1
Introduction

This report is the product of collaboration between the U.S. National Academies and the Nigerian Academy of Science. The subject of the collaboration was a study of the ways in which science-based private enterprises might be created and promoted in Nigeria and other developing countries in order to provide science-based products and services that government is unable to supply in a timely and sustainable manner. Examples of these services are electric power and safe household water in rural areas. In other developing countries, lack of safe water and lack of home or small business electric lighting are problems that have generated entrepreneurial solutions through readily accessible technologies. But in Nigeria private companies have generally not been viewed as an instrument of government policy to extend basic services to the underserved.

Malaria presents a similar situation. This devastating disease, which kills one million people worldwide every year, must be tackled with new drug treatments to replace those that have lost their effectiveness both to cure the disease in individuals and to reduce its spread. The local private sector may be able to join government and donors in seeking a solution.

The following statement of task was presented to the committee:

In collaboration with the Nigerian Academy of Science, an ad hoc committee will (1) develop a model for dissemination of technologies of social benefit and creation of science-based enterprises in Nigeria; (2) select three technologies related to health, agriculture, and small-scale



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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria 1 Introduction This report is the product of collaboration between the U.S. National Academies and the Nigerian Academy of Science. The subject of the collaboration was a study of the ways in which science-based private enterprises might be created and promoted in Nigeria and other developing countries in order to provide science-based products and services that government is unable to supply in a timely and sustainable manner. Examples of these services are electric power and safe household water in rural areas. In other developing countries, lack of safe water and lack of home or small business electric lighting are problems that have generated entrepreneurial solutions through readily accessible technologies. But in Nigeria private companies have generally not been viewed as an instrument of government policy to extend basic services to the underserved. Malaria presents a similar situation. This devastating disease, which kills one million people worldwide every year, must be tackled with new drug treatments to replace those that have lost their effectiveness both to cure the disease in individuals and to reduce its spread. The local private sector may be able to join government and donors in seeking a solution. The following statement of task was presented to the committee: In collaboration with the Nigerian Academy of Science, an ad hoc committee will (1) develop a model for dissemination of technologies of social benefit and creation of science-based enterprises in Nigeria; (2) select three technologies related to health, agriculture, and small-scale

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria industry with potential for commercialization in Nigeria and Africa; and (3) carry out a Knowledge Assessment of the selected technologies to identify opportunities and barriers to creating the science-based enterprises in Nigeria. This approach involves active participation by the local business community, local and national commercial banks, producers, and scientists and engineers, interacting with international experts, to explore the prospects for enterprises based on the selected technologies. The report will recommend actions by government, the private sector, and the national academies of Nigeria and the United States to encourage science-based enterprises. The three technologies chosen by the committee were solar photovoltaics, water purification, and malaria therapy. The methodology selected, a knowledge assessment (described in Chapter 2), was used by the committee to illustrate ways in which the technologies could be profitably applied in Nigeria. The committee proposed a development model in which the private sector would be able to provide the technology-based products and services at a profit. Such a model offers the possibility that, after a period of incentive and encouragement, government or donor support would not be required in the future, thereby satisfying most definitions of economic sustainability. Nigeria is an appropriate test bed for an approach that combines government and donor support and resources to enable the private sector to manufacture and provide science-based solutions to basic needs problems. As an oil exporter with a positive foreign exchange balance, Nigeria has a source of funds that could be employed to test the hypothesis. Nigeria also has several excellent universities, and the Nigerian Academy of Science is populated by many world-class scientists. In fact, Nigeria is famous worldwide for its entrepreneurial class, which includes modern manufacturing and extractive industries. And yet despite these and other assets, Nigeria remains in the World Bank’s low-income category, and 60 percent of the population lives below the poverty line; life expectancy is 46 years.1 About two-thirds of Nigerians have no access to the electricity grid or safe water. A similar proportion of the people are at risk of malaria, which is a major cause of child 1 For a listing of countries in the various income categories, see World Bank, http://siteresources.worldbank.org/DATASTATISTICS/Resources/CLASS.XLS. The poverty line is defined by the “FEI method,” which is based on annual expenditures on food compared with the cost of the minimum daily allowances recommended by the World Health Organization. See Ben E. Aigbokhan, “Poverty, Growth and Inequity in Nigeria: A Case Study,” AERC Research Paper 102, African Economic Research Consortium, Nairobi, November 2000, http://www.aercafrica.org/documents/rp102.pdf. For life expectancy, see the U.S. Central Intelligence Agency’s World Factbook, https://www.cia.gov/cia/publications/factbook/geos/ni.html.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria mortality and loss of economic productivity. In Africa, the malaria parasite is becoming resistant to most low-cost and readily available drugs, and a newer effective treatment is currently too expensive for the majority of patients. For each of these fundamental problems holding Nigeria back and imposing suffering on its people and economy, the technology that could solve the problem is available for transfer and incorporation into the private sector. The technologies for water purification and solar electric lighting have been applied successfully elsewhere in the developing world, including in Africa, and the current most effective malaria drug treatment, artemisinin combination therapy (ACT), could be produced by the Nigerian private sector. These three technologies explored in the study—solar photovoltaics, water purification, and effective malaria therapy—and the associated business models were selected by the two science academies to serve as case studies in order to demonstrate how the government-sponsored participation of private sector enterprises might be used to provide basic services. A workshop was conducted for each technology. At each workshop, several foreign businesspeople who had successfully exploited the particular technology to create profitable enterprises in other developing countries were brought together to collaborate with a diverse group of Nigerian businesspeople, scientists, financial experts, and others. Together, they designed a business plan for a hypothetical Nigerian enterprise to produce the technology, drawing on the foreign experience while taking into account the social, economic, and cultural environments of Nigeria. The workshop reports produced, one for each technology, appear in the appendixes to this volume. They constitute the “data” used to evaluate the hypothesis that such enterprises could be successful and effective in Nigeria, and the workshop results underlie the steps recommended in Chapter 5 for exploiting these technologies for providing basic services. NIGERIA In March 2006, Nigeria carried out its first census in 15 years. The size of the country’s population has been a matter of controversy, and several states did not accept the results of the last census in 1991. Estimates of the population range from 135 million to 162 million.2 However, there is one figure that appears to be supported by consensus, if not census, and it is a staple of everyday conversation, with little variation. In Nigeria, 100 million people have no access to safe water; 100 million have no access to 2 The figure 135 million is found in the World Factbook, ibid. The figure 162 million is found at http://www.internetworldstats.com/africa.htm#ng.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria the electricity grid; and malaria strikes 100 million people each year. In fact, these numbers are generally supported by the responsible agencies. United Nations (UN) agencies report that only between 50 and 60 percent of households have access to improved drinking water.3 The Global Energy Network Institute (GENI) reports that few rural households are electrified.4 And the Roll Back Malaria program of the World Health Organization (WHO) suggests that the 100 million figure for malaria incidence in Nigeria, where 80 percent of the population is exposed to malaria and 60 million experience more than one attack a year, might be low.5 This study is dedicated to the “100 million,” which is its target population. Nigeria is the most populous country, and one of the more advanced, in Africa. As an oil exporter, it has exchange reserves of $28 billion. Rising oil prices have brought new money, some of which will be dedicated to science. The government announced plans in June 2006 for a $5 billion endowment fund for science and technology, drawn from the oil revenues and supplemented by donors and the private sector. An independent Nigerian National Science Foundation will be created to disburse research grants, establish new scientific universities, and equip existing research groups.6 The gross domestic product (GDP) of Nigeria is $83.36 billion, or $1,500 per capita, with a real growth rate of 5.3 percent. The economy consists of about 53 percent industry, dominated by oil production; 17 percent agriculture; and 30 percent services. Oil production is 2.5 million barrels per day, of which about 2 million barrels per day are exported. In 2004 electricity generation was 19 billion kilowatt-hours, of which 20 million kilowatt-hours were exported to neighboring countries. Safe water and malaria control are key elements of the United Nations’ Millennium Development Goals, for which Nigeria has pledged universal coverage by 2015. However, since 1990 indicators of the rate of progress have fallen. On Transparency International’s Corruption Perception Index (CPI), Nigeria is rated 1.9, ranking 152 out of 159 countries. The CPI score is based on business people’s and country analysts’ perceptions of a country’s degree of corruption. It ranges between 10 (highly clean) and 3 UNICEF, http://www.unicef.org/infobycountry/nigeria_28236.html; Millennium Development Goal Indicators, http://unstats.un.org/unsd/mdg/Data.aspx?cr=566. 4 Global Energy Network Institute, http://www.geni.org/globalenergy/library/media_coverage/africa-renewal/energy-key-to-africas-prosperity.shtml. 5 Communication Initiative, http://www.comminit.com/trends/issuestrends/sld-2098.html. 6 “A Foundation for Africa,” Nature, August 3, 2006, 442, 486, http://www.nature.com/nature/journal/v442/n7102/index.html#nf.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria 0 (highly corrupt).7 Nigeria also appears on the 2006 World Bank list of poorly governed “fragile states” that are at risk of terrorism.8 In 2005 the Nigerian government prepared a National Economic Empowerment and Development Strategy (NEEDS) in cooperation with the International Monetary Fund (IMF).9 It states, in part: Nigeria has become a nation of traders, with a very weak and stagnant domestic private sector. Other frequently cited problems in efforts at growing the private sector include the poor state of physical infrastructure; the high cost and limited access to appropriate financing; insufficient domestic demand and the low level of patronage by public sector institutions; the high cost of imported raw materials, equipment, and spare parts; and the lack of skilled labour. Growing the private sector also hinges crucially on domestic policies, environmental factors, and investment flows. One of the solutions suggested is to redefine the role of government as a facilitator and promoter in the economy, recognizing that market failures in developing economies require targeted incentives and interventions in specific areas to promote specific sectors and industries. The government hopes to complement the usual enabling environment model of development with some targeted entrepreneurial interventions to bolster weak and vulnerable sectors. FILLING THE GAPS: THREE TECHNOLOGIES TO MEET THREE MAJOR NEEDS Although Nigeria is an industrial leader in West Africa, with an educated and entrepreneurial population, foreign currency reserves in the bank, and currently a functioning democracy, 100 million of its people do not have electric power, 100 million lack safe water, and 100 million suffer from malaria without effective treatment. In part, the solutions to these problems are related to infrastructure, and for water and electric power the solutions could be found in expanding the electricity grid and build- 7 Transparency International, http://www.transparency.org/policy_research/surveys_indices/cpi/2005/. 8 World Bank, “Fragile States: The Low Income Countries Under Stress (LICUS) Initiative,” http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20127382~menuPK: 34480~pagePK:34370~piPK:116742~theSitePK:4607,00.html. 9 International Monetary Fund, “Nigeria: Poverty Reduction Strategy Paper—National Economic Empowerment and Development Strategy/International Monetary Fund,” IMF Country Report No. 05/433, Washington, DC, 2005, pp. 48–52, http://www.imf.org/external/pubs/ft/scr/2005/cr05433.pdf.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria ing municipal water facilities (Nigeria is not deficient in groundwater). However, like many developing countries Nigeria is a rural country, and expanding the electricity grid and building municipal water processing plants to serve every site may not be cost-efficient or a budget priority. Household Water and Electrical Technologies Decentralized energy and water supply facilities represent unique opportunities for remote rural developing communities to provide the basic necessities of life to those in need at lower cost. Small, stand-alone systems are more appropriate and sustainable in remote areas. Such systems not only are more cost-effective for the user, but also are more flexible, less disruptive to communities, and more likely to meet people’s needs, improve the future of communities, and act in harmony with sustainability principles. Decentralized systems are often the only realistic option for providing developing communities with water and energy. And yet stand-alone systems do have limitations. Their success may depend on market incentives for companies, investors, and consumers and sustainable quality control and maintenance. Moreover, because they are beyond government control, they may be of lower priority for governments. Solar photovoltaic systems and water purifiers, the technologies considered in this report, fall at the low-cost end of the spectrum of regional electric power and safe water supplies. The criteria for their selection include the following: They fulfill a basic need of the people that is not being met by government for a majority of the population. They can be used effectively to provide services that fill the need at the village or household level. They can be provided by private enterprise without direct government intervention. They can be installed and maintained locally at a profit for the provider, and thus they have the potential to be sustainable indefinitely. Neither solar photovoltaic systems nor water purifiers involve new technology or custom-designed units. Both can be adopted from currently available models and constructed from ready-made items, although not all of the items are necessarily available today in Nigeria. The effectiveness of the technologies in the village environment has been demonstrated, at least for short periods, by donor- and government-supported projects many times over decades. Sustainability, however, is another question. In the great majority of

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria projects worldwide, the units were donated to villagers. Unit maintenance was then either neglected or included in the cost to the donor. But a characteristic of all donor-supported projects and many government ones is that eventually the funding for the project ends, or funds are diverted to other worthy uses after successful demonstration of the technology. Within a short time, the solar or water purification units fall into disuse or disrepair without service, and yet the need is as great as before. The missing element in sustainability is real ownership of the technology by villagers. Because they were given the technology as a handout, they are less likely to use and maintain it than if they had selected and bought it with their own hard-earned money, which a private sector approach would require. As for the government’s role, electric power and drinking water are typically in the government realm in most countries, including Nigeria, unlike some other basic needs. For example, food is not supplied by the government, but it is available to most citizens through a complex web of farm supply, farmers, distributors, and markets that manages to put bread or cassava on nearly every table. Clothing is available everywhere through a combination of mass production, cottage industry, and low-cost imports with effectively no government regulation or participation. Housing in Nigeria and most other countries is largely in the hands of the private sector, formal and informal, although many governments step in when the poor experience serious shortages. In the health care realm, the generally large pharmaceutical companies provide those who can afford them with common medicines through local distribution networks and markets. In each of these areas, the needs are met, continually and sustainably, by the private sector; people are employed, and profits are made. The question then is: could the government and donors find a way to stimulate the private sector to also provide small-scale household electric power and safe water as an alternative to extending the national electricity grid or building municipal or national water facilities? Malaria Treatments Malaria control and treatment present a somewhat different problem. Malaria drug therapy is widely available at a low price in Nigeria, and it is frequently featured in billboard advertising. However, the common low-cost medicines such as chloroquine and Fansidar are largely ineffective because the malaria parasite is becoming resistant to them. In fact, the only known therapy for which no known resistance has appeared is artemisinin, derived from Artemisia annua, an herb endemic to China that has been adapted to cultivation in parts of Africa. Drugs containing artemisinin or its derivatives are available in Nigeria, but at a cost

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria more than 20 times higher than that of the common low-cost remedies. It is, nevertheless, cost-effective because malaria can be fatal and artemisinin cures the disease (ineffective medicines are not cost-effective at any price). Indeed, WHO has recommended it as the sole approved remedy for malaria. And yet the cost puts it beyond the means of the majority of sufferers, which leaves it up to the government to find a way to supply this treatment to all patients at an affordable price. A solution may be within reach, however, because of the role proposed for the international community by WHO. The cost to the government of providing free artemisinin-based drugs to all malaria sufferers in Nigeria at current prices would be more than $200 million a year. The prescribed artemisinin-based drug, in a formulation called artemisinin combination therapy, is available locally at a price exceeding $20 per course of treatment, whereas chloroquine can be purchased for $1 per course of treatment, a high price for an ineffective drug but one that is affordable for everyone. An international movement organized by WHO and involving several other organizations is seeking to subsidize the price of ACTs for patients, so that ACTs will be accessible to most people everywhere. However, the only formulations that will qualify for the subsidy are those manufactured according to WHO’s standards. At present, only one drug company, Novartis of Switzerland, meets the standards. Its product, Coartem, is available in Nigerian pharmacies at more than $20 per course of treatment. Nigeria has the capability to produce ACTs, and several are locally available, although at high prices. But these products will not be competitive when and if the subsidy goes into effect, unless the manufacturers meet WHO’s manufacturing standards as mandated by the subsidy. At this time none do, but several local pharmaceutical companies claim to soon be able to meet WHO’s manufacturing standards, which would allow them to receive the subsidy and sell ACTs they would manufacture in Nigeria, as well as export them for sale at the subsidized price. The Nigerian government has announced a program to provide ACTs free to children under five, which would be a great boost to health and child survival. It has also declared ACTs the only approved malaria treatment. The nation would gain economically through higher productivity and lower workplace absenteeism if ACTs were provided at a low price to all. Local production of effective malaria medicines might enable realization of these gains, whether or not the subsidy materializes. If the worldwide subsidy is applied, local manufacture will not be required because the medicine can be imported at the subsidized price. But, if local manufacturers were prequalified, they could export ACTs regionally at the subsidized price as well as serve the local market.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria DOING BUSINESS WITH THE POOR Access to a commercial good or a sustainable service generally depends on the provider of the good or service being able to profit from the enterprise. Donated products will always depend on the existence of donated funds, funded research programs, or local initiatives that, by their very nature, are short term. Because people without electricity, safe water, and effective antimalarial medicines are primarily poor, it is critical to test the proposition that a firm can profit by providing essential goods and services to the poor. What, then, is a distinct but workable business model for serving those with no disposable income? The usual philanthropic route to providing goods and services such as water, electric power, and medicine to the poor is to engage nongovernmental organizations (NGOs) to provide the products without cost to the recipient community. But decades of experience show that items received at no cost are considered of no value and often are not used, maintained, or replaced when needed. Similarly, in a variation on the “tragedy of the commons,” devices donated to a village or community are considered to belong to everyone, and therefore to no one in particular. Thus, no one is willing to maintain or replace them when needed. By contrast, companies, large and small, are profiting by serving—and charging—the poor. Some of the business models employed, though not following a common pattern, have features that distinguish them from those of normal free-market companies. Some of these models, such as combining banking services with product sales, may simply not be permitted in the United States and other industrialized country economies. Some of the best known of these models are reviewed in this chapter and then examined later in detail in this report. The subject of businesses that serve the poor has been studied extensively by University of Michigan professor C. K. Prahalad.10 He points out that, on a global scale, the four billion people at the bottom of the economic pyramid, with purchasing power parity below $1,500 per year, have collective assets and income that exceed the annual GDP of their respective countries. The informal sector produces over 60 percent of the GDP in a typical developing country; the value of the homes in informal (illegal) settlements is as much as 69 percent of the total long-term external debt.11 Considering their enormous numbers, the poor control a significant part of the income and assets of a country like Nigeria. Their spending 10 C. K. Prahalad, The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits, Upper Saddle River, NJ: Wharton School Publishing, 2005. 11 Hernando de Soto, The Other Path: The Invisible Revolution in the Third World, New York: Harper and Row, 1989.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria power far exceeds the value of World Bank loans to their countries, and a small part of it could purchase the services, such as safe water, medicine, and electric power, that the government is failing to provide, despite repeated investment by the World Bank and other donors.12 The problem, however, is that most poor people in developing countries have no formal title to their assets and are thus unable to draw or borrow on them. The poor consume nearly all of their income, and they have no reserve or savings to invest in services and products that will bring them and their children health, education, and future income. Financial services such as reliable savings institutions and secured personal loans are not available to them. To tap into the wealth at the bottom of the economic pyramid, according to Professor Prahalad, it is necessary to create the capacity to consume. “Cash-poor, and with a low level of income, the [bottom of the pyramid] consumer has to be accessed differently.”13 He lists three principles that govern the capacity to consume: Affordability. This principle may involve low-cost, single-serve packages (e.g., of food, cosmetics, kerosene, cell phone calls), novel purchasing or leasing schemes that do not compromise quality or efficiency (e.g., for safe water, recharged batteries, furniture), or microcredit (e.g., for water filters, photovoltaic systems, building supplies). Access. Products and services must be distributed near homes or workplaces after working hours. Availability. Products must be available and deliverable when people have cash, on paydays or market days. One more principle particularly relevant to the products discussed in this report is maintenance. Complex products must include an on-site service contract to ensure that the product remains functional and that maintenance services and replacements of filters, batteries, and such are performed on time. There are many examples of new products and services designed especially for the poor that have been successful in some countries. The list includes fingerprint-coded Automated Teller Machines, cell phone access by the call, and staffed computer kiosks or community centers to provide information from the Internet, such as legal documents, market prices, and educational materials. These examples are based on expensive, 12 The World Bank currently has a project portfolio in Nigeria of $1.8 billion, including $320 million in the water sector. See http://web.worldbank.org. 13 Prahalad, Fortune at the Bottom of the Pyramid, p. 16.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria capital-intensive facilities, and they can be justified economically only by the sheer numbers of potential customers. A further potential benefit of marketing to the poor: “When the poor are converted into consumers, they get more than access to products and services. They acquire the dignity of attention and choices from the private sector that were previously reserved for the middle class and the rich.”14 This benefit translates into price and quality competition, which is sometimes particularly intense for items that are purchased in small quantities every day. It also requires firms to build trust in the consumers, a commodity not usually bestowed on the poor. Professor Prahalad goes on to suggest twelve principles of innovation for bottom-of-pyramid markets. These principles illustrate the kind of approach necessary to succeed in mass markets in developing countries: Focus on the price performance of products and markets. High quality at lower price is required for sustainable success. Innovation sometimes requires hybrid solutions using advanced technologies blended with existing infrastructure. For these large markets, solutions must be scalable and transportable across countries, cultures, and languages. Innovations must reduce, conserve, and recycle resources, including especially packaging. Functionality is more important than form. Products designed for washing clothes in a running stream require a different capability than those for color-separated clothes in a modern washing machine. Process innovation must take into account the realities of the logistics infrastructure for local manufacture. Design of products must take into account the low skill levels and poor infrastructure in poor areas. Education of customers on correct product usage is critical. Often, the usual media outlets such as radio and TV are absent, and new methods must be developed. The vendor has the principal role in this. Products must be designed to work in hostile environments, including irregular power supply and contaminated water. Consumer interfaces, such as advertising, consumer education, and operating instructions, must take into account the heterogeneity of the consumer base in terms of culture, language, and educational and skill levels. Innovation must include methods of distribution and marketing. The extremely dense urban environment and highly dispersed rural communities that characterize the bottom of the pyramid require new, and 14 Ibid., 20.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria possibly advantageous, approaches. The advantages might include a high degree of community organization and a tradition of sharing and reinforcement of ethical behavior. New products and services not required in developed countries should be considered for use in developing countries. These include household water purification systems and home photovoltaic units to provide electricity. Microfinance A common problem for business models that involve poor franchisees or customers is the need for credit. Poor people are generally defined as those with low incomes and few fungible assets. Thus, they are unlikely to have savings available to purchase consumer items such as water filters, solar electric systems, or televisions. Poor would-be or actual entrepreneurs may find it impossible to invest in the necessary space and materials to start a business. For over two decades, the concept of microfinance or microcredit has filled this gap, providing capital for simple to complex businesses in the developing world. Microcredit is the extension of very small loans to unemployed or poor entrepreneurs and others living in poverty who are not bankable. These individuals lack collateral, steady employment, and a verifiable credit history, and therefore cannot meet even the most minimum qualifications to gain access to traditional credit. Microcredit is a part of microfinance, which is the provision of financial services to the very poor. Apart from loans, it includes savings, microinsurance, and other financial innovations. The concept of microfinance originated in Bangladesh in 1976 through a pioneering experiment by Muhammad Yunus, a professor of economics.15 In 2006 Yunus won the Nobel Peace Prize for his work in microfinance. In the form pioneered by Yunus and his Grameen Bank, microfinance involves the concept of “joint liability.” A group of individuals (almost always women) join together to form an association of borrowers. In India, for example, the members of the so-called self-help groups (SHGs) then undergo a training program on the basic procedures and system requirements of borrowing. Loans to individuals within an SHG are approved by the other members of the group, who are also jointly responsible for loan repayment. The members of an SHG save regularly. To minimize the financial burden, limits are placed on the amount lent, and the repayment is typically over 50 weeks. Individuals not in a group 15 Grameen Bank, 2003, http://www.grameen-info.org/mcredit/.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria also can receive microloans. The overall payback rate of microcredit loans is 97 percent. For the types of businesses discussed in this report—that is, ones that provide basic needs—the consumer purchases are either continual, such as safe water acquired from community water services; intermittent, such as malaria therapy; or capital items with long service lives, such as home solar electric systems. In the continual or intermittent cases, the types of microsavings plans pioneered in Bangladesh and India would provide a cushion to ensure continued access to safe water or antimalarial drugs. For capital items, it would be necessary to go beyond the traditional microcredit schemes to arrange loans secured by the capital item itself and supported by maintenance and service contracts. In some countries, a targeted educational campaign by the vendor has made it possible to persuade commercial banks to provide these loans to poor buyers at commercial rates. Franchising Another concept linked to technology transfer, business development, and finance is franchising. In developed countries, franchising is exemplified by retail and service industries such as McDonald’s restaurants and Radio Shack retail stores in the United States. Franchising involves an agreement between a franchisor—an established national or international company with technological know-how, a known and branded product or service, and a successful business model—and multiple franchisees, which are local small companies or entrepreneurs. The franchisees receive training, technical assistance, and a business plan, and they lease or buy technology and materials or products from the larger company. They usually operate under the brand of the franchisor, appearing to be branches or subsidiaries, although in reality they are independent businesses that may be bought and sold by their owners, with the agreement of the franchisor. The more common arrangement between companies based in developed countries and companies in developing countries is usually called a joint venture. In joint ventures, the larger and established companies in the host countries with facilities and their own brands contribute to the partnership. The developing country partner does not usually operate under the brand or name of the developed country partner, although the host country partner may manufacture or sell the latter’s branded products, such as automobiles. Franchising can have multiple benefits in developing countries. Companies that have successful products and business models in developed countries would benefit from the experience, location, native language skills, and local market knowledge of the franchisees. The franchisees

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria benefit from the access to technology or know-how, training, and the brand and reputation of the products. This model has already been put in place by several international companies, including McDonald’s and Radio Shack. An expansion into other products and services besides retail and food would provide new profitable markets for established companies and essential services for the developing countries. In one example described in Chapter 3, a U.S. company set up a subsidiary in the Philippines that, in turn, sold the proprietary technology, with complete supporting services, to 50 branded water stores in the Manila area. The association with a successful brand and the support of the franchisor enabled the local entrepreneurs to obtain loans, secured by the equipment and the business itself, from commercial banks. In summary, it has been amply demonstrated that marketing products to the four billion poor people on the planet can be profitable for private enterprises, both multinationals and national companies, small and large. Their products range from construction materials and medical services to cosmetics and electronics.16 The business model is often different from that for selling to the middle class, but it has been mastered by a variety of companies. The experience in offering basic services such as electric power, safe water, and medicines to the poor at a profit is less well known, but the actual examples described in Chapter 3 provide a model that can be adapted to a country like Nigeria. Incentives to companies to profit are, in principle, not required, but, in practice, the risks are not well understood, and the government or donor groups can encourage and expedite the investment by offering partial subsidies and other incentives. Such incentives are discussed in Chapter 4. A final point is that the types of enterprises discussed in this report are labeled science-based enterprises because they are dependent on exploiting technologies or processes based on the results of scientific research. These technologies are subject to continual revision and improvement in order to remain competitive. The four specific inventions examined here (two for water purification and one each for solar energy and malaria treatment) are all less than 10 years old and are still undergoing improvement. The companies that sell these products have staffs of technically trained people and maintain a certain level of technical competence. The same is true, of course, of the companies, such as electric utilities, municipal water facilities, and pharmaceutical companies, that provide equivalent services to the middle class. The products designed for the poor are not inferior to the common version, but they may be technically different and require dedicated engineering. Descriptors commonly 16 See Prahalad, Fortune at the Bottom of the Pyramid, for a review.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria associated with such products are “low cost,” “locally manufactured,” “durable,” “easily maintained.” They are safely operable by illiterates and not easily counterfeited with inferior products. They are often referred to as “appropriate technology.” These are not trivial requirements, and the engineering design for these products can be extremely challenging. For this reason, they are of specific interest to the academies of sciences of both Nigeria and the United States.