Why Investing in Developing Countries Helps All of Us
The Global South faces rising economic inequality and other policy issues, in part because of the negative impact of global ‘superpowers’ in the age of industrial neo-colonialism. Some organizations and policies try to mitigate damage with economic aid. Nevertheless, this method of economic healing may end up perpetuating developing countries’ financial dependence on economically robust nations.
Economic aid is not enough. Instead, developing countries must be able to develop a self-sustaining, productive, and growing economy, which in turn results in better wages, infrastructure, and so forth.
By building prosperous economies and an educated task force, most of these countries will outgrow those hardships and forge a brighter future that is beneficial to both the developing countries as well as the global economy.
A great way the rest of the world helps developing nations to get to this better state is through international aid. But money doesn’t solve problems like we think. The right strategy for helping developing countries takes a little more thought, and creates a brighter future with economic strength and alliances with foreign powers. At Now Chase the Sun, we take part in positive investment by creating opportunities for artisan crafters to support their families with their creations. Here’s what you need to know about investing in developing countries.
Foreign aid is not always helpful
Most of the foreign aid comes from wealthier countries, but smaller allies can also contribute. Bilateral aid is given from one country to another while multilateral aid is given from an organization (which receives the money from a wealthy country) to several developing countries.
Unfortunately, there has been consistent flow of aid into developing countries that hasn’t actually translated into successful increase in income growth and flow.
Over the past four decades, Africa has received international aid amounting to over $500 billion, but the continent hasn't registered an appreciation in per capita income.
There are three main reasons why international aid is not being helpful in developing countries:
1. Over-dependence on the aid
The more aid developing countries receive, the more dependent they become on another nation. Because developmental aid is provided as a way for supporting local development projects, the members of the community usually have no other source of income.
They heavily rely on the donor money to fund the project and unfortunately, this work is unsustainable. Rather than a steady profit flow, they receive occasional aid that is often contingent upon a political environment that is outside of their control.
2. Promotes corruption
In most cases, foreign aid in developing countries doesn’t end up achieving its supposed goals because it ends up in the pockets of corrupt officials. It’s during the process of budget allocation and also the implementation period of the projects that massive amounts of money are stolen, leaving projects unfinished. The culprits then ask for more money, which they often end up stealing again.
The problem with corruption is that it isn’t easily quantifiable. It can be covered up as wastage or inefficient use of the funds. Also, because the people receiving the aid are not educated in how to anticipate the use of money, the implementing bodies on the ground end up diverting funds with no one to hold them accountable.
Measures, like implementing a thorough audit capacity on top of paper trails, paying attention to power structures, and educating the local populace on the importance of participation in the process, have made an impact in battling corruption but the effect is not nearly as much as we’d like to see.
3. Kills local industry
In most cases, aid inhibits local industry players, as their services are replaced by outside powers. For example, food aid hinders the ability of regional farmers to sell their produce and also makes locals dependent on food types that cannot be found within their own region. Cheap, imported food becomes easier to acquire and the market prices affect the prices that local farmers get on similar produce. This results in poorer farmers and declining food sustainability. Because of this, the developing country continues to remain in a vicious cycle of hunger and poverty.
Unfortunately, because of systemic corruption and lack of education, foreign aid has failed to become a saving grace for most developing countries. Instead, it has contributed significantly to the state of poverty in these countries. But there are ways to combat this, to provide aid in a manner that isn’t entirely direct funding to NGOs and other large organizations.
Investing in local businesses helps
1. Promote culture and art
Investing in local businesses like buying artisan products from local communities provides a sustainable way for the community to make a living. Educating and working with such communities to help reach sustainable solutions plays a huge role in building domestic economies and alleviating poverty at a grassroots level.
What most donors learn during their research on how they can help a community is that, more often than not, the economic solution is already there in the hands of the community. Unfortunately, it’s mostly unexploited due to a lack of resources such as money, tools, and information or poor management of resources.
Since their products are bought collectively for a fair price, they can develop other community-wide projects from their profits that will lift them out of poverty. Also, as the market expands for its products, they will create employment for more people along the supply chain. That’s why at Now Chase the Sun, we tap in to the creative minds of locals in India and Kenya. We give them access to a global marketplace and instill them with the entrepreneurial mindset that could inspire them to take their craftsmanship to the next level.
2. Grow the country’s economy
Investing in businesses also helps stimulate the country’s overall economic development. Whether the investment means merging with another company or being involved in a joint venture, the results usually mean more jobs are created as the company expands. Also, such investments open up more foreign markets for business ventures, better access to technology, and lower cost of production, among other benefits.
3. Develop human resources
With investment in local businesses comes the need to train the workers so they can better handle the influx and scope of work. In developing countries furthering one’s education can be difficult because of poverty. But on the job training can offer work experience which creates a populace of skilled workers. With more skilled individuals in the workforce, the company can expand and some of them can even start their own businesses.
4. Increase productivity and income
When local businesses receive a boost, they are able to perform better in terms of productivity and pay their workers well because of the profits. Investors can help by increasing capacity. This means introducing the latest technologies to the businesses so that they can compete on a global level. Equipment and facilities are much more beneficial to a growing business in some cases than a set amount of money. By increasing the workforce’s capability, one’s boosting the economy of the country.
Investing in a country’s economy or buying into companies in developing countries can be financially rewarding for both parties involved. It’s a viable and sustainable way to continually experience the growth of the economy and advance the quality of life for the people there. And seeing as the global economy is expanding more and more, this model of business and investing is only bound to bear even better fruits.
Developed countries can also buy produce, building materials, or minerals. Imagine if the Democratic Republic of Congo adopted this approach. Instead of facing constant war and poverty, the government together with scrupulous corporations from economic superpowers could engage the communities and create a model where their crafted goods could be sourced locally, ethically, and sold at a fair price, which is then used to improve the infrastructure, economy, and lives of the people.
This is just one example of how buying from countries raises their local productivity more permanently, unlike temporary aid.
Investing in developing countries
In this globalized economy, each country has to carve out a niche for themselves that they can tap into in order to market their products. Developing countries are tapping into the e-commerce aspect of trading and marketing their products with great results. The reason for the success is because the online marketplace is better at efficiently delivering goods and services.
In the digital market, customers have better access to more diverse products at lower prices. Buying from artisans (or other entrepreneurs) in developing countries is more expensive than buying from mass-producing economies like the United States or China. But by buying from developing countries, not only is one contributing to the growth of the country’s economy, but the items on sale are more unique and artistic. For instance, you can find all kinds of handcrafted jewelry that’s one-of-a-kind and sustainably produced.
Here is why buying online from developing countries benefits their economies:
1. Less transactional cost
With issues like overhead charges and warehouse fees mitigated, businesses in developing counties can thrive and make a better profit which contributes to better quality of life. Also, e-commerce has shorter shipping times, so these entrepreneurs are able to send larger quantities faster and sell more of their products.
By reducing reliance on imports the cut that goes to the middlemen becomes part of the business profits and can be utilized for expansion or to pay better wages.
2. Better investment opportunities
When e-commerce thrives in a developing country, it attracts more investors and thus strengthens the economy. Buying from online businesses in developing countries shows that factors like internet connectivity and regulation are not an issue to impede sales and growth. These are factors that investors look at when seeking investment opportunities. The more customers from wealthier countries buy from the more visible online companies in a developing nation, the faster the investors forge partnerships to capitalize on this growth.
Want to know what’s behind Now Chase the Sun? Read our story.
3. New markets
Buying from online businesses in developing markets helps them to expand to newer markets and better prices. The global market is expanding and offering more opportunities to unique and interesting business ideas. For example, artisans in developing countries offer their customers very unique, custom created pieces that can’t be mass-produced. These are new markets that offer better prices helping the artisans make better profits. This contributes directly to the economy of the developing country as the artisans pay their taxes.
New markets also provide an opportunity for the online business to explore better production practices that will help with expansion. And with increased expansion comes more job opportunities back home as the artisans need more hands-on help and skill to meet the demand of their products.
4. Better relations
Online businesses thrive on excellent customer experiences. Good relations between companies, suppliers, and business eventually lead to better trade relations between countries. This means that the developed countries are happy to forge mutually beneficial trade treaties where artisans are able to enjoy fair trade with their partners.
Instead of the wealthier country offering financial aid, they can instead offer expertise and equipment aid to different industries where they have established mutual interests. This allows the locals involved in the industry to have an online market to sell their products to, and the developed country is guaranteed a consistent supply of products that they need for the benefit of their own economy. Such an arrangement is less likely to attract corruption as there’s no direct money involved. As a result, the local communities benefit even more and can grow their craft.
When developing countries are peaceful and thriving, the world is better off as trade opportunities bloom and economies grow.
Military alliances are formed that help keep regions stable and prosperous. Although the challenges that exist in developing countries are many and in varying degrees, not helping address them, makes the world a less safe and stable place.
The best way to address the disparities in economies between developing and developed countries is to put aid in more sustainable ways to prevent wastage, theft, and corruption. Equipment, capacity building, and technology are some of the ways that developing countries can access aid that will help them grow and stay the course of prosperity.
If you want to help invest in sustainable futures for developing countries, check out our accessories at Now Chase the Sun handcrafted by artisans around the world.