Capitalism in Africa

In the article How Misinformed Ideas About Profits Are Holding Back the World’s Poor, the author presents an interesting perspective on how for profit companies can help alleviate poverty in Africa. In particular, Hugh Whalan talks about how for profit companies can help erode the poverty penalty by increasing products and services to these consumers, which in turn will increase competition and ultimately bring down price. In Asia, there is a similar model called “inclusive business”, where for profit companies embrace a core business model that provides largescale innovative solutions to the problems of the people who live on less than $3 a day [1].

Inclusive business focuses on systemic changes for the poor and de-emphasizes impact on the environment or good governance. An example of this business model is The Manila Water Company – after it took over as the public water provider for eastern part of Manila, instead of focusing on wealthy or middle class neighborhoods, the company prioritized serving slum areas. The company ultimately connected millions of people with water, and also made significant profits.

It is clear from the above that for profit companies can help the world’s poorest population; however, it is difficult to attract companies to enter these markets. At first glance, the world’s poorest population does not seem like a profitable sector as there is a lack of infrastructure, political instability, a shortage of skilled workers and corruption [2]. Furthermore, in Africa it is documented that there is a 74% failure rate for startups [3]. In order to solve the poverty penalty and stop existing businesses from taking advantage of the poor, how do we help startups and smaller companies overcome difficulties of conducting business in Africa? How do we encourage bigger companies that have the resources to overcome barriers to sell their products in Africa?  And if they do enter the market, how do we get them to price their products responsibly? Without the dissolution to these barriers, companies will not want to enter the market in Africa and the poverty penalty will persist. 

[1] https://www.adb.org/features/asian-companies-making-profits-and-helping-poor
[2] https://www.investec.com/research-and-insights/insights/forward-curve/africa--continent-of-opportunities-and-challenges.desktop.html
[3] https://vc4a.com/blog/2011/09/12/why-do-african-startups-fail/