Category Archives: Development Economics

The Intangible Wealth of Nations

Lady Justice: 57% of a country’s intangible wealth

A few months ago, the White House released its “New Strategy Toward Sub-Saharan Africa,” which contains four key bullets summarizing its approach.  The first, and most important, goal is one that has been a pillar of American foreign policy for decades: “Strengthening democratic institutions.”  The State Department has tried to use a variety of carrots and sticks to make this a reality, including providing incentives for implementing democratic reforms in the form of of financial and in-kind aid.  In the most recent Economist, one of the lead articles calls for Western nations (specifically, the United States and Great Britain) to withhold aid from Rwanda, in protest of the Kagame government’s alleged human rights abuses in his own country and in the neighboring Democratic Republic of the Congo.

But, in this post, I’m less interested in discussing how to achieve democratic reforms than explaining why they are important.  With China’s model of “state-run capitalism” running circles around paralyzed developing-world democracies like India – a country whose legislative gridlock and inept bureaucracy produced a two-day blackout – and a largely-autocratic government in Rwanda producing remarkable reforms (I saw them firsthand in the beautifully-run capital of Kigali), some people have challenged the notion that democracy is the answer.  But, if democracy is executed well, as it is in Ghana, the rewards are increased wealth, though not in the form you might expect.

There is a concept called “intangible wealth,” which refers to the wealth created by functioning institutions.  And, according to a study by the World Bank, intangible wealth accounts for a huge part of a country’s overall wealth.  In an article titled “The Secrets of Intangible Wealth,” Reason magazine explains the concept in greater detail:

Two years ago the World Bank’s environmental economics department set out to assess the relative contributions of various kinds of capital to economic development. Its study, “Where is the Wealth of Nations?: Measuring Capital for the 21st Century,” began by defining natural capital as the sum of nonrenewable resources (including oil, natural gas, coal and mineral resources), cropland, pasture land, forested areas and protected areas. Produced, or built, capital is what many of us think of when we think of capital: the sum of machinery, equipment, and structures (including infrastructure) and urban land.

But once the value of all these are added up, the economists found something big was still missing: the vast majority of world’s wealth! If one simply adds up the current value of a country’s natural resources and produced, or built, capital, there’s no way that can account for that country’s level of income.

The rest is the result of “intangible” factors—such as the trust among people in a society, an efficient judicial system, clear property rights and effective government. All this intangible capital also boosts the productivity of labor and results in higher total wealth. In fact, the World Bank finds, “Human capital and the value of institutions (as measured by rule of law) constitute the largest share of wealth in virtually all countries.”

Once one takes into account all of the world’s natural resources and produced capital, 80% of the wealth of rich countries and 60% of the wealth of poor countries is of this intangible type. The bottom line: “Rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity.”

Intangible wealth helps explain why some countries are rich and others are poor.  At some level, natural resources, climate, strategic geography, and proximity to water and coastline are important.  But it is not hard to see why well-designed and functioning institutions are critical to growth.  Let’s dissect the components.

According to the report, the rule of law accounts for 57% of a country’s intangible wealth – by far the largest percentage.  So how does the rule of law facilitate economic growth?  One big reason is the enforcement of contracts.  Businesses and individuals need to have confidence that, when they enter into an agreement, the terms of the agreement will be respected by the other party.  Contracts enable investment, which provides capital to allow business to expand.  In the United States, the legal resources for lenders and negative repercussions for borrowers have led to a financial system that offers the cheapest credit in the world (perhaps too cheap).  In contrast, in Africa, interest rates on a business loan might be 10-20% or more, since the legal channel for dealing with default is obscure or corrupt or non-existent.  As a result, investment capital is difficult to source and businesses find it more difficult to grow.

Container volume by port

Another example is corruption.  In Kenya, the port in Mombasa, a coastal city, competes with Dar es Salaam, the capital of Tanzania, for ocean cargo throughout East Africa.  Both ports operate at a fraction of their capacity because of the corruption that has prevented their modernization and the streamlining of the process.  Here are a few illuminating statistics:

  • It takes 19 days to move a container from Singapore to Kenya, and another 20 days to move it by road from Mombasa to Nairobi.   It takes 71 days to get a container from Burundi to anywhere in East Africa.
  • The cost of shipping in East Africa is 70% higher than in the United States and Europe.
  • The port in Singapore processes more cargo in one week than the Mombasa port does in a year.

If the government of Kenya invested money in modernizing the port, rather than embezzling the money intended for improvements, and ran the port at the same level of efficiency as Dubai, Singapore, or Hong Kong, it would add several points to the country’s GDP.  Better yet, if it privatized the port, which is what most shippers would prefer, and enforce anti-corruption laws, the amount of wealth generated would be massive.

The second largest component is education, which accounts for 37% of intangible wealth.  It is not difficult to see why investment in human capital pays dividends for an economy in the long-run.  Providing a strong primary and secondary education to all students, and establishing a robust post-secondary education system prepares people to compete in an increasingly global marketplace.  This, in turn, generates greater income and accrues more wealth for a country.

The American Enterprise Institute – a thinktank that I don’t typically agree with – provides a list of some other reforms that facilitate the generation of intangible wealth and alleviate poverty:

  1. Establish and maintain the rule of law.
  2. Focus the jurisdiction of government primarily on maintaining the rule of law, and limit its jurisdiction over the economy and the institutions of civil society.
  3. Implement a formal property system with consistent and accessible means for securing a clear title to property one owns.
  4. Encourage economic freedom.
  5. Encourage stable families and other important private institutions which mediate between the individual and the state.

I do not think that democracy has a monopoly on producing a strong legal system and a good education system.  I do, however, think that the United States has one of, if not the best, legal systems in the world, and a good education system, despite the glaring inequities I discussed the other day.  Despite its shortcomings, of which there are many, the American democratic system has produced an immense amount of intangible wealth for the country.  It is a good model for other countries to emulate.  And, if executed well, the potential dividends are huge.


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Kenya Enacts Bad Immigration Policy

Today, the Nairobi ex-pats are riled up about a new policy restricting immigration for young and low-skilled workers in Kenya.  Here is the story:

Kenya has shut the door on foreigners seeking permits for jobs that pay less than Sh168,000 per month or Sh2 million per year (USD $24,000). The move, which marks a major labour market policy change, also bars foreigners aged 35 years or less from being issued with work permits. The changes are contained in fresh regulations that Immigration minister Otieno Kajwang’ has published in a special Kenya Gazette notice.

Senior Ministry of Immigration officials, who did not want to be named because they are not authorised to speak to the press, said the new regulations are particularly targeted at foreigners holding jobs that can be handled by Kenyans.

The new rules have also locked out expatriates from employment in the medical, real estate, engineering, accountancy and legal professions.

This crackdown on immigration is not happening in isolation.  Recently, Uganda passed legislation with the same provisions aimed at curbing immigration that potentially takes away jobs from locals.  This strikes me as not only bad policy that will significant repercussions for development, but also counterproductive in achieving its intended aim (to increase the number of jobs for Kenyans and Ugandans).  On a macro-level, relatively open borders generally have a positive impact on economic development in two ways.  First,  the exchange of knowledge, ideas, and skills improves human capital within the country and makes businesses serving the domestic and export markets more competitive.  Immigration from advanced economies – regardless of skill level and age – typically comes with investment and infrastructure.  Chinese companies employing cheaper Chinese labor will still bring machinery, technology, and business practices that can be emulated by local companies.  So, not only is the Kenyan government stifling the influx of ideas to its country, it is also preventing investment, which has the potential to enlarge the pie, rather than simply expanding the pieces that go to foreigners.

My social enterprise and non-profit friends are upset because they see the law not only as an affront to what they are trying to achieve – improve the economic condition of poor – but also regressive in terms of job creation.  This is a valid point – for every job taken by an expat in the social sector, multiple jobs open up for local staff.  One friend who started a company in Nairobi had this to say on Facebook:

Dear Kenya –

I am 28. I am the oldest person in our young company. Over the next 7 years, we plan to hire more than 100 university graduates into entry-level positions with top-tier international training & mentorship.

My vision is to have the most-sought-after middle-managers in the entire region working for me. I don’t think I am being naive. We have already hired four. We’re doing this.

If this is implemented, consider them fired.

Let me know if you can help us and our Kenyan staff. They just graduated 3 weeks ago.

Cheers,
Anonymous

The person has a good point, which is that employment, coupled with mentorship and development, can have a significant ripple effect as qualified young professionals go out into the workplace.  Realistically, this bill is not aimed at my friends, however.  More than half of the work permits in the country are held by Indians, typically from a lower caste, who emigrated to the country to set up businesses and take advantage of the relatively untapped market.  Another 25% belong to Chinese immigrants, who are working on infrastructure projects for state-run contractors.  Only 10-20% are held by Americans and Europeans.

Most Kenyans I spoke with did not have kind things to say about many of the Indians – known in Swahili as “mwindi” – in the country.  That is because, as a general rule, many of the Indians treat the local population as second-class citizens.  One of the reasons for this is that many of the Indian immigrants are from a lower caste, and have been discriminated against for their entire lives.  Those in the lower castes typically have darker skin, so some of the root of their discrimination has been based on skin color.  When they move to Africa, they are employing people who have an even darker skin color, so they are even more likely to discriminate.  This, coupled with the fact that Indians control a significant percentage of the import-export sector and, to a lesser extent, retail, has created resentment among Kenyans and Ugandans.  I am not certain, but I would guess this bill is aimed squarely at the Indian immigrants living and working in the country.

However, the Ugandan legislation explicitly targets NGOs:

The government has banned international and local NGOs operating in the country from employing foreigners unless they show proof that no Ugandan matches the skills of the expatriate staff.

“The NGOs come to help the community and complement government effort and should not solicit money in our names to create jobs for themselves,” he said. “Otherwise, they should set up commercial enterprises, not the not-for-profit, non-political and community-empowerment organisations.”

Amb. Gabriel Kangwagye, the NGO registration board chairperson, told this newspaper yesterday that the not-for-profit groups solicit money from donors under the guise of helping the under-privileged, and they should not saturate local job market by employing their own.

Whether this legislation is based at Western or Asian expats doesn’t really matter.  Either way, there are better ways of dealing with the problem of unemployment.  Greater investment in education, skills training, and infrastructure, or less plundering of state coffers would serve to make the local economy more competitive.  Unfortunately, the Kenyan and Ugandan governments have chosen to shoot themselves in the foot and enact laws that will reduce the amount of both foreign direct investment and aid money to the countries.  The result will be a reduction in GDP growth, higher unemployment, and a generally regressive system that will undoubtedly hurt the people the laws are intended to help.


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What Do I Think of Agriculture Development? Pt. 3

The following is part three of a three-part post on agriculture economic development.  Read part two here.

Aid, as I have discussed in this blog, is one of the three D’s of foreign policy: defense, diplomacy, and development.  It is the hearts in the phrase “winning the hearts and minds.” Being so, the work is certainly not borne entirely, or even at all, out of altruistic motives.  Instead, it is one way of winning sympathy and gratitude from people whose governments we need to provide favorable trade agreements and ally with us against our enemies.  In East Africa, for example, Uganda has moved up in stature with the U.S. government for its willingness to send troops and lead AMISOM – the UN peacekeeping mission in Somalia.  Al-Shabab is one of the more pressing threats in the eyes in the U.S. state department, given its ability to operate freely in the lawless country and its track record for recruiting disaffected youth from American cities like Minneapolis.  Kenya, on the other hand, is viewed as relatively weak, as its military has done little in the region, save invade Somalia six months ago and fail to take full control of the key Al-Shabab stronghold in Kismayo.  When a country scratches the back of the U.S., it is more likely to scratch back in the form of government-to-government aid and development funding through mechanisms like the Millenium Challenge Corporation (MCC).

With this in mind, it is no surprise to me that foreign aid – particularly within the agriculture sector – is ineffective.  The incentives are completely misaligned.  In the zero sum game of global commerce, a stronger domestic agriculture sector in a country dependent on imports from the U.S. will adversely affect our own farmers.  If donor countries really wanted to end food insecurity once and for all, it would be relatively simple: eliminate import tariffs on African agriculture products, end agriculture subsidies for maize and other crop productions, and regulate commodity speculation more closely.  I am not necessarily advocating any of these things, and I understand why they exist.  I’m just saying that it would work.  Instead, the most important thing about these projects is that every single piece of literature, sign, poster, or whatever else have the following words displayed prominently: “From the American People.”

Aside from the fact that agriculture is a global business and donor countries must look out for their own interests above all else, the execution of agriculture development projects is generally poor.  I once had a discussion with some friends in Ghana about looking at the impact of projects like ours on the hospitality sector.  I wouldn’t be surprised if 25% of the $30 million allocated to the project I worked on went to hotel rooms.  With per diems of $100-150 per day, people could do a lot of damage with very little oversight.  This frivolous attitude toward spending was a bit troubling in my mind, particularly since the young field staff were required to ride motorbikes, which resulted in the death of one person and multiple broken bones to others, some of whom were good friends of mine.

Most of the emphasis in these projects seems to be on placating congress more than anyone else.  The monitoring and evaluation department called the shots most of the time, demanding that the field staff just “get the numbers.”  In other words, if congress says to train 1,000 farmers, then go train 1,000 farmers, regardless if that is in the best interest of the people being trained.

I have one particularly vivid memory of arguing fiercely with the head of one of the sub-contractors responsible for the horticulture segment of the project.  I said that we were wasting our time by working with small-time juice processors and needed to focus our attention on the big guys.  He insisted that working with small processors – none of whom had the business acumen, capacity, or capital to scale – was the only way.  After we reached an impasse, he walked inside and brought back a piece of paper, which he slammed down on the table in front of me.  It was a list of the indicators and targets given to him by ACDI/VOCA, which ultimately came from USAID and the U.S. Congress.  All of them pointed to helping the small guys.  “In this world,” he said, “there is what is, and there is what should be.  Until someone starts paying me for what should be, I am going to give them what is.”

That, for me, summed it all up.  It wasn’t as if this man did not get it.  He knew that what we were doing didn’t make any sense.  It is just that his financial incentives were not aligned with doing what works.  So, unfortunately, he has to do what doesn’t work.

That moment represented the turning point in my opinion of government aid projects.  I detailed my frustrations in a post comparing the emphasis on stats to that of the police department in the TV show “The Wire.” From then on, I began looking for something new.  I wanted to return to something more organic and grassroots, where people were motivated and given the freedom to be creative and proactive.  I decided that Kenya – more specifically, Nairobi – was the place where I could find all that.  So I booked a flight, quit my job, travelled around Ghana for a month, boarded a plane, and set out to become inspired again.

In the next few posts, I will talk about my thoughts on education, social enterprise, and the contrasts between East and West Africa.


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What Do I Think of Agriculture Development? Pt. 2

This is part two of a three-part post on agriculture economic development.  Read part one here.

In the previous post, I explained my experience working in agriculture.  In this one, I will talk more generally about the challenges of agriculture economic development in general.

Needless to say, the challenges are great, as I have written about before.  And, while I feel the idea of market facilitation has merit and has seen some successes, particularly in cash crops like coffee and cocoa (differentiated from staples, like rice and maize), where the markets are ready to handle any volume that comes from the farmers.  But, on balance, I think that the forces affecting agriculture markets are complex and global in nature, and the problems cannot be simplified to a lack of communication between buyers and sellers.

It is true – communication is a major impediment to efficiency in developing world agriculture markets.  That is why many companies, like Esoko in Ghana and M-Farm in Kenya – are leveraging the penetration of mobile phones to close the knowledge gap between buyers and sellers.  These companies offer subscription-based services that allow farmers to check prices in various markets around the country, preventing them from being ripped off by middlemen.  They also allow the juice manufacturers, as an example, to communicate order sizes directly with their farmers.  This creates a more efficient system, but does nothing to really address the underlying factors influencing these markets.

First of all, agriculture is truly a global industry.  In the United States and other developed nations, agriculture production is highly subsidized, where large industrial farms are actually paid to produce more than they can necessarily sell on the open market.  When the government explicitly agrees to purchase the surplus, there is little incentive on the part of the farmers to manage their farms according to market demand.  Much of the excess corn in the country is either utilized for biofuels and, to a lesser extent, food aid.  What’s more, industrial agriculture farms are able to leverage incredible economies of scale, in the form of mechanization, irrigation, and bulk-buying of inputs.  These two factors allow large-scale farms to produce at far lower costs, rendering smallholder farmers – which comprise the bulk of the poor in Africa – uncompetitive in all but the local markets.

I once caught a ride back from a citrus stakeholders’ meeting in the central region of Ghana with a pineapple grower and importer of fruit-fly traps from India that protected mango trees from the insects that decimate the crop.  My friend Mark, who worked with Engineers Without Borders Canada, knew them from his work with mango farmers in the Eastern Region, and he finagled a ride back to Accra for us.  We were working on three hours of sleep after partying with a group of Canadian journalists and he promptly fell asleep in the back seat, leaving me to carry on the conversation for the two-hour ride.

Some rice millers I visited in Ghana

At one point, I asked him what he thought of organizations like mine and USAID in general.  He had a tendency to use me as the embodiment of the aid industry in general, and told me that I was the like the defense lawyer for the criminals.  In other words, here I was, trying to improve the competitiveness of the agriculture sector when my government, or, more generally, the entire industrial-agriculture complex, was responsible for creating the problem in the first place.  I thought that his characterization, while a bit harsh, had some merit.

I stayed in a hotel room for $150 a night to try to work with undercapitalized rice millers on behalf of the U.S. government, only to see this advertisement next to the trading post.

In the next post, I will discuss my other criticisms of foreign aid for agricultural development.


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What Do I Think of Agriculture Development? Pt. 1

This is part one of a three-part post on agriculture economic development.

After the better part of a year working for Negros Women for Tomorrow Foundation (NWTF), a microfinance institution in the Philippines, I decided to head west again – specifically, to West Africa.  In late 2010, I moved to Ghana to work with TechnoServe, a non-profit specializing in market-driven solutions to economic development.  This is really just a fancy way of saying that TechnoServe recognizes the importance of competitive markets in creating jobs for people living on less than a few dollars a day.

My mandate was a bit nebulous at first (and for the bulk of my time in Ghana).  I was seconded to another organization – ACDI/VOCA – on a $30 million USAID project called ADVANCE (an acronym standing for Enhancing the Agriculture Chain in Ghana, or something like that).  The project was a bit dysfunctional, having undergone substantial personnel changes when I arrived (the Chief of Party and Technical Advisor – the equivalent of the CEO and COO – either quit or were fired after being significantly at odds with one another over the direction of the project.

The methodology of the project was something called “Market Facilitation,” a relatively new and trendy approach to catalyzing positive change in the agriculture sector.  For a much more detailed overview of what it is, my good friend Mark Brown with Engineers Without Borders Canada has a great overview at his blog, Kulemela.  But I will give the quick and dirty.

In the past, most projects were unsuccessful because they were both short-sighted and unsustainable.  They were short-sighted because the interventions focused on supply rather than demand.  In other words, development agencies would provide fertilizer and tractors and other implements to improve yields for smallholder farmers.  Yet, without simultaneously improving the infrastructure and building the market for the higher product volume, increased crop yields actually had the adverse affect of driving down prices, as there was nowhere to sell the surplus except for the same markets as before, which now had greater leverage in negotiation.   And it was unsustainable because, once the funding for the project was complete, the gravy train would grind to a halt, and the tractors would sit in a garage somewhere – if they were lucky – broken-down and rusting away into oblivion.  And a butterfly flaps its wings.

The logical response to these failures was to focus not on the production side, but rather the markets.  Work with the buyers to develop their capacity to handle greater volumes, and they, in turn, will invest in suppliers to handle increased demand.  Assisting a maize aggregator (a term for the middleman buying and selling the product) to get a loan in order to purchase an tractor-mounted maize sheller (a device that removes the kernels from ears of corn) which not only create an alternative source of income for them, allowing them to buy more maize from more farmers, but it will also save time by eliminating manual shelling.  This is an example of a win-win situation that benefits the entire market in a sustainable way.

Market facilitation, specifically, tries to catalyze these connections.  For example, on one side, a Swedish jatropha company in the northern part of Ghana has 40 tractors that it uses only during the planting and harvesting season, leaving them idle for the remainder of the year.  On the other, a group of aggregators buying maize and soyabeans from more than 1,000 farmers needs tractors to prepare the lands for planting.  Connecting these two entities in a mutually-beneficial business relationship creates a sustainable partnership, where the jatropha company earns additional income from maximizing utilization of its equipment, while the aggregators solve their tractor problem.  In another example, a large juice manufacturer needs a reliable source of pineapples, mangoes, and citrus to keep its factory running at full capacity, while groups of small- to medium-sized farmers have no market for their products, other than the local “market women” – the aggregators who purchase for domestic sale.  By connecting the two groups, the juice manufacturer can establish lasting partnerships, supplying farmers with inputs in exchange for a guarantee of the final product at a fixed price.

It is an elegant idea that works well in theory, but less so in practice.  For one thing, relationships between buyers and sellers in these agriculture markets are notoriously plagued by years of mistrust.  On this blog, I put up a guest post from Mark of EWB detailing this problem.  The juice manufacturer says it needs twenty tons of pineapples, and then, when it comes time to purchase, scales back due to capital constraints and only buys ten tons, leaving the farmers with the remainder rotting on their farms.  And, because of poor management, the manufacturer fails to pay the farmers for three months, leaving the farmers in the lurch.  On the other side of the coin, the manufacturer provides fertilizer, seeds, and equipment to the farmers on credit in exchange for a guarantee of their products.  But, come harvest time, the farmers find a better deal elsewhere and sell their crops to someone else, leaving the manufacturer out thousands of dollars and without produce for its factories.  These are the realities of dealing in these markets.

In the next post, I will explain my thoughts on market facilitation.


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Luck of the Draw: Poverty and Success

On the way to school in the town of Valladolid in the Philippines. Some of the unlucky ones.

A few weeks ago, the class of 2012 graduated from university and stepped out into the world.  And one commencement speech, in particular, has been attracting a lot of attention for its candor and unexpected message: that the success of the graduates sitting in the audience is due, in large part, to luck.

Michael Lewis, author of Liar’s Poker and Moneyball, spoke to the graduates of Princeton University and tried to make them recognize just how lucky they are:

People really don’t like to hear success explained away as luck, especially successful people.

As they age and succeed, people feel their success was somehow inevitable. They don’t want to acknowledge the role played by accident in their lives. There’s a reason for this. The world doesn’t want to acknowledge it either.

Don’t be deceived by life’s outcomes. Life’s outcomes, while not entirely random, have a huge amount of luck baked into them. Above all, recognize that you have had success, you have also had luck. And with luck comes obligation. You owe a debt, and not just to your gods. You owe a debt to the unlucky. I make this point because, along with this speech, it’s something that you’re very likely to forget.

This is something I have thought about a lot over the last few years.  In the beginning, I just wanted to learn about something I didn’t know and try to better understand different cultures.  When I began visiting clients of NWTF, the microfinance institution I worked with in the Philippines, I began to see firsthand the degree of socioeconomic disparity between myself and three-quarters of the world.  I saw it again in Ghana when I spent a few days living with a rice farmer in the Eastern Region, and again in the industrial slums near my office in Nairobi.   No electricity, no running water, no steady source of income.  People earn the money in the morning to feed their families at night.  This is living hand-to-mouth, and it is an existence altogether unfamiliar to me.

At first, I felt a sense of obligation, and, to an extent, that sentiment still exists today.  I would like to think that I will make the world a better place in the future (or, at the very least, not make it worse).  And today, more so than I did back then, I feel very, very lucky.  I understand the truth that Michael Lewis conveys in his speech – that only so much of your own success can be attributed to your innate abilities and ambition.  Working hard and being smart certainly help.  But to simplify the formula of success to these two dimensions fails to account for the most critical conditions for even allowing success.

Paramount among these is where you were born.  85% of the world lives in what are considered to be developing countries.   This is a broad category that excludes just about everywhere except North America and Western Europe.  A wide spectrum separates the countries verging on second world and those at the very bottom of the development index, also known as the “least developed countries,” which, by definition, have a per capita GDP of $905. The LDCs are mainly in Sub-Saharan Africa and Southeast and Central Asia.  About 15% of the world’s population lives in LDCs, and 50% of them live in extreme poverty.  If you are born to a poor family in an LDC, the chances of getting out are slim to none.

Within these developing countries, three billion people – or 50% of the population of the planet – live on less than $2.50 a day.  That translates to about $1,000 per year, in PPP (purchasing power parity).  That is not a lot of money.  Sending multiple children to primary school, let alone secondary school and ultimately university, is tough when you are earning that little money.  Between half and two-thirds are subsistence or smallholder farmers, working an acre or two of land, or, if they are lucky, raising pigs, cows, or goats.  For a smart kid in a rural farming community, whose parents may or may not be literate, let alone educated, it takes incredible maturity, drive, and, above all, a stroke of luck to get out of there and do something else.  And that assumes there is even a chance at all, since many children are pulled out of school during planting and harvest to help the family and fall too far behind in school to justify going back.

I could continue, but the point is clear.  The role luck played in my own success became clearer and clearer as time went on.  I came to realize that my own talents and ambition were really secondary when compared to the circumstances of my birth and upbringing.  If there is one universal truth about less developed countries, it is that most people would move to the United States in a second.  People may not believe it here in the States, but, to the rest of the world, it is still a place of promise and opportunity where fortunes can be made and a new life created.  The fact that I was born here and can re-enter this country through the “Citizens” line at customs is something for which I am grateful.

Preparation for citizenship.

I am grateful that my parents value education and pushed me to work hard in school.  I’m grateful for the fact that we had money and I didn’t have to struggle growing up.  I am grateful that I had mentors, and that I grew up in a town so uncool that temptation toward potentially derailing vices weren’t even really an option.  All of these factors were beyond my control.  I was simply lucky enough to have them, and took it from there.

In an interview with PBS, Lewis explains what he was thinking when he wrote this speech:

I would say that, look, that the successful in our society owe so much of their success to things outside of themselves. They owe it to the society, that they’re born into this affluent and peaceful society that was not of their making, that they should acknowledge that obligation.

I think that is right on. Recognizing that fact and internalizing it is important.  Within the United States, there is an increasingly troubling income gap.  The disparity of wealth in this country is growing, and there is little recognition of the conditions that allowed it to grow.  In his speech, Lewis focuses on this point, so I will not.  But try to remember it when thinking about Obama’s decision to grant amnesty to the children of illegal immigrants, or the decision to extend unemployment benefits, or efforts to raise education standards in low-income communities, or any other effort to aid the unlucky.

But I would take a step even further back and say that, if you are reading this from an address in the United States right now, count yourself as one of the lucky ones.  Recognizing this fact, and appreciating it, has led me to the realization that some things simply are the way they are, and that is OK.  But, like Michael Lewis says, the realization brings a sense of humility, and an obligation to, at the very least, recognize the role that luck plays not only in my own life, but in the lives of others less fortunate than me.


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What Do I think of Nairobi?

The road to Kiserian town from Champagne Ridge in the Rift Valley

When you live abroad, you are, with certain key exceptions, surrounded by people with a similar zest for seeing things differently.  This is particularly true for places that are either particularly off the beaten path or destinations for people whose interests reflect your own.  Burma a couple of years ago fell into the former category, while Kenya this past year would be the latter.

People ask me all the time what I think of Nairobi.  I tell them that I actually don’t really like Nairobi as a city.  It is crowded and polluted and major infrastructure problems – terrible roads, horrible drainage – that make the traffic very, very bad.  For a good month during the rainy season my commute home from work was 2.5 hours – and that is one way.  The government is incredibly corrupt, so things don’t work because the money meant to fix them goes into the pockets of the politicians.  As a foreigner, you are often getting ripped off and scammed for this and that.  And, as a beach person, being seven hours from the nearest respectable body of water (Lake Victoria to the west, the Indian Ocean to the east) was a bit difficult.  Of course, these are incredibly shallow complaints, since Nairobi has everything you could ever want.  And it has many comforts that other cities, like Accra, don’t have.  But most non-Nairobi-ites (and maybe quite a few Kenyans who live there) tell you that, if they had to live in one place for the rest of their lives, Nairobi probably would not be it.

A morning coffee at the Rangi Saba house, an hour outside Nairobi

That said, the people I met in Nairobi – Kenyan and expat – are among the most interesting I have come across in my three years on the road.  Everyone is at the top of their game, and completely into what they are doing.  For international development work, it is a mecca attracting the brightest minds from around the world.  All of the most interesting and game-changing social enterprises – Bridge International Academies, Sanergy, One Acre Fund, and Mobius Motors, to name a few – are there.  Some particularly innovative microfinance institutions, like Juhudi Kilimo, which does asset lending in the form of a pregnant dairy cow, are based in Nairobi.  Technology and ICT companies have set up shop to take advantage of the burgeoning mobile and smart-phone penetration and places like the iHub.  Journalists flock to Nairobi to make a name for themselves covering some of the worst places in the world, like Somalia and the DRC, which happen to be right next door.  All of the impact investors – Acumen Fund, Grassroots Business Fund, and others – are here.  International organizations, like the IFC, the UN, and all of the major international development organizations (IRC, CARE, etc.) are based in Kenya.  Everyone is there.

The fact that Nairobi is a hub for East and Central Africa creates opportunities, and opportunities attract people.  And those people are almost always interesting people.  And, usually, when they aren’t interesting people, at least the work that they do is fascinating.  That fact that you moved to Nairobi puts you in a self-selecting coterie of people who took a risk in moving to someplace new and foreign.  The people tend to have great stories and perspectives from their work and travels.  But if not, then at least they are working doing cool work in a field that you most likely know little about.  Conversations at parties in Nairobi are more likely to be about maternal health in rural areas or covering instability in the Kivu province of the Congo than about the weather.

A weekend trip to Diani Beach on the Indian Ocean.

Not only do you meet really interesting people who are involved in cool work, but you also meet some real superstars in a place like Nairobi.  People who have started companies and are subject-matter experts in everything from mobile money to ICT in agriculture to microfinance to whatever else.  I met more TED Fellows in Nairobi than I had in my entire life.  They are all here, and chances are, you will meet them around if you stay long enough.

In short, I had a love-hate relationship with Nairobi.  I think it is simultaneously mundane and exciting.  You become frustrated when you get ripped off on the matatu, and elated when you get to your destination overlooking the Rift Valley or Naivasha.  Outside the city, it is stunningly beautiful.  But the people are what make Nairobi worth the trip.


Develop Economies’ Music Recommendation

How to Break Into Development, pt. 2

Meeting cool people is important

This is part one of a two-part post on getting involved in international development work.  Read part one here.

Trying to answer these questions – at first in vain, and, a few years later, more successfully – helped me so much that I have dispensed this same advice a dozen times since.  But I would add a fourth question is to these questions as philosophy is to math.  Ask yourself, “What do I want out of this experience?” Because figuring out that question will provide clarity in answering the other three.  In retrospect, I wanted an interesting cross-cultural experience that would drive me outside of my comfort zone and give me the opportunity to give back.  Choosing multiple, shorter-term gigs (defined here as less than a year) allowed me to go broad, but not deep.

I like being exposed to new things, and I wanted to learn as much as I could about as much as I could.  This explains why I had three jobs in as many years – something that would otherwise be a question mark in the eyes of someone reading my resume.  In the span of 30 months – roughly the same amount of time I spent at my previous job as a consultant – I lived in three countries (Philippines, Ghana, and Kenya) and worked in three different industries (microfinance, agriculture, and education).   This stands in contrast to many people I know out here, who chose to specialize very early on and have no interest in deviating from that path.  There are benefits to both, and you have to decide which is best.

I would also be lying if I said the opportunity to travel to exotic locales did not factor into the equation for me.  In West Africa, there are fewer opportunities for independent travel.  In Ghana, where you are surrounded by post-conflict, conflict, and sometimes pre-conflict countries, backpacking is not for the faint of heart.  In contrast, in the Philippines, which as many people living below the poverty line as Ghana has people, you can easily fly to Thailand for a weekend for less than $100 roundtrip.

Once you have figured out what you want, the key is to network.  This industry, more than just about any other, is about connections.  That is because the organizations you want to work with are often located many thousands of miles away across large oceans that you may or may not have crossed.  And the quality that people are looking for more than just about any other in a candidate is a local address.  You really need to create a list of each organization you would like to work with and being combing your network for introductions.  It is possible to find interesting opportunities on job boards and listservs, but, as a rule of thumb, the easier a job is to find, the more competition it will have.  Usually, the best ones and, more often than not, the easiest to get are the ones that are not advertised that you hear about from your friend.

Of course, the best way of all is to figure out where you want to be, book a flight, and just go.  On May 18th 2011, I remember sitting at a bar on the beach, drinking a beer, trying to mentally prepare myself for flying to Kenya in a few hours with a handful of job leads, a few former Kiva Fellows as my network, and a sublet in a city I’d visited once before.   I had given this piece of advice before, but felt a bit hypocritical for having never taken it myself.  So I decided to do it and see how it worked out.

I set up a few potential opportunities with companies that interested me – a solar lantern manufacturer, a BPO hybrid non-profit focused on the poor, and Bridge.  I met with the CEO of Bridge the first day I arrived and proposed doing a pro-bono project, analyzing all of their payment data and trying to draw some conclusions about how parents in the communities where we worked actually paid their school fees.  That work turned into a three-month consultancy, and continued for the next year.  My last day was last Friday, and the longevity of the role validated the decision to make that leap of faith.

S o now, I can speak from experience when saying that the most direct way to find the job you want is to show up.  And if it doesn’t work out, then find something else.  But simply by being there, you will have a leg up over other candidates.

In the next few posts, I will discuss my thoughts on what works in development and, more importantly, why.


Develop Economies’ Music Recommendation

How to Break Into Development, Pt. 1

This is part one of a two-part post on getting involved in international development work.  Read part two here.

One day back in May 2009, I was sitting at my desk at my office on Boylston Street in downtown Boston reading Next Billion.  I had decided the week before that I would quit my job in September and leave the U.S. for an adventure.  After a cursory review of the options, I decided backpacking and teaching English weren’t for me, and settled in development.  At the end of the article I was reading about micropayments for solar energy in Brazil, Mike MacHarg, then a graduating MBA student at my alma mater, wrote a comment asking the author to get in touch with him, leaving his email address.  I am not sure if that author ever did contact him, but I did, and the meeting we set up in a Starbucks in Boston set in motion a chain a series of small-world moments that culminated in someone coming up to me two weeks ago in Brew Bistro, a bar in Nairobi, and introducing himself as Erik Wurster, formerly of E+Co, otherwise known as the person Mike first put me in touch after our meeting three years ago.  He is living in rural Rwanda now, working on a solar energy startup called UpEnergy, and happened to be in town for a clean cookstove conference visiting a friend of mine.  It’s a small world indeed.

These stories aren’t unique – in the relatively small global international development community, everyone has a story extending six degrees on some direction before boomeranging back to them.  And these stories are, to me, essential for explaining out to break into this work.  From the beginning and right through until the end, guys like Erik and Mike have been connecting me to people from around the world, and through those connections, I have learned about different jobs, companies, roles, and honed in on what it is that I am trying to do.

But for people who are trying to break into this world and have no idea how to begin – in other words, myself three years ago – I will pass on some valuable advice given to me by my father’s partner’s son-in-law when I was a lost soul.  After college, he had moved to Zimbabwe back when it was still called Rhodesia and taught science in a school outside Harare.  When he asked what I wanted to do and I responded “work abroad in development”, he knew he would have to bring it back to square one with me.  So he gave me some advice I have since passed on to many people once in my shoes (metaphorically speaking, not the shoes you get on shoe hero).

Entering the job search with “must work abroad in development” as the only criterion is both wrong and much more common than one would think.  So, the son-in-law gave me some parameters to help me narrow down my own hunt.  There are three questions to ask before starting to look:

  1. Where do you want to go?
  2. What do you want to do?
  3. What kind of organization do you want to work for?

The first question – where do you want to go – is a big one.  For some people, this is the easiest to answer.  Wanting to learn a language (like Spanish) or already knowing one (like Kiswahili) are good reasons to work in Peru or Tanzania, respectively.   For me, location did not matter.  I wanted to go to South America, but didn’t really care either way.  I was up for anything, and moving to a place I knew nothing about only added to the sense of adventure.

The second question – what do you want to do (more specifically, what sector interests you) – is more difficult to answer when you don’t know anything about the subject matter.  For people with prior knowledge and experience – academic, professional, or otherwise – it is possible to narrow down your options.  Broadly, there are a few key areas of international development work: public health, water and sanitation, education, economic / livelihood development, financial services, agriculture, and a few others.  You could further split each of these into emergency relief efforts and ongoing systemic programs.  It is admittedly difficult to narrow this one down when you barely know the difference between public health and clean energy in this specific context.  But, if you are not like me, then perhaps you can pick a couple that interest you and learn as much as you can before honing in on one or two.

The third question – what kind of organization do you want to work for – was actually the easiest for me to answer (actually, the only one I could answer).  With three years of practical experience under my belt, I felt strongly about working for a company that knew how to leverage my skills.   This last question helped me narrow my search down to a few organizations that had not only a reputation for innovation, but also a fellowship or consultancy program that provided immersion without long-term commitment.  Ultimately, the decision came down to the volunteer consultant program with TechnoServe and the Kiva fellowship.  Kiva got back to me first, so I signed up with them.  The following years, I decided to give TechnoServe a shot and moved to Ghana.

The reason it is so important to answer this question is because there are so many organizations out there are incredibly different.  I have personally run the gamut, from technology-based non-profit to USAID to what some people refer to as the “McDonald’s of education,” without any of the negative connotations.  Some non-profits and NGOs are poorly-run and unprofessional, with a questionable impact on the poor.  Others are led by visionaries with a wealth of experience, providing opportunities for mentorship.  Some, like Engineers Without Borders Canada, are based in the field, while others, like Planet Finance or Grameen Foundation, spend more time in the office.  Choosing the right organization can easily be the most important of the key variables.

In the next post, I will add a fourth question, and discuss other issues.


Develop Economies’ Music Recommendation

Should You Pay a Bribe?

Around the world, money talks.  In some places, it speaks in a whisper; in others, it is like your humble correspondent at a party after one too many dark and stoney’s – loud and obnoxious.  And in Kenya, many, if not all, businesses, will at some point find themselves deciding whether or makes financial sense to pay a bribe.

Corruption is not a third world vice.  There are enough Swiss bank accounts and shell companies in the Cayman Islands to provide evidence for first-world malfeasance.  This corruption, while destructive, is difficult to identify, because it is built into the infrastructure of the system.  It is a tax code that makes no sense except to people who understand how to take advantage of it.  But in some places – Kenya being one of them – corruption is in-your-face.  At every turn, you might be asked for a bribe.  Police set up roadblocks simply to collect “something small” from drivers.  Ministers exact rent from anyone seeking to do business in their districts.  From the lowest traffic cop to the highest levels of government, corruption is rife.

For companies, dealing with corruption is a very real part of doing business.  The system – particularly within the government – moves slowly, and sometimes not at all.  A work visa could take two weeks or two years to process, depending on who you know and, more importantly, who you pay.  If you are a vendor trying to buy a storefront, obtaining a construction permit means putting 2,000 Kenyan shillings in an envelope to “expedite the process.” To be sure, greasing the gears of the system leads them to move more quickly.

But doing so exacerbates the problem, providing positive reinforcement to those collecting bribes.  And once a company is identified as one that pays bribes, there is no end to the gravy train.  Once they have paid a bribe somewhere, companies operating in multiple cities or provinces will have to pay the same tax everywhere.  The question then becomes, is it worth paying a bribe to make doing business easier?

Transparency International's Corruption Perceptions Index.

There are some, including Develop Economies, who have made that claim in the past.  Why not?  After all, civil servants are underpaid.  Their superiors extract money from them, and on up the chain.  Not to mention, placing restrictions on American companies through the Foreign Corrupt Practices Act (FCPA) only puts the U.S. at a disadvantage when competing against companies from nations with no such regulations.

But that, unfortunately, is not the truth.  Corruption is a parasite, feeding on society, preventing it from making forward progress.  Businesses that are bled dry from corrupt entities will cease to make investments in growth and expansion, as they are increasingly less rewarded for risks.  Roads and bridges that allow commerce are rarely built.  When they are eventually constructed, they work is so shoddy that it falls apart during the next heavy rainfall.  This, of course, is good for the contractor, who also happens to be the minister who commissioned the road to be built in the first place.

For multinational businesses, paying bribes is part of the expansion process.  And with the BRIC countries – three of which (India, China, and Russia) happen to be among the most corrupt in the world – accounting for much of the growth in this post-Western global economy, gaining access to the billions of people in these fledgling economies means paying bribes.  Among the guilty are some of the world’s largest corporations.

Wal-Mart, for example, just came under scrutiny for paying over $24 million in bribes to obtain construction permits in Mexico.  The stock market responded to the company’s unscrupulous business practices, driving the stock price down 7.5% and causing $17 billion to evaporate into thin air.  But Rana Faroohar of Time magazine explains the conundrum:

The scandal tells you that doing business in the world’s fastest-growing markets can be fraught with peril. Emerging markets now account for the bulk of the world’s economic growth, as well as about 30% to 60% of the revenues at many U.S. multinational firms. Indeed, one of the reasons that the stock market has done relatively well throughout the downturn is that it was buoyed by U.S. multinationals earning more and more of their money in these still relatively fast-growing economies. This is particularly true of packaged-goods and retail firms like Walmart.

Many of these markets are rife with corruption–but graft is not necessarily perceived as a serious crime in some places. It’s more a way of doing business. In Mexico, “the bulk of retailers pay bribes,” says one veteran Mexican fund manager for a large U.S. financial institution. Indeed, Mexican firms are the third most likely to have to pay bribes, right after Russian and Chinese ones, according to Transparency International, an anticorruption NGO.

If that is the case, then how can these multi-national firms enter these markets without playing (or not playing, depending on whose side you are on) by the rules? Dealing with governments where corruption is endemic pose a fundamental challenge to doing business in developing countries.  But the truth is that buying into that system – stock price aside – will only make it worse.  Once a company has established itself as one that is willing to play the game, there is no end.  It is difficult, but abstaining and refusing to pay will be better for the business in the long-run.

There are ways around the system.  The courts, as corrupt as they may be, can be an avenue for justice.  But unfortunately, when time is money, patience can be a financial burden on the business. Still, paying a bribe will be only cause more problems for a business in the future.


Develop Economies’ Music Recommendation