Is philanthropy killing business in Africa?

Todd Johnson asks his Ethiopian friend, an IT entrepreneur, his greatest business challenge. His answer? NGOs.

“Africans don’t see a reward system in place for being entrepreneurial. In fact, they view it as a matter of survival, not an opportunity to lift themselves out of poverty. Rather, what they learn at a very early age, is that in order to make good money, they should learn to speak English incredibly well and then maybe, just maybe, they can get a job driving for an NGO. In a few years, if they play their cards right, they might be able to land an NGO job as a project manager and even advance further.”

Sammy’s point was simply this. As a struggling businessman creating new start-ups, he could not compete with what NGO’s were paying for some of the best and brightest. And even worse, he said, “by the time the NGO’s are done with them, there isn’t an ounce of entrepreneur left.”

When a lot of aid hits a small skilled workforce, there are consequences. I think the message is that, if tallying the benefits of an NGO program, it’s good to look on the other side of the ledger.

h/t: Africa Unchained

18 thoughts on “Is philanthropy killing business in Africa?

  1. While it might be true that there is a lack of a reward system for entrepreneurs, and that NGOs are competing with businesses for a small skilled workforce, the insinuation here seems to be that this is all the fault of NGOs, and that if the NGOs disappeared, everything would be fine. Yet NGOs work all over the world, including in rich countries where there are lots of entrepreneurs. Perhaps the difference has little to do with NGOs, and a great deal to do with the role of the state in establishing and enforcing reward systems for entrepreneurs, and in training large skilled workforces.

  2. I think the important factor at work here is the size of the NGO sector in a community’s economy. There are hundreds of NGOs working here in Washington, DC, but there are also many more traditional businesses. As a result, the NGOs don’t warp the incentive system that workers face to the same degree that they do in, say, a small community in rural Ethiopia.

    The capitalist in me often wonders if the presence of wealthy countries’ NGOs in poor communities does more harm than good, both by sucking up many talented individuals and by incorporating them into an economic system that is driven by non-market forces.

  3. Andrew, I don’t think you need to wonder or worry too much about the effect of NGOs in poor communities in the US. Very infrequently do those NGOs hire locally. Most of the staff comes from upper middle class backgrounds with college degrees. Someone has to employ all those academics who fall off the tenure track.

  4. First you approvingly cite Amanda’s dismissal of Congo fly-in-fly-outers (How could they possibly understand the complexities involved?), then you go on to approvingly cite Todd, an Ethiopia fly-in-fly-outer (Hey, I talked to one guy and I have a deep insight into the problem of development!). Not to be a hobgoblin of little minds here…

  5. Is this an argument for NGOs to use more expats?

    Does tourism create the same problem? In Zimbabwe last month I met a woman who was looking to get out of her job, teaching, into tourism as it paid better. Tourism is a business, but scarce human capital may be better devoted to teaching than tour guiding?

  6. This matches my experience in Sierra Leone, where I’ve been setting up well drilling enterprises using locally-built appropriate technology. At the end of the day the one thing everyone wants me to teach them isn’t how to run the business, but “how do I write a DFID project proposal?” It seems to be far more attractive to start a short term funded development project than to start a sustainable business.

  7. Aid not only distorts the employment market (as people have pointed out it’s often much more lucrative to go work for NGOs than for small local companies), it can destroy local business by providing free product/services (often unsustainably): why go to a small private clinic owned/run by a Kenyan nurse when a NGO is giving services away for free? Too few NGOs consider these consequences of their work….

  8. James Brown…
    So… the business most profitable with NGO contracts. But you would rather have them do something less profitable. or, you lament that they have this profitable opportunity, feeling that if they had fewer opportunities they would be better off. Do you apply that logic to the U.S.? Google keeps giving things away for free, but we would be better off if they didn’t exist and then we would have to build sustainable businesses that could charge us properly to search the web? All of you are confusing the pecuniary externalities of the marketplace with pollution externalities. If a business chooses to undercut their competition, that is bad for the other businesses, but good for customers.

  9. Hi Ana
    I’m not saying that the business is working with NGO contracts rather than ‘commercial contracts’, which I’m completely in favour of. What I’m saying is that some entrepreneurs, instead of starting a sustainable business, are writing project proposals to large funders with financial profit as the main motivation. My feeling is that this is not a sustainable way of providing an income, and it also doesn’t meet the funder’s goals because the project is being run primarily for personal profit.

    The enterprise I am supporting in Sierra Leone has the aim of meeting NGO contracts for drilling wells. This, to my mind, is a far more sustainable way of benefitting from donor funds than starting a new project proposal every couple of years.

  10. I think it is important to clarify which NGOs we are talking about. The type of NGOs that sap jobs are not always the ones involved in manufacturing innovative products, and the ones that are manufacturing (or importing) innovative products are not necessarily doing a disservice, as long as the products use locally sourced materials and local labor. There are also NGOs, like Kickstart whose sole purpose is to promote and invest in the very types of entrepreneurial ventures that are supposedly undermined. I’m not saying I disagree. I’m just saying its important to clarify who you are talking about.

  11. The argument makes some good sense. In fact, I think I’ve made similar observations in conversations myself, but then I paused and mentally surveyed a handful of my Ugandan friends–NGO professionals in their mid 30s. Most of them are actually entrepreneurs themselves. Almost no one just does one thing to make a living. The unsustainable funding cycles that are referred to in some of the comments are the reality, so they use the capital they are able to save when they are earning a salary and their ability to get salary loans at banks because of their employment to start small businesses. The businesses augment their income and keep them afloat between projects. And by the time the NGO is done with them, they have a lot of transferrable skills, several small businesses and a reasonable amount of capital and credit history.

  12. I worked in Mongolia, where I worked a great majority of businesses ARE actually clothed as NGOs. They do everything that a business would and are able to get money from donors to stay afloat or expand services. Yes, some are lazy businesses, but most are not. When you ask these NGOs what they do they say that they sell things….it was a bit of a laugh. It ws hard getting a why out of them outside of to support poor people. One “NGO” business owner said he did not have to pay taxes and banking is simple. Honestly though, I think many many of these businesses were poorly run or inappropriate for the place. Some businesses were started only because there was money available for climate change, water resources, women’s rights, etc. Currently I am a fan of the no-questions-asked microfinance loans from donors. There are a lot of people getting loans to buy cars, but they are paying the loans back, so that might spark business development in the same way.

    The thing that troubled me was that a governor told me that big donors always support the poorest of the poor for small business development projects. His feeling is that these people are not suitable candidates for business development. By targeting the weakest and not supporting those with true business potential, NGOS put people into struggling markets that had little potential, while driving those surviving, out of business. He said people will always go where the money is at, so that is that.

    Currently the only real industry is mining and it is picking up fast. National professors are said about the pollution and lack of opportunity to do things outside of mining for their students who want to get paid. NGOs are the only other option and competition is very high for limited positions within them.

  13. The big donors are looking for an investment payoff, so I like the idea of long-term expats running these groups in-country. I saw the opposite turn into a system of paying friends and family, and not in a good way.

    In Mongolia, Tourism charges the same prices for services that you can expect in the US., so everyone thinks guides are rich. That is myth. The money is typically unsteady. In Mongolia teachers can guide in the summer (the height of tourism) because there is no school, but loads of young university graduates in Translation compete for these jobs.

  14. As an NGO’er I’ve spent many days groaning to my HR manager about how we can’t afford to compete with the UN for talent. There is always someone willing to pay more.

  15. Africans don’t see a reward system in place for being entrepreneurial.

    Is there really a reward system “in place” anywhere for “being entrepreneurial?” The Economist had a piece a year/years ago about French & English kids wanting to be bureaucrats/fonctionnaires. Or think the USA: you can “do a startup” from your father’s basement 4 times in a row and still not have dental insurance.

    File this one under fetishisation of the entrepreneur.

  16. I think it’s the same case in South Asia. The development sector is creating a huge inflationary effect on the job market. People from every field-engineers, doctors, mathematicians, IT folks-everybody ends up joining the field for better salary, working in mostly unimaginative projects under incentive-killing structures where mediocre people get by as well as people with super human skills. The end result is a loss of a great amount of motivation, brain cells, and a lot of potentially lasting and meaningful productivity.