school only to find there are no part-time jobs for them to do, nothing to help them in their quest to get independent and be part of the economy. Most live at home years after graduation, doing nothing. They end up wasting time, in gangs, mixing with the wrong crowds, committing crimes, drinking their lives away, or being an expense and source of shame and worry to their parents and neighbourhoods.
This vicious circle is unsustainable for a country in which ~45% of the population is less than 16 years old.
What is needed is a pipeline where those young people aged between 16 and 35 years, who are interested in entrepreneurship and business, can be tutored, guided, mentored, directed, and empowered. For those still in school or undertaking exams, YDC centres can contract local teachers to provide tuition for students who need more help with their studies, benefitting both teachers and students.
For those who want to start a business, gain additional knowledge to improve their lives, the YDC centres could offer classes and guidance on
- (i) Venture Capital
- (ii) Business & Revenue Management including book-keeping and such daily tasks
- (iii) Advertising
- (iv) Saving
- (v) Taxation
- (vi) Legal compliance
- (vii) Managing Debt, and
- (viii) Customer Service.
Using the YDC centres around the country, such type of instruction can be provided to young people to enable them to be entrepreneurial and support them in being productive citizens. This will also create employment, and Public Private Partnerships could be utilised to communicate such knowledge.
- Business Loans / Venture Capital – This seems to be the biggest challenge/ barrier to entry for young people in Malawi. Most are willing to learn, to venture out and have a shot at a business, but many have no source of capital.
A system should be created where low-interest loans (not more than 10%) as low as $500 to upwards of $5000 are extended to young people with promise, without the stringent collateral of land /property required by banks ( most young people don’t own property or land…). In order to safeguard against abuse, eligibility should be tied to an examined course spread over 3 – 4 months designed to test certain competencies–with classes which every applicant must attend, and an exam which they must pass to be eligible. A criteria should be formulated which ascertains the merits of each business proposal. And once an applicant is successful, the funds must be disbursed in phases, and primarily be used for:-
- procurement of goods or resources for use or for sale by the new business, including for example buying a service online
- for logistical support, such as ordering goods abroad.
- for payment of business costs such as company registration, marketing, or transportation
- to pay for educational courses, or web design, web hosting and such like.
- for minor expenses not exceeding $50 each.
- possibly for start-up wages to employees (strictly from month 1 to month 3 only) depending on the monthly turnover.
- And to pay for specialist expenses (for example a young man who wants to start a butchery, or a takeaway restaurant will need to rent out a building. Their needs and requirements will be different to those of a person running a removals / commercial cleaning business, which will be different to someone who wants to establish a call-centre/ video game development company.
Funds must not be used to pay salaries beyond month 3, nor be used for food, or paid directly to an applicant’s personal account.
Each Centre Manager and his Business Adviser together with the Secretary and the YDC’s Commercial Director (both of whom would roam across the centres as required) must review each request, and properly consider whether such would be the best use of funds for that business.
- Finally, any assets, property or land acquired by an entrepreneur using funds from the YDC will remain the property of the YDC until after each loan is repaid in full. At that point 70% of the equity stake in the new business will pass to the entrepreneur, whereas 30% will remain with the YDC. This is important for liquidity, although in the event that a funded business turns out to be a great commercial success, the entrepreneur can buy out the YDC on payment of an agreed fixed sum.
A business will be able to begin its operations as soon as it has procured its requirements, thereby allowing use of the acquired assets to service the loans it owes to the YDC. One of the duties of the centre manager and his business advisor will be to monitor the progress of each business registered to his centre, and give advice as appropriate.
- Affordable office Space – This is also a challenge. However, with the above centres, the hot-desking facility could create casual shared office space for 40 – 50 people at each location. Collectively that’s giving an opportunity to 500 or so young people the ability do something positive with their lives. And should 0.6% of those people (3 people) create ventures with an annual turnover greater than $500,000, the potential of such centres would begin to look significant.
- Users of the centre’s hot-desking facility would need to book use of the rooms by text or phone beforehand, however the other aspects like the computer room and news rooms will be on a first come first served basis.
- Affordable Warehousing Space
So, you’ve taught them how to run a business, and provided resources such as a business address for them to receive post from, to enable them to seek opportunities. What you also need to do especially for those businesses who will be importing raw materials, equipment or products from abroad, is provide a secure warehouse space, whereby a person can hire a locker, space on a shared shelf, or a small room, to store and stock their wares and goods at low prices. This way we are reducing the cost of doing business, and removing another barrier.
2. Lower Logistical costs
a truck with a trailer
It is also important to lower logistical costs for new businesses because this is one of the barriers stopping our economies from moving forward. On this note, more resources should be invested in better roads, and in particular in ensuring that the Nsanje Zambezi inland Port is cleared by the Mozambican Government, so that it opens for business.
In the interim, the cost of importing goods and equipment must be reduced by:-
- The YDC hiring a 40 foot container, for imports from Europe, (departing from a port in the UK), another 40 foot container for imports arriving from the US and a third 40 foot container for imports from Dubai and Asia (including China), to operate once every two months. The shipping fees must be preferential to Malawians, and at least 35% cheaper than those charged by other shipping operators. This means a number of things.
(i) Malawians in the diaspora can use such a service as a way of giving back to Malawi to send their goods back home instead of using foreign services that do not benefit Malawi.
(ii) Thus, it means additional Forex for Malawi, money which can be used to expand the scheme or donate to worthy causes such as building new schools or hospitals.
(iii) It also means some aid organisations and charities in Malawi could be persuaded to use the YDC’s shipping service, and not any of the others foreign ones.
(iv) Businesses in Malawi, including those under the YDC will have a cheaper and reliable way of getting goods to Malawi.
(v) The YDC will have a revenue stream which it can rely on to pay its employees and finance the expansion, development and operation of its centres.
- Similarly the YDC could invest in at least 4 heavy goods Trucks (to get the containers from ports in Tanzania or Angola to Malawi), 2 Buses, 3 minibuses, 10 estate vehicles, and 10 vans, as capital assets, and to assist in the functions of the centres. All these assets will be sources of revenue, and contribute in lowering the cost of doing businesses for businesses operating from within YDC premises. To keep costs low, such capital assets can be purchased second-hand at reasonable prices.
3. Civic Education
Image from UNESCO
An educated population is an empowered population. So Civic and adult Education is very important not least because when parents are educated, they will emphasize the value of education to their children. Thus, it would be in the best interest of the Malawi government for such to be provided to help increase literacy levels and educate the rural populations. Thus the YDC centres can be used as a way of crowdsourcing resources. So for example, a group of farmers could be assisted by the YDC to procure a tractor for their local cooperative. The YDC could act as a middle institution to identify the need, facilitate the procurement and assist in maintenance or upkeep.
This initiative may also be a way of safeguarding against corruption and attracting investment from donors in that funds are provided to a whole bloc of people with a common purpose instead of being given to individuals.
4. Export Advice
Malawi is a small market and for our businesses to truly grow and survive, we need resources from far and wide. This will also mean selling as many of our products abroad, and making a profit in the process. It means that for our entrepreneurs to create sustainable ventures, they will need to be competitive on the global market.
- Thus, the education our entrepreneurs receive must be comparable to global standards,
- Businesses must be encouraged to have a cross-border strategy following proven principles.
- The YDC can help small businesses to export to our immediate neighbours and even internationally.
- Export Experts would need to be contracted to run seminars to teach businesses about exporting, and why exporting for a small economy is crucial.
5. Tax Breaks
Why should young people in Malawi – who have more obstacles – not get tax breaks when foreign corporations are allowed to do so? For the first 18 months of each new business / company that is incubated within a YDC centre, tax breaks must apply so long as its revenues do not exceed $20,000 a month, and so long as it’s not a subsidiary of a larger company. Tax breaks can help create a breathing space for a new business to be established, before the state’s demand of tax becomes a factor to be considered. In any case, employees will still be paying income tax, so the country will not be losing out significantly. Audits will be required to prevent abuse.
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