TWO decades ago, with famine ravaging the Horn of Africa, I flew from Addis Ababa to Mogadishu. On the airport tarmac I saw a gleaming small cargo plane being speedily unloaded, for cash, into vehicles that made off within seconds. The contrast with the processing of famine relief that I had witnessed at airstrips in the Ogaden desert was striking. I turned to congratulate my Somali minder, and got an ironic smile. “That’s not aid, it’s the weekly qat flight,” he said. It was all he needed to say.
Qat is a somewhat hallucinogenic stimulant used in Ethiopia, Somalia and Yemen. It is such a profitable cash crop that just then Ethiopian farmers were ripping up their coffee trees to grow the stuff. Qat is also highly perishable. Sold in small bunches of what looks like fresh baby spinach, to be chewed and spat out, in that heat it would be unmarketable within about four hours. Hence the rush. Nothing was going to stop those drivers reaching their customers in time.
This business had nothing to learn about supply, demand and distribution — or about getting government off its back. More pertinently, in view of what we are likely to be told this week by Tony Blair’s Commission for Africa about the impossibility of getting African economies moving without massive Western-financed “investments” in infrastructure and training, here in 1984, right in the middle of starvation, civil war and social collapse, were market forces robustly at work.
Sure, it was drugs. So what? The point of this tale is that market incentives work in Africa — given half a chance, and even not given half a chance. In the absence of social safety-nets, in the absence of courts for justice in the event of commercial disputes, shrewdness is forced upon them as a matter of survival.
The question is how to turn these skills to more productive use. With better access to credit or equity capital and business advice, tiny ventures could expand, generating jobs and, eventually, tax revenues.
It is here, at or near the bottom of the economic pyramid, that Africa’s wealth-creating middle classes will come from. Yet a top-down approach is common to the grandiloquently ambitious Sachs report on the UN’s Millennium Development Goals, to the messianic paternalism of Gordon Brown and, I fear, to the Commission for Africa.
The talk is about “fundamental breakthroughs” in “delivering” free health, education, water and other “public goods”; about what governments are going to dole out. The big assumption, that economic growth will emerge from huge increases in public spending, ignores the history of a continent strewn with the debris of inappropriate investment programmes.
In Africa’s kleptocrat culture, it takes a leap of faith to imagine that misappropriation and corruption will not increase in line with the enhanced opportunities for “rent-seeking” once aid rises to 20-30 per cent of national incomes. At the least, administering these sums will strain dysfunctional bureaucracies.
Government-led “solutions” for Africa, if I may adapt a Blair slogan, look Not Forward, But Back. We should be asking, instead, how best to bring capital and skills together to help these anything but passive “masses” to do better what millions of them, considering the circumstances, already do surprisingly well. That is why Enterprise Solutions to Poverty*, the short report by the Shell Foundation, should be required reading in Downing Street.
This report makes no claims to originality — indeed, it modestly attributes much of its wisdom to Adam Smith. This is a young foundation, at the beginning of a learning curve. But its thinking is hearteningly original. Think of this report as The Barefoot Entrepreneur’s Charter, and you will get the flavour.
It starts with the observation that, if gains from fairer trade and debt relief are to be realised, people need to believe that they will not just be better educated, but better off as a result of that education. Which means jobs, the mightiest weapon in their fight to escape poverty.
It asks good questions. How and where to intervene? How best to complement local enterprise solutions to poverty, setting poor people on “the economic ladder to personal betterment”? How can the “nearly invisible markets” operated by the poor become growth centres for wealth creation? And how, to that end, to use the “value-creating assets” of multinationals as catalysts? Firstly, it emphasises not what might be done with foreign expertise and billions of dollars, but how much can be done right now with local brains and local capital to get “pro-poor” business moving. It defines “pro-poor business” as entities that supply goods and services to poor people, employ poor people or are owned by poor people.
Kurt Hoffman, the foundation’s director, argues that: “There’s lots of talent; and poor customers have to be pretty sharp too. This is the raw material for making a living out of stuff the poor want and can afford.”
Think local, because foreign aid “almost always comes packaged with . . . distant knowledge, foreign skills . . . whose presence for too long can inhibit learning . . . and inhibit growth”. Locals are better at the things all successful businesses must do: assess risk, know your market, offer what your customer wants, and find least-cost solutions.
This is not as difficult as it sounds. Even in the poorest countries, banks exist. The trouble is that they are not lending to clients who are off their “radar screens”. The trick is to help enterprises to set up sound business plans — which is where multinational expertise can come in — and get banks to lend against the plans, not (often nonexistent) collateral. The goal is to get banks to see that there is a return to be made in banking for the poor.
Secondly, financial viability must be the primary objective, with income covering costs and providing a rate of return that all can live with. “Enterprises that remain permanently dependent on subsidy help nobody”. (The foundation rarely now goes into partnership with not-for-profit bodies because they “do not take easily to the business way of tackling problems”.) Financial viability is not just about making a profit; it means businesses can start to grow.
Donors should invest, not give; expect all involved to share the risk; and require partners in their start-up grants, loans or profit-sharing deals to put the customer in charge, because “customer satisfaction means maximum effort focused on the results that matter”.
Third, don’t wait to get everything else right before you start. The poor are used to tough environments. They are also perilously accustomed to grand promises that come to nothing.
This goes beyond traditional corporate philanthropy. It is seat of very ragged pants stuff. The appeal of applying business thinking to development should be obvious; yet what multinationals are mostly asked for is cash, not this sort of engagement. Is this because bureaucrats fear to involve the people who know most about what makes businesses grow? Or is it that the aid community is hostile to commercialism? Direct lending to small and medium enterprises is less than 10 per cent of private as well as official aid to Africa, and enterprise does not rate a mention in Oxfam’s 24 “Pay the Price” demands for more and better aid. The risk is that market-sensitive approaches, using local money and skills, will be crowded out by the huge new flows of aid. Precious little will find its way to Africa’s barefoot entrepreneurs.
*Enterprise Solutions to Poverty: Opportunities and Challenges for the International Development Community and Big Business. www.shellfoundation.org
