March 4th, 2006
The Africa Mobiles Story
I had made this post earlier on Zoo Station, but I figured this is worth reposting on here as well. This graph is from the Economist from a couple of weeks back, which shows the growth of mobile telephony in Africa. Admittedly, the growth is coming from a low user base and therefore you see some staggering growth rates. Nonetheless, this goes to show liberalization is no different in Africa than it is in India or China and that if you let a competitive private sector grow, you will see some amazing results. Now, if only these governments would let the lessons of telecom be replicated across other sectors.
March 1st, 2006
Jagdish Bhagwati Writes Bono a Letter
Jagdish Bhagwati wrote an op-ed in the Financial Times yesterday, in the form of a gentle letter addressed to Bono. As you can imagine, Bhagwati takes on the development aid lobby and explains why it is that an aid-driven approach has never really worked in Africa.
The key problem in much of Africa is what has long been called the “absorptive capacity” problem: will aid be used productively or will it be wasted? This issue was understood by the pioneering development economists Paul Rosenstein-Rodan and Gunnar Myrdal. The former famously estimated aid requirements in the 1960s by reference to this notion. He calculated how much investment was required to help accelerate the growth rate of an aid recipient, based on an assessment of that country’s ability to manage such growth. Foreign aid would then be given to finance the investment, provided that the recipient made a matching effort to increase domestic savings as well.
But many economists became sceptical. They argued, with substantial empirical evidence, that when aid was provided, the recipients were likely to reduce, rather than increase, their own savings efforts. This was an early recognition of the “aid curse” that afflicts some aid recipients. Uncritical proponents of aid deny this effect even as they talk of the “oil curse”; as if largesse from the windfall of oil earnings is somehow more corrupting than largesse that comes from aid donors.
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Absorptive capacity is far less of a problem if increased aid for Africa is spent outside the country. Spending can be increased in the rich countries to develop vaccines and cures for diseases that severely afflict Africa, such as Aids and malaria. Research on cures for diseases such as yellow fever and sleeping sickness should be well financed. Since much of Africa suffers from huge skills shortages for virtually every developmental problem, education and training of African students in western universities could be vastly increased. They will mostly stay abroad. But then the west should develop and pay handsomely for programmes where they can contribute in other ways, such as short-term visits to train others, for instance. Until these shortages ease years from now (as they did in the 1990s in India; the “brain drain” was a big issue there in the 1950s) as more nationals are trained and find return attractive, surely we could send out more of our own. I have advocated programmes such as a Grey Peace Corps that would find our aged and retired doctors, engineers and other professionals jobs in Botswana, Zambia and other African nations.
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How, then, are we to translate the enthusiastic altruism that you have generated, dear Bono, into larger, sustained flows of aid? Surely the answer is to go after personal, rather than governmental, flows. Personal spending on aid typically runs into softer budget constraints. With all the charitable spending I do, I could always forego a dinner at Maxim’s and eat at McDonald’s instead, pledging another $100 to the Geldof-Bono aid fund. So, if you take seriously the estimated audience for Live8 concerts at 2bn, halve it for those who were there for a lark or are impoverished themselves, and halve it again for those who attended the concerts twice, you would have half a billion who could sign up for an average pledge of $50 a head as a supplement to their normal giving, yielding a net sum of $25bn outright. The money would be worth almost twice that amount in actual aid, since they would be grants whereas most aid consists of loans that must be repaid.This would mean abandoning some of your current allies. But you can do nothing less if your efforts are to yield results. In a recent interview, you said that you expected your music would endure forever but poverty would have ended in a hundred years. I wish you good luck on your music. But not even a hundred years would suffice to end poverty if you fail to correct your course.
Read what you will into Bhagwati’s comment about Bono’s current allies 
February 28th, 2006
Alan Patricof Event
Feb 28, 2006: Talk with Alan Patricof [biography], co-founder of APAX Partners.
Topic: Role of Private Equity and Venture Capital in Catalyzing Economic Development
Time: 6:15 pm
Location: 208 Warren Hall, Columbia University (between 115th and 116th St on Amsterdam Avenue)
February 27th, 2006
Financing Gaps and the Business Environment
Over at the World Bank PSD blog, Pablo Halkyard makes a post of great relevance to the interests of our group. Pablo links to 3 separate papers at the World Bank, each of them on subjects that we’ve discussed at some point within IPEG.
1. How important are financing constraints? The role of finance in the business environment, by Maksimovic, Ayyagari and Demirguc-Kunt
2. Can foreign portfolio investment bridge the small firm financing gap around the world?, by April Knill
3. Taking the bad with the good: volatility of foreign portfolio investment and financial constraints of small firms, by April Knill
Pablo also points to the World Bank’s updated SME database.
February 27th, 2006
Jobs: Private Sector Development Web Editor
I thought some IPEGers might be interested in this - or know people interested in this kind of job.
The Private Sector Development Vice Presidency is run by the World Bank and the IFC. Their knowledge management group has an opening for an experienced web editor. See the links below for the full advert & contact info.
http://psdblog.worldbank.org/psdblog/2006/02/were_hiring.html
http://rru.worldbank.org/documents/PSDBlog/Web_Editor_TOR.pdf
February 24th, 2006
Vinod Khosla Floats Khosla Ventures
[Via VC Circle] What better way to follow up a post about Kleiner Perkins than with a post on their superstar partner, Vinod Khosla. Khosla, who had reduced his involvement with KPCB, has launched his own VC fund (it’s his personal money, for the time being), called Khosla Ventures, which will invest primarily in alternative energy and clean fuels. As you can see, the website is very much in beta stage, but there are links to some excellent presentations on biofuels and microfinance. Among others papers listed is the Rural Infrastructure Service Commons (RISC) model, which Khosla co-wrote with IPEG member, Dr Atanu Dey.
In the interest of full disclosure, I must mention that I was one of the founding members of Deeshaa Ventures alongwith with Dr Dey, which was set up to implement Dey and Khosla’s RISC model.
February 22nd, 2006
Kleiner Perkins Raises Pandemic Fund
Venture Capital major, Kleiner Perkins has announced that it has raised a $200 million fund to fight global pandemic diseases. Obviously, the interest in such a fund is fueled by the spread of the Avian Flu. Whether KPCB’s definition of pandemic includes HIV/AIDS and Malaria remains to be seen.
“This is a call to action,” Brook Byers, a partner at the firm, said in an interview. He said Kleiner Perkins decided to start a separate fund, called the Pandemic and Bio Defense Fund, rather than make investments through its general funds to call attention to the issue. He said the fund was intended to yield profits, not act as a charity.
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Mr. Byers said private investments could help accelerate the preparations. “A lot of innovative companies are waiting for a grant from the government,” he said. “There’s not time to wait.” The fund would invest in about a dozen companies in the next three years, Mr. Byers said. While Kleiner Perkins, based in Menlo Park, Calif., normally invests in privately held start-up companies, its fund will invest mainly in established companies, including publicly traded ones.“It’s very time-critical,” he said, “so that leads us to want to invest in companies that have management teams and technology platforms already in place.” The first investment, of $15 million, was made in BioCryst Pharmaceuticals. The company, based in Birmingham, Ala., and publicly traded, has a drug entering early clinical trials that could be an alternative to Roche’s Tamiflu, the anti-influenza drug that is being stockpiled by many governments and that has been in short supply.
February 22nd, 2006
Dean Kamen Ties up with Iqbal Quadir
A couple of weeks back, I had posted a link to a Dean Kamen interview on Zoo Station. Now, Erick Schonfeld of Business 2.0 has another update on Kamenworld at CNN Money, and it’s fascinating what he’s up to now, working with Iqbal Quadir, the Harvard prof who founded Grameen Phone.
An estimated 1.1 billion people in the world don’t have access to clean drinking water, and an estimated 1.6 billion don’t have electricity. Those figures add up to a big problem for the world—and an equally big opportunity for entrepreneurs. To solve the problem, he’s invented two devices, each about the size of a washing machine that can provide much-needed power and clean water in rural villages.
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Last year, Quadir took prototypes of Kamen’s power machines to two villages in his home country for a six-month field trial. That trial, which ended last September, sold Quadir on the technology. So much so in fact that Quadir’s startup, Cambridge, Mass.-based Emergence Energy, is negotiating with Kamen’s Deka Research and Development to license the technology. Quadir then hopes to raise $30 million in venture capital to start producing the power machines. The electric generator is powered by an easily-obtained local fuel: cow dung. Each machine continuously outputs a kilowatt of electricity. That may not sound like much, but it is enough to light 70 energy-efficient bulbs. As Kamen puts it, “If you judiciously use a kilowatt, each villager can have a nighttime.”
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During the test in Bangladesh, Kamen’s Stirling machines created three entrepreneurs in each village: one to run the machine and sell the electricity, one to collect dung from local farmers and sell it to the first entrepreneur, and a third to lease out light bulbs (and presumably, in the future, other appliances) to the villagers.Kamen thinks the same approach can work with his water-cleaning machine, which he calls the Slingshot. While the Slingshot wasn’t part of Quadir’s trial in Bangladesh, Kamen thinks it can be distributed the same way. “In the 21st century, water will be delivered by an entrepreneur,” he predicts. The Slingshot works by taking in contaminated water – even raw sewage — and separating out the clean water by vaporizing it. It then shoots the remaining sludge back out a plastic tube. Kamen thinks it could be paired with the power machine and run off the other machine’s waste heat.
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Kamen’s goal is to produce machines that cost $1,000 to $2,000 each. That’s a far cry from the $100,000 that each hand-machined prototype cost to build.Quadir is going to try and see if the machines can be produced economically by a factory in Bangladesh. If the numbers work out, not only does he think that distributing them in a decentralized fashion will be good business — he also thinks it will be good public policy. Instead of putting up a 500-megawatt power plant in a developing country, he argues, it would be much better to place 500,000 one-kilowatt power plants in villages all over the place, because then you would create 500,000 entrepreneurs.
This stuff is very, very interesting, especially if scale economies can drive down the price. If it generates large-scale employment, one could make a strong case for deployment of public money too. If anyone knows people at DEKA, please let me know.
February 14th, 2006
Bill Easterley in the Post
(Via Africa Unchained) William Easterly writes in the Washington Post.
Economic development in Africa will depend — as it has elsewhere and throughout the history of the modern world — on the success of private-sector entrepreneurs, social entrepreneurs and African political reformers. It will not depend on the activities of patronizing, bureaucratic, unaccountable and poorly informed outsiders. Development everywhere is homegrown.
February 11th, 2006
Guest Post 2: Response to Theroux, Africa, Bono etc
Hari Chandra responds to the previous post linking to the Paul Theroux op-ed in the Times as well. Hari is with the Blackstone Group.
Why I wish Bono would, despite his best intentions, stick to U2 and why Paul Theroux doesn’t quite get it either
As much as I love Bono’s music, he and his ilk (Geldof et al) have sadly done a great deal of harm to Africa’s ongoing process of economic development by sustainning a perception of Africa as a charity case. I would hardly make unsubstantiated claims about magnitude, but every moment that the “Save Africa” culture propogated by Bono and others captures the world’s imagination is another moment that hope for widespread prosperity in Africa is deferred.
Certainly, the causes of debt relief and increased aid raised by the “Save Africa” crowd are, in the right context, worthy. Debt relief should never be a goal in itself. Countries must prudently incur debt in order to develop and lenders should expect repayment in order to continue providing necessary capital. However, I submit that there may be cases where debt relief may be required to erase the errors of a kleptocratic former regime, provided that new creditworthiness is established. Foreign aid also clearly can be helpful in certain circumstances, particularly for humanitarian relief, cases of very clear market and government failure (which are rarer than commonly publicized) and public health, particularly, as Sheri mentioned, in the case of HIV/AIDS, but has its own problems when it is a substitute for real investment capital.
However, the centralization of debt relief and aid, even when coupled with a demand for better governance, as a plan to “Save Africa” creates a notion among investors and policymakers of a sub-Saharan Africa that reeks of a bad Oxfam advertisement (e.g. with 12 pounds a month, you can ensure that little (insert African name) can have a good meal every day). The “charity case” notion makes sub-Saharan Africa out to be a pervasive basket case, constantly facing starvation, disease, civil war etc when the reality for much of the continent is very different. Certainly, there are pockets of the continent that fit the charity case notion, but nowhere in this worldview is the Africa of improving governance, return of the rule of law, vast natural resources and a pragmatic, entrepreneurial culture, that exists in many parts of the continent and are arguably the foundation for the next rapidly developing economic region, given access to capital. As long as the negative, charity case, perception of Africa exists globally, it is a critical impediment to real prosperity.
Theroux is wrong as well. Africa absolutely needs “more money”. However, the money it needs the most is not foreign aid, is not debt relief, is not even money for public health programs. Except in limited and specific circumstances, Africa does not need charity. Africa needs “more money” in the form of huge amounts of global risk capital, equity and debt, that can build the industrial and manufacturing base that can employ millions and provide even more with the basic tools of prosperity, support the entrepreneurs building a service industry, provide access to global trade markets for many more people, etc. Certainly capital is not the only thing that Africa needs but it can create a virtuous cycle, funding the educational institutions needed for a professional middle class, supporting the civil society that a sizeable middle class engenders, ultimately allowing Africans to take ownership of their resources.
The “Save Africa” message frightens this absolutely necesary capital, creating an image of a civil society and economy that are destined to fail without aid, when the reality could be sucess with capital investment. I am confident that the African market could provide attractive returns for significant investment capital but my experience is that the market tends to view Africa as a charity case and not worthy of consideration of real investment dollars. This is in no small part due to the branding of Africa that Bono and others create. Though the branding issue is very significant, this is not just a branding problem. A culture where debt relief and aid are seen as real solutions is unlikely to engender the discipline and pragmatism necessary to attract the vast amount of capital that Africa needs to develop.
PS: There are other things troubling about the Theroux piece like issues about free movement of people but this post is already too long.
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