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Could strengthening social entrepreneurship be explored as an additional tool to poverty eradication in Sub-
Saharan Africa (with special application to Kenya)?

Richard Muko Ochanda

Universita Degli Studi Di Trento
A PHD Project Proposal Submitted to the Faculty of Economics in Partial Fulfillment of the
Requirements for Competitive Selection to the Application of PHD in Economics and
Management 23rd Cycle.

1.0 Background and Justification

Poverty in Africa is appalling. African Countries and their Development partners have tried various ways to
address this problem. During the 1980s the Sub Saharan African (SSAs) countries adopted the Structural
Adjustment Programmes (SAPs) proposed by the World Bank to address problems such as burgeoning
fiscal deficits, mounting external current accounts deficits and payment arrears and gross misalignment in
relative domestic prices (Agrawal, Ahmed, Mered and Nord, 1993). Several SSAs benefited from SAPs
and were able to adjust their macro economic distortions. In 1996 the World Bank developed the Heavily
Indebted Poor Countries (HIPC) facility providing a relief to unsustainable debt burdens 1 for the worlds
poorest countries.

Resources have been invested at addressing the macro economic distortions over the years and yet still there
are many problems such as declining export shares in traditional primary products, flight of capital to other
regions and little diversification into new lines of business (World Bank 2000). Macro resource investment
approach has also had several weaknesses including corruption, diversion of funds, the build up of elephant
projects and in real terms little or no trickle down effect to the poor. As poverty eats deeper into Africa, a
need for multi faceted approaches emerges. A need emerges to focus at all actors in the economy including
the grassroots. Hence this study which proposes to study the possible contributions of a social economy.

The social economy in SSA is made up of social organizations which include the grassroots organizations
formed to address particular concerns such as AIDS, street children, prisoners and ex-prisoners, water,
insecurity and peace etc. They usually take the form of cooperatives, societies, self help groups (SHGs),
civil associations, or non-governmental organizations or simply a grouping of villagers. These organizations
have several advantages including employment creation, ability to fully exploit local resources and skills and
do also have unique experience as far as addressing the social problem of their concern. Yet they have very
few incentives as compared to the formal and informal enterprise sectors.

A countrys debt is deemed to be unsustainable if the net present value of its total external debt is more than 150% of its
average exports (Agrawal, Ahmed, Mered and Nord, 1993).

There is an emerging trend by several of the social organizations to participate in entrepreneurship and actual
business in order to enhance their survival and continued ability to address the problems in which they were
founded (Borzaga and Defourny, 2004). This means that the concern for organizational survival may lead
them to develop business projects that may generate funds to sustain their services to the society. This trend
of thinking becomes very important now more than ever because of donor fatigue and shrinking international
resources. Hence another need emerges on how to ensure that the entrepreneurial activities of the social
organizations are recognized appropriately. This recognition is important as the experiences at both macro
and formal micro sectors of the economy have been less than satisfactory as far as tackling the poverty
problem is concerned.

2.0 Problem Statement

In both rural and urban communities, the poor have formed informal networks and associations, which are
critical for their survival. In times of economic stress, the resources of these networks are further depleted
(Narayan et al, 1999). Poor peoples networks in many parts of Africa do not transcend community
boundaries and rarely do they enter the political and economic domain. While these networks among the
poor are healthy for their survival and well-being and in changing their lives they need to be organized in an
effective way and be assisted to survive. The survival of these organizations may help the poor to learn from
their experience and be creative in addressing their problems.
Many projects in East Africa are springing up to address various social problems. Nearly all project expenses
are financed by local contribution, income generating activities and voluntary efforts (Koinonia Community,
2006). Unfortunately if the project cannot raise enough resources for its survival, it becomes too expensive to
run and it eventually collapses. There is therefore need to assist these organizations to not only address the
social problems according to the resources they have at hand, but to do it sustainably (Hansmann, 1996).
Unfortunately lack of necessary information is a great constraint.
Some projects pursue donor funding which at times comes with negative repercussions such as heavy and
negative politicking, loss of organizational identity etc. Several projects have been crippled by donors 2
when ideas are imposed to the project members without consideration of their skill and experience on the
problem at hand. On the other hand once donors pull out, the project cannot survive on its own and it slowly
starts to collapse. At times the donors may use their resources to force the recepients to behave in a pre-
determined way.
A need emerges therefore to identify common problems of survival facing social organizations, their
entrepreneurial interests, their capabilities, limitations and potential and thereby suggest strategies for
survival through entrepreneurship. A basic assumption here is that if these organizations are helped to
survive and become independent they will contribute to the improvement of the poors welfare significantly.

There are many experiences on the ground where donors would devide project members by trigering infighting or by
asking project members loyal to them to break away from the original project and register a new social intervention in
order to get funding. Or at times donor resources have been used to weaken and do away with project vision, local
structures, social capital and project leadership.

In SSA the poverty problem is enormous, thus technologies, institutions and organized systems to address it
must be developed.

3 .0 Objectives

3.1 General Objective

The overall aim of this research is to examine whether social entrepreneurship could be explored as a
survival strategy for social organizations in Kenya:

3.2 Specific Objectives

To determine the nature of the enterprise and market with respect to the social organizations
To assess the structure of the regulatory policies and evaluate how they distort or enhance operations of
the social organizations as far as entrepreneurship is concerned
Investigate the operations of business support services in finance, technical training, agency assignments
and in the provision of updated market information.
Assessing the opportunities and limitations amongst social organizations for pursuing entrepreneurship
as a survival strategy.

4.0 Theoretical basis of the study

The economic theory of the firm will form the form the basis of this study. Theoretical concepts will be
derived from concepts such as scarcity, choice and opportunity costs. Hence it will be possible to develop
production possibility frontiers that could help us determine the efficient mix between offering social
services on one hand and pursuing entrepreneurship on the other. The main testable hypotheses will be as
Double bottom-line: Social organizations are created for purposes of making a positive impact on
society, or offering a solution to a social problem. Their performance is measured via a double
bottom line that demands efficiency on generating finances on one hand and enhanced ability to
address the social problems on the other. It will therefore be important to determine an efficient mix
that will ensure that entrepreneurship as a survival strategy never compromises the delivery of social
Avoidance of Profit/surplus: While business firms exist to maximise profits and hence savings,
social organizations on the other pursue the practice of 100% amortization, i.e. ensuring that all
resources they have are consumed at a specific project time. Hence there is no saving and no
resources to invest or capital inflow in order ensure the ultimate survival of these firms when the
overflow of donated resources comes to an end.
Optimal resources usage: Here the organization of factor inputs such as labour, capital, land and
entrepreneurship for ultimate productivity will be explored. Due to their short term orientation,
social organizations usage of these inputs is not optimal and hence they do not see themselves as

primary producing units in the market economy. It will also be of importance to see how the
organization of these factors is connected to the demand for output factors.
Social entrepreneurship and the competitive market: Fears that Social Entrepreneurship by design is
not friendly to the competitive market and may lead to development of quasi or pseudo markets thus
risking market failures will also be explored.

5.0 Analytical Framework

The main concern of this study are the social organizations in Kenya. While addressing the concerns and
problems to which they were founded, they do not address the fundamental issue of their survival and self
reliance. In the long run, these organizations collapse. With the collapse of these organizations, the social
problems escalate and people become poorer hence becoming victims of social exclusion. In Kenya the
poverty levels are alarming with a poverty incidence of 56% 3 (Institute of Economic Affairs, 2002). Kenya
as a country is poor and unable to support a welfare system. Hence social exclusion is a phenomenon that
easily goes unnoticed. In this case therefore the survival and self reliance of social organizations are very
important to warrant investigation. Their survival has many benefits including amelioration of many social
problems at hand thus facilitating inclusion by employment provision and addressing the needs of the
marginalised and vulnerable populations. Hence enabling the survival of social organizations will definitely
contribute to the overall economic growth and most importantly empowerment of the poor.

In recent studies on social organizations in Kenya, there is a strong move towards self reliance and less
reliance on donor funding (Koinonia, 2006). More and more the ability of social organizations to sustain
themselves is becoming an important area of concern. Donor resources are shrinking and several
organizations are now exploring several ways to generate income in a bid to ensure their own survival.
Unfortunately the social organizations are poor and have less ability to conduct research and thus capture the
necessary data that would be relevant in their business endeavors. A need therefore emerges for researchers
to provide assistance where they can.
Several models of social entrepreneurship have evolved in Europe and USA (Spear R., Defourny J., Favreau
L., and Laville J. L., 2001) which could provide a leaf for SSA countries to borrow from. There are many
constraints on the ground however. Some of these are as follow; the incentives available in Europe might not
be there in some or all of these countries and hence a very difficult environment to operate in, second with
the high poverty levels there is need for caution as models could be easily be subject to abuse, thirdly the
probable risk of failure for social entreprises needs to be taken into account and lastly it is vital to explore
best practices on the ground despite there being so many constraints. All in all, there is a need to develop
models suitable to the social economy in SSA despite the overwhelming constraints prevalent on the ground.

It is a fact that poverty emerges as the most formidable challenge for Kenya. To halt the increase in poverty incidence
there is a need to create wealth, generate employment opportunities, and ensure equitable resource distribution (IEA,
2002). The fight against poverty should start by creating strategies for self-dependence and tackling of inequality.

6.0 Methodology
The study will commence with a review of theory of economic development, econometrics, game theory,
development of civil associations and theories on entrepreneurship. From the literature and experiences on
the ground common themes will be documented that will give rise to the research tools. These tools will first
be tested to ascertain their accuracy and validity before the commencement of the research. Some of the
variables of interest include social capital creation, survival and sustainability, and level of local contribution
and self support and balance of the social mission vs. entrepreneurship.
The research method will comprise of both qualitative and quantitative techniques. Qualitative data will be
organized and analysed in themes; the main aim being to validate the quantitative data. Statistical treatment
of data will include descriptive analysis as well as parametric techniques. Frequency distributions,
percentages and measures of central tendencies will be used in the analysis of data.

6.1 Research output

The research output will be a PhD thesis report, in which some of the core chapters will be written as articles
to be submitted to academic journals and also presented at local seminars and international conferences.

6.2 Policy relevance of the research project

The study will also explore the policy rationale for support to the social enterprise development at a national
level in Kenya and could possibly also be applied to the East African region (Tanzania and Uganda in this
case). It will hope to shade light on market and government failures addressed by social entrepreneurship and
suggest how these efforts could be recognised in the policies 4 . Also the fit of the Social Entrepreneurship
between the business firms on one hand and the governments on the other will be explored.

6.3 Definition and operationalization of concepts

Social Enterprises: Developed from within the social economy sector, which lies between the market and the
state and is often associated with concepts such as the third sector and non profit sector. This concept does
not seek to replace the concepts of the non-profit sector or social economy. It intends to bridge these two
concepts, by focusing on new entrepreneurial dynamics of civic initiatives to pursue social aims (OECD-
LEED, 2006). A social enterprise may decide to do this in three ways:
Incorporating an independent company or starting an independent business from the social
organization whose purpose is to make profits which then are used to finance the organizations
social objectives.
Partnering with an existing company for purposes of benefiting the poor. An example of this is
Grameen Bank and Danone Partnership whose ultimate goal is to provide high protein milk for the
poor population in Bangladesh (Yunus, 2006).

Since this study will focus on the local situation in SSA and particularly Kenya, it will also hope provide insights for
development of training material in this particular area in addition to being relevant the policy making organs.

An organization sustaining its services from a mix of resources. The mix in this case includes
contributions, grants and pursuing entrepreneurship activities (Borzaga and Defourny, 2004).
Social enterprises typically engage in delivery of services for disadvantaged groups and communities,
whether in urban or rural area.

7.0 The Conceptual Framework

Low Entrepreneurship High Entrepreneurship

Quad. 1. Inefficient mix between Quad. 2. Much entrepreneurship

concern for entrepreneurship and and prudent pursuance of the
social mission. social mission.
Low Social Mission
Inverse relationship between The concentration on
concern for survival and entrepreneurship while
addressing the social mission. maintaining a constant level of
social mission.

Quad. 4. Main concern is the social Quad. 3. Efficient mix of

mission. entrepreneurship and social
Concentration on addressing the mission.
High Social Mission social mission and maintaining Positive relationship between
constant level of entrepreneurship. concern for survival and
addressing the social mission.

The conceptual framework above in the form of four quadrants explores different relationships between the
two important variables upon which this study is based. Entrepreneurship or the concern for survival is the
independent variable of this framework. The concern for social problems on the other hand is the dependent
variable. An important assumption here is that the organization needs to survive so as to continue
addressing the social problems. Survival is being explored throughout the framework as a relationship
between entrepreneurship and organizational ability to address social problems.
This study therefore proposes to analyze 3 social organizations for each model above. A total of 12
organizations will be understudied and their successes and failures noted. From the results of the analysis it
will be possible to validate the appropriateness of each model in enhancing survival of social organizations
in Kenya.

1. Agrawal N, Ahmed Z, Mered M and Nord R. (1993), Structural Adjustment, Economic Performance and
aid dependency in Tanzania. World Bank. Washington D.C.
2. Anheier H. & Ben-Ner (2003), The Study of the Non-profit Enterprise: Theories and Approaches. NY,
Boston, Dordrecht, London, Moscow. Kluwer Academic and Plenum Publishers.

3. African Peer Review Mechanism (APRM-2006), Country Review Report of the Republic of Kenya,

4. Borzaga C and Defourny J. (Eds), (2004) The Emergency of the Social Entreprise, London. Routledge.

5. Hansmann H. (1996), The Ownership of the Entreprise. London. Cambridge

6. Institute of Economic Affairs (2002), The Little Fact Book: The Socio-Economic and Political
Profiles of Kenyas Districts. Nairobi. IEA.
7. Kaol G. O. (2002), Entrepreneurship training for youth for self-employment in SMEs in Kenya, Nairobi.
United States International University

8. Koinonia Community (2006) Projects and Activities for Street Children in Nairobi, Nairobi. Koinonia
9. Narayan, D. et al. (1999). Voices of the Poor (Vol 1), Washington D.C. Poverty Group, World Bank.
10. Organization for Economic Cooperation and Development (OECD), Local Economic and Employment
Development Programme (LEED) (15-18 November 2006). The Social Enterprise Sector: A conceptual
framework, Trento, Italy
11. Spear R., Defourny J., Favreau L., and Laville J. L (eds) (2001), Tackling Social Exclusion in Europe.
The contribution of the social economy. Ashgate. Aldershot.
12. World Bank (2000), Can Africa reclaim the 21st Century? WB, Washington DC.