Business/Finance

Tackling poverty means that there will be more KFCs in Africa

Photo credit: CIMMYT.

Smallholder farmer prepares maize plot for planting with CIMMYT improved varieties, Embu, Kenya

Gates Foundation and KFC initiatives are better news than many understand.

Rural villages in Africa are not just poor, their demography is hollowed out.

Men go to the cities or nearest mines in order to seek work. From their tiny wage packets, money is sent home. Their wives, daughters, and elderly parents, remain behind to work the land and eke out a living.

Land title insecurity keeps farms small. If a family had clear title to their land, they could sell it or rent it to others. However, to maintain continued title they have to keep working it, no matter how inefficiently. That splits up families for years at a time and fragments earning power.

The World Bank estimates that almost 200 million migrants send home over US$350 billion to developing countries each year. In Africa, about 20% of that is spent purely on transaction fees.

Poverty is horrible and unpleasant, yet many subsistence farmers produce far less than they should be able to from their land. There are a number of reasons for this, ranging from the reducing yields as a result of climate change to the more immediate of a lack of integrated distribution infrastructure.

Sub-Saharan Africa sees food lost as a result of handling, storage and distribution [i.e. the stuff that happens between the farm and the wholesaler] of 545Kcal/capita/day. Cereal yields are about 40% what are achieved in the rest of the world. There is much research that aims to explain why.

In Africa, 23% of food is wasted before it gets to consumers. 30% of the population is suffering from malnutrition. The inefficiency in production shows that farmers could produce more but do not.

There are many reasons why governments in Africa do not invest and subsistence farmers do not produce. One of the primary reasons is the “everything” problem. If farmers could get a decent price for what they produce they would produce more. If they had access to a banking system where they could save their money and invest they would be happy to earn more. If more goods were distributed then there would be more reason to improve roads and build storage infrastructure. Investors will not come without a measure of existing infrastructure.

This does not happen because everything must be done at once. And that is extremely expensive, especially in countries with limited rule of law, weak technical capacity and fragmented accountability. Worse, getting everyone to coordinate their efforts is hard.

All of this to indicate that the problem of poverty in Africa is both well-researched and understood. To date, though, doing something about it has been fraught.

Tackling poverty

OXFAM, a development charity with revenues of about $600 million a year, has declared that the world’s 85 richest people are as wealthy as the poorest 3.5 billion in the world.

Implicit in this is that the rich should be doing something.

I’ve got a long-running problem with demanding that the 1% do anything to “fix” problems. No-one elected them to do this and merely being lucky in getting wealthy (yes, of course they’re smart, but getting that wealthy involves an inordinate amount of luck) does not qualify them to know what to do, or have the authority to do so.

Only freely and fairly elected governments (and that includes freely and fairly elected members of parties not currently in government, but in power) have the authority to represent the interests of their people.

Governments of sovereign states, elected through universal suffrage by their people, do not then have the right to impose policies on other sovereign governments elected by other groups of people.

How much more so would this count for people who are not elected by anyone, irrespective of how much money they have?

For decades, though, that is how poverty relief has worked. Governments and donor agencies have turned up in impoverished sovereign nations and imposed economic systems that didn’t work, built hospitals without doctors or nurses, or thrown trendy agricultural projects at them that turned to dust.

If you were really unfortunate, Bono would materialise and lecture you on economics.

What did not happen was a process of engagement.

That has decisively changed. I believe it was the Millennium Development Goals which did it; metrifying objective outcomes in different countries and permitting researchers to assess what was different in different places.

Along with that has come the realisation that international organisations should work together and be subject to the governments of sovereign states during their interventions. Bill and Melinda Gates’ tremendous 2014 annual letter states exactly how much aid is helping.

In answer to corruption in aid as a reason to shut it down, Gates responds, “Four of the past seven governors of Illinois have gone to prison for corruption, and to my knowledge no one has demanded that Illinois schools be shut down or its highways closed.”

In the past year, I’ve spent time with the World Bank in Nigeria, DFID in Pakistan and the UN Environment Programme. Each organisation has placed local stakeholder engagement and leadership at the forefront of their programs. Every project is measured against requirements specified by local government, including the immediate beneficiaries of any program.

It’s a fascinating process to watch and tells me just how far we have come in the 20 years I’ve worked in the development sector. It’s wonderfully encouraging.

The 85 people flagged by Oxfam are certainly wealthy, but what are they doing with their money? Let’s name a few: Bill Gates, Warren Buffet, Michael Bloomberg, George Soros – some of the largest charitable donors in the world facilitating billions of dollars in aid every year. This list is hardly a static world either. Mark Zuckerberg and Sergey Brin are on that list.

More importantly, bear in mind that these people own companies – the source of that wealth – that collectively support the employment of several billion people around the world.

Calling them out seems somewhat meaningless, but I’m relieved that these wealthy people have been quite methodical about how they go about financing their charitable endeavours.

Michael Bloomberg, for example, single-handedly financed the initiation of what has become the WHO SORT-IT program which conducts capacity building in public health, teaching local researchers how to reuse existing research data to produce new and meaningful public health outcomes.

And, yes, that list does include the Koch brothers. Which brings us to…

The Gates Foundation and KFC in Africa

Alex Park, writing at Mother Jones, leads with “How Bill Gates Is Helping KFC Take Over Africa.” He makes a complex argument, and it’s difficult to tell what Park is complaining about, but let me summarise.

The astonishing economic growth over the past decade has led to increased urbanisation. Instead of heading to South Africa to mine, Kenyans, Zambians and the like now mine at home and live in their own cities. Chicken is a popular dish across most of Africa, being a relatively cheap source of protein.

Anyone who has eaten in rural villages in Africa knows about the run-to-death chickens and very limited carbohydrate-based diet. Africans aren’t eating artisanal breads, rare heirloom grains, or hand-reared organic salads in any quantities.

Companies like KFC require much higher quality products, including traceability of the food safety of their inputs. Buying from small subsistence farmers won’t do.

In order to expand in Africa, KFC must have a steady supply of high-quality produce, including chickens. And they will need to be locally sourced. That’s tremendous for local investment, but it needs to be kickstarted.

How then to turn thousands of tiny subsistence farms into a collective able to supply high-standard produce? Good thing it’s been done before.

Amul Dairy has organized over 10,000 village cooperatives bringing more than 10 million litres of milk to market daily, which makes them the leading player in the Indian milk industry. For many of India’s rural poor, daily milk sales from the few cows they own is an essential part of their income. Each day, milk is collected no more than 10 miles from the farmer, with a nationwide, decentralized, collection process. Amul developed a computerized quality testing machine, which makes the process transparent and fair to the farmer, and buys exclusively from women—a decision which has increased the status of the women, while developing a positive brand image for India’s largest food products business.

According to Monica Raina of the United Nations Development Program, “A milk producer becomes a member by buying a share of the co-operative after agreeing to sell milk only to it. Members elect a managing committee headed by a chairperson responsible for recruitment of staff in charge of day-to-day operations.”

Such forms of cooperative business have assisted to create economic prosperity not only in today’s emerging markets, but also in the more developed north.

In 1913 over two million Germans were members of credit unions. Of these, 80% lived in communities with less than 3,000 people. Their participation contradicted skeptics who argued that poor people couldn’t be relied on to repay their loans, and that no bank could make a profit serving poor Germans.

Dr Samuel Johnson, a British author of the 1700s, wrote about credit associations “that it takes 240 poor men’s pence to make one capitalist’s sovereign. But once the sovereign is so put together, it is a totally different sovereign from that taken out of the rich man’s purse. It has behind it 240 wills, 240 pairs of watchful eyes, 240 thinking brains. It has, so to speak, become an animate sovereign, with prudence, energy, vigilance, diffused throughout all its parts. Every spring, every wire of the composite machine takes a personal interest in the collective doings, watching the other parts, guarding against loss and waste, correcting the slightest irregularity.”

Chicken production for meat is considered extremely difficult because the breed of chickens used is less hardy and more prone to illness. This can make production risky as a disease outbreak can destroy livelihoods. There is also a greater degree of investment, since chickens only return value once they are at full weight and can be sold.

The production process is broken down into a number of defined steps, not unlike producing a car from the inputs of various contract manufacturers. It is more than possible, then, to arrange such systems.

In Kenya, collaboration between intergovernmental organisations and local ministers has resulted in a UNIDO report.

“Agribusiness is the key to the Government of Kenya’s efforts to create wealth and jobs,” says Industrialization Minister, Henry Kosgei. “Speaking at the launch of the UNIDO book, “Agribusiness for Africa’s Prosperity”, Minister Kosgei stressed that Africa needed to move from subsistence farming to agribusiness.”

So the Kenyan government is on board with this. IFAD, another UN agency, is working to promote community-based projects which develop farmer’s cooperative investments.

Off the back of these existing initiatives, we come to the Gates Foundation investment in promoting soya farming. This is part of their overall strategy for agricultural development.

This is not an imposed decision by the Gates Foundation or the UN or KFC. It supports, entirely, the development priorities of the Kenyan government.

Maybe you don’t like what the Kenyan government is doing with their electoral authority? Did you vote for them? If you happen to be a Kenyan, and you plan to vote in the next elections, vote for someone else next time. If not, let the Kenyans figure it out for themselves.

I’ve not done much work with the Gates Foundation, but what strikes me most is how much research and analysis goes into any project prior to implementation. There is also the way in which they circle round a problem and support development from all angles in collaboration with others.

Rudyard Kipling once wrote of the “white man’s burden.” It’s a racist slur, treating the poor as being stupid and incapable of helping themselves or even knowing how to. Articles like those written by Alex Park are no less frustrating, treating the poor as victims of the economic decisions of great powers. The poor are not stupid. Neither are subsistence farmers victims to “big business.” They’re rational actors making decisions about what will work for them. Stuck between famine and poverty, there are not always a large number of choices available to them, but they make them as well as they can.

If an investor can come along and demonstrate how the land could be made productive, while still permitting the family to split their efforts to earn more (as they do now), then they will take that opportunity.

The infrastructure and legal framework required for a company like KFC to function in Kenya will support improved agricultural yields, better quality produce, and further economic development. More importantly, it is about local production rather than imported alternatives.

And it is being driven by local demand, local management, and foreign investment. Sounds like a good deal to me.

3 replies »

  1. I understand the poor and their issues in the poor and developing countries (originally from a third world country), what gets me more sometimes is total apathy towards poor in the developed countries. US during the financial crisis and even now, some of the stories are just heart breaking, people becoming homeless as soon as they become jobless.

  2. Nice piece, Gavin.

    I think the argument for pillaging the 1% lies in the old game of Monopoly. Over time, wealth concentrates. Very few of the people on the 1% list started out poor. Most started out at least upper middle class. (I remember reading Ted Turner boasting about his success as a self made man. Starting out with a measly $1 million property portfolio at 18, through brilliance and hard work he built it into, etc. Donald Trump tells a very similar story.)

    So there’s value in reshuffling the deck every once in awhile. Income and inheritance taxes do that, as do banning nasty practices like legacy admits at the top universities, so do affirmative action programs, revolutions, etc.

    Now having said that, the not-for-profit set loves to throw out horrifying stats and draw just the inference that you suggest, “Just take it from them and redistribute it,” without any thought at all to how that would work or the short term chaos it would cause or the long term effects of breaking down the idea of property ownership .

    But to the main point. You’re right. Vilifying KFC is nonsence. Multinationals do far more good than harm in developing nations. They’re not perfect institutions, but in a relative sense they’re a force for good. Attacking them just because they’re MNCs is woolly minded, and attacking them just because they don’t serve the free range organic chicken you prefer is patronizing and silly.

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