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How to create a dynamic and self sustaining context for youth entrepreneurship

A systemic analysis of the case of Nicaragua

Paul Kester *

During the last 12 years many investigations have tried to discover the most successful concepts and instruments in the field of youth entrepreneurship development and promotion. Not only is entrepreneurship once again considered a respectful way of income generation after having been called merely a way of “brutal capital accumulation and exploitation”1 by neo-marxists during the sixties and seventies, it was also clear that something had to be done to mitigate the rising levels of youth unemployment in the world. Currently some 1.3 billion people are between the ages of 15 and 24, of which an estimated 73 million are registered as unemployed2. Promotion of self employment and youth entrepreneurship have become the new paradigms.

International organizations such as the ILO3 and UNCTAD4 have elaborated frameworks for youth entrepreneurship development with generic and sometimes more specific road maps to be implemented in each country, according to their political, economic and social conditions. It became clear that these specific conditions in each country will determinate the level of success of policies and programs for youth entrepreneurship development. Based on this axiom The “Prince´s Youth Business International” distinguished different territorial contexts determined by three criteria:

1) The economic structure (factor based, efficiency based, innovation based) 2) The political-military situation (conflict, post-conflict, peace) 3) Urban – rural

The connection of these criteria led to the presentation of a “decision matrix” with 18 context scenarios for which a tool kit was designed with a summary output sheet for each context.5 After several rounds of validation, it was clear that the implementation of this highly tailor-made solution framework did not work as had been planned. The two main critical observations were the following:

1) The sheet belonging to each one of the 18 contexts did not recognize the different forms of support that the different potential young entrepreneurs require in each territory.

2) It turned out to be necessary to assess not only the national level, but also the local level on conditions for youth entrepreneurship development, as contexts within a country can be very different.

The YBI initiative made it clear that even a rather detailed framework appeared to be difficult in its implementation phase. Contexts in every country and in almost every locality are different and so is the idiosyncrasy of its population. Two localities can be very close geographically, but very different in their way of living due to social and historical differences. The characteristics of the local potential young entrepreneur depends heavily on the local context he or she is growing up !

1 Mario Cogoy, “Neo-marxist theory, Marx and the accumulation of capital” (September 1972)

2 http://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/documents/publication/wcms_212899.pdf

3 http://www.ilo.org/empent/areas/youth-entrepreneurship/lang--en/index.htm

4http://unctad.org/en/Pages/DIAE/Entrepreneurship/UNCTAD_Entrepreneurship_Policy_Framework.aspx

5 “Youth entrepreneurship, a contexts framework” ( YBI, 2011)

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Related to the latter, 4 types of young entrepreneurs can be distinguished:

1) Necessity driven These young people can be found dominantly in the developing countries, where high levels of unemployment are directly related to low academic skills, forcing them to start whatever small informal business to survive. Their activities have generally a low level of productivity; require long working hours, offering little physical protection. In general these initiatives do not respond to what the ILO calls “decent work”6. 2) Opportunity driven In each economy frequently market niches appear where the most proactive youngsters, with or without an academic degree, grasp the opportunity to make money during a certain period of time, before others enter as competitors in the same market niche. The most dynamic youngsters by that time have identified a new market niche to reinvest part of their money that they earned before. 3) Life style oriented These entrepreneurs invest in an economic initiative, not necessary driven by the need to make money to survive, but as a kind of hobby. They just enjoy setting up small businesses, earn money and step out whenever they consider that it is simply no longer fun to continue. 4) Growth oriented In most cases young people start these businesses as their “life´s mission” and will invest considerable amounts of time and energy to have their dreams realized.

The local entrepreneurial culture The British economist George Sweeney once stated: “….economic development does not happen in general; it happens to specific people in specific places; it occurs in some localities and not in others”7. He also quotes Brophy (1982), saying that a key factor in local economic development is “… a local culture conductive to the formation of new small firms…”8 Young people are looking for role models, a process that starts within the family environment. The absence of one of the parents or the fact that one or both parents never had a regular job will influence the attitude of the child towards education and, in general, towards taking initiatives in social or economic situations. Parents should give children a sense of the future, making them curious, creative, critical and competitive.

When the child grows into the adolescence phase, role models in the community are getting very important and, referring to Sweeney, this might determine whether or not a young person feels stimulated to start a business, when this has historically been considered normal y desirable in his or her locality. On the contrary, when no historic entrepreneurial culture exists, a talented young person will definitely pack his or her bags to search for study possibilities of economic opportunities elsewhere, leaving the original locality in a passive state, where an active entrepreneurial attitude is (still) not recognized by the community.

6 http://www.ilo.org/global/about-the-ilo/decent-work-agenda/lang--en/index.htm

7 G.P. Sweeney, “Technical culture and the local dimension of entrepreneurial vitality” in Entrepreneurship and

Regional Development 3 (1991) 8 Ibid.

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Creating a dynamic local entrepreneurial culture is not impossible. Many examples exist of territories with low productive primary economic activities that for one reason or another gradually have been converted into more dynamic economic centers. This process might take one or two generations, but in other cases social and economic structures have changed within a decade. These cases occur when a potential opportunity, which is/was beyond the reach of the original population, attracts external persons with investment resources. Examples are: oil, gas, new cash crops, adventure tourism, etc. On the other hand “entrepreneurial spin-off” can occur through a new decentralization policy of a regional or national government to stimulate economic development. Creating infrastructure (roads, electricity, schools, etc.) will attract private investment, although primarily, from external persons. Nevertheless a local entrepreneurial culture can emerge, with the possibility that local youngsters will no longer pack their bags, but will look instead for economic opportunities in their own locality or region, strengthening the local entrepreneurial culture. A systemic approach to create a self sustaining entrepreneurial environment for youth Based on the systemic competitiveness framework for territorial economic analysis, elaborated in 1995 by the German Consultancy Agency “Mesopartner“9 it is possible to create a framework consisting of 4 levels (micro, meso, macro, meta), that interact with each other in a given territory. It is important to mention that this model can be applied to a locality, to a region or an entire country !

The micro level: The local youth with their perceptions, attitudes, values and basic academic knowledge are analyzed at this level. Implicit are also present here their networks, their communication styles and channels, their role models in different aspects of life, their leadership style, etc. The meso level: A great number of programs and services oriented towards youth in their learning stage are gathered here. Secondary, technical and academic education and training, including internships and apprenticeships in public institutions, organizations, financial institutions and private enterprises fit within this meso level.

9 http://www.meyer-stamer.de/systemic.html

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The macro level All policies, local or national regulations concerning economic development in general and (youth) entrepreneurship promotion, are analyzed at this level. Red tape, corruption, fiscal incentives, etc. are some of the elements that belong to this level. The meta level This level represents the current entrepreneurial culture in a given territory. You could say that the 3 lower aggregated levels converge into this meta level. But also, a given meta level in a territory determines the “quality” of the 3 lower levels at every moment. You should expect that a territory (local or national) with a high meta level generates a pro-active political system able to implement high quality services at the meso level, which has a positive impact on the local or national youth at the micro level. This systemic approach shows that there is a constant interaction between the different levels. This is certainly the case in modern urban societies. On the contrary, in a rural setting the four systemic levels will very slowly change over time, unless inputs from outside trigger some social and cultural aspects in this rural society and things start to move between the systemic levels. Interventions in the systemic youth entrepreneurship framework There is hardly any territory on earth that can maintain itself in absolute isolation from the “modern outside world”. Infrastructural projects connect remote regions with highly developed urban centers and this process makes people think and act differently over time. Social friction might be created between the local older people and the youngsters, who will be the first to embrace the new style of living through clothing, internet and cell phones, interpersonal relations, etc. History proofs that these processes of change are impossible to stop.

For centuries the “external interventions” have been shaking up societies that had not seen changes for many generations and many cultures have been destroyed. On the other hand, many other regions have prospered and succeeded to lift a considerable percentage of its population out of poverty. Interventions are also needed to give local or national youth opportunities to make a decent living, start a family and help the community in its development. In the systemic framework external interventions can and must be undertaken at two systemic levels in order to trigger an internal process of development towards dynamic youth entrepreneurship:

1) At the meso level Here several tangible and intangible services must be delivered to assist directly our target group, the young (potential) entrepreneurs: technical and academic education based on entrepreneurial competences; financial products accessible for start-up´s, market information centers, mentoring programs. But also “hard” infrastructure, especially for (semi-) rural areas, such as electricity, internet, roads, etc. is required.

2) At the macro level

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Civil society organizations, business associations, universities, etc. can advocate for specific national and local policies to promote youth entrepreneurship from a legal angle. New bills or amendments to existing laws or regulations at the national and/or local level, related to youth employment and youth entrepreneurship, fall under the macro area.

The impact flow of interventions at the aforementioned levels has different dimensions.

1) The improvement and extension of technical instruments will have a short term positive effect on new (young) entrepreneurs. On the long term these instruments will contribute to the improvement of the entrepreneurial culture of the territory.

2) The improved legal and institutional environment will be expressed directly through the technical instruments at the meso level. For example the approval of fiscal incentives for start-up´s or for existing enterprises willing to operate from an “inclusive business” concept. On the long run the changes at the macro level will influence the entrepreneurial culture.

3) Reaching a gradual change in society´s entrepreneurial culture and mentality (meta level) will finally influence positively new generations and stimulate them to start their own businesses, not only for necessity, but also for the opportunities offered in their local economy. These new generations have successful local or national entrepreneurs as role models and their education helps them to develop the right skills.

The practical application of the systemic approach As stated before, there is no unique framework for youth entrepreneurship development. Each territory has its own idiosyncrasy, based on social values and codes of conduct. This does not mean there are no success stories, where best practices are to be derived. Nevertheless most success stories may have reached positive results at one of the four systemic levels, most probably in the meso environment. That does not necessarily mean that these examples are replicable, scalable or sustainable. The Youth Business International (YBI) describes this situation as follows:

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“Multiple initiatives exist to promote youth entrepreneurship, from the delivery of training to youth who want to start their own business, to the provision of venture capital funds to help promote these businesses. Yet there is little systematic impact evaluation, and a lack of robust evidence about what works best – and particularly what works best in different contexts”.10

To put in practice the systemic youth entrepreneurship approach, the followings steps are considered crucial in establishing a dynamic and self sustaining context in a given territory:

1. Diagnosis of all four systemic levels / base line construction

Micro: Youth motivation, family structures and values, access and quality of basic education, level of “drop outs”, demographic situation, social youth organization, gender equality, importance of sports, other hobbies, role models, etc. Meso: number and quality of business support systems, academic and technical education, local relations between education and private sector, access to financial products, infrastructure (water, electricity, internet, roads, sport- and recreation facilities), etc. Macro: legal dynamics (bills, laws related to enhance entrepreneurship), red tape, corruption, quality and structure of political leadership, etc. Meta: situations of conflict, influences of external interventions, cultural or religious influences, powerful external stakeholders, overall validation of education and entrepreneurship, ethnic and gender issues, environmental awareness, positive attitude to change, etc.

2. On the short term; to improve the entrepreneurial support structure

The technical issues at the meso level are relatively easy to resolve when resources are available. Unified efforts of civil society organizations, private sector (including financial sector), public sector and educational institutions can have a huge impact on the quality of business support services for local business people in general and for young starting entrepreneurs in particular.

3. On the mid-long term: to improve the legal environment The creation of a sound business climate takes time, especially when historically red tape, corruption, lack of transparency and non-democratic leadership have been dominant factors in local or national politics. The presentation of new bills, the process of political negotiation and also the final implementation of laws are time consuming, but necessary. It is an indication of the willingness of a society and its political system to introduce change towards reduction of poverty and the generation of social and economic wellbeing.

4. Impact measurement The outcomes of such a strategic project as youth entrepreneurship development can be measured after 5 of even more years. Especially the influence of a changing

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Youth Entrepreneurship, a Contexts Framework” (Youth Business International, 2012)

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entrepreneurial climate (meta level) on the local youth (micro level) might take even more than a generation. But there is no doubt that the creation of a dynamic and self-sustaining environment for youth entrepreneurship is a long term systemic process.

The Nicaragua experience on Youth Entrepreneurship Promotion Nicaragua is currently to be found in the lowest levels of country rankings related to competitiveness, business and investment climate and technological innovation. It has the penultimate level GDP in Latin America (after Haiti). Civil war in Nicaragua ended in 1990 and a neo-liberal economic system was introduced with a severe structural adjustment programme (SAP) imposed by the IMF. The country reached to number of 6 million inhabitants in 2013, with a youth population (15-34 years) representing 63.4 % of total population. Of the total number of unemployed people in Nicaragua, a 64.6 % is to be found in the aforementioned age group.11 Organized youth violence in Nicaragua is relatively low compared to its neighboring countries in het northern part of Central America, but domestic violence has been rising during the last 3 years. Youth involvement in drug consumption and drug trafficking is also rising, especially in the Caribbean coast of the country. Youth migration shows the same (estimated) percentages as other Central American countries. Description of the systemic framework levels for youth entrepreneurship in Nicaragua The micro level The UNDP mission in Nicaragua presented in 2011 a very detailed description of the Nicaraguan youth, analyzing their characteristics and interests, as well as their social and economic opportunities, dividing the target group between men and women and urban versus rural.12 On the issue of role models, according to a UNFPA report on Nicaragua (2006) some 40 % of Nicaragua households are run by mothers or grandmothers and 35 % of all Nicaraguan children do not live with their parents.13 The low quality of basis education in Nicaragua has been an important issue in social and political debates over the last 20 years. While UNICEF recommends a minimum of 7 % of GDP to reach an acceptable level of quality education, Nicaragua spent 4.1 % of GDP in 2009 on basic and secondary education; in 2012 this figure was reduced to 3.4% and in 2013 to 2.8 %.14. The low salary system for basic education teachers, combined with numbers of 40 to 80 students in a classroom, especially in rural areas, is not a stimulating base for teachers to shift to a quality education system, based on more entrepreneurial concepts and methods. The meso level

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http://www.elnuevodiario.com.ni/nacionales/268712 12

http://www.undp.org.ni/files/doc/1322678034_Informe%20Completo.pdf 13

http://www.unfpa.org.ni/publicaciones/Familias_hogares_en_Nicaragua.pdf 14

http://www.elnuevodiario.com.ni/opinion/277386

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During the last 5 years several specific youth entrepreneurship development programs have been implemented in Nicaragua. They attend different target groups, such as rural youth, youth at risk situations, young women, etc. Universities have also recognized the need for entrepreneurship promotion; where in the past students were more professionally prepared to be an employee, entrepreneurship is nowadays part of the academic curriculum and many university fairs are organized to bring the entrepreneurial students in contact with the market. The National Technological Institute (INATEC) is offering a wide scale of short and long term training courses through some 35 institutes in the country. As in the case of the basic education system, the quality of the vocational training system is widely questioned due to the low level of theoretical and practical experience of the instructors. On the other hand private sector involvement in the assessment and improvement of the technical training programs has been very low. Only recently (February 2014) a public-private committee has been formed to analyze ways of improving the quality of technical education in Nicaragua. Financial services for start up´s, especially for youth are de facto absent. Banks and even micro finance NGOs are extremely reluctant to elaborate attractive financial products for our target group, which leads to a high level of frustrations among talented youth and in fact hinders the emergence of new sound initiatives that might trigger the interest of other young people to develop entrepreneurial concepts and ideas. New financial schemes have recently been set up like angel investors and crowdfunding, but the impact is still very limited. Nicaragua has the second lowest ranked position (124) of Latin American countries in internet connectivity, according to the most recent WEF report15. On the other hand access to mobile phone technology is increasing very rapidly, even in rural areas. This phenomenon might trigger both urban and rural youth to get connected to specific programs on employment and entrepreneurship promotion. Marco level Recently some 3 bills, related to youth, youth employment and entrepreneurship, were introduced in National Parliament of Nicaragua. One bill is accepted and implemented. The other two are still in a consulting phase in which both public and private sector are participating.

1) Law nr. 392: “Promotion of Integrated Development of Youth”, with specific chapters on employment and entrepreneurship promotion.

2) Bill: “Promotion of First Job Contract for Youth”, through which private and public employers receive a 3 years fiscal incentive, when contracting youth from 18 to 30 years, graduated from academic and technical institutions.

3) Bill on “Promotion of Internships and Apprenticeships”; private and public sector employers will be obliged to contract student for internships and apprenticeships at a minimum of 20 % of all new employment contracts.

In general, on paper youth employment and youth entrepreneurship policies are receiving a fair attention in Nicaragua, but the real implementation turns out to be a rather long process. The Meta level

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http://www.weforum.org/issues/global-information-technology

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During 2013 a negotiating process between national government and the National Employers Organization (COSEP) started, which has led to an overall agreement on many issues and to rather positive business and investment climate in Nicaragua. Also the relatively stable social and political environment in the country is contributing to this process, which gave way to a high level of foreign direct investment (textiles, call centers, tourism) during the last 10 years. On the other hand, neither the national financial institutions nor the private sector seem to have much confidence in the entrepreneurial capacities of the Nicaraguan youth, primarily due to the low quality of the academic and technical education institutes. It has not only to do with the low technical and innovative knowledge that students have gained at their graduation moment, but also with low levels of the relevant competences, related to entrepreneurship in its broadest sense, like analytical capacity, perseverance, team building and leadership, innovation drive, risk taking, acceptance of failure, etc. Conclusion When it is agreed that, within a systemic youth entrepreneurship framework, interventions are required at the meso and macro level, Nicaragua is showing some progress at both. Crucial is the willingness of the society and government to strive for quality education based on entrepreneurial concepts and not only to deliver employees. Nicaragua needs to develop its youth based on the 4 C´s; curiosity, creativity, critical and competitive attitude, which will gradually make the systemic youth entrepreneurship framework in this country self sustaining.

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References Generation Entrepreneur (Youth Business International / GEM 2013) Global Information Technology Report (World Economic Forum, 2014) Mentoring Young Entrepreneurs: What Leads to Success? (John Cull, International Journal of Evidence Based Coaching and Mentoring Vol. 4, No.2, Autumn 2006) Neo-marxist theory, Marx and the accumulation of capital (Mario Cogoy, September 1972) Shooting for the Moon: Good Practices in Local Youth Entrepreneurship Support (OECD/LEED, 2009) Supporting Entrepreneurship Education: A report on the global outreach of the ILO’s “Know About Business” Programme (ILO, Geneva, 2009) Systemic Competitiveness; new challenge for enterprise and politics (Klaus Esser / Wolfgang Hillebrand / Dirk Messner / Jörg Meyer-Stamer; CEPAL, 1996) Technical culture and the local dimension of entrepreneurial vitality” (Sweeney, G.P. “in Entrepreneurship and Regional Development 3, 1991) UNCTAD Entrepreneurship Policy Framework and Implementation Guidance (UNCTAD, 2012) Youth entrepreneurship; recommendations for action (Youth Business International, 2010) Youth entrepreneurship, a contexts framework” (Youth Business International, 2012)

*) Paul Kester, Master in Local and Regional Economic Development (Institute of Social Studies, The Hague, The Netherlands), works in Nicaragua and other Central American countries on issues of small enterprise development, local economic development, value chain development and youth entrepreneurship promotion. Managua, Nicaragua, June 2014