Inclusive Business in the Asia–Pacific Economic Cooperation

By Asian Development Bank

This report illustrates the current state of inclusive business (IB) models in the Asia–Pacific Economic Cooperation (APEC) economies, particularly the market potentials, constraints, and necessary policy instruments for an enabling environment for IB. A profile of IB initiatives, the overview of the base of the pyramid market size, and the IB ecosystem in each APEC economy as well as a recommended a framework to guide future work on IB under the APEC regional economic cooperation agenda are also included in this report.

• Language: English
• Publisher: Asian Development Bank
• Release date: Jun 1, 2018
• ISBN: 9789292611736

Book preview

INCLUSIVE BUSINESS IN THE ASIA–PACIFIC ECONOMIC COOPERATION

JUNE 2018

Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO)

© 2018 Asian Development Bank

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Some rights reserved. Published in 2018.

ISBN 978-92-9261-172-9 (print), 978-92-9261-173-6 (electronic)

Publication Stock No. TCS189306-2

DOI: http://dx.doi.org/10.22617/TCS189306-2

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Notes:

In this publication, $ refers to United States dollars unless otherwise stated.

ADB recognizes Brunei as Brunei Darussalam; China as the People’s Republic of China; Hong Kong as Hong Kong, China; Korea as the Republic of Korea; Siam as Thailand; USA as the United States; Vietnam as Viet Nam; Russia as the Russian Federation; and Hanoi as Ha Noi.

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Cover:

Top, left to right:

The base-of-the-pyramid can develop their capacities from training and business support services provided by inclusive businesses. (Photo by Ariel Javellana, ADB). Inclusive business models in agriculture sector often engage a large number of farmers and provide opportunities for higher income (Photo by Ian Taylor, ADB).

Bottom, left to right:

Subsistence farmers can develop into microentrepreneurs in an agricultural inclusive business value chain (Photo by Ryan Cifra, ADB). Microenterprises can be integrated in inclusive business models to deliver essential goods and services to the poor and low-income populations (Photo by Lester Ledesma, ADB).

All photos are from ADB.

Contents

Tables and Figures

Acknowledgments

The Asia–Pacific Economic Cooperation (APEC) is an economic forum that supports sustainable economic growth and prosperity in Asia and the Pacific region by championing free and open trade and investment, promoting and accelerating regional economic integration, encouraging economic and technical cooperation, enhancing human security, and facilitating a favorable and sustainable business environment. The APEC region comprises 21 economies along the eastern and western part of the Pacific. Governments and businesses in APEC are increasingly interested in finding new and innovative ways for making economic growth more inclusive and sustainable.

In late 2015, as chair of APEC, the Government of the Philippines held two high-level seminars on inclusive business (IB). As a follow-up, the government, the APEC Business Advisory Council (ABAC), and the APEC Investment Expert Group agreed to prepare this study on Inclusive Business in APEC economies, and to present this during the 2017 APEC discussions held in Viet Nam. The proposal was cosponsored by the economies of Japan, Mexico, Papua New Guinea, and Thailand.

This study emerged from a cooperation among the Department of Trade and Industry (DTI) of the Government of the Philippines, ADB (as a key knowledge carrier on IB in Asia), and the APEC Secretariat. The report is addressed to policy makers of APEC and the ABAC. The report describes the markets for IB investments in all APEC economies, and recommends further actions by APEC, ABAC, and the member economies to promote IB.

The desk research report was written by Markus Dietrich, a consultant to ADB. Technical advice came from Armin Bauer, Aissa Hermoso (senior investment specialist, Board of Investments, DTI, Philippines), Felicitas Agoncillo Reyes (assistant secretary, Board of Investments, DTI, Philippines), and support from Jose Mosquera (IB expert, Latin America) and Priya Thachadi (IB expert, South East Asia). We would also like to thank Yukiko Ito (senior social development specialist), Jeffrey Gerobin (associate operations analyst), Imelda Marquez (associate operations analyst), and Mary Grace Santos (consultant) of ADB; and Akifumi Fukuoka of APEC Secretariat, for their guidance in preparing this study. This report was funded by the Government of Sweden through its support for ADB’s Inclusive Business Initiative.

Abbreviations

NOTE

In this report, $ refers to United States dollars unless stated otherwise.

Executive Summary

The Asia–Pacific Economic Cooperation (APEC), as a regional organization of economies in the Americas and in Asia, is well suited to promote inclusive business (IB) as a new approach to make economic growth more sustainable and more inclusive. While agreements in APEC are mainly related to trade, the governments’ agenda in the region for a more inclusive economic development widen the discussions among APEC economies to promote consensus on new strategic economic topics. IB and investing to create impact on people and the environment is one such new and emerging topic.

As the public and private sectors increasingly report their contributions to the global Sustainable Development Goals (SDGs), and IB being the main private sector contribution to the SDGs, APEC could create a consensus among its members from developed and emerging economies around the Pacific on what constitutes responsible investments for the SDGs in the next decade. APEC, as a regional institution with public and private sector members, can create consensus that more IB investments that engage with the base-of-the-pyramid (BOP) are needed for more inclusive growth in the Asia and Pacific region.

The BOP market in emerging APEC economies is huge. In emerging Asia, the BOP comprises 53% of the population; in Latin America it is 57% of the population, and in developed APEC economies it is 19%. For APEC as a whole, the BOP forms 43% of the total population. This market is valued at $2.28 trillion annually, and represents 52% of the total market in APEC economies, and 46% of the global BOP market according to the Global Consumption Database of the World Bank.

Based on this study’s estimates, some 1,900 IBs are operating in APEC economies, 61% of which are considered IB activities (mostly undertaken as strategic corporate social responsibility [CSR]) by companies, 15% are IB models predominantly implemented by domestic medium-to-large companies, and 24% are social enterprise initiatives. By region, IB models are particularly important in Asia (26%), followed by Latin America (20%), and developed APEC economies (8%).

By volume of IB investment, this study estimates that about $10 billion has been invested in 2016 in the APEC region. Of this investment, 42% was in developed APEC economies, and 29% each in emerging Asian and emerging Latin American APEC economies. Investment in IB models comprise 81% of total IB investments, followed by IB activities (17%), and social enterprise activities (2%). In developed APEC economies, investments are more related to CSR activities (29%), compared to emerging Asia (6%) and Latin American economic region (10%). Against this background, social enterprise investments are large in numbers (24%) but very small in investment size (2%).

Looking ahead, with the increasing interest and awareness on IB, and with increasing government and investors’ support, this study estimates that the number of IB would more than double in the next 8 years to reach about 3,800, with the substantial increase of IB models (+280%) and SE initiatives (+300%).

The trend of increasing IB models in all APEC regions is very positive. This study estimates that Asia will have the biggest increase in the number of IBs at more than 350% growth, while Latin American APEC economies will have a smaller growth at 194%. While developed APEC economies will develop more IB models, overall, there will be less change in the distribution of their IB approaches in CSR (81%) and social enterprises (4%) over core IB models.

While estimating the market size of IB is difficult, getting a clear picture of the social impact of IB is even more challenging. This study used informed assumptions—detailed in the report—and found that IB has a massive social impact in reaching the poor and low-income people in APEC economies. The social impact as to the reach (number of BOP people reached) is much higher in emerging Asia than in emerging Latin America. It is estimated that through IB, some 2.4 million income opportunities were created by 2016. By 2025, this is forecast to substantially increase to 5.6 million. For product and service delivery, it is estimated that some 103 million people at the BOP benefited from IB in 2016, and in 2025, this will grow to about 245 million.

Governments in APEC economies increasingly develop measures along the whole spectrum of policy and programs supporting IB. For example,

•   Canada; the People’s Republic of China (PRC); Colombia; the Republic of Korea; Mexico; the Philippines; Taipei,China; and Thailand have specific rules and regulations to promote IB;

•   Chile; the PRC; Colombia; Hong Kong, China; the Republic of Korea; Mexico; the Philippines; Thailand; and the United States have specific government-sponsored industry support programs for IB; and

•   Australia, Canada, Chile, Indonesia, Japan, the Republic of Korea, Mexico, Peru, the Philippines, the Russian Federation, and Thailand run awareness-raising and capacity development programs on and for IB.

Among the drivers of this growth is impact financing, which is growing in size globally. It has been described as an emerging asset class—now covering the pioneering impact investors and development banks to include institutional investors, high net worth individuals (HNWI), and foundations. Globally, assets managed by impact investors increased from $10 billion in 2010