Reflections from Ethiopia: Is Philanthropy Killing Africa?

I found this article fascinating.  It spotlights a very tough but necessary discussion.  When does "charity" stifle entrepreneurial effort and economic growth?  Is it that saying "Give a man a fish, he eats for a day.  Teach a man to fish, he eats for a lifetime"?  Todd Johnson seems to suggest that too much NGO involvement can stifle an economy.  It feels counter-intuitive, after all, NGO's are often at the front of the battle line against disease and despair.  Although it also reminds me of the "micro-lending" that I have taken part in where you put up a small amount of money to loan to an enterprise in a developing country and the business pays back the loan with a small amount of interest, meanwhile allowing the business to flourish and grow.  This is one that will be thought provoking and like Todd, I welcome your comments.  Bunnie.

Reflections from Ethiopia: Is Philanthropy Killing Africa?

by R. Todd Johnson*, Partner, Jones Day

I just returned from my seventh trip to Ethiopia. After only 120 days spent in Africa, I'm hardly an expert on anything that is happening or has happened there. And yet, I have a few impressions that seem worth sharing, particularly around how business can assist in the elimination of extreme poverty.

While there, I saw some incredibly encouraging relationships and budding opportunities for sustainable business models.  For example, products from Stanford's Extreme Affordability course are selling and creating business opportunities for local entrepreneurs. These include the d.light, the Mighty Mitad and, most recently, a budding joint relationship for the production of manual well drilling equipment for rural well drilling businesses targeted for vocational school graduates.

Unfortunately, these are small and isolated examples of business opportunities (outside of the rural staple of subsistence farming and the urban staple of selling retail necessities). More often, instead, I bump into those places where well-intentioned philanthropy produces a long-term, unintended negative consequence. The following are a few examples.

BOGO Should Be A NoGo!

The "Buy-One, Give-One" (or "BOGO") model has become increasingly popular for companies here in the United States, particularly for places like Africa which, over the past decade, has become the "cause du jour." Whether it's shoes, flashlights or computers, you can find many retail products that are produced by U.S. companies (often in Asia) where the purchase price paid by a U.S. consumer includes the cost of sending a second such product to Africa.

"What's wrong with that," you might ask?

On the surface, nothing.

Take shoes, for example. Africans need shoes. In fact, shoes are critical to issues of health, nutrition, education, healthy pregnancies and much more. Take the critical issue of child malnutrition in Ethiopia. Most children there take in too few calories for healthy growth and for healthy education. And when women are malnourished, their under-developed bodies often lead to complicated pregnancies and, in the worst cases, to still-born deliveries after three days of labor and fistulas that leave them incontinent.

So how does that have anything to do with shoes?

Well, let's assume that you could provide the approximately 60 million rural Ethiopians who are living on less than $2 per day with the appropriate levels of nutrition for healthy development, but not shoes. Well, in all likelihood, those Ethiopians would still be under-developed due to the prevalence of worms and other parasites, all of which could be treated with medications, but that would continue to recur if they walk around barefoot through rural areas stepping in animal droppings.

So it's clear -- shoes are important in rural Africa.

Now comes the real issue: Should shoes be donated by Western companies, or should they be produced in country and sold?

This is where the BOGO model, while well-intentioned, appears to me to be hurting a long-term, sustainable solution for Africa.

First, as long as rural Africans have an opportunity to potentially receive free shoes donated by a U.S. shoe company, why would they want to pay for shoes? Second, as long as rural Africans are unwilling to pay for shoes, how can local African shoemakers hope to have a flourishing local business?

The NGO Economy Is Killing Entrepreneurship

Let's face it, we've drifted far afield from the original concept of “charity.” Rather, as a matter of public policy, we instead seem fixated on the idea of tax subsidies for the rich with our tax deductibility system. The result shouldn't surprise us: over time, while philanthropy increases (measured as total aggregate of dollars donated in the form of tax deductible contributions), the world's gap between the rich and the extremely poor grows.

"So what," you might ask? I mean, after all, wouldn't the gap just be much, much worse if there weren't philanthropic dollars flowing to Africa, encouraged by tax deductibility? Just because some people save their charitable giving for museums or building naming rights, doesn't mean that African AIDS orphans would receive more funding if we drew the tax deductibility line closer to charity.

And you would be right, as far as that argument goes. But arguing that we shouldn't be using our tax policy to encourage wealth redistribution doesn't deal with the real learning to be gained from a look at our tax policy, namely that it creates incredible dysfunction of unintended consequences in the developing world by encouraging too much money to Africa in the form of charity and not enough in the form of investment dollars for the creation of businesses.

Outside of direct relief aid and some of the amazing health and education research and development, much (perhaps most) of what is done in the developing world through non-profits and NGO's, could actually be accomplished through a business model, even if it would be harder to raise investment funding. Instead, someone begins selling tax subsidized and donor subsidized water pumps in Africa, because it is easier to raise the funding through tax deductible donations rather than through the rigors of proving out the business model for investment dollars, with the great result of increased deployment of inexpensive water moving technology in the developing world to aid rural farmers, but the negative results of (1) killing the market for future indigenous entrepreneurs attempting to sell water pumps at a profit and (2) locking a potentially valuable distribution channel in a non-profit, making it difficult for other for-profits to use.

And that’s before we ever get to the biggest issue facing the African entrepreneur.

Last year, while in Addis Ababa, I visited with my friend Sammy, an Ethiopian entrepreneur. Interested in how his new venture was going, I've long since learned that if you want the straight scoop from an entrepreneur, you don't ask "how are you doing." They are simply too optimistic to ever provide a meaningful answer. Instead, I asked Sammy about his greatest challenge in his new SMS content platform business. His two word answer? The "NGO economy."

Sammy noted what should have been intuitive to me after so many trips to Africa, that Africans are naturally entrepreneurial -- many have been making something from nothing all their lives, just to stay alive. But what Sammy said next rocked my world.

"Africans don't see a reward system in place for being entrepreneurial. In fact, they view it as a matter of survival, not an opportunity to lift themselves out of poverty. Rather, what they learn at a very early age, is that in order to make good money, they should learn to speak English incredibly well and then maybe, just maybe, they can get a job driving for an NGO. In a few years, if they play their cards right, they might be able to land an NGO job as a project manager and even advance further."

Sammy's point was simply this. As a struggling businessman creating new start-ups, he could not compete with what NGO's were paying for some of the best and brightest. And even worse, he said, "by the time the NGO's are done with them, there isn't an ounce of entrepreneur left."

Add to that, the typical underpaying of talent in the developed world, creating non-sustainable NGO economies in the developing world, and the brain drain that NGO’s create by attracting the best and the brightest away from business to work for NGO’s, you can begin to see some of the dysfunctions that arise from our philanthropic dollars.

And so, it seems right to ask the question:

Is philanthropy killing Africa?

I'd love to know your thoughts.

*Todd is a partner at the law firm of Jones Day, where he founded their Silicon Valley Office and runs their Renewable Energy and Sustainability Practice. The views expressed in this column are solely Todd’s personal views, not the views of Jones Day or its clients, and the information provided as to his affiliation with Jones Day is solely for purposes of identification and may not and should not be construed to imply endorsement or even support by Jones Day of the views expressed herein. © R. Todd Johnson, 2011. The thoughts, ideas and words expressed in this column were originally posted on Todd's Business for Good (sm) blog at www.businessforgood.blogspot.com, and are the property of R. Todd Johnson and may not be otherwise used or reprinted without express permission from Todd.