Co-Authored by Robert D. Lamb and Sadika Hameed, Program on Crisis, Conflict and Cooperation at the Center for Strategic and International Studies
A teenage girl sews some clothes and sells them to a vendor at the local market, grows her business, and eventually becomes the main employer in her community. An inspiring story, but nothing out of the ordinary for those who study entrepreneurship – until you learn she built her successful manufacturing collective in secret, just after the Taliban took control of her community in Afghanistan.
Similar stories play out wherever a government is abusive, corrupt, weak, or nonexistent – unusually difficult environments, with high violence, crime, and coercion, and low incomes and quality of life. These are the most difficult of the frontier markets. Even investors who seek frontier opportunities tend to avoid them. But that just means opportunities are being missed. All human beings need food, shelter, family, community, and some way to pay for life’s necessities. As the young Afghan showed, even when bullets are flying, disaster has struck, or warlords are in charge, the human will to survive runs deep.
Investors might be surprised by just how enterprising people who live in such complicated environments can be. Those who start their own businesses usually need to hire private security, cut deals with armed thugs, or rely on expensive electricity generators to keep their businesses operating. Some pool resources to encourage collective action and promote order. In Jamaica, a tourism company coped with crime and social tensions from a nearby slum by offering job training and opportunities to local residents, who in turn kept an eye on the tourists’ safety. In Haiti, a local Internet service provider rebuilt quickly after the 2010 earthquake and profited handsomely by providing communication services to the rapidly growing aid community. Despite the fragility of the state, mobile phone and banking services often thrive, light manufacturing takes place, and multinationals extract resources or distribute finished goods. Even illicit markets demonstrate that entrepreneurs in the most difficult frontier markets can succeed by finding creative ways to manage risk.
Some entrepreneurs secretly welcome the difficulty of their local business environment, because it prevents competition from outsiders who do not understand it nearly as well as they do. It is that local understanding that enables them to succeed.
What they usually lack, however, is access to credit, collateral-based loans, risk insurance, or information on how to find investors to help grow their businesses. That gap is itself an opportunity. In the absence of well-functioning stock markets, private equity rules, if the opportunities can be found. The prize goes not only to the entrepreneurs who succeed in managing risk in hard places but also to those investors smart enough to find ways to help them thrive.