:: The Park Paradigm ::

Markets for the Digital Generation

My desert island business tool would have to be my netvibes homepage: by allowing my to efficiently follow and ingest over a hundred different feeds covering the entire breadth of my varied (and some would say eclectic) interests it has become the substrate upon which much of my work is done. It’s my deck.* Themes emerge and disappear, are reinforced, modified, diverted, consolidated. And sometimes enough interesting pieces of the puzzle emerge, pushing me to anchor them in my thoughts by writing a post here.

I’ve written a number of times on the potential for mobile telephony to shift the paradigm in Africa, but post the Safaricom IPO this is perhaps more of a mainstream view today and needs less repeating.

What is perhaps less talked about is the potential to combine increasing mobile and broadband penetration with robust and inexpensive local networks to transform outcomes even in the most remote environments. One of the major challenges facing the African continent is building out mobile coverage outside of urban areas and increasing access to broadband internet pretty much everywhere. White African frames the problem eloquently here:

While it’s good to talk about mobile phone penetration, I was a lot more interested in seeing the discussion going on around mobile broadband internet and how that is the next big move in Africa for the operators. Passing data, not just voice, is the battleground of the future in Africa - and all the carriers are fighting to position themselves to win.

This is important and I think the tipping point has (or is about to be) passed, but for a variety of economic, political and regulatory reasons it is difficult to predict how and when a more robust and ubiquitous broadband access will be available to most Africans. In the mean time, it would seem to me that a great opportunity exists to build (tens of) thousands of small, local, ‘community’ networks using a combination of technologies such as wireless mesh and femtocells connecting mobile phones and sturdy “appliance computers” (via Emeka):

Aleutia’s currently working to integrate ZigBee into our desktops, a new wireless mesh-networking technology that doesn’t drain batteries like Wi-Fi does and has a range of up to 1km. In areas where connectivity is expensive and hard to obtain, this would allow one computer to share its Internet connection with hundreds of others, and, in areas without Internet connectivity, would enable free email, file transfer, and messaging over an enormous geographic area.

All powered by renewable (solar, wind, micro-hydro) local power sources, which besides being more robust and sustainable (in the economic sense), should also help underwrite the capital costs of building the network through sales of imputed carbon credits.

These networks would be valuable on their own - providing an information and communications backbone for education, health and markets for the local community - but also would serve as excellent platforms (in terms of building knowledge and acceptance of these tools) ahead of the local network being tied into the rest of the world via broadband internet when the infrastructure and pricing permits. In fact, by building up the network infrastructure in this way - ie by creating a network of networks - Africa has a chance to actually create a more robust infrastructure than currently exists in most of the developed world, without the need to re-engineer; another leapfrogging opportunity…As John Robb continues to powerfully argue, “smart local networks” are crucial to creating a more resilient societal infrastructure, tolerant to faults, accidents and attacks - black and white swans alike:

Most of the local loops (from telco fiber to cable company coaxial) currently in place and/or being installed in the US are dumb (I suspect it is the same globally). They simply route data from local customers to regionally clustered corporate server farms and then outwards/back. This means that any disconnection (physical or logical fault) between local customers and these remote systems will result in a complete cessation of service. To correct this deficiency, communities need to start to think more like a corporation: security of data services are considered central to a company’s survival. So, as part of future negotiations with cable/telcos, communities should request that companies allow them to piggyback on their “dumb” networks to create a smart local loops.

Just the sort of infrastructure that is needed in the all too often hostile (political and natural) environments in which these networks need to operate. And it ties in well with the idea of a resurgent localism, a theme that motivated Stowe to create a new blog, /Ground:

One of the most salient trends — one that I think trumps others — will be the rise of localism. As nation states increasingly falter, and lose relevance we will see people shifting their sense of belonging away from mass organizations and political constructs, like nationalism and global religions.

Layer on top (of these networks) the best that Web2.0 has to offer in terms of social software (wikis, twitter, blogs, freebase, etc .), along with solutions unique to Africa (FrontlineSMS, Ushahidi, etc.); mix in the strong culture of communal and family identity and… voila! You have a potentially very powerful and transformational piece of kit. Alpha this, beta this, build, iterate, build again… and I’m pretty sure that once you’ve industrialized the process, you will have a very exportable proposition: a turn-key solution for installing a smart (and green) local network.

In fact, I think this is a very real and interesting commercial opportunity. Maybe even a candidate for an X-prize in Global Entrepreneurship? I’d love to find a credible, motivated team that has the skills and the vision to make this happen and take us one step closer to the sixth paradigm. Looking forward to seeing the business plan!

*Cyberspace Deck: Also called a “deck” for short, it is used to access the virtual representation of the matrix. The deck is connected to a tiara-like device that operates by using electrodes to stimulate the user’s brain while drowning out other external stimulation. As Case describes them, decks are basically simplified simstim units. Another way to think about it might be like a lineman’s telephone—a tool used to actively maneuver through cyberspace rather than to passively perceive pre-recorded physical and emotional sensations (like a simstim unit).

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I have to admit it’s always exciting to see validation points for strongly held convictions. As you know I firmly believe that the confluence of technology and emerging - or in the new jargon more precisely ‘frontier’ - markets will generate significant and exciting new innovations and opportunities, and I remain convinced that fundamentally new and robust business models will emerge as a result. The fact that this might improve the human condition in some of the world’s heretofore least fortunate corners is of course icing on the proverbial cake. And so I was happy to read that Google, for example seems to share (at least some of my) sentiments on this:

We believe that the Internet is a transformational force for societies. And it’s making us all much more powerful as individuals, regardless of whether one is in New York, Stockholm, Bujumbura, Ouagadougou, or Cape Town. Regardless of background, education, social status, gender, age or economic situation, online access to information enables people to create opportunities for themselves. Seeing a student in a cybercafe doing his research using a search engine, a businessman chatting with a colleague abroad with instant messaging, or a young woman posting her photos to a social networking site - it’s clear the extent to which academic, business and social life is fundamentally changing all over Africa.”

At the same time, a couple of days ago, a very interesting article in the NYTimes also leant support to my thesis that the infrastructural constraints and challenging business environment of sub-Saharan Africa would engender innovative and resourceful approaches and a unique approach to harvesting the potential of information and communications technologies:

Still, Nairobi is home to a digital brew that invites optimism about its chances for creating unusual innovations. The city has relatively few wired phone lines or networked personal computers, so mobile phones are the essential digital tool. Four times as many people have them as have bank accounts. Text messages are far more popular than e-mail. Safaricom, the dominant mobile provider, offers a service called M-pesa that lets customers send money with text messages. Nokia sells brand-new phones here for as little as $33.

While engineers in the United States lavish attention on expensive phones that boast laptoplike features, in Kenya there are 10 million low-end phones. Millions more are used elsewhere in Africa. Enhancements to such basic phones can be experimented with cheaply in Nairobi, and because designers are weaned on narrow bandwidth, they are comfortable writing compact programs suited to puny devices.

“Applications are heavy in America,” says Michael Wakahe, a Nairobi code writer. “Here we have to make them light,” because simpler hardware requires smaller programs. These can have advantages in wireless systems…

…The prospect of marrying low-end mobile phones with the Internet is earning Nairobi notice from outsiders, who wonder whether the city might emerge as a test-bed for tomorrow’s technologies. One intriguing possibility is broadcasting local television programs on mobile phones.

In Nairobi’s highest-profile validation, Google opened a development office here last September. “Africa is a huge long-term market for us,” Eric E. Schmidt, Google’s chief executive, said by e-mail. “We have to start by helping people get online, and the creativity of the people will take care of the rest.”

One of the most obvious - yet no less powerful or potentially transformational for it - themes is the combination of mobile communications, internet and geo-location technologies to disseminate information and increase connectedness from the bottom up. This emergent collective intelligence is all the more remarkable, given the typical history of entrenched ‘top-down’ politico-economic structures in place in these countries. Much of the early innovation is centered around information gathering and crisis management with tools like Ushahidi (quickly developed in response to the post-election political unrest in Kenya earlier this year) and FrontlineSMS being quickly adopted by citizens and NGOs and having an immediate positive impact on the ground. It doesn’t take much imagination to start dreaming up additional - more commercial - potential applications for these kinds of platforms. Ken Banks, the man behind FrontlineSMS describes his view as developing the ‘long-tail’ of mobile applications as the right approach for not-for-profit “social mobile”:

low-end, simple, appropriate mobile technology solutions which are easy to obtain, require as little technical expertise as possible, and are easy to copy and replicate. From my own experiences the number of NGOs present in this space is by far the greatest, making it the area to focus on if we want to create the highest amount of mobile-enabled social change. Add up all the value here, and it easily outweighs the rest along the higher (more lucrative) parts of the tail.

I would suggest that this approach might work equally well to enable commercial, for-profit, applications as well. Indeed on the other side of the continent you find Mark Davies esoko/TradeNet: Africa’s first mobile2mobile peer2peer trading platform and market information network:

…designed to provide the very latest agricultural market information to stakeholders. Accessed via SMS, fax, web, PDAs, farmers and traders can get daily price information, download video/audio files, access research documents, post buy/sell offers to the community, and contact other market participants. The concept is to make african markets more transparent and efficient, improve intra-regional trading, and provide stakeholders with enough recent and accurate information to make better decisions on bringing products to market and at what price.

I’m sure it won’t be easy or without enormous challenges but the opportunity is vast. Africa: it just might be the new new new thing.

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Unfortunately conflicting travel plans meant that I couldn’t attend Reboot 10 - although I’m sure JP will fill me in on some of the more interesting themes that emerged - but like most interesting conferences much of the material discussed is made available, analyzed and discussed on the web. And so it is that I am reading Stowe Boyd’s notes for the presentation he gave in Copenhagen - Web Culture: Identity, Belonging, And Scalar Freedom - while thousands of miles away on a humid Sunday morning by the lake…

On the ‘long-tail of human relationships’:

This long tail of relatedness and relationships changes our sense of identity and belonging. We can meaningfully belong to many groups, and invest ourselves deeply — in parallel — in their purposes.

Those of us who become most adept at this may become the most important and respected citizens of the post-everything world: the bridge builders that can arc from one to other groups, and act as arbiters and mediators. Remember that reputation-based authority and the belief in mediated settlements of disputes are universals. So this suggests a future role for the most connected, as people worldwide begin to lose faith in mass organizations to solve our disputes, or to even come up with workable compromise.

On ‘tribes’:

The bonds of trust and friendship that we are building at the Edge, today, may become the initial bridges that connect the tribes of this post-everything future.

We have learned that trust and reputation is personal, non-transferable. That obligation is between individuals, and that any group — elected officials, criminals, prisoners in jail, slum dwellers, and web edglings — will attempt to use whatever power they have to attempt to benefit their own, potentially to the detriment of ‘others’. So we need an ethical system — like that which is emerging on the web — where abuse of power is not tolerated, where rank and office is irrelevant, but where one’s reputation and honor is everything.

I don’t think I agree with everything Stowe writes about but I definitely think it is worth reading as it frames some of the fundamental - tectonic - social and cultural shifts shaking our current dogma to its core. And I continue to be an unapologetic fan of his centroid/edgling meme.

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In case you still aren’t convinced, have a read of what the Consultative Group to Assist the Poor has to say on the subject:

Banking regulators still don’t get it: The best candidate for making access to finance truly universal in a developing country is the mobile phone.

…Globally, mobile phones will handle $587 billion in financial services by 2011, UK. consulting firm Juniper Research Ltd says. In many developing countries, mobile-phone companies are miles ahead of banks in using technology to cut the cost of processing a transaction. In India, for instance, phone companies have a 100-fold cost advantage…

…Real breakthroughs in financial inclusion may only occur when telecommunications companies lead the effort and regulation promises smooth running.

Why do you think I encouraged my friend JP to go ‘get some experience’ at a phone company?

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As we start talking to people about our investment universe and the pillars that underlie our investment thesis - which is centered on identifying and catalyzing disruptive (technology-enabled) innovation in financial services and markets - when we mention that one vector we will look to target is opportunities in ‘frontier’ markets - in particular Africa - we get some puzzled looks. Especially with people who haven’t been long-standing or assiduous readers of The Park Paradigm and haven’t come across my previous posts on the subject.

In a nutshell, it really comes down to the power of looking at the industry from a completely different perspective: understanding how markets and financials services can be made to work in the context of sub-saharan Africa, necessarily forces you to see the industry through a radically different prism: infrastructure, distribution, price points, market structure, etc. So not only do native opportunities exist to vastly grow financial service and markets from very small existing starting points, but also by doing so I am convinced that a number of non-intuitive and powerful learnings applicable to innovating in this sector in developed markets will emerge. And that’s why Africa is actually an obvious element in our strategy and worldview.

Here’s an interesting take from Stuart Henshall via the Supernova 2008 blog:

The mobile is making low income groups more efficient and productive. Less time waiting and more time working or getting a better price etc. It will also mean they come at other technology products from a mobile technology perspective. Will one of these users ever part with a mobile and want a laptop instead? What if your next choice is a used smart phone or a laptop? What are the trade-offs? Or will you just settle for a TV and make the phone last longer. My bet is on trading up or passing on the computer or TV.

Here we have stopped thinking about bazaar’s and marketplaces. We go to the supermarket. It’s a very very fortunate few that can go to a tailor or have their clothes made. Yet when I walk around India I see vege traders, and sari makers everywhere. They both make efficient use of their inventory and their labor. I see use of missed calls to make “tacit connections” at no cost. I see SMS use and notifiers growing. In fact many of these users are subscribing to SMS notification services for sports and business because they want that greater connection. They are not yet overwhelmed. They are in effect on an accelerated course of “connectivity”. We need to look here to see how mobility and knowledge sharing is changing.

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I imagine even the most ignorant politicians would not promote the onion-esque policy I’ve chosen as a headline for this post as a serious solution to the issue of climate change. And yet…

An increasing number of politicians around the world - in both developed and developing nations - are touting entirely analogous ’solutions’ in order to deal with rising commodity, especially food, prices. Stop transparent and efficient markets from functioning, from doing their job - ie aggregate vast amounts of information into an accurate and concise price signal - and voila problem disappears. Makes sense right? If we can’t see the price going up, it must mean that it isn’t. Brilliant.

As a bonus, let’s apply the same logic to climate change and instead of spending billions on developing alternative and more efficient energy technologies, or wasting time with the whole palaver of carbon markets and such; let’s just pass legislation that restricts those pesky thermometer manufacturers to stop making thermometers that go past 30 degrees. Of course you could apply for a special permit to produce say meat thermometers or gauges used in steel mills or nuclear plants that can show higher temperatures. And in order to enforce strict adherence to ‘authorized’ uses only (so no wise guy could hack a meat thermometer to discover it’s really 37 degrees in Hyde Park) you could of course set up a Federal Temperature Control Agency and in the bargain create a new bureaucracy and a lot of new jobs. Win/win!

Joking aside, the knee-jerk, supposedly populist policy reactions of too many governments seems to be to stop markets from functioning. I say “supposedly populist” because these policies ultimately (which is to say pretty damn quickly) hurt the most vulnerable to the benefit of a small elite who then control the distorting gates through which all commerce must pass. The greater irony is that at best it creates an ‘opportunity loss’ for those bogeymen the speculators (oooh!) who such politicians love to hate, and at worst creates even more lucrative opportunities for (especially the least ethical) of them. (See Oxonomics for an excellent and compact deconstruction of the evil speculator myth.)

Instead of shutting down or curtailing the activities of dynamic and empowering markets like the MCX in India:

India’s Forward Markets Commission, a regulatory authority, has banned trading in the four commodities for at least four months, according to media reports on Thursday.
Last year, India banned trading in rice and wheat futures…

…The four commodities, which were suspended from trading Thursday, account for a daily turnover of about $288 million on the Multi Commodity Exchange of India (MCX) and the National Commodities and Derivatives Exchange (NCDEX), the International Herald Tribune reported Thursday.

…governments should be encouraging them to develop even faster - especially in the developing world. Eleni Gabri-Madhin’s TED Talk from Arusha last June should be required viewing for any senior policy maker considering regulation of agricultural markets:

As Eleni points out, observed (agricultural) price volatility is higher in Africa than anywhere else in the world because there is no (or relatively very few) functioning ‘exchange’ markets. This is exactly contrary evidence to the fallacy propagated by so many politicians, that exchanges are the cause of price volatility. Yeah, just like thermometers are the cause of high temperatures, and barometers cause droughts or floods…

A big part of the solution is encouraging robust and transparent markets in agricultural goods (and inputs) and in particular facilitating access to these markets by producers everywhere. The thing is, for probably the first time in history - thanks to technology, in particular the mobile phone - this is a tractable problem even for small and relatively poor farmers in the rural developing world.

From the Economist Blog:

What can governments do to bring down the price of precious food crops like rice? How about eliminate export restrictions? Rice futures slumped by their daily limit of 50 cents for a second day on Tuesday after Cambodia, one of the world’s top 10 rice exporters, said it will lift restrictions on exports.

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I’ve written in the past about my belief that a number of innovations in business are likely to originate in the developing world only to be exported and adopted in the developed world in the coming decade, turning conventional wisdom on its head. My thinking on this tends to revolve around businesses in the developing world harnessing the power of cheap and ubiquitous communications and computing (ie mobile phones) to develop innovative, robust, low-cost business models driven by (1) the need to deliver products and services profitably at extremely low (by developed world standards) price points, and (2) the lack of inhibitions with respect to thinking outside “established” ways of approaching markets and customers.

Although manufacturing - and especially auto-making - lies outside the field of my interest and expertise, this post from the Indian Economy blog highlights the new Tata Nano as an example of exactly the phenomenon I subscribe to above.

In summary, the Tatas look set to become the dominant player in the Indian car market via the new market segment established by the Nano. If allowed to compete on fair terms they should take this new segment to other developing countries too.

Will the price USP help it in developed countries though? In the United States there is a huge market for cars costing less than $10,000. Small cars were always popular in Japan and are catching on big-time in Europe too. There are lots of people even in the first world who cannot afford new cars. So there is a huge market in the biggest car markets in the world for a strong price warrior. The Nano was not made for these markets but the huge price difference it has with the cheapest cars in those countries offers plenty of room for redesign. Do you hear someone say that is impossible? Really – “impossible”?

Update:
It seems I’m in good company…

(from Fortune) …To stay ahead, Immelt is pushing GE hard into an advanced phase of globalization he calls “in country, for the world.” That may sound like some celebrity ditty composed for Live Earth, but Immelt is quite serious. He believes that by figuring out how to meet demand in these still relatively poor growth markets, he’s going to achieve hard-to-imagine price breakthroughs. And here’s what’s truly radical: As GE and others do this, these products won’t just be sold in emerging markets. Instead they’ll filter back into the rich economies - a new deflationary force that should delight buyers but devastate competitors who lack a global footprint.

Examples? “Water,” says Immelt. “There’s a shortage everywhere, even in places like California and Florida. Some systems we’re working on in the Middle East, India, and China are trying to do water desalination at $0.001 per milliliter, which is an off-the-charts low cost. We’ll never hit that in the U.S. But we’ll hit it someplace outside. And the second we do, a huge market is going to open up inside as well.” Immelt sees the same thing happening with coal-sequestration technology or MRI scanners, where GE is working on a product in China that could cut prices in half. “At the right cost point, you not only sell it in China, you open up a market among the 35% of U.S. hospitals that today cannot afford to have an MR scanner,” he says. “We’ve got 15 or 20 projects like this that are going to open up big markets around the world over the next five years.”

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Over the weekend, I did a more thorough than usual scan of the hundreds of feeds I now follow on my (somewhat bloated) netvibes page. One of my tabs is dedicated to newsfeeds and blogs on Africa, many of which I discovered as a result of my exhilarating trip to TED Global in Arusha, Tanzania last June. One of the blogs I followed was Benin Mwangi, now at The Cheetah Index, a fantastic resource for anyone interested in the emerging entrepreneurial ecosystem in Africa:

As part of our mission to fill the void left by conventional media in covering African issues, African Path will take an active role in supporting and empowering the continent’s young and progressive decision makers. Today, African Path announces the launch of a dedicated business section under the African Path network which will be branded as the Cheetah Index. Currently the site will run on a Beta version.

The Cheetah Index derives both its name and inspiration from Ghanaian economist Dr. George B.N. Ayittey, author of Africa Unchained. A central topic in this book is the new generation of young African professionals who look at Africa ’s problems from a different and revolutionary perspective. Dr. Ayittey believes that this group of professionals plays a central role in re-vitalizing African economies. This group of progressive, problem solving and action-oriented Africans are called the “Cheetah Generation”.

African Path will build the Cheetah Index into a leading online resource for Africa ’s current generation of decision makers. These will include managers, entrepreneurs, government officials, educationists and other people who influence Africa ’s development. The site will provide breaking business news, profiles on African entrepreneurs and industry news while making it easier for business people from Africa and other continents to connect and network.

Which brings me to what got me excited… In a recent post - “Seeing the Gold in African Agriculture”, Benin points to an amazing essay by G. Pascal Zachary - “The Coming Revolution in Africa” and concludes that there is a great opportunity to help develop appropriate infrastructure to support this agricultural revolution (and that he sees the impetus coming from the private sector):

It sort of reminds me of how cottage industries sprung up around Europe from the 1500’s until the 1800’s. The only thing that I would like to add is that the demands of these farmers will likely slowly begin to spur greater demand for infrastructure. I am predicting that the supply of farm-friendly infrastructure will be fulfilled almost entirely through private sources. This might overtime become a very rewarding business line for the enterprising business person…

Zachary’s essay tells the stories of successful, self-made African farmer/entrepreneurs. Here are three excerpts but I strongly encourage you to read the whole article:

After decades of mistreatment, abuse, and exploitation, African ­farmers—­still overwhelmingly smallholders working family-tilled plots of land—­are awakening from a long slumber. Because farmers are the majority (about 60 percent) of all sub-Saharan Africans, farming holds the key to reducing poverty and helping to spread prosperity. Over the longer term, prosperous African farmers could become the backbone of a social and political transformation. They are the sort of canny and independent tillers of the land Thomas Jefferson envisioned as the foundation for American democracy. In a region where elites often seem more committed to enjoying the trappings of success abroad than creating success at home, farmers have a real stake in improving their ­turf. Life will still be hard for them, but in the years ahead they can be expected to demand better government policies and more effective services. As their incomes and aspirations rise, they could someday even form their own political parties, in much the way that farmers in the American Midwest and Western Europe did in the past. At a minimum, African governments seem likely to increasingly promote trade and development policies that advance rural interests.

(Sakwa left life in the city in his 30s to return and farm his family’s rural land:)

In his second year in Bukhulu, he tilled two acres of land, hiring a tractor to assist in plowing. From an American aid project, he and some neighbors learned to plant crops in straight lines. By the third year Sakwa mastered basic farming, “doing much, much better.” When his old Kampala friends visit him, they ask, “How is this poor village man getting all this money?”

Accumulation is only part of Sakwa’s story. How he spends his profits is significant. One early purchase was a mobile phone, which allows him to keep abreast of local markets and negotiate better prices for his crops. That a farmer who lives without electricity or running water should be able to receive phone calls from anywhere in the world is perhaps the most radical change in African material life in decades. Though wireless service came late to the region, nearly one in five ­sub-­Saharan Africans now owns a cell phone, and the World Bank estimates that the region’s wireless phone market is the “fastest-growing in the world.” One morning, after he plants cottonseeds in a small field, Sakwa receives a call from the headmaster at his daughter’s boarding school (yes, he can afford that too!). The headmaster asks for 500 pounds of beans. Sakwa, who has the beans bagged for sale, wants 15 cents a pound. “Will you accept?” he ­asks.

The headmaster wants to pay less. Sakwa refuses. “I can hold my beans until I get a fair price,” he ­says. A few days later, the headmaster calls back and agrees to the ­price.

(On the failure of ‘official’ agro-policy over the last several decades:)

Disdainful of the market, these agricultural specialists preferred to obsess over arcane questions about soil quality, seed varieties, and some mythical ideal of crop diversity. In classic ­butt-­covering mode, they blamed “market failures” and Africa’s geography for farmer’s low incomes and their vulnerability to famine and food ­shortages.

Then, about five years ago, a few brave specialists suddenly realized that under their very noses some of Africa’s most significant farm sectors were booming—and booming without any help from the legions of agricultural scientists and bureaucrats in Africa. In West Africa, corn production doubled between 1980 and 2000. Harvests of the lowly ­cassava—­a starchy root that provides food insurance for many ­people—­steadily expanded. In East Africa, sales of fresh flowers soared. ­Once-­moribund cash crops, such as cotton, saw a large expansion, first in West Africa and then in Tanzania, Uganda, and Zambia. The list of improbable winners went on and ­on.

Even as a steady diet of stories about “urgent” food crises in Africa dominated public discussion, these successes became impossible to ignore. In 2004, the International Food and Policy Research Institute (IFPRI) published a series of papers titled “Successes in African Agriculture.” The papers both reflected and provoked a revolution in thinking about African farming. They also ended a long conspiracy of silence among aid agencies and professional Africanists. For decades the “food mafia,” led by the World Food Program and the UN’s Food and Agriculture Organization, had refused to acknowledge any good news about African farming out of fear that evidence of bright spots would reduce the flow of charitable donations to the UN’s massive “famine” bureaucracy, designed to feed the ­hungry.

The IFPRI report shattered the convenient consensus among experts, donors, and African governments that farmers south of the Sahara were doomed, perpetual victims who could never feed themselves and hence must permanently proffer the begging bowl. Now, because of IFPRI (itself a junior member of the “mafia”), some African agricultural successes could not be denied. That raised a logical question: If some African farmers can succeed, why can’t even ­more?

Thinking about what made me so excited reading his article, I figure it boils down to a couple of key ideas:

• It illustrates the potential power of the individual when provided with (even the bare minimum of) property rights and access to information (markets) and most importantly, the freedom to succeed. That these basic ingredients are not a given everywhere in the world, and especially in many poor developing countries is a crime against humanity.
• On a more personal note, as a 3rd generation descendant of immigrant Canadian homesteaders*, I feel the opportunities I’ve had in my life leveraged upon the potential for hard working, freedom seeking people to build an enduring economic foundation on the fruits of the land.

I know that the circumstances of Saskatchewan 100 years ago, and sub-Saharan Africa today are extremely different. And I am not so naive as to think that land reform, establishing robust property rights and markets is anything but highly complex and fraught with potential pitfalls. That said, I suspect their is much to be said for simply trying to get governments and others (including NGO’s and foreign governments) ‘out of the way’ and let the farmer/entrepreneurs get on with slowly yes but surely building a better future. I hope Benin is right (that private capital will play a preponderant role,) and I believe that the tools, business models and technologies of the sixth paradigm will play a positive and important role in empowering the rise of the African agricultural entrepreneur over the next 2 or 3 decades.

*The Homestead Act permitted settlers to acquire ¼ mi² of land to homestead and offered an additional quarter upon establishing a homestead. Immigration peaked in 1910 and in spite of the initial difficulties of frontier life, distance from towns, sod homes, and backbreaking labour, a prosperous agrarian society was established. (Source: Wikipedia)

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Although I must say I’m not a fan of Microsoft products (or the company), you have to admire Bill Gates’ optimism and drive to build on his business and financial successes and advance the human condition. For obvious reasons, Bill Gates on a podium in Davos can deliver a far more powerful ‘call to action’ than I can mumbling on here at the Park Paradigm; and so I was very happy to read of him using his star power to deliver a message that I mostly agree with and who’s conclusions I wholeheartedly endorse (see by way of example here or here:)

Bill Gates has challenged companies to engage in “creative capitalism” that delivers profits and helps the poor.

This “capitalism for the 21st Century” had to improve the lives of those who did not benefit from market forces.

The Microsoft founder said capitalism only worked for those who could pay, so firms had to find out “how the power of the marketplace can help the poor.”

Here is the link to the Davos webcast (requires Windows MP or Real Player so I couldn’t read it…not very smart), but found an excerpt posted on YouTube:

The key to my mind is finding a way to help individuals in less fortunate situations, particularly in developing nations, get access to markets and (economic) freedom. My suspicion is that the technological advances (and concurrent cultural change) of the 21st century will hold the key to unlocking this vast human potential. I’m sure it won’t be easy, and I certainly don’t pretend to even have the start of an answer yet, but I am optimistic that at least the path towards the seeds of some of the solutions is slowly starting to emerge from the fog. For those seeking enlightenment in this respect, at the risk of making a premature recommendation (I’m about a third of the way through), I suggest picking up a copy of John Kay’s “The Truth About Markets” and suggest you add his RSS feed to your news reader:

…The stark differences in economic lives around the world are not the result of differences in the availability of resources, or education, or capital, or skills. They are the product of differences in the structure of economic institutions. These latter differences in turn determine the availability of resources, education, capital and skills…

…Economic institutions function only as a part of a social, political and cultural context. This is what I describe as the embedded market.

And it is worth keeping in mind, a couple other observations from Kay:

• Market economies require disinterested government.
• The combination of moral rigour and free enquiry is the basis of disciplined pluralism - the defining characteristic of the successful market economy.

I highlight these because I fear that sometimes - when trying to help the world’s poor and developing countries - successful emissaries of the market economies of the west tend to cautiously avoid giving advice or passing judgement on anything that is seen as a political or cultural issue. I suppose this is a reasonable counter-reaction to some of the more egregious excesses of the imperial past. But well-meaning and understandable as this stance may be, it is most often directly at odds with achieving the economic success sought in the first place. We need to stop being afraid of engaging in criticism of political or cultural artifacts that are clearly impediments to economic growth and improvements in human welfare. At the same time, the technological tools of the 21st century will give individuals and communities in these countries an unprecedented opportunity to dismantle corrosive political and cultural legacies that act as giant impediments to economic growth and freedom. While I remain long term optimistic, one doesn’t have to look far (for example the recent post-election turmoil in Kenya) to see that the path will be a difficult one, strewn with powerful men who have no interest in fostering greater growth, wealth and welfare, but whose only interest lies in controlling such (limited) wealth as already exists.

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In a leader this week on banking in Africa, the Economist asks the question “A bank in every pocket?” making the point that “banking on mobile phones holds promise, provided regulators are willing to be flexible”:

Leonard Waverman of the London Business School has estimated that an extra ten mobile phones per 100 people in a typical developing country leads to an extra half a percentage point of growth in GDP per person. To realise the economic benefits of mobile phones, governments in such countries need to do away with state monopolies, issue new licences to allow rival operators to enter the market and slash taxes on handsets. With few exceptions (hallo, Ethiopia), they have done so, and mobile phones are now spreading fast, even in the poorest parts of the world.

I wholeheartedly agree with their point - indeed my post a year ago (!) A Trinity: Finance, Mobile Phones & Africa (from November 11, 2006) made many of the same observations:

It seems clear that mobile phones (as opposed to personal computers) will be the most important device for access and connectivity in the developing world, and probably everywhere eventually. But access to the internet and computing will become more and more common everywhere, with many different initiatives - both technological and financial - focused on bringing down the cost and expanding the market for computing in the developing world.

As has been written many many times before, mobile phones are changing everything. From politics to business to culture. The digital generation is but a subset of the connected generation, a worldwide phenomenon. Again, this is probably being felt more strongly in developing countries - not so much because the effect is greater or different - but because the contrast with what came before is that much more marked. This extension of connectedness enabled by mobile telephony taps into something that is inate in humans; it extends our ability to form communities unbounded by geographical or even political constraints.

The Economist goes on to highlight the flexible, adaptive regulatory approach to mobile banking being taken in the Philippines (something I was not aware of) as a model to emulate:

Rather than trying to work out the best rules in advance, which could hamper innovation, the regulator is working closely with the banks and operators behind the country’s two m-banking schemes. That way the regulator can see what is going on, so the schemes’ operators get more flexibility. The experience will feed into new banking regulations. Rules that are too tight will hinder adoption; rules that are too lax could allow fraudsters to bring the whole idea of branchless banking into disrepute. But if regulators strike the right balance, m-banking may provide the next example of the mobile phone’s transformational power.

In the same edition, “On the frontier of finance” gives a good overview of the state of the banking industry on the African continent, highlight that while recent growth and investment is encouraging, the opportunity remains vast with most of African’s - even in the richest countries like South Africa - remaining unbanked and having no or poor access to even basic financial services.

A couple weeks ago, in a special report in the FT on Tanzania, Tom Burgis wrote a very good article “Crops are starved of lending” on how the lack of access to basic financial services, working capital and markets hold back improvements in agricultural productivity and essentially trap much of Tanzania’s population in a vicious cycle of poverty:

Four in every five Tanzanians live in rural areas; most are subsistence farmers. Eighty-five per cent of cultivated land is still worked with hand-held tools, 10% with animals and just 5% with machines. For a decade, the sector’s growth has failed to match the overall expansion of the economy. Without a transformation in agriculture, Edward Lowassa, prime minister, admitted in a recent speech, there will be no escape from poverty.

…[in a village dependent upon cashew farming] The 1,006 vilagers are unable to bypass what officials say are illegal cartels of traders who keep prices cripplingly low, depriving farmers of capital to reinvest in raising quality and productivity. Their predicament is worsened by the near impossibility of borrowing.

I know that solving problems like these is not easy; that there are many social, cultural, institutional hurdles to overcome (on top of the operational and technological challenges) but it would seem to me that in the next decade or so, there really is a chance to ‘leapfrog’ using cheap, ubiquitous mobile communications and devices as a substrate and deliver the power of modern financial services and markets to every corner of the planet. Even the poorest. Especially the poorest. Indeed the maxim “go where the pain is highest (with respect to introducing new products and services)” means that it is not ridiculous to think that some of the earliest adopters of sixth paradigm markets and techology may well be found in some of the poorest and challenging regions on the globe.

Imagine these villagers armed with mobile phones giving them access to markets, risk management tools (weather, commodity risk), payment systems, and ultimately capital - breaking free from the bottlenecks and information barriers currently trapping them in a vicious circle of poverty. How is that for a big idea? We’re (I’m!) not quite there yet (in terms of being at the inflection point) but we are getting very close. Hey maybe this is worthy of a TED Prize wish in 2 or 3 years from now!

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