Wednesday
September 29
2010

Josh Cleveland

Countdown to SOCAP: The Fastest Growing Industries and Markets

Editor´s note: This post is the first in a series that will run this week and next, leading to and then covering the third Social Capital Markets Conference – SOCAP 10. NextBillion is a media partner to SOCAP.

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As writers for NextBillion, we often like to focus on what’s next and why. Leading up to SOCAP 10, I sat down with Shashi Buluswar, leader of the San Francisco office of Dalberg Global Development Advisors to discuss the future in relation to the fastest growing industries and markets.

Shashi will be participating in a panel on the topic at SOCAP in just a few weeks along with speakers from the Skoll Foundation, Gap Inc., Labrador Ventures, and Bamboo Finance. The article that follows is based on that discussion and explores the trends driving growth in emerging markets, highlighting industry examples, rural development issues, development without the “grid,” and trade between developing countries.

A Framework for Understanding Growth

To help prepare for an examination of what geographies are growing what industries in which ways, Shashi established a baseline for understanding how markets grow in any given country. Two basic processes are generally underway. The country must:

  1. Contribute to one end of a corporate supply chain, whether as an agricultural producer, product assembler, service provider, or otherwise and also;
  2. Develop consumer markets for both domestic and imported goods and services.

Shashi presented the example of India’s development to illustrate these processes. First, India began as a low-cost outsourcer for multinational corporations (MNCs). This development was accompanied by a multitude of policy reforms in India that made it easier for foreign companies to enter the Indian market, reduced financial and stock market regulation. This phase fueled the IT boom in the U.S. as well as the computer science education boom in India.

Thereafter, India became a high quality outsourcer. Having achieved positive results in phase one, MNCs moved a step further by extending their backbones into the subcontinent. By this time a considerable portion of the population gained computer science backgrounds and understood IT. MNCs invested in considerable infrastructure in India in order to better coordinate operations. During the last phase, the trickle down effect helped cultivate growing middle and lower classes and India became a growing market for products and services.

His panel at SOCAP will focus on the outcomes of this process as both supply of goods and services and demand grows in emerging economies.The following are some ways in which Shashi envisions this growth occurring.

The Case of Agriculture

Perhaps the largest, most obvious gains to be had by any industry occur in agriculture. As an example, we spoke about Sub-Saharan Africa. As a continent, today Africa is a net importer of food, unable to meet its needs with domestic production. At the root of this issue lie inefficiencies in production. Shashi notes; “Its quite easy to tell the difference in Sub-Saharan Africa between the farms that have access to water and those that do not. The maize grows twice as high with adequate irrigation.” The gains African farmers can reap from improved agricultural techniques are visible throughout the countryside. Such improvements will contribute to growth in both import substitution and in the form of exported cash crops. (For more on the topic of improving agriculture in Sub-Saharan Africa, check out the work of both Driptech and One Acre Fund, two impressive organizations working diligently to improve the lives of farmers.)

Concomitantly, as the agricultural industry grows, the need for food processing increases. Currently many of the cashews produced in Africa are shipped to India for processing before being sold in consumer markets in the West. Inefficiencies in this system are numerous. An increase in processing capacity in Africa can lower transport costs, improve feedback loops for quality and supply control, and create new jobs.

Yet despite gains in agriculture, no post-industrial society has grown out of poverty without growth in high value-add industries.

Beyond Agriculture

Agriculture and related industries are not the only ones set to grow of course. Many countries that 15 years ago would have been considered extremely poor and tumultuous now have relative stability (one peaceful transition of democratic power at least) and growing classes of educated urbanites who are underemployed. “For them, the platform is set for the creation of jobs as well as the consumption of products and services,” says Shashi. Using the example of the BPO wave that spurred lots of growth in India, Shashi explains that almost anywhere with decent education levels and underemployment can follow suit. As wages naturally rise in India, other countries will be able to deliver comparable quality results. Make sure to stay tuned to NextBillion for more posts from the conference on other industries on similar courses.

How Rural Areas Can Get Ahead

Having discussed some industries destined for growth, we shift our focus to where that growth will take place. Long the problem child of international development, rural areas present a unique set of challenges to economic growth in BoP markets so naturally I was interested to hear Shashi’s thoughts on growth in the countryside. Shashi is hopeful that rural communities are set for solid growth in the coming years, especially in regards to agriculture.

    “I think that we’ll see major improvements in water access, market access, and developed country subsidies – the main roadblocks to rural economic development – in the very near future. First off, scientists indicate that there may be adequate water beneath the surface in many countries especially in Africa. Since water is such a critical factor for development in rural areas in these geographies, the challenge is getting this water to farmers. With some investment, we should be able to increase yields and see those markets grow relatively soon. Access to markets is getting better, partially due to a trend in more direct purchasing arrangements. Around the world we see food shortages, which means that the market for exports from places like Africa exists. Assuming that governments recognize the gains from correcting some market distortions created by subsidies, large-scale growth is completely possible in the near term.”

Moving rural residents up the development ladder, at least a rung or two therefore should be very doable, despite the challenges of rural development. We’ll look to some of the organizations focused on rural development at the BoP mentioned before to lead us in this regard.

Urban development on the other hand is a little trickier. As Shashi explains, “Urban development is mainly fueled by ’trickle down’ economics and is therefore fundamentally constrained by the size of the urban middle class.” The growth of the middle class depends the availability of a ladder such as education to gain better opportunities and access to jobs. Education itself a limited resource in many developing countries as is access to healthcare to keep people in the workforce. The whole process involves more steps and takes longer to produce results.

Development Before the Grid

One key innovation guiding many of these developments is a steady movement away from reliance on grid technologies for communication, electricity, and increasingly water access. (Think M-Pesa, Driptech, BlueEnergy, and SELCO Solar India.) As developing countries acquire the ability to get so many things done without waiting for large-scale infrastructure development led by governments, we’ll see an increase in both supply and demand of goods and services at the BoP. While developing countries will eventually require the benefits of grid technology to reach their full economic potential, these innovations make steps forward possible in the near-term. Given that the organizations mentioned above are all set to go to scale (the subject of several upcoming NextBillion posts), we should see some rapid movement in this direction.

Trade Between Developing Countries

Shashi and I agreed that perhaps the most promising and exciting trend we’ll continue to see is the development of viable commercial relationships between countries such as those in Africa as well as India and China. This shift is distinct from the “South – South Cooperation” that characterized some previous interactions between developing countries. “What we’re seeing today is that more companies are building infrastructure in developing countries not as an act of charity or solidarity but as part of a business proposition.” Increasingly, Shashi sees the products that are flowing to Africa from China are not low quality but are the same products sold domestically in the exporting country.

As this trade increases, a very simple thing is taking place with profound impacts: “We’re getting more things in the hands of more people,” says Shashi. Sounds simple. But the results are often more complex. As we’ve seen with mobile technology, when people in developing countries have access to more products and services, they tend to find ways that it can help them improve their lives. As trade of quality goods between developing nations increases, we can expect to see more innovations coming from the BoP consumer as a result.

Hopeful Signs

All these trends we discussed point towards growth and development and lots of it. As Francisco and Bryan have noted in reference to their experiences at the TEDxChange (here, here, and here) my conversation with Shashi was positive and optimistic. There’s certainly plenty going on out there to be hopeful about. I’m looking forward to seeing more of this type of forward-looking thinking and discussion during the panel at SOCAP 10.

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