Incentives to Invest in Developing CountriesIn an era of large corporate business and capitalism, many low-income nations are struggling to increase economic growth. Although industries like fast fashion utilize cheap labor in developing countries, these companies neither invest in local economies nor help improve living standards for their employees. Businesses have the potential to play a major role in strengthening low-income economies and bringing citizens out of poverty. Thus, it is critical to create and publicize incentives to motivate businesses to invest in developing countries.

Incentives for Investing

  1. Fiscal Incentives. Fiscal incentives are one of the most common incentives used to attract businesses to developing countries. Fiscal incentives include tax exemptions, tax holidays and loans. Other examples include reduced restrictions on shareholders and stocks, as well as greater access to domestic and international partners. These rewards can be provided by local or city governments, and are designed to encourage businesses to expand into developing countries. The presence of fiscal incentives in these nations can draw in new investors, skilled workers and economic growth.
  2. Privileged Treatment. Some businesses, especially major corporations, may ask for “preferential treatment in the domestic market.”  Privileges could include increased access to resources, less regulation and priority for business decisions.
  3. Resources and Infrastructure. If a business opens in a developing country, it may possess the authority to demand lower infrastructure costs or resources. These businesses can also request lower interest rates on imports and exports in order to expand their international networks, as well as request resources to increase long-term investment domestically and internationally. Large corporations often have the power to request assistance in increasing local ties with other firms and organizations. Overall, due to developing countries’ strong desire for economic investment, companies choosing to establish this presence gain access to a plethora of resources.

Potential Risks

While incentives for businesses to invest in developing countries are certainly important, disadvantages to this practice are also worth noting. Incentives can distort the market and even create dominant monopolies. Monopolistic competition makes it difficult for small businesses to gain traction and thrive long-term, which can lead to unemployment for many local workers and business owners. Furthermore, with fiscal incentives come greater risks for inflation, corruption and fraud. Therefore, although incentives may be critical in creating economic growth and development, it is important to address their drawbacks.

Deciding Whether to Provide Incentives

In sum, encouraging large businesses to operate in low-income countries boosts profits and yields exposure to new markets. Perhaps more importantly, though, developing countries themselves benefit immensely. Corporate presence from just one company opens the door for other businesses to expand into these countries, attracting new jobs, income, resources and opportunities. This economic growth can help reduce extreme poverty by involving more citizens in the job market.

However, it remains essential for developing countries to acknowledge the potential drawbacks of corporate investment and make economic decisions accordingly. Regardless, providing incentives for business investment has the potential to give hope to low-income countries aiming to improve life for their citizens.

– Sophia McWilliams
Photo: Flickr

Car loans in Africa

Uber, a popular ride-hailing phone app, is helping people in poverty obtain what is usually out of reach: a car. Drivers, like Michael Muturi in the Kenyan capital of Nairobi, have a chance to buy a new car through a bank loan program that uses data from Uber to assess risk. Muturi is one of many drivers who will be able to obtain car loans in Africa, changing the way people affected by poverty finance their cars around the globe.

“I felt like I won a jackpot,” exclaimed Muturi, after receiving an Uber message in June telling him his profile was good enough to apply for a car loan. “With my own car I will be able to afford a good house, take my kids to a good school, and save for the future.”

Kenya’s Sidian Bank has approved over 10 car loans for experienced Uber drivers using a model Uber hopes to expand across Africa, where poor customer data limits lending.

Uber’s mission is very different than that of car companies: the app wants more Ubers on the road by any means necessary, and the newer the car, the better.

Getting car loans in Africa is a major challenge for people and small business owners. Few people have bank accounts or a credit score to go with them so lenders can assess risk.The first credit rating bureau opened in Kenya in 2010. A lack of credit history is one of the reasons why just 4.4 percent of the 45 million population have a personal bank loan.

“Sidian’s financing is focused more on the applicant’s proven Uber experience than on his or her credit history,” says the bank CEO.

Uber’s app is a way for Uber drivers to obtain this data. The app registers customer satisfaction and provides the bank with information it needs to decide whether to offer Uber drivers relatively cheap loans to buy their own cars. To obtain a car loan from Sidian Bank, a driver must accumulate at least 500 trips with Uber and have an average passenger rating score of at least 4.6 points out of five.

Uber created Xchange Leasing last year as wholly-owned Uber subsidiary. For a $250 deposit, drivers in the United States can lease a new midsize or economy car. The car can be returned at any time with two weeks’ notice, and the customer just loses the deposit with no further obligations.

Similar to the ride-sharing business, auto financing also requires country-specific solutions. Uber started Lion City Rentals in Singapore, a subsidiary rental company, while in countries such as Kenya, India, and China it is mostly working with third parties like Sidian Bank.

By the end of 2016, Uber expects that the vehicle solutions programs will have provided 100,000 cars globally.

Uber is just one of many apps that are helping people improve their lives in poverty by making it easier for people to obtain car loans in Africa.

Alexis Pierce

Photo: Uber

A new program in São Paulo, Brazil is providing the working poor in Brazil with access to art and entertainment. This “cultural coupon” is awarded monthly and has a value of around $20. Vale Cultura, as it is known, can be used for a wide range of cultural experiences including theatre and movie tickets, books and art classes.

In an interview with the Guardian, Culture Minister Marta Suplicy said, “We want people to go to the theatre they wanted to go to, to the museum they wanted to go to, to buy the book they wanted to read.”

The goal is not only to enrich the lives of Brazil’s poor, but also to create consumers of cultural media.

The cultural coupon is only part of a larger strategy in Brazil for combating poverty known as Bolsa Família. Bolsa Família fights extreme poverty by providing poor Brazilians with monetary transfers onto a magnetic card. The program focuses on families whose monthly incomes are between $17 and $34 and supplements their income anywhere from $5 to $33 per month.

It might seem culturally adverse in the United States to consider direct monetary aid to the poor, but Bolsa Família’s results are undeniable.

According to the World Bank, “BF has been key to help Brazil more than halve its extreme poverty – from 9.7 (percent) to 4.3% of the population.” The project now aids approximately 14 million families and has put a dent in the transference of poverty from one generation to the next.

The cultural coupon seeks to build on the success of Bolsa Família by expanding the government’s ambition. Currently, the program is only available to people who earn well more than Brazil’s minimum wage, but the program looks to extend its reach to over 42 million people.

Currently, the program is extremely popular with many businesses (small and large alike) that offer Vale Cultura cards to their employees. Still, program representatives remain levelheaded with their expectations and argue that cultural participation and inclusion will be a slow process.

With that said, Brazil still faces many difficult challenges in its fight against poverty. Bolsa Família and Vale Cultura have made a substantial difference in the lives of millions of Brazilians, but their success should not mask the realities of extreme need.

The World Bank estimates that 13% of the population lives in poverty. Particularly in rural areas poverty maintains a firm hold. People in rural areas remain far from aid and are often adversely affected by deforestation and corporate monocropping.

Programs like Bolsa Família and Vale Cultura aim to strengthen the most vulnerable Brazilians.

– Chase Colton

Sources: The Guardian, The Washington Post, World Bank, World Bank News, World Bank Countries
Photo: Hanneorla Hanneorla