Agriculture

The Scourge of NGOs

Right now I am up in Tamale working with the ADVANCE office here.  I am meeting with maize farmers to help them think about how to invest in yellow maize production.  There is a financial institution that is providing credit to farmers in an effort to spur investment in yellow maize and soya beans.  They are offering a loan facility at 18% annual interest, which is much lower than the typical 30% that financial institutions offer for agriculture loans.  Being up here, I have had the chance to see the destructive power of non-government organizations, otherwise known as NGOs. I have only been here for a few days, but I have colleagues that have been here for months and have been able to talk to them at length about the challenge of using a market facilitation approach in a city that has been described to me as the “NGO capital of the world.”  In a post on the subject, a friend and colleague working with Engineers Without Borders describes it well:

Tamale is the NGO capital of Ghana, with a disgusting and disproportionate number of signposts, land cruisers, air conditioned offices with generators, and hotels with conference centers. I think that pretty much every possible permutation of the words sustainable, community, rural, development has been used to create an NGO acronym. At a practical level, there is a serious crowding of NGOs who are doing agriculture work, and even more specifically those taking a Value Chains or Market Facilitation approach. I’ve had a chance to participate in 3-4 different forums/workshops that involve different projects with similar philosophies, and even sat around the table during a discussion on collaboration between 3 projects and 1 “private” sector aggregator. I use quotations because there is a growing number of businesses which have been targeted by projects like ADVANCE, whose core business is slipping from profit through sales, to money through grants, trainings, per-diems and the like.
In fact, I was supposed to meet with a maize nucleus farmer (someone who has a large farm and buys from smallholder farms, provides them with financing to pay for seeds and inputs, and sells the produce to a buyer), but he is unable to meet on Saturday (my birthday) because he is attending a course on “NGO Management.”  There is so much free money in the system that the market is completely distorted. (more…)

Development Economics

The Battle for the Soul of Microfinance

Microfinance is going through some major growing pains right now, hitting its first major challenge since it hit the mainstream in 2005 after Muhammad Yunus won the Nobel Peace Prize.  The “silver bullet” of poverty alleviation that brought credit to those previously thought unworthy of a loan has seen an onslaught of criticism for failing to deliver on the lofty goals that its evangelists believed it could achieve (lesson: don’t overpromise). Studies have shown that the impact of providing credit to poor women does not have a dramatic effect on poverty alleviation, and the success stories, at least in recent months, have been trumped by tales of aggressive loan-recovery tactics and suicides among poor borrowers in India.  Portfolios of the Poor, a book written by four development economists with a healthy skepticism about the transformative effects of microfinance but optimism about its marginal impacts, showed that access to credit is actually less important than savings – access to a safe place to keep your money. The big schism in microfinance since 2008 has been about where to get the money for operations.  On one side, there is a group that believes microfinance must always focus on serving the needs of the poor and resist temptation to exploit borrowers with overly-exorbitant interest rates (I say “overly” because interest rates are, well, exorbitant).  This camp, led by Muhammad Yunus, the spiritual and, until recently, actual leader of the Grameen Bank, condemns a profit motive.  Instead, microfinance institutions (MFIs) should charge interest rates that will cover expenses and will finance expansion efforts.  In other words, MFIs should be financially and operationally sustainable, but nothing more. Proponents of the other side believe that, for microfinance to achieve its true potential and reach the billions of poor people without access to credit, it must tap into the vast financial coffers of the capital markets.  To do so, microfinance needs to become attract investors with, at the least, a hybrid model focused on financial returns and social impact.  There are still only a handful of MFIs of adequate scale to access the same type of capital that a normal company might access, at commercial rates. (more…)

Agriculture

Commodity Speculation, Rising Food Prices, and Goldman Sachs

Old habits die hard, and the motor patterns in my fingers that brought me to the Drudge Report so many times when I worked in a cubicle in Boston once again led me to page the other day.  Living up to its reputation for sensationalism, it featured a headline recently about the escalation of food prices around the world.  Unfortunately, while Drudge is usually over-the-top, rising food prices are no laughing matter.  In 2008, the rising cost of our daily bread led to food riots around the globe and massive destabilization in developing countries, most prominently in Haiti.  It alerted food-dependent developed countries to a glaring Achilles’ heel, spurring a land grab in Africa that (almost) comically culminated with the South Korean conglomerate Daewoo making a bid for half – yes, half – of the arable land in Madagascar.  So when the next food crisis hits, and hit it will, the developed countries with a foothold may think they are food-secure, until the hungry populations of the food-insecure countries serving as their respective breadbaskets see the fields of gold beyond the fence and decide to Mugabe it for themselves.  Unless, of course, the landowners (read: nations) deploy armed guards to protect these critical investments, resulting in rioting, bloodshed, and, inshallah, the toppling of governments. And now, it could be happening again.  I sound like Drudge. Theoretically, commodity prices fluctuate based on the principles of supply and demand.  When the demand for grain exceeds supply, prices go up.  In the movie Trading Places, Randolph and Mortimer Duke, the lovable racist WASPs, try to corner the market for Florida oranges.  They pay Clarence Beeks for an advance copy of the classified crop report, which will determine the price of oranges for the next trading period.  Akroyd and Murphy intercept the report and forge a new version, giving the impression that there will be a shortage of oranges due to a long winter.  On the trading floor, the Dukes’ trader buys as many orange futures as he can, under the assumption that they will become more valuable once the negative forecast for oranges is released.  The other traders see what is happening, and also buy, driving prices up and up.  Akroyd and Murphy begin selling at 120, until the crop report is released.  When the real crop report is released, which says that this year’s orange yields will be high, the price plummets, and Akroyd and Murphy buy all the futures they sold in the morning, becoming millionaires in the process.  This is how commodity trading works. In reality, this isn't always the case. (more…)

Travel and Culture

Membership Drive

Followers of the Develop Economies, I would like to urge each and every one of you to subscribe to Develop Economies by putting your email address in the box on the right side of the screen, or sign up to follow the blog in the “Networked Blogs” box just below Read more…

Social Enterprise

‘Active Incubator Models’ and Management for Social Enterprises (Part 2)

[caption id="" align="alignright" width="290" caption="No other image available."][/caption] Part two of my two-part Next Billion series. The ASEI incubation model has three phases. During the first phase, ASEI, in conjunction with the originator (or the visionary behind a would-be enterprise), develop a business model. The organization evaluates the specific value proposition of the company, and formulates a strategy for expansion, based on market demand, competitive landscape, production costs, and any other relevant information. For example, with incubator firm Invisible Sisters - which employs urban poor women to make dresses, purses and other accessories from plastic waste - they needed to understand the potential distribution networks, specifically retail, bazaars, and fashion companies, and identify the optimal path to market. During the second phase, the manager is brought in to run the day-to-day operations and implement the growth strategy. Invisible Sisters originally relied on schools as collection points for obtaining used plastic bags, the raw material for manufacturing. Under ASEI management, the company worked with shopping malls in the Philippines to source used bags from shoppers, and partnered with the Philippine Plastic Industry Association (PPIA) to supply the collection bins in the malls. In exchange, the PPIA and shopping malls promote recycling and improve its corporate image. This cooperation has a considerable environmental impact reaching beyond the immediate needs of Invisible Sisters. In terms of marketing, the company began producing bags for a jewelry chain and a shoe/bag importer in Manila, and partnered with fashion houses to co-brand bags. It has also developed and expanded its production capacity in order to  take contracts from international buyers. (more…)

Development Economics

‘Active Incubator Models’ and Management for Social Enterprises

The following was originally posted on NextBillion.  It is the first post in a two-part series about social enterprise incubators. There is no shortage of visionaries in the world with game-changing ideas. But there is a deficit of individuals with the business acumen and management skills to make the leap from theory to action.T his is the core insight of the Asian Social Enterprise Incubator (ASEI), a Manila-based organization that identifies products and ideas with transformative potential and helps to grow them into sustainable businesses. What distinguishes ASEI from typical business incubators, which offer office space, legal support, and back-office services, is its approach. ASEI employs an "active incubation model," taking on a managerial role and overseeing day-to-day operations, developing the sales and marketing strategy, putting necessary systems in place, and eventually spinning it off to investors. (more…)

Development Economics

Interview with Markus Dietrich of ASEI

The following is an interview I conducted with Markus Dietrich, the founder of the Asian Social Enterprise Incubator.  This is a complement to a two-part blog post I wrote for Next Billion, seen here. Develop Economies: How did you decide to start the ASEI? Markus Dietrich: I have a background in business.  I attended Cass Business School in London.  After he graduated he joined a business selling cash registers in 1994.  I worked with a family to develop a national distributorship.  In 2000, we sold it to a UK company that was working on a global scale.  I stayed on to start an office in Switzerland, and then we spun off one division that was moving from distribution to direct sales.  We were no longer targeting dealers and enterprise integrators and instead going direct to the buyers.  We went from nothing to $10 million in sales.  I found that what I liked doing was starting something.  Later they made them director of Europe and the Middle East.  After 14 years, I decided that I’d had enough and quit the job in 2007.  I didn’t really know what to do, so I started traveling in India for a while.  I came across microfinance and was intrigued by the idea of fusing business with development.  It was the first I realized that there was a business aspect to it.  I realized that I could use the knowledge I’d gained to become involved.  I was thinking about my own personal impact, and felt that what I’d been doing wasn’t really making an impact on a wealth-creation sale. (more…)

Agriculture

A Brief History of Fresh Pineapple Exports in Ghana

Yesterday I met with the founder of a pineapple exporting company in Ghana.  He is one of the first pineapple exporters in the country, opening his operation in 1985.  He is one of the founding members of Seafreight Pineapple Exporters Group (SPEG), and is the organization’s first chairman.  He was trained as a pharmacist and originally went into pineapple export because he needed to acquire foreign exchange in order to purchase pharmaceuticals from abroad for his pharmacy business, and realized he was in the wrong business.  Ghana was sitting on a gold mine with pineapples, yet no one had noticed it.   He recognized that the proximity of West Africa to Europe – specifically, the UK and Germany – and the climate of Ghana made for a strong value proposition for growing pineapple.  This man, along with a small group of primarily businessmen with no prior farming experience, established the export market for pineapples in Ghana. Back in the '80's, there were only five flights per week into Europe from Accra, the capital city of Ghana.  Because of the limited space available, the quality of the fruit sent to Europe was high and Ghana established a strong reputation for producing good pineapples.  Only 10% of production, however, could be exported due to the constraints.  As more airlines began flying to Accra, production was able to ramp up, but still was unable to meet the huge demand in the European market.  So in the 90’s TIPCEE (Trade and Investment Program for a Competitive Export Economy) helped establish SPEG to promote higher export volumes.  They were able to get transport time down from 21 days to 13 days, which reduced spoilage rates on arrival in Europe and increased Ghana’s share in the market. (more…)

Agriculture

Let Them Eat Cash: The New Approach to Food Aid

A few years ago, I used to subscribe to Harper's Magazine.  The lead article in one of the issues was titled "Let them eat cash: Can Bill Gates turn hunger into profit?"  It seemed interesting, but couldn't really understand much of it at the time, since I didn't know anything about food aid policy, or development in general.  Just the other day I met someone who is working with the World Food Program's Purchase for Progress program out here in Ghana.  She asked me what I thought about the WFP and food aid in general.  So I gave her my typical screed about food aid providing a market for surplus corn and soyabean production in the United States while calling it aid.  And I talked about how flooding the market with low-cost (or no-cost) food may be necessary in the short-term, but is counterproductive in the long-run, since it undermines the competitiveness of the private sector in the areas where it is delivered and leaves the market in a state of atrophy.  The conversation reminded me to go back and re-read the article.  This time, I understand it much better. The author, Frederick Kaufmann, attended a world summit on hunger and climate change (fitting both into the busy schedule).     (more…)