Using technology to stimulate innovation and development among small-scale enterprises in the Pacific
Liliana is a young mother and small business owner in an island community. With a digitally connected and responsive business financing and support ecosystem, she can connect with suppliers, market her products to a global audience, access training and support, engage with role models, and manage her finances from the palm of her hand or the convenience and safety of her own home.
This is the envisaged outcome of a new regional initiative on ‘Enhancing the ecosystem for entrepreneurship and innovation in the Pacific’ that is being undertaken by the Griffith Asia Institute (GAI), the Foundation for Development Cooperation (FDC), the Asian Development Bank Institute (ADBI), and ACCESS Advisory, Inc.
Three Pacific island countries are participating in this project—Federated States of Micronesia (FSM), Samoa, and Solomon Islands—representing the three Pacific sub-regions of Micronesia, Polynesia, and Melanesia, respectively.
This regional undertaking will be implemented in two phases. Phase 1 will focus on stakeholder engagement and gathering information directly from small-scale entrepreneurs and other key stakeholders. These insights, including their needs and entrepreneurial mindsets, will provide the basis for the development of targeted interventions to be designed and piloted in Phase 2.
Small-Scale Enterprises as Drivers for Economic Recovery
Micro and small enterprises, both formal and informal, play a vital role in all Pacific island economies. They account for a significant share of economic activity, employment, and innovation in the region. Participation in micro and small enterprises can help to distribute wealth more evenly by providing jobs and income to people in rural and remote areas. These enterprises provide easier entry for women and young people to become self-employed business owners and can play a vital role in preserving traditional cultures and livelihoods.
In Samoa, nearly 97 per cent of all registered enterprises are micro and small businesses and they account for 75 per cent of private sector employment. It is estimated that 24 per cent of national production in the Federated States of Micronesia can be attributed to informal and semi-subsistence activities. In 2021, it is estimated that 63.8 per cent of the labour force in the Solomon Islands are self-employed with 38 per cent engaged in agricultural production and 51 per cent in services.
However, the potential of these micro and small enterprises to enhance lives is hampered by a host of disadvantages, including regulatory hurdles, limited access to markets and finance, and weak institutional support. The challenges experienced by these enterprises are further exacerbated by the unique local conditions, such as remote geographies, underdeveloped public infrastructure and low population densities, making it difficult for these businesses to flourish.
Micro and small businesses were especially hit hard during the COVID-19 pandemic which brought with it a severe economic downturn that disproportionately impacted the Pacific islands. During the height of the infection and lock downs, between 2019 to 2021, Pacific economies experienced an average shrinkage of 5.4 per cent. The Central Bank of Solomon Islands reported a 3.6 per cent contraction of the domestic economy in 2022 while contributors to the Solomon Islands National Provident Fund reduced by 5,300 from 2020 to 2021. In Samoa 88 per cent of businesses reported they experienced difficulties resulting from the pandemic. Employment shrunk by an average of 5 per cent with the hardest hit sectors being construction, tourism, personal services and transport. In the period 2020 to 2021, its was estimated that the FSM economy contracted by 5 per cent. While Pacific economies are on the mend, the average rate of per capita GDP growth is expected to be lower than pre-2019 levels.
As these nations transition into the post-pandemic phase, leaders across the Pacific are now looking for innovative ways to rejuvenate the MSME sector and accelerate economic recovery. The development community is actively supporting national and regional efforts to rebuild the private sector and giving added emphasis to strengthening the resilience of micro and small enterprises in boosting employment, especially for women and youth, and in curbing growing inequities worsened by the pandemic.
Enhancing social and economic wellbeing, employment, entrepreneurship, trade and investment, climate resilience and regional security underpins the Pacific Islands Forum’s 2050 Strategy for the Blue Pacific Continent as well as its Pacific Regional E-commerce Strategy and Roadmap. The Secretariat of the Pacific Community (SPC) programs continue to focus on improving the sustainability and commercial success of niche and small holder agriculture and other productive sectors. ADB’s Pacific Private Sector Development Initiative and Healthy Oceans Action Plan, together with the World Bank and IFC, are active in facilitating the growth of more competitive private sectors and responsive financial markets. UNCDF, UNDP and UNCTAD are active in the e-commerce and fintech space and doing innovative work in climate risk protection for agri-businesses and MSMEs. The Market Development Facility (MDF) has expanded its private business support and specialised commercial sector development programs in Fiji, PNG, Samoa, Vanuatu and Tonga. In the last 3 years, the GGGI’s Greenpreneurs Program has supported the establishment and growth of micro and small enterprises with a strong sustainability focus across the region.
This Project on ‘Enhancing the ecosystem for entrepreneurship and innovation in the Pacific’ will draw on the diverse experience of these programs and actively seek synergies to address the income and livelihood challenges affecting those at the base of the economy.
One size does not fit all
Because of the sub-regional distribution of the 3 pilot countries (Micronesia, Polynesia and Melanesia), the Project will be taking a cross-country approach to yield insights into social and contextual differences that affect micro and small enterprise owners, recognising that each economy is at different levels of development. It also recognises that a one-size-fits-all solution won’t work. By understanding the nuances of each country (and sub-region), strategies can be tailored to have the most significant impact in the Phase 2 project.
Understanding entrepreneurial mindsets
Comparable and recent official statistics on micro and small enterprises in Pacific island countries are sorely lacking. The primary data collected and analyzed by this Project will provide much needed and valuable information for evidence-based strategy and program development.
The Phase 1 research component will have a strong entrepreneur-centric focus. A combination of face-to-face and remote interviews will be conducted in the three pilot countries starting from October 2023. Interviewers will engage with both established business owners as well as aspiring entrepreneurs. The interviews will attempt to gain insights into the mindset of small business owners to understand what motivates their entrepreneurial journey, what holds them back, and how their interaction with digital technology enhances their participation in business. In addition, business support organisations (e.g., development banks, small business advisory services, micro-finance institutions, MSME networks and startup incubators) will be interviewed to better understand the context in which entrepreneurs operate in those countries.
Catalytic role of local development banks
Importantly, this Project will collaborate with the FSM, Samoa and Solomon Islands development banks. These three partner development banks provide financing and training to their borrowers and can play a stronger catalytic role in driving the growth of micro and small businesses as well as incentivising the registration of informal enterprises. The project envisions a win-win situation where successful entrepreneurs scale their businesses and become empowered users of financial services. Feedback gathered from both existing and potential small business owners, can enable the respective development banks to customise their financing and advisory services.
Regional solution creation and collaboration
The research findings will be presented to a meeting of key stakeholders planned for the first quarter of 2024. It is envisaged that stakeholders will reach consensus on priorities and concrete recommendations that can form the basis of a Phase 2 project to implement and test innovative methods to support micro and small business owners in each of the three countries. Potentially impactful areas to explore include the role of digital social networks in building a support ecosystem for small business owners and the application of inclusive digital technology to address the social and bureaucratic barriers for women and young adults to set up and successfully run a business.
In addressing the dearth of primary data on Pacific micro and small businesses, the dataset will be made available to the development community and academia to better inform strategy and program formulation. The shared objective of this Project is to empower formal and informal micro and small businesses to become a resilient, innovative and dynamic force for equitable growth of Pacific economies.
Jeff Liew is a Digital Inclusion Specialist at the Foundation for Development Cooperation.
Shawn Hunter is the Industry Fellow and Director, Inclusive Growth Programs at the Griffith Asia Institute, Griffith University.