How Public-Private Partnerships Can Lead to Innovation in Africa

Developing countries typically lack the surrounding ecosystem that is necessary for the launch of innovative products. To fill in this gap, non-profits often have to step in. But this assistance need only be temporary, as market forces can then take over.

Why this matters  Most tech firms incorrectly assume that African countries will not be receptive to their products

The takeaway  Public-private partnerships have been increasingly able to bring innovation to underserved parts of the world

In depth  As C.D Glin, the President and CEO of the United States African Development Foundation (USADF) stresses, the most effective form of economic aid to African countries constitutes not “assistance for assistance sake,” but seed money designed to help jump-start local businesses or even entire new industries. These interventions typically take the form of public-private partnerships.  For example, this past December, USADF partnered with All On, an investment firm affiliated with the Shell Corporation, to improve energy access in Nigeria where market forces alone have been unable to provide power to over half of the country’s 95 million people.  (Off-grid-energy-Nigeria)

Last year, Steve Sonka, a professor of emeritus of agricultural and consumer economics at the University of Illinois, landed a three-year grant from the Rockefeller Foundation to study innovation in the developing world. Sonka stresses that in most African countries, the process of innovation works very differently from how it works in developed countries. “In Silicon Valley, the key ingredient for innovation is just a new idea—say, a new app or widget—that you can bring to market. But in numerous countries in Africa, the surrounding ecosystem that can support the development of new products and services is rarely in place,” he says. “At times, the entire infrastructure has to be built from scratch.”

Like Glin, the CEO of USADF, Sonka argues that the public sector often needs to step in to get the ball rolling. In a recent paper co-authored with Sonali K. Shah, a professor of economics at the University of Illinois and Rajshree Agarwal, the director of the Ed Snider Center for Enterprise and Markets, documented how non-profit funding brought about the development of mobile banking in Kenya in the early 2000s. Using rich archival data, Sonka and his colleagues used this case study of a success story to integrate institutional theory with organizational economics. “We wanted to make a philosophical argument.  Most academic economists think that in the third world, either markets or the government alone can bring about innovation. But these are extreme positions. We show that public-private partnerships are necessary,” adds Sonka.

In 2000, the United Nations Millennium Summit determined that the lack of stable financial institutions was contributing to high poverty rates in sub-Saharan Africa. With fewer than one-fifth of all households having a bank account, obtaining credit was difficult and entrepreneurial activity was often stalled. That same year, to address this crisis, the Great Britain-based Department for International Development (DFID) invested 15 million pounds—an amount which was matched by the private sector. And in 2003, DFID began a collaboration with Vodafone, a multinational telecommunications firm, to provide mobile banking to residents of rural Kenya. This public-private partnership was assisted by Safaricom, a public company in which both Vodafone and the Kenyan government held a significant minority stake. Vodafone ended up devising its own mobile banking platform called M-Pesa (Pesa means money in Swahili). As was the case with the metal silos in Central America, Vodafone had to work with its partners both to address the supply chain and create demand. For example, to build trust among Kenyans, Safaricom launched a massive national advertising campaign on radio and TV that explained how to use mobile phones as well as the M-Pesa platform. By 2009, nearly two-third of Kenyan households were using M-Pesa.  And in 2008, Vodafone launched M-Pesa in nearby Tanzania and in 2012, it expanded the service to eight other African countries. “What is remarkable about this success story,” notes Sonka, “is that this technology is very sophisticated, and residents of Kenya are using a state-of-the-art mobile platform, which many individuals in developed countries are not yet using.”

Sonka and his colleagues aim to change the management practices of both non-profits and private firms interested in working in underserved parts of the world. “Once these public-private partnership can build up the surrounding ecosystem, market forces can do their job, which is to bring innovation to these developing countries,” he says.

Dig Deeper:

https://guardian.ng/news/usadf-all-on-partner-to-invest-in-off-grid-energy-in-nigeria/

https://www.vanguardngr.com/2018/01/usadf-launch-challenge-off-grid-energy/

https://www.irishtimes.com/news/world/africa/how-the-mobile-phone-changed-kenya-1.2646968

https://www.economist.com/blogs/economist-explains/2013/05/economist-explains-18

http://www.cnn.com/2017/02/21/africa/mpesa-10th-anniversary/index.html

Joshua Kendall has written on business and healthcare for numerous publications including BusinessWeek, Fortune.com, The New York Times, The Boston Globe and The Washington Post. For more about his work visit JoshuaCKendall.com.