Category Archives: Social Enterprise

Why DIY Foreign Aid Amateurs are Necessary

This is part two of a two-part post about amateurs vs. professional in aid and development.

In my experience, development professionals tend to be a jaded and cynical bunch, but also eternally optimistic, well-meaning, and principled. In one post, a blogger who writes “Good Intentions are Not Enough” (another blog I read and respect) explains what it means to be an “aid professional.” Here are a few:

First and foremost – Do No Harm – whether what we do is right or wrong, we are doing it to the people that can least afford for us to fail.
There is a need for fresh perspectives and a variety of ideas and approaches. However this must be tempered with knowledge of the factors that led to success and failures in the past so the same mistakes are not constantly repeated.
Stick around long enough for projects to have a chance to fail. Then try to stop them from failing and learn from your mistakes.

While I agree with these principles, I don’t think the status quo promotes them. In Algoso’s article, he explains how failed projects sap money from potentially successful projects. Yet Good Intentions is right – we need to learn from mistakes. Some of my good friends in Ghana worked for Engineers Without Borders Canada. One was a mechatronics engineer, another a geoscientist (by training, not profession). The amateurs at EWB Canada even created a website called “Admitting Failure” and held a conference called FailFaire, which is cited by professional development workers as a step in the right direction. To fault “amateurs” for their mistakes, while saying experts should learn from theirs is a bit hypocritical in my opinion.

Regarding the second point – how can experts bring a fresh perspective if they all draw from the same pool of knowledge? Successful projects bring expertise and best practices from many different fields and apply them to development. This is how you bring fresh ideas.

And, most importantly, regarding “do no harm,” I have seen aid projects literally destroy the rural banking sector of a country. In this particular case, it was a multi-million dollar government aid project. Not to mention, the amount of collaboration between aid agencies from different countries is appalling. I once sat in a meeting between aid officials from two governments who found out that they had been training the same group of farmers on the same skills for the past six months and didn’t even know it. Of course, do no harm. But don’t assume that amateurs will do more harm than “professionals”.

In my personal experience, the organizations I have worked with run the gamut from large-scale bureaucratic government aid projects to the one of the most capitalist social enterprises around. And, frankly, the most innovative and effective are the ones founded by development amateurs with a professional background in other fields – the self-taught warriors who bring their insight and skills from other industries to bear on the social sector.

My intention isn’t to say that everyone with a masters degree in international development and a resume overflowing with public sector and development experience is wrong about everything. Clearly, that experience is valuable in understanding context and knowing what has worked and not worked in the past. It is particularly relevant in the policy sphere – designing programs like Bolsa Familia or advising governments on legislation and policy.

Rather, I want them to recognize the critical role amateurs play in this work. They bring new ideas, enthusiasm, optimism, and much-needed skills. They may not always succeed, but, if history is a guide, applications of traditional development theory haven’t produced overwhelming results either. If the CEO of a company had the same track record of results as the development experts during the past four decades, he would have been fired without a second thought.

The second and more important point is that this “leave it to the experts” mentality is far more destructive in the long-run than the trial-and-error nature of DIY foreign aid. Algoso explains that failed ventures take money away from other projects and ventures that might work. This, to me, is a recipe for the status quo – an approach to poverty alleviation and economic development marked by a lack of innovation, fresh ideas, and competition for funding dollars.

Take the Millenium Villages Project – a massive top-down development project thought up by a bunch of “experts” at the Earth Institute at Columbia University. The brainchild of Jeffrey Sachs – one the most influential economist in the world whose commitment to the cause no one can deny – the MVP has been criticized for its high costs and limited impacts. At a cost of $300,000 per village per year, the project achieves modest gains that, frankly, will do nothing to solve the much larger problem of food security in the regions it serves. This, to me, is a good example of an unsustainable project and a waste of money in development.

Among the amateurs, on the other hand, the failure rate may be high, but successes can be far greater. Play Pumps may have been a failure, but what about Kiva? Kiva – an online peer-to-peer lending organization that uses the Internet to connect lenders with borrowers around the world – might the most successful and effective non-profit in modern history. It has more than one million users and has distributed over $250 million in loans to borrowers in 216 countries. The video above, titled “Intercontinental Ballistic Microfinance,” shows a stunning visual displays the movement of Kiva loans around the world. More importantly, unlike Millenium Villages, it is fully financially sustainable – something that is paramount to the founders, who cut their teeth at PayPal. It is a good thing that Matt Flannery and Premal Shah didn’t decide to return to their day jobs and leave it to the experts.

World Vision

For a more tangible example, the first comment on the article is illuminating. It is from someone who works for WorldVision. For those who do not know, World Vision is the organization that distributes the Super Bowl t-shirts in Zambia, and is responsible for undermining the local cotton industry throughout sub-Saharan Africa. This practice is widely reviled by the “professionals,” and resulted in the online castigation of a poor sole from Florida named Jason Stadler who tried to get donations of one million shirts. Apparently, the irony is lost on experts. In any case, here is what the World Vision employee has to say:

This is not something amateurs should be meddling in but unfortunately starting your own non-profit is the new “starting your own business”.It is absolutely petrifying to me that independants are starting nonprofits, especially the often open access some are giving donors to vunerable children. They are also fostering a mentality of donor needs before community desires.

The next comment comes from someone who works in a rural village in Lesotho, who isn’t a fan of World Vision and raises very specific criticisms of the organization:

World Vision! This is one of the worst organizations with the least understanding of local conditions, cultures and solutions; they chase huge amounts of money in the name of religion.

The World Vision employee then gives a puzzling response:

I think you point out something really valid – INGOs make mistakes. We have made mistakes, which we are bound to do after 60 years of working in communities. We are after all a human organization and humans make mistakes and in some circumstances, get everything wrong.

We are encouraged not to hide those mistakes. To talk about them, learn from them and to try not to repeat them. I think that’s why I find it scary to think of a bunch of rouge nonprofits coming in without having lessons learned. Its more about the experience than it it is about credentials.

This, to me, is the essence of the professional aid workers mentality. They condone mistakes made by professionals and condemn them from amateurs. If the professional fails, it is a learning experience. If the amateur fails, it is destructive.

An amateur at work, with Auntie Agnes, a rice trader in Ghana

So here is my advice to anyone who is thinking about quitting their job and taking up the cause of making the world a better place: do it. Don’t hire a professional. Don’t even try to become a professional. Should you read a book or two about what works and think about how you can maximize your impact without being detrimental? Definitely. But be wary of what they tell you, because, for the last 40 years, they have largely gotten it wrong. You don’t need an MBA to start a business, and you don’t need a degree in international development or a job at an aid organization to make a difference.

Ignore the “professionals” telling you to leave this work to the experts. Try something. If you fail, learn from it. If you succeed, share it, and help others to scale. Don’t be deterred by people telling you that you don’t have the experience. Just go out and do it.

Over the past two years, I have seen innovative and creative minds building great things. When I do, I am reminded how refreshing it is to be one of the amateurs.

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The Roots – What They Do by The-Roots

Advice to the Amateurs: Ignore the Professionals

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This is part one of a two-part post about the role of amateurs and professionals in aid and development.

The other day, Develop Economies was asked to move to a different table at the iHub because a European government aid agency would be holding a workshop on gender equality. Grudgingly, he moved. They spent the next few hours coming up with ideas on how to “engage the private sector” to develop programs that would empower women to increase their incomes while turning a profit. If I had to venture a guess, less than a third of the people brainstorming ideas had ever actually held a job outside the civil service. Needless to say, their ideas didn’t seem grounded in practical reality.

If you read development blogs, as I do from time to time, one consistent theme is animosity among “experts” toward to amateurish do-gooders. In 2011, Nicholas Kristof, the voice for the voiceless, wrote a long piece in the New York Times magazine titled “The DIY Foreign-Aid Revolution,” in which he highlights the good works of people who decided to give up their day jobs to come up with solutions to problems in the developing world. The centerpiece is a young lady who develops a low-cost sanitary pad made from local materials for girls who cannot afford or do not have access to other products. It is a great idea and, if executed well, has the potential to prevent girls from dropping out of school.

One of the major criticisms of articles like this is that Kristof typically focuses on a young American protagonist, and fails to acknowledge the local staff and community-based organizations that making the biggest difference. It is a fair point, and this development blogger, for one, has defended Nick Kristof on that very issue on multiple occasions. Yet, this criticism took a backseat to the concept of “do-it-yourself,” amateur foreign aid. The notion that anyone can change the world caused a backlash among a great many bloggers within the development community.

In an article from Foreign Policy magazine titled “Don’t Try This Abroad,” Dave Algoso, a development worker and blogger who writes “Find What Works,” responded with criticism:

Yet Kristof’s headline is: Do it yourself. Bring the same attitude you would have toward re-painting the living room or installing a new faucet. After all, how hard can it be? The developing world is like your buddy’s garage. Why not just pop in, figure things out, and start hammering away?

But in this field, amateurs don’t just hurt themselves. A project that misunderstands the community or mismanages that crucial relationship can undermine local leaders, ultimately doing harm to the very people it was meant to help. There are also opportunity costs when funding could have been used better. Every dollar spent on PlayPumps or an unnecessary orphanage could be spent on other, better interventions in the same communities. My advice is to hire a professional. And if you want to do this work yourself, become a professional.

Despite all my complaints, I think Kristof’s article does some good if it convinces more people to pursue international development as a career. We all start as amateurs. The difference is whether we seek to learn more or assume that we can just start doing something, muddling through as we go. The “DIY foreign aid” concept might spur a few people to launch ill-advised ventures that eat up scarce resources and get in the way of better efforts, but it might also convince a few others to read a couple books, go to graduate school, get jobs with professional aid organizations, and spend their whole careers making a real impact.

I enjoy Algoso’s blog and admire the fact that he has committed himself to this work, but I have to disagree with his main points. He cites the example of PlayPumps, an infamous example of how DIY foreign aid projects can go awry. A South African billboard advertising executive and couple of engineers developed a playwheel to be placed in rural communities that would actually pump water out of the ground as kids played. A huge amount of money was invested in developing Play Pumps and installing them in villages around Africa. Unfortunately, they were expensive and, as with most aid projects, once the funding dried up, so did the maintenance, causing them to lie idle and break down frequently. By most accounts, the organization, while well-intentioned, was a failure.

While many of my loyal readers may have never heard of Play Pumps, the organization actually relates to how I became involved in this work. Back in 2006, when I was 22 and living at home after college, I sat down to watch an episode of Frontline World with my mom. In this episode, Frontline highlighted the works of two fledgling social enterprises that had the potential to put a real dent in poverty in Africa. One of them was Play Pumps. The other was a small tech non-profit based in San Francisco called Kiva. The latter organization was founded by Matt Flannery, a programmer at PayPal, and Jessica Jackley, an MBA student at Stanford – hardly the profile of microfinance or international development experts. At the time, they had a handful of partners in Africa and had built a platform to allow their friends and extended network to lend money to women who did not have access to banks.

I thought it was an amazing idea and, at the time, I thought to my unemployed self: “I’m going to work for them.” Unfortunately, I didn’t know anything about finance, business, computer science, or anything else that might be useful for an organization like Kiva. Plus, I didn’t have any money and couldn’t afford to volunteer. So I took a job in what one might call the private sector and, after three years, applied for a fellowship with Kiva, where I would represent Kiva on the ground at one of their partner institutions. By that time, they had grown to over $100 million in loans and over 100 partners. I flew to San Francisco for a one-week training on microfinance, quit my job, and moved to the Philippines.

Since then, I spent nine months working in microfinance in the Philippines and another six months working in agriculture in Ghana before moving to Nairobi to work for an education company. There is no doubt in my mind that, had I tried to work for Kiva in 2006, I would never have learned certain things that are valued by the organizations I have worked with in Asia and Africa. If I had gone back to school and gotten my masters degree in international development with no real substantive job experience, I would have been all but worthless to the microfinance institution I was sent to work with.

My story is hardly unique. Out here in Kenya, I see former lawyers, software programmers, investment bankers, management consultants, journalists, engineers, college students, product managers, teachers, physicians, and tech entrepreneurs starting and working for very cool companies that are making a difference. None of them are “experts” – in fact, nearly all of them come from the private sector in their previous lives. And if they had taken the advice of some development bloggers, they, like me, would still be at home.

These people are what the development economist Bill Easterly calls “searchers.”

In foreign aid, we see the follies of planners manifest in numerous ways. Mosquito nets, medicine, and food are often traded away to support non-necessities or vices. On-the-ground habits, lifestyles, and environmental conditions often spread diseases faster than medicine or recommended methods can contain them. Even when real, entrepreneurial spirit is successfully channeled, there is often no infrastructure to competitively bring certain products to market.

At the end of the day, the clearest and most simple demonstration of the failure of planners is that after billions of dollars in aid and systematic tweaking, there appears to be no real or lasting change in the developing countries in question (at least, not attributable to aid). In fact, many countries appear to be getting worse.

It seems reasonable, then, that the answers for developing countries can be found by tapping the searchers therein — the entrepreneurs, the missionaries, the workers, the teachers, and the students. Instead of seeing the people in these countries as victims, our policies need to focus on empowering them as individuals. We need to focus on their potential, not their limitations.

The searchers don’t necessarily listen to the professionals. Instead, they came out here – just as the “amateurs” criticized by the community of aid bloggers did – and got to work implementing their own ideas and vision. They seek inspiration and guidance from a broader range of sources. And, for the most part, they have pretty successful, picking up the requisite anthropological knowledge along the way.

In my next post, I will discuss why amateurs bring a fresh perspective to development, and why that is so important.

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Thoughts on Rugged Altruism

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One sign that the U.S. political scene has reached rock bottom is David Brooks writing one of his weekly columns about development workers in Nairobi. In “The Rugged Altruists,” Brooks discusses the virtues possessed by three smart, young development workers in the course of doing this work.

The first is courage – a willingness to move to a place foreign in all senses of the world. They go to learn about what they don’t understand, and put themselves in situations for which they have no paradigm. Through this process of immersion, the come out stronger on the other side, more well-rounded and knowledgeable about a new culture.

The second virtue is deference, which Brooks describes as “the willingness to listen and learn from the moral and intellectual storehouses of the people you are trying to help.” People often come in thinking they know the answers to the problems they’ve come to try to solve. Quickly they realize how little they actually know – a multitude of cultural nuances and specific, sometimes heartbreaking fundamental barriers they never could have imagined exist. The adaptable ones step back and take a moment re-calibrate their expectations, before approaching the situation from a different angle. They accept what they don’t understand – context – and seek out teachers to show them the way.

The last and, in Brooks’ opinion, most important virtue is thanklessness. When there are no prizes for first place, nor much recognition at all for a job well done, the work becomes a labor of love, driven by passion more than anything else. Sometimes the problems are so great that incremental improvement becomes the barometer for success. Will it change the world? Probably not. But it will make a big difference for a few people – maybe even a whole community – and that is laudable.

These virtues exist everywhere I’ve been. The IT manager at the MFI I worked for in the Philippines used to tell his team of programmers that they should strive for anonymity. No one acknowledges the IT department unless something goes wrong. Yet, without their work, the organization could not function as well as it does. Leaving a legacy in the form of perfection, where no one realizes the importance of your work, is the ultimate goal.

In Ghana, my Ghanaian coworkers would stress about how it was a travesty that the rice farmers they worked with had no market for their paddy, or that the largest juice processor rejected an entire harvest of pineapples because they’d mismanaged the finances at the company. My closest friends worked for Engineers Without Borders Canada, an admirably driven group committed to making agriculture more competitive in Africa. On one memorable occasion, over a few Stars, a few of them were talking about how much shit pigs could eat. “Back in the village when I had typhoid, I was shitting outside my hut every ten minutes. Every time I went outside, it was gone.” Another day, another dollar.

Now, in Kenya, the mixture of talent and principles on display is unlike anything I’ve ever seen. On a daily basis, I meet people who, within the development community, are legendary for changing the paradigm altogether. It is an easy place to feel inspired.

A farmer with One Acre Fund

I think Brooks nails the virtues. But these virtues are not necessarily elemental. People are always looking to challenge themselves in different ways, and putting yourself in an unfamiliar situation where you have to rely on your wits and judgment to figure out the right moves is not uncommon for any young person I think. Showing deference to people more knowledgeable is certainly a virtue learned through experience, but it is also common sense. And thanklessness, to me, comes with the territory. In the beginning of the article, he segments development workers into the ones making a difference and those just taking up space. I have my own opinions about what works and what doesn’t, but I think it is unfair to make judgments about the latter. Everyone is out here for different reasons, but a common denominator is the belief that you can make things better, which is a noble motive. Some people are doing a better job than others, but everyone is trying.

The broader goal of achieving perspective is important. Escaping the bubble that influences the way you see the world and surrounding yourself with people who bring to bear a set of life experiences completely different from your own expands your own worldview. Being somewhere different from where you were formed influences your political and religious views. Basic fundamental values, concepts of right and wrong, should be malleable in the face of new information. Pursuit of different perspectives – which are often radically different in places where the value system is defined by forces you’ve never encountered – offers the chance to truly empathize with people, based on tangible experience rather than abstract ideas.

I see the virtues Brooks highlights in his column everywhere I go. Everyone shares these virtues, but probably doesn’t ever actulaly think about them (with the exception of deference). There also people hungry for perspective, trying to understand how everyone else thinks and learn how the world works. That is probably what makes people on the road so interesting.

The Myths and Realities of Impact Investing

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“[Africa] is a wonderful place to really make money. We have one billion people hungry for everything.” Mo Ibrahim

A friend posted an article on his Facebook wall titled “Why Social Impact Investing is a Crock,” leaving much to the imagination. Here is an excerpt:

Over the last decade the world of do-gooding has seemingly been taken over by MBAs. Social entrepreneurship, a field encompassing both mission-driven businesses and entrepreneurial nonprofits, professes to bring the efficiency, rigor, and cold, hard metrics of business to the most important causes on the planet. Does it really? Not so much, says Dean Karlan, author of the recent book More Than Good Intentions. “The social entrepreneurship world is in a weird spot, to be honest with you. It’s a world full of rhetoric about impact investing, yet I have very rarely seen an investor actually take that seriously. When you look at the actual analysis it lacks rigor.” He distinguishes between the type of scientific research done by his lab, Innovations for Poverty Action, with trials complete with control groups, and the type of data collection done in the vast majority of the nonprofit world, which is nothing more than a “monitoring exercise.”

I think both Karlan and the author have the right idea, but for the wrong reasons. Later in the article, Karlan explains why the cost of doing a rigorous impact analysis is cost prohibitive for an investor who is focused on financial returns, with impact studies accounting for as much as a third of the investment. I think the title of the article is excessive and meant to be provocative, but the argument is defensible.

The other day I listened to a presentation from Kentaro Toyama, one of the eminent thinkers in ICT (information, communication, and technology) for development (ICT4D, for short), a school of thought that sees technology as the silver bullet in ending poverty. His talk was titled “ICT or Development: Why it’s so hard to get rich and help the poor simultaneously.” It was also meant to be provocative, but for a different reason. Toyama’s point is not that the absence of verifiable impact makes impact investing a crock. Rather, he contends that it is difficult, if not impossible, to get rich by providing socially-beneficial goods and services to the base of the economic pyramid. You can get rich selling products to the poor, but they won’t necessarily be good (alcohol, tobacco, soda, etc.). Conversely, you can sell products that will address a social need (solar lanterns, cookstoves, etc.), but you won’t get rich doing it. He challenged the audience to come up with an example, and explained why his thesis holds in each case.

There is a myth of a fortune at the bottom of the pyramid, according to Toyama. At least, that fortune is purely measured in market size and raw purchasing power. It should not be confused with an opportunity to offer products that alleviate poverty and make a bundle to boot. The rural and even urban poor are difficult markets to serve profitably. A disparate and sometimes non-existent supply chain makes getting products in the hands of consumers a challenge even for the biggest multinationals. Branding products for the poor, or subsidizing them, makes them less appealing to the middle class, who might pay more and create cross-subsidization opportunities (on this point, I think he is wrong, having seen the same solar lanterns we were selling to microfinance clients in the Philippines being sold in malls in Manila for twice the price). Not to mention, selling products to the poor is not going to help them out of poverty. Employment, in the form of manufacturing and labor-intensive work, is the key to growth. In short, it is possible to serve a social cause, and it is possible to make lots of money selling products to the poor. But to do both simultaneously? Very difficult.

My friends and I discussed the talk over lunch. Most felt that the talk was good, but thought Toyama oversimplified a complex topic, creating a dichotomy that practitioners don’t really subscribe to. Anyone who honestly thinks that you can make serious money – young-rich Silicon Valley money – by selling socially-conscious products and services to the poorest segments of the world population is clearly dreaming. So that conversation should be a non-starter. You can make money, sure, and you do a lot of good, but if you’re goal is to get rich, then you are in the wrong business. For that reason, we all concluded that the talk wasn’t meant for people like us. It was meant for the people in Silicon Valley who have become a little too excited envisioning that Venn diagram.

During the talk, I asked Toyama what he thought of social impact investing. Basically, he thought it went through a period of irrational exuberance, where people thought they could make high returns and serve a social good, before dipping once people realized that was not the case. It has made a slight resurgence, as people have checked their expectations and come to sacrifice financial returns for social impact. What Dean Karlan and Kentaro Toyama have in common is that they both believe that it is very difficult to both make good money and help the poor. Karlan thinks the social impact of many investments is unproven, while Toyama thinks the social impacts are fine, but making money is a challenge.

The legacy of Mo Ibrahim

I happen to disagree with both. Ten years ago, a telecom industry in Africa barely existed. Today, most of the population, regardless of whether they are living in poverty, owns a cell phone. When I brought up this point, Toyama says that the telecoms are entirely profit-oriented, and could care less about helping the poor. Someone earning a dollar a day, for example, will think nothing of spending a quarter on a ringtone. But to say that the development of a mobile network that connects the most remote parts of Africa to the rest of the world has not helped the poor by several orders of magnitude is crazy. It is ironic to me that people interested in this developing products for the poor always leverage the cell phone revolution in Africa, but never seem to give it any credit for laying the groundwork for real, substantive change and improvement – moving the needle over generations, rather the 2-3 year time periods for the randomized control trials being used to measure impact. (My intention here isn’t to write off RCTs – rather to say that maybe there is a broader way of looking at impact).

There is often a paternalistic attitude (not necessarily among people like Toyama or Karlan, but others less in the know) toward serving the poor. People try to engineer outcomes, and are dismayed when someone spends the extra income from the dairy cow they bought with help from a microfinance loan on booze, cigarettes, and fast women. Judge not, I say, lest ye be judged. After all, in the words of Devin the Dude, “you only get one ticket, might as well enjoy the ride.”

Creating more opportunities should be the barometer of success in serving the poor. Microfinance was about providing access to financial services, which it did. It has given poor people a place to save their money and borrow money to smooth their irregular consumption. It created opportunities that did not exist. In a much less outwardly altruistic example, connecting Africa to the world and putting a cheap cell phone in the hands of every African is helping the poor and making a killing. If the poor then spend the school fees on ringtones, that is their discretion. But creating opportunity – in the form of infrastructure or technology – is what moves the needle.

That is why, in my opinion, social impact investors need to move in one of two different directions. They can either expand the definition of social impact beyond the “directly reach a million poor people” definition that exists today, and accept the fact that there is highly profitable companies that serve a social cause and are specifically targeted at the poor are few and far between. Or, they can accept the fact that the returns will be marginal, but the intangible social value created by the product will significantly exceed the financial opportunity cost. Either way, the current narrative that you can make lots of money and serve the poor at the same time (rather than serially, like Bill Gates, as Toyama suggests) is dangerous.

But where's the impact?

It is dangerous because it breeds unrealistic expectations and creates resentment when they fall short (“Impact investing is a crock! Those assholes lied to us!”). Social entrepreneurs shouldn’t feel like they have to be 100% financial sustainable to be successful. That is a nice-to-have, but there are billions of dollars being spent very poorly on development projects right now. Money is not an issue (Kiva, for example gets money with 0% returns) – impact is the problem. Similarly, investors shouldn’t measure success by the direct impact on the lives a certain number of poor people, or hitting specific targets in living standard improvement. They should invest in Africa, but do it responsibly. Stay away from oil, cigarettes, alcohol, or any other product that has a net-negative social impact, and focus on telecommunications, manufacturing, or even natural resources (so long as workers are treating well). Investment will generate employment, which, as Toyama says, is the real engine of poverty alleviation.

Until people recalibrate what it means to a) make money, and b) have an impact, and convey these goals honestly, I’m afraid social impact investing will continue to fall short of the expectations and face the same circular firing squad that has plagued other “silver bullets”, like microfinance. I think real social entrepreneurs and impact investors understand this push-and-pull. But Toyama’s intended audience is probably less informed about the realities on the ground, which is why he was giving the talk in the first place.

Technology Evolution and Revolution in Africa

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Chances are you have never heard of the company Huawei. Founded in 1988, this somewhat secretive Chinese company has become the fourth largest telecoms equipment and service company in the world, just a few billion in revenue behind Nokia. Huawei, with Chinese handset manufacturer ZTE, have prime access to China’s $59 billion 3G market that continues to grow exponentially. But, as with other Chinese firms, Huawei’s global aspirations in the 1990’s took them to Africa to build the growing telecom infrastructure. The industry, led by Bharti Airtel and other innovators determined to tap into the raw market potential of the African consumer, grew in part due to the physical infrastructure built during this period. Judging from the fierce price wars raging across continent, the investment turned out to be a smart and profitable venture.

Huawei has built up much of the 2G and 3G infrastructure in East, West, and Central Africa, and supplies the hardware for most of the USB modems in Africa. Now, it has developed a Android smartphone called the IDEOS, which is selling out of stores in Kenya. At less than $100, including $25 of free airtime, it is the cheapest smartphone on the market. This is in a country where 40% of the country lives on less than $2 a day, yet the cellphone penetration is now at 63% majority of the money is moved by MPESA, the mobile money service run by Safaricom, the biggest telecom in Africa.

For the last few weeks, I have been working out of shared working space for software developers and entrepreneurs called the iHub. It is the beating heart of the Nairobi tech scene; a place where young smart developers, engineers, and business development people come together to collaborate and raise the bar. Last week I had to move from where I was working because the “Open Data Evangelist” from the World Bank came to the iHub to give an impromptu pitch to the Kenyan software developers to develop applications to keep tabs on government spending and corruption. To tap into the tech scene of Nairobi, people come to the iHub.

In this environment, surrounded by Android developers, it would’t be unreasonable to assume that the IDEOS phone is going to revolutionize Kenya, if not all of Africa. A Google Android phone with 3G wireless internet that is affordable for the typical African consumer will do more for productivity, communication, information transfer than any other technology innovation on the market today. And, given the rabid levels of competition within the telecom sector in Africa, the price point of the IDEOS phone is the high mark – it can and will come down as more and more companies enter the fray.

The IDEOS phone has been very successful for several reasons:

The $100 Android phone has likely been a hit in the East African country due to the following factors:

Its affordability made it within reach of Kenyans, giving them the option of having a cost effective phone with premium features. The phone runs on Android 2.2 with a touch screen, has up to 16GB storage and has the ability to be transformed into a 3G Wi-Fi hostpot that can connect up to 8 devices. Currently, Kenyans have access to all these features and more for a hundred dollars or less.

In addition, its strategic partnership with leading Kenyan telecommunications firm, Safaricom as the phone’s main distributor and marketer also likely helped facilitate its fast adoption.

At present, most cellular phone users in Kenya use feature and low end phones. IDEOS’ fast adoption rate in the country could hopefully boost smart phone adoption rates by making it accessible to Kenyans who had previously been priced out of the market.

These reasons make a lot of sense, as they would in any free and developed market. But it is important to remember this is Africa. C.K. Prahalad, the famous management thinker, wrote Fortune at the Bottom of the Pyramid, which discussed the incredible market potential offered by the poor and low-income classes in the developing world. His book and subsequent work drew attention to the vast opportunities that exist in countries with a low per-capita GDP but a high population levels, particularly when they are concentrated in urban slums, as in Bangladesh, India, Nigeria, or Kenya. At the time of the book’s release in 2004, mobile penetration in Africa was less than 10%, and a cell phone might cost several hundred dollars, before even buying a plan. Data was out of the question, of course, as it was for the rest of the world.

But mobile communications took off, and did so in the face of some most credible prognosticators who thought that any cell phone access, much less cheap and ubiquitous continent-wide coverage, was a fantasy. In fact, Prahalad, the “base of the pyramid” visionary who saw profit potential where others saw a basketcase, had this to say about telecommunications in Africa only two years earlier in an article titled “Serving the World’s Poor Profitably” from the September 2002 edition Harvard Business Review:

It’s true that some services simply cannot be offered at a low-enough cost to be profitable, at least not with traditional technologies or business models. Most mobile telecommunications providers, for example, cannot yet profitably operate their networks at affordable prices in the developing world.

That article is almost exactly ten years old, written in the wake of the Internet bubble and at a time when Africa countries were recovering from deadly civil wars in Rwanda, Sierra Leone, and Liberia. If Mr. Prahalad were alive today, I am sure he would appreciate that, only a decade after he expressed doubt about an African telecom sector, a Chinese manufacturer of telecommunications equipment had partnered with a technology giant from Silicon Valley to develop a phone that offers high-speed internet access outside the urban centers at a price point the middle class can afford.

But this is the story of Africa, or, at the very least, Nairobi and the other burgeoning urban centers around the continent. I am a biologist by academic background (though somehow I ended up across the world as a business analyst for a chain of schools). Stephen Jay Gould, the legendary evolutionary biologist, developed a theory called “punctuated equilibrium,” which maintains that evolutionary change occurs rapidly, in geologic terms (i.e. a million years is short), followed by long periods of of stasis, or equilibrium. On a macro-scale, the theory explains why evolution of the organism occurs suddenly (the movement from water to land, for example), as opposed to in a progressive, linear fashion. Applied in a cultural and social context, the theory might explain something like the technology and mobile revolution in Africa, with the caveat that the period of equilibrium is in the past.

For decades in Africa, communication was slow or non-existent, information was tightly controlled by autocratic dictators, which kept their populations in the dark about the deep corruption and injustice perpetrated on their watch. Most of the people were poor, making it nearly impossible to provide basic human services, like sanitation and adequate health care, or profitably provide access to financial services. Remember that C.K. Prahalad’s concept of “fortune at the bottom of the pyramid” was considered to be breakthrough innovative thinking by all but a prescient multi-nationals and sovereign investors like China. And that was in 2004! Now, the continent is wired. Everyone has access to financial services through M-PESA and the other mobile money providers. Information is accessible through basic mobile phones and the next generation of super-cheap smartphones that are likely to become ubiquitous in the next five or ten years. A continent that once had a dearth of information transfer will soon have instant access to Google, Wikipedia, Facebook, and Twitter. The revolutions in Egypt and Tunisia wouldn’t have been possible without mobile phones and the Internet. Now, Kenya’s government – by most indicators one of the most corrupt in the world – has posted all of its data online for any knowledge-hungry developer to tap into. E-commerce, mobile commerce, and app development are growing exponentially. Africa is now home to some of the fastest-growing economies in the world.

It is this biologist’s opinion that Africa is moving from a period of equilibrium toward an evolutionary jump, with technology as the catalyst for systemic change. The paradigm has shifted, and the deep and broad telecom infrastructure has laid the groundwork for a revolution. Africa’s technological evolutionary paradigm will be different. It skipped the land line and went straight to the mobile phone. It skipped the desktop computer and adopted the laptop wholesale instead. The community bank became irrelevant with the creation of branchless banking in Kenya and other countries through Africa. In our modern world where cartography seems about as relevant as sanskrit or alchemy, much of the continent is not even mapped. Fortunately, Google MapMaker allows residents to map their own communities, effectively crowdsourcing a massive undertaking very simply using technology. And just two weeks ago, Huawei, the Chinese manufacturer that triggered the smartphone revolution, released the IDEOS tablet PC, only a year after the release of the iPad. The evolution here moves quickly, as it builds on existing innovations from the developed world and adapts the technology to fit the African context, which is, in many ways, unique.

I bought the Huawei IDEOS phone after a week in Kenya. I have never owned a smartphone, and wanted to understand how this phone that everyone is talking about is going to change the game. I went to three stores – it was sold out at the first two – before I could buy one. It is fast, it easy-to-use, and the law of technology pricing says that the inevitable trajectory points down and down. Being here feels like being in ground zero at the start of something big, and, insha’allah, I will continue to chronicle the tech-driven transformation that will define Africa for the next decade.

Mobius Motors and Game-Changing Technologies in Africa

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Problems generally have a cause and an effect. Trying to solve a problem by focusing on the effects may reduce the impact, but, if the solution fails to address the underlying issues that make it a problem in the first place, the problem will continue to exist. In Africa, there is no shortage of people trying to address the effects of systemic problems without taking into consideration the root cause. The best example is food aid, which fights hunger and reduces malnourishment in the short-term, but ultimately creates dependency among recipients and undermines the domestic agriculture sector, further reducing the local food supply. By addressing the effects, rather than the cause, traditional food aid ends up exacerbating the problem.

There are fewer examples of companies and organizations targeting the underlying the issues that lead to systemic change, but the ones that have been successful have changed the world. Mo Ibrahim is a Sudanese-British mobile communications entrepreneur. He founded the company Celtel, a telecommunications company that has sold 24 million mobile phone subscribers in 14 African countries, and, in the process, catalyzed the mobile revolution in Africa. Before Ibrahim, no one believed that Africa could be a profitable market for mobile phones and cellular technology. By proving the the concept, Ibrahim spurred the creation of a telecom sector in Africa with price wars that make the U.S. market look like a state-run monopoly. In doing so, Ibrahim and Celtel addressed the fundamental problem of communication, making every industry in Africa more competitive on a global scale. (An interesting sidenote: Ibrahim later formed the Ibrahim Foundation and launched the Prize for Achievement in African Leadership. $5 million is awarded each year to an exemplary African leader who promotes peace and democracy, but only if there is an acceptable candidate. According to Ibrahim, “good governance is crucial.”)

Another game-changing technology is mobile money. In 2007, Nick Hughes, a former Vodafone executive, pushed the company to invest in a technology in Kenya that would allow people to transfer money via mobile phone. That technology would ultimately become M-PESA, a mobile money transfer service offered by Safaricom, in which Vodafone owns a major stake. Today, M-PESA has 14 million subscribers representing 81% of Safaricom’s subscriber base and 13% of the company’s revenues. Safaricom, which has ~70% market share in Kenya, has faced intense competition amidst a price war with other telecoms. Yet, M-PESA revenues have still increased by 50% every single year since 2008. In the Philippines, SmartMoney and G-Cash followed the same path. Through mobile money, Hughes and others addressed the fundamental problem of providing financial services to the unbanked. Now, people can transfer money, pay their bills, and save for the future using only their mobile phones. Mobile money is still young, and the rippling effects it will have on emerging market economies beyond Kenya and the Philippines remains to be seen.

Hello Mobius

This past weekend I met the founder of another company that is trying to address another fundamental problem in the developing world: mobility. Mobius Motors, based in Mombasa, has the modest goal of revolutionizing transportation in Africa. Here’s how:

Designing and building affordable, fuel-efficient vehicles for developing regions in Africa, Mobius Motors is galvanizing a different, equally important revolution in transportation. Recognizing that the majority of people residing in remote and rural parts of the continent have no access to transit, the company predicts that great strides in economic development, education, sanitation, etc. will come when more people have mobility.

Mobius’ goal is provide enough cheap, off-road-capable vehicles — they look a lot like mini Jeeps — to build a reliable public transportation system. The company believes that this will allow for better access to schools and health clinics, expedite profitable agricultural activities, foster small businesses, and even empower women who spend so much of their time walking to collect water and firewood.

But Mobius’ ambitions have even broader implications for the world’s changing transportation system. Now that more developing countries are industrializing at a breakneck pace, rapid car production is becoming more important than ever. Look no further than China, where automotive demand has spiked. But the world’s climate can’t afford another stretch of dirty industrialization. The cars built to satisfy this voracious demand need to be different: lighter, smarter, vastly more efficient but with comparable utility.

Goodbye Matatu

Mobius is trying to reduce the cost of manufacturing to an absolute minimum by stripping away everything it considers unnecessary for a car designed for the African bush. It is creating its second prototype, which is made from off-the-shelf cost-efficient materials and is frill-less, without like air-conditioning or glass windows. The cars are modular, meaning they can be adjusted to suit any purpose – transporting crops to market, carrying passengers from the rural areas to the cities, or providing an alternative to the ubiquitous matatu system, which is going to be phased out over the next decade. Right now, access to urban areas and centers of trade and commerce is a major impediment to people in the rural areas. This is creating a process of urbanization in Kenya that is seeing a mass migration of rural dwellers into the cities. If the Mobius car provided a cheap means of transporting goods and people to and from the cities, people living outside the cities will have more and more options and perhaps slow the rate of urbanization. Think about your own life, and think of all of the ways that transportation makes your life easier and more convenient. That is what the Mobius car has the potential to do for Africa.

To my mind, the Mobius car, like mobile money and the African telecom sector, is a bit like the iPhone. It is a basic platform upon which to build something greater. The Mobius cars will improve mobility, but it may be in ways that no one envisioned. Right now, there is a fundamental problem of mobility in parts of Africa. By addressing this problem, Mobius could very well achieve its goal of revolutionizing transportation in Africa. The ripple effects in other sectors could be huge.

Last year, Next Billion interviewed Joel Jackson, the founder of Mobius Motors. Here is what he has to say about the company:

I founded Mobius to change the world. Not by making wealthy economies wealthier but by mobilizing emerging markets, starting in Africa. Effective transport underpins development but sadly is often overlooked. It provides access to education, healthcare, markets and employment. It connects families with loved ones and supports the exchange of products, services and ideas. Imagine your life without transport for just one week. How would your children get to school, how would you get to work, what would you eat and what would you do in a medical emergency? Although developing-world transport presents a huge market opportunity it also suffers from acute market failure with misaligned products and services. Mobius aims to readdress the transport imbalance and mobilize the developing world. This is a vision worth dedicating my career towards, which is why I do what I do.

Very cool stuff.

mHealth in Northern Ghana

M-PESA and Mobile Money in Kenya

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I’ve now been in Nairobi for two weeks and have settled in well. I moved into my fairly upscale apartment in Kilimani, a section of Nairobi that is the beating heart of the tech and social enterprise scene here. Up until last Saturday, I was sleeping on a mattress on the floor. The landlord wanted to deliver a new bed frame, so I needed to let the movers into the apartment. It was a total gong show getting this frame up the stairs, and I had to help them move it. When it was all done, I was instructed to call the landlord and confirm that the job was finished. After I hung up, the phone of the lead mover made a sound, they all smiled and went on their way. In the ten seconds that elapsed after my call, the landlord successfully paid the movers via M-PESA, the ubiquitous mobile money platform in Kenya.

For those have never heard of mobile money, it is exactly as it sounds: money that can be transferred from on cell-phone to another via an SMS platform. The most popular platform is called M-PESA, offered by Safaricom, the leading telecom provider in Kenya with almost 80% market share. Created in March 2007, M-PESA is a dominant force in the country. As of late 2009, an estimated two-thirds of the households in Kenya had at least one person using M-PESA. A recent report titled “Mobile Money: The Economics of M-PESA” details a research effort that surveyed 3,000 users. Here, the authors, William Jack and Tavneet Suri, describe the model:

Safaricom accepts deposits of cash from customers with a Safaricom cell phone SIM card and who have registered as M?PESA users. Registration is simple, requiring an official form of identification (typically the national ID card held by all Kenyans, or a passport) but no other validation documents that are typically necessary when a bank account is opened. Formally, in exchange for cash deposits, Safaricom issues a commodity known as e?float or e?money, measured in the same units as money, which is held I an account under the user’s name. This account is operated and managed by M?PESA, and records the quantity of e?float owned by a customer at a given time. There is no charge for depositing funds, but a sliding tariff is levied on withdrawals (for example, the cost of withdrawing $100 is about $1).

E?float can be transferred from one customer’s M?PESA account to another using SMS technology, or sold back to Safaricom in exchange for money. Originally, transfers of e?float sent from one user to another were expected to primarily reflect unrequited remittances, but nowadays, while remittances are still a very important use of M?PESA, e?float transfers are often used to pay directly for goods and services, from electricity bills to taxi?cab fares. The sender of e?float is charged a flat fee of about 40 US cents, but the recipient only pays when s/he withdraws the funds.

It is effectively a system of cashless payments and money transfers without the need for a bank account. In essence, it functions as either a replacement for or a compliment to a traditional current account. Much of the country, however, has limited access to bank branches or ATMs, making M-PESA the alternative to opening an account with a bank that may be located far away.

Customers can register for service on their phones and deposit money at one of the 25,000+ agents located throughout the country. Agents can be independent retailers, stores, or any other business establishment. The person gives the money to the agent, who then transfers the e-money to their phone. The person can then transfer money to another M-PESA user or pay for goods or services rendered from a business. Some people use it to pay school fees, or electric bills, or even taxi fare.

The impact on the country has been significant, and will continue to be a model for future mobile money programs. According to the authors, M-PESA has had several rippling effects that have changed the way the country operates. Continue reading →

The Economics of Solar Lanterns with Mobile Charging Stations

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Develop Economies is back after a brief hiatus. I have finished up my work on my current project and am now taking some time to appreciate some of the aspects of Ghana I hadn’t had a chance to enjoy previously. I spent a few days living with a rice farmer about 45 minutes by motorbike from Atsusuare in a small community along a lake fed by the Volta River. I did some work in the field (very minor – I can’t say I’m a great farmer), came across two cobra snakes, and biked an hour each way to the next village with electricity to charge my cell phone and camera. It was the first time I have ever actually experienced rural living, with no electricity, no running water, limited transportation (you have to call a motorbike to pick you from the neighboring town), and the persistent threat of snakebites, malaria, and other calamities that hang around waterlogged fields of paddy rice. I have discussed on this blog the different solutions to the problems of rural energy delivery and distributed power generation, to the problem of inefficiency of burning charcoal and the use of clean-burning cookstoves, and others. But I had never actually seen any of it or experienced it with my own eyes.

In terms of solar lanterns with mobile phone charging capacities, there is a huge need. People have to travel an hour each way to get to the nearest community that is connected to the grid. Once there, they have to pay 50 pesewas (about 30 cents) to charge their phones, and need to wait for two hours for the charge to complete. They do this routine three times a week. That means that 12 hours out of every week are spent on the activity (unless they couple it with a trip to the market, where they may also have electricity, or to see Manchester United play Chelsea, which is also necessitates the trip). That is 12 hours of lost productivity, plus $1.20 for charging the phone each week.

For lighting, they use battery-powered lanterns, which provide a lot of good light. They cost 3 Ghc (~$2) and require two batteries, which cost 80 pesewas (~$0.50) for the pair. The batteries last for three weeks. So, the upfront cost of the lantern is low, but the all-in cost per year is closer to $15. That is relatively low for a quality source of light, and has a low weekly cost, which is amenable to the cash flow of farmers and other people living in rural communities and working in the informal sector. Continue reading →

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