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White Paper: ARZU’s Entrepreneurial Approach to Development

Blog , 2015-10-22

 1 ARZU’S ENTREPRENEURIAL APPROACH TO DEVELOPMENT SEPTEMBER 2015

 ARZU’S Entrepreneurial Approach to Development 

Authors 

Colin Leonard, BA, MIB 

Ryan Berg, BA, MSc, MPhil, PhD (Oxon.) 

September 2015 2 ARZU’S ENTREPRENEURIAL APPROACH TO DEVELOPMENT SEPTEMBER 2015

Table of Contents 

Executive Summary ……………………………………………………………………………………………………………….

Methodology …………………………………………………………………………………………………………………………….

Introduction …………………………………………………………………………………………………………………………….

The Outmoded Model of Foreign Aid: An Afghan Snapshot …………………………………….

Afghanistan’s Development Challenges …………………………………………………………………………

ARZU’s Impact ……………………………………………………………………………………………………………………….10 

ARZU vs. Traditional Aid Models …………………………………………………………………………………….13 

Re-Thinking Large Scale Development Programs …………………………………………………….15 

Scaling Outcomes ………………………………………………………………………………………………………………….17 3 ARZU’S ENTREPRENEURIAL APPROACH TO DEVELOPMENT SEPTEMBER 2015 

Executive Summary

Few countries confront greater development challenges than war-torn Afghanistan. Its development environment is as unforgiving as any, despite a foreign aid budget surpassing $17 billion per year. Amid many development initiatives and Large-Scale Development Programs (LSDPs) operating in the field, one organization sticks out above all others for its entrepreneurial approach to development and its proven success. ARZU, founded by former Goldman Sach’s partner Connie Duckworth, is a social enterprise which empowers women in Bamiyan, Afghanistan, to weave high-end artisan, handmade, fair-trade rugs. It then sells its products via a robust international distribution network and uses the proceeds to fund overhead and social program costs. The core of ARZU’s operational success has been in providing previously unavailable and desperately needed civil services to women, particularly education and healthcare.

ARZU aims at female empowerment partly by requiring the signing of a social contract when employing a new female weaver. When ARZU employs a new female weaver, the head of household must sign a contract requiring all female members of the household to attend school. 4 ARZU’S ENTREPRENEURIAL APPROACH TO DEVELOPMENT SEPTEMBER 2015 

Recently, ARZU conducted a social impact assessment of its work in Bamiyan Province. They gathered local census data (something the government does not have the ability to do) and employed a survey of both program recipients and locals who had not received assistance from ARZU programs. The survey outcomes manifest tremendous impact in the following areas:

Income/Living Standards: ARZU supports more than 2,000 family members, while 10,000 community members benefit from cascading economic effects. ARZUS’s rural women earn 68% more than the average per capita income in Afghanistan, inclusive of male salaries in urban areas.

Access to Education: After instructing nearly 900 community women in literacy classes, 100% of ARZU’s weavers are now literate, whereas 90% of rural Afghans remain illiterate. 20% of ARZU weavers support children who are attending university.

Healthcare/Life Expectancy: ARZU’s health program has assisted in the delivery of over 800 babies, not allowing a single maternal death in childbirth. Afghanistan suffers from one of the highest rates of maternal death during childbirth in the world.

ARZU has been able to achieve these results through its innovative approach to micro-development. It employs a host of Afghan locals, including some men, in supportive operational roles. Placing locals in charge of their own development allows them to accrue transferrable management skills and enables operations to continue with less oversight over time. Locals possess the linguistic, cultural, and situational awareness skills to operate where expatriates are less capable. LSDPs typically insert expatriate “technocrats” into management positions instead of assigning these responsibilities to locals. This fact, coupled with unwieldy bureaucracies and large operating costs, make LSDPs less effective in their traditional approaches to aid and development. On the contrary, this paper argues that ARZU’s lean, entrepreneurial approach to micro-development is replicable, all the more so for those initiatives operating in easier climates 5 ARZU’S ENTREPRENEURIAL APPROACH TO DEVELOPMENT SEPTEMBER 2015 

Methodology

This study originated as an attempt to identify the reasons ARZU has been able to meet its mission objectives in the communities it works with, then compare the organization’s outcomes and processes with those of other aid agencies in Afghanistan. The difficulty and cost of obtaining accurate economic and social data for Afghanistan necessitated the inclusion of disparate data sets. Primary qualitative research was conducted by surveying individuals in the communities within which ARZU works, after which the results were compared with published secondary research.

Participants for the surveys were selected based on their relationship to ARZU. ARZU issued employed weavers questionnaires to gather basic community census information. Participants were also asked to complete several narrative questions about their personal characterizations of how ARZU has impacted their lives and household. ARZU issued husbands of weavers a separate questionnaire to gather information on how the organization has impacted men’s habits and attitudes towards women in their families and community. Finally, ARZU surveyed three community leaders to help identify how it has impacted the circumstances of the community’s women.

As it is difficult to avoid research bias when directly surveying the beneficiaries of social programs, ARZU also surveyed community individuals not employed by it as a control group, in order to help identify attitudes of those not directly associated with the organization. 6 ARZU’S ENTREPRENEURIAL APPROACH TO DEVELOPMENT SEPTEMBER 2015 

Introduction

Effective development in regions that have been devastated by prolonged military conflict requires programmatic patience and most importantly, adaptability. Organizational impatience and inflexibility undermine even the most well-intentioned development initiatives. Recently, improved approaches to poverty reduction are challenging conventional development practices. In Bamiyan, Afghanistan, one organization with a lean, entrepreneurial approach to development has achieved ambitious mission objectives on a budget that is dwarfed by those of traditional aid agencies. ARZU Studio Hope has operated in Bamiyan for over a decade now and is responsible for producing sustainable development solutions within an isolated and marginalized community. The organization’s success illustrates a new potential for development programs, especially when initiatives abandon conventional practices of foreign aid in favor of improved and entrepreneurial development practices.

At its core, ARZU creates sustainable and culturally acceptable employment opportunities for women, leveraging financial incentives to produce social change. Its programs have transformed the family dynamics of an inveterate patriarchic society and resulted in sustained local economic growth. A decade of economic advantages for women compensates for their historical subjugation and contributes to community development. ARZU’s model manifests that as female members of the household become wage-earning members of the household, they increase their influence over family and community life. 7 ARZU’S ENTREPRENEURIAL APPROACH TO DEVELOPMENT SEPTEMBER 2015 

ARZU’s organizational initiatives have enhanced the capabilities of Afghan women by providing them with an above-average standard of living and access to education. Furthermore, its health program increases life expectancy by effectively eliminating death during childbirth within its community of operation.

This paper argues that development professionals and social entrepreneurs who adopt ARZU’s development model would be well poised to create social impact in their communities of operation, maximize their impact per dollar spent, and help eliminate ineffective practices associated with traditional foreign aid assistance. The paper is organized by first briefly explaining the outdated model of foreign aid, using an Afghan context. It then proceeds by highlighting the immense development challenges Afghanistan faces. The paper moves on to adumbrate ARZU’s level of social impact in Bamiyan Province, despite these challenges, and the entrepreneurial practices that have led to such impact. It contrasts these practices to the staid, inflexible development models supported by many LargeScale Development Programs (hereinafter LSDPs). It concludes by offering a brief analysis of the potential to scale ARZU’s entrepreneurial model to other development programs. 8 ARZU’S ENTREPRENEURIAL APPROACH TO DEVELOPMENT SEPTEMBER 2015 

The Outmoded Model of Foreign Aid: An Afghan Snapshot 

For fourteen years, traditional development practices have failed to produce sustainable microor macroeconomic growth for Afghans, reflecting the economic disruption that occurs when a fragmented and war-ravaged society develops a longterm dependency on foreign subsidies for basic civil services and public goods provision. Despite the commitment of billions of US dollars, Afghanistan lacks basic security and functional institutions of government, education, and healthcare. Worse yet, contracts with values ranging from hundreds of millions to billions of dollars have consistently produced little if any progress towards their intended objectives. Despite nearly universal reports by beneficiaries and donor agencies of successful funding outcomes, aid has resulted in an epidemic of “ghost” schools, hospitals, and agricultural programs, where “ghost” employee salaries nevertheless continue to flow1,2.

1 Khan, Azmat. “Ghost Students, Ghost Teachers, Ghost Schools.”BuzzFeed. N.p., 9 July 2015. Web. 15 July 2015. <http://www.buzzfeed.com/azmatkhan/the-big-lie-that-helped-justify-americas-war-in-afghanistan#.hmjQxvOOa2>.

2 McLaughlin, Jenna. “Watchdog Tries to Verify Coordinates of Afghan Health Clinics; Gets a Surprise.” The Intercept. First Look Media, 1 July 2015. Web. 1 July 2015. <https://theintercept.com/2015/07/01/watchdog-tries-verify-coordinates-afghan-health-clinics-hilarity-ensues/>.

Many inadequacies have significantly contributed to the failure of traditional aid models in Afghanistan, including: the conflicting incentives that motivate donors and recipients of aid; insufficient oversight of private contractor operations; and, opaque auditing practices. However, Afghanistan’s recent history highlights even larger, more fundamental flaws in how international development funds are deployed. Quite simply, centralized management of large-scale poverty reduction programs cannot meet localized needs to better deliver sustainable solutions. Adequately allocating resources to catalyze viable development requires the decentralization of programs for community investment so that development programs can manage their working capital more effectively. ARZU’s successes demonstrate that adopting a localized approach to development mitigates the myriad challenges involved in producing social and economic progress in marginalized communities. 9 ARZU’S ENTREPRENEURIAL APPROACH TO DEVELOPMENT SEPTEMBER 2015 

Afghanistan’s Development Challenges 

In 2014, Afghanistan ranked number 172 out of 175 countries in Transparency International’s Corruption Perception Index, reflecting the extent of institutional and social dysfunction in the nation. The country also ranked 169th in the 2014 Human Development Index, one of the lowest in the study. Corruption, the weak institutions it engenders, and a lack of developed human capital are the largest obstacles to economic and social progress that Afghanistan faces today. Despite receiving more than $106 billion from the United States alone for reconstruction efforts since the military invasion of late 2001—more than the inflationadjusted amount spent on the reconstruction of all of Western Europe after WWII through the Marshall Plan—the Afghan government remains dependent on foreign aid for 90% of its national budget3,4, languishing in deep political paralysis and continued corruption. Afghanistan continues to have the highest infant mortality rate in the world and measures among the worst nations for maternal death rate, per capita income, literacy rate, and electricity usage5. Meanwhile, billions of foreign taxpayer dollars allocated to build hospitals, schools, and agricultural programs—all well-intentioned—have “vanished,” enriching warlords with vested interests in seeing social development initiatives fail in order to protect their patronage based local economies.

3 World Bank. Presentation: Transition in Afghanistan: Looking beyond 2014. N.p.: World Bank & Islamic Republic of Afghanistan Ministry of Finance, 2011. Washington Post. Web. 6 Feb. 2015. http://www.washingtonpost.com/wp-srv/world/documents/presentation-transition-in-afghanistan.html.

4 Rubin, Alissa J. “World Bank Issues Alert on Afghanistan Economy.” The New York Times. The New York Times, 22 Nov. 2011. Accessed online 4 June, 2015.http://www.nytimes.com/2011/11/23/world/asia/world-bank-issues-alert-on-afghanistan-economy.html?_r=1 

5 Brinkley, Joel. “Money Pit: The Monstrous Failure of US Aid to Afghanistan.” World Affairs Journal 92.1 (2013): Jan. 2011. Accessed online 6 June, 2015 http://www.worldaffairsjournal.org/article/money-pit-monstrous-failure-us-aid-afghanistan 10 ARZU’S ENTREPRENEURIAL APPROACH TO DEVELOPMENT SEPTEMBER 2015 

ARZU’s Impact 

Indicators of human development transcend econometric considerations to include both the creation of conditions necessary for social progress to occur, as well as directly enhancing human capabilities. In each of these dimensions, ARZU’s accomplishments exemplify an organizational ability to deliver meaningful results to both individuals and the community at large. ARZU has enhanced human capabilities by increasing life expectancy, access to education, and the standards of living in Bamiyan Province, all of which are important measures of human development advocated by the World Bank.

Income/Living Standards 

— ARZU has created over 700 private sector jobs, significantly increasing the standard of living for its employees.

 Internal studies estimate that ARZU employees support 2,000 family members, while 10,000 community members benefit from cascading economic benefits.

 ARZU’s rural women weavers earn 68% more than the average per capita income in Afghanistan. This is inclusive of male salaries and those in urban areas.

 55% of ARZU weavers own their home, compared to a 66% average in developed countries.

“I used to think women could not make money. Now my wife makes more than I do.”Mohammad Amir, husband of an ARZU weaver 11 ARZU’S ENTREPRENEURIAL APPROACH TO DEVELOPMENT SEPTEMBER 2015 

“Before ARZU came, my daughters had no plan for their future. Now they talk about the future, they talk about their school and their life is colorful, not white and black.”Sayed Nabi, husband of an ARZU weaver 

Access to Education 

100% of ARZU’s weavers are now literate, whereas 90% of rural Afghans remain illiterate.

 896 community women have attended ARZU literacy classes.

 100 community women and girls are enrolled in English courses.

 20 women are enrolled in computer literacy classes.

 90 children are enrolled in ARZU’s preschool .program.

 20% of ARZU weavers support children attending university.

“I have four girls. When they were small, I wondered how I could make a good life for them. But now they work, they are educated, and they earn as much money as a man earns working and it has changed my thoughts on women.” – Rahman, husband of an ARZU weaver 

Healthcare/Life Expectancy 

ARZU’s health program has assisted in nearly 800 deliveries, not allowing a single maternal death from childbirth.

“The women in my family have taken on the roles of men.”Mohammad Amir, husband of an ARZU weaver 12 ARZU’S ENTREPRENEURIAL APPROACH TO DEVELOPMENT SEPTEMBER 2015 

ARZU has increased the capabilities of Hazara women and engendered an environment where human development is gaining momentum. It has achieved significant social markers including: the improvement of gender equality; the establishment of more formidable human security; and, the increase in opportunities for participation in family and community life. Four ARZU weavers have even joined the local Shura (tribal leaders), which has helped address social misperceptions and increased women’s local political influence. The organization has also produced basic census data that other institutions can build upon to support future development initiatives locally and regionally.

“Before ARZU, women were only occupied with household tasks…Now, the women are literate, the women have more authority in their families and take more responsibilities regarding their families and society. They would like to have a better life and they are more hopeful than before.”Safar, head of the Shura in Shash Pul village 13 ARZU’S ENTREPRENEURIAL APPROACH TO DEVELOPMENT SEPTEMBER 2015 

ARZU vs. Traditional Aid Models 

During a trip to Afghanistan in 2003, social entrepreneur and former Goldman Sachs partner, Connie Duckworth, identified systemic flaws in the use of development funding. To change the distressing conditions of Afghan women, ARZU’s mission is to achieve community growth through female empowerment utilizing private sector practices. Ms. Duckworth’s strategy was to place Afghans in charge of spearheading their own community development. ARZU, which means ‘hope’ in Dari, employs women from two Hazara communities in Bamiyan Province to weave high-end artisan, handmade, fair-trade rugs and “Peace Cord” bracelets. It then sells these products via its robust international distribution network and uses the proceeds to fund overhead and social program costs.

The core of ARZU’s operational success has been in providing previously unavailable and desperately needed civil services to women, particularly education and healthcare. When ARZU employs a new female weaver, the head of household must also sign a contract requiring all female members of the household to attend school. Male heads of household are no longer free to make decisions on whether to provide medical care to female family members. ARZU employs a host of Afghan locals, including some men, in supportive operational roles; ARZU keeps community leaders regularly involved in the organization’s programs.

While Afghans have endured decades of traditional development approaches producing few, if any, success stories, ARZU’s commitment to under-promising and over-delivering has helped endear it among locals and thereby increase longterm outcomes. This trust also provides leeway for the organization to experiment with new social projects, serving as an in-the-field incubator for development 14 ARZU’S ENTREPRENEURIAL APPROACH TO DEVELOPMENT SEPTEMBER 2015 

initiatives. This relationship stands in stark contrast to LSDPs throughout Afghanistan that have inspired mistrust and resentment through waste, corruption, and ineffectiveness.

Traditional charities and development agencies face pressure to decrease and understate overhead costs because of donor aversion to funding processes rather than outcomes. This places undue pressure on staff that could be alleviated with effectively managed working capital. In contrast, ARZU’s accurate accounting of its overhead costs has been a crucial component of its continued mission success. Financially efficient processes make the social enterprise less dependent on external income to operate and scale. By tracking its overhead costs, ARZU has been able to generate increased internal revenue and thereby maximize its correlating social impact. ARZU’s outcomes demonstrate how entrepreneurial strategies can help avoid the pitfalls of traditional aid in order to deliver sustainable growth solutions that maximize development impact and increase resource use efficiency.

ARZU’s outcomes for one community, in terms of impact per dollar, stand out as exemplary in comparison to the scant successes attributable to the plethora of aid funding throughout Afghanistan. With resources amounting to roughly $1.5 million USD, ARZU’s working capital outperforms the big budget programs, which hemorrhage assets, by addressing local realities with a market based, holistic approach. 15 ARZU’S ENTREPRENEURIAL APPROACH TO DEVELOPMENT SEPTEMBER 2015 

Rethinking Large-scale Development Programs 

Bureaucratic LSDPs in Afghanistan continue to demonstrate themselves incapable of achieving longterm growth solutions for disparate communities. They have proven to be machines of consumption rather than investment, depleting and displacing resources rather than generating them. The aggregated longterm effects of numerous such operations on a nationwide scale have resulted in a national economy reliant on expenditure rather than investment and savings.

Global data illustrates an inverse correlation between the amount of aid a country receives and foreign direct investment6,7, a crucial component of sustainable macroeconomic growth. Afghanistan is an extreme example of this inverse relationship. While individuals benefit from LSDP aid services by receiving temporary assistance in a variety of forms, the economic bubbles that result from an inability to sustain and scale programs ultimately leave beneficiaries in precarious positions without longterm solutions. These massive influxes of foreign resources can provide immediate disaster relief during emergencies, but over extended periods, cause social and economic disruption with catastrophic consequences for development. In Afghanistan, this has resulted in stymied exports and investment, volatile inflation, and wide-scale economic stagnation, especially in rural communities.

6 Moyo, Dambisa. Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa. London: Penguin, 2009. Print. pgs. 48-51

7 Kurtzman, Joel. ‘The Global Costs of Opacity – Measuring Business and Investment Risk Worldwide’, MIT Sloan Management Review, October 2004 16 ARZU’S ENTREPRENEURIAL APPROACH TO DEVELOPMENT SEPTEMBER 2015 

Additionally, LSDPs typically install expatriate “technocrats” in management positions instead of assigning these responsibilities to locals. When human development is a program’s aim, this policy often inhibits mission success. ARZU’s model demonstrates that investing in human capital by putting locals in management positions takes patience but ultimately yields great results. Locals possess the linguistic, cultural, and situational awareness skills to operate where expatriates are less capable; by developing transferrable management skills, locals enable operations to continue with less oversight over time and can assist in the training of new employees. Meanwhile, remote LSDP bureaucracies are unable to navigate, nor often even be aware of, local subtleties that impact operations. Decentralization enables a sharper focus on specific, evolving local needs and allows programs to address ontheground realities instead of getting lost in abstract strategic objectives. ARZU’s micro development model directs resources based on community rather than regional circumstances, thereby increasing process efficiency. Top down, ‘onesizefitsall’ LSDP solutions bring significant resources to bear in the event of immediate widespread catastrophes, but these resources are fungible, which makes them susceptible to diversion and corruption, and often rely on byzantine management for delivery. Application of these broad solutions to diverse tribal communities over decades has littered the Afghan countryside with program failures, fueled corruption and economic disruption, and sowed deep resentment among locals with their apparent profligacy. 17 ARZU’S ENTREPRENEURIAL APPROACH TO DEVELOPMENT SEPTEMBER 2015 

Scaling Outcomes

ARZU has achieved a tremendous level of social impact within Bamiyan’s Hazara community, but there is opportunity for its approach to be applied to other global development challenges in variegated regions. Replicating the organization’s holistic, localized approach would put social entrepreneurs in a position to achieve maximum impact per dollar and compete for aid financing. Decentralization of human capital development places individuals and communities as the drivers of their own wellbeing. The combined impact of multiple successful organizations concentrating resources on producing sustainable microeconomic development would be greater than the continuation of traditional foreign aid practices.