Monday, March 19, 2007

What's a "BOP"?

Oh, those wacky economists at the WORLD BANK (in this case, a branch of said global bank, the private sector INTERNATIONAL FINANCIAL GROUP, and their buddies at the "think tank" WORLD RESOURCES INSTITUTE). They have come up with a fun new acronym for "dirt poor". It's called BOP, and it means... um, well, I'll let them explain:

The 4 billion people at the base of the economic pyramid (BOP)—all those with incomes below $3,000 in local purchasing power—live in relative poverty. Their incomes in current U.S. dollars are less than $3.35 a day in Brazil, $2.11 in China, $1.89 in Ghana, and $1.56 in India.1 Yet together they have substantial purchasing power: the BOP constitutes a $5 trillion global consumer market.
THE WORLD BANK is one of those weird shadowy organizations that is always mentioned, always on the scene. Sometimes seemingly doing good, sometimes evil, sometimes... well, who knows? It's the kind of joint that makes the X-FILES seem almost credible. Although ostensibly a global organization, it is headquartered in Washington, D.C. The US is the biggest shareholder and the Executive Branch usually picks the president (currently former Deputy Secretary of Defence, Paul Wolfowitz). Ostensibly, the BANK is there to help ease the third world into the global economy, but is often charged with being an agent of "economic imperialism" -- i.e., making the third world a comfortable place for multinational companies to get cheap resources and labor. As for the WORLD RESOURCES INSTITUTE, well, anytime anybody mentions "think tank", I'm reaching for my foil-lined hat -- not that I think they're reading my mind, but, y'know, just to be cautious.

One thing that IS clear about the WORLD BANK brand of third-world economic development. It believes wholeheartedly in the free market system -- unfettered capitalism. Money is cool, but sometimes I do think charity hThe End of Povertyas its place. Certainly, Bono's guru, Jeffrey Sachs argued strenuously in The End of Poverty: Economic Possibilities for Our Time that the free market alone could not bring Africa to health or build a coherent infrastructure. Before you label Sachs a "pinko", keep in mind, he also argued that a little sweatshop labor is okay, as it represents an important step onto the bottom rung of the global economic ladder.

Side note, The End of Poverty is an amazing book. If you've already read There Is No Me Without You: One Woman's Odyssey to Rescue Africa's Children, you've already exposed yourself to the human, micro dimension of extreme poverty. The End of Poverty is the macro picture: the "whys" and "hows". It is, by turns, hopeful and depressing, in that it provides a roadmap, then explains why, due to political and economic realities, of which the WORLD BANK is part, that roadmap will not be followed.

Back to the BOPS. Here's what the IFC has to say about charity and public works projects vs. free market capitalism:

There are distinct differences between a market-based approach to poverty reduction and more traditional approaches. Traditional approaches often focus on the very poor, proceeding from the assumption that they are unable to help themselves and thus need charity or public assistance. A market-based approach starts from the recognition that being poor does not eliminate commerce and market processes: virtually all poor households trade cash or labor to meet much of their basic
needs. A market-based approach thus focuses on people as consumers and producers and on solutions that can make markets more efficient, competitive, and inclusive—so that the BOP can benefit from them.

Traditional approaches tend to address unmet needs for health care, clean water, or other basic necessities by setting targets for meeting those needs through direct public investments, subsidies, or other handouts. The goals may be worthy, but the results have not been strikingly successful.
Why is this important? Because this is the subtext of our approach to sub-Saharan Africa. This touches on Africa's debt load to the WORLD BANK and other institutions. It is part of the reason that the US decided to go it alone, with its partially redundant USAID organization instead of becoming a partner with the rest of the world with the GLOBAL FUND. This factors into the Ethiopia and Oxfam vs. Starbucks debate , which segues nicely into the larger "free trade" vs. "fair trade" debate.

Most crucially, this "charity" vs. "capitalism" debate is the HUGE philosophical wedge in health care, where both Clinton and Bush put patent protection ahead of human lives, for the benefit of the pharmaceutical companies and at the expense of those crazy BOPS. Thanks to the voluntary wealth-redistribution program of one Mr. Bill Gates and the undeniable sex appeal of Bono, the "charity" side seems to have scored some points, what with the decision to not patent that recently announced malaria medication and all. Maybe there are brighter days for Bops, just ahead.

Who's a BOP in sub-Saharan Africa? According to the report, just about everybody:
Africa has a slightly smaller BOP market, at $429 billion. But the BOP is by far the region’s dominant consumer market, with 71% of purchasing power. It includes 486 million people—95% of the surveyed population.
In plain English, Africa has the least money of anywhere in the world to spend, and 95% of it's people live at the bottom of the pyramid. Elsewhere, it mentions that within the base of that pyramid, more live at the $500 a year range than at the $3,000 a year cut-off. Interestingly, if you inverse the numbers, you'll see that Africa's top 5% has a massively disproportionate 29% of the spending power.

The IFC report does adequately address some of the, granted, self-evident effects of extreme poverty:
Significant unmet needs. Most people in the BOP have no bank account and no access to modern financial services. Most do not own a phone. Many live in informal settlements, with no formal title to their dwelling. And many lack access to water and sanitation services, electricity, and basic health care.
Dependence on informal or subsistence livelihoods. Most in the BOP lack good access to markets to sell their labor, handi-crafts, or crops and have no choice but to sell to local employers or to middlemen who exploit them. As subsistence and small-scale farmers and fishermen, they are uniquely vulnerable to destruction
of the natural resources they depend on but are powerless to protect (World Resources Institute and others 2005). In effect, informality and subsistence are poverty traps.
Impacted by a BOP penalty. Many in the BOP, and perhaps most, pay higher prices for basic goods and services than do wealthier consumers—either in cash or in the effort they must expend to obtain them—and they often receive lower quality as well. This high cost of being poor is widely shared: it is not just the very poor who
often pay more for the transportation to reach a distant hospital or clinic than for the treatment, or who face exorbitant fees for loans or for transfers of remittances from relatives abroad.
The report passionately (well, passionately for an economic briefing) that the multinational companies and various stock markets are kissing off $5 TRILLION unless they can figure out ways to tap into this "BOP" market. Enlightened self-interest or greed, there is definitely a value to figuring out how to eliminate the "high cost of being poor" and bring better food, water, power and medical care to the extremely poor. The key, it seems, is product and marketing innovation.

The fascinating case of "strange bedfellows" is that may of these principles could also work for NGOs and public works programs.
BOP business strategies that work:

• Focusing on the BOP with unique products, unique services, or unique technologies that are appropriate to BOP needs and that require completely reimagining the business, often through significant investment of money and management talent. Examples are found in such sectors as water (point-of-use systems), food (healthier products), finance (microfinance and low-cost remittance systems), housing, and energy.
• Localizing value creation through franchising, through agent strategies that involve building local ecosystems of vendors or suppliers, or by treating the community as the customer, all of which usually involve substantial investment in capacity building
and training. Examples can be seen in health care (franchise and agent-based direct marketing), ICT (local phone entrepreneurs and resellers), food (agent-based distribution systems), water (community-based treatment systems), and energy (mini-hydropower systems).
• Enabling access to goods or services—financially (through single-use or other packaging strategies that lower purchase barriers, prepaid or other innovative business models that achieve the same result, or financing approaches) or physically (through novel distribution strategies or deployment of low-cost technologies).
Examples occur in food, ICT, and consumer products (in packaging goods and services in small unit sizes, or “sachets”) and in health care (such as cross-subsidies and community-based health insurance). And cutting across many sectors are financing strategies that range from microloans to mortgages.
• Unconventional partnering with governments, NGOs, or groups of multiple stakeholders to bring the necessary capabilities to the table. Examples are found in energy, transportation, health care, financial services, and food and consumer goods.
I have not worked in the non-profit arena, or tried to (as the report highlights) become a major telecom in a politically disrupted country. The problems seem huge.

Where do multinational corporations fit into Africa? Where does charity end and economic sustainability take root? Are co-ops and local control the answer, or privatization and work-for-hire in factories and the like for recognizable brands?

Is there a place for industrious Americans with a strong connection to Africa to figure out how to combine spending power and ingenuity to help encourage economic independence and growth?

Just because I'm thinking about these things doesn't mean I have any answers. I don't even know if I have the right questions. I have a respect for the free market, but a concern about the "unfettered" part, as often human suffering is not listed as a column on the annual report.