NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

“Putting Paid to Poverty” provides a hopeful scenario for the development of the ’base of the pyramid’ over the next ten years. It was written by Allen Hammond, VP for Innovation and Special Projects and William Kramer, Deputy Director of the Development Through Enterprise initiative at the World Resources Institute. The article originally appeared in Value magazine.

It began slowly, with the dawning recognition that traditional development projects were not sufficient to accomplish the Millennium Development Goals and with a UN commission report citing the essential role of the private sector 1. Still, in 2005, there were only a handful of major companies putting serious money behind developing low-income markets. The Year of Microfinance celebrations focused on achieving 100 million clients of an estimated 500 million potential and the growing involvement of banks and other major financial institutions in scaling up, but overlooked the almost complete lack of ?mesofinance? investment capital to enable small and medium companies to expand. At the same time, many countries experienced the hollowing out of development strategies tied to export-led growth, as they began to lose jobs to China’s emerging dominance as a manufacturing platform. But the potential of domestic low-income markets?the base of the economic pyramid?as a more sustainable driver of growth was not widely recognized.

The transformation, when it came, had three separate drivers: 1_ a coordinated, deliberate effort by a consortium of multinational companies to create private-sector-led development strategies in, at first, a small number of countries; 2_ a more bottom-up mesofinance campaign that included mentoring and other enterprise development efforts for small and medium businesses, designed to harness entrepreneurial energy in BOP markets and fund expansion that could create jobs and service delivery; and 3_ a sustained policy-reform effort by a growing number of countries to improve the business environment for large and small business alike to qualify for development funds and attract private investment. A fourth, indirect driver was the growing emergence of innovative solutions and sophisticated technology specifically designed to meet the needs of BOP markets. These together led in 2010 to a tipping point in the perceptions of public officials and development experts, after which the scale of these activities grew very rapidly. We explore each of these drivers and their impact on these recent events in some detail.

THE WORLD DEVELOPMENT CONSORTIUM

It was initially European companies that saw the need and felt the obligation to play a larger role in development?both for the larger social ends and as part of creating additional markets and supply chains. By banding together in a consortium, they were able to lower risk and gain real synergies, as well as gain commitments from national governments and development agencies and withstand local power brokers opposed to change. The focus of the investments was on projects that could become commercially sustainable, even though they might require some initial donor help. For example, investment designed to strengthen farmers and link them to markets was buttressed by rural energy and connectivity infrastructure, which in turn enhanced productivity and living standards and increased the market for both financial services and consumer goods. The consortium also worked closely with UN agencies and sought NGO involvement to ensure that the package of goods and services?and hence the industrial capabilities brought to bear?met community needs. For the companies, the benefits of the consortium approach were increased legitimacy and lowered risk, an advantage in attracting talented staff, development of new markets, and eventually profit. The combined investment of a consortium project?and the status they came to have?was also a powerful incentive for a national government to undertake reforms and provide incentives. In addition, the projects also brought access to international markets, to credit, and to advanced technologies for farmers and local businesses.

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