60% of the population in Sub Saharan Africa lives in rural communities, where agriculture contributes about 80% of their household incomes. Naturally therefore, conventional economic development interventions for the rural communities in the past have been focused on improving agricultural productivity as a way of alleviating the rural populations from poverty.
As the world transitions into a globally interconnected digital economy, are the traditional interventions still relevant; and how do we adapt our rural communities into the new economic paradigm?
Sometime back in 2017 I wrote this article “Fusing innovation & entrepreneurship for economic growth in Africa” exploring the three different types of economies that countries evolve through as they develop.
At the bottom of the ladder we have the factor driven economy; which is mainly fueled by the extractive sector of primary production and selling of the natural resources and agricultural produce without adding value to them. At the middle of the ladder we have the efficiency driven economy which is focused on mass production through manufacturing and using economies of scale to keep production costs low. At the top of the ladder we have the innovation driven economy that is focused on developing new disruptive products and services; and its growth is fueled by the entrepreneurial activities of its citizens.
The three types of economies highlighted above mirror the three key sectors that are the primary focus for the economic concept of structural transformation. Structural transformation refers to the allocation of resources to the most profitable sector among agriculture, manufacturing and the service sectors.
Most rural communities are factor driven economies; and hence their main economic activities are agriculture based. But primary agriculture and selling of produce directly from the farm has its limitation as to how much the rural households can earn. To increase their household incomes, rural communities need to move up the ladder and adopt value addition for their produce to fetch higher prices in the markets.
Value addition for agri produce before selling; even in its most basic form has been proven to increase farmer incomes by at least a factor of 2x. But value addition can be a capital intensive undertaking in most cases; hence creating a case for aggregation and mass production to take advantage of economies of scale. This aggregation strategy squarely sits in the efficiency driven economy where manufacturing at large scale fuels economic growth.
During the industrial revolution era, economies that had a large supply of capital and labor developed much faster than their peers since they had a large supply of the factors of production. However, manufacturing and assembling can only fuel economic growth so much before it becomes too repetitive and stagnates growth. The need to explore new products, new services and new methods of production therefore becomes critical for the economy to keep growing.
The search for new products, new services and new production methods gives birth to new business models that disrupt sectors; and create ripple effects across entire economies. These entrepreneurial activities of constantly developing new products, services and production methods are what constitute innovation driven economies; which are currently the leading global economic powerhouses.
After achieving value addition for agri-produce, we need to transition our rural communities into innovation driven economies where new products, services and production methods are introduced to the markets in order to keep growing the local economies.
For these entrepreneurial activities to happen, we need to have a conducive medium that supports creativity, research and experimentation on the new products, services and production methods. This medium consists of different players coming together to form what we refer to an innovation ecosystem.
Innovation ecosystems have traditionally been developed in urban areas. With the fast paced, technology driven, global digital economy; rural communities need to leapfrog and play catch up; so as not to be left in oblivion as the world transitions into the 5th industrial revolution. In part 2 of this series we explore how to make that happen.
As the Nigerian proverb goes “When a soup is unpalatable, and the paste of the pounded yam that goes with it is not smooth, that is the time to know a man who loves to eat pounded yam.”
Covid-19 can be blamed for many things, but certainly not the delay to pen the second part of this series on The Building of Rural Innovation Ecosystems; a series I began in March 2020. The pandemic has been a rollercoaster for many of us; and a time to re-think our growth strategies both in business and socially. The uncharted waters that we all find ourselves in; have forced many of us to adopt to new and better ways of living our lives, doing our businesses and engaging in our various occupations.
While we did and are continuing to adapt to the “new normal” and its changing goal posts every day; we are subconsciously innovating and contributing in ways both big and small to fundamental changes on how we perceive and do life. From a scholarly point of view, my focus is on the disruptions happening in our lives today due to Covid-19; and the profit opportunities they are presenting to entrepreneurs at different levels – with a particular zoom in on entrepreneurs & innovators in rural communities across Africa.
With the tides from the Covid-19 pandemic still rocking our boats; the seasoned entrepreneurs who are made to last are crafting new strategies to remain afloat. On the other hand, the seasonal entrepreneurs are spitting the unpalatable soup; and complaining about how the pounded yam that goes with it is not smooth. In a way, Covid-19 is sifting the refined innovators and entrepreneurs from the husky placeholders within the innovation and entrepreneurship ecosystem in the continent.
This by itself is a very positive development; since the holders of capital and other resources needed by entrepreneurs to grow their enterprises will be allocating their resources and capital more judiciously. The refined entrepreneurs who have proven that they are in their businesses to stay, and they are building sustainable business models for the long-term will find themselves being courted by the holders of capital. On the other hand, seasonal opportunists will find themselves isolated in the capital allocation process; except for those dealing with Covid-19 related goods and services that are on high demand currently.
Entrepreneurs and innovators in rural communities find themselves in a unique position where they normally do not have easy access to capital and other resources they need to grow their enterprises. Covid-19 pandemic worsens this situation as capital holders allocate more of their resources to entrepreneurs in urban areas; who have polished business models, formal operating structures, strong governance systems and easy access to the holders of capital.
As the gap widens between the growth opportunities available for rural entrepreneurs & innovators and their peers in urban areas; ecosystem builders need to re-think their operating models. The rallying call is for the ecosystem builders to move towards a more equitable development of the innovation ecosystems in their respective countries; by allocating more resources towards building the nascent rural innovation ecosystems.
Covid-19 pandemic has proven that we can work out of our comfortable offices in the cities, and still get our jobs done from home. In the same breath, we can leave our comfort zones in cities and go champion the building of innovation ecosystems in our rural communities. We can take all we have learnt in the cities and from our international exposures and transfer it to the local entrepreneurs and innovators in our rural communities.
Instead of complaining about how unstructured the rural innovation ecosystems are; we can take advantage of the Covid-19 disruption and move in to formalize them. With players like ourselves at Fie_Labs Innovation Hub in Kisii, we can help the local entrepreneurs and innovators build sustainable business models, formalize their systems & processes, develop strong governance structures and access the capital that they need to grow. All you need is an internet connection to keep in touch with the world!
