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Aug 24, 2013

Building Entrepreneurial Ecosystem for Fostering Entrepreneurship: Lessons from Nepal

  August 24, 2013    


Introduction

Anyone working on economic development of developing countries is bound to realize, sooner or later, that entrepreneurship does not get the recognition and support it deserves for its role in economic growth and poverty alleviation. In fact, it can also be argued that role of entrepreneurship in less advanced economies, like Nepal, is among the least studied subjects in the implied discourse. Yet, developing countries are teeming with entrepreneurs who are investing their time, energy, and skills in solving the problems that besiege their societies. Over 400 million individuals in developing countries are owners or managers of new firms. India and China alone are home to an estimated 200 million plus entrepreneurs. [1] But despite the ubiquity of entrepreneurs in these societies, the problems and hurdles they face in starting, expanding, and sustaining their ventures are numerous and much different from the hurdles that are addressed in the majority of the literature on entrepreneurship available today.

Image Source: http://careers.queensu.ca
Aspiring young entrepreneurs from Nepal have their own share of hurdles. Stigma associated with profit-making, an unfriendly business environment and a lack of support mechanisms are among the major challenges faced by these entrepreneurs.

Business and Profit: A Stigma

If you ask a businessman or a small firm owner in Nepal how much they make from their ventures it is more than likely that you get a vague answer along the lines of “It has been enough to make my ends meet.” The tendency to answer this way comes from the long held stigma about business and profit-making. In many of the developing countries like in South Asian societies, entrepreneurship is tantamount to profit-making which in turn is tantamount to cheating and robbing people. It is more so in Nepal where 80.6 percent of the population follows Hinduism. [2] According to Hinduism every human being is Amrutasya Putraha, a child of immortality and a spark of divinity. The purpose of life is to attain liberation which essentially is freedom from re-birth and the chain of cause and effect. One should live to understand reality and not for transitory material pursuits. [3]

Added to this is the caste system which prevails despite efforts from government to abolish it. The caste system, which has segregated jobs and professions along the hierarchy of the caste a person belongs to, is still a major impediment to youth from rural areas of the country who shy away from considering entrepreneurship as a career option.

The socialist school of thought dominating the political economic discourse of Nepal since the advent of democracy in 1951 has only exacerbated the negative perception towards entrepreneurship. The academic curriculum of high schools and universities are devoid of any mention of entrepreneurship which is one of the many reasons why very few youth consider entrepreneurship as a career option during their studies and rather focus on getting a secure job, especially a government job. A popular Nepali song called “Sarkari Jagir” highlights the importance of getting a government job in Nepal in which the singer says “when I went to ask her hand in marriage, her parents told me ‘first get a government job’.”

Policy Regime: Not So Business Friendly

The policy regime and the business environment is another setback for aspiring young entrepreneurs in Nepal. An open economy and a secure business environment are essential components for creating a vibrant entrepreneurial economy but Nepal’s current policy regime leaves much to be desired. The Doing Business Report 2013 [4] , which gives valuable insight on the entrepreneurial climate of nations around the world, ranked Nepal 108th out of the 185 countries studied on the ease of doing business. According to the report, Nepal fares badly when it comes to starting a new business (105th), paying taxes (114th), trading across borders (171st), enforcing contracts (137th), and resolving insolvency (121st). Lack of an environment conducive to formal businesses as well as lack of any incentive for small and medium scale businesses to operate formally has meant that around 96.2 percent of the total active population of the country is being employed by the informal sector. [5] Many small-sized enterprises choose to remain in the informal sector which has impeded the growth of economy in Nepal.

The Economic Freedom of the World Report, which measures the degree to which the policies and institutions of countries support economic freedom and entrepreneurship, ranked Nepal 110th out of the 144 countries studied in its 2012 report. [6] According to the report, Nepal scored 3.33 out of 10 in the Hiring and Minimum Wage regulations, 4.13 out of 10 in hiring and firing regulations and 2.05 out of 10 in the mandated cost of worker dismissal. Similarly, Nepal scored 3.22 in the extra payments/bribe/ favoritism category, making it one of the most corrupt countries in the globe. The height of corruption can be ascertained from that fact that people are forced to pay bribes even while paying taxes. [7]

Support Mechanisms for Aspiring Entrepreneurs: A void

Another hurdle aspiring entrepreneurs face in Nepal is the lack of support mechanisms for the various stages of their entrepreneurial journey. Since entrepreneurship is not included talked about in academia or anywhere else, there is a lack of avenue where aspiring entrepreneurs can learn about it. Instead, they are forced to rely on their own while starting and operating ventures. Similarly, getting access to credit from financial institutions is very difficult whereas the guidance they require for various practical aspects of business like marketing, expanding business, and dealing with employees is also hard to find. Hence, entrepreneurship is a lonely profession in societies like ours which discourages aspiring entrepreneurs.


Fostering Entrepreneurship: A Multidimensional Approach

So far, this essay has discussed about the major hurdles that aspiring young entrepreneurs in Nepal face. However, these hurdles have not stopped Nepalese youth from finding creative solutions and interventions to foster entrepreneurship. Nepalese youth, along with the support of various organizations, are building an entrepreneurial ecosystem that seeks to overcome the multitude of hurdles aspiring entrepreneurs face along the way. Entrepreneurial ecosystem refers to supportive organizations, institutions, and individuals that an entrepreneur needs during the various stages of their journey. A proper entrepreneurial ecosystem is an amalgamation of such individuals, institutions, and organizations that have an interest in bringing more entrepreneurs in a society and can contribute significantly to the success of an entrepreneur. Such an ecosystem is in the process of being constructed in Nepal and it is the young entrepreneurs themselves, who have been contributing and building the ecosystem.

Awareness and attitude change: The primary obstacle for Nepalese youth to engage in entrepreneurship has been the lack of awareness about it and the negative attitude associated with business and profit-making. Some social organizations in Nepal are working to change this scenario. Samriddhi, the Prosperity Foundation, has been running a residential workshop on entrepreneurship and economics for university level students. Named Arthalaya, this 5-day school trains university students to consider entrepreneurship as a career option along with making them aware about the policy regime required for an entrepreneur-friendly economy and the contribution of entrepreneurship in economic development. [8] The program has trained more than 400 students, out of which over 40 people have started their own ventures. More importantly, the participants have expressed a significant change in their attitude towards entrepreneurship. [9] Being personally involved in the program, I have witnessed the process of attitude change that young people go through, and have observed that attitude change alone ignites entrepreneurial-ambition among youth by providing them with encouragement and easing their conscience. Similarly, Entrepreneurs for Nepal, a network of aspiring and established entrepreneurs, conducts monthly meetings where aspiring entrepreneurs meet with an established local entrepreneur and hear his/her success stories and cautionary remarks on what pitfalls to avoid. The event has been highly popular among hundreds of young people joining the interactions. The group has been able to reach out to more than 7,000 people within and outside the country. The group has also created an online
presence on social networking sites where aspiring entrepreneurs share their stories and queries with each other. 

Start-up Capital and mentorship: Traditional financial institutions in Nepal do not yet recognize entrepreneurship as a potential and prolific investment opportunity, forcing aspiring entrepreneurs to rely on their family and relatives or seek informal borrowing with exorbitant interest rates in order to raise funds for starting their ventures. To overcome this hurdle, Biruwa Ventures has been helping aspiring young entrepreneurs start- up their ventures by providing office  space  and  networking opportunities, and helping them with legal and registration related issues.[10] Founded by three Nepali students who returned to Nepal after completing their studies in United States, the venture has turned into a sustainable practice by providing the necessary services to entrepreneurs for a small charge.[11] The group has also been investing in ideas that it finds lucrative, turning itself into a venture capital firm in the Nepalese context.

The next step of the entrepreneurial ecosystem is mentorship that is necessary for young entrepreneurs to succeed in their ventures. Entrepreneurs for Nepal (E4N) has been organizing one day workshops, called Boot Camps where new entrepreneurs get trainings and advices on practical aspects of business such as accounting and marketing. Similarly, the Sounding Board program provides an opportunity to young entrepreneurs with new ideas to get constructive criticism and practical suggestions for their ideas.[12]

Social Entrepreneurship and Recognition: Any discussion about entrepreneurship in developing societies would be incomplete without touching on social entrepreneurship. ChangeFushion Nepal, an organization set up with the primary objective of supporting social entrepreneurship, has helped social entrepreneurship start-ups by providing capital, mentorship, and awards administered through its Youth Action Fund. Similarly, Samriddhi, Biruwa Ventures, and ChangeFushion Nepal have been teaming up on a yearly basis to celebrate Global Entrepreneurship Week in an effort to create awareness and recognition of entrepreneurship by honoring prominent and innovative entrepreneurs of Nepal during the celebration. Another initiation called Surya Nepal Asha Social Entrepreneurship has been honoring social entrepreneurs with significant contribution in job creation and poverty alleviation. The recognition of entrepreneurs as engine of growth goes a long way in inspiring young people to become entrepreneurs.

Business Expansion Support: The entrepreneurial journey does not end with the establishment of a venture. Expanding and sustaining a venture is a primary challenge many entrepreneurs in Nepal face. Realizing the need of the hour, a few banks in Nepal have started providing access to credit to small-scale entrepreneurs for the expansion of their ventures. The realization has, however, a lot to do with the increasing interest in entrepreneurship created by aforementioned activities of various organizations working together to create the entrepreneurial ecosystem.

Entrepreneurial Climate Reform: Despite the various activities led by social organizations, a vibrant entrepreneurial society would be impossible without the necessary policy changes and reform in the entrepreneurial climate of the overall society. Gari Khana Deu , a nationwide campaign demanding rule of law, security of life and property and freedom to enterprise initiated by a coalition of business sector, civil society and other stakeholders of the reform, has been highlighting the overall issues faced by entrepreneurs and general public alike. Similarly, Samriddhi has published a report entitled Nepal Economic Growth Agenda, highlighting the major policy bottlenecks that prevent the growth of Nepalese economy’s major sectors and advocating for the recommendations the report has made.

Conclusion

 From observing the entrepreneurship development scene in Nepal, a few lessons can be drawn for entrepreneurship development in other developing nations. Entrepreneurship development requires a multi-dimensional intervention in the various aspects of the entrepreneurial ecosystem. A one- size fits all approach or a onetime intervention is likely to fail because aspiring young entrepreneurs need support at every stage of their entrepreneurial journey. More significantly, young people themselves can create this entrepreneurial ecosystem as observed from the experience of Nepal. It is necessary to understand that a single group of people or a single organization may not be able to create and contribute to the whole entrepreneurial ecosystem and hence, cooperation among organizations or groups of people working to address problems of different aspects of entrepreneurship development is necessary.

Notes:

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