“What entrepreneurs and innovators have to do is to think about the kinds of market they can create in the difficult circumstances”
Illustration by Nonso Brendan for The Question Marker
Efosa Ojomo is one of Harvard University’s fast-rising thinkers on innovation and development. His new book, The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty, written with Clayton Christensen, Harvard’s superstar on disruptive innovation, and Karen Dillon, speaks to Nigeria’s present prosperity challenge. The country has been adjudged the World’s poverty capital, with not less than 90.8 million people living below $2 a day benchmark and Nigeria’s handlers appear to be at sea on how to steer the country out of this precarious position.
Recently, I spoke to Ojomo, who engaged me from his Boston base in the United States over the phone. As I rummaged through the interview questions I had sent earlier, I was taken aback by his personal story and the disarming logic of his argument for disruptive innovative in micro and macroeconomic scenarios. He spoke in a calm, piercing voice that was heavy with an American accent.
In 2000, Ojomo left Nigeria for college in the United States and studied Computer Engineering, finishing in 2005. He worked as a Computer Engineer for about 8 years before heading to Harvard Business School. During his eight years as an engineer, he had developed an interest in development issues, after reading a few books. The subject not only intrigued him but also eventually changed the course of his life.
“What I ended up doing in that time was to set up a non-profit organization called ‘Poverty Stops Here’,” he told me. “We came to Nigeria every year, built wells, invested in education and gave out micro loans.”
For many Nigerians in the Diaspora, this would be a good approach to contributing to one’s roots. According to the World Bank, Nigeria is one of the top five countries in the world which receive remittances from its nationals abroad. In 2017 alone, as much as $22 billion was sent back home. But this is largely a drop in the ocean, in addressing the country’s prosperity problem. Nigeria’s disarticulate economy and lopsided political structure gets in the way of development and leads the people to use whatever monies they have to set-up their ‘own government’ – drilling boreholes for water, constructing roads through community effort, and providing personal security either through private firms, or converting the police for personal use.
Efosa set up his charity to solve some of these problems, but found that the problem was quite bigger, or that they needed to be tackled differently.
“I found out that those solutions were temporary,” he said, referring to his aid projects. “They weren’t really moving the people. I thought we had to do something different. That is how I found myself at Harvard. I applied to the Business School, got in and studied Innovation and Business and how they can impact an economy.”
Over the last three years and half, he worked on his new book with Professor Christensen, who is one of the most renowned professors at Harvard, working on Innovation and the Economy. But what exactly is innovation?
“We have to first make sure we are talking about the same thing when we use the word innovation,” he said. “We define what we mean by innovation in the book because it is a word that now has different meaning to different people depending on who you are talking to. Innovation for us means how you change the process of how you use inputs of lower value, basically capital, labour, machinery, personnel and convert it into outputs of higher value.
“This could be something that is really technologically advanced or something as simple as ensuring a predictable distribution channel so that your product gets to the market faster and in a more predictable manner. So, for us, innovation is a lot broader than a shiny, new product that a company just released. It is very specific to the circumstance.”
This definition, which allows for wider application, he explained, are of different types and would mean that instead of just thinking of the word as a product, it could also be applied to constructs as big as a country’s economy.
“When you use that definition, many things can be innovative. After that, you might want to be thinking about the types of innovation and how they might impact different economies,” he said. “We categorize innovation into three different types. The first is what we call market-creating innovations. They are innovations that transform complicated and complex productions into ones that are simple and affordable.”
For market-creating innovations, he cited the mobile phone. He referenced Mo Ibrahim and the early entrepreneurs who introduced the gadgets in Africa over twenty years ago. At this time, Africa was a war zone of sorts, lead by despots and juntas, promising very little in terms of viable markets.
Ojomo noted that Mo Ibrahim and a couple of other cell phone pioneers came and built entire networks and created a business model that made it simple and affordable so that many people could have access.
“They created a new market and drove a lot of economic activity. That is a market creating innovation. Today, that industry supports close to 4 million jobs in Africa, adds about $2 billion economic value, about $20 billion tax revenue and is very relevant in virtually any African economy. But as you can see, the evolution of cell phones started when a new market was created as well as a business model that made it simple and affordable,” he says.
The second type of innovation is sustaining innovation, for making good products better. These are those that make the economy and companies vibrant, but don’t have the same impact on economic growth as market-creating innovation.
The last type, efficiency innovations, is primed to make the economy going, efficient and competitive, and make good products cheaper. For practical purposes, efficiency innovation is captured in the idea of outsourcing manufacturing to lower wage countries or in natural resource extraction industries such as oil production and refining as well as gold and other minerals.
“In Nigeria, for example, the oil business employs about 0.01 per cent of the Nigerian workforce, but it accounts for about 90 per cent of total earnings and over 70 per cent of government revenues,” he said. “The purpose of efficiency innovation is to free up cash flow, but it does not drive vibrant economic growth and development.”
Ojomo told me that the three types of innovation have a place in every economy, arguing that the African economies need to think out of the box in ensuring that the growth figures churned out of the continent reflect the reality.
“When you talk about innovations in developing economies and in African markets, we have to think about that in the context of what innovations and the types of innovation and how they impact an economy,” he said. “Many innovations are targeted at the rising middle class and the growing African economy, but really, those are sustaining innovations. They are targeted at people that companies believe are going to start making more money and have more disposable income. But those innovations are not going to create the robust economic transformation that these economies need.”
He continued, “Case in point, this year there is a data that shows that five of the fastest growing economies are going to be in Africa. At the same time, many African countries are having a rising debt issue. So, when you think about efficiency and sustaining innovations, they affect the Gross Domestic Product (GDP) numbers and allow you grow from a numbers standpoint, but they don’t have a robust impact on the economy. So you can grow, but you will have significant debt issues because not as many people are employed. The economy is not vibrant. So, it is important to understand how different types of innovation impact on the economy.”
He made particular reference to non-consumption and how certain phenomena have held Africans back from progress. Phenomena number one: Electricity.
“Electricity is a big problem. We don’t have access to electricity in many African countries and the ones that do, it is load sharing and power goes out. If you want to tackle that problem, instead of thinking about it as an electricity problem, you have to ask what do people need or use electricity for and how can I develop a product or service that makes that thing accessible to them. When you start to think like that, it changes the way you innovate around an electricity problem. All of a sudden that begins to look like an opportunity.”
Ojomo made particular reference to Kenya and a company called M-Kopa. The company creates a solar box product that provides, not just electricity, but particular products that meet local needs and which are powered by electricity.
“So they provide a solar box that would give you lighting, charge your phone, give you access to run your fan and over time, they begin to add more features so the box begins to let you power your TV, a DVD player, then two fans. So, with that you see how they have taken a problem – that is, lack of electricity – and created a product or service that they sell and a business model that goes along with it, that makes it accessible.”
Ojomo first caught my attention when he studied the business model of a noodle company in Nigeria, the Tolaram Group, whose products can be found in virtually all market stores across Nigeria. The company, Ojomo’s studies showed, had developed a market-creating innovation that created a sub-sector in the food and beverage market. Along with this, it also built an expansive distribution network to reach far-flung communities and ensure efficiency in distribution.
When I asked him about this study, he was quick to quip a reply and went on to give reasons for why Nigeria should encourage more of such companies.
“An economy like Nigeria’s and many other low and middle income economies in the world is going to start thriving when more Tolaram-type companies are created,” he told me. “So, the economic managers are – and this is applicable across board, in an economy – often not loved. At times, people complain about them. In the US and every other country in the world, people complain about economic managers. There is either too much regulation or there are not enough tax breaks and credits and so on. That is a given.
“What entrepreneurs and innovators have to do is to think about the kinds of market they can create in the difficult circumstances. If they depend on economic managers, we are never going to make progress. We have been blaming economic managers since the 1960s when we got independence and we are still blaming them today. It tells you that we have to change our model.”
I was curious to know what Ojomo thought about the tech start-ups in Yaba, which seemed to have emerged as the new darlings of venture capitalists from the West. In January, tech startup, Andela, announced a $100 million in series D funding.
But Ojomo was cautious. “Let me answer that question by asking you how many products or services you have bought from companies that work from Yaba,” he said. “How many of the products do you consume? Though you don’t have to be in Lagos to enjoy the services of products that the companies in Yaba work on. Indomie noodles is headquartered in Lagos, but people across Nigeria eat it daily. That is the way you have to measure impact. It is all about access. Who are the companies in Yaba targeting, how successful have they been with their customers?”
He said that the idea of an ecosystem was amazing, but it is only as amazing as its relevance to the people it is trying to serve. To him, if the eco-system in Yaba is not addressing Nigerian problems, and subsequently, major African problems, then it is just a lot of motion without progress.
To get Nigeria to industrialise, Ojomo believes government has to focus on market-creating innovations and search for industrialization policies with the concept in mind. He says if the country focuses on exports, it must be understood that exports can only give short-term advantage until a lower cost manufacturing country comes around.
“For a country like Nigeria, exports can’t be a long-term strategy. We can build one or two manufacturing hubs here and there that manufactures products cheaper, but the minute Ghana or Ivory Coast starts manufacturing the same product cheaper, then we lose that competitive edge. But it is very difficult for Ghana to start exporting Indomie noodles to Nigeria. So, I think you can industrialise, but if you are not focused on market-creating innovations as you industrialise, you are going to have short term gain.”
He cited the example of Lesotho, which in the year 2000, began to industrialise, taking advantage of what’s called the Africa Growth and Opportunity Act (AGOA) and was exporting a lot of textiles. However, when a World Trade Organisation (WTO) deal was signed that allowed Asian countries to begin exporting textile to Western countries, Lesotho lost about a quarter of that business.
“Of the 50,000 people who had jobs, 15,000 lost their jobs. It impacted the economy significantly,” he said. “You can see how that kind of industrialization policy can adversely impact an economy when it is not thought about holistically as a market creating innovation opportunity.”
On foreign aids, he was quick to note that aid cannot and would not answer all of the problems of society, noting that if the programs do not promote employability and wealth creation, they are irrelevant and designed to shortchange the people.
“It is a very strong statement, but it is very real. Think about the billions of dollars that is going to many African countries building schools, hospitals and roads; where has that gotten us? Some poverty numbers have improved but you can you tell me how many people are looking for work? They might have gone to a school that was funded with aid, how has that permanently impacted their lives? It has not. How has their going to a school that may strike or not, or teach them skills that may be relevant or not impacted their lives? What is the point of that if it doesn’t get them gainful employment where they can take care of themselves, their families and really live productive lives? Aid can make you think that you are succeeding but it is temporary. It is not bad, but we have to think about the impact.” ✚
Onyewuchi is a co-editor at The Question Marker.
