New York — Global poverty is undoubtedly the most critical economic and moral challenge of the 21st century. While economists debate how to raise up the world's poorest - the more than 800 million people living on less than US$1.25 a day.- entrepreneurs are spurring innovation and growth in emerging markets.
However, to truly enable economic activity, governments must work diligently with entrepreneurs and the venture capital class to build ecosystems.
What is most exciting is a spate of new companies outside of the obvious BRIC countries in diverse geographies - from the Philippines to Peru, to Hangzhou to Lagos - that are unleashing home grown innovation, creating efficiencies and solving local problems.
Many of the start-ups are tackling challenges felt most keenly among the poor: access to health care, education, finance and markets among them.
The Center for American Entrepreneurship reports that venture capital (VC) -- the funding source for many of the world's start-up companies -- hit an all-time high of USD$171 billion in 2017. In the past three years, start-ups in Beijing have raised $72.8 billion, almost as much as those in San Francisco ($81.8 billion).
Talent is everywhere, and it is hungry. California's Silicon Valley has Facebook, Google, and Apple. But unicorns are elsewhere: China has Didi and Xiaomi, India has Hike, and Nigeria has Jumia.
Finally, even Silicon Valley is taking note. Headlines such as the New York Times proclaim: "Silicon Valley is Over, Says Silicon Valley," or Forbes: "Is Silicon Valley Losing Its Luster?" Venture capitalists usually refuse to consider companies outside the Bay area. As one VC proclaimed, "If I can't ride my bike to meet the founders, I won't invest," speaking to the Valley's freewheeling hippy-esque culture.
However, those in the know of global innovation say investors who remain local will lose out if they stay in the comfort zone of their own California bubble. At IFC's recent Venture Capital in Emerging Markets conference in San Francisco, attendees predicted the dramatic rise of VC activity in Africa in the next five years, and Latin America in three.
At Bloomberg's New Economy Forum in Singapore earlier this month, the talk was that Asian cities are now top challengers for domination by US venture capital firms. In a report "The Rise of the Global Startup City" by the Center for American Entrepreneurship, authors Ian Hathaway and Richard Florida state that: "The geography of start-up activity and venture capital investment is undergoing a rapid and profound period of globalization."
The idea that successful start-ups must launch and scale in Silicon Valley -- or in another major U.S. city -- no longer holds true." Increasingly, the world's entrepreneurs can stay home to raise capital for their companies.
Most importantly is the profound contribution of local high-tech sectors on economic activity. For every single high-tech job created in the U.S. and Europe, 4.3 other jobs are created, said Hathaway.
While numbers in emerging markets are more difficult to come by, he noted: "I can only imagine that the impacts are far greater because the there is much more runway to grow." New tech start-ups spur competition, productivity, and create jobs. Entrepreneurs launch new products, adopt cutting-edge technology and open new markets. The result: sustainable economic development.
"There are huge efficiency gains as the digitalization of the global economy has a huge impact in developing markets," said Nikunj Jinsi, Global Head of the International Finance Corporation's $1BN venture capital fund, which includes investments in health, education, transportation, and energy. He noted that in China IFC invested in the "Uber for trucks," which consolidated a fractured industry that accounts for 15 to 20 percent of China's GDP. The exponential effect is tremendous.
People often don't focus on the multiplier effects of start-ups. "In Silicon Valley it's called the PayPal effect - when companies succeed, they spin out dozens, even hundreds of entrepreneurs who know now how it is done. It is a flywheel of economic growth," said Christopher M. Schroeder, co-founder of venture firm Next Billion Ventures.
In emerging markets, much of the capital is concentrated within a few families. But VC is an interesting way of injecting new capital into industries because it rewards entrepreneurs. It has a huge role to play in emerging markets because access to capital is limited and access to capital that will take risks is even more so.
"For GDP to grow in emerging markets, small business needs to grow and technology is a way to do this, said Paul Santos, Managing Partner of cross-border firm Wavemaker Partners, which invests in early stage start-ups in Southeast Asia.
The role of the public sector cannot be underestimated. "Governments must stimulate and build ecosystems and enabling environments, and this includes mentorship. They can do a lot, and provide tailored solutions," said IFC's Jinsi.
Entrepreneurs can go only so far without government intervention and support in the forms of incubators, accelerators, rule of law and other legal and support structures that encourage entrepreneurship. Risk taking must be nurtured, along with education.
Starting a company is challenging in any market, but for emerging markets there is often no community, and failure and experimentation are frowned upon, not celebrated. Funding is much more difficult to come by.
Governments are launching new initiatives to spur innovation. In Lebanon, the government allocated $400 million to support local venture capital funds. Similar initiatives are happening in Morocco, Jordan, Egypt, and elsewhere.
Indian Prime Minister Narendra Modi launched Startup India, a campaign by Indian Prime Minister, aims to promote promising companies. From Africa to Asia to Latin America, governments are pitching in.
However, if governments do not do enough in a concerted manner to build ecosystems that empower entrepreneurs to create companies, jobs and opportunities for poor people in the developing world, the world will see greater conflict, as millions in the world live in fragility and conflict, and have no hope of creating a better life.
These jobs are critical to seeing fulfilment of the United Nations Sustainable Development Goals, especially of Goal #8, which is decent work and economic growth. Speed and skill are key.
Read the original article on IPS.
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