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Nicaragua interview: “Nothing fights poverty like decent employment”

 

On January 3, 2011, Nicaragua’s leading newspaper, La Prensa, published an interview with the director of USAID’s Enterprise and Employment project, managed by CARANA. Read the full English translation below or click here for the original article in Spanish.

 

Danilo Cruz-DePaula:
Nothing fights poverty like decent employment”

After a year of execution of USAID’s Enterprise and Employment Program, around a thousand jobs have been created in the micro and small business sector. The best part—points out the program’s director—is that they are sustainable jobs.

By Gisella Canales Ewest

Danilo Cruz-DePaula. Photo by: La PrensaDanilo Cruz-DePaula. Photo by: La PrensaFive thousand jobs in four years. This is the goal set by the Enterprise and Employment Program team, one of the main programs from USAID in Nicaragua.

While the number is modest, the program’s director Danilo Cruz-DePaula emphasizes that what is relevant to them isn’t simply creating thousands and thousands of jobs but ensuring that these are good and sustainable employment. “If a program works with 2,000 people during a three-month harvest, those aren’t really 2,000 jobs,” he says.

“We always focus on ensuring those jobs are better than the ones the people had before, that they pay better, or in poor areas where people weren’t really working at all,” he adds.

The Enterprise and Employment program was launched in 2010 as a two-year long project with the possibility of being extended for two more years with an $11 million investment. Cruz-DePaula says this is not just a possibility anymore but a reality

What is Enterprise and Employment’s methodology to create employment?

The project consists of eight activities including enterprise development for SMEs, training, studies, everything related to CAFTA support, policy reform, etc. With CARANA Corporation—the American consulting company that won the bid for this project—we divided these activities into three work areas: SME development, improvement of the business environment (that is, CAFTA support), and human capital development (training, workforce development). The most important aspect of the enterprise development component is the anchor firm model we use.

Over 300 companies involved

The Enterprise and Employment Program’s first annual report reflects that in one year of execution 340 micro and small businesses have already benefitted through their partnership with eight anchor firms.

The anchor firms are:
Calzados Alex: 22 partner businesses
Chiles de Nicaragua: 228 businesses
Grupo Raíces: 7 businesses
La Colonia: 8 businesses
Renisa: 9 businesses
Eskimo: 39 businesses
Sabina: 1 business
Vegyfrut: 26 businesses

After the report was produced, other companies joined and it is estimated that—through 10 anchor firms—350 micro and small businesses are receiving support.

What is the model like?

We support and sign agreements with companies that usually already have a relatively strong position within the value chain. They already have a share of the market—maybe they need to improve their production or make it more competitive, but also their suppliers are small producers. This anchor firm model is what CARANA has found to be—internationally—one of the most effective ways of reaching the micro and small producers.

Many times there are programs that support companies like these, and they don’t have clients. So they start producing and only then they figure out who to sell to. Our model identifies concrete problems where we know that if we solve the problem the small producers will have a secure market through the anchor firm. This way we can be sure that after short-term, precise interventions, we will see important results.

Essentially, it is all about linking medium-sized firms with small ones because often what SMEs—small businesses—need is a secure market, knowing who they will sell to.

And what do medium-sized companies need?

One of the big failures of Nicaragua’s medium-sized companies, especially in relation to exports, is that they have a product and they go to a trade show in the United States or something of the like and they talk to the buyer, who says “Perfect, I like your product. I want you to send me two containers.” The producer says “Yes, I can send you two containers over the next three or four months,” but the buyer wants them weekly, which the companies can’t comply with.

In the case of Chiles de Nicaragua, for example, they were selling approximately $1.1 million to McIlhenny, the company that produces the famous Tabasco sauce sold all around the world. McIlhenny was very interested in significantly increasing their purchases to Chiles de Nicaragua, but it was very hard for Chiles de Nicaragua to comply with McIlhenny’s demand. So they had to go to other small producers, beyond their own cultivation.

It is important to us that this isn’t a one-time thing, that it is sustainable. So in this case, for example, my idea is that when this project is over and when the assistance we are giving Chiles de Nicaragua has ended, they will realize for themselves that this is a model that allows them to double their sales. If in the first year sales increased from $1.1 million to $2.4 million, there is no reason why they couldn’t grow to $5 or $6 [million]. I hope they can see they have found a model that allows them to do this and to get more small producers involved, who in turn earn an extra 30 percent with chili over traditional crops. This is the other objective, not just creating employment, but good jobs with better incomes and better working conditions.

When was the program conceived and which goals were set?

USAID had a series of concrete goals, but they were mainly what we call process or input goals. In other words, there will be “X” number of workshops, 1,000 people will be trained, approximately 300 companies will be involved…

These were the kind of goals we were given. We thought these goals were good, but we didn’t think they were enough. We added goals for sales, employment—which didn’t exist in our original contract—for exports… A series of things that are more focused on results.

If a project creates 2,000 jobs—which is a good number—this is the goal we have for the first two years and we can feel satisfied because of it. We will have created 2,000 jobs, increased exports… But truthfully, if this is all we have done, we haven’t done much. For this project to have impact, our model, our philosophy is to truly produce transformative changes. This is a new outlook on how people think, on the farmer willing to adopt new technology, on how to create that trust between anchor companies and small suppliers so they can work together, on knowing that this is a win-win relationship.

If the goal is to create 2,000 jobs in the first two years, how many have been created in the first year?

In the first year we succeeded in creating 922 jobs, but the first year is actually only nine months [of program execution], so we are very happy with these accomplishments and I have no doubt we can reach 2,000.

With which sectors are you working?

We are working mainly with agriculture and agribusiness, in the production of chili, we also started working with Eskimo, their dairy suppliers, with Vegyfrut in minivegetables, we just signed in October to start a cassava program with Tecnoagro, in footwear with Calzados Alex, light machinery production with Sabina Ingeniería [agricultural machinery]...

With how many companies are you currently working?

If we consider all the anchor firms’ suppliers, there are approximately 350 companies and ten anchor firms. The idea is to reach 10 more anchor firms, a total of 20 by the end of the first two years. Of course if we complete some projects next year [2011], they graduate, [and] we will be able to start anew with new companies. We won’t limit ourselves to just 20.

Have the businessmen embraced this anchor firm system?

What’s important here is to sell this idea not as a development program but to present it as a business offer. Because I do believe corporate responsibility is very important, but we are selling much more than that. In other words, it is not because it is socially beneficial that they will do this. When we talk with potential anchor firms, what we pitch is “you will make much more money.” We promote this idea that a market economy should be a win-win system and this is how we sell it to anchor firms. I think the reception has been very positive and now many companies seek us.

Which weaknesses have you identified in the business sector?

One thing is the lack of companies capable of committing to high-volume and sustainable exports. What happens here is something that happens in almost all Latin American countries. There are approximately 300,000 SMEs, there are big companies—like Grupo Pellas and such—and in the middle there is an enormous vacuum.

There are many companies that export and could export much more but simply don’t have the ability, the necessary knowledge of the international market, which is a second problem. Many companies want to export but they don’t really understand all the requirements, the demands, phytosanitary issues, etc. The third one, which is also a universal problem beyond Nicaragua, is access to finance. What is happening in Nicaragua also happens in many other Latin American countries. Not for lack of capital, but because people know that financing SMEs is very risky and they don’t know how to take that risk.

Why do you think there aren’t that many medium-sized businesses?

I think all of these countries have a strong culture favoring family business, so there often are family businesses that don’t want to grow much more to keep everything within the family. There is no social capital. Working with an investor, growth, bringing people from outside the family… These don’t exist as traditions and create limitations. It is a cultural thing.

Other times, the issue is access to finance. Not just from bank loans but also from investors, who do work with big companies.

Are the execution and goals of this program independent from the country’s political developments?

I think so because there is consensus among all political parties that no one is against micro and small businesses. I believe there is consensus that the reduction of poverty is an important objective. So I think that, given that we don’t do anything with political objectives, we are something everyone can support. And if they see our success stories, I think all political parties can say “well done.” Now that the program’s extension to four year is guaranteed, how many jobs could be created? We will be creating a minimum of 5,000 jobs. If a program works with 2,000 people during a three-month harvest, those aren’t really 2,000 jobs. This isn’t just about creating jobs, but about truly creating good employment. That means permanent. We always focus on ensuring those jobs are better than the ones the people had before, that they pay better, or in poor areas where people weren’t really working.

From your point of view, what must be addressed first: poverty or unemployment?

Nothing fights poverty like decent employment, a job where someone is earning money to feed their family. This is an interesting point regarding food security, an issue receiving a lot of attention. Food security can be accomplished in different ways. It is as matter of food supply but access is also important, for a person to be able to buy food.

In the country’s most vulnerable regions, for example, you can see that to procure food security the best way is to ensure that people produce beans or cassava or whatever else. However, we can also see a direct relationship between the people producing these basic goods and poverty. We see that the bigger the production, the higher poverty is. This is why people who don’t really have a job, who have no other source of income, they have to produce the food they consume in order to buy something else. If a person has an income from the cultivation of chili or other products that pay better, then I think that creating decent and sustainable employment is maybe the most important thing we can do.

Which sectors do you plan to venture into in 2011?

We are open to different sectors, but I think what we will do this second year is to try to create more synergy within what we are already doing. The biggest part, I think, will continue to be with agriculture and agribusiness.We are looking into the call center sector, which is very different from what we are doing, but I think agriculture and agribusiness will continue to be our stronghold.

Published January 2011