Manuel Bueno's blog

Defining a Base of the Pyramid Business

Manuel Bueno — Tue, 05 Aug 2008 07:57:51 -0500

What defines a Base of the Pyramid (BoP) business? Here at NextBillion.net, our goal is to identify and discuss sustainable business models that address the needs of the BoP.

We have had many debates about the size, total income and expenditure of this group. NextBillion is currently hosting some debate about what development means. At the same time, we've been thinking about the role and importance of BoP businesses within the development community thanks to Michael Edwards' criticism of 'philanthrocapitalism'. But what exactly do we mean about when we talk about BoP businesses?

Everything BoP is currently in fashion. The 'BoP business' term is catchy, but unfortunately it has no easy or clear-cut definition. That BoP business initiatives are currently so popular is, of course, a wonderful thing. All of a sudden, people want to consider alternatives to traditional, top-down development.

On the other hand, being fashionable is also dangerous. We – the base of the pyramid movement – risk forgetting the big picture. We're involved in a debate that more and more people are joining, and in the process, we risk diluting the meaning of what BoP businesses truly are.

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MIT Launches Next Billion Network for Innovative Mobile Technologies

Manuel Bueno — Fri, 18 Jul 2008 15:08:53 -0500

Our regular NextBillion readers will already know that the MIT is one of the most important universities in the base of the pyramid arena. Some of their most important initiatives are the Legatum Center for Development and Entrepreneurship, stimulating bottom-up entrepreneurship fueled by innovations, and the Lemelson-MIT Awards, recognizing the impact that inventors can have on economic and social well-being.

In these and other cases, MIT's strategy has been to apply its engineering prowess to try to solve BoP problems in the shape of technologically-adapted inventions.

Now, MIT has launched a Next Billion Network to deploy innovative mobile technologies that can help people reduce friction in their local markets from the bottom up. This approach is based upon the belief (which I share) that mobile phones, by enabling increased connectivity, can offer new opportunities for low-cost, sustainable solutions in the BoP.

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A Dialogue on Philanthrocapitalism: Are BoP Businesses Useful Tools Against Poverty?

Manuel Bueno — Wed, 09 Jul 2008 08:20:45 -0500

This is part 3 of our series reviewing Michael Edwards' Just Another Emperor and the concept of 'philanthrocapitalism'. Follow the links to read part 1 and part 2.

Recently, there has been some debate surrounding business involvement in philanthropy and its usefulness after the publishing of “Just Another Emperor?” last March by Michael Edwards. Michael Edwards, Director of Governance and Civil Society at the Ford Foundation takes a critical look for the first time at a relatively new phenomenon: using sustainable business tools and models to solve poverty problems. NextBillion.net’s core content (and passion!) deals exactly with these issues.

Constructive criticism is always welcome, especially if it is from someone who has worked at Oxfam, Save the Children and the World Bank. In the fight against poverty, Edwards makes a distinction between government, civil society and what he calls, philanthrocapitalists. According to him this last group is made of market agents that claim to be able to solve social problems through business approaches alone. Edwards states that, although these approaches are important, they are very difficult to operate successfully at scale and that they usually experience some trade-offs between their social and financial goals. Furthermore, he argues that civil society might be being damaged by these trends.

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How to Stimulate Innovation in India?

Manuel Bueno — Mon, 30 Jun 2008 11:47:01 -0500

This is exactly the same question that was asked by the World Bank last year and I have recently had the chance to read their subsequent report “Unleashing India’s Innovation”.

All in all it was an interesting reading with a complete analysis of the main innovation levers in the country, although sometimes I felt it was much too vague in its recommendations.

India is becoming a global innovator for high-tech products and services. However, it is well-known that the country is underperforming relative to its real innovation potential. This is quite puzzling taking into account the fact that India's stock of scientists and engineers engaged in Research & Development (R&D) is among the largest in the world.

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Remittances Gaining Relevance in BoP Development Efforts

Manuel Bueno — Mon, 23 Jun 2008 11:00:51 -0500

Remittances - transfers of money from foreign workers to their home countries - have been a critical means of financial support for generations. These flows have generally been conducted away from formal markets. However, as more and more workers move abroad, the volume of remittances sent back home has grown and thus become an important flow of foreign currency in many countries.

Earlier this year, the International Monetary Fund published a working paper about the evolution of capital flows to Low-Income Countries (LICs). The paper sheds light on the increasing importance of remittances in development. Although the working paper is based on shaky data (on the admission of the authors), it calculates that total capital inflows to LICs increased from 4% of LIC GDP in the 1980s to more than 10% for LIC GDP by 2006. All the net growth in these inflows is due to private sources, while official inflows remained unchanged at roughly 2% of LIC GDP.

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The First Consolidation Wave of Mobile Phone Operators in Emerging Countries: The Battle for MTN

Manuel Bueno — Fri, 13 Jun 2008 21:16:21 -0500

Many regular NextBillion.net visitors will have noticed that the News Section has been nearly monopolized of late by news about the takeover battle surrounding mobile operator MTN, followed by a lull in events. For those who have not had the time or patience to track this news, what follows is a summary of what has happened and why it is so important to those of us interested in the base of the pyramid.

MTN is a mobile phone operator backed by the South African government, with 68.2 million customers in more than 20 countries and a market value of $33 billion. Its largest operations are in South Africa, Nigeria and Iran. On March 20th, MTN announced that it was looking for acquisitions and would consider targets outside its existing territories in Africa and the Middle East. That same day, MTN reported revenues of $9 billion for 2007 and an EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) of $3.9 billion, both of which were 42% more than the previous year. The group's total number of customers increased 53% year-on-year to 61.4 million.

Why did MTN start seeking a potential acquisition?

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Food Price Inflation and the BoP

Manuel Bueno — Mon, 09 Jun 2008 06:29:41 -0500

Most of NextBillion's visitors have heard about the current jump in food prices. These higher prices have already triggered responses locally in the form of riots in countries such as Haiti, Egypt and Bangladesh. The OECD and FAO have recently issued a report predicting that food prices have moved permanently to higher levels compared with past prices (the Financial Times offered an advance of the study's highlights some time ago). Although the reasons for this trend are beyond the scope of this post I suggest readers who are interested read this article.

In this post, I would like to explore the likely effects of higher food prices on the budgets of Base of the Pyramid consumers. An argument widely heard these days is that such food rises at least might improve the plight of poor farmers in developing countries, however, a recent study (which due to lack of data available includes only 16 countries) from the World Bank claims otherwise.

Price increases have a negative effect on urban areas since they are net buyers. In most rural areas, the effects are negative too. The overall impact in rural households is negative since possible benefits depend not on what they produce, but on the net sale of these goods. Often rural households have to acquire other goods for which the price has risen too, so the increased income is more than offset by the other price rises.

Most poor people are net consumers of food, and not net producers.
The only exceptions might be rural Peruvians thanks to high maize prices and rural Vietnamese thanks to high rice prices (although the Vietnamese government has set restrictions on rice exports to keep national prices under control).

At any rate, in every country taken into account by the authors of the study, the poverty rate increases and people who were already poor are made even poorer by high food prices.

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World Business and Development Awards Launched

Manuel Bueno — Wed, 28 May 2008 07:30:00 -0500

The International Chamber of Commerce (ICC), the United Nations Development Programme (UNDP), and the International Business Leaders Forum (IBLF) have opened nominations for the 2008 World Business and Development Awards in support of the Millennium Development Goals (MDGs).

The awards recognize the contribution of the private sector to help achieve the MDGs through their core business. Recent winners of these awards have been De Beers for its HIV/Aids programme, ITC eChoupal and Procter and Gamble's PuR water purifier.

The MDGs are eight goals that promote poverty reduction, education, maternal health, and gender equality, and aim to combat child mortality, HIV/AIDS and other diseases (for more information click here). The World Business and Development Awards is one of the central events this year that will recognize the key contributions of the private sector to achieve the MDGs.

The deadline for nominations for the World Business and Development Awards is 15 June. Companies, institutions and associations of all types and sizes are invited to participate by nominating projects that document business activities leading to progress in achieving one or more of the MDGs. The winners will be announced on 24 September during a presentation ceremony in New York.

For more information about the awards, including eligibility criteria and nomination forms, please go here.

New CGAP Study: Known Knowns And Known Unknowns About Branchless Banking

Manuel Bueno — Tue, 20 May 2008 13:04:06 -0500

This weekend I had the chance to read CGAP’s new report about branchless banking. The report is a short summary about the current state of the branchless banking market. To those readers who do not know anything of the market it is an easy introduction. To those readers who have been following the sector in recent months, it offers a good peek into the future of what branchless banking may become and what it needs to get done.

The paper lists off seven key observations about the current state of the market, in addition to four uncertainties about how the market will develop and four predictions. In my opinion, most of the seven observations are already well-known. Still, these known knowns are nicely and succinctly explained. Many of these observations were brought up during my interview (see part 1 and part 2) with CGAP’s Mark Pickens.

In my opinion, the most important observation of all corrects the common misconception about poor unbanked people being offered this service. CGAP estimates that in fact less than 10% of branchless banking customers are poor and unbanked. However, CGAP also predicts that poor people will end up using mobile banking more than rich people in about three years, when the market matures and competition increases.

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Base of the Pyramid Market Building in Disaster Areas

Manuel Bueno — Tue, 13 May 2008 11:25:30 -0500

We live in a world obsessed with growth. According to the National Bureau of Economic of Research (NBER), there have been only four recessions in the US since 1980. Between March 1991 and March 2001, the US experienced the longest economic expansion in its history. It comes, therefore, as no surprise that BoP experts seem to be concerned only with applying BoP lessons toward stimulating growth. In this post, I would like to suggest the possibility of using BoP knowledge as a palliative action in places that are experiencing extreme hardship and as a first step towards returning to normalcy.

One of the defining characteristics of BoP markets is the lack of connections with global markets. This lack of connections results in smaller markets with fewer competitors and higher prices. Furthermore, BoP markets suffer from a lack of infrastructure, efficient bureaucracy and the legal, political and economic certainties that are normally provided by public actors. Now, what happens in an area afflicted by disaster or violence where some or all of these variables are totally non-existent? Would BoP lessons be applicable in these cases?

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