US $1 Trillion Opportunity for Africa’s Agribusinesses Says Report

As the world’s population continues to grow – surpassing 9 billion people by 2050, the United Nations estimates – and more and more people move to urban areas, producing enough food to feed this population will be one of the biggest economic challenges and opportunities in the global South.

Africa, a continent undergoing significant economic change, has yet to fully realize its potential as a producer of agricultural products to feed itself and the world. Africa currently has a labour-intensive but very inefficient agriculture system. While many Africans either make their living in agriculture or engage in subsistence farming for survival, much of the continent’s farming is inefficient and fails to make the most of the continent’s rich resources and potential.

A new World Bank report, Growing Africa: Unlocking the Potential of Agribusiness (http://siteresources.worldbank.org/INTAFRICA/Resources/africa-agribusiness-report-2013.pdf), argues that Africa could have a trillion-dollar agriculture market by 2030.

What will need to change to make this happen? African farms will need greater access to capital, as well as more investment in infrastructure and better irrigation. All of these elements will need to dramatically improve if Africa is going to compete effectively in global markets.

The report urges greater cooperation between governments and agribusinesses, farmers and consumers and for all parties to recognize that the continent is being rapidly urbanized, changing the way food is grown, sourced and distributed.

It says Africa’s farmers and agribusinesses require more capital, steady supplies of electricity, better technology and irrigated land. All these resources then need to be applied to the growing of high-value, nutritious foods.

At present, agriculture, farmers and agribusinesses make up almost 50 per cent of Africa’s economic activity, and the continent’s food system is worth an estimated US $313 billion a year (World Bank). But the report believes this could triple if governments and business leaders adopted radically different policies.

“The time has come for making African agriculture and agribusiness a catalyst for ending poverty,” said Makhtar Diop, the World Bank Vice President for Africa. “We cannot overstate the importance of agriculture to Africa’s determination to maintain and boost its high growth rates, create more jobs, significantly reduce poverty, and grow enough cheap, nutritious food to feed its families, export its surplus crops, while safeguarding the continent’s environment.”

The report addresses the problems African agriculture is currently experiencing: slow yield growth for major food crops, slowing research spending, degraded land, water scarcity, and climate change. It looks at solutions to allow Africa to tackle these problems and seize the opportunity to significantly increase its food and agricultural exports.  Africa can more than meet its own needs and meet the world’s needs too, the report argues.

But what can be done? At present, 50 per cent of the world’s uncultivated land suitable for growing food resides in Africa. This works out to 450 million hectares of land that is neither forested, protected nor densely populated – all could be available for growing food.

The report also found Africa is using just 2 per cent of its renewable water resources while the rest of the world averages 5 per cent. African harvests currently do not yield anything close to what is possible. Another weakness is waste from post-harvest losses, averaging 15 to 20 per cent for cereals, and even more for perishable foods, because of poor storage and farm infrastructure.

Areas the report recommends farmers and agribusinesses should focus on include fast-growing markets for rice, maize, soybeans, sugar, palm oil, biofuel and feedstock. In sub-Saharan Africa, the focus should be on rice, feed grains, poultry, dairy, vegetable oils, horticulture and processed foods for the domestic market. And there are also good examples to follow by studying the ways Latin America and Southeast Asia used world markets to boost income and profits.

Agribusiness enterprises looking to purchase more land to expand the number of hectares under cultivation are urged to act ethically and not to threaten existing people’s livelihoods or violate local users’ rights. This includes consulting with locals and paying fair market price for land bought.

Rice is one crop that needs attention. Significant quantities of rice are imported and consumed in Africa. Half the rice eaten is imported, costing around US $3.5 billion a year (World Bank). Big importers include Ghana and Senegal – both countries singled out in the report for needing to improve their domestic rice production and quality.

Another food staple needing attention is maize (corn). A daily food staple for many Africans, it takes up 14 per cent of crop lands on the continent. While most Zambians get half their calories from maize, Zambia is currently unable to export maize at a cost comparable to market leader Thailand – Zambian maize costs one-third more. Zambia was singled out as needing to raise yields, reduce costs, and remove disincentives for the private sector in markets and trade.

“Improving Africa’s agriculture and agribusiness sectors means higher incomes and more jobs. It also allows Africa to compete globally. Today, Brazil, Indonesia and Thailand each export more food products than all of sub-Saharan Africa combined.  This must change,” said Jamal Saghir, the World Bank’s Director for Sustainable Development in the Africa Region.

How to make the most of this opportunity?

One innovative idea coming out of Africa comes from the mega-brewer SABMiller (sabmiller.com). As a sign of confidence in the continent’s growing economies, the brewer has pledged to slash its beer prices and use more African-grown grains – a boost to local farmers – and to start a campaign of opening new breweries for the next three years. Countries targeted include Ghana, Nigeria, Mozambique and Zambia.

“African farmers and businesses must be empowered through good policies, increased public and private investments and strong public-private partnerships,” according to Gaiv Tata, World Bank director for Financial and Private Sector Development in Africa.  “A strong agribusiness sector is vital for Africa’s economic future.”

By David South, Development Challenges, South-South Solutions

Published: May 2013

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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Creating Green Fashion in China

China is the world’s largest manufacturer (Euromonitor) and the largest clothing maker, producing a quarter of all textiles and clothing. It is a global fashion production hub, and many major global clothing brands have their products made there – whether they admit it or not.

Although most people probably do not give it a second thought, the fashion and clothing industries can be highly polluting and exploitive. The use of toxic fertilizers to boost cotton yields leaves behind a legacy of contaminated soil and water tables. Dyes used to colour clothing also can be toxic and pollute water. For people working in this industry – many of whom are women – conditions can vary widely and include low pay and high stress.

According to the Ethical Fashion Forum, “it is difficult for companies sourcing from China to be sure of fair working practices. There have been many reports of low wages, long hours, and unfair working conditions in factories in China.”

But one innovative fashion brand is out to transform the way the garment business works in China and to develop a template that could be used in other places such as Africa.

The design duo of Hans Martin Galliker and Amihan Zemp has set up their clothing brand’s studio in one of Beijing’s historic hutong (alley) neighbourhoods – narrow streets of low-rise buildings that were the traditional urban dwelling environments for generations of Chinese people. The NEEMIC (neemic.com) brand, founded in 2011, makes sustainable fashions and champions green production methods in China.

The business’s belief is that the world has enough fabric already to meet the clothing needs of the population. In response, NEEMIC makes its clothing from a mix of recycled natural materials and new organic materials. According to its website, NEEMIC collaborates “with young designers from London to Tokyo to create a particular metropolitan aesthetic.”

“We use the finest natural fabrics for a perfectly comfortable feel,” Galliker said. “We pick the finest natural materials from leftovers of the industry, recycle used clothes, and strive to order new fabrics only from certified organic producers.”

Hans Martin Galliker began as a farming apprentice in his native Switzerland, and brings a practical bent to his approach to fashion. He draws on his knowledge of farming and agriculture to create a unique eco-conscious fashion product in China.

Galliker got his start in fashion working for a brand in Shenzhen, southern China. He worked with the organic farms there, and this inspired him to explore sustainability in fashion design and ways of introducing the principles of fair trade to the fashion and textile industries in China.

Galliker is passionate about taking a different attitude to fashion: “There are many fashion brands and many of them are … meaningless,” he told the China Daily newspaper. “They do fashion which looks more or less … the same, which has no creativity and does a lot of harm to the environment.

“Growing cotton is highly chemicals and labour-intensive, which degrades the soil and pays people very low salaries. And the dyeing and colouring processes pollute rivers and people receive low salaries but have to work long hours. The whole textile industry is really bad for the environment.”

NEEMIC has completed three collections of clothing since it was founded in 2011.

“We started selling some of our designs at a boutique in Beijing that focuses on upcycling fashion. People like it and want to buy more,” said Galliker.

Upcycling is the process of converting waste material into new products (http://en.wikipedia.org/wiki/Upcycling).

And to counter any negative perceptions that organic cotton clothing can only ever be unfashionable, Galliker is out to prove it is possible to create stylish organic clothing.

On top of building the brand, Galliker also works to educate the industry and change ways. He is also setting up a branch in China of the Hong Kong Organic Textile Association (http://neemic.asia/organic), which encourages fashion designers to jointly buy organic materials. He also publishes a website on sustainable agricultural practices in China, with details on current policies on organic farming.

“It is very normal for Chinese farmers to use many fertilizers, but the environment is going bad and consumers do not like this kind of farming,” Galliker points out. “For farmers, it’s not meaningful to produce only to make money to live a decent life. It should be more than that.”

The NEEMIC operation is lean: the Beijing studio does all the designing of the clothes, programming of the multilingual websites and runs the online shopping and payment sites.

For now, the goal is to not only increase the use of organically grown materials but also to introduce the fair trade concept into China.

“In two years we want to do fair trade production,” Galliker said.

And he has Africa in his sights with his green fashion template.

“In the long term we will have many successful projects here or non-profit companies … a lot of creative force and investment so that we can help rural regions in Africa to do sustainable agriculture projects.”

By David South, Development Challenges, South-South Solutions

Published: December 2012

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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Solar Sisters Doing it for Themselves: Tackling African Light Famine

A social enterprise is seeking to capture the power of the sun to bring light and economic opportunity to women in Africa. Using a direct-marketing distribution system, it sells solar lamps and lanterns to some of Africa’s remotest communities. Solar Sister (www.solarsister.org), launched in Uganda in 2010, is hoping to do for power generation what mobile phones have done for communication in Africa: make a technological leap to a model of grassroots power generation, rather than waiting for large-scale power schemes to eventually reach the poor and rural.

More than 1.7 billion people around the world have no domestic electricity supply, of which more than 500 million live in sub-Saharan Africa (World Bank).

Solar power is being creatively used in many countries to tackle energy poverty and give women, in particular, viable sources of income. In India, whole villages are already using solar energy and improving their standard of living. Various companies and projects are selling inexpensive solar appliances – from cooking stoves to lanterns and power generators – across the country.

A billion Africans use just four percent of the world’s electricity (The Economist). Energy poverty is already harming further economic growth and development gains. With Africa’s population expected to double to 2 billion by 2050, the gap between people’s needs and the power available is stark: in Nigeria, out of 79 power stations, only 17 are working (The Economist).

A report by the International Finance Corporation called the sub-Saharan solar market the largest in the world – a market of 65 million would-be customers, who could access off-grid lighting over the next five years (IFC). The report anticipated high growth rates of 40 to 50 percent for anyone entering the market, with less than one percent of the market currently being served.

Being able to see at night unleashes a vast range of possibilities, such as being able to work or study later. But for the very poor, lighting is often the most expensive household expense.

As Solar Sister founder Katherine Lucey points out, households “rely on kerosene lanterns and candles for light. They spend up to 40 percent of their family income on energy that is inefficient, insufficient and hazardous. Widespread use of kerosene has an adverse impact on local air quality as well as on global climate change.

“Poor lighting, smoke and rudimentary lanterns are responsible for a large number of infections and burn injuries. Within the household, women are responsible for kerosene purchases and use – in order for new clean energy technology to be adopted at the household level, women have to ‘buy in’ to the technology.”

And this is the challenge: to find an affordable – and sustainable – way to bring electricity and energy to people living in remote and rural areas. These are places that face stark options: to remain off-grid and energy poor, or to abandon their communities and join the many millions across the global South on the march to urban and semi-urban areas in search of income and opportunity.

Lucey says that could be “a recipe for disaster”.

“In a country like Uganda, with a population of 32 million people, it is not possible to have them all move to Kampala to access electricity,” she said. “It would overburden already stretched infrastructure and services and disrupt the social and economic structures of an entire population. In the end, it can challenge the stability of entire nations.”

The Solar Sister direct-marketing model works like this: micro-investment capital of US $500 is invested in one Solar Sister Entrepreneur and she receives a ‘business in a bag': a start-up kit of inventory, training and marketing resources. As her own boss, she has a strong incentive to succeed. She uses the money to purchase a consignment of lamps or lanterns, which she then sells, encouraging people to replace kerosene lamps with solar lamps: healthier, safer and better for the environment. She is encouraged to use her existing networks of family, friends and neighbours to reach rural and hard-to-reach customers.

The Solar Sister, after succeeding in selling the first consignment of lamps, then receives training in marketing and inventory and business skills. She can then move on to be a team leader and recruit other Solar Sisters. She earns a commission from the lamp sales, which help to improve her ability to pay for healthcare, education and food for her family. She then repays the cash for the lamps and the cycle starts all over again with a new consignment.

The model will sound familiar to many: it is what has built successful marketing machines like the famous all-women’s make-up and beauty products seller Avon (www.avon.com). Or the other famous direct marketing behemoth, Amway (www.amway.co.uk).

The Solar Sister model is heavily dependent on the success of word-of-mouth to grow:

“What we have found is that the women are the best distribution system for bringing new technology to rural households since they sell through their trusted networks of family, friends and neighbours,” Lucey said. “They use the lamps themselves, and then talk passionately about the benefits: the better light, the money they save by not having to buy kerosene, the amount of time their children are able to study, the cleaner air and safer environment for their kids.”

According to Lucey, the business model “brings solar technology right to the women’s doorstep. The Solar Sister business model developed as a grass-roots solution to the gender-based technology gap. Women make up 70 percent of the rural poor, but are often left out ‘in the dark’ when it comes to technology solutions.”

It is still early days for Solar Sister, which has been in operation for just over a year and now has 107 Solar Sister Entrepreneurs working in 10 teams reaching 34 communities in three countries – Uganda, Rwanda and Sudan. Lucey says the goal is to build a network of 1,500 female entrepreneurs in Africa over the next two years, benefiting over 1 million people.

Apart from the business model and the new technology, there is a radical concept at the heart of Solar Sister: to replicate for electricity generation the distributed and rapid growth that has been seen with mobile phones. In just five years, the availability of mobile phones in Africa increased by 550 percent.

“Distributed energy, such as solar, puts the investment in energy generation rather than transmission, and breaks the problem into smaller, achievable, components that do not have to wait for political processes for implementation,” explains Lucey. “It allows for the possibility that people can solve their own problems rather than wait for government or NGOs to come solve their energy problems for them. Distributed solar has the potential to leap-frog the 20th century grid-based solution, much like mobile phones have done in the telecom industry.”

One of the solar lanterns for sale is manufactured by D.Light Design. Their newest lantern model is called Kiran (http://www.dlightdesign.com/products_kiran_global.php). It sells for US $10 and provides up to eight hours of light on a full battery, its manufacturers say. D.Light Design calls it the “$10 Kerosene Killer” because it believes it has the right mix of price and technology to trump the need to use kerosene lanterns. The lantern gives off a white light powerful enough so people can read, study or do domestic tasks. A solar panel sits on top of the lantern, which is shaped like a drinking thermos with a large carry handle on top.

Other solar lamps/lanterns have been burdened by cost, ranging in price from US $15 to US $30: a prohibitive price for many poor people.

The ubiquity of mobile phone payments in Africa has made it much easier to transfer funds back and forth between the entrepreneurs and Solar Sister. And since its launch, Solar Sister has learned how to change and adapt to local conditions.

“These women are the experts in their local communities of what works and what doesn’t,” Lucey said. “Solar Sister Voila (http://www.solarsister.org/voila-uganda) decided to visit the roadside market stalls at night when shopkeepers were burning kerosene lamps for light. She got their instant attention with the high brightness of her solar powered lamps.

“Solar Sister’s mission is to bring more and more women from the veils of smoke, darkness and anonymity to the forefront of a clean energy revolution.”

By David South, Development Challenges, South-South Solutions

Published: April 2011

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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Food Inflation: Ways to Fight It

Food inflation has taken off at the beginning of 2011. As the global economic crisis enters its next phase, both developed and developing countries are experiencing inflation. There are many factors fuelling the rise in prices – inefficient distribution and storage systems, lack of investment in agriculture, devaluing currencies, high demand, natural and man-made disasters, use of food products like corn to make biofuels – but there are also ways to counter the effects of food inflation that have been tried and tested across the South.

The United Nations Conference on Trade and Development (UNCTAD) says the least developed countries spent US $9 billion on food imports in 2002. By 2008, that amount had risen to US $23 billion. Supachai Panitchpakdi, secretary general of UNCTAD, says “the import dependence has become quite devastating.”

Worse, more people had less money to buy the food. The number of individuals living in extreme poverty “increased by 3 million per year during the boom years of 2002 and 2007,” reaching 421 million people in 2007.

For millions of people, it is a matter of life and death that food remains affordable. The poor pay the largest share of their income on food. Raise that cost, and the poor quickly have little money left for other things, like housing, transport, clothing or education.

Approached as a problem needing a solution, it is possible to deal with a bout of food inflation. Every food crisis has its origins and can be resolved. A staggering amount of food goes to waste every year, and a vast quantity can’t get from the farm to the market in time because of infrastructure problems.

An Indian refrigerator – the ChotuKool fridge (http://www.godrej.com/godrej/godrej/index.aspx?id=1) – is designed to stay cool for hours without electricity and to use half the power of conventional refrigerators. Priced at US $69, it is targeted at India’s poor – a population of over 456 million, almost half the total Indian population (World Bank).

Manufactured by Godrej and Boyce and weighing just 7.8 kilograms, it is designed around the stated needs of the poor, who wanted a fridge capable of cooling 5 to 6 bottles of water and 3 to 4 kilograms of vegetables. Portability was crucial as well, since needs to be moved when large family gatherings take place in small rooms.

As a photo shows (http://innovation.hindustantimes.com/summit-photos/godrej/chotukool-3.php), the fridge looks more like a drinks cooler than the typical large refrigerator. It works by replacing the standard compressor motor found in most fridges with a battery-powered heat exchanger.

In Ghana, a mobile phone-driven Internet marketplace is helping to improve efficiencies in farming and selling food. Esoko (esoko.com/#lang=en), tracks products including ground nuts, sesame, tomato, maize and white beans. It offers market information from Afghanistan, Benin, Burkina Faso, Cameroon, Cote d’Ivoire, Ghana, Madagascar, Mali, Mozambique, Nigeria, Sudan and Togo.

India’s e-Choupal is making food distribution more efficient in a country experiencing high inflation. E-Choupal (http://www.echoupal.com) has developed a reputation for both controlling prices and increasing incomes for poor farmers. Started in 2000 by the major Indian company ITC Limited (http://www.itcportal.com), it links farmers to the latest prices for products including soybeans, wheat, coffee and prawns.

E-Choupal works through computers set up in rural areas and has built one of the largest internet initiatives in rural India, reaching 4 million farmers in 40,000 villages.

Brazil, over the last 30 years, has transformed itself from a food importer to one of the world’s major food exporters. It made these impressive achievements with few government subsidies. The agricultural success is down to Embrapa (http://www.embrapa.br/english) – short for Empresa Brasileira de Pesquisa Agropecuária, or the Brazilian Agricultural Research Corporation. A public company set up in 1973, it has turned itself into the world’s leading tropical research institution. It breeds new seeds and cattle and has developed innovations from ultra-thin edible wrapping paper for foodstuffs that turns colour when the food goes off to a nano-tech lab creating biodegradable ultra-strong fabrics and wound dressings.

Another approach can be found with a farmer in Kenya, Zack Matere, who boosted his potato crop by turning to Facebook for help. On his farm in Seregeya, Matere used the internet to find a cure for his ailing potato crop.

He uses his mobile phone to access the internet at a costs of about US 0.66 cents a day. One example of the kind of intelligence Matere is able to glean from the internet is reports of cartels deceiving farmers by buying potatoes in over-large 130 kg bags instead of 110 kg bags. Matere takes this information, translates it into Swahili and posts it on community notice boards.

Another fast-growing solution is bringing farming to urban and semi-urban spaces, where the majority of the world’s population now lives.

Urban farmers can take advantage of their close proximity to consumers, keeping costs down and profits up. They can also solve one of agriculture’s enduring problems – where to find water for irrigation by using existing waste water. Waste water is plentiful in urban environments, where factories usually pump out waste water into streams, rivers and lakes.

In Accra, Ghana, more than 200,000 people depend on food grown with wastewater. In Pakistan, a full quarter of the grown vegetables use wastewater.

Family farms are critical to weathering economic crises and ensuring a steady and secure food supply. The International Fund for Agricultural Development (IFAD) (www.ifad.org) called in 2008 for small family farms – which sustain the livelihoods of more than 2 billion people _ to be put at the heart of the global response to high food prices and uncertain food security.

In Brazil, this call is being answered by a bold initiative to create a “social technology,” combining a house-building programme with diverse family farms.

This is where the Brazilian farmer’s cooperative Cooperhaf: Cooperativa de Habitacao dos Agricultores Familiares (http://www.cooperhaf.org.br/) steps in.

“We see the house as the core issue,” said Adriana Paola Paredes Penafiel, a projects adviser with the Cooperhaf. “The farmers can improve their productivity but the starting point is the house.

“Family farming is very important for the country – 70 percent of food for Brazilians comes from family farming,” said Penafiel. “The government wants to keep people in rural areas.”

Making farming more appealing is being shown as a great way to get ahead in modern Africa. One woman hopes more people will be attracted to farming and boost the continent’s food security and reduce costly imports.

Cynthia Mosunmola Umoru’s company, Honeysuckle PTL Ventures (http://www.tootoo.com/d-c3015227-Honeysuckles_Ptl_Ventures/), is based in Lagos, the business capital of Nigeria.

Leading by example, Umoru has set up a successful and modern agribusiness focusing on high-quality food products using modern packaging and fast delivery. She produces meat products, from seafood like shrimps and prawns to snails, beef, chicken, and birds. Her niche is to deliver the product however the customer wishes: fresh, frozen or processed.

Radical new food sources are also another option over time. The Food and Agricultural Organization (FAO) has explored insect protein as a contributor to better nutrition, the economics of collecting edible forest insects, methods of harvesting, processing and marketing edible forest insects, and ways of promoting insect eating with snacks, dishes, condiments — even recipes.

The range of insects that can be tapped for food is huge, and includes beetles, ants, bees, crickets, silk worms, moths, termites, larvae, spiders, tarantulas and scorpions. More than 1,400 insect species are eaten in 90 countries in the South. Entrepreneurs in the South are making insects both palatable and marketable – and in turn profitable. These innovations are adding another income source for farmers and the poor, and supplying another weapon to the battle for global food security.

By David South, Development Challenges, South-South Solutions

Published: January 2011

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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Mongolia Looks to Become Asian IT Leader

A Mongolian information technology company founded by a woman has shown a way to thrive in the country’s often-chaotic economic environment. With the global economic crisis moving into its third year, Intec’s strategies to survive and thrive offer lessons for other IT start-ups in the South.

While the global economy’s prospects are still uncertain, on the positive side, many believe the best place to be is in emerging economies like Mongolia, with some foreseeing healthy growth for the next 20 to 30 years. Mongolia’s information technology entrepreneurs are looking to prove this is the case. The country has made great strides in improving e-government – jumping from 82nd place to 53rd in the UN e-government survey 2010 (http://www2.unpan.org/egovkb/global_reports/10report.htm) – and is now aiming to become an Asian software and IT services outsourcing powerhouse.

A Northeast Asian nation (http://en.wikipedia.org/wiki/Mongolia) sandwiched between Russia and fast-growing China, Mongolia grapples with the combination of a large territory, a small population (2,641,216) and limited transport infrastructure connecting it to its neighbours. Historically, it is a nomadic nation with a strong animal herding tradition. But during the Communist period, it industrialized and became more urban. After the collapse of Communism at the beginning of the 1990s, the country experienced a terrible economic and social crisis, with rapidly rising poverty rates and high unemployment.

Despite its infrastructure obstacles, Mongolia has been able to develop a lively information technology sector, often with the assistance of the United Nations. During the late 1990s, as the internet revolution exploded, the UN led on supporting infrastructure, skills development, innovation and legislation.

Information technology consulting and services company Intec (www.itconsulting.mn), founded in 2004, has been able to thrive through the global economy’s ups and downs by identifying an under-serviced niche as a consulting, research and training company. Intec now has five full-time staff and works with a broad network of Mongolian and international consultants.

As is often the case with new businesses, Intec initially found that many doors were closed to start-up enterprises.

“The major challenges which I faced were to make people understand about the consulting services,” said Intec’s founder, Lkhagvasuren Ariunaa. “The consulting services concept was new to Mongolia and Mongolians at that time and not many organizations were willing to work with consulting services. The international and donor organizations were keen to work with consulting services companies; however, they were requiring companies to have a list of successfully implemented projects, which was difficult for a new starter like Intec.

“For example, registering with the Asian Development Bank consulting services database required companies to be operational for at least three years. So, we got registered with ADB consulting services database only in 2008. Meanwhile, personal connections and communication skills helped to find jobs and opportunities for Intec.”

Ariunaa had worked for the Soros Foundation (http://www.soros.org/) but it closed its offices in Mongolia in 2004. Faced with unemployment, Ariunaa went about seeing what she could do next: a dilemma many people face in today’s economy.

“It took me about eight months to develop a business plan and directions of operation of the company. I started in a big room at the national information technology park building with one table, chair and computer.

“It has been quite challenging years for bringing a company to the market and finding niches for us. We have franchised the Indian Aptech WorldWide Training center (http://www.aptech-worldwide.com) in Mongolia – may be one of the few franchising businesses in Mongolia. Currently that center is now a separate entity/company and it has over 20 plus faculty staff and over 300 students.”

Ariunaa had been active in the sector for over 10 years, but while knowing many of the players and organizations, she spent time researching what niche Intec could fill in the marketplace.

“Looking at the ICT market, there were quite a number of internet service providers, mobile phone operators, a few companies started developing software applications, and services etc. However, there were only two to three consulting companies in the ICT sector which to my knowledge at that time were providing consulting services, and still there was a room for Intec.”

Intec then focused on three areas: consulting services, training and skills, and research. Intec found they were pioneering a new concept in Mongolia.

Intec’s first contract was a job with the University of Milwaukee-Wisconsin in the United States to organize a three week course for American students to learn about the digital divide in Mongolia. But the global economic crisis hit Mongolia hard in 2009.

“It was challenging to survive and continue working the same way,” Ariunaa said. “There were few ICT-related jobs in Mongolia at that time, and one of our major clients left Mongolia and we had to find other clients in the market.

“One of the ways of approaching this was that we were not asking for fees, instead we would have a barter agreement – we will deliver them services and they will provide some services for us. For the company itself, we needed to find ways of financing and covering costs for renting of premises, paying salaries for staff on time, paying taxes and other expenses.”

The environment in Mongolia is being helped by the Information and Communications Technology and Post Authority (ICTPA) of Mongolia (http://www.ictpa.gov.mn) , which has been driving forward an e-Mongolia master plan. With 16 objectives, it ambitiously seeks to place Mongolia in the top five of Asian IT nations, competing with South Korea, Singapore, Japan and China.

Ariunaa believes Mongolia has many competitive advantages. “Mongolia is known for a high-literacy rate and math-oriented training and education, and ICT specialists are targeting to become a software outsourcing country for other countries. Another advantage of Mongolians is that they can easily learn other languages: we are fluent in Russian, English, Japanese, Korean, German and we believe that with these two major advantages, we will be able to do a good job with outsourcing of software development.”

While men still dominate the ICT sector in Mongolia, Ariunaa has not found being a woman a disadvantage. “In Mongolia, as gender specialists say, there is a reverse gender situation. Women are educated, well-recognized and well-respected. There were situations, when I was the only women participant in the meeting with about 20 men. But I never felt somewhat discriminated or mis-treated and I think that’s the overall situation towards gender in Mongolia.”

Intec’s success working with Aptech WorldWide Training’s franchising contract brought many advantages for a start-up. “It’s a faster way to do things, and you don’t have to re-invent the wheel.”

As a Mongolian company, Intec has found it best to play to its local strengths. “National companies have knowledge, expertise and experience of local situations, know players and understand about legal, regulatory matters. … partnership or cooperation are one of the means of cooperating with big global players.”

Intec’s success is also down to Ariunaa’s enthusiasm: “It’s fun and I love doing it – just usually do not have enough time!”

By David South, Development Challenges, South-South Solutions

Published: July 2010

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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