Loading...

Wednesday, July 21, 2010

Reflections from Ethiopia: Is Philanthropy Killing Africa?


by R. Todd Johnson

I just returned from my seventh trip to Ethiopia and I've been back in the United States for less than 48 hours. After only 120 days spent in Africa, I'm hardly an expert on anything that is happening or has happened there. And yet, I have a few impressions that seem worth sharing, particularly around how business can assist in the elimination of extreme poverty.

While there, I saw some incredibly encouraging relationships and budding opportunities for sustainable business models. For example, products from Stanford's Extreme Affordability course are selling and creating business opportunities for local entrepreneurs. These include the d.light, the Mighty Mitad and, most recently, a budding joint relationship for the production of manual well drilling equipment for rural well drilling businesses targeted for vocational school graduates.

Unfortunately, these are small and isolated examples of business opportunities (outside of the rural staple of subsistence farming and the urban staple of selling retail necessities). More often, instead, I bump into those places where well-intentioned philanthropy produces a long-term, unintended negative consequence. The following are a few examples.

BOGO Should Be A NoGo!

The "Buy-One, Give-One" (or "BOGO") model has become increasingly popular for companies here in the United States, particularly for places like Africa which, over the past decade, has become the "cause du jour." Whether it's shoes, flashlights or computers, you can find many retail products that are produced by U.S. companies (often in Asia) where the purchase price paid by a U.S. consumer includes the cost of sending a second such product to Africa.

"What's wrong with that," you might ask?

On the surface, nothing.

Take shoes, for example. Africans need shoes. In fact, shoes are critical to issues of health, nutrition, education, healthy pregnancies and much more. Take the critical issue of child malnutrition in Ethiopia. Most children there take in too few calories for healthy growth and for healthy education. And when women are malnourished, their under-developed bodies often lead to complicated pregnancies and, in the worst cases, to still-born deliveries after three days of labor and fistulas that leave them incontinent.

So how does that have anything to do with shoes?

Well, let's assume that you could provide the approximately 60 million rural Ethiopians who are living on less than $2 per day with the appropriate levels of nutrition for healthy development, but not shoes. Well, in all likelihood, those Ethiopians would still be under-developed due to the prevalence of worms and other parasites, all of which could be treated with medications, but that would continue to recur if they walk around barefoot through rural areas stepping in animal droppings.

So it's clear -- shoes are important in rural Africa.

Now comes the real issue: Should shoes be donated by Western companies, or should they be produced in country and sold?

This is where the BOGO model, while well-intentioned, appears to me to be hurting a long-term, sustainable solution for Africa.

First, as long as rural Africans have an opportunity to potentially receive free shoes donated by a U.S. shoe company, why would they want to pay for shoes? Second, as long as rural Africans are unwilling to pay for shoes, how can local African shoemakers hope to have a flourishing local business?
The NGO Economy Is Killing Entrepreneurship

Let's face it, we've drifted far afield from the original concept of “charity.” Rather, as a matter of public policy, we instead seem fixated on the idea of tax subsidies for the rich with our tax deductibility system. The result shouldn't surprise us: over time, while philanthropy increases (measured as total aggregate of dollars donated in the form of tax deductible contributions), the world's gap between the rich and the extremely poor grows.

"So what," you might ask? I mean, after all, wouldn't the gap just be much, much worse if there weren't philanthropic dollars flowing to Africa, encouraged by tax deductibility? Just because some people save their charitable giving for museums or building naming rights, doesn't mean that African AIDS orphans would receive more funding if we drew the tax deductibility line closer to charity.

And you would be right, as far as that argument goes. But arguing that we shouldn't be using our tax policy to encourage wealth redistribution doesn't deal with the real learning to be gained from a look at our tax policy, namely that it creates incredible dysfunction of unintended consequences in the developing world by encouraging too much money to Africa in the form of charity and not enough in the form of investment dollars for the creation of businesses.

Outside of direct relief aid and some of the amazing health and education research and development, much (perhaps most) of what is done in the developing world through non-profits and NGO's, could actually be accomplished through a business model, even if it would be harder to raise investment funding. Instead, someone begins selling tax subsidized and donor subsidized water pumps in Africa, because it is easier to raise the funding through tax deductible donations rather than through the rigors of proving out the business model for investment dollars, with the great result of increased deployment of inexpensive water moving technology in the developing world to aid rural farmers, but the negative results of (1) killing the market for future indigenous entrepreneurs attempting to sell water pumps at a profit and (2) locking a potentially valuable distribution channel in a non-profit, making it difficult for other for-profits to use.

And that’s before we ever get to the biggest issue facing the African entrepreneur.

Last year, while in Addis Ababa, I visited with my friend Sammy, an Ethiopian entrepreneur. Interested in how his new venture was going, I've long since learned that if you want the straight scoop from an entrepreneur, you don't ask "how are you doing." They are simply too optimistic to ever provide a meaningful answer. Instead, I asked Sammy about his greatest challenge in his new SMS content platform business. His two word answer? The "NGO economy."

Sammy noted what should have been intuitive to me after so many trips to Africa, that Africans are naturally entrepreneurial -- many have been making something from nothing all their lives, just to stay alive. But what Sammy said next rocked my world.

"Africans don't see a reward system in place for being entrepreneurial. In fact, they view it as a matter of survival, not an opportunity to lift themselves out of poverty. Rather, what they learn at a very early age, is that in order to make good money, they should learn to speak English incredibly well and then maybe, just maybe, they can get a job driving for an NGO. In a few years, if they play their cards right, they might be able to land an NGO job as a project manager and even advance further."

Sammy's point was simply this. As a struggling businessman creating new start-ups, he could not compete with what NGO's were paying for some of the best and brightest. And even worse, he said, "by the time the NGO's are done with them, there isn't an ounce of entrepreneur left."

Add to that, the typical underpaying of talent in the developed world, creating non-sustainable NGO economies in the developing world, and the brain drain that NGO’s create by attracting the best and the brightest away from business to work for NGO’s, you can begin to see some of the dysfunctions that arise from our philanthropic dollars.

And so, it seems right to ask the question:

Is philanthropy killing Africa?

I'd love to know your thoughts.

*Todd is a partner at the law firm of Jones Day, where he founded their Silicon Valley Office and runs their Renewable Energy and Sustainability Practice. The views expressed in this column are solely Todd’s personal views, not the views of Jones Day or its clients, and the information provided as to his affiliation with Jones Day is solely for purposes of identification and may not and should not be construed to imply endorsement or even support by Jones Day of the views expressed herein.

© R. Todd Johnson, 2010. The thoughts, ideas and words expressed in this column are the property of R. Todd Johnson and may not be otherwise used or reprinted without express permission from Todd.

25 comments:

christine said...

First of all, I think the issue of saving lives has to be addressed first, and trying to make life bearable for those who have the least in this life, and how can you sit around and debate this issue, when the human toll is so great? It must be along with the efforts of the government of the host countries to improve the plight of their country that NGOs will be able to step aside and consider entreprenural initiatives as more important. However, the corruption of government in these countries, and their selfish interests also contribute to the poverty in these countries, and if that is addressed in some way, the plight of its citizens will never improve above handouts by philantrophic agencies. It is not such an easy solution to say stop the donations, and let entreprenural strategies thrive. The real issue is the host government issue in my opinion, who themselves are not interested in the condition of their own people.

John said...

Simply put, I have no idea. Having never been, I wouldn't pretend to know one way or another. However, I have researched this concept a fair bit and the concept seems to bear out over time. Whether the aid is monetary or material, it undermines the ability of local economies to grow and evolve naturally much as they have done in other parts of the world. I was fortunate to be born in America but in the (hopefully near) future I hope to take my career to the continent (perhaps Rwanda or Nigeria) and work on creating for-profit business models that will grow the economy and sustainably raise standards of living. As you allude to, so many countries are full of human capital that isn't being fully leveraged, and it's time for a change!

Will Prochaska said...

It's good to see such a well thought through article making these points, particularly about the harm that BOGO can do and the NGO economy killing business in African countries.

There are however new models that are having some success and that are also operated by not-for-profits. To name one, Alive & Kicking, is making BOGO deals on footballs where both the one received by someone in the West and the one given away (responsibly) in Africa are made in Africa, providing valuable income generation. It's an African entrepeurial idea and one that hopes to inspire, and indeed help, other entrepreneurs to start their own businesses. One of the most frustrating parts of Alive & Kicking's work is coming up against NGOs that are sending footballs made in the far-east to Africa, when they could be buying them from indigenous producers.

Perhaps the greatest challenge where Alive & Kicking works in Zambia however is coming against the inflated NGO economy mentioned in this article. It seems to have developed a dependency culture in which the most talented individuals run off to work for large Development Institutions and NGOs. It really is extremely hard to hang onto high quality staff when they can earn double at a large NGO interested in giving handouts.

Dafna Michaelson said...

Todd, I can not tell you how much I appreciate your article. It resonates with me in particular as I look at the non-profit organization I have created to help solve community problems here, at home in America. I wonder to myself if this should be a "for profit" model instead.

I traveled the country in search of problem solvers, the ordinary people in your community who stand up to solve a problem. Many of them chose to create non-profits or NGO's if you will, because here in America we believe that's the way.

When I traveled and spoke to all types of people about the state of poverty in the US we were talking about communities who in many instances have been on federal subsidies for 7 generations, or more. Is this not the same as the African who chooses not to pay for shoes, for why should he if they are going to be provided for him?

I don't deny that the NGO's and non-profits act from a place of genuine concern and belief that what they do will elevate the next generation, but as you pointed out, the unintended consequence is perhaps the smothering of that natural survival instinct which has been the breeding ground of some of the worlds greatest entrepreneurs.

@meganstrand said...

Wow, Todd, this article is a real eye-opener for me on so many levels.

As a former Peace Corps volunteer, the "teach a man to fish" mantra resonates strongly with me and I worry greatly about aid being *given* to poor communities without a plan for sustainability or self-sufficiency.

But reading your post as an entrepreneur, the goal of learning english to work for an NGO and the problem of NGOs snatching up the best and brightest is particularly disturbing. The line that broke my heart the most in this post was this, "by the time the NGO's are done with them, there isn't an ounce of entrepreneur left." Crushing.

So appreciate this article and your perspectives - keep writing!

Olivia Khalili said...

I really enjoyed this piece. As someone trying to shift businesses to look at their social impact and to suppor t social enterprise (in the US and abroad), you asked some important questions and shared observations.

I shared this post with the readers on my blog: http://bit.ly/cvFCEa

Thanks,
Olivia
@OKL

Annette Greiner said...

Great article! I'm aware of a related problem with wheelchair donations. American NGOs frequently donate chairs that work on nicely paved American sidewalks and require unobtainable parts to repair when they break down in real use. A company called Whirlwind helps Africans build rugged, locally maintainable chairs, but they have difficulty competing with the free ones.

kevinfduffy said...

Hi Todd, I read this from a link on Owen Abroad. I'm working in healthcare in Uganda and what I'd like to see is more accessible and affordable financing for those private sector organisations wanting to grow the services they provide. Donors should consider this alongside the more traditional forms of Aid, as outlined recently by the IFC in "The Business of Healthcare in Africa". Kevin Duffy.

Benjamin Geer said...

While it might be true that there is a lack of a reward system for entrepreneurs, and that NGOs are competing with businesses for a small skilled workforce, the insinuation here seems to be that this is all the fault of NGOs, and that if the NGOs disappeared, everything would be fine. Yet NGOs work all over the world, including in rich countries where there are lots of entrepreneurs. Perhaps the difference has little to do with NGOs, and a great deal to do with the role of the state in establishing and enforcing reward systems for entrepreneurs, and in training large skilled workforces.

Adam Shields said...

I agree with many of your thoughts, but you are missing a much bigger piece of that picture. Most developing countries have agriculture as their primary or secondary industry. But the US, and Europe, subsidize our own agriculture at a higher rate than we give development aid. So we are undercutting our development aid by unfairly supporting our own farmers. The book Enough has a good description of this problem.

Beth Land said...

Hi all. I have also been lucky enough to be able to volunteer in Africa for several years and have worked across the continent with several NGOs. The ones with whom I've most closely worked, And Albert (based in the UK) and World Possible (based in California), focus on education and empowerment for self-sustainable quality of life improvement. I invite all interested parties to read more about them at their web sites: www.and-albert.com and www.worldpossible.org

Richard Dew said...

As one who works in another part of the world, but sees much the same as you have described, I struggle with this all of the time. You have articulated well the problem. It is very clear that our current practice of helping is actually hurting and hindering in many, most, or possibly all cases but the level of reform required to get it right seems unattainable. What is the solution? I certainly haven't come up with one, and I am simultaneously reticent to walk away from those in incredible need. Our generation needs to keep talking, keep trying, and to continually put the needs of others ahead of our own... philanthropy, aid, charity, or help that is self-serving in any way, is really no help at all.

James Shelley said...

Excellent post. I have been found it difficult to express why people need to think critically about these issues, especially in relationship to models like child sponsorship, wherein donors have been hooked in by the emotional jugular, and the conviction that $35 does nothing but good in a community.

I recently did a presentation on When Philanthropy Kills and I'd be curious to hear your perspective on this given your experience in Africa.

Thanks again for the post.

Daniela Papi said...

This is the exact same reality we are facing in Cambodia. Moyo's "Dead Aid" agues against the money we give governments in places like Cambodia and many countries in Africa, which aid corruption and stifle responsibility for good governance. We give things away, thinking they will "help" people - but not realizing we are preventing more long-term solutions to rise to the top. Here is a talk I did on the some of the mistakes I have made in this area: http://bit.ly/c5gbRS

Your experience highlights the realities of philanthropy killing the potential for entrepreneurship, both from the way foreign subsidizes social ventures can make it impossible for others to compete and through draining the best brains to work for NGOs due to unsustainable salaries.

Many Cambodians say that their dream job is "to be a volunteer". By that, they might be referring to the fact that many "volunteer" programs, like the UN Volunteer program, pay said "volunteers" multiples of what a local person receives in the same jobs.

Philanthropy is indeed killing Africa, or at least stifling it and many other places as well.

Michael Strong said...

None of the comments have yet brought up the fact that African governments are the most highly regulated economies on earth, making it very difficult for entrepreneurs to start legal businesses and for proper capital markets to form in order to finance those businesses. Ethiopia is ranked 127th out of 141 nations on the Fraser Economic Freedom of the World report, with most of those nations ranked even worse being African. For decades Ghanaian economist George Ayittey has been writing books on how socialism was an alien institution imposed on Africa, destroyiing the indigenous entrepreneurial traditions there. Everything said here regarding NGOs is apt and appropriate, and yet it still shocks me that almost no one who comments on Africa seems to be aware that African remains the region of the world with the most highly controlled economies on earth.

Nate said...

What a thorny issue. In my eyes, Todd doesn't seem to be suggesting that charity should cease--but just that there should be more thought given to this particular unintended consequence.

I'm intrigued by the concept of "Free Zones", wherein indigenous entrepreneurs could be released from certain government and corruptocratic restrictions--but the NGO talent-drain/competition problem seems to be a wrinkle heretofore not much discussed.

Oh, if only we could get away from "charity" aid as a government and stimulate entrepreneurship -- with these kinds of issues kept in mind!

Word-verification: uncest = Against Incestuous Aid Strategies! :)

Andrea Bohnstedt said...

Yes. I'm overstating this, but I find it one of the most poisonous side effects of the sprawling aid industry (and that includes NGOs) that there's an entire generation across the continent that doesn't aim to go into business, but strives to work for an NGO/aid agency. Others have has cottoned on to this, too: lots of fake NGOs set up by enterprising politicians and other well connected to scam off donor funds.

And remember that aid *is* an industry: NGOs won't 'step aside' because that would mean killing their own jobs and portfolios. Who in their right mind would do that? They need poverty. They live off poverty. Linda Polman's War Games is a great read.

NGOs and aid agencies have also gifted us the wonderful development language. Empowerment, stakeholders, capacity building, facilitation and so on. You find that even in the comments to this blog post: In Europe or the US, few people would probably talk about 'sustainable business models'- you'd do your damned best to work out a profitable business model.

Don't get me started on shoes or underwear or recycled hotel soap or teddy bears. Keep it. All readily available in that amorphous entity 'Africa'. Which is a continent full of different and complex economies, yes, often overregulated, or badly regulated, and with weak institutions, and plenty of people doing business. Regular business, too. You know - boardrooms and pinstripe suits and stuff.

Yes, I know I sound ranty.

Greetings from Nairobi,
Andrea

Shataina said...

As a current Peace Corps Swaziland volunteer, this resonates with me incredibly strongly, especially the second section about NGOs. I have so many articles that I plan to write once I'm out of here and I'm allowed to be critical :P But in the meantime, I leave you with this gem: at one point I was at the supermarket and I glanced at the job listings board. Right there was a flier from an NGO advertising a competitive, well-stipended "volunteer" position the same way we'd advertise a part-time job in America ....

Deporis said...

The NGO "business model" is crafted around the donors' objectives.

The truth of the matter is that without poverty somewhere, politicians in the developed world would have a hard time being elected into office.

At the same time, developed country industries would grind to a halt. Especially those with either excessively produced commodities, or those hard to sell. So this is another way of developing markets.

This explains why "subsidized" and tax deductible clothing, shoes, etc, are exported to the developing countries. This is all part of global capitalism.

The blameworthiness of NGOs lies in their being the front for developed country policies.

Talk about "local capacity building" and see how many bricks are thrown at you.

What really worries me is that so many observers have unmasked the duplicity of donor intentions.

I have come to the conclusion that maybe no one really has an intrinsic interest in alleviating poverty. For what are the implications?

z said...

Andrea: "NGOs won't 'step aside' because that would mean killing their own jobs and portfolios. Who in their right mind would do that? They need poverty. They live off poverty."

Sorry to be rude Andrea, but frankly, get stuffed. Do you also think that doctors hope that people get sick? Alternatively, have you ever noticed how hard many NGOs lobby for Disaster Risk Reduction to be mainstreamed by donors and governments so that aid/relief in future will be less necessary?

Back to the main point. The household name nonprofit I work for has five aims. The number one aim is LIVELIHOODS. A not so fancy word for jobs, income, self-determination, market-oriented agricultural activity, all that. And I'm not talking about for our own drivers, I'm talking about correcting market failures (eg infrastructure, providing scale to connect with export) for 100,000 project beneficiaries at a time.

Yes Todd Johnson's argument is relevant for many thimble-sized charities shipping shoes to africa. But don't think that is all that goes on.

Wilfred said...

I see something similar in my line of work. People would rather collect used textbooks from schools in Minnesota, put them on a ship and distribute it for free rather than support local textbook authors.

Dan said...

Is philanthropy killing Africa?
No, but giving in one hand and taking it on the other hand, is.
Africa is just stooge in the biggest laundering scheme running for some time. NGO's sadly are the errand runners.

It is like dejavu. May be people should read "tell all" books, written by veterans of NGO's and people who spent most of their lives in the aid industry.
Some are listed below.

Lords of Poverty
Graham Handcock

War Games: The Story of Aid and War in Modern Times
Linda Polman

The Crisis Caravan:
What's Wrong with Humanitarian Aid?
Linda Polman

Joy Sun said...

Jumping in late bc I've been in China where this blog is censored:

Like Todd, I have seen too many examples in Africa where an influx of aid and philanthropic money has made well-salaried NGO jobs more appealing than higher risk, higher return entrepreneurial opportunities—or private sector jobs in general. However, I have also seen when the work of NGOs does just the opposite. While in Lesotho recently, I discovered that Nohana, one of the most rural, inaccessible and undeveloped villages in the country, had undergone an economic transformation in the four years since I worked with the Clinton Foundation and Partners in Health to revive Nohana’s defunct government clinic. As large numbers of people from a wide catchment area sought out the clinic’s services and began to thrive, the area became a beehive of activity. Where there was only one, Chinese-run shop in town, there is now a slew of tuck shops and food stalls started by enterprising Basotho to cater to people visiting and working at the clinic, as well as the newly built police post next door. Where satellite phones were once the only means of communication, mobile phones are now ubiquitous; Vodacom finally saw enough of a market to justify installing a tower. Community health workers who previously volunteered their time and skills now earn a wage for their work, which they can spend, save and invest as they choose. This ripple effect is remarkable, not least because it was catalyzed by two organizations focused on delivering a "plain vanilla" social service--not even on economic development per se. It’s…an NGO economy, perhaps?

My point in sharing this anecdote: in analyzing the impact of NGOs on entrepreneurship and private sector activity, I’d argue we should (1) be careful not to confuse correlation with causation, and (2) consider the many complex, nuanced factors that may drive the level of entrepreneurialism in a society (and likely are hard for outsiders to really understand). First, the presence of NGOs and a lack of entrepreneurialism could be simple correlation; after all, some societies are just more entrepreneurial than others, as a function of culture, history, educational system, stage of economic development, and many other forces that shape the choices people make. Second, if there is indeed causation, the NGO economy may be just one of many factors dampening entrepreneurship, such as extremely high capital requirements to register a business; corruption that favors the enterprises of the wealthy and politically connected; and taxes and duties that raise the cost of inputs--all of which I also observed in Lesotho. Lastly, it’s worth noting that philanthropic dollars and NGOs can play a vital role in stimulating entrepreneurship, in particular by supporting the poorest and most vulnerable to achieve a level of security that makes starting an enterprise a realistic option that doesn’t risk one’s ability to pay for food or school fees or whatever else is needed to survive and live with dignity.

Do I think that philanthropy has countless unintended consequences, and faces less pressure to identify and manage them than businesses do? Yes. Do I believe that market- and enterprise-driven development will be an increasingly powerful tool for development? Yes! But as I reflect on what I saw at Nohana, do I believe that philanthropy is killing Africa? Absolutely not.

Joy Sun said...

Jumping in late bc I've been in China where this blog is censored. Responding in multiple parts:

Like Todd, I have seen too many examples in Africa where an influx of aid and philanthropic money has made well-salaried NGO jobs more appealing than higher risk, higher return entrepreneurial opportunities—or private sector jobs in general. However, I have also seen when the work of NGOs does just the opposite. While in Lesotho recently, I discovered that Nohana, one of the most rural, inaccessible and undeveloped villages in the country, had undergone an economic transformation in the four years since I worked with the Clinton Foundation and Partners in Health to revive Nohana’s defunct government clinic. As large numbers of people from a wide catchment area sought out the clinic’s services and began to thrive, the area became a beehive of activity. Where there was only one, Chinese-run shop in town, there is now a slew of tuck shops and food stalls started by enterprising Basotho to cater to people visiting and working at the clinic, as well as the newly built police post next door. Where satellite phones were once the only means of communication, mobile phones are now ubiquitous; Vodacom finally saw enough of a market to justify installing a tower. Community health workers who previously volunteered their time and skills now earn a wage for their work, which they can spend, save and invest as they choose. This ripple effect is remarkable, not least because it was catalyzed by two organizations focused on delivering a "plain vanilla" social service--not even on economic development per se. It’s…an NGO economy, perhaps?

Joy Sun said...

Part 2:
My point in sharing this anecdote: in analyzing the impact of NGOs on entrepreneurship and private sector activity, I’d argue we should (1) be careful not to confuse correlation with causation, and (2) consider the many complex, nuanced factors that may drive the level of entrepreneurialism in a society (and likely are hard for outsiders to really understand). First, the presence of NGOs and a lack of entrepreneurialism could be simple correlation; after all, some societies are just more entrepreneurial than others, as a function of culture, history, educational system, stage of economic development, and many other forces that shape the choices people make. Second, if there is indeed causation, the NGO economy may be just one of many factors dampening entrepreneurship, such as extremely high capital requirements to register a business; corruption that favors the enterprises of the wealthy and politically connected; and taxes and duties that raise the cost of inputs--all of which I also observed in Lesotho. Lastly, it’s worth noting that philanthropic dollars and NGOs can play a vital role in stimulating entrepreneurship, in particular by supporting the poorest and most vulnerable to achieve a level of security that makes starting an enterprise a realistic option that doesn’t risk one’s ability to pay for food or school fees or whatever else is needed to survive and live with dignity.

Do I think that philanthropy has countless unintended consequences, and faces less pressure to identify and manage them than businesses do? Yes. Do I believe that market- and enterprise-driven development will be an increasingly powerful tool for development? Yes! But as I reflect on what I saw at Nohana, do I believe that philanthropy is killing Africa? Absolutely not.