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Newsletter
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March 2008 |
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Dear CWB Friends,
Last week, CWB attended the National Bureau of Economic Research meeting on “Economic Research on African Development Successes,” held in Cambridge, Massachusetts. The goal of the meeting was to explore the development successes in the continent, in an effort to understand them and to learn how they may be replicated across the continent. The conference was also meant to set the foundation for future research on African economic development. CEOsWB wanted to be there both to learn and to influence the direction of this future research. Many avenues of intriguing research were explored, from the evaluation of aid projects (nowadays, its impacts are poorly evaluated, which may lead to the misplacement of funds if we wish to use efficiency criteria) to the manner in which research can contribute to our understanding of the mechanisms and institutional environments in which the functioning of African markets operates.
At the conference, researchers analyzed whether the recent spur of economic growth in Africa is a temporary phenomenon attributable to the rising prices of commodities, or whether it is something deeper and, perhaps, more likely to be permanent. It seems clear that there are two sets of countries in Africa: those that are oil exporters and the rest. Clearly, oil exporters have greatly benefited from the recent boom in oil prices. As for the rest of Africa, however, it is not clear whether or not the boom has been beneficial on net. Clearly many of these non-oil-exporters do export other commodities, such as minerals or farm products (coffee, cotton or cocoa, for example). Nevertheless, they are also huge oil importers. Hence, for these non-oil producers, the recent increase in commodity prices may have a negligible net effect. The implication is that non-oil producers in Africa are growing at substantial rates because of improvements in business conditions, something that we at CEOsWB believe is a fundamental change and, consequently, a reason to be cautiously optimistic.
Another reason to be optimistic mentioned at the NBER conference is that leading western business schools have detected that Hedge Funds and investment bankers are increasingly interested in MBA students with an expertise in Africa. Perhaps Europe and the United States are about to join China and India in their increasing interest in investments in Africa. Professor Isaac Mbit presented an interesting study on the impact of cellular technologies in Africa; he discussed the effects of cell phones on social and political networks and how it’s the introduction of this new technology that has improved existing businesses (by, for example, making information about prices in distant markets more accessible through sms) and has helped create many new businesses and business models. One very interesting use of cellular technologies is the use of telephones as mobile banks. Now, people can use the cell companies and their large networks of sim card sellers in order to transfer money: you deposit 10 euros in one phone store, the store sends you an sms with a code which you, or someone you designate, can then use to get the money from another phone store. This mechanism is not only cheaper than formal banking but is also more convenient, both because the amount of dealers that sell cards for companies is much larger than the number of banks or ATM machines and also because it doesn’t require documentation or access to banking networks - just a mobile phone!
One extremely interesting example of this is M-Pesa, launched in March 2007. M-Pesa is a program that allows for money transfers within Kenya using the network comprised of Safaricom sim card dealers in Kenya (Safaricom is the largest cell company in Kenya, owned by the local Telkom and Britain’s Vodafone). Before M-Pesa, only 27% of Kenyan families had access to formal banking, and another 35% had access to informal money dealers. Within the first month, M-Pesa had registered over 20,000 M-Pesa customers, well beyond the original business plan. By July, it already had 500 agents, 150,000 customers and the total money transferred through sms messages was over 6 million dollars (the average amount transferred was 45 dollars).
Safaricom has announced that they will soon allow for international transfers of money (immigrants in New York or Paris will be able to deposit money at their local Vodafone store so that an individual who receives an sms with the secret code will then be able to obtain the money in Mombasa. These probable large flows of capital could likely be a source of international capital mobility, which currently concerns institutions, such as the IMF, due to their potentially destabilizing effects. The secret character of these transactions could also make them the target of money launderers.
One concern expressed by Professor Sala-i-Martin, CWB’s founding member, at the conference was that these kinds of financial activities could end up backfiring, given that governments could pass laws limiting their use or may introduce barriers to prevent further technological progress. After all, when people start using phone minutes as money, the government will automatically lose their most valued monopoly, that on the printing of money. Interesting discussions. We’ll see what happens!
Enjoy the reading!
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Essential monthly readings:
Twenty Hubs and No HQ Strategy+Business February Issue
7th February Nokia leads in cell phones for the masses. But rivals are hoping to steal market share BusinessWeek
7th February Technology in emerging economies The Economist
15th February We need 'social business' to couple the human heart to the capitalist system. By Muhammad Yunus CSR Monitor
15th February The Impact of Cell Phones on Grain Markets in Africa's Niger Cellular News
16th February Grameen Bank's loans to US poor Financial Times
18th February 'Online philanthropy markets: From 'Feel-Good' giving to effective social investing?' Keystone
19th February Google.org
20th February A fair division of the spoils of charity Financial Times
22nd February Soros announces $17 mn for Indian SMEs Hindustan Times
24th February Our Cells, Ourselves Washington Post
25th February Prescriptions for helping poor people help themselves International Herald Tribune |
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Profile of the Month: M-pesa
So how does M-PESA work? In order to be able to transfer money with
their mobile phones, clients first need to register for free at a local
agent, contracted by Safaricom throughout Kenya, and are then given a
special Safaricom SIM card that supports the money transfer service.
After that, the transfer process is very simple. All clients need to do
is hand over cash to a registered agent who then credits the persons
virtual M-PESA account, and he or she is then ready to send money. The
person receiving it comes to a registered agent with a code and can
easily cash in on the money sent. The SMS itself is free, but a small
fee has to be paid for every transaction; however, compared to the fees
of standard banking transfers, it is a true relief for most of Kenya’s
poorest population. Safaricom’s amazing success with M-PESA, a project originally partly funded by Britain’s Department for International Development, inspired them to look into more ways of easing the lives of many Kenyan families, by including services such as salary payments, buying goods in stores, paying school fees and utility bills, Microfinance loan repayments, and many more. Another very important pilot project that has been launched are remittance transfers from the UK, an estimated multi-billion dollar market that many banks would like to tap into. Inspired by M-PESA and currently undergoing testing in Kenya, it will serve as a model for similar projects planned in other important remittance corridors, such as the one between UK and India.
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Link of the month: African Growth and Opportunity Act
For four decades, billions of dollars have poured into African
countries, producing nearly no breakthrough results; as a result,
questions regarding the efficiency of aid programs have begun to
arise. Moreover, Africans themselves are beginning to denounce these
programs as well, demanding opportunities instead of charity. The
majority of the money sent to Africa is aimed at sectors such as
health and education, the critical fields from the perspective of
developed countries. However, rather than desire the abundant flow
of
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