Why does the prepaid model work so well and what are the lessons for business model innovation?

Increasingly, employment is becoming ad hoc and flexible. The gig economy and the informal sector share a common characteristic of incomes which are irregular and unpredictable, unlike the timely wages characteristic of formal employment. Both budgeting and planning thus become a challenge when there’s no predictable paycheck to rely on. Expenses are managed against cash flows to minimize volatility, and payments with calender deadlines become a challenge in planning.

It is in this scenario that the prepaid or pay as you go model works so well for the customer, one of the reasons why its ubiquity across the developing world drives the growth of mobile phones. It puts control over timing and amount of money spent in the hands of the user, allowing them juggle voice and data purchases against available cash in hand.

Here are the lessons for business model innovation applicable for a plethora of products and services, drawn from our decade of research into the financial frameworks underlying the operating environment characterized by unpredictability and volatility, and the success of the prepaid model.

Flexibility

The prepaid model is flexible. There is no rigid requirement on the amount that can be spent, beyond the voucher values of each telcom operator, nor are there periodic calender based deadlines such as those in a monthly bill. In Nigeria, traders have been found to top up their phones multiple times a week or even the same day, yet purchasing the smallest denomination of vouchers. High frequency of small amounts is a purchasing pattern that resembles their own cash flow while trading in the informal market. They don’t want to tie up their liquidity in airtime in case cash on hand is required for business, yet their trade is clearly dependent on mobile communication hence the frequent recharges.

This flexibility built into the business model clearly puts control over timing and amounts spent in the hands of the end-user who must manage a volatile cash flow situation.

Seasonality

In addition to the daily or weekly fluctuations in cash flow experienced by gig economy workers or those active in the developing country informal sectors, there are larger variations in income level over the course of the natural year. Unlike the regularity of a monthly salary, irregular incomes rise during peak seasons, such as festivals and holidays, and plunge during low seasons. Developing country economies are more closely linked to the seasonality of agriculture, given the greater proportion of the population’s dependence on farming. Incomes can vary as much as 300% for instance, for tea farmers in western Kenya’s Kisii region. Climatic effects also have greater impact on cash flows, and the current drought in East Africa is expected to depress livestock prices in the coming half year. On the upside, seasonal peaks in consumer durable sales are predictable as the regional harvest timings are a known factor. North India’s post harvest season in late October/November kickstarts an orgy of consumer spending during the festivals and the weddings which take place during this period.

Business models designed to take expected seasonal changes into account can minimize the dropout rate of customers when their income changes.

Liquidity

One of the biggest challenges we have wrapping our heads around when considering more rural or cash intensive economies is that liquidity is not equivalent to wealth, or even purchasing power. While this factor can apply to anyone relying on multiple income streams from a variety of sources, I’ll use the example of a small farmer to explain its importance to the design of business models.

The homestead is managed like an investment portfolio, with different sources of income maturing over different durations of time over the course of the natural year. This is also why control over Timing – frequency, periodicity – of payments, such as possible in the prepaid model, is so critical for the success of payment plans. A smartphone might be purchased after the major harvest of the annual cash crop, but its the daily cash from the sale of milk that would be used for recharges (and other basic necessities). Similarly, a calf may be purchased to fatten against the following year’s school fees.

Negotiability

This leads directly to a factor more relevant to heavily informal economies where variance in systems and structures means transactions are more human centered, depending on face to face communication, trusted references, and mutual compacts rather than legal contracts to enforce agreements. Negotiability of your business model, and its close relation, reciprocity – “the give and take” – is an element missing from faceless institutions that seek to serve this demographic.

This is one reason many prefer to seek solutions outside of formal banking institutions, for example, as their opening hours might not suit the trader’s business hours. In Busia, Uganda, most women traders had established trusted relationships with a mobile money agent, many of whom would show up at the end of the work day to assist the trader in transferring the cash earning safely onto the digital wallet. And, unlike the bank, the telco’s prepaid model allows customers to “negotiate” when and how much they’ll pay within the constraints of far more flexible terms and conditions than most other models.

A farmer has “purchased” this solar panel after coming to an agreement with the shopkeeper. He will pay off the total, over time, as and when he has spare cash, and collect the panel when payment is complete. There is no interest charge. The shopkeeper has put the farmer’s name on the panel but will keep hold of the item.

The greater the span of control over timing and amounts, the greater the success of the payment plan

The prepaid model bridges the critical gap between the predictable formal structures of the large institution and the dynamic challenges of the informal. The bottomline is that the flexibility, negotiability, and reciprocity of the model are more important factors for its success than the conventional understanding of permitting micropayments in advance. Numerous consumer product marketers entering emerging markets experienced this challenge when their micropayment hire purchase models failed customers who might have to miss one or two week’s payments due to illness or other emergencies – their products were repossessed without any recourse to adjustment. Its the rigid calender schedule embedded in a payment plan that is often the barrier to a high ticket purchase than the actual price itself.

None of these factors are insurmountable with today’s technology, and the field for business model innovation for irregular income streams such as those in the gig economy or the informal sector is still wide open for disruption.

Lessons for development from the demand driven investment strategies of the informal sector

This shopkeeper in Laare, Kenya provided me with deep insight on how investments in expensive inventory are managed in a heavily cash based economy. He runs a consumer electronics store stocking everything from solar panels, music systems, spare parts and batteries, through to mobile phones and accessories.

His purchasing decisions are based on visible consumer demand, he said, preferring to stock what he calls “fast moving items” that sell and keep the cash flowing than to risk tying up capital in something that might not sell. For instance, he pointed to a dusty 5W solar panel, this has been sitting here for a year since most customers in the area prefer buying 20W or larger.

In this context, “fast moving items” are not the same as the marketing term “Fast Moving Consumer Goods” or FMCG which refers to over the counter perishables and consumables like tea, shampoo, biscuits or soap. Instead, they refer to the product range that sells in the local market, and as my visits to electronics stores in different parts of Kenya back in 2012 quickly showed, each market had different price points and products which tended to be “fast moving”.

In a more economically challenged region, it was black and white 14″ TV sets, smaller solar panels and no name Chinese mobile phones, while in the wealthier region around Kilgoris as we see in the previous post, its flat screen Sony Bravias and very large solar panels that sell.

Local demand drives decisions, and thus business growth strategies and investments. Can this insight not also inform development strategies?

The Economist has just published this article on how fish farms are experiencing a boom in response to the growing demand for food from the big city:

The task of feeding that huge population has not been accomplished by the government, by charities or by foreign agricultural investors. It is the work of an army of ordinary Bangladeshis with an eye for making money. Mr Belton’s research shows that the number of fish-feed dealers in the main aquaculture areas more than doubled between 2004 and 2014. So did the number of feed mills and fish hatcheries. Mr Belton has found similar trends in Myanmar, where the fish farms are often larger than in Bangladesh, and in India.

As well as transforming landscapes in a large radius around Dhaka, the fish boom has changed many people’s lives. Aquaculture requires about twice as much labour per acre as rice farming, and the demand is year-round. Many labourers who used to be paid by the day are now hired for months at a time. Seasonal hunger, which is a feature of life in some rice-farming regions of Bangladesh, is rarer in the watery districts. People are eating more protein. Mohammad Shafiqul Islam, a feed dealer, points to another advantage. Because food is now so cheap in the cities, migrant workers are able to send more money back to their families in the villages.

I believe this element of assessing local or regionally accessible demand for a product or commodity before investment is often missing even from the private sector influenced “making markets work” philosophy now prevalent in development strategies. Too often, the “market” is framed as an international one, and an e-commerce platform devised as the bridging solution. Local intermediaries are demonized as “brokers out to squeeze profits at the farm gate” without once considering their role as infomediaries of supply and demand. The very information networks that provide the shopkeeper with guidance on what would sell and what to order are often erased and replaced with an app. Little or no attention is paid to existing consumer demand nor any attempt to link to the existing ecosystem. The informal becomes invisible.

How many of these pilots fail to sustain themselves once the project’s funding cycle ends?

A Unique Path to Development Seen for the Informal Economy

Just recently I stumbled over this slim book < 60 pages that analyzed existing data sources in order to frame an answer to the research question they posed:

How did the informal economy―markets and the private sector―develop in the absence of legal and administrative frameworks to support it?

Some of the most intriguing insights extracted here:

And they echo my own statements regarding the East African Community that its the informal sector that’s growing faster and responsible for employing the majority of the population. This makes integration and bridging efforts between the formal and global together with the local and informal even more critical.

The path to integration as described in the book may not apply to the African economies but holds some unusual insights for those in eastern Europe which may struggle with some of the same issues of top down planning and grassroots income generation.

All in all, the step by step approach over the past decade to recognize, and thus integrate the informal sector was much appreciated and if you’re interested, you can download the book here.

Household energy consumption behavioural study in East Africa: Cooking (Part 2 of 3)

Scrap wood fueled three stone fire in sheltered corner

The following is extracted from a six month study during 2012 on household energy consumption behaviour in rural Kenya and Rwanda among the lower income demographic, that led to an understanding of some of barriers hampering the sales of client’s solar products in this market. This 2nd part will focus on fuel usage and consumption behaviours for cooking. Users sampled for this study were selected based on varying fuel consumption patterns, ranging from a single homestead to a rural hotel catering for more than 12 hours a day.

Fuel Usage Behaviour is Influenced Greatly by Location

Choice of fuel and decisions on quantity kept in stock for cooking is dependent on the location of the primary residence rather than income. Rural homesteads in Kenya have a separate outhouse for cooking and firewood is the preferred choice of fuel even in those regions where shambas are too small to support their own grove of trees.

Kilonzi’s wife dreams of upgrading to an LPG cookstove some day in the future

That is, while Kilonzi’s wife on a large shamba in Makueni might stack enough firewood for just two or three days, collected for free from her own backyard, Mama Grace the tea farmer with land constraints in Kisii will purchase an entire tree to last her for a month. Meanwhile, the more economically challenged on small shambas devote a week foraging far and wide for enough brushwood to last for two or three months before needing to take time away again from more pressing household duties.

Charcoal is also used on the homestead but only for certain tasks like making chapatis or for quickly brewing tea for visitors or in the morning rush before school or work. Even if the charcoal is made right on the shamba from a tree that needed felling, most of it is kept aside for sale and considered a source of cash money rather than consumed as fuel.

Residents who live away from their shambas, taking up rooms in town due to their work where cooking must be done in the same space as living and other activities, cannot use firewood. In fact, if renting, landlords clearly state that the use of firewood is banned, as a safety precaution. Thus, urban residents are forced to choose fuels that can be used in small, portable cooking stoves and charcoal ends up being the most common due to its relative cost as compared to kerosene. Those who do own a kerosene stove are in the minority and again, its use is only for very specific tasks that require speed such as making tea for visitors or in the morning.

Heavy Duty Charcoal Usage by Hotel

For those whose primary fuel for cooking is charcoal, the quantity purchased is dependant on cash in hand if their income is not from a salaried position and this ranges from a ‘deben’ which lasts for about 5 or 6 days and costs around 100 – 130 Kes to an entire sack which ranges from 500 to 750 Kes and can last as long as a month. Pricing for fuel is closely related to its proximity to the source, since transportation can be expensive and convenience is a service that comes with a premium. Kerosene which sells for 83 Kes a litre at the petrol station in town was found to be selling at a rate of 140Kes/litre at a small duka deep in the interior.

Part One: Introduction to Household Energy Consumption Behaviour Study in East Africa (2012)
Part Three: Lighting & Concluding Remarks

Some Highlights from Reviewing the African Consumer Market 2014-2017

Photo by Niti Bhan in Busia market, Kenya in January 2016

Recently I was reminded of the cover story in the Africapitalist magazine published back in 2014 on the theme of the true size of the African Consumer market, that is, the hidden and untapped purchasing power embedded in the continent’s vast informal and unrecorded sector. Today I’ll start by reviewing some of the consumer trends, particularly in FMCG, that have become rather obvious over the past three years.

1. Airtime is now a Fast Moving Consumer Good (FMCG) With the advent of a wide variety of different voice and data bundles, as well as affordable smartphones, airtime in Africa, while still prepaid, can be considered along side tea or sugar its distribution and sales patterns. In fact, smartphones and in-app purchasing have made it so that airtime voucher sellers are rapidly going out of business in key markets like Nigeria. In early adopter markets like Kenya’s this digitization has led to barriers lowering for the adoption of crypto-currencies like bitcoin and ethereum.
2. Hair is a huge business across the continent. This goes beyond cosmetic products like shampoos and creams, to include hair extensions, weaves, services, and add-ons. Hair care related services are mostly in the informal sector while products themselves might be both formal (Unilever, Godrej, Marico) or informal (recycled weaves, imports from Indian temples, etc). Services are also traded and Maasai experts often travel around working and sending money home from providing weaving services. There is a gap in the market for local players and branded chains of retail outlets for the Maasai moran to leverage.
3. Women’s hygiene and well-being products. This market has been valued at USD 800 million annually and is virtually untapped by formalized solutions. There is literally a gap of products priced for women who are neither beneficiaries of NGO donations, nor can afford urban supermarket prices of imported brands. Otoh, this FMCG product has finally become visible as a market opportunity.
4. Social Biashara. Smartphones and free-to-use social media networks such as YouTube and WhatsApp have transformed the entrepreneurial opportunity space for unemployed youth struggling to earn in challenging economies across the African continent. In subsequent posts I will consider the impact of e-commerce and changing consumer behaviour on existing markets, both formal and informal. For now, assume that these apps have lowered the barrier to finding and providing trade goods and services and giving rise to an entire demographic of freelancers in cutting edge services including Ethereum/Bitcoin to Euro brokerage.

Women’s Entrepreneurship Driving Emerging Future in Africa

We’ve been silent of late on this blog due to work deadlines and end of the year paperwork, however this will change. I’ve promised to write one blog post every day – even if its a few lines – for the next 30 days. I realized it was habit and discipline that was missing, not content related to this blog.

Meanwhile, here are some data points to ponder:

African entrepreneurs are missing out on the untapped potential market – said to be worth around $ 800 million – for women’s hygiene products such as sanitary napkins. The opportunity exists at every price level, from branded consumer oriented premium goods distributed through local supermarket chains, to rural handmade and re-used napkins that enable girls to go to school. What are you waiting for, if you’re looking for new ideas to invest in?

African women are also driving the small home solar revolution. I’m planning on sharing key extracts from the household energy consumption behavioural study I’d conducted in rural Kenya and Rwanda soon on this blog. In the meantime, the article linked above offers some food for thought on this trend.

Elsewhere, women whose herds of goat were ravaged by drought are picking up the pieces with cash grants which they are ploughing back into their businesses.

Ahatho Turuga arranges goods in her shop set up with support from The BOMA Project in Loglogo village, near Marsabit town, Kenya, on November 29, 2017. Thomson Reuters Foundation/Benson Rioba

This theme is best wrapped up by an article showcasing Maggy Lawson of Lomé, Togo, a woman whose trading ability has made her famous throughout the African continent and abroad.

Maggy Lawson is a Mama Benz. That’s what people in West Africa call women who have become rich in the textile trade – so rich that they can afford a Mercedes-Benz. Maggy Lawson owns homes in Dallas, Washington, Paris, and Monaco, as well as a villa on the outskirts of Lomé with marble floors and teak paneling. She is both wealthy and influential, representing the coastal regions in the Togolese Parliament and advising the Minister of Labor on important economic questions.

Here is our report on Nigeria‘s informal and formal textile trade, tracing the value web from end user customer through brokers to wholesalers and retailers of appliques.

Financial Behaviour Patterns Observed Among Households in Rural Informal Economy in Asia

This is the original working paper of the research conducted on rural household financial management, in developing country conditions, pioneering the use of methods from human centered design for discovery, during Nov 2008 to March 2009, aka the Prepaid Economy Project. It was peer reviewed by Brett Hudson Matthews, and I have incorporated his comments into the PDF.

This research study was carried out with the aid of a grant from the iBoP Asia Project (http://www.ibop-asia.net), a partnership between the Ateneo School of Government and Canada’s International Development Research Centre (www.idrc.ca)

The abstract:

The challenge faced by Bottom of the Pyramid (BoP) ventures has been the lack of knowledge about their intended target audience from the point of view of business development whereas decades of consumer research and insights are available for conventional markets. What little is known about the BoP’s consumer behaviour, purchasing patterns and decision making tends to assume that there are no primary differences between mainstream consumers and the BoP except for the amount of their income – pegged most often between $2 to $5 a day.

In practice, the great majority at the BoP manage on incomes earned from a variety of sources rather than a predictable salary from a regular job and have little or no access to conventional financial tools such as credit cards, bank accounts, loans, mortgages. This is one of the biggest differentiators in the challenge of value creation faced by BoP ventures, particularly among rural populations (over 60% of the global BoP population lives in rural areas).

Exploratory research was conducted in the field among rural Indian and rural Filipino populations in order to understand how those on irregular incomes managed their household expenses. Empirical data collected by observations, interviews and extended immersion led us to identify patterns of behaviour among the rural BoP in their management of income and expenditure, ‘cash flow’ and ‘working capital’ and the significance of social capital and community networks as financial tools. Practices documented include ‘conversion to goods’, ‘stored wealth’, ‘cashless transactions’, and reliance on multiple sources of income that mature over different times.

This paper will share our observations from the field; identify some challenges these behaviours create for business and also explore some opportunities for value creation by seeking to articulate the elements that BoP ventures must address if they are to do business profitably with the rural ‘poor’ based on their own existing patterns of financial habits and norms.

The Conclusion:

In sum, it can be concluded that the challenges for value creation can be quite different for BoP ventures interested in addressing the rural markets. From the observations made in the field, we can highlight three key implications for business development. These are:

Seasonality – with the exception of the salaried, everyone else in the sample pool was able to identify times of abundance and scarcity over the course of natural year in their earnings. Identification of a particular region or market’s local pattern of seasonality would benefit the design of payment schedules, timing of entry or new product and service launch, for example.

Relative lack of liquidity – The majority of the rural households observed tended to ‘store wealth’ in the form of goods, livestock or natural resources, relying on a variety of cashless transactions within the community for a number of needs. Conventional business development strategies need to be reformulated to take this into account as these patterns of behaviour may reflect the household’s purchasing power or income level inaccurately.

Increasing the customer’s span of control over the timing, frequency and amount of cash required – Since the availability and amount of cash cannot be predicted on calendar time, this implication is best reflected by the success of the prepaid mobile phone subscriptions in these same markets. When some cash is available, it can be used to purchase airtime minutes for text or voice calls, when there is no money, the phone can still receive incoming calls. Models which impose an external schedule of periodicity, frequency and amount of cash required may not always be successful in matching the volatile cash flow particular to each household’s sources of income.

How the African movable assets bill can unleash innovation opportunities for the rural economy

Somewhere in Kenya, 4th June 2012 (Photo: Niti Bhan)

As Kenya joins Zambia and Zimbabwe in ratifying a Movable Property Security Rights Act, there’s a sense that the floodgates to innovation in access to finance might be taking place in rural Africa, south of the Sahara and north of South Africa.

Kenya’s law also goes beyond the cows and goats and allows a borrower to collateralise future receivables arising from contractual relationships.

How it ends up being implemented will set the stage for the next big disruption in financial inclusion. In the meantime, let’s take a closer look at the opportunity space for innovation in the informal and rural economy that dominates these operating environments.

1. A whole new bank, designed to meet the needs of rural Africa

Last night, a tweet by Charles Onyango-Obbo struck me forcibly, and reminded me of our Banking the Unbanked proposal crafted for ICICI back in January of 2007.

The very fact that contemporary thoughtleaders in the Kenyan banking industry are unable to take the concept of livestock as collateral for loans seriously, taken together with the deeply embedded assumptions of the formal economy’s financial structure leaves the door wide open to disruption.

It would not be too difficult to conceptualize a rural, co-operative bank custom designed for the local operating environment. In Kenya, where the mobile platform provides clear evidence of the viability, feasibility, and desirability of innovative financial tools and services that work for irregular income streams and provide the flexibility, reciprocity, and negotiability inherent in the cooperative local economies, such a bank could change the social and economic development landscape overnight.

In fact, one could conceivably foresee this “bank for rural Africa” scaling far beyond Kenya’s borders.

2. Insurance sector must respond to banking disruption

The domino effect of disruption in the banking sector should kickstart the stagnant insurance industry that has been ineffectually attempting to scale outside of the formal economy’s neatly defined boundaries. Bankers willing to take livestock as collateral for loans will therefore require insurance on their movable asset as a surety against the risk of disease, or drought.

Current products tend to emerge from the international aid industry, seeking to insure smallholder farmers against the shock of losing their livestock to climate related disasters such as prolonged drought, or an epidemic of illness. There is a dearth of relevant and appropriately designed insurance products from the private sector targeting the needs of the rural economy. For all the talk of African urbanization, even the most optimistic projections show that East Africa’s rural population will continue to dominate.

Thus, this an opportunity ripe for the plucking, given the right mix of product, pricing, and promotional messaging.

3. Disrupting assumptions of Poverty and Purchasing Power

Whether it is Kenya’s significant non profit sector or the nascent consumer oriented markets, the redrawn lines defining assets, collateral, and the floodgates of access to finance will require a complete overhaul in the way the population is segmented and measured.

Once these hundreds of movable assets have been valued, insured, and registered officially, even the most reluctant banker must now count the pastoralist among his wealthiest local clientele, able to draw a line of credit against his true wealth to the tune of thousands of dollars without feeling the pinch.

4. Triggering a rural investment and consumption boom

From mabati for a new roof and simti for the backyard wall, to the latest model smartphone or pickup truck, the concurrent boom in investments and consumption provides an ample playing ground for new products and services tailored for the contextual needs upcountry. Finally, Farmer Joe can install that solar powered irrigation pump for his orange groves in time to reap the next big harvest. And Mama Mercy can think of building up a nest egg of investments faster from the income provided by her farmyard animals.

Kagio Produce Market, Kenya, April 2013 (photo: Niti Bhan)

This might turn out to mean upgrading to a breed of high yield milch cows or being able to provide them with better quality feeds and medicines, but the financial bridge that a well designed strategy leveraging this movable assets bill and it’s timely implementation could mean the difference between the brass ring or treading water.

5. Trade and Commerce will open new markets

Given that the Kenyan Movable Property Security Rights Act 2017 goes beyond livestock to include other stores of wealth and value creation, there will be an undeniable impact on regional and cross border trade. No trader will give up the opportunity to leverage their existing inventory if it qualifies for additional credit that can be plowed back into the business.

On the road to Bungoma, Western Kenya, February 2016 (Photo: Niti Bhan)

Trader’s mindset and the documented biashara growth strategies already in evidence point clearly to the productive economic use of this access to finance rather than passive consumption alone. As their business grows, they will require a whole slew of tools and services tailored to their needs. This could be as simple as a basic book keeping app or as complex as customized commodity (assets, livestock, non perishable foodstuffs, grains and cereals) exchange platforms that integrate the disruptive new services percolating through the entire ecosystem.

In conclusion

These few steps outlined above are only the beginning of laying the foundation for disrupting the current social and economic development trajectory of small town and rural Kenya. I see immense potential for both direct to consumer as well as business to business segments for forward looking organizations seeking a foothold in the burgeoning East African markets.

We, at Emerging Futures Lab, would be pleased to offer you customized white papers on the opportunities for new products, services, and even business models, based on this emerging financial environment recently signed into law by President Kenyatta. Contact us for an exploratory conversation on the scope and scale of your particular industry’s needs. Our experienced team can help you maximize these opportunities from concept design and prototyping all the way through to path to market strategies.

As global firms (MNC) pull back from emerging markets, what does this mean for Africa?

Last week’s issue of The Economist drilled down deeper to cover the retreat of globalization – at least in the most visible form, that of the multinational brands dotting cityscapes around the world. The retreat of the global company, they trumpet, the end of Theodore Levitt’s vision.

Credit Suisse takes a concise yet comprehensive look at these weak signals in their well-written report that frames the situation as a transitional tug of war between globalization and multipolarity – an inflection point, rather than a retreat. They make it sound like missing the turn at an intersection and having to come back to the traffic lights to figure out which way to go.

Duncan Green of Oxfam captured the essence well:

But the deeper explanation is that both the advantages of scale and those of arbitrage have worn away. Global firms have big overheads; complex supply chains tie up inventory; sprawling organisations are hard to run. Some arbitrage opportunities have been exhausted; wages have risen in China; and most firms have massaged their tax bills as low as they can go. The free flow of information means that competitors can catch up with leads in technology and know-how more easily than they used to. As a result firms with a domestic focus are winning market share.

In the “headquarters countries”, the mood changed after the financial crisis. Multinational firms started to be seen as agents of inequality. They created jobs abroad, but not at home. The profits from their hoards of intellectual property were pocketed by a wealthy shareholder elite. Political willingness to help multinationals duly lapsed.

Of all those involved in the spread of global businesses, the “host countries” that receive investment by multinationals remain the most enthusiastic.

The first thing to note is that the global MNCs being considered by The Economist are primarily the legacy ones – fast food chains like McDonalds and KFC (Yum Brands) – whose shiny logos used to represent the liberalization of the closed markets of India and China.

Even at powerhouses such as Unilever, General Electric (GE), PepsiCo and Procter & Gamble, foreign profits are down by a quarter or more from their peak.

or the few examples of emerging market brands that have gone global such as China’s Lenovo which purchased IBM’s Thinkpad and India’s Airtel which bought into the African market.

What’s being touted as their competition are regional brands, who aren’t as stretch out globally in terms of their supply chains, and less vulnerable to currency volatility. Further, the majority of these global brands are heavily dependent on their B2C marketing and sales – the question of whether they ever managed to understand their new markets is a topic for another post.

And so, we ask, what will this mean for the emerging economies of Africa, who are only now seeing the first fruits of FDI? Who will come and develop their consumer markets?

India and China apparently. And strategically – through unbranded affordable commodities and the acquisition of successful regional consumer brands – rather than the legacy MNC approach influenced by Levitt. Even Japan recognizes this, as they seek to piggyback on the Indian experience.The economics of scale that propelled the first rounds of growth for the manufacturers of washing machines and the automobiles never did make sense infrastructurally for the majority of the African consumer markets.

Instead, the patterns pointed out by The Economist and Credit Suisse imply that opportunities will lie among regional stars – Equity Bank of Kenya, for instance, whose regional footprint is surely but steadily creeping outwards across the East African Community and trading partners – or, the telcom brands such as Tigo (Millicom) who innovate for each of their local markets.

The jobs and exports that can be attributed to multinationals are already a diminishing part of the story. In 2000 every billion dollars of the stock of worldwide foreign investment represented 7,000 jobs and $600m of annual exports. Today $1bn supports 3,000 jobs and $300m of exports.

Godrej, for instance would be considered a regional Indian giant rather than a multinational in the conventional sense of a Unilever or P&G.

Where [MNCs] get constrained is, they are driven by lot of processes that are global. For a smaller organisation like us, we are completely empowered; decision-making is quick and we can initiate changes very fast. We are more agile and have an advantage over them.

Yet their expansion outside India shows a “pick and choose” strategy of markets they’re comfortable entering.

The group’s acquisition strategy hinges on identifying unlisted companies built by entrepreneurs looking for capital, picking up stakes and working with them to scale up their businesses.

At least two homegrown Kenyan FMCG brands – skincare by a global giant and cosmetics by private equity – have been acquired. As have snack foods, spices, dairy products, and other products that cater to local tastes. The best known being Fan Milk of West Africa. Private equity such as Abraaj make no bones about going after consumer driven opportunities.

Given these choices, sustainable African businesses who understand their consumer markets have an opportunity to establish their brands and grow – with the financial help that’s strategically becoming available.While Chinese imports make the market highly competitive and price conscious, fish and tyres are substitutable goods in a way skincare and cosmetics are not.

African consumer companies – formal, informal, or semi-almost there-formal – need to hustle right now.

The retreat of the MNCs offers a chance to exhale, and expand, and grow, but the advent of the East implies waking up to the need for serious strategic thinking about domestic comparative and competitive advantage – one of which is incomparable knowledge of local consumers, culture, and needs, and critically, experience of their vast informal sectors and cash intensive economies.

Professionals stand above the competition: Branding lessons from street vendors of Africa

Zimbabwe

Farai Mushayademo’s distinctive dress sense, with a different shiny suit every day, makes him a darling of customers and helps him beat the “rising competition,” he said.

This article on the increasing competition for the burgeoning informal economy of Harare, the capital of Zimbabwe, came less than a month after we saw this smartly turned out fruit vendor plying his trade in the streets of Accra, Ghana.

Ghana

For communicating brand quality, the Ghanaian gentleman surely deserves an award. His read to eat fruit was as smartly packaged and labelled as any consumer brand in a supermarket.

I’ve written before on the topic of ‘Branding the Unbranded’ – whether its the humble avocado being sold by the side of the road in upcountry Kenya, or a designer BBQ meant for the emerging middle class – but these distinctively dressed gentlemen on two opposite ends of the vast African continent come under an entirely new category of product and service innovation happening in the informal sector.

How do you set yourself apart in the unbranded informal economy in response to rising competition is a challenge. Ghanaian market women’s customer development and retention strategies in a commodity market (potatoes) were documented a decade ago, and found to rely on social skills, including non verbal ones such as eye contact and encouraging smiles. Yet, her advantage is that her potential customers are slowly walking through the market, looking for the best potatoes to purchase. She has the time to call out and attract their attention.

For these men on the streets, walking through traffic, that advantage is fleeting or nonexistent. They must grab attention *and* communicate their messaging in an instant (can they have been reading Gladwell’s blink?) – and the fruit vendor, with his spotless white gloves, and packaged fruit, clearly rises above the rest with his strategy.

The police are also, one hopes, less likely to chase a man in a three piece suit off the street. This is one pan African trend worth keeping an eye on.