The Accenture Economic
Alexander J. Field
The nominations for the economic development category this year focused, as they have in the past, on bringing basics to the underserved around the world. Innovations directly affecting the availability of food, shelter, electricity, and information technologies (IT) continued to dominate
Electrical projects were particularly evident—systems for generating power from water, from the sun, and from human power, and several nominations involving the use of battery-driven, white LED lights as replacements for kerosene lanterns, which give off poor light, result in indoor air pollution, and require expensive fuel. This year we honored one project devoted principally to lighting and one aimed at generating power in rural sparsely settled areas.
On the IT front, we noticed more innovations exploiting cell phone networks to improve the operation of markets. This reflects the fact that even in very poor countries, like Bangladesh, cell phone infrastructure is highly developed, whereas standard Internet access is much less accessible. We honored one nomination that provides an innovative software solution making it easy for users to buy and sell goods using their cell phones.
Shelter remains a basic human need, and one of our Laureates has revived traditional earthen construction methods in Africa to produce buildings that are cheaper, better insulated, and more functional than those relying on imported materials such as sheet metal for their roofs.
Finally, we honored a successful microfinance startup that has bridged the gap between willing individual lenders in the developed world (loans can be as small as $25) and entrepreneurs in the developing worlds with worthwhile projects, but little collateral or credit history.
Anil Chitrakar, Babu Raja Shrestha, and Prachet Kumar Shrestha, Nepal
A low-cost, non-polluting source of light is something those in the developed world take for granted. It extends the working day beyond the limits imposed by sunrise and sunset. It allows reading and studying in the evenings. Yet many in the developing world are forced today to rely on wick based kerosene lanterns—essentially the same technology that John D. Rockefeller distributed around the world at the end of the nineteenth century. Rockefeller’s new product was based on kerosene—a petroleum derivative—but lamps utilizing the same principle had been around for centuries, burning fuels ranging from vegetable to whale oil.
Today 2.4 million households in Nepal still rely on wick-based kerosene lanterns for lighting. The government spends $45 million a year in scarce foreign exchange to import fuel to satisfy the population’s needs for light. Kerosene is subsidized, but still much more expensive in rural than in urban areas. The lamps produce greenhouse gasses, pose a fire hazard, irritate the lungs and eyes of those seated near them, and provide light inferior to that we take for granted in the developed world. Wind blows out the flame and rain drenches matches, making lanterns difficult to relight.
The Solar Tuki is a system designed to replace kerosene lanterns and provide a power source for radios and, ultimately, cell phone batteries. The system takes advantage of Nepal’s average of 300 sunny days per year. The Solar Tuki consists of two .3 Watt LED (light emitting diode) lamps with built in NiMH (Nickel Metal Hydride) batteries charged by a three Watt solar photovoltaic panel. The unit also has a three volt outlet for connecting an FM-AM radio, and future units will have an outlet for charging a cell phone. The light is bright, white, will not be extinguished by wind or rain, and allows children to study inside a mosquito net.
The lamps are locally assembled, distributed, and maintained, thus further reducing drains on foreign exchange reserves and providing local employment opportunities. The units have a useful life of five years, with a $50 upfront cost. The batteries last for 600 cycles—about two years—and cost two dollars to replace. Microfinance makes the unit affordable even without government subsidy, since the savings on kerosene more than compensate for the monthly costs of acquiring these units through an installment plan. Since the Solar Tukia was launched two years ago, more than 13,000 units have been distributed. The potential market for such a product is huge: 2.4 million people in Nepal, 78 million in India, 1.6 billion globally.
An alternate approach, further reducing acquisition costs for families, is to sell only the lamps (about $11) without the charger and install a 36 or 50 Watt community charging station to which people bring their lamps during the day for recharging. Charging fees amortize the cost of the more expensive solar panel. Such systems can have the indirect effect of improving school attendance when children are responsible for bringing the lamps to and from home.
This work is further described at: http://www.ecca.org.np.
Association la Voute Nubienne, France
Shelter is one of our basic needs. In Sub-Saharan Africa, house builders typically relied on wood for roof timbers (flat beams and rafters), with supporting laths covered in earth. Adobe earth walls were built around load bearing timber posts. But deforestation has reduced or nearly eliminated the supply of wood, forcing house builders to turn to imported substitutes, such as corrugated sheet metal, or sawn timber beams and rafters for roofs. Sheet metal roofs are expensive, noisy when it rains, and keep the house hot when the sun shines and cold at night. In short, their thermal, acoustic, economic, and aesthetic qualities leave much to be desired.
Association la Voute Nubienne has revived and improved a traditional rural architecture. They consider their technique a “modern adaptation, simplification, and codification of the ancient Nubian vault roof building technique.” The value added has been the standardization and modularization of the construction process so it can be learned quickly by illiterate workers. Door and window arches, for example, are standardized in size and shape. Where appropriate from a functional or economic standpoint, the designs incorporate modern materials: a weatherproofing layer of plastic sheeting, for example, is used in the roof. Local workers are trained on site, and a Voute Nubienne master builder is responsible for all projects within a geographic zone.
Compared to the techniques it supplants, there is little need for imported materials or external funding. The houses are comfortable—insulating earth roofs help to keep the interior cool during the day and warm at night. And the houses are durable. In eight years, not a single home has collapsed or been damaged by heavy rains. Designs provide the option of building a flat roof over the vault – thus making it possible to build two stories if desired. The techniques can be combined with concrete beams and pillars to make larger buildings like schools or churches. In rural (but not urban) areas, the houses are consistently about 30 percent cheaper (and superior from a functional perspective) than a house built with earth walls and a corrugated sheet metal roof. Since launching the program in the year 2000, more than 350 vaults have been constructed by builders trained by the organization. These have included schools and dispensaries in Mali and an entire village in Senegal. Potential partners in Nigeria, Morocco, Togo, Cameroon, and Madagascar are interested in transfer of la Voute Nubienne’s technological and organizational know-how.
More information on Association la Voute Nubienne is provided at: http://www.lavoutenubienne.org.
Rural areas face significant obstacles to economic development and the improvement of quality of life because they often lack access to inexpensive and reliable electricity supplies. Market forces by themselves will not necessarily solve the problem. Low population density is part of the problem, because it affects the economics of extending electrification to these areas. In the United States, more than half a century after Edison’s first commercial power station in New York, only one in ten rural residents had access to the grid (as opposed to nine in ten urban dwellers). In the 1930s, electric companies in the U.S. argued that it simply didn’t pay to string wires to rural areas, and in any event, farmers, they believed, were too poor to pay for electric services. President Roosevelt plunged ahead with rural electrification as a means in part of addressing the problem of rural poverty.
Similar dynamics plague much of the developing world. blueEnergy provides an innovative integration of wind and solar power with an organizational model in which the capabilities for producing and maintaining the equipment are developed locally. blueEnergy has focused on providing power in the sparsely populated Caribbean coastal region of Nicaragua, the poorest region in the second poorest country in the Western hemisphere.
Given density and current local income levels, there is no access to the grid in the region. Off-the-shelf imported wind turbines often fail due to inadequate maintenance and servicing in a climate where the harsh air from the sea takes its toll on any mechanical device. Diesel power generators, whether used individually or as part of a mini-grid, are expensive and polluting. Purely solar solutions are delicate to maintain and also quite expensive.
blueEnergy builds 500w - 1kw wind generators in its facility in Bluefields, Nicaragua. Every component of the turbine is produced locally, from local materials. Because of variability in wind flow, wind-only systems require substantial banks of batteries to insure an uninterrupted flow of power. By complementing the turbines with a modest investment in solar arrays, blueEnergy makes it possible to reduce the number of batter es required. Most of the energy comes, however, from the wind turbines.
blueEnergy provides differently configured systems depending on the nature of the community (urban, semi-rural, rural); whether the entity served is private or public; how the facility is owned and managed (by blueEnergy, by a private, or by a public entity). Projects yielding operating surpluses subsidize those operating at a loss. From an engineering standpoint, systems fall into three categories: charging station for home batteries, fixed bank of batteries, or dual use. In a poor Indian community, for example, the system is charging station only. Using microfinance, families purchase deep cycle batteries that they bring to the charging station for “refilling” every 10 - 14 days at a cost of about two dollars a charge. Although the capital costs of the facility are covered by the Finnish government, operating and maintenance is paid out of these fees. If the community demonstrates that it can maintain the facility after three years, title passes from blueEnergy to the community. The objective is to avoid an “install and go syndrome,” which leaves equipment without an adequate social or economic basis for maintenance.
High Piggott of Scoraig Wind Electric is largely responsible for the basic turbine design. He took no IP in the design, which was open source and originally intended for hobbyists. blueEnergy’s contributions have been in lowering costs of manufacture by producing the components in series, and in ruggedizing the design to withstand salt air corrosion. Their innovations have been both organizational and technical, and their model has attracted attention in other underserved regions of the world, such as Spain, Mongolia, and Ghana.
Of this project, one reference wrote: “I have seen countless examples of ill-conceived energy development projects where energy systems are installed without any regard to operating costs and maintenance logistics; blueEnergy’s approach of using appropriate technology and developing local capacity represents a refreshing alternative that can have a major impact on the quality of lives of poor people.” A second reference wrote, “Mathias and blueEnergy have created something that has transformed the problem of energy creation into a replicable local enterprise, and is beginning to change rural poor communities everywhere.”
The blueEnergy Web site (http://www.blueenergygroup.org) gives more details.
Kamal Quadir, Bangladesh
More effective means for bringing buyers and sellers together can be a real source of value and economic growth. Whereas the intermediation provided by Kiva.org, another one of our Laureates (see below), involves transactions in financial capital (loans), Kamal Quadir at cellBazaar sought to improve the functioning of markets in new and used goods. Such markets are inefficient in developing countries, with prices and availability often varying greatly from one village to the next.
Whereas people in Bangladesh have very limited access to land lines or the ability to use the Internet over computers (Internet penetration is just .03 percent), cell phones are more ubiquitous. The cellBazaar software, developed at MIT’s Media Lab, enables users to interact with listings through one of three interfaces: through the cell phone short message system (SMS), which is available on almost all handsets, through the cell phone Wireless Application Protocol (WAP)—available on an increasing number of handsets, or over the Internet through a computer. All three of these interfaces access the same central database, so postings made through any of them are equally accessible through all. Users of cellBazaar can buy or sell goods, or check market prices that can facilitate their bargaining or help them make informed choices about visiting a physical market. Users can search by price, condition, brand, location, or proximity; postings can be made or searched in either in Bangladesh are rice, vegetables, used motorcycles, televisions, and cell phones.
More than 12 million subscribers to the Grameen cell phone system have mobile access to this service in Bangladesh. Because of programs such as Village Phone, where local entrepreneurs rent out use of cell phones, access to mobile communication is even broader. Where improvements in microfinance enable entrepreneurs to increase their production, cellBazaar helps to get the word out, and enables successful producers to dispose of their rising output. Access over the Web is also useful in enabling sellers of goods or apartments to reach an expatriate community of potential buyers. The service is expanding into listings for private tutoring services and looks forward to developing listings for medical services in the future.
cellBazaar’s SMS service was rolled out in July 2006. Through March of 2007, the system has booked over 400,000 SMS messages from users. The WAP interface was added in February of 2007. Since its soft launch, more than 200,000 user hits have been registered. cellBazaar is in the process of opening a version of the service in Romania, and there is likelihood the model can be exported to other poor or developing countries with low computer and Internet penetration.
Please visit: http://www.cellBazaar.com/ for more information.
Some of the greatest challenges in economic development involve poorly developed capital markets. There are tremendous economic gains to be had from channeling money from surplus households, who have funds to lend, to deficit households, who have good business plans but lack the financial wherewithal to exploit them. Successful intermediation, however, particularly where loans are non-collateralized, requires institutions capable of carefully evaluating the honesty and credit worthiness of borrowers. Where these institutions are poorly developed, where lending risks are hard or expensive to evaluate, or where financial markets are noncompetitive, there can be a very large wedge between the rates lenders can receive and the rates borrowers have to pay.
Many estimates are that in poor regions of the world only one in fifty people has access to credit outside of the very high interest rates charged by money lenders. It is commonly said that banks prefer to lend money to people who already have it. The truth of the aphorism depends on the fact that we use the word money to refer both narrowly to cash or the commonly accepted means of payment, and as a general descriptor for wealth. If you own land or other real assets, but need liquidity, banks and other intermediaries are often happy to lend against it. Without collateral or an established credit history, however, it is very hard to borrow, and the absence of collateral and/or an established credit history is usually an essential correlate of being poor.
In recent years, institutions such as the Grameen Bank have pioneered reductions in the transaction costs involved in evaluating, processing, and servicing small loans to people who would normally lack creditworthiness. At the same time, companies in the developed world, such as Prosper (www.prosper.com) have used the Internet to facilitate person-to-person lending.
Kiva.org has innovated by enabling person to person lending from the developed to the developing world. The organization partners with local microfinance institutions (MFIs) in developing countries, who evaluate loan proposals. These proposals are then posted on www.kiva.org, and interested individuals can make commitments to help fund them with a loan of as little as $25. Payment is made by PayPal, and funds are then transferred to the developing country MFI (PayPal has waived its processing fees for these transactions). Loans are paid back over 12 to 18 months, and when the loan is complete, lenders get their money back (without interest), again through PayPal.
Kiva.org charges no fees for its intermediation services. Lenders are encouraged to make voluntary contributions to defray administrative costs, and the organization has received some donor and other foundations support. The MFIs do charge interest (an average of 18 percent), but they are lending to people with little collateral or credit history, and these rates are much lower than those available from money lenders. Kiva carefully vets its partners and evaluates them through a variety of mechanisms to preserve their incentives to evaluate he loan applications carefully. The MFIs do not bear the default risk (the risk is borne by the originators in the developed world) although they do bear currency risk, because loans and repayments through Kiva are denominated in dollars.
Kiva.org appeals to charitable motives, since the developed country lenders receive no interest, but the commitments are not charity. For the borrowers, these are business propositions, and they pay back the loan with interest. Kiva.org provides a direct personal link between developed country lenders and developing country borrowers by using pictures and updated reports. A number of reporters and individuals have visited their borrowers. The idea is that you too, as a newspaper report by the New York Times’ Nicholas Kristof put it, can be a banker to the poor.
In its first 18 months of operation, Kiva.org originated more than $6 million in loans in, funding over 7,000 projects in over 30 countries, from a lender base of over 60,000 Internet users.
You can make your own micro-loan at: http://www.kiva.org/.
As has been true in prior years, consideration of these applications and of the five Laureates we have selected remind us that hundreds of millions of people in the developing world face challenges in addressing basic needs whose satisfaction we in the developed world often take for granted. Adequate and nutritious food, a roof over our head, lighting to extend the day, and a job or business to help us obtain these; each of our innovations represents an instance of technology benefiting humanity, as it helps people to obtain these and other “goods.” Material abundance does not necessarily buy happiness, but we can be almost certain that unhappiness and misery will accompany poverty. Economic development offers a way out, and each of these innovations contributes in different ways to that process.
Alexander J. Field, Chair, Michel and Mary Orradre Professor of Economics,
Santa Clara University
Anthony Bettencourt, Former CEO, Verity
Dan Crisafulli, Senior Program Officer, The Skoll Foundation
Linda Kamas, Associate Professor of Economics, Santa Clara University
Reiji Sano, Lifetime Honorary Member, Matsushita Electric Industrial Co., Japan
Drew Starbird, Associate Professor of OMIS, Santa Clara University