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USAID Needs to Invest in Entrepreneurship

To drive inclusive economic growth

USAID should prioritize funding for business development services and ecosystem support to accelerate inclusive economic growth in developing economies.

Fostering more prosperous economies must prioritize creating higher rates of business formation and investing in public goods necessary to support the growth and scaling of existing businesses. This affirmation is supported by accumulated evidence. There is an uncontestable economic fact: one of the strongest correlates of economic growth is the percentage of the formal economy made up of small and medium enterprises (SMEs) that aim to grow and meet market opportunities. And that is the primary reason ANDE focus its mission on supporting ecosystems for small and growing businesses.

For instance, low levels of foreign direct investment inflows, crucial for increasing gains from trade and foreign investment, are directly linked to the limited pipeline of formalized, growth-oriented ventures that could eventually become recipients of foreign inflows. The investments needed to create this pipeline are often public goods requiring grant funding. In low and middle-income countries (LMICs), this funding should primarily come from the U.S. Agency for International Development (USAID) and similar donors.

Accesso Team at market

Accesso LLV; Image Courtesy of ANDE

As economies and their entrepreneurial ecosystems mature, they can become self-sustaining through earned revenue models, corporate partnerships, and state subsidies. Investing in these ecosystems should be a major pillar of USAID’s Economic Growth strategy, both by funding entrepreneurship support services through grants and advocating for host government contributions to sustain these investments in the long term.

While USAID’s goal of increasing inclusive economic opportunities is commendable, particularly its desire to “help aspiring entrepreneurs found and manage successful firms,” there is little mention of the primary mechanisms for achieving this. These mechanisms include funding interventions to incubate, accelerate, and build capacity for growth-oriented ventures founded by or serving marginalized groups.

Woman at market

Gender Initiative; Image Courtesy of ANDE

ANDE’s research reveals that business development services (BDS) can be highly cost-effective. By implementing best practices, BDS providers can generate a return on investment (ROI) between 10 and 12 times in revenue growth for the businesses they support. This data underscores the significant impact of grant funding for BDS programs.

Investing in these ecosystems should be a major pillar of USAID’s Economic Growth strategy.

This evidence positions business development services as one of the most powerful tools in the economic development toolkit, and it should be reflected as a primary mechanism for intervention in USAID’s strategy. It also answers the identified “Evidence Gap” regarding the best strategies to grow the formal economy, a critical question that ANDE’s research and its members and partners have compellingly addressed.

Asian man in boat transporting goods

ANDE encourages USAID to consider how providers of business development services and local market conditions interact to form a system that either enables or inhibits business formation and growth. Investments in building the capacity of local institutions as stronger ecosystem supports have both immediate benefits and long-term payoffs. These payoffs include building human capital and enabling conditions that can indirectly benefit hundreds or thousands of businesses by creating a virtuous cycle that will guarantee future access to high-quality services.

Devin Chesney is ANDE's Interim Executive Director, bringing nearly two decades of social impact experience. Since joining ANDE in 2017, he has driven the organization’s growth and SDG-aligned strategy. With expertise in international development and ethical enterprise, Devin holds a Master’s in International Relations from the University of Chicago.

This article was produced in collaboration with the Magazine's Content Partners.

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