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IS THERE HOPE FOR AFRICA? (PART 2) PDF Print E-mail
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Thursday, 18 August 2005

By Jim Jordal

"…extreme poverty can be ended not in the time of our grandchildren, but in our time. The wealth of the rich world, the power of today's vast storehouses of knowledge, and the declining fraction of the world that needs help to escape from poverty all make the end of poverty a realistic possibility by the year 2025."

From The End of Poverty, by Jeffery Sachs, 2005

If the United Nations sponsored Millennium Development Goals (MDGs) proposing to halve desperate poverty (less than $1 per day personal income) by the year 2015 are to be achieved in Africa, there is no time to waste. During the next decade giant steps must be taken by the world's G-8 nations and other advanced economies to bring their financial support for Africa into line with their promised 0.7 percent of national income.

The United States today contributes about 0.14 percent of national income, or about one-fifth of our commitment. In that respect we rank near the bottom of developed nations in percentage of national income given to poverty-stricken countries. Actually, President Bush prides himself on having tripled our giving during his years in office, but the trouble is that we started from far too low a figure, so our total commitment still is minuscule compared to our great wealth.

But beyond the $50 billion recently pledged at the G-8 summit in Scotland, what possibilities exist that the Millennium Development Goals can be reached? According to University of Michigan Business School Professor C. K. Prahalad's 2005 book, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, desperate poverty can be solved as multinational corporations (MNCs) realize there are fortunes to be made marketing to the approximately 4 billion people at the bottom of the pyramid (BOP). Their incomes are less than $2 per day, defining them as poor by any reasonable standard.

Professor Prahalad's reasoning is that up to now MNCs have overlooked this massive market due to erroneous beliefs that poor people do not need their products, cannot afford them, will not pay for technological innovations, and that anyway BOP markets are not critical to their profitability or growth. What they have failed to realize is that even though personal incomes are low in BOP countries, there are 4 to 5 billion potential consumers with total spending power rivaling that of the West.

Multinationals desiring to penetrate this vast market must realize that people at the BOP have little disposable income, existing literally from hand to mouth. They cannot travel far to make their purchases, and cannot obtain enough money to buy any quantity other than what they need daily. Therefore, businesses operating in this market must supply smaller, daily-use quantities packaged simply, and sold by local people in places close to consumers.

Obviously, MNC production and marketing strategies must change dramatically if they wish to succeed in BOP markets. The book mentions an example of cataract surgery, which would need to be priced at perhaps $50 (the surgery in the U. S. is as much as $3,000) if poor Africans were to avail themselves of the operation. But a company in India has become the world's largest provider of cataract surgery (200,000 operations yearly) at a price as low as $50, including hospitalization and care for any complications arising. And surprisingly, better than 60 percent of these patients receive free surgery, yet the company is very profitable.

Critics might claim that this Indian enterprise makes a profit because of substandard medical care or supplies. But their operations are at least as good as those in the West. Their profit arises from careful specialization and low-cost support services, plus the extra profits arising from handling so many cases. This is merely one example of hundreds of corporations making good profits while serving those at the BOP.

According to Professor Prahalad, persons at the BOP often pay the "Poverty Penalty," meaning that they pay far more for the same goods or services than do the rich. He cites vast differences between a poor town and a more prosperous one in India, regarding what people pay for certain goods and services. For example, the poor must obtain credit from moneylenders at 600 to 1,000 percent, while more prosperous people get credit at a bank for 12 to 18 percent. Eliminating this Poverty Penalty frees up vast purchasing power formerly wasted on excessive prices for goods and services.

The emerging microcredit movement is a direct result of the recognition by honest lenders that loaning small amounts for productive endeavors to the poorest people can make money. Again, prevailing logic would claim that such poor people would default on debts, thus killing their source of cheap credit. But their repayment rate is well above 90 percent, since they know that if they do not repay loans they will again become victims of moneylenders.

An example of what a little money used for a productive purpose can do appeared on CBS's 60 Minutes recently. It seems as if some organization contributed enough money to buy a high-producing milk goat for a poor woman in Africa. The result was that she sold the extra milk, gaining enough money to send her daughter to school, where she excelled sufficiently to earn a scholarship to a New England private prep school. She finally ended up in college in the U. S., all because of a milk goat worth a few dollars.

We could go on and on, but I think you get the idea. There is great hope for even the poorest Africans provided the West makes whatever changes are needed to develop this significant market. In fact, making poor people into entrepreneurs empowers them, provides a sense of purpose, and acts to reduce government regulation and even corruption. It's an idea whose time has come: defeating desperate poverty through local businesses operated by local people using cheap credit and intelligent production for available markets.

Last Updated ( Friday, 18 November 2005 )