Riesgos

As I mentioned in my introduction to “Base of the Pyramid” (BoP) businesses, many view them as the ultimate win-win scenario. Businesses can earn a fortune by maximizing profit and selling to the bottom four billion people in the world. The poorest consumers receive goods and services that are priced affordably and improve their lives. Therefore BoP businesses reduce poverty and simultaneously provide rich executives in the global North the incentive to pursue emerging markets. Simple. Win-win. Silver bullet. Panacea. Game over poverty. Goodbye commercials with starving children. Right? Well, not exactly.

Let’s take a step back and consider 5 reflections on BoP businesses…

#1 – Whose pyramid is it anyway?

The term “bottom (or base) of the pyramid” gets thrown around a lot in development circles, but what does it exactly mean? And is it even helpful in a developing country context? According to the original BoP authors (I’m talking Prahalad, Hart, London, Hammond for those who care), the BoP can mean anyone earning less than $2 a day, less than $1,500 annually (PPP), less than $3,000 (PPP), or merely any worker that does not have a formal job with a reliable salary.

According to these authors, the economic pyramid could look something like this:

The base of the pyramid is Tier 4 in the diagram above. According to this iteration of the BoP, there are currently 4 billion people in the world who earn less than $1,500 (PPP) annually.

The problem with this conception of the economic pyramid is in a country like Rwanda where I am now, 77% of the population doesn’t even make $500 annually, so you can forget the $1,500 cut off point that signifies the BoP. Therefore, any business in Rwanda is effectively a BoP business—from the giant telecom company, MTN, to a woman selling peanuts on the street corner. What this teaches us is that oftentimes terms like “BoP business” or “social entrepreneur” make a lot more sense in an American classroom or printed in the New York Times than they do on the ground in a country like Rwanda. Every business is serving the BoP, every entrepreneur views himself/herself as a social entrepreneur.

# 2 – How “private” is the private sector?

BoP businesses are billed as the private sector’s solution to poverty. Typically, poverty reduction strategies are financed by international aid, national governments, foundations, or individual donors. But the BoP literature makes a vastly different claim—business can solve social problems through “co-created” innovation. What I am finding in my case studies in the “off the grid” lighting industry here in Rwanda is every BoP business needs help in order to survive. The government offers tax incentives, the World Bank issues grants, foundations award cash prizes, NGOs and microfinance institutions help with financing, and the businesses use other parent companies to bankroll the BoP operations. Are these truly private sector businesses? Is this a case of socially minded investors providing “patient capital” and willing an industry into existence that can’t sustainably stand on its own two feet? This brings me to my next reflection…

# 3 – It is hard to make money at the BoP.

This point depends on the definition of the BoP, but assuming that a business wants to sell products to the base of Rwanda’s national economic pyramid, it is looking at an uphill battle. Every company I spoke to described major obstacles that had/have to be overcome in order to reach profitability. Those that are profitable rarely sell to the true base of the economic pyramid and instead go after the middle or upper class in a country like Rwanda, which may still qualify as the base of the international economic pyramid. Even the BoP darling, D Light, which has received millions in venture and philanthropic funding, has possibly fallen on hard times recently. Maybe the next addition of C.K. Prahalad’s book should be titled The Struggle for Profitability at the Base of the Pyramid.

My friend Francine shows off a light made by Nuru, a Rwandan BoP business.

# 4 – Consumption vs production at the BoP.

There are two ways to engage the BoP. One is to offer a product or service that is reasonably priced for the BoP market. This line of reasoning asserts that the poor are empowered through consumption. No matter what the product is—solar electricity, clean water, or cheap shampoo—the poor receive a sense of respect, recognition, or a boost in self-esteem when they purchase it. The other way to engage the BoP is to increase the production of the poor. Think of the woman at your church who sells jewelry from Haiti with the face of the Haitian child who made it attached to the bracelet. She is contributing to an increase in the production of the BoP by opening up new international markets through which producers can earn a higher income. I am a bit skeptical that increased consumption alone can lead to poverty reduction. It is possible that an exceptional entrepreneur selling goods to his/her local market can also empower the local market with skills, training and disposable income that can trickle down to other small business owners. However, an increase in productivity is a better long-term solution and likely includes capacity building and knowledge transfer.

# 5 – We want to help the poor as long as we don’t have to live with them.

[Note: None of the companies I spoke to in Rwanda fit this description, but I can personally feel this way sometimes when I take an honest look in the mirror.]

What is a more sustainable poverty reduction strategy: Creating a new company that sells goods to the base of the pyramid or empowering Rwandan businesses to hire and train more Rwandans? If we are only looking at the income side of poverty (please note that poverty is about much more than dollars and cents), I lean toward the second scenario. The problem with the second scenario, helping Rwandan businesses hire more Rwandans, is that it means actually moving to Rwanda. I think this is why BoP businesses are so popular with Western MBA and graduate students. We want it all—poverty reduction, profitability and at least six months a year on the beach with our family and friends. The problem is real poverty reduction, real development means making a long-term commitment to walk with the poor, understand a foreign culture, possibly learn another language (for an example of dear friends who are doing this well, check out Karisimbi Business Partners). I fear that BoP businesses emerge out of business plans that take our own comfort and limitations into consideration. Are BoP businesses about the young capitalists who want to make a difference? Or are they about those in need? I fear that many market-driven poverty reduction strategies implicitly or explicitly take into consideration the comfort of the Western experts who are writing the business plan, a mistake that severely undermines their effectiveness.

I hope these reflections caused you to pause and think about both the potential and the limitations of BoP businesses, an example of the “new form of capitalism” that I have been researching. I will be thinking and writing on these issues for the next three months and will keep you posted as new reflections arise.

Much love from Rwanda,

|Ryan|

10 Observations on Life in Kigali, Rwanda.

Kigali, Rwanda

1. I feel safer in Kigali than I do in Manchester, England. Once the sun goes down there are armed military men and women on almost every corner. The fact that there is 24/7 martial law makes me question how “democratic” and “free” Rwanda is, but I’ll save those musings for another observation.

2. There are no plastic bags in Kigali. They’re illegal. California tried to eliminate plastic bags last year and lobbyists made sure the law didn’t pass. So Kigali is more environmentally friendly than California?

3. There is no trash in Kigali. Okay, maybe there is some trash, but you really have to look for it.

It gets dusty in the dry season, but even rural outskirts are free of trash and clutter.

4. “It is easy to do business, but hard to make money in Rwanda.” This quote is borrowed from a friend of mine. Rwanda brags about how you can register a business in less than 24 hours, the country was the top performer in the World Bank’s 2010 Doing Business report, but the ease of doing business doesn’t mean it is easy to make a profit.

5. Land of a thousand hills. Beautiful country.

SORWATHE tea farm, a few hours outside Kigali.

6. Rwanda reminds me of Beijing, China. If you stay in the city and the major tourist areas, you would almost think that you are in a developed country. However, if you go out to the rural areas it is clear that the majority of the population lives on less than $2 a day.

Sign welcoming me to my first rural Rwandan village.

7. Land of a thousand mzungu. Lots of white people in Kigali. Rick Warren declared Rwanda the first “Purpose Driven Country,” so there are also a lot of white, American, Evangelicals. I see USAID, World Vision, JICA, SVN, GIZ signs everywhere. Interesting considering President Kagame said he wants Rwanda to be operating without any aid by the end of his second term.

8. Rwanda’s economic development model hinges on the private sector. After the 1994 genocide, Rwanda felt burned by the international community and instead reached out to multi-national corporations for help. So far the transformation has been miraculous and it will be interesting to see if this Singapore style development strategy holds up. Rwanda is “helped” by the fact that it is landlocked, overcrowded, and without significant natural resources. This forces the country to open up to foreign direct investment, catalyze innovation and privatize industries.

9. Rwanda is situated on the equator. 70-80 degrees all year long with little humidity. Beats Manchester.

10. Carter Crockett is the man.

Carter Crockett, a former professor from Westmont College, welcomed me into his home for two weeks. This picture is us proving to his wife that we ate healthy food while she was back visiting friends/family in the US. 

|Ryan|

The rural village of Nyange, Rwanda where I am conducting research on “a new form of capitalism.”

Increasingly, MBA and master’s students are engaging in exciting conversations about a new form of capitalism. These young idealists throw around terms like “social entrepreneurship,” “social businesses,” and “base of the pyramid” (BoP) businesses. These students believe they can “have it all” by establishing organizations that are financially self-sustainable (not relying solely on donations like an NGO), creating social change, and in the case of some businesses, also highly profitable. 

Academia has responded to this trend through new research centers including Duke University’s CASE Institute at The Fuqua School of Business, Stanford Business School’s Center for Social Innovation, the University of Michigan’s William David Institute, Cornell’s Center for Sustainable Global Enterprise, Oxford University’s Skoll Centre for Social Entrepreneurship at the Said Business School, and even my alma mater, Westmont College, which recently established the Eaton Family Chair in Business and Economics that will partially “focus on social entrepreneurship.”

I think the best way to introduce this new trend is to dive into one aspect of it. In 2002, University of Michigan economist C.K. Prahalad wrote a best seller titled The Fortune at the Bottom of the Pyramid. His theory is there are 4 billion people in the world that live on less than $2 a day. This is a tragedy, but also a market opportunity. If businesses, big and small, design products and services for these people who comprise the “bottom of the economic pyramid,” they can potentially make a “fortune” and simultaneously improve the lives of the poor. At one point, Prahalad claims that bottom of the pyramid (BoP) businesses can eliminate poverty within 15 years.

Over the next three months, I will be writing my master’s dissertation on BoP businesses, drawing upon academic literature and case studies from the East African nation of Rwanda. I am one of those excited graduate school students described above who wants to change the world in a financially sustainable way, but I am asking real questions about to what extent this is possible. I believe that there is purchasing power at the bottom of the pyramid, but it is proving difficult for businesses to take advantage of. I have serious doubts about the poverty reduction side of the BoP story and believe it is under researched.

Much like I did with microfinance earlier this year, I am going to write five reflections on BoP businesses, one example of this new form of capitalism. Stay tuned to ryanzoradi.tumblr.com, the reflections will be uploaded shortly.

Much love from your skeptically optimistic capitalist who wants to make a difference in the world…

|Ryan| 

I started this blog last September with a couple of motivations. First, I wanted to keep my family and friends informed as to what I was learning, experiencing and reflecting on while in Manchester, England. Second, I wanted to push myself to take risks. Risks are uncomfortable, which goes against human nature, but I believe they lead to spiritual, physical and emotional growth. The name of the blog came from one of my favorite poems, “Instantes” (moments), by the Argentine poet Jorge Luis Borges. The following is an edited excerpt (I apologize to all of you Spanish speakers for my sub-par translation):

“Si pudiera vivir nuevamente mi vida… Correría más riesgos, haría más viajes, contemplaría más atardeceres, subiría más montañas, nadaría más ríos… Iría a más lugares adonde nunca he ido… comenzaría a andar descalzo a principios de la primavera y seguiría así hasta concluir el otoño. Daría más vueltas en calesita, contemplaría más amaneceres y jugaría con más niños, si tuviera otra vez la vida por delante. Pero ya tengo 85 años y sé que me estoy muriendo.”

“If I were to live my life over again…I would take more risks, take more trips, contemplate more sunsets, I would climb more mountains, swim in more rivers…I would go to more places that I have never been…I would begin to walk barefoot from the beginning of spring to the end of fall. I would ride more merry-go-rounds, contemplate more sunrises and play with more children if I had another shot at life. But now I am eighty-five years old and I know that I am dying.”

Jorge Luis Borges reminds me that I have to take advantage of each moment, I have to push myself, I have to take risks. I owe it to my mom who prayed over my brother and me when we were babies that we wouldn’t live ordinary lives. I owe it to my friends who never get tired of throwing me going away and welcome home parties. I owe it to the billions in this world who have never even considered things I take for granted—college, grad school, career changes, vacation.

Tomorrow morning I’m taking my biggest riesgo yet. I’m flying from London to Kigali, Rwanda to spend the next two weeks researching “bottom of the pyramid” businesses. These are businesses that believe they can create both profit and social change by selling goods and offering services to the poor. Specifically, I will research two businesses in the cook stove industry. Efficiently designed cook stoves can reduce smoke inhalation, save families time that would otherwise be used to collect firewood, and preserve the vastly depleted timber supply in Rwanda. Ultimately, this research will become my master’s dissertation and will hopefully answer the question: “Are cook stove businesses sustainable poverty reduction strategies in Rwanda?”

Two days ago I didn’t have my passport, yellow fever vaccination or my dissertation supervisor’s approval to conduct the research. Thankfully in the last 48 hours everything has come together and the decision I made last week to take a risk and buy a plane ticket to Rwanda is looking like a good one.

I will try to blog frequently while I’m gone and share with you what I am learning about innovative private sector solutions to pressing global problems.

Here’s to more sunsets, mountains, rivers, bare feet, merry-go-rounds, sunrises and playtime…in Rwanda.

|Ryan|

Last night we had the “Open Forum” in Manchester, a roundtable discussion about current events with IDPM students and local Rotarians. This is a collection of outtakes from the commercial we made announcing the event. Enjoy!

|Ryan|

The Open Forum (click on the video above for a preview) is a roundtable discussion featuring six IDPM students with experience on five continents. The roundtable discussion will cover topics including: economic development, cross-cultural dialogue, politics and current events. I will be participating in the Open Forum alongside five colleagues hailing from China, South Africa, Jordan, Nigeria and The Netherlands. The goal is to not only have a meaningful discussion amongst colleagues studying at the IDPM, but invite local business leader in Manchester to engage with international students studying in their backyard. The event is sponsored by The Rotary Club of Manchester Breakfast and will take place on June 1st. If possible, I’ll try to get some video footage of the event for those of you back in the U.S. who won’t be able to attend. 

Wish me luck…hopefully I can make the USA proud.

|Ryan|

Young Egyptians talk about the revolution they started and how they plan to see it through to completion. In a very human moment, I realized they are right around my age. “They are just like me…they are just like me,” I kept whispering in disbelief as tears welled up in my eyes. They have dreams of completing their degrees, finding jobs, creating change in this world, but they are putting all of that on hold to fight for justice and democracy in Egypt. They are just like me…but more brave than I will ever be. 

The “Young Revolutionaries” come on at the 4:05 mark in the video below:

Anecdote #1 - Mao

When I first changed money over in Manchester before departing for Beijing I was shocked to find the same iconic face on every denomination of currency. There is one “Founding Father” in the People’s Republic of China—Chairman Mao. More surprising was the fact that the currency I used this last month at Starbucks, KFC, local Chinese markets, and peking duck dinners has not always been utilized in the same way. A new friend in Beijing told me when he moved to the country fifteen years ago, he could purchase very little. He was issued food vouchers and the government provided housing, electricity, and water. Now, China employs a (somewhat) free-market capitalist system, is the largest holder of American treasury bonds (approx. $1.1 trillion) and is projected to overtake the US as the world’s largest economy by 2019 or maybe even 2016. 

Anecdote #2 - Trains

“We’re going to take a metro line that’s not on the map yet.” This was the text message I received from an Australian friend of mine living in Beijing. When China hosted the Olympics in 2008 they revamped the public transportation system. Every sign and automated message is in both Mandarin and English. Movies are projected on the tunnel walls as the train flies by so you have entertainment on your morning commute. On some lines there are even heated seats. Heated seats…on a metro! Outside of Beijing, much of the 2009 stimulus package was plowed into high-speed rail. There is now a railway line that ships goods from Chongqing across Russia and Eastern Europe to Amsterdam in six days. That’s the same time it takes to transport goods from Shanghai to Amsterdam on a ship. Oh, and as for that new metro line I took, it was Line 15. Five years ago, when that same Australian friend moved to Beijing, the only trains running were on Line 1 and Line 2. I’m going to go out on a limb here and assume those trains didn’t boast heated seats either.

Anecdote #3 - Stats

There are dozens of statistics regarding China’s rapid economic growth I could share with you, but this is my favourite. In Fareed Zakaria’s 2008 book, The Post-American World, he writes (my paraphrase): “The best China statistic is that every China statistic is now out of date.” This is how fast the country is changing. By the time you read about the change, it’s already old news.  

|Ryan|

Chart comparing the United States and China (click to zoom in). 

The United States has been in existence for 235 years. China has existed for 5,000 years (21 times the history).  The United States has 310 million inhabitants. China has 1.3 billion (4 times the population). To think that I can drop into one city in China for a couple weeks with the following grasp of the Chinese language— “Hello, how are you?” “My name is Ryan,” “I’m fine, thank you,” “Good morning,” and “toilet”—and leave with some sort of comprehensive understanding of the country is just foolish. I can’t begin to get my mind around China, but in the coming days I would love to share a few anecdotes with you from my time studying its economic and social development.

|Ryan|

Chongqing, China. Heard of it? My guess is that you haven’t. I hadn’t until about two months ago when I met my friend Zhiqing (he goes by Harry), who has lived in Chongqing his whole life. Here are some mind-blowing statistics regarding Chongqing and China in general:

- Chonqing’s population is 32 MILLION and it is considered the fastest growing city on the planet.

- There is so much construction in the city, taxi drivers get lost because their GPS maps and software are immediately out of date when they buy them off the shelf. Harry told me he may get lost when he visits his family this week because he hasn’t been home in six months.

 -Currently in the UK, two cities have a population of more than 1 million. The US has 10. China has 43 and it is predicted by 2030 there will be 221.

- In 2009, the GDP of Chongqing grew by 14.9 percent, twice China’s national rate and 5.5 times the US’ current growth rate.

-Chongqing is upgrading in its manufacturing sector. It is mostly known for cars, but now does business with 3 of the top 6 laptop manufacturers in the world.

I’m hopping on a plane tomorrow for Beijing. It will be my first time visiting an Asian country and I look forward to passing along little anecdotes or bits of information about China while I’m there.

|Ryan|

PS – To read more about Chongqing, click here or here. Also, you can watch a brief video from CNN at the top of this post.