Serving the World’s Poor, Profitably – A Personal Critique in the Liberian Context

This article is my personal synopsis of a recently read article written by C.K. Prahalad and Allen Hammond and included in the September 2002 Edition of the Harvard Business Review, its titled Serving the World’s Poor, Profitably. This is neither an academic exercise nor a critique backed up by published academic sources but rather a personal critique given my past experiences within the country of Liberia, a country currently digging itself out of 14 years of bloodshed and civil war.

Throughout the article the authors try to prove, or it seems like they’re really taking a first stab at trying to prove, that it may indeed be profitable for multinational corporations (MNCs) to enter and invest in some of the world’s poorest markets.

Firstly, the authors make a very bold statement when they assume that, in an “all-goes-best” scenario of foreign investment, “The resulting decrease in poverty produces a range of social benefits, helping to stabilize many developing regions and reduce civil and cross-border conflicts.” I totally agree with them when they say that decreasing poverty produces a range of social benefits. If poverty is reducing, the social masses stricken by poverty will, by default, benefit in one way, shape, or form. Increased income would lead logically lead to better nutrition, transportation, and communication which in the end increases the quality of life of any individual. What I would tend to question would be the notion that is made that decreased poverty would reduce civil and cross-border conflicts. Does “poverty’ ultimately lead to violence or are there invariably other facts that play a role, especially in the Liberian context? In the Liberian context one could argue that the following factors would also play a role in violent behaviour: greed, lust, a western judicial system super-imposed over that of a tribal system, endemic corruption, and the deadliest of all sins – pride.

Under the heading “Untapped Potential” the authors pinpoint the exact problems Liberia is facing today in their fight for foreign investment and commerce abroad: corruption, illiteracy, inadequate (or almost non-existent) infrastructure, currency fluctuations (Liberia’s aren’t too outrageous but the threat is always there like many other developing countries), and bureaucratic red tape. As I read this article, a very optimistic outlook of the under-developed world, I was waiting for the disclaimer that the authors strategically placed at the end of the article, “All of the strategies we’ve outlined here will be of little use, however, unless the external barriers we’ve touched on – poor infrastructure, inadequate connectivity, corrupt intermediaries, and the like – are removed." Liberia is a country very rich in natural resources: iron ore, diamonds, gold, timber, and distinctive beauty. It will take extensive human and physical capital investment on the part of MNCs in order to exploit the endowments that have been placed within Liberia. It will take an even larger investment by the government of Liberia and citizens as a whole to attack the problem of corruption and poor infrastructure. Its time for Liberians to take ownership of the problems they face. There is one key element to the whole equation and that is confidence on the part of investors, its just not there.

I like the idea of targeting aggregate demand brought on by the “shared access” model, a model that disaggregates “access” from “ownership”. Elements of this model are currently being practiced on a small scale in Liberia and the example I will spotlight is that of cell phone battery recharge centers, or better known as “small small business centers”. It doesn’t matter which little town you drive through in Liberia you are guaranteed to find a little business center that you can plug your cell phone in to recharge its battery. I’m not exactly sure how the business owner can pull a profit from this operation but I’ll wager a guess. I would imagine that there would be a few power bars lined up all connected to a small generator. I would also imagine that they would only run the generator for maybe an hour or two or as long as they can keep the power bars at maximum capacity. Since a small generator may burn through a quarter of a gallon of gasoline (approximately $3USD/gallon) and a small amount of oil an hour, the total cost of running the generator for those two hours would be just under $2USD. If the business person is charging $10 Liberian Dollars (LD) per hour charge, at an exchange rate of 55LD:1USD, they would only need to be charging five phones per hour to break even. As one breaks down the analysis it is clear to see that this could very well be a profitable venture for a small small business center. Poor people, rather than buying their own generator can use a “public” generator on a pay-per-use basis. As the authors point out, “Shared access creates the opportunity to gain far greater returns from all sorts of infrastructure investments.” From my experience I would say, at least on a local level, that the shared access model can, and does, work. How far the shared access model can be taken by MNCs in the Liberian context still remains to be known.

In what capacity or industries can the shared access model provide the most benefit to the people of Liberia? How long will it take for those crucial elements (corruption, illiteracy, etc) to be rectified and will another, better, model be discovered that can profitably operate within the current context? These are all questions that need to be asked and I’m not sure if anyone currently has the answers.