Monday, June 16, 2008

Aid vs Enterprise

On Emeka's blog, Africa Unchained he mentions an article by Thilo Thielke on Der Spiegel. Thilo's position is that aid to Africa causes more harm than good. While it is difficult to talk in absolutes, there is anecdotal evidence to both support and discredit his position.

After the post election violence, I had an opportunity to visit with quite a few NGOs that were involved in the peace effort in some way or another. I was really impressed with the caliber of people working in these organizations. From a entrepreneur standpoint, I made a mental note to recruit from the NGO World next time I am hiring.

NGOs in Kenya, particularly the well funded "Multinationals" have access to the best talent in Kenya. They renumeration structure is based on Western salary scales. This means that they can afford to hire the best talent in the country, talent that would be a great resource to the private industry. The are some industries such as the mobile phone and the name brand accounting firms that are able to compete, but based on a conversation with an HR manager of one of the multinational car companies in Kenya, hiring and retaining top employees is a huge challenge in Kenya. One might argue that when the best brains are working for NGOs and are interested in alleviating the problems in the country, then they are talent is being applied in the best possible way.

At a conference at Stanford University, Larry Brilliant, Executive Director of Google.org presented on Google.org's work around the World. After the presentation, an Engineering Student at Stanford University who is originally from Ethiopia, approached him and mentioned that Google.org had funded a NGO to provide market data from poor farmers to vendors in the City in Ethiopia. While the idea was noble, there was an existing entrepreneural venture that was already providing the data and hoping to expand nationally. The entrepreneural venture was faced by the unfair competition that was the donor funded NGO. Larry Brilliant was careful to indicate that his organization was not involved and works very hard to ensure that they don't step on small enterprises. This example however, illustrates the risk that a donor funded organization might outspend a local entreprise and nip its success in the bud.

I think that both Aid and private enterprise have roles to play in development. I believe that where possible, private enterprise should be encouraged because it is more sustainable. Aid should come with an expiration date and a clear path to sustainability so that the work and investment done during the "project" doesn't go to waste once the funding runs out.

Saturday, June 7, 2008

Redefining Cash Crops

What is a cash crop? According to Wikipedia, a cash crop is any crop that is grown for money. In Kenya, Coffee, Tea, Pyrethrum etc are the main cash crops. Our grandparents raised our parents on these crops, educated them and built concrete floors using cash crop proceeds. But according to my grandfather who passed away last year, his coffee farm no longer provided cash but rather consumed it. Being a practical guy, I spend very little time following discussions at the World Trade Organization or a gazillion other organizations that seek to level the playing field on farm subsidies etc. I believe these discussions are a critical part of the overall solution, but I also think there needs to be some "hard ball" play so to speak.

How many Kenyans drink coffee? Besides the Java Coffee shop enthusiasts who pay $3 for a cup of Coffee in Kenya, there is a very limited audience for coffee ( happy to take corrections). Most people I know drink tea. So why do we produce such a vast amount of coffee? Because at one time, it was a great crop. It still is, but relative to other crops, its lost is caffeine. I propose we clear 80% of our coffee farms and grow a "real cash crop". Jathropa.

At the risk of simplifying this too far I'll attempt to illustrate; the farmer makes very little money on coffee, spends a fortune on pesticides, fertilizers and labor and gets $.50/lb for his coffee. Per hectare, a coffee farmer's best case scenario is $732 net assuming a conservative 40% cost of fertilizer, labor and pesticides. In contrast, Jathropa is $900 net. The key would be to modify all the local coffee processing plants into jathropa into biodiesel processing plants. The infrastructure exists. Each area near a processing plant has matatus, tractors, lorries, generators and SUVs, all of which would be ready customers for biodiesel and would pay cash for it. No 3 to 6 months waiting period for the farmer to get paid.

These are not scientific figures, but they certainly raise the question of what should we consider a cash crop. And this would have a lot of positive consequences. Suppose the supply of coffee dropped by 80%, those who chose to stay in it could get a better price at the market, they would be calling the shots. Diesel prices would either have to come down from their current ksh 100+ to compete with biodiesel ( Ministry of energy estimates Biodiesel at ksh. 45/litre, I think that is a tard aggressive) or seek customers elsewhere.

And food insecurity would not be an issue for the Kenyan coffee grower.

To put the issue of cash crops in context, a couple of years ago, when the oil price per barrel was at the bargain basement price of $60 per barrel, my company's shipping costs for fresh fruits and vegetables to Paris were 50% of the total delivered value of the shipment in France. I hate to think what that ratio looks like today.

If you are growing coffee for sentimental reasons, like my mother who keeps a couple of cows for the same, or the California guy in Los Altos Hills who has a 20,000 square ft home and 10,000 s/f vineyard, then keep the coffee. If you are interested in a revenue stream, rethink the whole coffee as a cash crop thing.

Renewable Energy

I have been spending a lot of time looking at different renewable energy technologies being developed both in the Bay Area and around the World, and it is quite clear that the revolution is underway and. This is particulary important in the Africa context because of two main reasons, distributed generation and low barrier of entry (specifically in biofuels).

Why is distributed generation important? Because just as the cell phone industry has had rapid adoption, power will leap frog traditional central production and distribution models. Why are low barriers of entry important? Because they ensure viral (sic) adoption.

Some of the biofuel technologies I like include Amyris - developing a similar fuel to traditional biodiesel using yeast, cane juice and a ton of money in capital investment. If I were Mumias, I would track these guys down. Coskata - makes ethanol from garbage including municipal waste. With Kenya mandating ethanol blending, there is an opportunity for an enterprising individual with access to capital to adopt this technology. The biggest advantage would be the opportunity to clean up Kibera and Mathare while making money doing so. In low barrier of entry, while I haven't seen this myself, I have learnt that there are communities growing jathropa, have developed oil press equipment and are making biodiesel that is being used for Kerosene lighting.

Some of the solar thermal energy companies I really like are eSolar
- makes modular solar plants that start at 33MW and are scalable. While this is primarily a utility connection plant, it is a great solution because it is relatively quick in installation and can help bridge the power supply deficit that Kenya currently has. Sopogy is an interesting twist on eSolar. Its plants are much smaller at 200kw and would be an ideal system for rural electrification. Solar thermal is a great technology because it is more efficient than PV and provides a certain level of energy storage. Since land isn't very expensive in most cases, it makes a lot of sense. In urban areas where land is limited, PV plants are a good alternative.

In March, the Kenya Govt. issued guidelines on a Feed in Tariff for renewable energy. Feed in tariff (FIT) is the price that KPLC will pay a power producer for connecting to the Grid and supplying power. FITs have been credited for the phenomenal growth of the solar industry in Germany.

Clearly, what works in the West cannot be photocopied and implemented in Africa. However, innovative business models ( copied from other successful industries such as the mobile phone industry), innovative finance and knowledge. I would love to hear thoughts on a game plan to implement these in Africa ASAP. Engineers, financial engineers, policy experts etc, I am all ears.