Dead Aid: Why Charity is not good?

Wishing my readers a wonderful year ahead. This post is about the book "Dead Aid" by Dambisa Moyo with references from the critical article "Banned Aid" by Jagdish Bhagwati.

In the affluent West, no public policy issue is more likely to produce conscience conflicts in its citizens than foreign aid. The humane impulse, aggravated by the unceasing television images of famine and pestilence in the developing world, is to favor giving more aid.

Well, there is another side to the aid coin. Emperor Jean-Bédel Bokassa of the Central African Republic used philanthropic capital to buy a gold-plated bed, and Zaire's dictator, Mobutu Sese Seko, spent it on personal jaunts on the Concorde. Scandals like these are inevitable and it has lead many to conclude that most aid is wasted or, worse still, that it alone is responsible for corruption.

In the past fifty years, more than $1 trillion in development-related aid has been transferred from rich countries to Africa. Has this assistance improved the lives of Africans? No. In fact, across the continent, the recipients of this aid are not better off as a result of it, but worse — much worse.

Dambisa Moyo describes the state of postwar development policy in Africa today and unflinchingly confronts one of the greatest myths of our time: that billions of dollars in aid sent from wealthy countries to developing African nations has helped to reduce poverty and increase growth.

Debunking the current model of international aid promoted by both Hollywood celebrities and policy makers, Moyo offers a bold new road map for financing development of the world’s poorest countries that guarantees economic growth and a significant decline in poverty—without reliance on foreign aid or aid-related assistance.

Dead Aid is an unsettling yet optimistic work, a powerful challenge to the assumptions and arguments that support a profoundly misguided development policy in Africa. And it is a clarion call to a new, more hopeful vision of how to address the desperate poverty that plagues millions.

The author, Dambisa Moyo is a young Zambian-born economist with impeccable credentials. Educated at Harvard and Oxford and employed by Goldman Sachs and the World Bank, Moyo has written an impassioned attack on aid and has won praise from leaders as diverse as former UN Secretary-General Kofi Annan and Rwandan President Paul Kagame.

An Outsourcing Paradox

I was reading "The World is Flat" last week and this blog is inspired from a beautiful paradox that Thomas Friedman puts across in the section "India Vs. Indiana".

... In 2003, the state of Indiana put out to bid a contract to upgrade the state's computer systems that process unemployment claims. Guess who won? Tata America International, which is the US-based subsidiary of our India's Tata Consultancy Services Ltd. Tata's bid of $15.2 million came in $8.1 million lower than that of its closest rivals, the New York-based companies Deloitte Consulting and Accenture Ltd. No Indiana firms bid for the contract, because it was too big for them to handle.

In other words, an Indian consulting firm won the contract to upgrade the unemployment department of the state of Indiana! You couldn't make this up. Indiana was outsourcing the very department that would cushion the people of Indiana from the effects of outsourcing. Tata was planning to send 65 contract employees to work in the Indiana Government Center, alongside eighteen state workers. Tata also said it would hire local subcontractors and do some local recruiting, but most workers would come from India to do the computer overhauls, which, once completed, were "supposed to speed the processing of unemployment claims, as well as save postage and reduce hassles for business that pay unemployment taxes", the Indianapolis Star reported...

The contract became a political hot potato and was eventually cancelled. The people of the state of Indiana considered this as one of the biggest local employment insecurities posed by the outsourcing phenomenon in the US. The then Governer Joe Kernan, ordered the state agency, which helps out-of-the-work Indiana residents, to cancel the contract and also put some legal barriers and friction to prevent such a thing from happening again. He also ordered that the contract be broken up into smaller bites that Indiana firms could bid for - good for Indiana firms but very costly and inefficient for the state. A check for $993,587 was sent to pay off Tata for 8 weeks of work.

Friedman argues in terms of the intricate sorting out process that needs to be done during globalization and raises a critical question, "Who is the exploiter and who is the exploited in the India-Indiana story?"

A similar article on another IT outsourcing contract caught my eye recently. The Business Standard article titled "IBM wins Amul's 10 year outsourcing contract" sums up like this:

IBM will provide information technology services to Amul, the Gujarat Cooperative Milk Marketing Federation (GCMMF), and its milk unions to support their growth plans. The 10-year outsourcing deal is worth over Rs 80 crore and under the terms, IBM will manage and operate the IT environment of GCMMF for the next 10 years, primarily by setting up a technology platform based on ERP systems and a datacentre backed by a Disaster Recovery Centre. As a result, the cooperative will be able to improve its supply chain, strengthen customer focus and achieve stronger growth. Amul has deployed information technology from the grassroot level of Village Dairy Cooperative Societies and the new deal will affect the lives of millions of farmers.

There were several Indian bidders in this outsourcing contract and apparently, none could win. Surprising, isn't it?

And I end this blog right here with the two questions that confronted me:
- An Indian Software Firm bag which won a similar sized contract ($ 15 million) in the United States (mainly because of the cost efficiency element) lost out to an American firm in its home country??
- Is this an effect of true globalization or our own desi IT firms are busy getting pampered by American outsourcing jobs?

The recession has certainly reduced this American dependence and all the firms have now been forced to look at the Indian subcontinent for business. While this is definitely healthy to bootstrap our economy, the Amul contract only seems to suggest that the Americans, armed with their low cost workshops in our country have woken up now.

The 5% (Extra) Engineering: Winning the GE Edison Challenge

I published the following article on WhyNewton recently. Many thanks to Neha Arha for helping me out with the compilation.


TECHNOLOGY WITH A TINGE OF SOCIAL ENGINEERING IS WHAT brought us to win the second edition of General Electric’s “Edison Challenge”, a competition pitting science students from across the country against each other to find the best technological innovations to provide electricity in rural India.

While in my freshmen year, I heard about IViL and its objective, i.e., rural development, something that closely intersected with my area of passion. It was love at first sight and I immediately joined as a volunteer.

At IViL, we were a bunch of diverse engineers from a variety of streams and specializations. The club initially was quite different in comparison to what it is today. There were four major teams: AIPA (Alternative Industries Promotion Activities), SPA (Science Promotion Activities) and two other groups. Despite a number of meetings and discussions less than 1% of the talks converged into action.

This pained us and I, along with a few others, helped change the face of the organization. We restructured it and formulated 10 teams which dedicatedly worked on one big project - Opening an "Integrated Knowledge Centre" at a village called Natham, 50 kms from Chennai.

I, assisted by IViL team, conducted a one day capacity building workshop for all the ten different work groups and they were mentored by experienced professionals from the developmental sector. Luckily, collaborations followed. With a few non-profits and institutions, we floated an organization called "Indian Rural Development Initiative" (IRDI) and conducted a 2 day awareness camp in the village. The workshop greatly motivated the work groups and after around 6 months of focused action, we were able to inaugurate the centre on January 26th, 2009.

GE EDISON Challenge…
The problem statement, as stated in the beginning of my story, greatly excited me and I formed a team of 5- Kaushik Anand K., Midhun Salim, Ashwin Ramesh, Aditya Harit and Srinath Ramakkrushnan- myself.
We started working this summer and took up Natham as our model village and we concentrated on solving 3 major problems there:
- Sanitation (228 out of 350 households in the village had no access to toilets)
- Electricity deficit (4-6 hours of power shedding everyday, 365 days a year)
- Value-chain Upliftment (Paddy farmers in Natham paid 750-850 bucks to the local traders, whereas the market price of rice 15 kms from the village was somewhere between 1400 and 1600).

Our major emphasis was on practicality and implementation of the solution. We did not want to goof up a pseudo solution and tout it as life-changing. We realized that 95% of the technology is already made for rural India but they are all sleeping because they lacked the extra 5% engineering. We call this as "social engineering". We picked up proven technologies from different realms and socially engineered it. We used ITC's eChoupal model for enhancing farmers' value chain, a community toilet integrated with a plug flow bio gas digester for solving the sanitation problem and a gasifier for electricity generation coupled with AC coupled microgrids. The concept was greatly appreciated by the judges in the panel and hence we walked away with the top prize of Rs. 5 lakh- hefty enough to add fuel to our initiative.

Reminiscing,
At one point of time, we felt like giving up because we were all over-burdened with work. All my team members were in their final year of study and had critical things waiting for us: GRE, CAT, Placements, BTech project, coursework, etc. We had to do a lot of surveys to validate our hypothesis and that demanded a lot of visits to the village. Different people took leadership and responsibility at different stages of the project and it just kept going on.

Critical learning,
We feel that people at the bottom of the pyramid in rural India have the willingness to pay for good technology that impact their lives. We have to look at them as consumers and not as charity beneficiaries. And technologies need to be pitched appropriately. We observed that in a village where there is no facility for sanitation, there was a strong practice of vermicomposting. This surprised us and when we closely looked at the situation, we learnt that there was this guy who collects manure at 500 bucks every month. Rural Economics is complicated! We pitched to the community that biogas from animal dung and human excreta can result in a savings of Rs. 300- 400 every month. Though there was hesitation to use biogas initially, there was a drastic increase in acceptability after the new pitch.

And Now,
The very fact that IIT Madras has allowed us a space in its upcoming Research Park proves our mettle. TePP (Techno Entrepreneurship Promotion Programme), Department of Science and Technology, Government of India is also willingly extending support to our initiatives.

A start it is, But a long way to tread…


Do not go where the path may lead, Go instead where there is no path and leave a trail… - IViL

The 86% Solution

Most businesses focus on selling to the wealthiest fourteen percent of the world's population: The developed world. But these markets are over-saturated, over-competitive, and aging.

"The 86 Percent Solution" shows how to unleash new growth and profitability by serving everyone else.

Drawing on dozens of examples from emerging markets worldwide, the authors offer actionable strategies and tactics for product design, pricing, packaging, distribution, advertising, and much more. The book presents radically different "rules of engagement" that make emerging markets tick, and how some companies are already driving billions of dollars in sales there.

Along the way, it also deals with innovative methods to handle lack of infrastructure and media, low literacy levels, and "unconventional" consumer behavior. With the right solutions, these challenges present opportunities.

The potential of emerging markets is staggering. There is great scope to transform that potential into profit. Some key management mantras preached by the book:

Reach middle class and affluent consumers, not just the poor.
Emerging markets are bigger, wealthier, and more diverse than realized.

Don't build a car when you need a bullock cart.
Design products that reflect local environments and cultures.

Aim for the "ricochet" economy.
Use expatriates as your opening into emerging markets.

Grow big by thinking small.
Forget supersizing: big successes often come in small packages.

Discover what your strategy is. The 86 Percent Solution, published by Wharton School Publishing, comes loaded with proven strategies and provides all the insights you need.

WhiteSwan Rural Consulting Group: A Pitch

The Hypothesis
- Developmental sector in India is extremely fragmented. As of today, there are over 1.2 million registered and unregistered Non Governmental Organizations operating in the country. Fabulous transformations are happening at the micro-level, but due to disharmony and deficiency of structure, change has not become integrable. Today's social environment lacks competition and a majority of NGOs lack basic business infrastructure and systems that would aid them in scaling up.

- Social Responsibility departments of Indian corporates face an exceedingly cumbersome task of investing in the developmental sector. Unlike any other investment portfolio, social investments are tricky due to lack of transparency and accountability. Recent studies have revealed that philanthropic investments often result in 8% (or less) social impact. This calls for a more diligent investment methodology.

The Critical Question
When good happens, we fail to understand it's driving efficiency, often because of our mental contentedness. We fail to ask the critical question - "How good is good?"

Vision
WhiteSwan Rural Consulting Group(WRCG) was born when a bunch of socially motivated engineers made an attempt to answer this critical question. WRCG has one primary vision - "To cause enhanced and measurable social impact". We believe that by playing a catalyzing role in producing an integrable social change, a significant impact can result. We enable developmental organizations to perform better.

Key engagements
- Non-Profit Consulting. Providing organizational, financial, IT and HR management services to small and medium scale developmental organizations. The focus is to increase social impact.

- Knowledge Management. Conduct, analyze and share case studies on the performances of NGOs across the country. The focus is to examine and enhance transparency and accountability in the developmental space.

- Metrics and Impact Research. Develop indigenous tools and innovative methodologies to measure social impact for MFIs, NGOs and other agencies. The focus is to cause an integrable change.

- Social Investment Packages. Provide investment packages and advisory services to CSRs in making informed social investments. The focus is to facilitate yielding social investments - what Acumen Fund calls "The Patient Capital".

- Social Leadership. Carefully designed year-long immersion programmes and short-term stints for college students. The focus is to groom a cohort of bright leaders for the social sector tomorrow.

Our Dream
WRCG believes in the big bang theory for development. We dream to integrate and revolutionize today's fragmented Indian developmental space. Such an integration has the potential to significantly impact a billion lives.

Development through Venture Philanthropy: Acumen Fund's Philosophy

Beatrice Nguga, a wide-shouldered woman with a firm handshake and warm eyes, raised eight kids as a single mother in Kibera, a Nairobi slum that is home to more than a million people. In the 1990s, she buried each of her children—and their spouses. All had died of AIDS, leaving her to raise 12 grandchildren. She had no job and few prospects. “At one point,” she said, “I was so desperate, and the world felt so dark, that I could think of nothing but to beg for some money so that I could buy porridge and poison and end the suffering of myself and all of those children.”

In December 2006, Ms. Nguga was overseeing the management of several businesses. She started by selling French fries. She then sold water in the slums. She added rooms to her house with the intention of renting them and started a butcher shop, a hair salon, and a restaurant, employing scores of people. Her youngest grandchildren were in school, and a number of the older ones had graduated from college. Today, she has 11 employees and 21 rooms, most of which she rents for income. She has reached this position by taking small loans from a community organization called Jamii Bora, repaying them in a timely manner, and borrowing again. Beatrice Nguga is a woman of integrity, strength, fierce determination, and faith in life.

Hers is a great success story, but what would have happened to her grandchildren if she too had fallen ill or died? In this sense, her story illustrates a larger theme: one of the greatest challenges in escaping poverty is inadequate health care. The resources, the technologies, and the knowledge to provide adequate medical services to everyone do exist. What we don’t have are innovative and efficient business models to deliver them.

“It was to solve problems of this kind that I founded Acumen Fund”, says Jacqueline Novogratz. Acumen Fund is a nonprofit venture capital firm for the poor started in 2001. The fund, which invests philanthropic capital raised from more than 200 partners, starts from the perspective of people as users or consumers of services. We also believe that health systems must be economically sustainable and scalable, for only then will they reach the poor and the very poor. "We invest in social enterprises experimenting with sustainable approaches to the delivery of health care and clean water, because we believe that integrating the creativity of poor people and the entrepreneurs who serve them is the most efficient way to find some of these solutions."

Solving endemic health problems will require a mix of public and private resources, market incentives, and large-scale public awareness campaigns. For conditions such as malaria, HIV/AIDS, and tuberculosis, the market gives the major drug companies few incentives to research treatments for low-income people. Fortunately, the Bill & Melinda Gates Foundation has pioneered ways of intervening to ensure that this critical research is undertaken. Large-scale vaccination campaigns, like those that eradicated smallpox and are now on the way to wiping out polio, also play an important role in improving health on a global scale.

Innovative business models are essential if we are going to offer good, affordable health services to the world’s poor. Her background as a banker made her realize that to deliver social goods such as health care and clean water, getting the economics right is no less important than it is in any other kind of investment. Acumen Fund buys equity in companies that are carefully evaluated. Any returns are reinvested in the portfolio.

By identifying business models that work for at least a large percentage of the population, Acumen Fund hopes to help lead the way in using private innovation to solve large-scale public-health problems. The fund’s $20 million health portfolio also includes A to Z Textile Mills, Africa’s largest insecticide-treated anti-malarial bed net supplier, which produces 16 million nets a year and employs 6,000 women; Dial 1298 ambulances, Mumbai’s leading ambulance provider, with a service-for-all pricing model that gives free or reduced-cost rides to the poor; and First Micro-insurance Agency (a partnership with the Aga Khan Agency for Microfinance), which aims to provide health insurance to 500,000 customers in its initial two years of operation as Pakistan’s first health micro-insurance provider.

Novogratz says, “We are confident that this laboratory of investments will uncover innovative service delivery models that can be scaled up further through private, semiprivate, or public investment. The goal is expansive but not impossible—to show the world a whole new world of possibilities.”

Excerpts taken from "McKinsey:What Matters"

Mobile Phones and Development: On Grameen Phone

Iqbal Quadir digressed from his New York investment-banking career to return to his native Bangladesh in order to catalyze the country’s development. Quadir looks to European history to determine the formula for evading poverty: the empowerment of citizens coupled with the devolution of authorities. Foreign aid has actually been detrimental to citizens of poor countries because aid disproportionately empowers the government, which becomes reliant on foreign governments’ charity rather than citizens’ tax revenues.

One way to circumvent this scenario is with mobile phones. Connectivity leads to productivity; therefore an instrument of connectivity such as a mobile phone will bolster productivity and concurrently combat poverty.

In 1997 Quadir partnered with GrameenBank to create the GrameenPhone. The company leveraged GrameenBank’s existing network to provide poor villagers with micro loans to purchase mobile phones and sell minutes to fellow villagers. Today GrameenPhone is the largest cellular network in the country and maintains nearly 30 million subscribers. GrameenPhone just announced a 10% year-over-year revenue growth for the second quarter of 2009, and has received approval from the Bangladeshi SEC on its IPO application. GrameenPhone significantly contributes to the national economy of Bangladesh as one of the country’s largest taxpayers and raises Bangladesh’s annual GNP more than foreign aid, exemplifying Quadir’s contention that the key to development is businesses, not aid.

In 2005, Quadir partnered with Dean Kamen to bring to Bangladesh electric generators that run on cow waste to continually output one kilowatt of electricity, which can light 70 energy-efficient light bulbs. Access to light bulbs at night translates into increased productivity for villagers. Furthermore, following the template of GreameenPhone, the energy machine empowers villagers as entrepreneurs who can sell electricity to fellow villagers. Quadir continues his mission to bring entrepreneurship and economic development to poor countries as the founder and director of the Legatum Center for Development and Entrepreneurship at MIT, conceived in 2008. The center is a hatchery for 12 student fellows’ incipient ideas for world development. Quadir will guide the fellows in developing and implementing their ideas for bottom-up, technology-based entrepreneurship-for-profit businesses in the developing world.

* Sourced from TED blog.