Here are four ways ASEAN can help entrepreneurs thrive – especially women

This article is brought to you thanks to the strategic cooperation of The European Sting with the World Economic Forum.

Author: Alison Eskesen, Director, Asia Pacific, Mastercard Center for Inclusive Growth

ASEAN is leaving prosperity on the table. There is a stubborn gap in women’s labour force participation that threatens to derail wealth creation and squander its demographic dividend – the potential for economic progress driven by ASEAN’s population growth.

The McKinsey Global Institute estimates that if women in East and Southeast Asia were to match the economic activity of their male counterparts, they would add $900 billion in annual output in 2025, growing GDP by 8% more than in a business-as-usual scenario. In part, this chasm in professional accomplishment and participation is caused by dampened ambition among women, which is reinforced by culture and policy.

Take Arlen, the owner of Ninesix Bakery in Medan, Indonesia. She is 22 and has been a businesswoman since she was 18, when she began selling her signature cake on Instagram. Three years later, she had sufficient sales to warrant the opening of a physical store and the creation of two local jobs. Arlen aspires to open more bakeries and to expand to Jakarta.

Unfortunately, Arlen seems to be an anomaly. Researchers at Centennial Asia Advisors, supported by the Mastercard Center for Inclusive Growth, find that a confluence of push and pull factors result in women preferring to keep their economic activity small and in the shadows of the informal economy. Some identified factors include:

– A lack of confidence to manage larger purchase orders

– A lack of funding to purchase raw materials or hire additional staff to meet increasing demand

– A preference not to recruit new staff, outside of family members

– The need for her husband’s approval to take a loan and pledge collateral

One challenge identified by Centennial Asia Advisors is that Indonesian businesses owned by women are often viewed by the family as supplemental income. Their economic contribution to the household is used for ‘luxury’ items, such as school fees, medical expenses, and rainy day savings. In part, this mindset that women’s entrepreneurial work is supplemental is influenced by the disproportionate amount of unpaid housework that women bear alone. In other words, the opportunity cost of women working is too high vis-à-vis the costs of caring for children and the elderly. Of course, the phenomenon of the woman being the primary caretaker of the home and family is neither unique to Indonesia, nor new.

What is new is that ASEAN nations have made significant progress toward reaching gender parity in educational attainment, and yet women’s economic participation lags behind. For example, among ASEAN nations, Cambodia is the worst ranked in educational attainment, but still has a score of 0.921 on a one-to-zero scale of gender parity. This is substantially better than the worst ranked nation globally, which has a score of 0.572. Despite making incredible leaps forward, these educated young women are not participating economically in an equal way. For example, Indonesia’s gender educational attainment (0.986) is the third best in ASEAN, but its gender economic participation and opportunity (0.610) is the worst. In other words, the return on education investment is not manifesting in greater economic activity among women.

If we consider that this mismatch in women’s economic accomplishments and educational attainment is happening at the same time as a demographic bulge in ASEAN, we can see how the region is in threat of missing an opportunity of the century. At the World Economic Forum 2017, ASEAN leaders spoke of the hope that ASEAN’s demographic dividend will accelerate economic growth. According to the East-West Center, “approximately 60% of ASEAN’s population is under the age of 35, and 43% are under the age of 24”. This translates to 380 million young people, who carry with them the promise of inclusive prosperity for ASEAN nations. This is ASEAN’s breakout moment.

To capture the confluence of positive global growth and an expanding and increasingly educated labour force, ASEAN needs both men and women to participate equally in the economy. In pursuing economic opportunities and aspirations, families will be better positioned to build strong and secure economic foundations at the household level. This will bolster their ability to weather the eventual inversion of the demographic pyramid.

In the Regional Economic Outlook 2018, economists called on governments to leverage strong current growth and to invest now in social safety nets and the formalization of the economy to hedge against future economic uncertainty. The underlying worry is that not enough people will reap the benefits of a growing economy, resulting in increasing income inequality and socioeconomic pockets of disproportional growth. Economists have good reason for concern. The Gini coefficient in nearly every ASEAN nation for which the World Bank has data has remained stubbornly high. Without significant investment by governments, ASEAN’s demographic dividend will not produce shared prosperity.

In focus groups conducted by Centennial Asia Advisors, male and female Indonesian entrepreneurs identified four interventions which would connect them into the networks that can unlock greater productivity. These are:

1. Market access

The entrepreneurs cited the importance of greater information about market opportunities and how to penetrate them.

2. Value justification

It is unclear to those who participated in the focus groups what the business advantages are to registering their enterprises and joining the formal economy. This implies that there is ample room for government to streamline the process, raise awareness and provide incentives to entice those working in the shadows of the economy to become legally registered businesses.

3. Tailored financing

Centennial Asia Advisors found that micro and small entrepreneurs were price insensitive. They would be willing to pay higher interest rates if they could access speedy credit with repayment terms that match their business cash flow. Women business owners also need banks to accept non-traditional forms of collateral. Because women business owners often need their spouses’ approval to pledge household fixed assets as collateral, their business growth is shackled by a combination of cultural mores and competing financial interests at the household level.

4. Business skills training

In particular, entrepreneurs noted the importance of coaching or mentoring support. They highlighted the value of and need for professional sounding boards as they grow their businesses to the next level. For women-led businesses, deepening and broadening their access to skills development is doubly critical, since women-focused professional networks are less robust.

ASEAN is at a moment of inflection. The potential return on educational investment combined with its young population can solidify ASEAN as a global economic powerhouse. Moreover, elevating women’s professional ambition and unlocking their economic opportunities can help create robust and inclusive economies, which in turn can defuse the ageing population bomb that will follow the demographic dividend. Now is ASEAN’s moment. The question is: what will it do with it?