While social entrepreneurship is thriving in Africa, it is clear that a lot needs to be done proactively by governments in Africa to create an enabling environment for them to exist and flourish.
By Chimezie Chika
In the 1990s and early 2000s, Nigeria’s niggling electricity shortages appeared to rest wholly on the government’s initiative to find solutions to the problem. In the last two decades, however, helped by the rise of information technology, that singular expectation has slightly shifted with the advent of companies willing to provide eco-friendly and environmentally sustainable electricity sources through private enterprise. Having identified the tremendous demand for it, young companies such as D’suon and Pamodzi Bio Energy Solutions have been offering alternative sources of electricity and clean energy solutions to individuals and off-grid communities around Nigeria through solar, biogas, and other technologies.
Companies with this approach are called social enterprises and the business model is social entrepreneurship. Social entrepreneurship refers to businesses that provide innovative solutions to social, cultural, and environmental problems. The business model is based on a rationale that capitalism can be turned into welfarism to form a symbiotic relationship between the two by providing the urgent needs in communities, especially in the areas of poverty alleviation, health care, and community development. For social entrepreneurs to be able to create and offer palpable solutions within the model, they must exhibit social awareness, pragmatism, creative thinking, collaboration, and adaptability.
Social entrepreneurship is not modelled primarily towards profit-making like regular companies. Their primary objective is to solve social and environmental problems in society or to close persistent gaps within broader community development goals. Many social enterprises combine profit-making motives with a focus on creating jobs and engendering positive change. On the other hand, for-profit businesses operate with strict objectives of revenue growth, return on investments, profits and turnover. It is also important to note that social entrepreneurship is not the same as companies with charities or companies with policies around corporate social responsibility (CSR) (one example is Nigeria’s NNPC, with its NDDC program).
The biggest distinguishing factor between social entrepreneurship and a traditional enterprise is that the former is geared towards social welfare while the latter is built around monetary returns. This means that the metrics by which the business success of these enterprises is judged are different. For social enterprises, success is people-centred, environmentally conscious, entails solving a problem in society, and when profit is made, uses it to impact positive change in the immediate community. For traditional business, success is simply a question of profit. Many social enterprise companies project their philosophy through a profit-sharing model; that is, many donate a portion of their profits to charities or relevant developmental courses geared towards the improvement of ordinary people or areas in the community.
This setup also determines the difficulties that social ventures encounter, such as the problem of funding, which is always present at the initial stages since potential investors want to see an immediate return on investment. It has been noted that the best framework for social entrepreneurship is to combine profit-making and its primary objectives. It is then reasonable to assume that a company that provides a solution to an old social or cultural problem will make a profit. Funding campaigns are immensely helped by the advent of social media and online crowdfunding as well as tech competitions — a method many social enterprise tech startups employ to garner initial funding. To that end, social entrepreneurs often appeal to the emotions of the public by relating the origins of the company’s altruistic objectives to the crucial personal experience of the founder or founders, usually a personal story associated with the problem the company hopes to solve. Olivia Onyemaobi’s Pad-Up Creations is one example.
Given the abundance of different businesses in the Internet Age, especially start-ups, there is a lot of confusion as to what type of business constitutes social entrepreneurship. Social entrepreneurship can take different forms or employ different business models. They could be social firms, socially responsible businesses, nonprofits, and cooperatives. Whichever approaches these businesses take, the framework is usually divorced from a sole profit motive.
Many social enterprises today are ecologically conscious, with part of their focus tending to be geared towards their carbon footprint ratio by reducing greenhouse emissions. Many new businesses in Africa are into the recycling of waste and disused items into new products or the upcycling and refurbishment of disused items. Many businesses are selling sustainable alternatives to popular products, such as companies in Nigeria that recently began to produce wood-based containers as an alternative to the widely used but unhealthy Styrofoam containers.
One important benefit of social enterprises is that individuals get to participate in nation-building not through government initiative but through a private enterprise or business that aims to simultaneously solve a troubling issue within a country. One notable example is the Ghanaian pharmaceutical company, mPharma, which works actively to make medicine more affordable for Africans. As a people-centred business, it makes the idea of partnerships (with charities, international organisations, etc) easier. The founder(s) have the opportunity to effortlessly align personal objectives with the business.
Examining the Nigerian Situation
There are over 400,000 social enterprises in Nigeria alone, each tailoring its business towards a gap in the social ecosystem of the country. The majority of these social enterprises were established in 2014 and are mostly run by youths under 45 years old.
A 2022 study by the British Council showed that social enterprise in Nigeria dates back to the 1950s. The model has grown in leaps in the last few decades, mostly incarnating as tech startups in recent times. The study also showed that 69% of the leaders are males while 58% of the full-time employees within the ecosystem are female. Further demographic information revealed that 46% of the businesses studied are based in urban areas. In terms of their social focus, 61% of the businesses are focused on human resources development and creating employment opportunities. 68% of the businesses support poverty alleviation schemes and programs for youth and gender empowerment. An increasing number of social entrepreneurship startups in Nigeria in recent times also focus on climate justice.
The positioning of social entrepreneurship as the alternative solution to Nigeria’s many social problems has begun to dominate conversations in recent times. Many Nigerian companies in this mould are fully aware of the challenges facing them in a boisterous business terrain like Nigeria with a huge untapped market and great potential for growth. As Olasimbo Sojinrin, the founder of Solar Sister, a company that supports local women in Africa to create clean energy businesses, noted in an interview, the Nigerian government needs to be more hands-on in helping social enterprises because of their immense value to social development.
The legal ramifications of social entrepreneurship in Nigeria are linked to other extant laws on business enterprises and ventures. The nature of the legislation around social enterprise in Nigeria is not specific and, as with most things in the country, poorly implemented. (There is, for instance, no government parastatal dedicated to overseeing social enterprise, which is a huge sector on its own). Notwithstanding, there is a recognisable general framework in place that allows social enterprises to flourish. Section 23(1)(C) of the Companies Income Tax Act Cap 2004 states that companies involved in ecclesiastical, benevolent, charitable or educational activities of a public character are exempt from income tax (for which they need certifications from commissions like the NPC) provided such income is not earned through active business or trade by the company. In addition, these companies can also easily access grants such as the Federal Government Survival Fund Program by registering on the MIS platform. It must be noted that government grants such as the Federal SFP are not distinctly specific to social enterprises; they are what is obtainable by any qualified company.
In recent times, Nigeria has made attempts to make the formation of social enterprises easier, especially through the digitisation of the Corporate Affairs Commission (CAC) registration and the reform and harmonisation of the registration process since the formation of the Presidential Enabling Business Environment Council (PEBEC), which improved the country’s ranking on the World Bank Doing Business index 2020.
Most social enterprises in the country are structured as nonprofits, cooperatives of some sort, or private limited liability companies and therefore cannot offer bonds to the public, though of course companies that combine social enterprise and for-profit motives can (Tony Elumelu Foundation, for example). Environmental, social and governance (ESG) laws in the country are largely voluntary. The situation can be largely improved by mandating progressive ESG obligations as companies grow. As an incentive, tax breaks and other benefits could be offered to companies actively involved in carrying out social and environmental responsibilities.
The Kenyan Situation
The Kenyan business environment — especially the service sector — is one of the most developed in Africa. This is the country that originated such corporate behemoths as Safaricom, the KCB Group, East African Breweries, and others. Social enterprise in the country is also thriving not only because of the modern tech start-up boom, but also due to identifying the need in solving Kenya’s environmental and social challenges, ranging from desertification in the northern Turkana and Marsabit counties, with its attendant food and water scarcity, and the widespread poverty in urban inner cities such Kibera.
Social enterprises such as Create2030, Africa Collect Textiles, SOMO Africa, Love Artisan, and others, are using sustainable methods to produce furniture, empower youths, upcycle used goods and items, and train young entrepreneurs and artists. The mindsets and environment that created such social entrepreneurship have ensured a boom that has resulted in an estimated number of over 44, 000 such companies. A 2016 British Council survey of 183 Kenyan social enterprises revealed that 65% of the companies are led by young people under the age of 44. The entire social enterprise ecosystem in the country is run by young people. Female leadership of the companies also amounts to 44%.
Legislation and the legal framework around social entrepreneurship in Kenya appear to be similar to Nigeria’s, although there are attempts to distinctly reference social enterprise. Most social enterprises in Kenya register as limited liability companies (LLCs). There is however (unlike Nigeria) a body dedicated to overseeing social entrepreneurship in the country, The Social Enterprise Society of Kenya (SESOK) which was founded in 2017.
The laws governing social entrepreneurship are variously found in the Kenya Start-up Act (2021), the Nonprofit Law, and the Environmental, Social and Governance (ESG) laws. The Kenya Startup Act provides a framework for the setup and expansion of innovative technology companies. It provides that companies already registered at the Business Registration Service (BRS) must also register with the Kenya National Innovation Agency. The Act also provides for a loan package that will allow promising startups to kick off. Nonprofit laws in Kenya are the various legislations governing nongovernmental organisations (NGOs). Many such laws were passed in the 1990s. Notably, the laws provide that the income of NGOs is taxable unless acquired through active business transactions. The ESG laws in Kenya provide that businesses that focus on ESG sustainability goals will be given attention and tax exemptions.
In general, the biggest challenge for social entrepreneurship in Kenya is funding. And although there are accelerator and incubator programmes from time to time, they are not nearly enough. The problem seems even more acute in Nigeria where innovative social enterprises continue to form with ever-increasing rapidity. While social entrepreneurship is thriving in Africa, it is clear that a lot needs to be done proactively by governments in Africa to create an enabling environment for them to exist and flourish. While the social, environmental, and capital benefits of social enterprise are duly noted, its most telling value impact in Africa — a continent where internecine wars and poverty rage continuously — is its practical motive of solving social problems by approaching them through the needs and deprivations of the common people. Social enterprise therefore offers a real chance at making real change in Africa.
Chimezie Chika’s short stories and essays have appeared in or forthcoming from, amongst other places, The Republic, The Shallow Tales Review, Terrain.org, Iskanchi Mag, Isele Magazine, Lolwe, Efiko Magazine, and Afrocritik. He is the fiction editor of Ngiga Review. His interests range from culture to history, art, literature, and the environment. You can find him on Twitter @chimeziechika1.
Photo by Towfiqu barbhuiya on Unsplash.