Archive for the ‘Sub Saharan Africa’ Category

Why the Potential of the African Consumer Market Cannot be Considered in Isolation from the Informal Economy

Top flight management consulting firms like McKinsey, BCG, Deloitte, PwC et al have been taking a good long look at the emergent African Consumer Market for a number of years now. McKinsey, in fact, has just released a book on the theme, authored by their leading Africa experts. All of them acknowledge the existence of the informal sector in retail and wholesale trade and distribution, recognizing the competitive advantages and disadvantages for modern retail and consumer product companies seeking growth in African markets. They know their clientele must operate in the formal sector, and target the wealthier segments of the populace, and this is what they focus on.

Brookings Institution, however, has now caught up with their version of such a report – drawing heavily on consumer data from all the previous management consulting firm reports mentioned above – and this has inadvertently brought to light a major blindspot in the assumptions being made on the African consumer market opportunity. Unlike the management consulting firms who position their reports for the private sector, Brookings is necessarily forced to consider policy implications of their publication by virtue of their institutional nature.

Therefore, you have a report on the African Consumer Market opportunity that includes sections that attempt to justify the rise of consumerism as a signal of industrial development, through citations based on development indicators from the formal economy in sectors such as agriculture and manufacturing, thus necessitating optimistic expectations of the decline of the informal sector. This theory of market evolution predicated on the decline of the informal as a signal of economic development, has, in fact, been debunked by numerous learned scholars in the field of development economics, such as Martha Alter Chen, and Ravi Kanbur.

By taking this route, the Brookings’ report is grounded in the assumption that the informal economy is a separate animal all together and one which will vanish into thin air with the ‘rise of Africa’ and her growing middle and upper classes with the discretionary incomes that make them so attractive to global brands.

This framing reveals their blindspot.

Ghanaian scholar Bright Stevens, and the OECD, both have described the emergent middle classes expected to make up the bulk of the African consumer market as those whose roots are firmly established in the informal economy, and that this emerging middle class is unlike the conventional descriptions of middle class as seen in the developed world.

That is, the emerging consumer classes of the African continent are more likely to earn their discretionary income from various activities that fall within the informal economy than from more traditional white collar employment or civil service. This can be easily discerned from the available data on the proportion of the working age population dependent on the informal economy, and the size of that informal economy, in each of the major consumer markets highlighted.

Take Nigeria for example, Africa’s largest economy and most populous nation. Estimates from the IMF put the informal sector’s contribution to the national GDP as high as 60%, providing employment for as many as 85% of the working population. More than 90% of retail (and related services) is provided by the informal sector. This will not be transforming any time soon into modern retail, even given the penetration of ICTs as projected by the Brookings report.

The African consumer market is not growing in isolation from the informal economy, nor are the impacts of digital commerce only influencing changes in consumer behaviour. A vast majority of these emerging consumer classes are directly involved in the informal sector, and any changes in their spending patterns and behaviour are bound to have corollaries in their commercial activities and business operations. The two are not two separate entities.

In fact, ICT penetration is changing the informal economy, particularly retail and wholesale trade. B2C sales and marketing facilitated by digital platforms are a contemporary reality, visible if you know where to look online. WhatsApp, Facebook, Twitter, and Instagram offer scale and reach to enterprising entrepreneurs looking for new customers, and the proliferation of on demand apps for services such as car hailing are promoting wholly new business models for transportation and distribution. This is the current reality evidenced by any number of new startups announcing their arrival in the tech press in Nigeria, Kenya, Ghana, South Africa, and more.

What is not transforming as rapidly are the policies and regulations concerning formalization, and those barriers and costs still hold sway. Trade and services are still likely to remain within the informal sector even if their productivity and efficiency are being improved almost daily by the adoption of new and improved communication technologies. Viable pathways for their integration into the formal economy are few and far between. And, their progress and development is hampered by obsolete models and worldviews, as though they’re stuck in stasis.

It is this blindspot that makes the Brookings report at odds with the current landscape of the African operating environment for consumer oriented companies and global brands, particularly in the most promising markets highlighted such as Nigeria or Kenya, or even Angola.

The African consumer market cannot be considered in isolation, as though it’s on its own trajectory of evolution and development, separate and apart from the informal economy. Nor can one segment decline without having impact on the other. Their linkages and interdependencies are far too closely intertwined for that to happen. The rise of the African consumer class will remain linked to the health of the resilient and persistent informal economy for some time to come.

 

Further reading: How Africa Is Challenging Marketing, Harvard Business Review, June 2014

The Quiet Digital Revolution: Indigenous Innovation in Intelligent Information Systems

Big data, machine learning, and artificial intelligence are the buzzwords of the day, along with the obligatory blockchain and bitcoin. Much is being written on their potential to solve Africa’s problems, or India’s challenges. In turn, each has been promoted as the next big thing to address poverty and its discontents. Yet, we note, that all of them, without exception, assume implicitly and some go as far as to articulate explicitly, that these future and potential solutions are the sole purview of the first world’s silicon centers. “We know best, and we are the experts in this, as in so many other things, when it comes to the context and conditions of developing countries.”

However there’s a quieter digital revolution taking place, using much the same cutting edge technologies and techniques. One which is emerging from the deep contextual knowledge of local needs and local challenges, tapping into opportunities in relevant and accessible ways. I found two exemplars of this ongoing trend worth highlighting here, one from Kenya and one from India.

From Kenya, technology enabled livestock insurance

Andrew Mude, a senior economist at the International Livestock Research Institute (ILRI), created a program that protects pastoralists against losses from drought, an increasing scourge for nomadic communities in northern Kenya and southern Ethiopia. The index-based insurance uses satellite imagery revealing how much foliage has been lost to calculate the projected impact on the herds. It eliminates the need for an actual census of dead animals. More than 3 million pastoralist households in northern Kenya depend on goats, cows, sheep, and camels, and the high rate of livestock losses during droughts is a major cause of childhood malnutrition. With their households constantly on the move, the payments give families enough money to survive economic downturns without having to sell off their herds. Foreign aid programs from several nations help subsidize the cost of the insurance.

Mude, 39, says his interest in finding new tools for economic development comes from his parents, who were the first boy and girl from the Marsabit district of northern Kenya to attend high school and who later helped other villagers acquire an education.

Dr Mude won the 2016 Norman Borlaug Award from the World Food Prize for his innovative program that provides pastoralists with livestock insurance.

From India, Data Intelligence Drives Microtargeted Development in 290 Villages

SocialCops partnered with the Tata Trusts and Government of Maharashtra to drive rapid development in Chandrapur. The story behind this pioneering initiative of the Maharashtra government required the data-mapping of three blocks of the district at an unprecedented level. In this remote, inhospitable setting, a mammoth task was conducted —a survey to gather data in villages on every single individual.

The objective: setting up a real-time data system that can help the authorities and communities plan at the local level according to their specific needs.

Computing power and data intelligence allows for a customizable, human centered approach to social and economic development at scale, and India, with her vast population and their myriads of unmet needs, is showing us how to do it right, for future scale.

As their blogpost says, a quiet digital revolution is underway.

Africa’s Delivery On Demand Apps are Transforming the Informal Economy

When women in rural Rwanda can buy sanitary napkins and contraceptives, on demand, simply by pushing a few buttons on their phones, you know the digital informal economy is here to stay. And, its not just imported apps and social enterprises pushing this digital commercial activity. The “uberization” of the African informal economy is well underway across the entire continent, inspired in part by the visible success of the now ubiquitous ride hailing apps.

The concept of using your phone to access a product or service, on demand, has taken root as a viable and feasible business model for startups from Angola to Ghana to Nigeria, and Rwanda, of course. And, its spreading beyond the usual suspects to yet-to-be recognized nations like Somaliland as well as it’s far less stable neighbour, Somalia. The impact of this will be felt long after Uber itself has lived or died, as the case may be.

For the vast majority of the workforce in the informal sector, this approach to business development increases their reach and customer base, with net positive impact on their income streams and cash flows. You don’t have to sit and wait passively for a customer to show up if she or he can ping you for an order on your phone. Your discoverability has been exponentially boosted by technology.

Its far to early to gauge the impact on the entire informal economy’s productivity, but certain sectors are already evidencing the effects:

  1. Transportation – of people, of vegetables, of cargo – you name it, you can now find an app to transport it. Startups are responding to the wide variety of local needs in addition to launching Uber clones in their local metros and regions.
  2. Services – grocery shopping, laundry, housecleaning, plumbers, electricians, artisans et al – all of these are coming online, albeit unevenly across segments and geographies depending on the individual startups and their capabilities.
  3. Goods – From consumer products to fresh produce, live goats to tractors for rent; the low costs and barriers to entry of an app that collates and coordinates demand and supply is an easy win for entrepreneurs who can work out the kinks in their operations.

In addition to what the apps can deliver to your doorstep, this “uberization” of the informal economy is also transforming mindsets and behaviour, of both the buyer and the supplier. There are two approaches to leveraging technology to boost your business – doing it yourself via social media platforms, thus building your brand; and downloading an app that takes care of promotion and discoverability for you.

Each has its pros and cons, but from our earliest discoveries whilst conducting user research among social commerce merchants and customers in Kenya, we can see the differences emerge between traditional traders in the informal marketplace, and the tech savvy traders straddling the virtual and the real. Long established business development strategies that worked in the cash intensive informal economic ecosystem are being forced to transform in response to these tech enabled ‘interventions’- whether to the benefit of all is also too early to tell. But if the patterns of mobile phone adoption are any indication, there’s a tsunami of change underway.

From the Caterpillar to the Butterfly: Africa’s Mobile Boom Years Are Over, Here’s What Next

For the past 15 years, Africa watchers have been waiting for her mobile phone industry to reach a critical landmark – almost full saturation of the market. This milestone may be close at hand, as recent news and data show. In June 2018, Kenyan mobile subscriptions reached 98% penetration, a 13% jump over the previous year, the highest ever recorded, even with all the caveats of youthful demographics and many users owning more than one line.

And, it isn’t just Kenya, long known to be early adopters of innovation and technology. The African mobile market, as a whole, maybe reaching saturation point as the latest IDC data shows. Phone sales continue to show signs of decline. Unlike previous slowdowns of smartphone sales1 which were economy related and feature phones continued selling, this time the decline can be seen in both categories, implying the great African mobile subscriptions growth boom may now be over.

Even Nigeria, recently found to have more people living below the poverty line than India, has achieved more than 80% mobile phone penetration, with hopes that the end of 2018 will see 100%.

The number of mobile subscribers grew astronomically in 2017 and its penetration increased to 84% in comparison with 53% in 2016. With an increase in the number of affordable phones entering the Nigerian market and looking at the trajectory of growth between 2016 & 2017 (31% growth year-on-year), there is a strong indication that by the end of 2018, there might be a 100% penetration of mobile subscriptions.2

Healthier West African economies such as Ghana and Ivory Coast have already crossed the magic 100% threshold, as has conflict riven Mali.

Achieving this landmark has not been consistent across the continent, and some countries like Malawi and Chad are still below the halfway mark. However, it is known that Africa may never achieve the same level of penetration as seen elsewhere, given that 40% of the continent’s population is under the age of 163. And so, the current decline in new phone sales can already be considered the signal of a mature market, showing signs of saturation.

From the caterpillar to the butterfly

In a very short generation, Africans have gone from being mostly isolated – from each other, and the rest of the world – to being plugged in, all because of this very powerful device in their hands. The decline of phone sales, or the slowing down of subscriber growth numbers, should be cause for jubilation. The continent is now connected to the rest of the world, and Africans are talking to African across the span of mountains and deserts. Traditional pastoralists receive satellite data informing them of the best locations for forage for their livestock, and they can access insurance in times of famine and drought. Urban youth are trading bitcoins, while their mothers gather in social media groups to trade in goods and information. The entire operating environment of the African economic ecosystem has been transformed.

Where just over ten years ago, Nokia’s greatest concern was how to design ever more affordable and robust mobile devices which could connect people across languages and literacy barriers, now we have a population that has a decade of experience in information technology, regardless of their education levels. Even the most remote or marginalized have seen the phone, and can access its use, through intermediaries and access points. Digital Africa has become a daily matter of fact rather than an unusual achievement for the development crowd. You can see it in the tenor of the research articles, and read the difference between the way the growth of the mobile ecosystem was covered in 20054 and the way its taken for granted now.

The end of an era – double digit growth of the African mobile market – signals the beginning of a whole new phase of development and opportunity – a connected continent, ready for commerce and communication with the world.

Ten years of transformation

Over the past decade, mobile phone ownership has gone from a novelty to commonplace. It has bridged the rural – urban divide, strengthening linkages, both social and commercial. In turn, innovation diffusion pathways have proliferated from the urban centers, and the adoption of new ideas and goods has accelerated, changing aspirations and expectations, particularly among the younger generation. The global African does not need to leave her childhood village in order to speak to the rest of the world or be recognized for her achievements. Social media is there to give him a voice, and a platform.

It is this new reality that has not yet be recognized by the long established experts on Africa and its many varied challenges and unmet needs. The mindset, worldviews, and the consumer culture have changed far more rapidly than the now obsolete snapshot of the poverty stricken, marginalized African that media and researchers base their assumptions and their writing on. Policymakers and programme designers are even less in the know, and the gap between generations has never been wider.

On the upside is a whole new playing ground – my friend and colleague Michael Kimani calls it the informal economy’s digital generation. Young people like himself, graduating with university degrees into a business landscape without the jobs to hire them, are turning to the platform made available by their smartphones to establish themselves and earn a living. In the four short years I’ve known Michael, I’ve seen him grown and evolve into the voice of African blockchain and cryptocurrency, soon to be an educator on the subject, and already organized as the Chairman of the Blockchain Association of Kenya.

“What a great time to be alive,” Michael’s joyful voice still rings in my ear after our call last week. The digital future is all around him, a playground for him to build and make whatever his mind’s eye can envision.

The end of the world for a caterpillar (the decline of sales & subscriptions) is the birth of a whole new one for a butterfly (the global digital African with a powerful computer in his hands).

We need to throw a party and celebrate!

 

1 Smartphone sales, driven by more affordable Chinese brands, may continue to see growth, but as the IDC states, this growth may come from those transitioning from featurephones.
2 Jumia Mobile Report 2018 in Nigeria
3 The Mobile Economy: Sub-Saharan Africa 2018, GSMA Intelligence
4 Cellphones Catapult Rural Africa to 21st Century, August 2005, New York Times

What happens when the informal economy is not criminalized? : Case of Hargeisa, Somaliland

In Hargeisa, the role of the informal economy during and after conflict has been vital to conflict prevention and peace-building.

A recently released report by Cardiff University and Somaliland research partners on their work related to the role of urban informal economies in conflict zones offers us perspective from another angle.

A little thin on insights and interpretation of their carefully gathered data, it nonetheless provides ample evidence of the value creation and economic contribution by informal sector actors in developing country contexts. In fact, I would say, it strengthens the argument for considering the informal economy as a commercial operating environment, to be taken seriously by policy makers and programme designers.

The report finds that “the IE (informal economy) became vital in replacing services and utilities destroyed by the war within Hargeisa city which both provided livelihood opportunities for the conflict-affected urban population and replaced key goods and services which had been disrupted by the conflict.”

And discovers that it was the informal economy’s acceptance by the local populace and government, characterized by extremely low levels of harassment or criminalization that was key to its ability to contribute as a trusted resource and asset during the rebuilding of society after the civil war.

In most cities in sub-Saharan Africa, urban policy marginalises the urban informal economy (IE) and IE workers are often victimised and harassed (Lyons et al., 2012). This is not the case in Hargeisa, where informal economy workers interviewed reported very low levels of police harassment, with less than 7% of the 168 current informal economy workers interviewed stating they had experienced problems with local authority. Furthermore, there are high levels of trust  and reciprocation amongst informal economy workers and in society generally, and a lack of effective municipal regulation which enables and encourages the growth of the informal economy.

The report goes on to conclude with the recommendation that recognition of the informal economy (IE) had the potential to transform the developmental trajectory of both Hargeisa, as well as greater Somaliland:

Recommendation 1: Increase national legitimacy and recognition
Recognition: It is essential that Hargeisa’s IE workers are recognised as legitimate economic actors making significant contributions to the national and city economy.
National Informal Economy Policy: A cross-government National Informal Economy Policy should be developed, so that the key social and economic contribution of the IE is reflected in the five-year national economic development planning and other relevant government strategies.
National Informal Economy Standing Committee: A high-level National Informal Economy Standing Committee should be set up, with a membership of about 10 people to include high-level representatives from: the Ministries Planning and Development (chair); Commerce and Trade; Labour, Employment and
Social Affairs, Hargeisa Municipality, and SONSAF, including 3-4 representatives of umbrella IE workers’ organisations. The Standing Committee should:
o Advise on development of the National Informal Economy Policy;
o Advise on inclusion of the IE in the Five Year National Economic Development Plan;
o Recommend inclusion of the IE in other relevant government strategies;
o Undertake sector-specific analyses of different IE sectors (needs and support);
o Identify ways to extend social protection to IE workers;
o Address negative impacts of the IE (e.g. from the qat or charcoal trade);
o Assess data needs for improving understanding of the IE (e.g. through labour force surveys).
o Address lack of IE access to credit and finance

According to the Somaliland Sun, these recommendations are being wholeheartedly adopted by the local government. One not only looks forward to the developments of this groundbreaking initiative but hopes that this shift in perspective and recognition of value creation diffuses outwards with impacts on informal economies everywhere.

 

NB: Here’s my brief TEDTalk video on this theme from TEDGlobal 2017

Chinese investments in African tech will transform the fintech landscape

A recent article brought to my attention this report on the pattern of funding experienced by fintech startups in East Africa and India with rather damning results. 90 percent of the capital invested by “Silicon Valley-style” investors went to startups, technically in East Africa, with one or more North American or European founders.

These results put an entirely different spin on more recent articles on the rise of African fintech and the millions of dollars raised by startups in Africa. Village Capital, too, has been making an effort to promote their recommendations for structural change in the ecosystem in order to enable the emergence of hundreds more fintech and DFS (digital financial services) startups deemed necessary to transform the economic landscape in Africa.

But the challenge, as framed by this snippet from the report, will remain, as it “reflects deep cultural trends in American life”, of bias, stereotyping, and inbred prejudice. So called “first world” technology such as artificial intelligence is already dealing with the problem.

China’s interest in African tech, particularly trade related such as in commerce and payments, is being noticed

Simultaneously, and recently, I came across this op-ed for the WEF making the case for why the tech sector is China’s next big investment target in Africa.

Given China’s position as a leading and rapidly accelerating technological superpower in the world, making strides especially in the fields of logistics (smart cars, drones, e-commerce) and energy (solar panels, smart metering, etc), it makes sense that the most logical industry for the next stage of Sino-Africa collaboration is technology.

But that’s not fintechs and DFS startups, you say, comparing these apples to the Village Capital’s report on oranges?

Perhaps this is why Alibaba Group, the unparalleled pioneer of e-commerce and payments in China, has started to show an interest in Africa. Not only did they collaborate with UNCTAD on the eFounders programme to train over 100 African entrepreneurs in the next couple of years, they recently announced a fund of $10 million to invest on the continent over the next 10 years. Furthermore, Alibaba’s subsidiary Ant Financial has signed a partnership with the United Nations Economic Commission for Africa and the IFC to promote digital financial inclusion. While these are preliminary steps, we are hopeful for more serious commercial involvement in Africa from a company with a $500 billion market cap.

DFS, DFI, what’s the difference between digital financial services for financial inclusion and digital financial inclusion? The target is clear. And been noticed from the other side, as this rival opinion piece in the Financial Times shows, albeit with a greater sense of urgency and panic in the tone and style. It may also explain why Village Capital woke up this week to trumpet the results of their analysis on funding patterns from over a year ago. From the FT:

The Trump administration has made a perceived global rivalry with China the centre of US foreign policy. This competitive stance has coloured the view of African countries in Washington and a tale of Chinese mercantilism in the region has come to dominate the narrative, under which China greedily demands privileged access to Africa’s natural resources in exchange for no-strings-attached infrastructure financing.

But that story is outdated and fails to capture an emergent area of true competition — that among US and Chinese tech giants.

Given what we’ve seen in the Village Capital report linked in the first paragraph, will Chinese funding patterns be any different? Two key factors are being highlighted by both sides:

Read On…

Financial Patterns at the Last Mile of the Farm to Fork Value Chain

Source: http://library.wur.nl/WebQuery/wurpubs/454661

This value web illustrates the last mile of the farm to fork agricultural value chain in the state of Maharashtra, India. We’d mapped it during our project/s for the Dutch government back in mid 2013, where we’d introduced human centered design thinking for sustainable agricultural value chain development. Subsequently, I led a multidisciplinary team conducting fieldwork in rural Kenya, in order to compare and contrast the last mile in the African context.

As mentioned previously, while the details of seasonality and crops may change due to geography, the essential foundation and framework of the farm’s financial management behaviour remained the same. And, while the actors and roles in the value web may shift and change between rural India and rural Kenya, the essence, here, too, remains the same. There are intermediaries and brokers, transporters and aggregators, and wholesalers and retailers, along with agrovets and extension agents. Everyone has a part to play in the interdependent web of value exchange, based on trusted relationships for the most part.

Therefore, their cash flows and income streams too, are closely linked to the harvest seasons and the crops, just like the farmers‘. In fact, Indian business magazines go as far as to assess the health of each year’s monsoon season in order to attempt forecasts on the annual peak of consumer activity – the post harvest festival season in the October-November period. They recognize the linkages and networks that connect the rural and urban markets, and the ripple effects of the quality of the year’s harvest. It would not be inaccurate to say that the degree of impact and influence is proportional to two related factors – the proportion of GDP from agriculture and related activities; and, the percentage of the country’s population dependent on agriculture and related activities.

Market town finances

In addition to the linkage, we have observed financial management behaviours among traders, and not just those dealing in agricultural commodities or fresh produce, that resemble those on the farm.

The factors that impact the management of working capital and income streams – uncertainty of amount and the timing of its arrival – remain the same, as do the majority of the characteristics of the operating environment, such as infrastructure and systems. A trader dealing in new clothes also sees seasonal differences in her sales, and, unlike a trader in foodstuffs, is also more likely to see greater impact of a low season as people go without the discretionary purchase of a new shirt. Thus, traders must also manage the volatility, uncertainty, and seasonality of their addressable market, and their customer base, and their cash flows and income streams accordingly. We see the impact of this in their business development strategies, and that will be the subject of the next post.

Furthermore, in market towns and border markets, unlike urban metros with a myriad of occupations, the health of the agricultural season will impact everyone in the ecosystem not just the traders themselves. The internetworked last mile of the farm to fork value web closely links the health of the harvests with that of the rural and peri-urban economies.

 

Collected Works
Work in Progress: An Introduction to the Informal Economy’s Commercial Environment – Links to organized series of articles on the topic

Rural Household Financial Management on Irregular Incomes

While all farms are not alike, and scale and variety and geography differs, the pattern of household financial management holds its fundamental logic across continents.

click to expand image

As we saw previously, an experienced farmer tends to fall somewhere in between a salaried employee and an odd job labourer in their ability to predict with any reasonable degree of accuracy when they might expect cash income to arrive and approximately how much. They are able to estimate the quantum of the crop, and when it will be ready to harvest. They may already have buyers or a market.

However, in practice, farmers rarely rely solely on these infrequent lump sums for managing their household finances – a big harvest once or twice a year, maybe three times depending on the crops and the local geography. Instead, they manage on sophisticated portfolio of investments, each maturing over different periods of time, as a way to mitigate risk, as well as smoothen out cash flows over the course of the natural year, and minimize the impact of uncertainty or shock. The drivers for these goals are the foundation for the variety of business practices observed across sectors in the informal economies of the developing world.

You will find even the humblest farmer, as long as he owns the patch of land on which his homestead is built, even if his fields may be further away, doing some or all of a combination of these activities to manage his income stream over the course of the natural year. I will explain the basics, and then give examples from different regions.

Managing A Portfolio of Investments based on “Time and Money”

The illustration above captures our attempt to map the various cash flow patterns from the farmer’s portfolio of investments. Consider each cluster of elements as a “deposit” with varying times of maturity for cashing out, as the need may be. For example, cows give milk which can be sold for almost daily cash returns, as can the eggs from chickens. The fresh produce from the kitchen garden matures far more quickly than staples such as maize or beans. And, if there is a cash crop such as tea or coffee, this may taken an entire year for the harvest to be monetized. At the same time, various farmyard animals are invested into when young, maturing over time for sale, as an emergency cushion or for earmarked expenses such as annual school fees.

Thus, over the course of the year, cash arrives in hand with varying degrees of frequency, and periodicity, thus ensuring the farm’s ability to manage regular household expenditure on a more or less regular basis, even though there are no predictable wages. Nor, is the farmer burdened with credit and debt over the time whilst waiting for her 2 or 3 major harvest seasons.

Variance in regional seasonality influences coping mechanisms

While the foundational framework of the farmstead’s domestic financial managment remains the same, regional differences due to geography, and thus seasonality, influence crop choices, number of harvests, and the details of the coping mechanisms selected by the farmer to manage her financial portfolio.

For instance, in rural Philippines, in the rice growing Visayas islands, only well situated farms benefit from three rain fed rice harvests a year whilst the majority must manage on two. Thus, farmers invest in piglets, calves, or even cull chicks for nurturing into fighting cockerels which sell for more than 10 times the price of a regular chicken. They stock firewood, coconut husk, and supplement their cash money needs through petty retail during the low season.

In rural Malawi, outside of Blantyre, the farmwife who is a member of beekeeper’s cooperative, distills traditional wine for sales 2 to 3 times a week, boosting her cash flow frequency instead of waiting for the annual honey harvest.

Minimizing volatility to enable financial planning

Thus, we can see that even under conditions of uncertainty, farmers have established the means to manage their household expenses, including periodic ones such as school fees or loan repayments, on irregular and unpredictable cash flows from a variety of sources. Their sophisticated portfolio of investments contain “deposits” that mature over varying times, for different amounts, and their planning, thus, goes into ensuring that the volatility between income and outgoing expenses is kept to a minimum.

Next, we will see how less agriculturally dependent sectors of the informal economy base their financial management patterns on the rural economy’s foundation of portfolio management.

 

Collected Works
Work in Progress: An Introduction to the Informal Economy’s Commercial Environment – Links to organized series of articles on the topic

The Mobile as a Post Industrial Platform for Social and Economic Development: Top 3 Trends in Africa

Source: CHI2007 “Reach Beyond” http://www.chi2007.org/attend/plenaries.php

Just over a decade ago, in San Jose, California, I was invited to speak as the Closing Plenary for the CHI 2007 25th Anniversary Conference. The theme was “Reach Beyond”, as this was the 25th Anniversary conference of the Computer Human Interaction society, and as the closing plenary, I was tasked with articulating the vision for the next 25 years of man machine interfaces. This was in May 2007, mere weeks before the launch of the iPhone. That’s important to note, because Apple’s little phone transformed the world of humans interfacing with computers in its own way. You must remember that back then we didn’t really send texts in the United States, and the mobile and it’s role in society had nowhere near the transformational impact it was having in the developing world. mPesa had just begun to catch attention in Kenya – particularly the Central Bank’s – and there were no such thing as apps or smartphones. This is the background and context in which I gave my talk, which sank without a trace in the history of impactful communication ;p

It was in April 2006, that I first wrote about the mobile phone as a post industrial platform, and as a driver for innovation, in its own right. Two snippets:

One of the recurring patterns I’ve been seeing of late is how mobile phones – not just the handset, but the system as a whole, have become drivers of innovation in emerging economies.
[…]
Not just in India or China; this phenomena of the handphone – freed from the shackles of state sponsored infrastructure required for landlines in the majority of these developing nations – has demonstrated its effect in improving the micro economy and providing opportunities for the entrepreneurially minded in hitherto backward regions around the world.

Today, 11 years and 4 months later, I would like to highlight the undeniable impact of the mobile platform in Africa’s development story by introducing the top 3 trends that are sweeping across the continent (and capturing global imagination) very briefly in 3 paragraphs below:

  1. Fintech solutions – Whether its mobile money transfers, instant mobile loans, or cross border payments and more complex back-end solutions; the financial services industry is being disrupted by the mobile platform, on smartphones and on feature phones. Mobile technology is rapidly becoming the default solution delivery system for the last mile of money in sub Saharan Africa.
  2. Solar power – This in turn is accelerating the rapid adoption of small solar systems for domestic energy needs in offgrid locations; a new pay as you use or “prepaid” solution for acquiring solar powered products and for charging can be seen to be launched in a yet another African country every month it seems. My favourite example is the solar powered cold room lockers that one can rent via micro mobile payments. In another year, I expect that one could replace the word “solar” with utilities, with the visible increase in solutions for potable water, and a plethora of government services shift online to the platform.
  3. Agritech – From the very basic “farmer information systems”, agritech is rapidly evolving to more nuanced and complex solution delivery via the ubiquitous phone. Whether its using the smartphone capabilities to identify the army worm pest infesting the fields, or decision support systems that let you choose the ideal species of tree to plant, given soil and drought conditions, agritech is a newly emergent megatrend on the mobile for African agriculture.

And the future, the next ten years? What will 2027 or 28 bring about? And, will we still be using the handheld device we have in our pockets right now? I can’t see it yet, but my gut tells me that easy access to powerful computing within reach of each and every one of us is something that will only be transformed but not replaced.

Stepping up human centered innovation planning for financial inclusion

Two Ugandan analysts from the Financial Sector Deepening (FSD) programme in Uganda write on the need for more human centered product development approaches in the design and delivery of financial services for rural Ugandans, especially the rural poor. One of their suggestions caught my attention in particular:

(iii) Third, to increase the introduction of new game changing solutions by financial institutions the government needs to put in place policies, laws and regulations that allow for new business models and approaches to financial delivery.

Innovative regulatory approaches like “sandboxes”, where startups are allowed to conduct live experiments in a controlled environment, have demonstrated success in developed markets. Regulators can therefore play a crucial role in being financial inclusion catalysts.

The late C.K. Prahalad, guru of serving the poor profitably, first mooted the concept of an innovation sandbox back in 2006, and the essence of his concept has remained an integral part of my own work ever since.

This approach could be called an innovation “sandbox” because it involves fairly complex, free-form exploration and even playful experimentation (the sand, with its flowing, shifting boundaries) within extremely fixed specified constraints (the walls, straight and rigid, that box in the sand).

The value of this approach is keenly felt at the bottom-of-the-pyramid market, but any industry, in any locale, can generate similar breakthroughs by creating a similar context for itself.

What Jimmy Ebong and Joseph Lutwama, the co-authors of the original article linked above, are mooting, however, is an extrapolation of the concept, where the regulatory and policy framework forms the boundaries of the “sandbox” within which various financial services pilots can be tested in the real world.

Committed and forward thinking governments can make the difference overnight for the ‘wicked problem’ of financial inclusion of the rural poor, inspiring innovative human centered solutions to citizen service delivery where its most sorely needed – the resource constrained and inadequate infrastructural operating environments of rural Africa.

 

Note:Mooting” is a favourite word of East African newsmedia, meaning the specialised application of the art of persuasive advocacy.