Trade not Aid

The shift from giving to buying and selling creates a more sustainable kind of independence in international development.

Digital technology holds enormous economic potential for poor populations. Thanks to the spread of the internet and mobile phones, many people who were formerly recipients are taking their interests into their own hands and emancipating themselves from aid organisations and NGOs. People who used to be locked outside of the economic cycle can now take personal responsibility for their circumstances thanks to access to digital technology.

Those at Base of Pyramid (BoP) is increasingly taking their fate into their own hands. This term refers to the 2-4 billion people who get by on less than 2 US-dollars per day, and who have hitherto been neglected by economic value chains. These people also count among the recipients of aid from NGOs, and the social and development sectors. But increasingly new economic models are being developed which use the fact that this target group has purchasing power, and though this is very limited on an individual level, on an aggregate level this represents a mass market for which drafting new products and services could be worthwhile and lucrative. Many BoP schemes are aimed at poor people not as beneficiaries but as customers, e.g. by selling shampoo and washing powder in small, thus affordable, sachets or offering microcredit for the purchase of irrigation equipment.

Jack Welch, former CEO of General Electric, once said: “Control your own destiny, or someone else will.” This idea of self-determination is what underpins BoP approaches, which aim to help poor people by putting them in a position to generate enough income. For example, social enterprise Solar Sisters offers African women a Solar Start Kit which, after training and support with marketing, they can spread to their network of neighbours, family and friends. The model is a kind of tupperware party for solar energy. Approaches such as this are also supported by development economists, because jobs are a better weapon in the fight against poverty than are aid consignments. Paid work brings with it a raft of positive consequences: it makes people independent, gives them dignity, incentivises them to develop their abilities, and strengthens their purchasing power. Studies show that employment is the most important lever for lifting families out of poverty (see book ‘Poor Economics’). Even established development agencies are increasingly reaching for market-based approaches to poverty elimination. Hence Devex and USAID teamed up to create online community Devex Impact, where over 4,000 development experts and entrepreneurs exchange ideas and initiate collaborations.

Online access to microcredit and pre-financing

Internet platforms like Kiva, MyC4 or Zafén broker loans to ‘micro-entrepreneurs’ so that they can make important investments. From the billiards table to increase turnover at a bar in Baku to the sewing machine for a woman in an African township, online platforms are letting millions of social investors support people in distant countries to set up their own business. Crowdfunding and donation platforms such as Kickstarter, Indiegogo and betterplace.org are also used by entrepreneurs and small businesses to raise start-up capital or to pre-finance products. Mobile phones have contributed in particular in recent years to lifting people out of poverty.

Several studies showed that as the number of mobile phones in use in a country grows, so does the gross domestic product (the rate of growth in developing countries is particularly high). Many development experts see mobile phones as arguably the most important tool we have. In Africa alone 80 percent of people now own a phone. According to predictions, the continent will have over a billion mobile phone users by 2017. And phone manufacturers like Huawei are developing smartphones for this market: it’s predicted that these models will have a global market share of 43 percent by 2016.

Mobile phones revolutionise how people do business

The trend Trade not Aid involves the use of mobile phones for banking, borrowing and lending, taking out insurance policies and the distribution of current market information. The trailblazer here is Kenya, with the SMS-banking service M-Pesa. More than 15 million Kenyans can now transfer money using their M-Pesa mobile accounts. People who until then had been “unbanked”, i.e. excluded by conventional banks by high fees and the securities required to open an account, now have access to the financial system. M-Pesa has expanded into several other African countries. In Asia too we see increasing use of mobile banking, such as the Dutch Bangla Bank in Bangladesh. With more than half of people in the country owning a mobile phone, the proportion of account holders amongst low income groups has risen from 13 to 33 percent. Insurance policies are also increasingly available to low-income target groups. For instance Kilimo Salama offers Kenyan farmers affordable insurance against crop failures.

Manage your herd by text

Information dissemination by text message or app is becoming more and more popular. The app iCow, developed by east-African farmers, offers information on cattle farming. Users register details of their herd on iCow and receive text message reminders for immunisation appointments and milking times, as well as valuable information on feeding and breeding. iCow was developed with support from an English foundation as an alternative to the aid handouts which farmers would otherwise have received. The foundation’s CEO writes: “Farmers have been empowered to improve their own lives through accessing critical agricultural information as opposed to depending on aid”. More and more digital services offer information for farmers and merchants. Reuters Market Light provides information to millions of Indian farmers on weather and current market prices, as well as guidance on sowing and harvesting – all for a price of 90 cents per month. If an Indian farmer supplies to a merchant who takes the produce to market, and if the farmer knows the average price for a kilo of grain, he is less likely to be ripped off by the middle-man.

Internet as a job superhighway

Over Samasource people all over the world can be employed by companies directly and working from their own homes. IT-firms like eBay and LinkedIn publish microjobs on such platform, tasks such as tagging photos. These are carried out, for instance, by the inhabitants of the large Dadaab refugee camps in northern Kenya. Now microjob platforms are setting up in developed countries too. On TaskRabbit in the USA, microjobs are advertised with a small payment offered to anybody interested. These are mostly local-level everyday tasks – things like a shopping run, putting together an Ikea bookcase or dog-walking.

Conclusion

The social sector does a lot of good. In the aftermath of a catastrophe in particular, emergency aid and the work of NGOs are indispensable. However, when it comes to tackling “general poverty”, aid, either in terms of sending money or sending stuff, also leads to a relationship of dependency. Exactly the opposite, namely independence, can be achieved when people are given the opportunity to earn money for themselves. Nobody’s suggesting there are two billion job vacancies, which the world’s poor can simply send a text message to accept. But mobile phones and the internet serve to build infrastructure which is so cheap to use that even on a micro-level of very small sums, it becomes possible and commercially worthwhile to create supply in order to meet demand. So a level of prosperity can grow out of the Base of the Pyramid.

The improvements to quality of life brought about through the efforts of the poor people themselves are psychologically better than handouts. The Trade not Aid trend is being driven in particular by the global spread of mobile phones, which are already widely used in developing countries. There’s still a lot of experimentation at work, and further experimentation to be done. But out of this process many services have taken hold and spread widely.