Beyond SMS and broadband: amplifying current opportunities for Internet-enabled development

Posted on June 14, 2013 by Jennifer Mickel

By Dan Tuttle

It has been well-documented that access to the Internet propels both business growth and economic development. Yet conversations on information and communication technologies for development (ICT4D) in Africa frequently focus on SMS programs, mobile money, or the need for better infrastructure. These elements are important, but this limited focus has led many to overlook exciting ways the Internet is transforming Africa now.

The focus on SMS and mobile is unsurprising in light of Africa’s direct-to-mobile phenomenon: the demand for Internet connectivity across Africa is largely being met through low-bandwidth applications on feature phones. Similarly, focusing on infrastructure and other factors that will drive the growth of a robust Internet economy in the long term is justified. There will certainly be significant growth in sub-Saharan Africa as mobile money converges with Internet-enabled pay systems, consumers embrace eCommerce, and the middle class continues to expand. But this will take time. Reliable, inexpensive broadband, for example, remains years away in many countries.

In the meantime, low-bandwidth applications have produced bright spots of impact in development sectors –  impact that could be scaled up by donors and investors today. A recent report by Dalberg in collaboration with Google, the Impact of the Internet in Africa, discusses the impact of existing programs and where donors and investors can amplify success. People hoping to capitalize on Internet connectivity in Africa for development or business need not wait for widespread broadband or consumer adoption of e-commerce. Based on an analysis of surveys of 1,300 organizations and interviews with 75 experts in Ghana, Kenya, Nigeria, and Senegal, the Impact of the Internet report identifies several examples of small-scale solutions ripe for expansion now.

In the seven sectors examined – agriculture, education and labor, energy, financial inclusion, governance, health, and small and medium enterprise –  the current low-bandwidth applications are often pilots driven by donors; few business models have been scaled. These pilots supply opportunities, particularly for the business-minded, to build on and expand the reach of ideas that work.ImpactofInternet-SectorsLogos

One striking opportunity is the potential cost savings to businesses from implementing online enterprise systems (Internet-enabled back end databases). These systems are common in IT departments across the United States, but few donors invest in bringing that cost efficiency to the developing world. Perhaps servers are not flashy investments, or perhaps funders are not willing to build the computing skills required across an entire organization to switch from paper-based to computer-based systems. Our findings in The Impact of the Internet in Africa suggest they would be wise to reconsider.

Take Kenya’s National Health Insurance Fund, which digitized its claims processing: administrative costs nearly halved, and processing accelerated by a factor of six. Its administrative costs are now approximately one-third of collections, compared to 60% of collections in 2006. That frees a lot of money across its 31 branches and 45 satellite offices to be used on primary care.

Other applications provide low-bandwidth services with obvious development impact. In Nigeria, nearly one in four people are unemployed in a formal workforce of 60 million people. Jobberman, started in 2009, is a job site that provides job listings and recruitment services to companies and CV and career advice for job seekers. It has 700,000 registered users and gets 9 million hits per month, having filled 50% of the 80,000 jobs that have listed on its site while freeing up companies to focus on doing business rather than endlessly recruiting. This solution is perfect for a country with lots of talent and a low share of formal employment, where search costs are a significant burden on both companies and job seekers.

Similarly attractive companies emerged in agriculture, where an Internet-linked supply chain management service from Virtual City both improved farmer income by ten percent and decreased shrinkage along food supply chains.

Technology incubators and talented young programmers are present in each of the countries studied (Ghana, Kenya, Nigeria, and Senegal), suggesting that this trend toward innovation for development will continue. Open data from governments will provide additional fodder for this ecosystem. Moreover, investors are beginning to recognize that these small companies are providing heavily demanded services in both urban and rural areas. After proving its model, Virtual City received a capital infusion from the Acumen Fund and Nokia. Jobberman has also received $1.8 million from Tiger Global.

The Impact of the Internet in Africa report indicates that the Internet’s social impact  is being realized and is ready for expansion. Donors should consider investments in Internet-enabled efficiency, while investors should continue searching for Internet-enabled pilot programs that could, with a little capital and the right business model, become growing companies that sustainably and positively impact the lives of the world’s poor.

Dan Tuttle is a Senior Consultant at Dalberg Global Development Advisors, and a member of the team from Dalberg and Dalberg Research that produced the Impact of the Internet report. For more on the Impact of the Internet in Africa, including usage trends, case studies, country profiles, and sector-by-sector analyses, we encourage you to read the full report.

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Harnessing the Internet to spur SME growth in Africa

Posted on June 7, 2013 by Jennifer Mickel

By Daniel Kaplan

Food Export International is a food export business operating out of Accra, Ghana. Eric Kwaku started the company by himself in 2005. Since then, it has grown to include 10 management staff, selling produce from over 100 food suppliers and farmers to overseas markets. Food Export International’s success can be attributed to a good idea, talented staff and – according to Kwaku –  the Internet. The reach and capabilities of Ghana’s Internet have advanced enormously since 2005, enabling Food Export International to market itself to customers with whom they previously would not have had contact and to showcase its offerings beside those of larger, more established organizations.

Like Food Export International, SMEs across Africa are recognizing the important role that the Internet can play in their development. A recent survey by Dalberg Research as part of Dalberg’s Impact of the Internet report shows just how important the Internet is to small and medium-sized enterprises (SMEs) in Africa. African policymakers – already concerned with SMEs as an engine for growth and job creation– may do well to prioritize Internet access and use among SMEs.

More than 1000 SMEs in Ghana, Kenya, Senegal and Nigeria participated in the survey. Over 80 percent of those surveyed believed that taking better advantage of the Internet would improve their business’s performance. What’s more, 70 percent of these same SMEs expected that increased business performance would mean new job opportunities in their organization.

SME sentiment on Impact of the Internet graph

SMEs play a very important role in developing economies because they typically comprise a major share of employment and GDP. Recognizing this, African policymakers have increasingly focused on SME growth in their economic and job development targets. Last year the African Development Bank (along with the governments of Denmark and Spain) launched the African Guarantee Fund to promote access to finance for SMEs. The World Bank and IFC have established a number of programs to support SMEs in Africa. South Africa’s National Development Plan has specifically highlighted the need to lower the cost of doing business for small enterprises.

However, little of the growing SME dialogue has focused on opportunities provided by the Internet. The Dalberg survey shows that the Internet is assisting SMEs with top-line growth through marketing and sales, as well as bottom-line operational improvements through increased efficiency in information management. And benefits from the Internet accrue to consumers as well as sellers. As more companies get online, prices and service offerings become increasingly transparent – meaning that consumers can choose the most efficient service delivery at the best price.

SMEs in Africa still have some way to go. Despite demonstration of the cost savings linked to digitization, over half of SMEs surveyed by Dalberg had less than 50 percent of their record keeping and client management documents digitized. Nearly 10 percent made no use of digitization whatsoever. Major constraints to using the Internet include access to reliable network connections, the price of connecting and, in some cases, the lack of attractive Internet applications. Solve these problems, and the potential impact on society at large is enormous.

Steps are underway to do exactly that. In February, Ghana’s Ministry of Trade and Industry launched an online SME portal to enhance the business of micro, small and medium enterprises in Ghana. And in May, the Ministry launched an “Innovation Ghana” initiative with Google, in part to recognize Ghanaians who use the internet to deliver smart technological solutions to existing issues.

The SME survey was conducted by Dalberg Research for a report, The Impact of the Internet in Africa: Establishing Conditions for Success and Catalyzing Inclusive Growth in Ghana, Kenya, Senegal and Nigeria produced by a team from Dalberg Global Development Advisors with support from Google. The report documents how the Internet is affecting a number of sectors, from education to governance. For more on the Internet in Africa, including usage trends, case studies, country profiles and sector-by-sector analyses, we encourage you to read the full report.

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Meeting with global leaders to propel change in Africa

Posted on May 31, 2013 by Jennifer Mickel

Gatherings of key leaders filled the first half of May in Africa. At the World Economic Forum on Africa, the Frontier 100 Forum, Grow Africa, and Innovation Ghana, Dalberg representatives joined others from across the globe to address topics from ICT to agriculture.

In Cape Town, the World Economic Forum on Africa convened to explore the theme “Delivering on Africa’s Promise.” African integration, a shift labeled “key” in this year’s African Competitiveness Report, was on the agenda. During session facilitated by Dalberg Partner Edwin Macharia, “Integrating to Compete,” participants discussed the roots of current challenges to African integration and the way forward.

“Things clustered around questions around human capital development – how do you have a healthy people, and those healthy people then also have the skills to advance themselves, ” said Macharia.

Also in attendance at the World Economic Forum meeting was Global Managing Partner James Mwangi, a Young Global Leader, who participated in sessions on impact investing and applying capital for good.

“Overall the WEF conversations showcased an increasingly confident continent that is finally tapping into indigenous innovation, opening up substantial new windows of opportunity,” said Mwangi. “At the same time, private sector actors, such as JPMorgan Chase and Standard Bank, spoke about how applying their capabilities to tackling development challenges in Africa was just smart long-term business.”

Earlier that week, Mwangi attended the Frontier 100 Forum (F100), a program of the Initiative for Global Development that brings leaders from global multinationals and CEOs from frontier market companies together. Dalberg helped develop the initial concept for F100 five years ago. This year, more than 30 CEOs attended discussions on (1) how businesses can coordinate investments around agricultural value chains, (2) ways adoption of common standards could streamline energy project development in Africa, (3) ways to apply the growing reach and capabilities of mobile/ICT to better engage African consumers and producers, and (4) specific ideas for tracking and measuring social impact of investments.

“I’m very proud of Dalberg’s role in helping make this happen,” said Mwangi, who attended F100 for the first time as a member CEO rather than an advisor or facilitator. “I was particularly impressed by how like-minded executives were getting down to action steps to solve longstanding issues such as access to energy and agricultural productivity.”

Agricultural productivity was the topic of an additional gathering in Cape Town:  the Grow Africa Agricultural Investment Forum. Dalberg Partner Angela Hansen joined country delegations, leaders of African and global business, international and donor agencies, and farmer organizations to discuss accelerating investments for sustainable growth in African agriculture.

“This forum comes at an exciting time for African agriculture; the past ten years of momentum in policy dialogue, predicated by CAADP,  have created an investment-ready agriculture landscape.  GrowAfrica can now help to unleash the potential of private capital flows into the sector,” Hansen said.

A week later, in Ghana, the Ministry of Trade and Industry, in collaboration with Google, launched “Innovation Ghana” to highlight the Internet’s impact on the Ghanaian economy and to strengthen and encourage local products and services created by Ghanaians for Ghanaians. Innovation Ghana was born from a study conducted by Dalberg and commissioned by Google. The study, The Impact of the Internet in Africa: Establishing Conditions for Success and Catalyzing Inclusive Growth in Ghana, Kenya, Senegal, and Nigeria, revealed the socio-economic impact and potential of the internet in Ghana, as well as ways small and medium scale enterprise (SME) owners expected the internet would help them grow their businesses. Dalberg’s Robin Miller presented on the report, including the role of government in fostering a healthy Internet ecosystem.

“The various gatherings these two weeks all confirm that Africa is finally on the move, and opportunities are multiplying across the continent,” said Global Managing Partner James Mwangi. “Increasingly, Africans themselves are leading this charge, even as the roster of global participants in these meetings shows the far-reaching impacts of African growth.”

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Solving development problems impaired by market failure

Posted on May 24, 2013 by Jennifer Mickel

by Angela Rastegar Campbell

Amid budget constraints, global development funders are increasingly pushing for higher overall aid effectiveness. In response, funders and program implementers alike are exploring novel approaches to develop solutions with limited funding. Over the past decade, “innovative financing mechanisms” that address market failures have become increasingly popular. These results-based models allow funders to reward outcomes, in contrast with traditional models of funding, which provide funds upfront based on expectations.

Pull mechanisms and prize funds are examples of this new wave of innovative funding. Another promising approach is advance market commitments (AMCs), which allow funders to pre-commit a pool of funding for distribution to actors who successfully deliver solutions to a problem—thus, creating a new market.

For example, imagine a new vaccine that would be costly to develop but would protect against a neglected tropical disease. Manufacturers might balk at investing in research for a vaccine that benefits communities that have limited ability to pay. But development funders can encourage vaccine manufactures to invest in research, development, and production by setting up an AMC to guarantee the purchase of a certain number of doses from whichever company (or companies) produce the vaccine first, thereby creating a market for the vaccine.

The idea of an AMC for vaccines was purely theoretical until 2005, when designers came together to develop an AMC pilot for a low-cost pneumonia immunization—called the pneumococcal conjugate vaccine—to test the concept. At the time, pneumonia was the most common vaccine-preventable killer of children under five years of age. However, uncertainty about market demand in low-income countries led vaccine manufacturers to overlook the strains of pneumonia most common in Africa and the Global South. By collecting a pool of funds up front and pledging to purchase up to two billion doses of the vaccine at a set price, this AMC created a demand and prompted two vaccine manufacturers to develop a vaccine to address those strains. This pilot, administered today by the GAVI Alliance, offers lessons for future designers about navigating the complex nature of this approach.

Dalberg Global Development Advisors recently published a process and design evaluation of the AMC pilot that drew upon more than 400 historical documents and 50 interviews to identify best practices and lessons learned. Through this evaluation, Dalberg identified five critical questions to help facilitate the design and implementation of a successful AMC.

1. Is an AMC an appropriate intervention for this problem? Some market failures are better addressed through alternative solutions—for example, negotiating directly with a supplier to lower prices on an existing product for low-income countries. For the pneumococcal AMC pilot, program designers offered funding to every vaccine producer that could meet their product requirements to discourage a monopoly. Understanding the specific market failure that you are trying to address and designing a tailored approach to meet the program’s goals will lead to the best outcomes.

2. Do you have the right team? One major success factor in this pilot was the presence of strong project advocates, who drove the design process and launch. In particular, the Italian government assumed an early leadership role, contributing nearly 50 percent of the initial funding. Future AMCs would benefit from having strong advocates who can drive the project forward through a long and complex process.

3. How quickly do you need results? AMCs require iteration. They aim to create a new market, and each aspect of the AMC’s design influences a critical piece of the market later on. Designers should expect to develop the AMC in an iterative fashion over time, revisiting each decision as needed, rather than proceeding along a linear, sequential path. The design of this AMC pilot ultimately took four years.

4. How much risk are you willing to take? Designing an AMC to address a global market failure requires a significant amount of research, analysis, time, and appetite for risk. Growing supply and demand simultaneously for a new market and matching the two in the early years is extremely difficult. Further, each design decision can shift risk between the AMC funders and funding recipients. Designers must decide and make clear who bears which risk throughout the program.

5. Do you have data to set the right price? An AMC can potentially entail identifying a market problem and determining a price for a product that does not yet exist. Not surprisingly, pricing the award amount is one of the most challenging aspects of designing an AMC; it is also the decision most likely to face questions and criticism. Designers should factor in the need for robust collection of data—on both the market and potential applicants for the prize.

While AMCs and other innovative financing mechanisms can be risky and difficult to establish, they are worth understanding and replicating, as they offer a value-conscious way for the global development community to propel innovation. The pneumococcal AMC pilot attracted support from six major donors, securing a preliminary $1.5 billion commitment in 2007. Over the ten-year lifespan of the pilot, donors will spend an estimated total of $8 billion. The success of this AMC in attracting funds leading to vaccinations for millions of children highlights the potential benefits of AMCs.

The process and design evaluation for the pneumococcal vaccine AMC offers important insights for future designers to increase their likelihood of success. For more details, we encourage you to view the full report.

This article originally appeared on the Stanford Social Innovation Review site as “From Theory to Practice.”

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Video: D. Talks – Amir Dossal, Chairman of the Global Partnerships Forum

Posted on May 17, 2013 by Jennifer Mickel

By Cecilia Chen and Sanchali Pal

Recently, Amir Dossal, Chairman of the Global Partnerships Forum and Co-Initiator of the Pearl Initiative, visited Dalberg New York to deliver a D. Talk on corporate philanthropy’s shift from charity to smart investment. Mr. Dossal also took a few moments to share some ideas on this theme with Dalberg Video.

According to Mr. Dossal, the basic synergies in partnerships work like this: the public sector’s role is to set norms and standards; the private sector supplies excellent management, leadership, and logistics skills; and NGOs are the ones who deliver on the ground, providing insight into what works. For more, check out today’s video update.

Outside of leading Global Partnerships Forum, Mr. Dossal is the Co-Initiator of the Pearl Initiative, a CEO-led program promoting transparency and accountability in the Gulf Region. In addition, he is Special Representative of the Secretary-General of the International Telecommunication Union for Global Partnerships. Mr. Dossal is a 25-year veteran of the United Nations and the former Executive Director of the UN Office for Partnerships.

D. Talks is a forum that brings together the development community in each city where Dalberg is located. D. Talks drive dialogue and critical thinking on global development issues and opportunities for live idea exchange in the development community.

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Diversifying in South Sudan: Africa’s newest agricultural investment frontier

Posted on May 10, 2013 by Jennifer Mickel

By Nungari Mwangi, Julia Shen, and Greg Snyders

In July 2011, the people of South Sudan voted overwhelmingly for independence from Sudan, creating the world’s newest country. Since then, one of the greatest challenges facing South Sudan has been diversifying its nascent economy; oil revenues accounted for 80 percent of the country’s GDP and 98 percent of the government’s budget in 2011.

The need to address this challenge escalated in January 2012, when South Sudan shut down oil production after a dispute with Sudan over pipeline transit fees. During the shutdown, which lasted over a year, the country’s GDP fell by a staggering 55 percent, creating an acute food security crisis affecting 4.7 million people and renewing the specter of conflict with Sudan. Yet, South Sudan survived the year without ‘doomsday’ scenarios coming to pass—and with an invigorated focus on agriculture-led growth.

The landscape near Juba, South Sudan captured by Greg Snyders.

South Sudan has a wealth of untapped agricultural assets. With 30 million hectares of arable land – an area 20 percent larger than the entire land area of the UK – across six agro-ecological zones, South Sudan can produce an array of agricultural products, from cereals to oil seeds, horticulture, and specialty products such as shea butter and gum arabic. Only five percent of this land is cultivated. Moreover, South Sudan also offers abundant water resources in the Nile basin, and forestry assets are plentiful, with tens of thousands of hectares of teak and other high-value hardwoods available for sustainable harvesting.

Companies like SABMiller have already tapped into South Sudan’s potential. The beverage giant has invested over $50 million since 2009 in its subsidiary South Sudan Beverages Limited (SSBL), capturing 75 percent market share with beers such as White Bull, branded as the “taste of independence,” and extending production to bottled water, soft drinks and other beverages. Another bold investor is Concord Agriculture. With 1,000 hectares of primarily sorghum already under cultivation and plans to utilize over 50,000 hectares of land, Concord has demonstrated that it is possible to obtain world-class yields in South Sudan while creating jobs and training opportunities for South Sudanese people. Concord has also found South Sudan’s domestic market to be surprisingly lucrative.

Others may soon follow suit, as several steps to catalyze agriculture-led growth are underway. In 2012, President Salva Kiir announced a goal to achieve food self-sufficiency by 2014. The Ministry of Agriculture launched a National Effort for Agricultural Transformation (NEAT), and recently, the Minister of Agriculture, Betty Achan Ogwaro, asked Dalberg to identify agricultural opportunities for foreign investors and agribusinesses. Earlier this week, representatives from South Sudan participated in discussions happening at the World Economic Forum (WEF) on Africa and at the Grow Africa Agricultural Investment Forum. Their participation, combined with investor dialogues facilitated by Dalberg, has stimulated interest in opportunities in the world’s newest nation.

South Sudan Ministry of Agriculture logo

South Sudan’s agricultural potential is evident, but challenges to operating in the country remain. As in other post-conflict countries, some investment-related policies and regulations – and the capacity and systems to implement such policies – are nascent. Infrastructure presents challenges, with poor roads and limited power generation capacity. As in many parts of Africa, rights over use of land and, specifically, leases for agricultural land can be unclear, requiring time and patience to navigate processes such as direct negotiations with the communities involved. The government of South Sudan is providing leadership to address these challenges, but, as is true elsewhere, the process of nation-building will be a long undertaking.

Nonetheless, with an economy forecasted to be among the world’s fastest-growing this year, South Sudan’s vast potential is already being realized. The country remains a high risk/high reward environment that demands commitment and patient capital, but the path of economic diversification through agriculture is likely to yield sweet fruits for years to come to those who seize the opportunities of that transition today.

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Expanding in Latin America through partnership with B.O.T.

Posted on May 3, 2013 by Jennifer Mickel

Over the past decade, Dalberg has grown rapidly and delivered incisive global development advice to clients in multiple sectors and continents, including 49 engagements to date in Latin America. We are delighted to announce that Dalberg and B.O.T, a Bogotá-based social impact consulting firm, recently joined forces to create a new Dalberg strategic presence in Colombia to help us serve clients in or interested in the region even better.

“Our Bogotá presence will combine the expertise of B.O.T. and Dalberg to serve clients across Latin America.  We are delighted with this partnership, as B.O.T. shares Dalberg’s social mission and our commitment to applying top-class consulting skills to development problems,” said Paul Callan, Dalberg’s Global Operating Partner.

This week Daniel Aldana, the director of B.O.T., answers questions about B.O.T. and the new partnership.

Q: Tell us a little bit about BOT’s founding. What was your first project like?

Daniel Aldana photo

B.O.T. Director Daniel Aldana

B.O.T. was founded in 2002 to apply private-sector consulting skills to develop Colombia. Before 2002, I could not drive 60 km outside of Bogotá without risking being kidnapped; now, the rate of kidnappings per capita is higher in Mexico, Ecuador and Venezuela than in Colombia. Colombia’s transformation has involved reform in many sectors, not just security. One of those was the basis for B.O.T.’s first project:  a redesign of public management.

After being elected president in 2002, Alvaro Uribe charged Colombia’s National Planning Department (NPD) with reforming the state in the Public Administration Reform Project. In contrast with previous attempts to legislate reform, President Uribe wanted a technical, implementation-focused approach. The NPD hired B.O.T. to design a reform program, create, operate, and institutionalize it within the NPD, and then fully transfer the unit to NPD control. So our first endeavor was to transform the Colombian government – hardly a small proposition!

Within 10 months we redesigned 70 national government agencies and equipped the National Planning Department to tackle the ones that remained. The B.O.T.-designed unit in the NPD continued operating for 10 years, and was quite successful. External evaluations have found that the unit’s restructuring decisions saved the government an amount equal to 12.9% of GDP in net present value.   B.O.T.’s success in government reform led us to impact-focused clients in other sectors, including regional governments, foundations, and SMEs.

Q: Why did you select the name B.O.T.?

B.O.T. stands for “build, operate, transfer.” Our name comes from a type of concession in which the concessionary makes an improvement – such as building a road – and operates it for a period of time before returning it to the government. In this kind of arrangement, the government receives the road already in operation, already working – a result already delivering on what it is supposed to do,  not merely a plan or report.

We use the same model with our clients. Before concluding each project, we make sure that change is happening already. Life is too short to spend writing documents and PowerPoints that are impractical or won’t be implemented. Our focus is on delivering change for clients we work with – so we put that process into our name.

Q: What sectors besides public administration have transformed in Colombia?

Colombia has made great strides in higher education. B.O.T has worked with more than 20 universities to design and implement strategic plans. Academics don’t always think managerially, and we have helped them think of universities as entities in a competitive environment and act accordingly: to be efficient, to compete, to stay abreast of sector trends. We have helped the industry start talking about their relationship with the productive sectors of the economy. Now universities consider how to help businesses work better, increase employment, and help local communities develop socially.

A parallel effort that boosted this transformation was a ranking of 280 Colombian universities that B.O.T. designed and still runs. The ranking has become a widely-used reference for students and universities, encouraging healthy competition and improvements that have made Colombia more competitive. For example, I recently went to Chile and a high executive at the University of Chile wanted to learn from Colombia’s higher-education accreditation system – so Colombia might start exporting knowledge in this arena.

Q: Is there any project in the works that is particularly innovative or important?

There are many poor farmers in Colombia whose productivity is low. Some rent land, and others are farmhands or migrant workers – and many have been displaced by the violence and have lost the land they used to own. Simultaneously, there is a great deal of cheap, fallow land in the country.

Last year, B.O.T. designed a project to co-invest in land purchases financed by private investors and to allow these poor farmers to live and work the land. An NGO partner would give technical, business, and commercial assistance to families to make the land productive and repay the investors. After a fixed term, the families would own the land and the competitive agribusinesses, and the private investors would get a financial return. This project could be a landmark by showing how land reform can successfully be achieved through private sector leadership.

Q. Why did “B.O.T.” decide to collaborate with Dalberg?

With a decade of experience fueling Colombia’s growth, B.O.T is poised to replicate Colombia’s successes throughout Latin America. Dalberg brings a global perspective, broad subject matter expertise, and staff of development leaders to those efforts.

Our firm culture emphasizes the outcomes of the project that we select; we only do projects that will generate positive impact or change something. Dalberg shares this philosophy– and that’s why we expect many synergies as our firms combine efforts over the coming year.

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BRICS: Can South Africa represent the entire continent?

Posted on April 26, 2013 by Jennifer Mickel

by Daniel Kaplan and Devang Vussonji

In the kingdom of developing countries, there used to be the big four: China, the assembly line of the world; India, the world’s back-office; Russia, the energy behemoth; and Brazil, the biofuel and large-scale agriculture provider. These countries joined forces to create the “BRIC” block and drive a new global economic agenda. Soon the big four became the big five, with South Africa’s entry into the group forming the BRICS.

South Africa alone might be seen as an afterthought (think of the buffalo – possessing great strength, but also the most vulnerable of the group). However, South Africa is widely perceived as the gateway to the African continent. Indeed, South Africa’s inclusion in the BRICS grouping could benefit the African continent in a number of ways.

The BRICS grouping is changing perceptions about who is driving the world economy. A decade ago, the Organization for Economic Co-operation and Development (OECD) was ascendant. Today, the BRICS represent a competing center of world power, giving increased negotiating clout to the members and changing the dialogue around world decisions. Despite this, question marks surround the long-term impact of the BRICS grouping on Africa as a whole. Differing economic interests among both BRICS and between South Africa and other African countries could stifle the possibility of coordinated action. Case in point: outcomes from the BRICS summit in South Africa in March.BRICS

The most significant multilateral outcome from this year’s BRICS summit was the initial workings of a development bank to help member countries when they have short-term liquidity problems, and to fund development and infrastructure projects.

Where the funding comes from has important implications for decision-making, and for Africa. Financial contributions to the bank will dictate the level of decision-making power. BRICS finance ministers proposed that $50 billion be raised for the banks’ activities. If this were split equally ($10 billion, five ways), it would amount to mere pocket-change for China, but constitutes nearly 2,5% of South Africa’s GDP. South Africa will find it fiscally onerous to provide a contribution large enough to give it equitable decision making.

A second major outcome from this year’s BRICS summit was the establishment of a Business Council to strengthen trade and investment between members. South Africa’s delegation could become an intermediary between the BRIC countries and Africa, helping the BRIC countries’ understand how to operate in Africa and helping negotiate bilateral agreements. But whether that will happen, remains to be seen. If there are any implications for other African countries, they may well arise merely as a by-product of decisions made in this council, rather than through an active prioritization of Africa-wide issues.

Even if South Africa’s delegates provide a strong pan-African voice on the council, pushing an African agenda will be a significant challenge. Revitalizing manufacturing, for example, is a core component of both South Africa’s and the larger continent’s economic development plans. However, Indian and Chinese manufacturing companies will want access to African markets. Negotiating these interests will pit protectionism against free trade and there is unlikely to be sufficient political will to move towards the later.

There are other important divisions within BRICS. South Africa’s place in the group does not mean that the other countries will support its important geopolitical stances. For example, they did not endorse South Africa’s support for Nigerian Finance Minister Ngozi Okonjo-Iweala as Africa’s candidate for the World Bank presidency. With respect to trade, there have been numerous disputes. Just after the BRICS conference, Brazil declared a trade dispute with South Africa and India over supposed dumping of polypropylene.

What BRICS means for Africa will depend on a combination of the strength of the BRICS itself, South Africa’s influence within the group, and how South Africa chooses to represent Africa’s broader interests, if at all.

Ultimately it may be a case of “the more things change the more they stay the same.” BRICS invest only 2.5% of their foreign investments in each other, and only a portion of that goes to Africa. Almost all investors, mining, oil, or gas players move directly to bilateral agreements that will occur with or without BRICS. As Duncan Clarke writes, “All BRICS players see potential mileage in Africa, and all engage there independent of South Africa.”

In the end, the big five generally do what they like – just as in the animal kingdom.

This post originally appeared on Africa.com. It has been edited for style and re-posted with permission.

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Mapping the Landscape of Emerging Aid Donors

Posted on April 19, 2013 by Jennifer Mickel

By Paul Callan, Jasmin Blak, and Andria Thomas

The first blog in this series addressed the attention given to Chinese foreign assistance. Yet China is only one of several emerging donor countries that are providing an increasingly significant contribution to development aid. Official Development Assistance (ODA) from China is estimated at $2 billion annually, whereas Saudi Arabia gave over $5 billion in 2011, and South Korea and Turkey gave $1.3 billion each. Many emerging donors give more ODA as a share of Gross National Income (GNI) than China’s 0.04 percent, including Hungary (0.11 percent), Poland (0.08 percent), and the United Arab Emirates (UAE—0.22 percent). The changing landscape of foreign aid will be driven as much or more by other emerging donors as by China alone. It is therefore important to understand the broader set of emerging donor countries.

Which are the emerging donor countries? At Dalberg, we define this group of countries as those which:

  • Have become substantial donors within the last 20 years;
  • Are not part of the OECD’s Development Assistance Committee (OECD-DAC) or have only joined it in the past decade; and
  • Received aid and/or other development assistance themselves in the recent past (and may still be doing so).

With this definition, emerging donors include a wide range of countries, including the likes of Brazil, India, South Africa, Saudi Arabia, UAE, Hungary, Poland, Turkey, and South Korea, as well as China.

This graph shows levels of Official Development Assistance in recent years from several major emerging development donors.

Levels of Official Development Assistance in recent years from several major emerging development donors.

Emerging donor contributions have quintupled in the last five years; overall, they account for an estimated 7-10 percent of global aid flows from donor countries. In contrast with traditional OECD-DAC donors whose aid volumes are expected to stagnate in the medium term, aid from emerging donors is projected to double in the next five years, which means they could contribute close to 20 percent of total donor funding by 2020.

Emerging donors employ approaches to providing aid that are sometimes quite different from those of traditional donors. But, just as there are differences between traditional donors, there are also differences between emerging donors. Let’s look at some of the features of emerging donor development aid in more detail:

Expert advice and in-kind contributions. Many emerging donors feel that their greatest contributions can come from non-monetary support in the form of shared expertise from their own development. Some donors also feel that in-kind contributions mitigate the risk of funds being misused by recipient countries. Brazilian aid focuses heavily on providing “made in Brazil” solutions, especially in health, agriculture, and education. South Korea strongly believes that its aid should share experiences from South Korea’s own development and has invested in multiple large-scale advisory programs such as the South Korea International Cooperation Agency (KOICA)’s International Cooperation Center and the Knowledge Sharing Program of the Ministry of Strategy and Finance. India has partnered with the African Union to create the Pan-African e-Network, Africa’s largest long-distance education and tele-medicine initiative. The Indian government is providing in-kind investments totaling $125 million over five years to set-up the system and transfer knowledge to local implementers.

Explicit prioritization of national interests. Many emerging donors are not shy about saying that their development assistance is linked to national interests, including economic cooperation, promotion of regional stability, religious or cultural ties, and commercial opportunities. For example, “mutual benefit” or “win-win” economic development cooperation is a central tenet of Chinese and Indian assistance and characterizes India’s cooperation with many African countries. Prioritizing regional stability is another common motivating factor. For example, the majority of India’s aid supports infrastructure projects in neighboring countries such as Nepal, Bhutan, and Afghanistan, where India recently became the fifth-largest aid donor. Saudi Arabia and Turkey direct their aid primarily to fellow majority-Muslim countries. For example, Turkey provided assistance to Egypt following the Arab uprisings and over $500 million in public and private aid to famine-hit Somalis in 2011. However, some emerging donors, especially some Eastern European countries and South Korea (which joined the OECD-DAC in 2010), emphasize “altruistic” objectives and look to the Nordic countries as role models. Thus, motivations vary significantly among emerging donors, and there is no clear divide between traditional and emerging donors because both groups include donors with more altruistic and more national-interest-focused objectives.

Cooperation with traditional donors. Emerging donors as a group are enthusiastic about cooperation with each other and with traditional donors. Triangular cooperation initiatives, which normally partner a traditional donor from OECD-DAC with an emerging donor and a beneficiary developing country, are becoming common. In 2011 and 2012, India both received advice from Brazil on enhancing its social protection scheme in Delhi and provided information technology and outsourcing expertise to eight African countries in partnership with the World Bank. In Brazil, trilateral projects represent one-fifth of the total technical cooperation projects. For example, Brazil is working with Mozambique and the United States in a triangular cooperation focused on sharing the successes of the Brazilian response to the AIDS epidemic to enhance the strategy and execution of Mozambique’s own AIDS response. Though China has in the past been accused of prioritizing unilateral development cooperation, it is increasing its collaboration with other donors, especially through triangular cooperation arrangements as well as its recent partnership with the World Bank to promote global economic governance and development.

In this short post, we have touched upon a few features of emerging donors. But, as a whole, they are not understood very well. As their aid becomes increasingly important to recipient countries, development policymakers and practitioners will need to understand emerging donors – as a group and individually – much better.

This post originally appeared on the Council on Foreign Relations Development Channel.

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Breaking down China’s foreign aid and investment

Posted on April 12, 2013 by Jennifer Mickel

By Paul Callan, Jasmin Blak, and Andria Thomas

China has significantly expanded aid to and investment in developing countries in recent years. This expansion has been the subject of much debate, with many development scholars and policymakers seeking to understand how Chinese foreign assistance compares with that of “traditional” OECD donors. However, many analyses compare Official Development Assistance (ODA) from traditional donors to a more varied collection of financial tools employed by China. These apples-to-oranges comparisons sometimes give an inaccurate picture of the global aid and investment landscape. A more careful analysis shows that while China gives relatively little ODA, its broader foreign assistance flows already match or exceed those from the United States and other OECD countries.

ODA–defined by the OECD to include grants, interest-free loans, and concessional loans–is the most frequently cited metric for foreign aid. China does not give much aid by this measure: its ODA was estimated to be $2 billion in 2010, which equates to 0.04 percent of its Gross National Income (GNI). By comparison, U.S. ODA was $30 billion in 2010, equivalent to 0.21 percent of GNI, and all members of the OECD’s Development Assistance Committee (OECD-DAC)—the main group of traditional donors—gave $128 billion in ODA in 2010.

Why, then, is China viewed as a significant donor? To understand, we need to look at other types of government assistance and at private sector funding flows.

Actual and estimated totals of official development assistance and other financial flows to the developing world from China, the United States, and traditional donor countries.

Official assistance can be defined more broadly by adding to ODA a range of funds outside the OECD’s definition, such as export credits, natural-resource-backed lines of credit, subsidies for private investment, and mixed credits (combined concessional and market-rate loans). These are called Other Official Flows (OOF) by the OECD-DAC. OOF are usually distinguished from ODA by traditional donors because of concerns about the development implications of strings frequently attached to OOF arrangements, such as tying the funds to the use of products and services from the donor country.

China’s export credits and other types of OOF are larger than its ODA. Chinese OOF to Africa alone are estimated to have been about $5 to 6 billion in 2007. The United States and other OECD-DAC countries also provide various forms of OOF, but at a scale far below that of China. Annual U.S. OOF to all developing countries, net of repayments, never exceeded $1 billion during the period 2005 to 2010. To take one example, the Export-Import Bank of the United States (Ex-Im Bank) authorized just under $10 billion in loans and other financing to Africa during the last eight years, during which time its Chinese counterpart (EXIM) is reported to have authorized $38 billion for the continent.

Foreign Direct Investments (FDI) are private financial flows that count as neither ODA nor OOF. In China’s case, however, FDI is relevant to the discussion of foreign aid because state-owned companies likely account for a substantial proportion of FDI, making it harder to distinguish between public and private flows. For example, the single largest direct Chinese investment in Africa to date is the $5 billion purchase by the state-owned Industrial and Commercial Bank of China Ltd. of a 20 percent stake in South Africa’s Standard Bank in 2008. In all, China’s FDI to developing countries was estimated to be approximately $17 billion in 2010, representing an FDI to GNI ratio of 0.30 percent, roughly equal to the United States’. Looking at Sub-Saharan Africa specifically, China’s FDI to GNI ratio is greater than that of the United States, though its absolute number is slightly less ($12.7 billion in 2007 to 2011 versus $16.6 billion).

Some of the confusion in the conversation about aid and investment stems from differences in philosophy. The Chinese government explicitly considers other developing countries to be business partners more than aid recipients in its economic diplomacy strategy. Consequently, the foreign assistance described in the government’s 2011 “China’s Foreign Aid” white paper and 2006 “African Policy” paper outlines many forms of non-ODA finance that China considers cooperative, including export buyer’s credits, preferential trade relationships, and support for Chinese firms investing in developing countries. OECD-DAC members, by contrast, distinguish clearly between monies that they consider aid to developing countries (and the poor within them), and other flows related to commerce.

As China and other emerging donors come to contribute more to developing countries, it would be beneficial to have more accurate and consistent reporting across all donors. Comparable reporting standards could draw from both OECD definitions and emerging donor conventions, such as the Chinese practice of treating only the reduction in interest on concessional loans (rather than the whole loan) as ODA. More consistent data would enable developing countries and international development actors to better understand the nature of financial flows to their economies, and consequently to design better policies to harness these flows.

The next post in this series will examine aid and other financial flows from emerging donors outside China.

This post originally appeared on the Council on Foreign Relations Development Channel.

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