People, profit, enterprise and entrepreneurship Case Study Click on the following links for further information about this case study: Teacher's Notes Student Activities Private sector development - the main 'engine' of economic growth Australia's overseas aid program provides many different forms of aid to developing countries. The aim is to help these countries reduce poverty and achieve a sustainable improvement in their standard of living. Support for private sector development is crucial in achieving this aim. The private sector is often referred to as the main engine for economic growth and thus the improvement of living standards in developing countries. The private sector in developing countries is made up of a range of privately owned commercial/business enterprises. These include large multinational corporations whose local enterprises are part of their world wide operations. Enterprises may also be joint ventures between foreign owned companies and local businesses or large locally owned businesses including those privatised state enterprises. They may be small to medium sized enterprises employing some non-family members. They also include micro-enterprises typically consisting of 1-3 people - often family members and often female - usually engaged in activities such as farming, handicraft production, street trading, services or small-scale manufacturing. A dynamic private sector creates jobs and incomes, generates wealth and ensures resources are used efficiently as well as providing governments with tax revenues to fund basic essential services and infrastructure development. Australia's strategy to support private sector development through the aid program focuses mainly on helping create the economic and social conditions, which enable the private sector to flourish. Priority areas are: effective government improving basic social services and infrastructure. Building on these foundations, a third area where the aid program can assist is through: supporting enterprise development, focusing on micro-enterprises and small to medium-sized enterprises (SMEs). This third target is the focus of this case study - how can Australian aid be used to support enterprise growth and development? Clearly, the size and complexity of the private sector varies from country to country. Many developing countries have large numbers of SMEs. Others have few formal businesses which may be because of limited resources and small market size (as in small Pacific Island countries). However, even in these cases there may be substantial micro-enterprise activity in the informal sector - for instance, in semi-subsistence farming, street vending or domestic service. SMEs and micro-enterprises can play a key role in growing the economies of developing countries. The more successful among these businesses are often innovative and adaptable, helping to utilise labour, entrepreneurial talents and savings that might otherwise lie idle. Facilitating enterprise development - a focus of Australian aid Australian aid seeks to support local entrepreneurs and tackle the constraints affecting SMEs and micro-enterprises. Such constraints include: limited access to credit and saving facilities and other financial services limited resource base and lack of power in a competitive market environment lack of business skills which results in inadequate business planning and/or management skills lack of access to appropriate technology poor knowledge of market conditions and government regulations. Women tend to face extra barriers and particular disadvantages when setting up a business such as those arising from cultural constraints, limited legal rights and lack of opportunities for education and training. Australia's assistance to help people overcome these barriers to setting up and running a business focuses on improving access by micro-enterprises and SMEs to financial and other business services. By offering low interest loans and training, this assistance provides opportunities for men and women to undertake new and/or expanded ways to earn an income. Lack of credit to set up and grow small businesses is one of the single greatest barriers to self-improvement for many poor people. It is clear that access to microfinance services, providing credit and savings facilities to those unable to access the formal financial system, can greatly assist the poor to manage income generating activities and improve their economic as well as their social welfare. Success stories The Australian Government's overseas aid program funds microcredit projects through the Philippines-Australia Community Assistance Program (PACAP). This is where individuals and community organisations in the Philippines are able to borrow small amounts of money in order to generate income. For example, in Batangas, off the southern coast of Luzon, a collective of poor workers from a former sugar plantation have combined their efforts to form a rural organisation, helped by the former plantation owners. With money from the Australian Government, the workers' collective lends small amounts for people to start businesses. Amounts of 3000-5000 pesos (AUD $150-$250) are loaned for pig-farming, agricultural production and home cottage industries. In another area in the Philippines, there are 80 microcredit borrowers who have benefited from $65,000 worth of Australian aid. Called the BUBI credit and savings project, a collective of women formed in 1996 and decided to support each other's potential with finances, skills training and education. Often women are in the lowest 20 per cent of the population in terms of per capita income. Small loans are offered to the women with skills training such as financial management and gender sensitivity training. Gender sensitivity teaches housewives that they can make joint decisions with their husbands as equal partners. Husbands should share household chores and the men need to be convinced that their wives have special talents and capabilities and that they should have confidence that the women can run their own businesses. Small loans funded by Australia have allowed these women to increase their incomes and help reduce the poverty levels of their families. Increased incomes allow the women to fund their children's education, which will help them break the cycle of family poverty. Conclusion Australian aid is all about making a difference in order to improve the economic and social welfare of people worse off than ourselves. Helping fledgling entrepreneurs to grow their businesses and/or start a new business, to make a profit will help to raise their standard of living. This is an example of how the provision of aid can make such a difference.   Top © Commonwealth of Australia