I have written often (for example here and here) on the subject of how more and more of the most interesting and disruptive innovations and business models of the 21st century and of the sixth paradigm will emerge from the “edges” of the global economy. Newly empowered by the continuing advances in information and communications technologies, and building off the powerful emergent platforms of the sixth paradigm (mobile, cloud, etc.), entrepreneurs in places like India and Africa will design and popularize some of the most potent business models going forward. Indeed this is one of our key investment themes and as we grow, we hope to be able to participate by making investments in these parts of the world.
To be able to succeed (in providing meaningful, affordable, services) in such challenging environments to my mind offers great insights into how improvements can be made to how services are designed and sold in any environment â€“ including the developed and wealthy western markets. A variation on the New York, NY theme of â€“ â€˜if you can make it here, you can make it anywhereâ€™â€¦
So what does this really mean for us as an ever-increasing population empowered by the social media stage? It means we have the responsibility to start speaking up for our continent. We have right to say enough is enough with the hand outs, enough with the aid mentality, enough with the top-down solutions, and enough with being ignored on the global stage. Our voices count, and it would be good to partner with usâ€”to have a conversation with us firstâ€”before any projects are started.
I would go further and say it would be insane not to partner with the people that are “at the coal face”. That not only would this reduce the number of mistakes, failures and unintended consequences but that the opportunity for learning and cross-fertilization of ideas, business models and innovations is so rich that to ignore it would simply be foolish. Social media is giving a voice to ideas from everywhere, anywhere, with the best ideas emerging naturally based on their intrinsic worth and evolutionary strength (and not because of where or by whom they were ‘invented’.) So for talented, ambitious people everywhere the cry is no longer “Go west young man!” but “Go south, go east, go north, go west – go into the global social ecosphere and connect with the current of humanity.” Open. Not closed.
I first wrote here about Ken Banks and FrontlineSMS a little over a year ago, after having seen him speak at Supernova in San Francisco where he made a tremendous impression. I remember immediately being excited by the obvious possibility of leveraging the Frontline:SMS platform to provide financial services, not only in developing countries but also in more mature markets. I put ‘try to set up meeting with Ken to discuss’ on my to do list, but it never quite made it to the top as the myriad challenges of setting up our business (and moving house) in the midst of generalized global financial calamity conspired to keep it from becoming an urgent priority. Of course (and thank goodness) the world does not wait for me and an enterprising young man, Ben Lyons, spotted the same opportunity and (much) more importantly has moved to action, teaming up with Ken and FrontlineSMS to create FrontlineSMS:credit:
FrontlineSMS:Credit aims to make every formal financial service available to the entrepreneurial poor in 160 characters or less. By meshing the functionality of FrontlineSMS with local mobile payment systems, implementing institutions will be able to provide a full range of customizable services, from savings and credit to insurance and payroll.
Launching FrontlineSMS:credit a few weeks ago, Ben wrote:
Our mission is simple: leverage the mobile space to extend access to affordable financial services to rural, disconnected and impoverished communities. To achieve this end, we are constructing a series of free and open source financial modules that will allow FrontlineSMS to communicate with mobile payment systems in real time, turning FrontlineSMS in to a microfinance management information system, a payroll center for small & medium enterprises (SMEs), a collection and distribution center for micro-insurance premiums and payouts, and a detailed center for individual credit histories and scores.
Now if this isn’t a massive opportunity, well I don’t know what is. At the risk of sounding churlish, it’s an order of magnitude more substantial and important (socially, financially, economically…) than half the me-too start-ups chasing funding and customers amongst the western digerati. Take another look at Ben’s mission statement:
… leverage the mobile space to extend access to affordable financial services to rural, disconnected and impoverished communities.
I suspect the first time you read that you thought “in Africa”, or perhaps India, or developing countries more generally. But these same under-served communities (alas) exist in every country in the world, and one could even make a case for saying that for those living in a developed economy, the relative disadvantage of not having access to basic financial services is even more damaging. It seems inevitable that the approach taken by FrontlineSMS:credit will become the primary channel through which universal access to basic financial services is delivered in any country or economy. Which leaves the politicians of many European states very little time to figure out what the hell to do with all the postal employees currently cashing cheques and taking payments for utility bills, who will soon need to find more productive work. And I’m not sure how complacent I would be as a shareholder in an incumbent retail banking operation (the top executives I doubt will lose much sleep as the timeline for this kind of transition is probably 10-15 years or so, much longer than their expected tenure…) as this bottom up, platform approach to delivering financial services has the very real potential of blowing a giant hole right in the middle of their business and revenue model.
To further whet your appetite here is an excellent 10 minute introduction to FrontlineSMS:credit by Ben at Africa Gathering in London a couple weeks ago:
Bankers like to talk about channels – branches, call centers, internet, mobile. Sell the same products via multiple channels: adapt to individual customer preferences. Horses for courses. In wealthy developed economies, this way of thinking is mostly correct; or more precisely the resolution of the market renders the fallacies (of this way of thinking) invisible. To see the fundamental differences, to understand why – at sufficiently high resolution – these channels cease to be simply distribution mechanisms and become integral to the service being offered, one needs a better economic lens.
Developing and emerging economies provide just that: a high resolution lens on economic activity: in a developing (ie relatively poor and resource constrained) economy, the concept of a ’rounding error’ is ridiculous: micro-everything matters: pricing, transaction costs, payment media, etc. ‘Newtonian’ economics and finance is insufficient to understand how these economies work; you need to look at “quantum” effects. You need high resolution. Why do I find these markets so fascinating and important? Yes, there are many investment opportunities and this is exciting; but we are not yet in a position to really explore these and take advantage and so that’s not the main reason. Yes, it is clearly rewarding to encourage and marvel at human ingenuity that so often leads to success in what are often enormously challenging conditions. But that’s not it either. The main reason I think these markets – especially ‘frontier’ markets – are important, is that by observing the world through the lens of these economies and markets, one cannot help but gain a deeper, more granular, fundamental understanding of how markets work (or don’t work.) The fundamental forces – the risk quarks – that are invisible to the naked western eye are revealed by the tunneling electron microscope of emerging frontier economies.
Nowhere is this effect more obvious than in the cambrian explosion of innovation in markets and services built on the substrate of mobile networks in emerging markets. From the point of view of someone concerned with envisioning and understanding the future of financial services, one of the most pertinent and exciting laboratories is the explosion of mobile trading, payments and banking systems in Africa and other poor, developing economies. I first wrote about this a few years ago, and since then, many of my expectations have been borne out and the potential for disruption – both at home and abroad (ie in the West) – if anything has grown. Indeed one company I wish I had invested in – Obopay – was founded by Carol Realini (who I would love to meet one day) after having spent some time in Africa where she saw first hand how powerful a mobile approach to payments could be.
Of course, although I may have been among the first, I’m by no means alone in seeing mobile financial services as an enormous opportunity, or in seeing the developing world as a key driver of innovation. This is great news as hopefully it will encourage people and institutions with more capital than I to look seriously at investing in developing innovative business models in this space. A few weeks ago CGAP (a very interesting organization, check them out) published a report predicting that:
The market of mobile financial services to poor people in emerging markets will surge from nothing to $5 billion in 2012.
There are about one billion people in emerging markets who have cellphones, but no bank accounts. CGAP expects that number to rise to 1.7 billion to 2012, with around one in five of them picking up mobile money — and creating the $5 billion market.
Most optimistic researchers expect more than a billion people in emerging markets to start using mobile money within a few years, while some are more cautious than CGAP.
Now a billion potential customers – even if they are relatively poor – is a market opportunity even the most jaded venture capitalist should be able to get excited about. But it gets better. I figure if you can figure out how to profitably provide basic payment and banking services to this billion, you probably have a pretty decent business model with which to take on the billion or so people who already consume banking services in more developed countries (and who by the way all have a mobile phone…) These potential customers in the developing world are a dream come true in the sense that if you solve their problems, you’ve solved everyone’s problems (via Reuters:)
“The Grameenbank model works, but the scalability is limited,” said Hannes van Rensburg, chief executive of mobile financial services provider Fundamo said on Wednesday.
“The problem is about the inertia of money. It’s very difficult to move very small amounts of money fast,” he said in an interview with Reuters at the GSMA’s Mobile Money summit in Barcelona.
Access to financial services could not only remove the need for long, costly and risky journeys to move money around, but also reduce the burden of constant, active money management endured by those living on tiny amounts and in constant danger of financial crisis.
“Poor people are doing a tremendous amount of financial transactions just to survive,” says Stephen Rasmussen, who runs a mobile banking program for CGAP, an association of non-profit organizations under the auspices of the World Bank that seeks to help to increase financial access for the poor.
“People at the very bottom spend far more energy and mental time on managing these systems than we do,” Rasmussen told Reuters.
Mobile money deployments have huge momentum, with the number expected to double to 120 by the end of the year, according to the GSMA.
The more cynical amongst you might say: “..yeah, ok. But so what? The big telecom and financial services providers are just going to carve this up and so where’s the opportunity?” I don’t have all the answers but I am fairly certain that most – especially western – large incumbent industry players (from both sides) are structurally and evolutionarily poorly adapted to harness this opportunity. They already have, and I suspect they will continue to frame this opportunity through the low resolution historical lens of their existing business models and approach. Phrases like “We are a bank. We do ‘x’.” or “We are a telecom operator. We do ‘y’.” will continue to be all too prevalent. And so while the giants sit around haggling amongst themselves as to how they can and will divide this market, there will be ample room for the nimble, energetic and open-minded entrepreneur to make her mark.
So the internet destroyed distance. Â It took a few years but the death of ‘long-distance’ fixed line telecoms pricing but, helped along by the entrepreneurs and engineers behind things like Skype, it was inevitable that the historical business model of telecom monopolies were destined for the dustbin. Â Yeah, yeah, yeah…ten year old story…so what, boring.
Ok. Â But why on earth does the parallel extortionate business model live on in the world of mobile telephony? Â International roaming charges are a joke, Â especially if you are using the same provider on both sides of a border, but even if you are not; Â ie they don’t make any economic sense (there is very little incremental underlying costs, at least not any that aren’t artificial) and they are extremely annoying and unfriendly to what are generally these companies best customers. Â I don’t know anyone who is happy with their mobile phone provider; Â it goes from grudging indifference through to outright hatred. Â And yet these companies continue to be successful. Â How long can this last?
As a frequent traveller within Europe, and a cost-conscious entrepreneur, I find myself very frustrated and limited by this state of affairs and often find myself using texts and missed calls to arrange for later calls (via skype) rather than bleed money to take a roaming call. Â So when I heard of a new mobile offering that would allow me to use one number, one account, fungible credits across 21 countries, I had to sit up and take notice (via NetworkWorld):
The service allows prepaid subscribers travelling between participating countries to recharge or top up their accounts using airtime vouchers from any participating country. Pre- and post-paid customers will be charged the local rate in the country from which they are calling, and travelers will receive free incoming calls.
Wow sign me up. Vodafone? Orange? T-mobile? O2? Yeah, right… Try MTN! And its just playing catch up with the competition (Zain’s One Network.) MTN’s tag line?
One Africa. One Rate. Thatâ€™s the Spirit.
Gee, good thing I live in the EU…where I guess the equivalent would be along the lines of:
One Europe. Many Rates. Eat Shit.
But don’t mistake me, it’s not a problem that the bureaucrats in Brussels should be responsible for solving, and I’m not so naive to think that the incumbents will be able to adopt disruptive business models, but where are the entrepreneurs??? There has to be an opportunity here – the number of people who live “in Europe” (as opposed to just withing one European country) is large and growing and will continue to grow.
The challenges faced by entrepreneurs in Africa and elsewhere in the developing world are often formidable and extend beyond the usual (already tough) stumbling blocks that ‘western’ entrepreneurs struggle with. However, the ‘developing’ entrepreneurs sometimes have a small but important advantage – in the markets in which they hope to operate, there often isn’t a “way it is supposed to be done.” They have lots of ways of failing (and lots of people telling them they will) but usually it is not because they are seen to be taking an innovative (read: dangerous) approach to business. I was reminded of all this when I finally got a chance over the past couple days to listen to this great presentation/discussion by Ethan Zuckerman and Eric Osiakwan given last fall at the Berkman Center.(Unfortunately the Berkman website does not offer an embed code, so you can’t watch it here but worth clicking on the link above.) Thanks to my friend Juliana – who is also a newly minted TED Fellow (well done!) – for sending me the link (several months ago!)
I suspect that there may be more than a few talented (financial markets) developers who have now found themselves with more free time on their hands than they would like. Â Some of that time might even be spent reading this blog, and so with that in mind, I thought it was worthwhile to pass on this exciting opportunity at Mark Davies’ BusyLab in Ghana (who are behind the fantastic Esoko/TradeNet initiative, on which I have commented several times in the past:)
BusyLab is a software company engaged in building innovative mobile web solutions for the African market and beyond. Our main project, Esoko , is a web and mobile based market information system that includes an SMS gateway component, a J2ME mobile application, and an ajax-driven, open API web application. We were recently featured on CNN and in the Economist, and are currently in 12 countries throughout Africa and Asia. Our mission is to improve livelihoods by building healthier and more efficient markets. We believe agriculture in developing countries is one of the final frontiers to benefit from the technology revolution of the last two decades.
Weâ€™re looking for an experienced software developer interested in trying something different and sharing knowledge in Africa.
You should be able to teach the processes and best practices of software development with our bright young team, and contribute to a world-class innovative web and mobile application product.
You should know:
– php or java (J2SE/J2ME)
– sql databases (postgres or other)
– software development process
– software testing and quality assurance practices
The position would be for a minimum of six months.
I’m sure for whoever takes up this challenge it will be rewarding in many ways. Good luck!
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 SafaricomIPO 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 itâ€™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 telephoneâ€”a tool used to actively maneuver through cyberspace rather than to passively perceive pre-recorded physical and emotional sensations (like a simstim unit).
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.
â€œApplications are heavy in America,â€ says Michael Wakahe, a Nairobi code writer. â€œHere we have to make them light,â€ 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 tomorrowâ€™s technologies. One intriguing possibility is broadcasting local television programs on mobile phones.
In Nairobiâ€™s highest-profile validation, Google opened a development office here last September. â€œAfrica is a huge long-term market for us,â€ Eric E. Schmidt, Googleâ€™s chief executive, said by e-mail. â€œWe have to start by helping people get online, and the creativity of the people will take care of the rest.â€
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.
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.
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 bazaarâ€™s and marketplaces. We go to the supermarket. Itâ€™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 â€œtacit connectionsâ€ 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 â€œconnectivityâ€. We need to look here to see how mobility and knowledge sharing is changing.
Watching this compelling TED Talk – by The Bottom Billion author Paul Collier – over the weekend reminded me how important transparency can be in fostering better governance, and aloowing better leaders to emerge. This is as true for companies as it is for nations. His call for (voluntary) international standards in ‘best practice’ governance is intelligent and, probably more importantly, pragmatic:
And it catalyzed me to rewatch Patrick Awuah’s talk from TED Africa, that for me was one of the highlights of a unforgettable gathering. He states:
The question of transformation in Africa is a question of leadership: Africa can only be transformed by enlightened leaders…but when I speak of leadership, I’m not talking about just political leaders…I’m talking about the ‘elite’: those who have been trained, who’s job it is to be the guardians of their society – the lawyers, the judges, the policemen, the doctors, the engineers, the civil servants. Those are the leaders, and we need to train them right.
Watch this video and tell me it doesn’t make you want to do better. Appreciate more. Your parents. Your schooling. Your good fortune. Your leaders (however imperfect they may seem.)
I’ve often been asked why I am interested in developing nations, and Africa in particular. And, more to the point, how it fits in with the other main themes that define my blog. I guess it comes from an intense curiosity to on the one hand study, understand and learn from failure, and an fundamental belief that in failure and distress lies great opportunity. At the risk of sounding politically incorrect, it is not driven so much by compassion or the desire to ‘do good’ (although I would hope that I have at least the median amount of these attributes), but by a deep frustration and impatience with the wasted potential too often associated with these countries. It is also – and I hope you don’t think this makes me a bad person – driven by an enlightened self-interest. I am convinced that through gaining a better understanding of the failings and challenges faced in these societies, I will be smarter in the face of understanding any market, society or economy. I guess you could say it is part of the “you-learn-more-from-failure-than-success” canon.
One of the other primary themes I address on these pages is the power of traded markets. As regular readers would probably know, I have deep-seated conviction of the usefulness of markets in creating wealth and building stronger (more transparent) economies and societies. I also believe that some of the power of markets arises because they are fundamental to human culture and cognitive processes. Now I’m no anthropologist, nor sociologist, but (without any experimental robustness) I find that the emergence of fundamental market mechanisms in the most anarchic or chaotic societies – too often found in Africa, as proof that markets are fundamental to building working (even if pathological) human societies.
By becoming more knowledgeable about these markets and how to adapt products and services to be successful in what – a priori – are extremely hostile economic environments, I believe will generate many investment opportunities, primarily along two vectors: most obviously, within these developing markets themselves and, less obviously (but probably financially even more significant), by bringing learnings from operating in these markets back to developed markets and economies. Yes, I firmly belief that knowledge transfer can be a two-way street, not just one way from developed to developing economy. A good example is a company I recently discovered called Obopay:
Go mobile with your money. That’s the simple yet powerful idea behind Obopay.
Obopay is the first truly comprehensive mobile payment service in the United States. That means we’re the only service that lets you instantly get, send and spend money anywhere, anytime with anyone. With Obopay you can instantly pay back a friend, split a dinner bill, get money from your parents, get quick cash, pay up or collect on a friendly wager, track purchases, check your balance, and much, much more. And, you can do it all from your phone; anywhere, anytime with anyone.
The Obopay Story
Obopay is not your ordinary brainchild. It didn’t happen in a conference room or during a grueling brainstorming session. The concept for Obopay happened while Carol Realini, Obopay’s founder and CEO, was doing volunteer work in Africa. It was there she observed an interesting phenomenon: people living in some of the most remote corners of the world carried a mobile phone even if they didn’t carry a wallet. Combining the two seemed like an ideal marriage of empowerment and convenience. And that’s when the idea for Obopay was born. Returning to the U. S. she saw incredible opportunities within the ever-growing mobile youth market. Although Carol had not planned on rejoining the work force after a three decade run as a successful entrepreneur, her passion for this new idea changed her mind. She pulled together an all-star team of seasoned mobile and financial professionals, raised venture capital and successfully launched Obopay in 2005.
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.
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! 😉