Seven trips, three insights – Instructor imprints

Next Submission

Three Tipping Points: Finance, Technology, Talent?

(Professor Macomber jmacomber@hbs.edu writes about Immersive Field Course: Africa: Building Cities):

January 22, 2017

I have now been to Dar es Salaam seven times, Addis Ababa six, Nairobi three, Kigali two and Accra one since becoming engaged with HBS IFC Africa and the Harvard University Center for African Studies (also Morocco and South Africa previously). I’ve had the good fortune to meet with Dr. Arkebe Oqubay of Ethiopia four times, Stella Mandago of AfDB at least four times, and to draft three cases and a note.

Compared to what other choice? Ethiopia has a highly ambitious strategy to accelerate its move up the value-added chain from subsistence agriculture to light manufacturing in the next two decades. The Industrial Parks strategy is a way to use the tools of the development state to push industries that might not otherwise be ready, as South Korea did with steel in the 1960s. Does the strategy have a lot of interrelated moving parts that have to all fall into place? Absolutely. Does it lead to dissatisfaction among citizens who are physically displaced or economically not included? The evidence would say yes. Do all the major players know the plan? Yes, it’s in GTP II or basically the second five-year plan. Is it certain to succeed? No. BUT what other better choice does the nation have? To drift and hope that free market direct election capitalism will organically and quickly lift 80,000,000 people? The “invisible hand” might not be that benign.

Information sets you free? Some of the students have worked in search companies and information aggregators like Google or Uber or Microsoft. How in Tanzania can one imagine that sensors everywhere & smart phones everywhere & optimization might help day to day life for, say, the lady in the restaurant who needs 3 hours now to get to work on multiple unscheduled buses? Or the users of electricity and water who don’t have visibility into times of scarcity and surplus? Or the farmers needing credit as well as weather and price projections to determine planting schedules? Or the shipper who wants to get goods from boat to table (or farm to boat) faster? All of those shipping items already carry barcodes…information and data and organization might jumpstart the flow of them all. Downside: fewer paychecks for process bureaucrats. Upside: more economic opportunity for the farmers and waitresses and manufacturing workers upstream (interesting transition phase, with opposing short term interests to be navigated).

Three tipping points? I’ve been testing three ideas in my talks, proposing that there are reasons to argue that the future will be more propitious than the past in terms of opportunity for private finance of public infrastructure in the global south. Remember this is not from the point of view of a capital allocator in the developed world doing due diligence on investments today; it’s from the point of view of an aspirational look over the horizon, say ten years out, raising your eye angle. How might the tools of business help address the big problems of the world?

Tipping Point 1: Finance. There is more capital than ever before, and it is more liquid and is earning almost unprecedentedly low returns today. This capital can get deployed into bankable infrastructure projects. It’s also possible from a technology point of view to directly track an investment. If Fidelity can tell me every 10 minutes what’s happening in my portfolio, a firm like that can also direct investor money straight to an asset – this bridge or that power plant – and manage the operating cash flow waterfall with alacrity. That’s a lot different than taxes or allotments going to governments or multilaterals and never being seen again.

Tipping Point 2: Technology. Above I discussed ubiquitous information, sensors everywhere, and the chance to optimize for user experience and efficiency. In congested emerging market cities, technologies like self-driving cars, “Uber pool,” and augmented reality will help citizens and governments to use existing infrastructure much more efficiently: i.e. something like more throughput across the same tarmac (reducing the need to widen roads and build flyovers).

Tipping Point 3: Talent and the Reverse Diaspora. It’s early days, but my impression is that a lot of Africans with education in the West are thinking, “Now’s the time to come back.” At the same time, I keep running into young African business leaders investing in long term capital assets like manufacturing plants – creating a chance to grow and process and sell goods in country rather that export and import; and dedicating their management skills and assets to jobs and long term value creation rather than short term trading gains or fees for being and intermediary. These kinds of operators also push for efficiency and transparency in government, not for crony transactions. This is just a feel and yet to be proven, but if it’s correct and if it’s at scale, this third tipping could be the strongest of all.

Leave a comment