Africa needs market-creating innovation approach to deal with poverty

At the renowned Clayton Christensen Institute for Disruptive Innovation in the United States, is Nigerian born EFOSA OJOMO, a research fellow whose work focuses on using disruptive innovation theory to fundamentally change the discourse in the global development community, thus enabling nations to engender their own path to long-term growth and prosperity. He was in South Africa recently and sat down with Lee Kasuma of Africa State of Mind, where he spoke on a wide range of issues, especially about how Africa, where lives 1.2 billion people, 400 million of whom live below the extreme poverty line on $1.90 per day, needs to apply a different approach to dealing with its poverty challenges. Excerpt:

Your life story is phenomenal and the way that you got into what you are doing now, if I am not mistaken, you finished high school and tried to enter into a Nigerian university but you failed at that?

Well, I didn’t know my business was going to be put on blast but absolutely, I actually failed not once but twice. I took the national entrance exam, I didn’t pass the first time, I didn’t pass the second time, I thank God I was able to get into America because if I took it again, I would have failed the third time. That was in 2000, that’s about 18 years ago, I started college in the United States, and the way I saw it was I am not going back, why should I go back to Nigeria? I started college, started pursuing the American dream after I graduated, bought a house, got myself a car, I was excited and life was good. One day, out of the blue, I started reading books about economics, development, poverty, it captured me in a way that nothing had and I knew something was going on in me. By the third book I read, I was confronted by this 10-year-old girl in the pages of the book, she had to wake up every morning by 3 a.m., walk miles, fetch firewood and take it to the market to sell in Ethiopia. If you have ever had any experience like when something happens and it just changes your life, I could not continue to live life normally and after what happened, I knew I had to do something. So, for the first time in eight years, I came back to Nigeria, started an organisation with some of my friends, “Poverty Stops Here”.

When you spoke about living the American dream, I think maybe until recently, that is the main aim of most people, America was the destination, get your passport, and move. The world has obviously changed quite a lot, so for you to make the decision to stop living the American dream, what did you have to give up to be able to go back to Nigeria?

So, I will tell you what I had to give up and also tell you that when you have an experience like that, given up may be the wrong term because it is not really a sacrifice. At the time, I was saving a lot of money, I wanted to get myself a new car and move into a nicer house, really. I just wanted to continue pursuing the American dream “the more wealth you have, the more material things you have in your life.” Once that shift happened, I began to spend my vacations in Nigeria, because I have about 2 to 3 weeks of vacation every year, so I started spending time in Nigeria, go to poor communities, villages with no water, with kids not going to school, with one set of clothes, you know the typical pictures we see. But you see, for me, it wasn’t really given up anything, it was more like I was the one gaining something, it was like I had found my purpose, not to sound cliché but it was more of a blessing than a sacrifice.

So you started an organisation with some friends of yours, how did this idea come about and picking the right friends to start with?

The idea was very basic, it was poverty is a problem, we have resources here, let us go and help, but people would ask me “Efosa, why start one? Why don’t you do something else?” But I felt this force that was telling me that we had to do this, we had to take our resources and apply it to the problem. In terms of picking the friends, I was part of a church in Wisconsin, this was where I lived in the US at the time and I just got a bunch of friends together who were at the church and were also moved by the level of poverty on the continent, they saw the passion in me and they knew I wasn’t going to stop until we got something off the ground, and they came around to start this organisation. It is basic in the sense that we were going to raise money from the US, also from friends and families, and we’re going to invest in 3 things when we started; wells, education, which we focused on primary schools and microloans, we gave out loans of about $200, $300, so that they can do some little trading business and that kind of thing.

Your approach to eradicating poverty has almost changed when you look at the statistics, I think it was in 2015, maybe half of the people were living below poverty in Africa, and when it comes to using innovation to change this, this is where you come in?

Yea, when we started as I said, it was very basic, I mean, the name of the organisation was “Poverty Stops Here” because we were just focused on stopping poverty, it was what I felt was a very noble cause and noble goal. A lot of people, about half now living in poverty in Africa, and if current trends continue, I mean, we are talking about 86 or so percent in the next 20, 30 years and it is ridiculous. If you look very well, you will see that the rate of poverty has gone down over the last 30 years, but in Africa, the rate has pretty much stayed stagnant, the number of people has actually gone up living in poverty on the continent. When you start to dissect, the rate of poverty and the number that have escaped, majority of them are from China to a lesser extent, India and so it is a good thing to celebrate that the rate of poverty is going down to about 10 percent, but it is like poverty is in Africa.

So why is Africa getting left behind? Why is Africa not following in suite?

I think the biggest reason, not to get ahead of myself because that is the title of my upcoming book, but the biggest reason is, you don’t fix poverty by trying to fix poverty, which is a big lesson I learnt. Let me give you an illustration. The first thing I did when we got into a village was to build a well because we saw that people in the village did not have access to water and so we raised money and built a well, after which I came back to America. After some time, I got a call that the well has broken down. I tried to get someone to fix it, but the well broke down again, and then I realised that was not a sustainable solution. It turns out we built about five wells and four of the five broke down. I came to realise, that is not a “poverty stops here” problem, it is a problem across the continent, we see lack of water, we want to fix poverty, we build well. We call that approach the “push approach”, where we push what we believe the solution is, it makes sense and it is well intended but it turns out that it does not lead to long-term sustainable transformation and prosperity, because we are so focused on fixing the symptom of a deeper problem.

So, as a result, we find out that we have been pumping millions of dollars to eradicate poverty in Africa, though it has worked to some extent because we now have so many students in primary school, but what are these kids learning, how are they going to go to secondary school, where are the jobs after they graduate and we can’t answer because we are fixing the symptoms. The problem to us is that we have an education problem, kids are not in school and we are pushing what we think is the right solutions but it turns out that that only helps temporarily. That was a big lesson I had to learn when three wells broke down, and I was like I can’t keep raising money from my American friends for this.

On the outside, it seemed like a good idea to build these wells but then the wells kept breaking down, so what did that even do for you with regards to continuing because I know some people would have been like “look, I have tried, let me continue my American dream”, but what is it that made you continue and try to find another solution?

When you begin to look at a problem through the lenses of this 10-year-old girl that has to wake up by 3 in the morning, it turns out that quitting is not really an option, you just have to continue, and so I told myself that until we figured this thing out, I just can’t stop. We stopped building wells because we knew we didn’t have the capacity to manage the wells and it took a lot for us to say we built five, four are broken and the one that is working has someone in an organisation who was going to manage it, so that one was good.

I realised that we have been asking the wrong questions. I realised this after I went back to school and studied under Professor Clay Christensen who was also at the leadership conference. I had to go back to school, I thought to myself that this is something so many other countries have solved, so why are we not making progress, there has to be a way, I wanted to study economics at first, and I had lunch with an economics professor and after he heard me talk, he was like “you do not want to get a PhD in economics, you don’t sound like a theorist, you want to go into the field and do work, so go and get your MBA. So, that’s really where I started thinking about going back to school, I was fortunate I went back to Boston and started business school there.

You drew an interesting comparison between where America was before it became what it is today economically and the fact that because of what America has done we tend to want to do that but they attacked their issues from a different perspective if you could expand on that?

Working with Professor Christensen over the past three years, he has really thought me that framing and categorizing a problem well, is the most important thing in trying to solve the problem. So, when we started this research, it turns out that virtually every country in the world was poor, living on less than $2, $3, $4 a day, so what really happened? We have big words like the industrial revolution, the information age, but we had to peel the covers and look at what was going on in the economies. What we find is there was immense corruption in many prosperous countries that exist today back then, they did not have infrastructure, and education was a luxury for many people, but the different strategies that they took that we don’t seem to be taking in Africa is, instead of pushing what the right solution was; so we don’t have education, so we push what we believe education is and people learn and so on and so forth. What happened was we had a lot of entrepreneurs and innovators who created new markets, so they developed what we call “market-creating innovations”. These market-creating innovations are innovations that make products simple and affordable so that many more people in the society can afford them and it is that simple.

So, when they develop these market-creating innovations, what happens is after you develop it, you create this new market that gives you access to a bunch of customers who have never bought this product or used this service before and as a result of that, that market pulls into the society those things that we tend to be pushing, but because of the strength of the market, those things remain sustainable. In the 1850s, the average American had one or maybe two pieces of clothing; back then it was women who did most of their chores and work, but it took a woman an average of 12 hours to sew a shirt, so if you were rich you’d have multiple pieces of clothing. There was this entrepreneur, who was not a very nice guy but was a very good entrepreneur, his name was Isaac Singer. He developed an affordable sewing machine that made the process go down from 12 hours to one hour. All of a sudden, he has a huge problem on his hand, because millions of people want to use his sewing machine. So he has to build factories, hire people, get the wood and steel he needs, train people on how to build a sewing machine, train people on how to sell a sewing machine, train people on how to distribute, on how to service these machines, and now all of a sudden people start to say, “I didn’t have a job before but I can be a fashion designer”. So you buy yourself a sewing machine and you start a small business in your house, where do you sell your clothes?  Department stores, boom. This guy made something so simple and affordable so many people can have it and you can see all the other industries that came out of it, and that happened time and time again, so you get to a point where people start making enough money to survive, send their kids to school, and the government starts to raise enough money to a situation where it can start to fight the societal ills and start to provide social amenities and it starts to fight corruption because you need money to fight corruption, you find this interesting evolution that happened over time and that doesn’t seem to be the approach we are taking in Africa, which is making it hard.

So given the illustration, how do we implement into a problem we have in Africa that we need to be looking at in a different way, because in life people generally tend to work in what seems to be the logical order versus making something and from that different things will spring forth, so how does that translate to an African context?

It turns out that we actually have a good example in Africa and this is how we start the book, this is the chapter 1, the introduction to The Prosperity Paradox, where we talked about what a Sudanese entrepreneur, who is now a billionaire, Mo Ibrahim did. Twenty years ago, Africa was poorer than what it is today, instead of road, affordable housing and so on, he said, “I am going to give people a simple and affordable way to make phone calls”. People said he was crazy. I mean, Sudan had it all, from bad roads, to AIDS, to corruption, some of them even thought Idi Amin was still around so it would never work. But he saw the struggle when you want to see your mum in the village, it could take a week to drive there, you want to tell your friend something, you have to go visit him, which will take an hour. So, he got licenses and built this company that has grown to support close to a billion cell phone connections in Africa today, supports about three to four million jobs, and by 2020, the estimate is that he would be adding $200 billion worth of economic value. So, look at all the things that he pulled into our society now, some people are now building services on top of the mobile telco infrastructure networks, perhaps the common one is mobile money.

That is the kind of thinking that I believe is possible on this continent; could somebody do the same thing for electricity? I believe it is possible; could somebody be as bold to do the same for several illnesses that we have on the continent, where you create a very targeted solution, make it simple and affordable and then over time, you begin to add more services to it? When we start to approach our problems on this continent that way, I believe we will have a better chance of eradicating poverty.

What can you say to the African leaders who make it hard, if a young African has an incredible idea, because there is a country in Africa, not to mention names but they are one of the major oil producers on the continent and the power situation is not the way it should be, there are talks that it is because of a small sect of people who profit from the use of generators, so in those kinds of situations, what do you tell African leaders and  policymakers when it comes to that?

The truth is if I have to be honest, I don’t have any unique insight to give African leaders. People aren’t stupid, people know what they need to do, that is not the issue. It’s not I say something really profound and people go “Efosa, we didn’t think about that, so we have to give this people permits and licenses,” they know, the issue is when we look at the system today, the incentive structure, how long they are in power, opportunities for them to make a buck or two, they are set up to make the status quo continue, so I don’t know that I can say anything profound but what I will say is that their challenges are not unique to them. Let me give you a quick example. In the early 1800s; you see I have to go back because we look at these developed countries like they are so smart and all, but that’s not the case. Back in Boston, in the late 1700s, if you wanted anything cold, you had to use ice from lakes, so in winter when it gets really cold, the lakes will freeze over and these people will go to the lake, cut up ice to give to the rich people, typically. An entrepreneur came up with a way to actually sell ice to the average person so more people had ice and so on, but it turns out that when America was moving ice from lakes, you’d imagine that some of those lakes are dirty and some people drink this. So then, there was an uproar, the existing industries lobbied the government stating that it is not good and it leads to bad health, and natural ice is the way and so on. So, we can always expect that to happen, but there are potentially two things that can help; we should pray that everybody in the government has a “come to Jesus” moment, but we have been doing that since independence and it has not resulted in the kind of transformative  progress we want. The second option is, this notion of creating new markets and so you don’t go directly after the incumbent, you go after it in a phenomenon called “non-consumption”. Here, you go after people that are not currently consuming the existing products on the market, maybe because they are too expensive, or they don’t have the technical skills to afford them and so on. It is typical to create a business model that targets these people, the thing is, if you are successful there, you have a vast majority of people, all of a sudden that tends to become the norm, and then the government starts to make money legitimately through this market you’ve created and it is them that actually keep you going, if we go back to use the example of Mo Ibrahim, he didn’t start in the biggest markets, he started off in Mali, Niger, Sudan, Uganda. When he was successful there, he created a signalling effect, now the government in Nigeria and bigger markets are seeing that these smaller markets are making a lot of money from the sales of telco licenses, creating jobs, paying taxes, why don’t we do the same. I can imagine that if he went to Nigeria, my view is that he went to Nigeria, I don’t know, but maybe the Nigerian government wasn’t as open, so he went to where licenses came easier, built his market there, created the signalling effect and now an average person in Nigeria has two phones. It is one thing to look at the market and say let us hit it head on, people are buying generators, people should stop that. No, you have to finesse it and go down market, non-consumption, were people are not buying these products, if you serve that market, it is often usually big and can create this signalling effect, that is the way I will do it, I would try to fight the incumbent, it is too difficult.

So when it comes to eradication of poverty and education, how are you doing your part with regards to using the kind of approach that we have been discussing?

Right now, the organisation has decided to focus on giving out loans. We have some education programmes still going on though. If I was to design a programme from scratch to suit education only, I will think about “where are the skills gaps in my society” and how can I educate people to do something from there. Let me give you a quick example. Every time I visit Nigeria, I have never found a good plumber, a good tailor, these are things people always complain about and the truth is, this is almost a universal problem. So, in addition to going to school, an entrepreneur can create a school that taught people how to do plumbing really well and sign them up to customers, the customers pay a monthly subscription fee that allows them free plumbing in the month but they would also pay for parts; surely you have to run the numbers and see how viable it is, but that is an interesting way to tackle this education problem, it is not just about getting the kids to school. These people start solving these problems of plumbing, tailoring, to electricians, they start branching out on their own, they start their own businesses, doing big contracts for big businesses. It is more like taking the problem from a how do we create a market that pulls in all these skills we need versus we know we need to educate people, let us just educate them and then we hope, which is not working.

If we look at land-grant universities in the US,  like Ohio State University, a lot of big universities in the US were land-grant universities, the pull for those universities wasn’t just to educate people, it was as the industrial revolution was happening, agriculture was becoming more mechanised, more technical, you also had factories springing up. Isaac Singer, who I spoke about earlier was just one example, so they realised that they needed more technical skills to build tooling equipment, to build good factories and then the government saw this happening and decided to invest in schools that do this, not just random schools that will just educate people. So, there was a pull that happened, and I think if we began to think about schools like what is the purpose of school, it will be a lot better.

In chapter 10 of our book, we spoke about infrastructure and we said, what is the purpose of an infrastructure, in which a school is soft infrastructure and so on? You’d find out that the purpose of infrastructure is to store or distribute value in a society as efficiently as possible, from the roads, to the schools, to your healthcare systems, that is the purpose of infrastructure. So, I can build a school, but if the value I am distributing to my student does not enable them to get jobs so that they can become more productive members of the society, then I have not done as well as I think I could.

Before we let you go, I wanted to touch on the whole idea of innovation in the entertainment industry, which is something that Nigeria has excelled at, a lot of people might not think Nollywood is part of that innovation, do you have a different view?

A lot of people might disagree with this but the modern age Nollywood sort of kicked off in 1992, when an electronic salesman stocked his shop with empty cassettes and then started thinking “what do people want to use my empty cassettes for, why don’t I just put a movie in it”, and it was a hit, “Living in Bondage, part 1 and part 2”, it is hard to get the actual numbers but I think they said about half a million copies were sold at the time. That sort of kick-started our Nollywood industry; notice what happened here, it was not the government coming to build an industry for them, or they weren’t trying to copy what was happening in Hollywood and Bollywood, but they felt the African market needed to be served. That was how we started making movies, people would say that they are low budget movies, but I will say that they are correct budget movies because they are serving the market and people enjoyed them. The industry centred around the average African who wanted to share an experience, put people on screen and get something enjoyable out of it, so, it has thrived, now in Nigeria, estimates are saying that the industry is worth $3 billion to $4 billion, with about one million jobs and, this is the beautiful part, the government has taken notice and has begun to take piracy more seriously, even though we have a lot of work to do on that front, and there are about 50 or so film school in Nigeria. In fact, some have partnered with New York film school, so you see the process by which that has happened. You start by targeting none consumption, create a new market and then that market starts to pull in other things into the society, we just have to replicate that in as many sectors as possible. If we do that, our trajectory towards prosperity would be a lot more successful.

In 20 years from now, where do you see yourself, where do you see Africa?

Twenty years from now, I want the African story to be very different. From the numbers perspective I want more people, I tend to focus on poverty numbers, so I want more people to grasp this thing called prosperity, and the thing about prosperity is how do we know that we are getting more prosperous? It is when fewer people think it is worth it to risk their lives by crossing the Mediterranean on little floaters, with their families, when the odds of making it to a country that will reject you are really slim, when fewer people start to migrate like that, then we know we are making progress.

For me personally, I want to be like Apostle Paul in the bible. I want to evangelise this message, I really want the idea of market-creating innovations to be spread all across the world. I think if we understand the concept and the theories that underpin sustainable economic development, in 20 years, Africa can be on her way to a very prosperous continent, we can change the dynamics of how the citizens engage with the government, so the government can realise the benefits that come with making the environment more suitable for enterprise and innovations. If we can achieve that, I see exponential sustainable development.