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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Dambisa Moyo: Right and Wrong About China in Africa

Dambisa Moyo recently wrote an op-ed in the New York Times asserting that the surge in investment by China in Africa has been a positive development for the continent.  A lot of people take issue with Moyo’s oversimplification of highly complex problems, sweeping generalizations, and lack of analytical rigor.  I tend to agree with many of her points, as I have discussed in this blog, with the exception of a few critical assertions.

First, Moyo, the development economics pugilist who believes that foreign aid undermines democracy and growth in the third world, discusses China’s motivations for investing in Africa, explaining why, unlike other exchanges between governments, it is a mutually-beneficial relationship between two countries:

Despite all the scaremongering, China’s motives for investing in Africa are actually quite pure. To satisfy China’s population and prevent a crisis of legitimacy for their rule, leaders in Beijing need to keep economic growth rates high and continue to bring hundreds of millions of people out of poverty. And to do so, China needs arable land, oil and minerals. Pursuing imperial or colonial ambitions with masses of impoverished people at home would be wholly irrational and out of sync with China’s current strategic thinking.

Moreover, the evidence does not support a claim that Africans themselves feel exploited. To the contrary, China’s role is broadly welcomed across the continent. A 2007 Pew Research Center survey of 10 sub-Saharan African countries found that Africans overwhelmingly viewed Chinese economic growth as beneficial. In virtually all countries surveyed, China’s involvement was viewed in a much more positive light than America’s; in Senegal, 86 percent said China’s role in their country helped make things better, compared with 56 percent who felt that way about America’s role. In Kenya, 91 percent of respondents said they believed China’s influence was positive, versus only 74 percent for the United States.

Moyo is correct about China’s motivations.  As the world’s manufacturer and home to one of the fastest-growing consumer classes in the world, they have an insatiable demand for raw materials to ensure their factories are running.  Oil, natural gas, timber, and other materials are abundant in Africa and available to the highest bidder.  In the colonial era, European countries divided up Africa along arbitrary lines at the Berlin Conference, and used the newly-created countries as repositories raw materials without regard for the native populations.  As a result of severe mismanagement on the part of the colonial powers and poor governance after independence, populations not only saw none of the rewards of the natural resources taken from their countries, they were penalized in the form of inflation as one country after another succumbed to what is known as Dutch Disease, or the natural resource curse.

China, in contrast, frequently trades in-kind with African governments, building roads and hospitals in exchange for exclusive resource contracts.  By improving infrastructure and delivering results, the Chinese largely circumvent the traditional channels of corruption – no-bid contracts with firms started by politicians, for example – and ensure that the people benefit.  I saw this firsthand when driving along Thika Road, one of the largest Chinese infrastructure projects in Sub-Saharan Africa, which cut a two-hour commute down to 30 minutes for a huge number of people working in Nairobi.  I have written in the past about the impression these developments have left on Africans.  There is little doubt in my mind that, despite bouts of shady activity, the Chinese are a positive force in Africa.

Had Moyo stopped there, we would have been entirely in agreement.  But, I think she has a tendency in her essays and her books to view the world in binary, drawing clear lines of causality amid complex systems.  In the op-ed, she assigns blame for Africa’s governance problems on the influx of aid, which supposedly undermines the ability of the people to hold their leaders accountable for failures of government.

China’s critics ignore the root cause of why many African leaders are corrupt and unaccountable to their populations. For decades, many African governments have abdicated their responsibilities at home in return for the vast sums of money they receive from courting international donors and catering to them. Even well-intentioned aid undermines accountability. Aid severs the link between Africans and their governments, because citizens generally have no say in how the aid dollars are spent and governments too often respond to the needs of donors, rather than those of their citizens.

In a functioning democracy, a government receives revenues (largely in the form of taxes) from its citizens, and in return promises to provide public goods and services, like education, national security and infrastructure. If the government fails to deliver on its promises, it runs the risk of being voted out.

The fact that so many African governments can stay in power by relying on foreign aid that has few strings attached, instead of revenues from their own populations, allows corrupt politicians to remain in charge. Thankfully, the decrease in the flow of Western aid since the 2008 financial crisis offers a chance to remedy this structural failure so that, like others in the world, Africans can finally hold their governments accountable.

This is a relatively common theory of why Africa’s leaders are so unbelievably corrupt.  But I disagree for several reasons.  First, it shifts the blame from corrupt politicians to the supposedly enabling factors that entice them to steal.  This is ridiculous.  Corrupt leaders – African or other – steal because they are bad leaders and, I would say, bad people.

Results from the Corruption Perceptions Index

The fact that foreign governments provide the money for the education system does not mean that politicians are obligated to steal it.  They could, for example, use to it to build schools and pay teachers.  But, unfortunately, they often don’t, opting to steal the money instead.  This isn’t always the case, as Ellen Johnson Sirleaf in Liberia, John Atta Mills and Ghana, and other good democratic leaders have shown.  But, when it does happen, the donors are not to blame.  The blame rests solely with officials – elected and unelected – who chose to steal the money.

Second, Moyo believes that if countries stop giving foreign aid to corrupt governments, those governments will cease to be able to provide basic services to their people.  The people, in turn, will then rise up to overthrow the government, replacing it with a better, more honest government.  In theory, this is how democracy works.

In practice, the reason African leaders are not held accountable has less to do with foreign aid and more to do with their unwillingness to relinquish power after their term has ended.  In the days of the cold war, when the U.S. and Soviet Union purchased influence from corrupt autocrats like Mobutu Sese Seko in Zaire (now the DRC), you could possibly make this point.  But, today, I think that is hardly the case.  Take Zimbabwe.  Robert Mugabe violently represses all dissent, and has remained in power for 30 years.  His longevity has nothing to do with his ability to deliver services to his people (he doesn’t).  Laurent Gbagbo in Cote D’Ivoire killed hundreds of people to stay in power (he didn’t).  In the last year alone, the president of Mali, Ahmadou Toumani Toure, was overthrown in a coup, and the president of Uganda, Yoweri Museveni, brutally repressed protesters and political opponents.  Today, the leading candidate for president in Kenya, Uhuru Kenyatta, is currently on trial at the Hague for war crimes.  He was sent to the ICC for his role in the post-election violence of 2007.  If he is elected, it will have nothing to do with foreign aid.

In contrast, one leader who cites Dambisa Moyo as a offering a model path for Africa is known for systematic repression of dissent.  Paul Kagame, the president of Rwanda, has undoubtedly done great things for the country, in terms of economic development, healthcare, and other public services.  But his record on human rights has been questioned, at best, making his actions difficult for some stomach.  (As a caveat, the reasons underlying Kagame’s approach to governance are complex and can be discussed in another post.  My intent is not to take a stand – only to show that it is not cut-and-dry.)

The fact is that Chinese investment in Africa is a good thing.  But to draw a straight line of causality connecting foreign aid with prevalence of corruption and malfeasance in government is ludicrous.


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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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HIV-Positive in Philadelphia vs. Uganda

“What does it mean to say that one life is “worth more” than another? Aren’t all lives infinitely precious? Well, no, at least not in any sense that’s at all useful for making hard policy decisions about things like job safety and access to medical care.

Economists measure the value of a life by people’s willingness to pay for safety. Suppose you’d willingly cough up $50,000—but no more—to shave one percentage point off your chance of being killed in an accident. Then (except for some technical adjustments I won’t go into) we infer that the value of your life is 100 times $50,000, or $5 million.”

In economics, everything must have a value attached to it.  There is no such thing as “invaluable.” Intangibles like life, liberty, and the pursuit of happiness have some value at which the opportunity cost of having them becomes too high.  This is the value of abstract concepts.  But, according to the article quoted above from Slate, a life is worth $5 million.

Thinking about this reminded me of something interesting I heard while I lived in Nairobi.  I met someone who was working at a hospital in Uganda as an HIV counselor, disclosing the status of the test to the patient.  He was finishing up his Masters of Public Health at UPenn and worked during the year at a clinic in Philadelphia, doing the same work.   I asked him, between the two groups (Ugandans and Philadelphians), who took news harder?  Without question, he said, the people he worked with in Philadelphia.

HIV prevalence in Uganda, 1990-2007

I did not expect to hear that.  In the United States, anti-retroviral drugs allow people who can afford them the ability to maintain a normal life expectancy.  The drug cocktail that contained a regimen of dozens of pills per week has been concentrated to a single pill – Complera – taken daily, which keeps the virus from turning into full-fledged AIDS.  In other words, while it is no doubt traumatizing to learn you are HIV-positive, I wrongly assumed that, because it is no longer a death sentence, the personal devastation would not be nearly as severe.

In Uganda, on the other hand, HIV could very much be a death sentence, particularly for the poor.  Anti-retrovirals are available for free through clinics and churches, but the availability of these and other ancillary services, like counseling or support groups, are limited.  Even though the HIV incidence in Uganda has declined from 15% in 1990 (one in eight people) to ~5% today (one in 20), it is not a small problem, particularly when you consider that the incidence is much higher in slums and other communities where unemployment is high and prostitution common.

Despite these facts, my friend told me that people he spoke with about their condition reacted calmly, almost with a sense of resignation and practicality.  They would want to know what they needed to do, what drugs they needed to take, and then move on.  While people in Philadelphia would break down under the weight of the realization that they contracted the virus, people in Uganda seemed to look at it as another problem to deal with and move on with their lives.

I don’t know why this is the case or whether I can extrapolate any conclusions beyond this localized case (which I only heard about through a single conversation).  But I thought about it a lot.  One theory is that HIV/AIDS in parts of Uganda and, to a greater extent, Sub-Saharan Africa, is just a part of life.   People contract the virus with a high-enough frequency that people know other people with the virus, and they understand the implications contracting it will have on their own life.  Maybe in Philadelphia the feeling that you are alone in this might make it more difficult to deal with, especially when you have so many preconceived notions about what life with virus entails.  So, in Uganda, maybe understanding the day-to-day implications causes people to accept the consequences.

Maybe it is exactly the opposite.  Maybe people in Philadelphia can really understand and conceptualize the extent to which their life will be different after contracting the virus.  It means taking one pill every day for the rest of your life, and disclosing your status to all potential sexual partners.  It places a huge amount of responsibility on your shoulders, not only for your own life, but those of others as well.  And in this hospital in Uganda, maybe the patients don’t understand at all just the significance of contracting the virus.  It could be that this is their first time in their lives they have been to the hospital and cannot really process the gravity of the situation.

Another theory is that poorer Ugandans who contract the virus have so much to deal with already that the added weight of knowing they are positive is an afterthought compared with the immediate concerns – specifically, how to make money and buy food for your family.  This is not to diminish the problems of the Philadelphians.  It is only to say that immediate concerns about the here and now trump those of the future, particularly when the treatment is offered free of charge.

And lastly, and maybe most controversially, maybe people in different countries and different socioeconomic levels place a different value on life.  Economists would say that every life is worth $5 million.  That, of course, is context-dependent.  It is an abstract idea that cannot be quantified.  But governments do place a specific value on the lives of their citizens.  I don’t know what it is in Uganda, but it is probably a lot less than $5 million.


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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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Happy Father’s Day (Develop Economies Becomes a Book)

Just shy of three years ago, this blog came into existence.  It had a very simple layout and was located at joshweinstein.wordpress.com.  Over time, it grew in both scope and traffic, precipitating the move to a more professional layout and a re-branding as Develop Economies, a name I came up with at the spur of the moment.  This week, the blog will reach half a million pageviews, which is something I never could have imagined.  And in the beginning, there was only one reader – my dad.

Today is Father’s Day, so I want to talk a little bit about the support my family gave me through this process.   After college, I started on a more traditional path, working as a strategy consultant for three years in Boston, before moving all my belongings into the family basement and leaving for the Philippines.  In the last three years, I have traveled and lived all over Africa and Asia, with seemingly little direction other that pursuing fulfilling jobs where I am challenged and doing meaningful work.  And, while he doesn’t always approve of the places I choose to go, at the end of the day, what matters most to him is that I am pursuing the things that I am passionate about.   One of the best manifestations of that support has been through this blog.

In the beginning, my father was the one and only reader.  He used to comment on my articles under different pseudonyms – mostly characters from the Ayn Rand novel Atlas Shrugged.  I am not sure he really cared much about the posts on development, but read them anyways because he enjoyed my writing and wanted to learn more about what I was doing.  The posts about travel and culture appealed more to him, but, again, he was happy to read and comment on it all.

A few days ago, after nearly three years living abroad, I moved back to the United States for good.   This blog serves as a record of those three years, and it charts my own personal and professional growth.  So, for Father’s Day this year, I am going to publish Develop Economies – all 200,000 words – into a book.  This will be the final post in that book, even though I will continue to write posts for the blog.  It is a way of showing my gratitude for the support he has given me these last few years.

So, thanks for the support dad, and happy Father’s Day.

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What Do I Think of Social Enterprise?

In the last five posts, I have described in detail how Bridge International Academies has created a scalable model that can profitably serve the poorest segments of the population.  They use data to make decisions, processes to ensure quality, and technology to streamline systems.  In other words, they act like a business.

This is how every social enterprise should work.  In fact, this is how every company should work.  Pilot, test, measure, implement, and repeat.  But this is not how social enterprises typically operate.  There are a few that pushing the bar and doing some really exciting work.  Nairobi happens to be a mecca for innovative social enterprises.  Sanergy, for example, was started by three MIT Sloan graduates.  They are manufacturing toilets, selling them to entrepreneurs in the slums, and collecting the waste to convert to biofuel and fertilizer.  Mobius Motors is building a car for Africa – a cheap, durable, stripped-down beast that looks like a Hummer and is specifically designed for the rough roads in the rural areas of Sub-Saharan Africa.  Healthcare companies like Penda Health, a chain of primary-care clinics, and energy companies like One-Degree Solar and Nuru Energy, understand the importance of profitability above all else.

There are other companies outside of Africa that are doing great work as well.  Aravind Eyecare in India trains healthcare professionals to perform one procedure – removal of cataracts – and have managed to lower the cost to a fraction of a percent of the normal cost of the surgery.  And Hapinoy, the chain of sari-sari stores in the Philippines, uses a hub-and-spoke franchise model to drive down operating costs for the small general stores that are so common among the poor in the country.

These social enterprises are the exception, rather than the rule.  That is largely because the term “social enterprise” is somewhat silly in my opinion.  An organization is either for-profit – focused on the bottom line – or not-for-profit – focused on the social mission.  It is true that hybrid models exist.  Good examples are Samasource, One-Acre Fund, and many microfinance institutions, which are partially subsidized, but perhaps moving toward financial sustainability.  But being firmly in one camp or the other is what separates the wheat from the chaff in this world.

The key to success as a social enterprise is to offer a product or service that is inherently a social good, and make sure that the success of the company is tied to creating the best, most competitive product, and the highest-quality service.  The reason that working for Bridge is so liberating is that there is never any question that what we are doing is a social good.  We avoid the pitfalls of other “social enterprises” because of the very nature of our business model.  As a low-cost school, we couldn’t move upmarket even if we tried, since comparatively wealthier families could easily afford better schools if they had the money to pay for it.  We can’t compromise on quality in order to increase our already-low margins because, if we do our parents will pull their kids from school and the schools will no longer be profitable.

When the profit motive is inseparable from the social mission, a “social enterprise” is liberated from the concern of mission drift.  And at that point, it ceases to become a social enterprise altogether.  It is simply a company that happens to be making the world a better place.

Needless to say, I have tremendous optimism for what Bridge is doing.  If this experiment succeeds, it will change education for the poor across the world.  Aid agencies will continue to pour money into education systems that fail the poorest students, and continue to criticize private education institutions for co-opting the public system that should be providing them.  But people are beginning to come around.  Acumen Fund just launched its education portfolio, and made its first investment with Lok Capital, an Indian impact investor, in Hippocampus Learning Centers, a for-profit chain of education institutions.  The tide is turning, and much of the credit belongs to the founders of Bridge International Academies and the hundreds of people who work in the operations, construction, research, IT, curriculum, and training teams to make the system work.

It was a difficult decision to head back to school when Bridge is on the cusp of something truly great.  I will be watching it and cheering it on from the sidelines.

If you have questions, feel free to email me at josh@developeconomies.com.

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What Do I Think of Education and Bridge International Academies? Pt. 5

The following is part five of a five-part post about education in development and Bridge International Academies.

In the last post, I talked about how Bridge is able to leverage its economies of scale to both utilize huge amounts of data to make decisions and, once those decisions are made, they can be rolled out en masse.  I will give a few concrete examples of how this works in practice.

Last September, we wanted to see whether offering a free month of school and having a grand opening ceremony with a bouncy castle would boost enrollment.  So we did what most respectable startups exploring a new product or market would do: we tested it.  Of the nine schools we opened last September, four had a grand opening ceremony (GOC) and first month free (FMF), two had only FMF, one had only GOC, and two had neither.  When I looked at the numbers, the results were amazing.  Not only was initial enrollment nearly three times what we had experienced in the past, but the conversion rate – the most important factor in measuring the efficacy of a marketing promotion in retail – was 85%.  This is practically unheard of in retail.  In other words, 85% of people tried the product and decided to buy it.  When was the last time you started paying after the free trial expired?

When I shared the results with the management team, the action was relatively decisive.  With the 30 January-2012 schools scheduled to be opened in only eight weeks, they changed everything.  Effective as soon as possible, every new school would have a grand opening ceremony and every new student would be given a free month of school.  And, to make it fair, all 60 schools would have a GOC in January and every student would receive January free.   One by one, the managers detailed what needed to be done and set to work.

The IT team began making changes to the billing system and the smartphone application; the training team began prepping the training facilitators to communicate the new policy, and the operations team went out to each school to explain the changes directly.  Marketing began contacting companies that rent bouncy castles and negotiating prices, while government relations reached out to the elders in the community and invited them to attend as “Friends of the Academy.” Within 24 hours of my sharing the analysis, the company began preparing for a monumental change in the way things were done.  In January 2011, our largest school opened with 200 students.  In January 2012, the biggest had more than 700.

For me, the policy change had even greater implications.  Since each cohort of schools opened with different policies, regulations, and circumstances, it was difficult to isolate determinants of performance without introducing incredible amounts of bias.  But now, every school had a grand opening ceremony and January became a free month for every single student.  Therefore, the maximum attendance in January effectively equalized every school and made them as close to comparable as they would ever get.  Now, all of a sudden, we were able to actually measure the how factors like population density, school location, cost competitiveness, income levels, urban/rural, and relative importance of education, influence school size and profitability.

From our market research, we had hundreds of consistent variables about each community.   So I built a massive Excel model and ran some basic correlation analyses and scatter plots to identify the most important factors in determining where to open a school.  Based on the analysis, I created an algorithm to actually project the size of the school after one year that was accurate within a range of 100 students at 80% of schools.  We automated the report creation and incorporated a profitability model into each one, which would dictate land price and school size.  And, just like everything else at Bridge, once we had it right, the new report became part of the Bridge model, and is there to stay until the data proves it wrong.

In the next post, I will talk about other social enterprises and why I think the term is a misnomer.  If you have questions, feel free to email me at josh@developeconomies.com.


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