Welcome back.
And as promised, a weekly contribution. This week I’ve based my entry on an observation/conclusion I made after a discussion with a friend. Enjoy, and as always, please comment.
The observation is the following: ‘In a society like Mozambique, both the cheapest and most expensive products are basically in no need of support what so ever, while the sales of goods commonly labeled as middle class are hardly taking off’.
The really expensive and really cheap products hardly need any help in getting sold: big solar pumps, flat screen TVs, and laptops are being sold to people who need them and who can afford them. On the other hand, the very cheap products need no (or hardly any) support either: small car components, light bulbs or lanterns are all readily available in a multitude of shops, all doing very good business.
In between these two groups of products, we find products that are usually associated with middle class or medium income groups. However, for these products (I’m thinking small black and white TVs or ordinary desktop computers) it seems to be really difficult to find a working product-market-combination.
When looking at the type of products that I’m involved with on a daily basis, the above statement passes the test. In effect, the cheapest of products (solar lanterns and phone chargers) hardly need a push in the form of marketing. People know what these products can and cannot do, plus they can afford them. At the other end, solar water pumps, solar water heaters or big systems for hospitals and schools are equally being sold without any major difficulties: the people who are in need of these products know where to find them, know exactly how much they cost, and are able and willing to pay that amount.
However, the products in between – small solar home systems for lighting and perhaps a radio and b/w tv – are in dire need of market support. In lack of a middle class, the target audience – the people falling in the first category of small and affordable products – first has to be convinced that this is the product that they should be aspiring to buy, after which an even bigger hurdle awaits in the form of actually financing the product. (Regarding the latter, see my entry of February 1st)
Still, who doesn’t like a challenge?
Luc.
Monday, 8 February 2010
Monday, 1 February 2010
It's Raining Banks, Halleluja!
Hi everyone,
I know I know, It’s been a while. But… after celebrating Christmas and the New Year’s with friends and family, and enjoying two weeks of training and meetings in Zambia, I’ve settled back into the rhythm in Mozambique. And more importantly for all of you: the blog is back, and this week the topic is Finance.
On my return to Mozambique, unfortunately, I ran into some financial problems myself (creditcard blocked, uber annoying), though everything has been solved now. Still, it made me realise once more how big a role financial institutions play in the global system, and the huge potentially crucial role they can play in developing countries.
For me personally, it was simply frustrating knowing that I had sufficient funds on my account, but there was just no easy way of accessing it. In Mozambique, a similar problem is making it more difficult for people and for the country to develop: there is so much potential capital here (ideas, skills, capacities, business opportunities) which simply cannot get unlocked or unleashed because of the numerous of stumbling blocks people face day-in day-out.
The biggest stumbling block I see at the moment – the topic of the week, surprise, surprise – is the lack of a good connection between on the one hand the enormous amounts of people who either want start-up capital or want to deposit their savings, and on the other hand the plethora of banks and other financial institutions who have branches in even the smallest of villages. Here in Chimoio there are no less than eight different banks (including two microfinance institutions) which all have offices on the main street which stretches on for less than a kilometre. Plenty of opportunities to acquire a loan, or deposit your savings, one might think.
Think again. For the average Mozambiquan, it still remains difficult to even open an account, partly because of the stringent preconditions banks require from potential customers – a long waiting period, general costs when opening an account, depositing a minimum amount, having an officially registered address. And how difficult it may be at times to open a bank account, it’s nothing compared to the countless procedures that come about when trying to successfully close a loan.
In sum, the financing supply is definitely present – somewhat overrepresented in my opinion – but at the moment it just isn’t matched with the equally big financing demand. This explains why the numerous financing options and credit schemes for the poor just haven’t taken off as expected (with the odd exception).
Finally, I would like to briefly describe an example from Zambia, where they have tried to avoid this finance-matching problem through the “lay by” principle. On request of the client, the retailer/shop owner can allow the client to pay in instalments, and the client will only be able to take home the product or system once the total sum has been paid over a certain time period. This way, the retailer carries basically no risk – with the exception of him safeguarding the paid advances from the client – and the risk is carried entirely by the client. The client actually just opens a savings account with the retailer, where he wants to buy an expensive product (most probably within a certain time period).
As of yet, I haven’t come across this innovative system in other countries, and for me some questions still remain unanswered – e.g. I would prefer to keep my savings at home if I couldn’t open a bank account, rather than give it to a retailer in good trust. Still, this second option is growing in popularity in Zambia.
To be continued.
Luc
I know I know, It’s been a while. But… after celebrating Christmas and the New Year’s with friends and family, and enjoying two weeks of training and meetings in Zambia, I’ve settled back into the rhythm in Mozambique. And more importantly for all of you: the blog is back, and this week the topic is Finance.
On my return to Mozambique, unfortunately, I ran into some financial problems myself (creditcard blocked, uber annoying), though everything has been solved now. Still, it made me realise once more how big a role financial institutions play in the global system, and the huge potentially crucial role they can play in developing countries.
For me personally, it was simply frustrating knowing that I had sufficient funds on my account, but there was just no easy way of accessing it. In Mozambique, a similar problem is making it more difficult for people and for the country to develop: there is so much potential capital here (ideas, skills, capacities, business opportunities) which simply cannot get unlocked or unleashed because of the numerous of stumbling blocks people face day-in day-out.
The biggest stumbling block I see at the moment – the topic of the week, surprise, surprise – is the lack of a good connection between on the one hand the enormous amounts of people who either want start-up capital or want to deposit their savings, and on the other hand the plethora of banks and other financial institutions who have branches in even the smallest of villages. Here in Chimoio there are no less than eight different banks (including two microfinance institutions) which all have offices on the main street which stretches on for less than a kilometre. Plenty of opportunities to acquire a loan, or deposit your savings, one might think.
Think again. For the average Mozambiquan, it still remains difficult to even open an account, partly because of the stringent preconditions banks require from potential customers – a long waiting period, general costs when opening an account, depositing a minimum amount, having an officially registered address. And how difficult it may be at times to open a bank account, it’s nothing compared to the countless procedures that come about when trying to successfully close a loan.
In sum, the financing supply is definitely present – somewhat overrepresented in my opinion – but at the moment it just isn’t matched with the equally big financing demand. This explains why the numerous financing options and credit schemes for the poor just haven’t taken off as expected (with the odd exception).
Finally, I would like to briefly describe an example from Zambia, where they have tried to avoid this finance-matching problem through the “lay by” principle. On request of the client, the retailer/shop owner can allow the client to pay in instalments, and the client will only be able to take home the product or system once the total sum has been paid over a certain time period. This way, the retailer carries basically no risk – with the exception of him safeguarding the paid advances from the client – and the risk is carried entirely by the client. The client actually just opens a savings account with the retailer, where he wants to buy an expensive product (most probably within a certain time period).
As of yet, I haven’t come across this innovative system in other countries, and for me some questions still remain unanswered – e.g. I would prefer to keep my savings at home if I couldn’t open a bank account, rather than give it to a retailer in good trust. Still, this second option is growing in popularity in Zambia.
To be continued.
Luc
Friday, 8 January 2010
Almost back
Just like its writer, this blog has enjoyed some well-deserved rest. We'll be back by the end of the month!
yours
luc
yours
luc
Monday, 30 November 2009
The other side of Fair Trade
Hello all,
Over the weekend I listened to the podcast of a lecture* given at the LSE in the beginning of 2009, regarding the strength and importance of the Fair Trade logo. While the lecture itself was quite interesting and informing, what struck me most was Dr Teddy Brett’s – professor in two of my courses at the LSE last year – ‘critique’ on Fair Trade actions and products.
Citing Krugman’s “In Defense of Cheap Labour” – a highly contested publication in 1997 – in the process, Dr Brett argues that, while it might be pleasant to learn that big supermarkets are more and more switching large sections of their products towards fair trade-labelled products, this actually means that a high number of the producers formerly in business with these supermarkets are now either in financial difficulties or altogether out of business.
As argued by Krugman before him, Brett questions what the impact would be of a global public boycott on a specific brand of sports shoes, because the workers in these factories do not receive high wages and/or are children, i.e. that it is not an ethically run business. Boycotting this brand might stop the guilt at the (Western) customer’s side of the process, unfortunately at the production side of the process this will mean that the workers and child labourers will basically end up without a job. They will have to resort to their next best opportunity, which will probably mean prostitution, trafficking, and if they are lucky a similar job in a non-boycotted factory. Or how good intentions can lead to unwanted results...
Now, don’t get me wrong: I’m not quoting Brett, Krugman and the example above because I think low wages and exploitation are a good thing. In a perfect world, people would not be ‘exploited’ – probably not the right word in this context, because these workers often prefer this job to their next best opportunity – and would earn decent wages that are comparable to those in developed countries. However, we do not live in a perfect world (yet); we live in a very unequal world, dominated and bounded by political and market forces. These market forces minimise costs, and they form the constraints within which people operate. Brett then argues that “Fair Trade is only going to produce ethical results if it doesn’t impose conditions on people out there that make it impossible for them to actually deliver and supply goods and services effectively”.
That being said, if the “global market” was in fact a global market, freed from the political minefield of subsidies and tariffs, these 3rd world products and producers would probably not even need a ‘fair trade-intervention’. In this light, Brett states that the businesses in the UK that have been around for more than a century – Lloyd’s Bank, Cadbury – were more often than not operating on ethical principles (e.g. those founded by the Quakers).Brett’s conclusion sums up nicely what I personally took away from this podcast: while markets are not designed to result in ethically optimal solutions, in the long run “ethical business works better than non-ethical business provided that it operates within the constraints set by the market”.
Thank you.
* The lecture is called “Fighting the Banana Wars”, and the podcast is available for download on the LSE pages.
Over the weekend I listened to the podcast of a lecture* given at the LSE in the beginning of 2009, regarding the strength and importance of the Fair Trade logo. While the lecture itself was quite interesting and informing, what struck me most was Dr Teddy Brett’s – professor in two of my courses at the LSE last year – ‘critique’ on Fair Trade actions and products.
Citing Krugman’s “In Defense of Cheap Labour” – a highly contested publication in 1997 – in the process, Dr Brett argues that, while it might be pleasant to learn that big supermarkets are more and more switching large sections of their products towards fair trade-labelled products, this actually means that a high number of the producers formerly in business with these supermarkets are now either in financial difficulties or altogether out of business.
As argued by Krugman before him, Brett questions what the impact would be of a global public boycott on a specific brand of sports shoes, because the workers in these factories do not receive high wages and/or are children, i.e. that it is not an ethically run business. Boycotting this brand might stop the guilt at the (Western) customer’s side of the process, unfortunately at the production side of the process this will mean that the workers and child labourers will basically end up without a job. They will have to resort to their next best opportunity, which will probably mean prostitution, trafficking, and if they are lucky a similar job in a non-boycotted factory. Or how good intentions can lead to unwanted results...
Now, don’t get me wrong: I’m not quoting Brett, Krugman and the example above because I think low wages and exploitation are a good thing. In a perfect world, people would not be ‘exploited’ – probably not the right word in this context, because these workers often prefer this job to their next best opportunity – and would earn decent wages that are comparable to those in developed countries. However, we do not live in a perfect world (yet); we live in a very unequal world, dominated and bounded by political and market forces. These market forces minimise costs, and they form the constraints within which people operate. Brett then argues that “Fair Trade is only going to produce ethical results if it doesn’t impose conditions on people out there that make it impossible for them to actually deliver and supply goods and services effectively”.
That being said, if the “global market” was in fact a global market, freed from the political minefield of subsidies and tariffs, these 3rd world products and producers would probably not even need a ‘fair trade-intervention’. In this light, Brett states that the businesses in the UK that have been around for more than a century – Lloyd’s Bank, Cadbury – were more often than not operating on ethical principles (e.g. those founded by the Quakers).Brett’s conclusion sums up nicely what I personally took away from this podcast: while markets are not designed to result in ethically optimal solutions, in the long run “ethical business works better than non-ethical business provided that it operates within the constraints set by the market”.
Thank you.
* The lecture is called “Fighting the Banana Wars”, and the podcast is available for download on the LSE pages.
Thursday, 26 November 2009
This post is: 50% EC conference, 50% personal chit chat
Yes, I know, it’s been a while. But I have been extremely busy these past two weeks. Everything is progressing nicely here in Chimoio, and I have only just returned from a very short trip to Maputo to attend a two-day conference organized by the European Commission delegation of Mozambique. A 20h bus ride, two full conference/discussion days with workshops, seminars, and networking sessions, followed by another 20h bus ride. Needless to say I’m a bit tired.
The conference itself was quite interesting, being a call for proposals for the European Commission’s second Energy Facility for (energy-related) projects in the ACP countries, which will officially be launched in the upcoming months. A number of EC delegates, local NGOs, and government officials were present – as was yours truly – and some interesting discussions were held. In sum, happy to have been able to attend.
On a completely different note: I really love my iPod, and I would have no idea how I would have been able to cope with these 20h stints without it. So thank you iPod, and thank you Arctic Monkeys for making music that I will never grow tired of hearing.
Anyways, in between Monkeys’ cds, I let my mind wander from time to time during these bus rides, because I usually get my blog-ideas during these ‘nothing to do but look at the landscape’ moments. So, a new blog post will be coming soon (after the weekend probably), with my view on certain aspects of globalization and the whole ‘The world is Flat’ metaphor/hype, and its inevitable link with development – as you might have been able to tell, I’m currently reading Thomas Friedman’s ‘The World is Flat’.
Anyways, in between Monkeys’ cds, I let my mind wander from time to time during these bus rides, because I usually get my blog-ideas during these ‘nothing to do but look at the landscape’ moments. So, a new blog post will be coming soon (after the weekend probably), with my view on certain aspects of globalization and the whole ‘The world is Flat’ metaphor/hype, and its inevitable link with development – as you might have been able to tell, I’m currently reading Thomas Friedman’s ‘The World is Flat’.
Have a great weekend.
Until we meet again.
Luc
p.s. Another thing I do during these bus rides, is try to make 30sec videos with my camera and capture life on the roadside in Mozambique. I’ll try to upload some of them soon, but am still looking into the easiest way to upload and spread them (youtube, rapidshare, googledocs, …). Suggestions?
p.p.s. I just add one pic, because I couldn’t withhold it from you all.
- The newest hits from my boy Akon, in the bus on the DVD player. Speechless, really.
Monday, 16 November 2009
Service delivery to the poor: solar energy in rural areas.
During my stay in Mozambique, I have been confronted on a daily basis with real poverty: children living on the streets or in shanty towns, selling candies or peanuts, and living on less than a dollar a day. Many NGOs projects and government funded programs aim to bring development to these people, in an attempt to improve life at the so-called bottom of the pyramid. Unfortunately, many of these projects never reach their full potential. Even worse: a number of projects actually do more harm than good, because of bad planning or a wrong strategic approach. Let me give you one example of a good project gone semi-wrong, which I personally encountered last week:
The framework in Mozambique to deliver solar energy to the rural areas is quite poorly constructed compared to other African countries: solar products (panels, lanterns, …) come with a high added import tax (compared to tax-free in e.g. Uganda), most of the projects in solar energy have to go through a strictly organized government-funded agency, and there have hardly been any awareness campaigns towards these rural areas. The poor have been left both literally and metaphorically speaking in the dark.
One response from a local NGO has thus been to train and support community leaders to distribute solar systems, to overcome the knowledge barrier. To take the price hurdle, this NGO has provided support to these community shops by sourcing the materials themselves and selling them to the shop at a lower price (i.e. co-financing). At first sight, this seems like a straightforward and reasonable strategy to follow: people can now enjoy the benefits of a solar home system at a price that is comparable to what it would be without these added taxes. This NGO started with this program and strategy about a year ago, and has already helped put away a high number of solar home systems in the rural communities. Today, however, the program has temporarily stopped, the shopkeeper has stopped selling solar panels, and demand is steadily decreasing. Why?
The local NGO obviously depends on other (often International) NGOs, government agencies, or development agencies to deliver the funds for these programs. In this particular case, the local NGO has received no further funds, as the program was for one year only and the donors were still reassessing their strategy. Therefore, the NGO no longer had the capacity to buy materials, so that the supply to the communities was halted all of a sudden, while the successful shopkeeper was running out of supplies. The community shopkeeper could obviously bypass the NGO and try to directly secure the materials from the main suppliers, though this would mean that the shopkeeper would have to bear both the real costs of the products plus the costs of transportation, so that he would only be able to offer solar systems and components at prices much higher than what people were paying just one month before. Ergo, demand drops, and the shopkeeper does not want to take the risk to invest in expensive systems.
It becomes clear that it will be very difficult to either convince one retailer to invest heavily in these systems, or to convince the customers that this investment is worth making (despite their neighbour having paid about 30% less for the exact same system just weeks before).
There’s obviously a mixed feeling: one the one hand, thanks to the strategy followed by this local NGO, people who formerly could not afford a system have now been handed the chance to purchase one; on the other hand, in the long run it will prove to be difficult to pick up the pace without once more subsidising these systems and offering them at a price that is lower than the market can offer them. Now, I don’t want to criticize this system of subsidies to heavily, as the outcome in this case is still positive (without this NGO, hardly any systems would have been sold at market prices). But, it is clear that this strategy will only be sustainable, if it can include some aspect of market development. Through market development tools – organising suppliers so that they can buy in bulk, increased competition, setting up associations to lobby the government for a more beneficial legal framework – prices will inevitably drop and quality will improve. When market prices drop, so will the value of the subsidy, while the total price of the systems offered through the local NGO to the community shops remains the same. In the long run, the market price has become exactly this offering price, so that the local NGO is no longer required to provide financial support. Subsequent market price drops will then also result in real price drops, and inevitably an increased demand.
For this to happen, however, it is crucial that firstly, the local NGO has sufficient funds to go the distance, and that secondly, some form of market development is happening (be it by the local NGO or any other organisation).
Thanks for listening.
Your blogger, at your service.
The framework in Mozambique to deliver solar energy to the rural areas is quite poorly constructed compared to other African countries: solar products (panels, lanterns, …) come with a high added import tax (compared to tax-free in e.g. Uganda), most of the projects in solar energy have to go through a strictly organized government-funded agency, and there have hardly been any awareness campaigns towards these rural areas. The poor have been left both literally and metaphorically speaking in the dark.
One response from a local NGO has thus been to train and support community leaders to distribute solar systems, to overcome the knowledge barrier. To take the price hurdle, this NGO has provided support to these community shops by sourcing the materials themselves and selling them to the shop at a lower price (i.e. co-financing). At first sight, this seems like a straightforward and reasonable strategy to follow: people can now enjoy the benefits of a solar home system at a price that is comparable to what it would be without these added taxes. This NGO started with this program and strategy about a year ago, and has already helped put away a high number of solar home systems in the rural communities. Today, however, the program has temporarily stopped, the shopkeeper has stopped selling solar panels, and demand is steadily decreasing. Why?
The local NGO obviously depends on other (often International) NGOs, government agencies, or development agencies to deliver the funds for these programs. In this particular case, the local NGO has received no further funds, as the program was for one year only and the donors were still reassessing their strategy. Therefore, the NGO no longer had the capacity to buy materials, so that the supply to the communities was halted all of a sudden, while the successful shopkeeper was running out of supplies. The community shopkeeper could obviously bypass the NGO and try to directly secure the materials from the main suppliers, though this would mean that the shopkeeper would have to bear both the real costs of the products plus the costs of transportation, so that he would only be able to offer solar systems and components at prices much higher than what people were paying just one month before. Ergo, demand drops, and the shopkeeper does not want to take the risk to invest in expensive systems.
It becomes clear that it will be very difficult to either convince one retailer to invest heavily in these systems, or to convince the customers that this investment is worth making (despite their neighbour having paid about 30% less for the exact same system just weeks before).
There’s obviously a mixed feeling: one the one hand, thanks to the strategy followed by this local NGO, people who formerly could not afford a system have now been handed the chance to purchase one; on the other hand, in the long run it will prove to be difficult to pick up the pace without once more subsidising these systems and offering them at a price that is lower than the market can offer them. Now, I don’t want to criticize this system of subsidies to heavily, as the outcome in this case is still positive (without this NGO, hardly any systems would have been sold at market prices). But, it is clear that this strategy will only be sustainable, if it can include some aspect of market development. Through market development tools – organising suppliers so that they can buy in bulk, increased competition, setting up associations to lobby the government for a more beneficial legal framework – prices will inevitably drop and quality will improve. When market prices drop, so will the value of the subsidy, while the total price of the systems offered through the local NGO to the community shops remains the same. In the long run, the market price has become exactly this offering price, so that the local NGO is no longer required to provide financial support. Subsequent market price drops will then also result in real price drops, and inevitably an increased demand.
For this to happen, however, it is crucial that firstly, the local NGO has sufficient funds to go the distance, and that secondly, some form of market development is happening (be it by the local NGO or any other organisation).
Thanks for listening.
Your blogger, at your service.
Saturday, 14 November 2009
Community Development
Hellow all,
I just returned from a 3-day trip to several communities in the proximity of Chimoio and Beira, to assess how people in the communities use solar energy, and what they use it for. A pictures says a thousand words, so in what follows please enjoy my 3000 word report.
Ciao
- A small business application: panel, battery, phone charger
I just returned from a 3-day trip to several communities in the proximity of Chimoio and Beira, to assess how people in the communities use solar energy, and what they use it for. A pictures says a thousand words, so in what follows please enjoy my 3000 word report.
Ciao
- A small business application: panel, battery, phone charger
- Charging a battery for illumination.
- Reparing/testing solar modules.
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