Aaron Scheinberg ’11Journal #1
My first two weeks in Tanzania have already been quite an experience. I survived the 18-hour bus ride (with no air-conditioning) from Dar es Salaam to the remote town of Mbeya, near the Malawi and Zambia borders. I had the pleasure of seeing first-hand the corruption of the police, who stopped us at least five times along our journey and shook me down for any cash I had. The green and mountainous region of Mbeya is part of the “breadbaskets” of Tanzania. I am enjoying the milder climate as I conduct my interviews for Anza Technologies.
My job this summer is to conduct due diligence on, and set-up, the entire supply chain for Anza Technologies in three main regions: Mbeya, Morogoro, and Iringa. Anza Technologies is an international development start-up that sells low-cost, poverty-alleviating products, made from recycled materials, to $1 per day farmers in rural Africa. Anza currently sells solar cookers and water sanitation solutions in Mozambique, and is expanding its product line to offer more revenue-generating products. Currently, Anza is expanding into Tanzania with a new product: a low-cost pushcart that will enable farmers to increase their incomes by 50–100 percent. The cart will retail for $30, which is significantly less expensive than Anza’s competitors, who sell pushcarts for $80–100. Anza has successfully piloted this product in Moshi, on a small scale, selling around 15 units, and taking advance orders for more carts. Anza is now looking to set up a larger supply chain to ramp up operations into the thousands, and eventually tens of thousands.
When setting up the supply chain in Tanzania, I have to identify and interview the owners and managers of retailers, distributors, banks, micro-finance institutions (MFIs), NGOs, and government offices. Needless to say, it is going to be a busy summer, and I have already gotten off to a great start with my meetings and interviews. Just today, I was able to meet with the Mayor of Mbeya and his economic advisor as well as the reputable MFI, Finca, which has a large presence in Tanzania. Since my job is to research the most effective and efficient organizations, while persuading the same institutions to want to partner with Anza, I have been quickly developing my entrepreneurial selling techniques.
Another one of my responsibilities is to look into the feasibility of the Anza pushcart by heading to the villages to interview the end-users. Yesterday, I was able to hike to some of these villages (the roads are so bad that only bikes or walking can get you there). The first thing I noticed is that there is an obvious positive correlation between the distance from Mbeya’s center of town and the poverty level of the villages. The further we moved away from Mbeya, the more we saw subsistence farming rather than revenue-generating farming. This is due to an ability to bring goods to market, elevation level, and poor access of government programs. It is simply harder for governments or NGOs to get out to the poorer villages because of road conditions. This creates somewhat of a distance trap, where the poor farmers who are further out from town have less access to markets and government/NGO services, and continue to lack growth. Additionally, it would be harder in Mbeya for the Anza pushcart to get to the very farmers we are targeting. Road conditions, elevation, and a lack of local shops or distribution networks, would all hamper the goal to get the carts to the farmers without water access. Ironically, the government and NGO push towards more irrigation products could prove to decrease demand for the cart in the Mbeya region.
Next week it’s back to Dar es Salaam for five days, before heading to Iringa. I am worried about my 25-hour train ride tomorrow back to Dar, on the TAZARA Railway. The rail system is renowned for its inefficiencies and dilapidated infrastructure.
Journal #2
Today, I flew in a biplane onto a dirt airstrip, in the middle of the Ruaha National (Safari) Park. My mission was to get to Iringa, and after my not-so-appealing experiences with the Tanzanian public transportation system, Anza decided that the best way for me to get to my next site would be by plane. I have to say that I am very happy I didn’t have to repeat my 18-hour and 25-hour train experiences from Mbeya. Additionally, I was able to get a brief Safari out of the deal as I hitched a ride to the nearest village with the park rangers. I got a good look at a leopard, crocodile, hippo, and giraffe. Not a bad day at the office.
This week, I have a number of interviews lined up with agriculture retailers, MFIs and banks, NGOs, and farmers’ unions (which may prove to be a great ally). Iringa is another mountainous, southern region of Tanzania and shares many similarities with Mbeya, except for it’s even cooler and drier climate. Nearly 90 percent of the people of Iringa are involved in agriculture, many of whom are subsistence farmers, so this region could provide a large set of target customers for us.
Journal #3
The development problems in Tanzania and East Africa are numerous. There are, of course, the health issues and the debilitating effects of widespread HIV and Malaria. And, there are education problems — the lack of quality education and low attendance rates for children — which can be linked to health and nutrition issues as well. There is a serious lack of infrastructure and road and rail systems, combined with rampant corruption, all of which creates a very poor and risky business climate. Since roughly 80 percent of Tanzanians are involved in the agriculture sector, and most of the farms are small plots of land used for subsistence farming, there is the problem of a constant poverty trap for these $1-per-day farmers. There is poor access to clean drinking and irrigation water, poor access to markets and capital, and a low-skilled workforce. Finally, those who are able to grow crops only do so in the wet season, and leave their land dry during the off-season, thus missing out on at least one third of potential yield. All of these problems come together to form a trap that prevents most of Tanzania’s citizens from lifting themselves out of poverty.
In a perfect world:
Anza Technologies aims to solve the problems presented to subsistence farmers by creating products that are affordable and generate revenue, by partnering with MFIs and NGOs to provide access to capital, and by developing a supply chain that is sustainable and efficient through a social, for-profit model. By using recycled materials (trash that is readily available), Anza is able to significantly bring down the price of products that poor, rural farmers would need to create revenue. For example, the Anza pushcart is made out of recycled rubber tires and bamboo or wood. Because of the low cost inputs, Anza can sell a water pushcart for $30 rather than $100. Now that this cart is more affordable, subsistence farmers can purchase the cart through a partnership with a local MFI, such as Finca, with a low interest rate (because of the scale we have created for Finca), and can use the cart to bring water to their small plots of land during the dry season.
Since most rural farmers in East Africa have poor access to water sources for irrigation, they are forced to leave their plot of land dry for the season, and miss out on up to one-half of potential growth. Those who do bring water from nearby sources walk miles on foot, carrying buckets of water on top of their heads in a completely inefficient way. The pushcart, as simple as it sounds, would be able to bring enough water to a plot of land, each day, to irrigate in the dry season, thus increasing their output and enabling them to grow crops during a season when prices are higher. If these farmers can bring in revenue, then they can slowly start to invest in their own growth and can then emerge out of the poverty trap. Once these farmers start creating their own revenue, rather than bartering with their own crops, they will be able to invest more in their children’s education and in the health and nutrition of their families.
The pushcart is just one of the products that Anza intends to sell in East Africa, with the goal of expanding the product line to include a portfolio of revenue-generating products. This social, for-profit model, besides attempting to break the poverty trap, encourages every player in the value chain to have a stake in the success and profitability of the Anza products. Because Anza is attempting to make a profit, and not simply providing handouts to farmers (something that is widely done throughout the region), the supply chain that is in place must be efficient and reflect the true cost of doing business, without distorting the market. Quite often, many of the organizations that aim to “do good” in Africa are actually creating an environment that crowds-out investment and increases the prices of goods — while indirectly supporting the corruption of government officials who are entwined in the distribution of goods and services from the NGOs. These officials are answering to the donors rather than to the people that they have been elected to represent. The social, for-profit model also places a real value on the products, which is then transferred to the end-user. Many studies in the development world, particularly in behavioral economics, — such as, The Economic Lives of the Poor and other papers by Abhijit Banerjee and Esther Duflo — have shown that requiring an end-user to pay for goods or services will lead to greater use and participation than a pure government or NGO handout.
Difficulties that the company will face:
I am a big fan of, and firm believer, in the social, for-profit model and I do believe that Anza understands the nature of the development problem well. By creating an efficient and complete value chain, and by providing simple products to farmers that create revenue, Anza and other social, for-profit companies can bring real and lasting change to East Africa. However, there will be many challenges that this model will face in scaling-up the business, sustaining profits, and growing. Here are a few — but certainly not all-encompassing — challenges to doing business in Tanzania.
The first challenge will be in the feasibility of each product that Anza creates in the varied regions of Tanzania. For example, the pushcart can bring enough water to a small plot of land to irrigate in the dry season, however there are areas of the country that are too dry, too mountainous, or too remote for the cart to work. Some of the areas that need the irrigation water the most will not be able to use a pushcart because their water access is too far away and the amount of water that the crops need is too high. The southern, mountainous region provides for adequate rainfall for two-thirds of the year, but the terrain is too steep in areas to use a wheeled device and most farmers, if they can afford it, use animal labor to carry farming implements. The Anza pushcart will certainly sell in the biggest rural areas that are relatively flat and have mild climates, such as Dar es Salaam and Morogoro, but it will face competition from foot-pump irrigation devices such as the MoneyMaker from KickStart.
Another challenge that any social, for-profit company will face in targeting poor, rural farmers in East Africa is access to credit. We have seen numerous success stories of MFIs in Africa and have been encouraged by visionaries such as Muhammad Yunus, but the situation on the ground reveals a severe lack of access to credit for most of the poorest farmers. There are some quality MFIs and SACCOs (Savings and Credit Cooperative Organizations) that are operating in Tanzania and doing a wonderful job — such as Finca, Pride, NMB, and CRDB — but they are limited in their scope and reach. The MFIs provide access to group-lending and SME loans and can reach some of the poorest areas, but they simply cannot cover enough of the regions in Tanzania. The people who are the hardest to reach, and are the riskiest clients, are those who tend to need microloans the most. And when these poor farmers are able to receive a loan, they are paying up to 25–30 percent interest rates. Anza must take into account this constraint on lending — as most poor farmers have no operating budget — and must model into prices the high cost of lending. That being said, the MFIs, SACCOs, and farmers unions that provide small loans are the best way to access potential customers, since these organizations are driving most of the development in the region. To ensure success of the social, for-profit model, Anza must continue to develop relationships with MFIs.
Lastly, Anza, and virtually all other businesses that operate in Tanzania, must deal with the severe lack of infrastructure, failing institutions, and cost of corruption. The road and rail network in Tanzania is decrepit and incomplete. I dealt with the effects of these lacking systems when traveling to Mbeya and Iringa, 18 hours by bus and 25 hours by train, respectively. On one of the more developed highway systems in Tanzania, we still had to negotiate areas of severe congestion, a lack of hard-surfaces to travel on, and constant checkpoints by police and immigration officers. The relatively long time it takes a supply truck to travel between cities, due to these obstacles, increases the cost of each good and makes every player in the value chain suffer. And you can forget about getting trucks out into the rural areas of most cities; the roads that lead to most of the villages are almost all dirt and are passable only in the dry season by wheeled vehicle. This obviously makes it hard for any distribution beyond the city centers. Additionally, truck drivers are faced with constantly having to bribe police and immigration officers on their way to their destination. In fact, most of the distributors that I interviewed had to price into their costs the bribes that their drivers had to pay along each road. Finally, any business that imports supplies into the port of entry in Dar es Salaam will have an average dwell time (time that cargo stays in port before being unloaded) of 20 days, and we even heard stories of some businesses waiting for three months. And good luck shipping any goods across the nearly defunct railway system; the railways can only support around six percent of all cargo carried through the port. This lack of infrastructure increases the costs of doing business and makes the consumer suffer by dealing with the high prices of goods.
With all of these challenges, I still believe that Anza and the social, for-profit model, one that has been successful for MFIs around the world, will succeed in Tanzania. The Anza pushcart will be most successful in regions such as Morogoro, where 80 percent of the population is involved in agriculture, and will provide enough revenue to help develop more products in the portfolio. These new products, made from recycled materials, will benefit farmers and the supply chain that we have established. While partnering with the NGOs, MFIs, and nonprofits in the region, Anza will build up its reputation for being a value-based business and a business that is keenly aware of the needs of Tanzanian farmers and the distribution network. Provided that they continue to develop and sell products that create a constant stream of revenue for poor farmers, Anza could help to bring rural farmers out of their poverty trap and help create new jobs throughout the entire value chain.
