Strengthening the business Strengthening the business

sector and sector and

entrepreneurship: the entrepreneurship: the

potential of diasporas potential of diasporas

Krishnan SharmaKrishnan Sharma

FFDO/DESA, United NationsFFDO/DESA, United Nations

6 6 NovemberNovember 20072007

Context and BackgroundContext and Background

Recurring theme within the Monterrey Recurring theme within the Monterrey Consensus is the importance of having a wellConsensus is the importance of having a well--functioning business sectorfunctioning business sector

Strong interest by UN member governments in Strong interest by UN member governments in FFD/DESA workshop on diasporas and FFD/DESA workshop on diasporas and business development in October 2006business development in October 2006

FFD/DESA and UNDP are collaborating in FFD/DESA and UNDP are collaborating in organizing followorganizing follow--up work. Outcomes to be up work. Outcomes to be presented at followpresented at follow--up International Conference up International Conference in Doha at end 2008 in Doha at end 2008

Diaspora EntrepreneursDiaspora Entrepreneurs

Some return home; others facilitate ventures Some return home; others facilitate ventures from overseasfrom overseas

Are different in certain respects from other Are different in certain respects from other foreign investors i.e. longer term horizon, greater foreign investors i.e. longer term horizon, greater emotional considerations, go beyond pure emotional considerations, go beyond pure investing, larger connections and often better investing, larger connections and often better informedinformed

Arguably generate a greater social capital per Arguably generate a greater social capital per unit of investment than other foreign investorsunit of investment than other foreign investors

Drivers of Increasing Diaspora Drivers of Increasing Diaspora

EntrepreneurshipEntrepreneurship

Breakthrough in transport and communications; Breakthrough in transport and communications; liberalization of trade and financial flows; impact of liberalization of trade and financial flows; impact of economic reform in home countrieseconomic reform in home countries

Increasing desire among countries, as reflected in Increasing desire among countries, as reflected in policies, to engage with diasporas policies, to engage with diasporas –– evident in all the evident in all the main regions [e.g. dual nationality in India, main regions [e.g. dual nationality in India, encouragement of return migration in China, increased encouragement of return migration in China, increased policy attention in Latin America and parts of Africa etc]policy attention in Latin America and parts of Africa etc]

Looking ahead, increasing demand for skilled workers in Looking ahead, increasing demand for skilled workers in developed world will enhance influence of diasporas in developed world will enhance influence of diasporas in longerlonger--termterm

Financial and NonFinancial and Non--Financial Business Financial Business

Contributions of DiasporasContributions of Diasporas

Business contributions of diasporas can Business contributions of diasporas can

be both financial and nonbe both financial and non--financialfinancial

Financial and nonFinancial and non--financial initiatives are financial initiatives are

interrelated and serve to strengthen interrelated and serve to strengthen

access to finance in medium termaccess to finance in medium term

Diaspora Contributions: FinancialDiaspora Contributions: Financial

Includes collective/individual remittances, equity Includes collective/individual remittances, equity

finance, bond finance, and various other tools to finance, bond finance, and various other tools to

finance startfinance start--ups.ups.

Many successful examples, but question marks Many successful examples, but question marks

over initiatives to channel remittances into over initiatives to channel remittances into

productive enterprises, ability of Home Town productive enterprises, ability of Home Town

Associations to directly become involved in Associations to directly become involved in

business generation, and efficacy of venture business generation, and efficacy of venture

capital in some emerging economies.capital in some emerging economies.

Financial Contributions: Some Financial Contributions: Some

ExamplesExamplesEquity financeEquity finance: visible in development of high: visible in development of high--technology technology sectors in India and China, and startsectors in India and China, and start--up and SME up and SME investment funds in countries such as Israel, Serbia, investment funds in countries such as Israel, Serbia, Armenia, Dominican Republic etc. Importance of venture Armenia, Dominican Republic etc. Importance of venture capital in some instances.capital in some instances.

RemittancesRemittances: experiences of Multilateral Investment : experiences of Multilateral Investment Fund of IADB, UNLAD in Philippines, and work of Fund of IADB, UNLAD in Philippines, and work of Microfinance International CorporationMicrofinance International Corporation

Collective remittancesCollective remittances: some Home Town Associations : some Home Town Associations becoming directly involved in generating businessesbecoming directly involved in generating businesses

Bond financeBond finance: few instances of directly generating : few instances of directly generating businesses (possible exception of Korea), but could be businesses (possible exception of Korea), but could be more prevalent in future.more prevalent in future.

Diaspora Contributions: NonDiaspora Contributions: Non--

FinancialFinancialCan have equally important impact on entrepreneurship Can have equally important impact on entrepreneurship and business development. Consists of transfer of and business development. Consists of transfer of knowledge, skills/training, and facilitation of investment knowledge, skills/training, and facilitation of investment and trade.and trade.

Transfer of knowledge etc can be facilitated through Transfer of knowledge etc can be facilitated through formal networks, that require resources and institutional formal networks, that require resources and institutional capacity to be effective [e.g., capacity to be effective [e.g., UNDPUNDP’’ss TOKTEN, digital TOKTEN, digital diasporadiaspora networks in Asia, Africa and Latin America]networks in Asia, Africa and Latin America]

Investment and trade can be facilitated through Investment and trade can be facilitated through transmitting information, lowering reputation barriers and transmitting information, lowering reputation barriers and acting as acting as ‘‘first moversfirst movers’’..

NonNon--Financial Contributions: Some Financial Contributions: Some

ExamplesExamplesAchievements of Indian Achievements of Indian diasporadiaspora in promoting in promoting education, facilitating investment and generating education, facilitating investment and generating outsourcing opportunities. Contribution of outsourcing opportunities. Contribution of TiETiE..

Contribution of ethnic Chinese in facilitating Contribution of ethnic Chinese in facilitating bilateral trade. Research by Newland (2004), bilateral trade. Research by Newland (2004), econometric studies etc.econometric studies etc.

Other examples include success of Chile Global, Other examples include success of Chile Global, Highland Tea Company (Kenya) and similar Highland Tea Company (Kenya) and similar cases in Ireland, Israel and Korea.cases in Ireland, Israel and Korea.

Nature of Contribution Nature of Contribution

Success stories relate to selected set of Success stories relate to selected set of economies economies –– is a wide diversity in is a wide diversity in diasporadiasporaexperiences. Most evidence relates to impact of experiences. Most evidence relates to impact of higherhigher--skilled immigrants skilled immigrants

Even within this group of successful cases, the Even within this group of successful cases, the type of contribution varies in line with the nature type of contribution varies in line with the nature of diasporas, type of industry, and of diasporas, type of industry, and economic/social/political conditions in country of economic/social/political conditions in country of origin origin –– compare China and Indiacompare China and India

Explaining the Diversity in Diaspora Explaining the Diversity in Diaspora

Business ContributionBusiness ContributionSocioSocio--economic differences: skill levels, length of time economic differences: skill levels, length of time away from homeland, relationship with homelandaway from homeland, relationship with homeland

Conditions in homeland: investment climate, institutional Conditions in homeland: investment climate, institutional arrangements, and legal recognition of diasporasarrangements, and legal recognition of diasporas

Conditions in host country: advantages of locating in Conditions in host country: advantages of locating in dynamic economiesdynamic economies

Ability to network: among other things, can be influenced Ability to network: among other things, can be influenced by above factorsby above factors

Policy Implications: Some Policy Implications: Some

PreconditionsPreconditions

Understanding the limitations of policy: easier to Understanding the limitations of policy: easier to

‘‘supportsupport’’ than than ‘‘initiateinitiate’’ diasporadiaspora business business

engagement, importance of exogenous factors engagement, importance of exogenous factors

(e.g. Chinese experience)(e.g. Chinese experience)

Key home country preconditions: enabling Key home country preconditions: enabling

investment climate; institutional/legal conditionsinvestment climate; institutional/legal conditions

Policy Implications: Strengthen Availability Policy Implications: Strengthen Availability

and Quality of Information and Analysis and Quality of Information and Analysis

Strengthen data on extent and impact of Strengthen data on extent and impact of diasporadiasporabusiness contributionsbusiness contributions

Undertake further research on: a) impact of diasporas Undertake further research on: a) impact of diasporas across skill and occupation levels b) types, across skill and occupation levels b) types, contributions and drivers of networks, across skills and contributions and drivers of networks, across skills and sectors c) efficacy of various kinds of incentives for sectors c) efficacy of various kinds of incentives for diasporadiaspora investment investment

Proposal for central online facility to highlight best Proposal for central online facility to highlight best practices and promote greater crosspractices and promote greater cross--fertilization of fertilization of ideas ideas –– highlighted in October 2006 experts meeting at highlighted in October 2006 experts meeting at United Nations. United Nations.

Policy Implications: Other Possible Areas of Policy Implications: Other Possible Areas of

Government and Donor SupportGovernment and Donor Support

Risk mitigation: possibilities should be exploredRisk mitigation: possibilities should be explored

Enhance capacity in Enhance capacity in diasporadiaspora networks and networks and home country institutions: e.g. World Bank home country institutions: e.g. World Bank support for South African Diaspora Network. Aim support for South African Diaspora Network. Aim to support viable ventures.to support viable ventures.

Reduce legal obstacles to operations of Reduce legal obstacles to operations of diasporadiaspora entrepreneurs: examples from India, entrepreneurs: examples from India, Netherlands and Switzerland.Netherlands and Switzerland.

Other Relevant IssuesOther Relevant Issues

Return migration: should it be Return migration: should it be

encouraged?encouraged?

Widening and mainstreaming the role of Widening and mainstreaming the role of

the the diasporadiaspora: integrating them into : integrating them into

development policy, programs and development policy, programs and

dialogue.dialogue.

THE ENDTHE END