A significant proportion of small to medium enterprises in developing countries are engaged in providing services, rather than in manufacturing or processing. While the latter receive the bulk of donor and state support, little is known about small scale infrastructure providers and the constraints they face.

The Intermediate Technology Consultants and the Water, Engineering and Development Centre conducted research on small scale infrastructure providers (SSIPs) in Bangladesh and Peru. The research, which included a global cross sectoral review and international workshop in Peru, aimed to identify the business development services SSIPs require and the impact of regulation, legislation and competition on them.

Small to medium enterprises (SMEs) are very important, despite their low profile and the fact that most have no legal status. They account for three quarters of employment in Peru. In Bangladesh they earn much of the foreign currency, which contributes to macro economic stability. Not only do they operate in very constrained markets but they also help to create new markets. SMEs represent an important coping strategy in responding to economic, physical and social crises and contribute greatly to household incomes.

A wide range of micro enterprise sectors exist in both countries. The researchers looked at many of these and found that:

• Twelve percent of all households depend on tanker trucks that supply water to shanty towns on the urban fringes of the Peruvian capital, Lima.
• A large number of people provide domestic security services in this increasingly lawless city: one percent of households employ private watchmen to guard their property.
• Bangladeshi entrepreneurs run private medical and dental clinics (there are now 300 in the capital, Dhaka).
• Entrepreneurs also sell sanitation and plumbing equipment, provide educational coaching, organise business courier services and attempt to earn a living from the country’s currently miniscule tourism sector.

Micro enterprises and SSIPs in particular also face many constraints however:

• Most SSIPs earn a reasonable income. Any rise in labour costs, however, reduces business revenues.
• They have difficulties in accessing start-up and working capital and are often hampered because they need to pay bribes to state employees.
• They are also significantly influenced by government policies and regulations concerning their sector.
• Weather changes, fluctuation in user numbers and seasonal variation in demand affects most SSIPs.
• Prices for energy supplies such as bottled gas and kerosene in Lima are not controlled in any way and as more suppliers enter the market profits are falling.

Although they may be driven by the profit motive, many SSIPs have greater social conscience than governments and local authorities. Some supply poorer communities with services at discounted rates, at cost or even subsidised by themselves.

The authors highlight the need to:

• assist SMEs to develop financial management, bookkeeping, managerial, accounting and information technology skills
• train SSIP owners to help them to identify their own specific vulnerabilities and the policies, institutions and regulations that affect them and the supply chains on which they depend
• recognise that competition can be hampered by excessive regulation
• identify interventions which can assist multiple SSIPs at different points of a supply chain
• facilitate recognition and co-operation between SSIPs and formal sector providers, utilities and state and local authorities
• be aware of the risk that current interest in market-based solutions to improve low incomes could obscure the need to tackle the structures which cause and perpetuate poverty, vulnerability and powerlessness.

Source(s):
‘Private infrastructure service providers: learning from experience’ Final Reoprt, by Oliver Wakelin, M. Sohail Khan, Abdur Rob and Teodoro Sanchez, Intermediate Technology Consultants, 2003 Full document.

Funded by: DFID R8177

id21 Research Highlight: 27 July 2005

Further Information:
M Sohail Khan
Water, Engineering and Development Centre
Loughborough University
Leicestershire
LE11 3TU
UK

Tel: +44 (0)1509 222885
Fax: +44 (0)1509 211079
Contact the contributor: m.sohail@lboro.ac.uk; WEDC@lboro.ac.uk

Water, Engineering and Development Centre (WEDC), University of Loughborough, UK

Oliver Wakelin and T. Sanchez-Campos
Practical Action
The Schumacher Centre for Technology & Development
Bourton Hall
Bourton-on-Dunsmore
Rugby
CV23 9QZ
UK

Tel: 44(0)1926 634 494
Fax: 44(0)1926 634405
Contact the contributor: oliverw@itdg.org.uk' Teodoro.Sanchez@practicalaction.org.uk

Intermediate Technology Consultants, (ITDG), UK

Practical Action (formerly ITDG), UK

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Pro-poor private infrastructure, World Bank