Three researchers have illustrated how ‘market-creating innovations’ can solve failing economies and hunger worldwide.
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According to data from the World Bank, between 1990 and 2018, the rate of extreme poverty worldwide dropped from 36 percent to approximately 9 percent. That drop is much more than a statistic: It represented more than one billion people who no longer live on less than $1.90 a day — the Bank’s definition of extreme poverty.
That’s progress. However, upon closer analysis of the numbers, we find that just two countries, China and India, account for the bulk of that World Bank data quantifying the numbers of people escaping poverty. China alone is responsible for lifting more than 800 million people out of poverty, while India has lifted approximately 200 million people.
Unfortunately, “global poverty” includes bad news too: In Sub-Saharan Africa, the poorest region in the world, the number of people living in poverty has actually increased, and is projected to keep increasing if drastic changes are not made. This poor performance is blamed on corruption, famine, conflict, disease and other factors. But while those factors have played a role, our research and new book The Prosperity Paradox, describe how a lack of investments in market-creating innovations is the major culprit.
And this is where entrepreneurs come in, to play a part in eradicating poverty — but also make money.
In fact, such market-creating innovations have played a big part in China’s and India’s respective efforts to eradicate poverty. These innovations transform complicated and expensive products into products that are simple and affordable, so that many more people in society can afford them.
When that happens, these innovations serve as a solid foundation for creating and sustaining economic prosperity in a region.
Consider an example close to home: When American entrepreneur Isaac Singer decided to build a business that sold an affordable and simple-to-use sewing machine, he was told by experts that he would not succeed. However, his innovation led to the creation of the first truly global company, created tens of thousands of jobs and enabled significant economic development in the United States.
So, the obvious question is, what if more programs seeking eliminate extreme poverty focused on investments in market-creating innovations? Actually, this is already happening; below are three examples. Consider how the four entrepreneurs involved have eliminated poverty, while growing successful businesses.
The Aswani brothers’ billion-dollar business in Nigeria is based on … noodles.
Thirty years ago, Nigeria was hardly an investment destination. The country was under military rule;, close to 80 percent of the population lived in extreme poverty; and prospects for growth were slim due to the corruption rife in most levels of government.
But instead of seeing Nigeria through the lens of just poverty, Haresh Aswani and his brother Sajen saw significant opportunity. They saw an opportunity to feed a nation with an inexpensive, tasty and easy-to-cook meal.
At the onset, the Aswani brothers’ company, Tolaram, began by importing Indomie instant noodles into the country, but quickly invested in manufacturing, distribution and logistics, retail and even agriculture to improve operations. Since 1988, the company has invested close to half a billion dollars in Nigeria. And those investments have paid off handsomely, both for the company and the nation.
Today, the company produces more than 4.5 billion packets of noodles annually, grosses over a billion dollars in revenue, employs close to 10,000 people directly (more than 50,000 when suppliers are taken into account) and pays millions of dollars in taxes to the Nigerian government annually.
The lesson here is that in order to become successful, Tolaram had to create the market for instant noodles in Nigeria. This meant that its founders had to invest not just in making the noodles, but also in ways to make their products easily accessible. One such investment the organization made was in distribution and logistics. Today, as a result, the company runs one of the largest distribution and logistics companies in Nigeria.
Had the two brothers seen Nigeria only through the lens of poverty and tried to solve the country’s problems by providing resources, they would not have created the vast market they did across their country. Their story, however, is not unique.
Almost no one supported cell phones in Africa. But Mo Ibrahaim did.
Something similar happened with Sudanese entrepreneur Mo Ibrahim. While working at British Telecom in the 1990s, Ibrahim told his colleagues about the African countries that were giving away telecom licenses “for free” and about the vast opportunities presenting themselves to create a mobile telecommunications market in these countries. He was summarily laughed at.
To British Telecom’s employees, the region was only about war, poverty, corruption and bad dictators. They could not see past Africa’s poverty.
Undeterred, Ibrahim quit his job and in 1998, started Celtel, an African telecommunications company. His company began operations in Uganda, Malawi, the two Congos, Gabon and Sierra Leone — creating access to inexpensive mobile phones and mobile minutes for a whole new population of people who historically denied such access.
Building a telecom in Europe or the United States simply required executives signing contracts in a conference room, Ibrahim would later explain. But in Africa, much as the Aswani brothers have done, Ibrahim had to create the market. Celtel actually had to build the cell towers, construct health clinics for employees, build schools as part of its community development program, educate engineers and other technical staff and help the government develop the requisite regulations.
Those efforts paid off: The response from this newly created market was overwhelming. By 2004, Celtel employed more than 5,000 people, grossed more than $600 million in revenues with $147 of net profits and had operations in 13 African countries.
Ibrahim went on to sell Celtel in 2005 for $3.4 billion. But more important was, and is, the economic activity and impact that Celtel triggered. In 2015, the mobile telecommunications industry created more than $150 billion in economic value, supported close to 4 million jobs and provided $17 billion in general taxes. Those numbers are expected to reach $210 billion, 4.5 million jobs and $20.5 billion in taxes by 2020.
Richard Leftley decided to provide insurance for the millions who’d never had it.
Building his business on the back of the mobile telecommunications revolution, Richard Leftley created MicroEnsure to provide insurance for the large proportion of the world’s population for whom such products are unavailable. Leftley saw that while Africa was home to 16 percent of the world’s population, it was also home to only 2 percent of the world’s insured. And in that he saw an opportunity — not poverty.
But in order to create a new market to insure the millions who historically hadn’t had access, Leftley had to radically change the insurance business model. For instance, instead of creating a product where customers sign up for complex, lengthy and difficult-to-understand insurance policies, MicroEnsure allows anyone with a mobile phone subscription to sign up for several insurance products. Free.
MicroEnsure partnered with mobile telecommunications companies and eventually enabled customers who purchased up to a certain amount of “air time” (minutes on their phone) to qualify for this “free insurance.” Customers could increase their coverage for as little as 50 cents or one dollar.
The journey hasn’t always been a rosy one, but it is beginning to pay off. Today, Leftley’s company insures more than 56 million people and has paid out over $30 million in claims. In addition, MicroEnsure has received investments from the World Bank’s International Finance Corporation, Omidyar Network, and AXA — a French multinational insurance firm. Approximately 85 percent of the people the company insures had previously never purchased an insurance product.
What entrepreneurs can learn from these market-creators
Poverty should not be seen as an obstacle, but as an opportunity: A hallmark of a market-creating entrepreneur is that they are able to create a new market which other business leaders see as impossible. When this happens, entrepreneurs create incredible growth and alleviate poverty in the process.
Every nation has potential for extraordinary growth within it: To have the biggest impact, entrepreneurs must focus on market-creating innovations. Market-creating innovations make products simple and affordable so that many more people could have access to them, while sustaining innovations make good products better.
Most products on the market today have the potential to create new growth markets once someone comes along to make them affordable. This might seem impossible, but it is true. The prospect of a vibrant mobile telecommunications market in Africa was laughable 20 years ago, but once products were made affordable, they created new and robust markets.
A market-creating innovation can also be more than just a product or service: It can be a whole system that pulls in new infrastructures and regulations, and has the capability to create many new jobs. Because market-creating innovations require many more people to make, distribute, market, sell, and service the newly democratized innovations, they pull new jobs into the economy.
Market-creating innovations: the missing link
The critical missing link in our quest to eradicate poverty in the world is market-creating innovations. As China and India have demonstrated — by lifting hundreds of millions of people out of poverty over the past three decades — these innovations are the critical missing link.
They can help untold numbers of people escape poverty — and, at the same time, provide fertile territory for entrepreneurs.