Even before the global pandemic began, millions of Africans led incredibly difficult lives. More than 400 million people lived in extreme poverty, and there was a projected shortage of 350 million jobs by 2035. Covid-19 has only made things worse as demand for most of Africa’s commodity based exports to Asian, European, and US markets have dwindled.
Governments have had to redirect the little revenues they had to respond to the pandemic, and taxes have taken a hit as lockdowns have impacted business activity.
The net impact is up to 50 million more Africans will be pushed into poverty this year and next. And as Yinka Adegoke, Quartz Africa editor writes, “Africa’s pathway to economic recovery post-Covid is looking much more murky.” But as Rahm Emanuel, who served as US president Barack Obama’s chief of staff, once said, “You never want a serious crisis to go to waste….an opportunity to do things that you think you could not do before.”
In fact, it’s Africa’s dire economic situation that makes now the best time for the continent’s leaders to reimagine their approach to economic development and take bold steps toward creating prosperity.
Less of the same
Unfortunately, traditional ways of helping African economies, which have focused primarily on providing resources to alleviate poverty, have not created the strong foundation that’s needed to ride out good times and bad. Not only does extreme poverty still persist on the continent, but it’s also increasing. That’s because primarily transferring resources to poor communities creates dependency and deprives communities of the opportunity to develop their own capabilities. It’s inherently unsustainable—as soon as money for a particular initiative dries out, communities are often left no better than they were before the initiative.
Our research has shown a far more sustainable and effective approach to development is prioritizing innovation that targets nonconsumption. Nonconsumption occurs when people are unable to purchase and use a product or service that would help them make progress, typically because it’s too expensive or inaccessible.
Africa is the nonconsumption capital of the world, with more than half of the continent’s population facing food insecurity, and hundreds of millions of people lacking housing, access to healthcare, insurance, reliable electricity, and most importantly hope for a better future. The effects of the Covid-19 pandemic will only exacerbate this nonconsumption, making now an opportune time to develop affordable and accessible products that improve people’s lives.
Although nonconsumption often is seen as a flag of caution, it’s actually an opportunity to innovate. It was nonconsumption that inspired innovators to develop a multi-billion dollar telecommunications industry that now employs millions of Africans; it was nonconsumption that led Tolaram to create an instant noodle retail and wholesale market in Nigeria; and it was nonconsumption that drove the creators of M-Pesa to develop a mobile money platform that helps millions of people transact billions of dollars daily. Innovations that target nonconsumption are called market-creating innovations, and they have the potential to not only help African economies recover, but transform the continent for good.
In our upcoming paper, Avoiding the prosperity paradox: How to build economic resilience in a post-Covid world, we provide innovators with a three-step framework to discover, evaluate, and develop successful market-creating innovations.
Opportunities to launch market-creating innovations abound when innovators uncover the barriers that prevent nonconsumers from purchasing existing products and services. In the book, The Innovator’s Guide to Growth, the authors identify money, skill, access, and time as the main barriers to consumption. Our research on market-creating innovations confirmed this—of the 100 innovators we studied, each had to overcome at least one of those barriers in order to make their products available to nonconsumers. Other signals that suggest nonconsumers’ needs are not adequately being met include workarounds that people use in place of conventional products, and common aversions such as going to a doctor’s office.
Once innovators identify an opportunity to target nonconsumption, their next step is to estimate the size of the potential market. Although it’s difficult to predict the exact size of nonconsumption and how a newly created market will evolve—especially in emerging economies where there’s a dearth of data—innovators can employ a back-of-the-envelope calculation. By determining how many nonconsumers there are in the emerging market and assuming nonconsumers will spend approximately the same percentage of their income on the new product or service as traditional consumers do on existing ones, innovators can get a rough idea of how large the size of the market could be.
After feeling assured the size of the new market warrants their investment, innovators’ third step is to create the market by developing a new value network that can serve nonconsumers profitably. A value network represents the collection of upstream suppliers, downstream channels to market, and ancillary providers that support a shared business model within an industry.
Because nonconsumers look different from existing consumers, new value networks that target nonconsumption necessarily look different. To develop new value networks, organizations must first seek to understand the value network and cost structure used by organizations targeting existing consumers, and then figure out which components must be changed to make their products more affordable and accessible. Instead of waiting for nonconsumers to become wealthy enough to afford existing products and services, every market-creating innovator we have studied—including Sony, Toyota, and Ford, to Celtel, Tolaram, and Safaricom—developed value networks with nonconsumers in mind.
In the context of economic development, what makes market-creating innovations such a powerful lever for inclusive growth is the fact that their outputs—which include jobs, taxes for governments to better serve citizens, and opportunities for other entrepreneurs and investors to participate in the new market—are sustainable since they address a problem nonconsumers need solved. Investing in market-creating innovations in Africa gives the continent an opportunity to rebuild better.
The word unprecedented has been used to describe this pandemic and the havoc it has wreaked globally, and in Africa. What if, instead of continuing to foster an outdated strategy that has failed to eradicate poverty, African leaders used this moment to pause, reflect, and reimagine a more effective approach? Empowering market-creating innovators could lead to unprecedented prosperity in Africa.
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