Four Billion Poor People Have $5 Trillion Purchasing Power
Wednesday, March 21, 2007
According to the report, the Bottom of Pyramid (BOP) market is $429 billion in Africa, which represents 71% of aggregate purchasing power in the region. The African BOP includes 486 million people, 95% of the region’s surveyed population.
Tagged, ’The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid’, the analysis is complemented by an overview of business strategies from successful enterprises operating in these markets. A new report released by the International Finance Corporation (IFC), the private sector arm of the World Bank Group, and World Resources Institute, has revealed that four billion people who live in relative poverty have purchasing power representing a $5 trillion market.
The detailed analysis, which was released on Monday, March 19 at Washington, D.C., USA, for the first time measured the size of markets at the base of the economic pyramid all over the world, using income and expenditure data from household surveys, according to a World Bank web-site.
According to the report, the Bottom of Pyramid (BOP) market is $429 billion in Africa, which represents 71% of aggregate purchasing power in the region. The African BOP includes 486 million people, 95% of the region’s surveyed population.
Tagged, ’The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid’, the analysis is complemented by an overview of business strategies from successful enterprises operating in these markets.
The report seeks to help businesses think more creatively about new business models that meet the needs of these under-served markets; while accurate data on market potential provides a foundation for private sector engagement that can drive down what it (report) calls the ’BOP penalty’ where poorer people often encounter goods and services that are more expensive, of low quality, or difficult or impossible to access.
According to the report, base of the pyramid markets are often rural, under-served, and dominated by the informal economy, and as a result are relatively inefficient and uncompetitive. As greater numbers of formal firms compete to redress the BOP penalty, the poor experience a direct increase in quality of life.
Through business case studies and data, the report described the penetration of mobile telephony into these markets as a classic example of how competition can drive such improvements.
Speaking on the issue, Mr. Michael Klein, World Bank/IFC Vice President for Financial and Private Sector Development and IFC Chief Economist claimed the report backs up the calls for broader business engagement with the base of the pyramid, stressing the need for the private sector to play a greater role in development.
“The report also highlights the need for governments to pick up the pace of reforms to the operating and regulatory environment, so that it becomes easier to do business,” he added.
In its geographic analysis, ’The Next 4 Billion’ revealed that the Asian BOP market (including the Middle East) is by far the largest, with 2.86 billion people and a total income of $3.47 trillion, constituting 83% of the region’s total population and 42% of the its aggregate purchasing power.
Eastern Europe’s $458 billion BOP market includes 254 million people, 64% of the region’s population, with 36% of aggregate purchasing power. In Latin America the BOP market of $509 billion includes 360 million people, representing 70% of the region’s population but only 28% of aggregate purchasing power, a smaller share than in other developing regions.
In Africa, the BOP market is $429 billion, but it represents 71% of aggregate purchasing power in this region. The African BOP includes 486 million people-95% of the region’s surveyed population.
The report also characterised the base of the pyramid markets by sector. Sector markets for 4 billion consumers range from those that are relatively small, such as water ($20 billion) and information and communication technologies ($51 billion), to medium-scale markets such as health ($158 billion), transportation ($179 billion), housing ($332 billion), and energy ($433 billion), to truly large markets, such as food ($2,895 billion).
“This report shows how critical it is to focus on the BOP in all its dimensions,” said Jonathan Lash, president of the World Resources Institute. “The BOP wins when brought into the formal economy. Businesses win when they pay attention to the needs of the BOP markets. The world wins when environmental sustainability, transparency, and equity are as deeply embedded in BOP growth strategies as the drive for profits. This report lights the path to sustainable business engagement with the BOP.”
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