How Tech is Propelling Private Sector Growth & Investment in Frontier Markets

By Carol Marie Tuite and Miki S. Noguchi

Welcome to Franklin Street Policy Group's second edition of Policy Perspectives. Our new monthly brief brings the cross-cutting topics, connective readings, and diverse viewpoints we cultivated in our monthly policy salons to the entire Franklin Street network — wherever you are in the world. Policy Perspectives is packed with links for your deep dive and a suggested readings list at the end.

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In keeping with our framework of quarterly themes at the intersection of global business, development, and security, this is the second installment in our 360-approach to The Business of Development. Read last month's Perspectives here.

Your Subway Skim

  • It takes a village whether you’re in Dhaka, Dakar, or Denver. This includes a public sector able to meet people's basic needs, responsible governance, resilient security, and a vibrant market with robust private enterprise growth and investment.
  • In frontier and developing markets (think Rwanda, Myanmar, or the hardest to serve populations of India), technology is enabling new business creation, driving increased productivity in conventional sectors like agriculture and energy, and drawing deeper interest from investors, both those close to home and further afield.
  • Homegrown innovation that leverages technology, a deep understanding of local market needs, increased technical capacity, and a more active and diverse investor/funding community is driving market growth across frontier and developing markets — “leapfrogging” over developed ones in some sectors, including potential blockchain innovations.

It Takes a Solar-Powered Village… and Its Connected Market

Development is the process of establishing healthy systems, communities, and, ultimately, markets — to create an enabling environment for innovation and the growth of private enterprise is an essential component of a long-term, sustainable, and comprehensive development strategy. Multilateral and foreign donors, high-impact philanthropy and foundations, and local governments are the traditional partners for international development.

But the private sector brings ideas, energy, jobs, much-needed investment, and is, most importantly, a long-term economic growth engine. In fact, private sector investment has outpaced foreign aid over the past decade with investments, such as Coca-Cola’s multi-billion dollar Source Africa initiative, and has assumed a larger, more integrated role and approach in frontier markets.

Tech and “the Rest”

The industrial revolution in manufacturing that began in “the West” and spread across the globe has fundamentally changed the way people live and work. Whatever one thinks of The West and the Rest, information technology advancements are fueling an efficiency revolution and growth in “the Rest.” 

What frequently distinguishes developed economies from developing ones is the foundational institutions that create a low-risk environment for doing business (and thus meeting consumer needs) at scale: comprehensive and accessible education and health systems, reliable infrastructure, rule of law, and minimal corruption. Frontier businesses are taking existing best practices, combining them or turning them on their head with their deep understanding of local market needs and resources, and innovating to reshape their own communities and markets.

Meanwhile, “the East” has emerged as one of the biggest funders of this next chapter of frontier innovation and development. China has parlayed its own rapid development experience and current search for new markets and sources of labor and materials into what is frequently a “first in” engagement approach across Africa and Asia, with construction and technology two of the most prominent sectors in its portfolio. 

Frontier market "growth is often fast, but needs may be unmet, infrastructure poor and compliance patchy. Innovation, enabled by digital technologies, can therefore happen far more quickly... [and is] the key to a great emerging market leapfrog.” — EY, Leapfrogging Innovation

Tech Decentral

Information technology’s enabling capacity is grounded in its potential to drive development more quickly and broadly than in the past by finding new ways to provide basic services and expedite growth. The concept, a.k.a. ICT4D, isn’t new, but it is moving onto its own next revolution. 

The decentralization of technology — enabled by digital inclusion, digital literacy, and local technical capacity — allows for renewed double-digit growth in emerging markets and new opportunities in frontier markets. Examples range from simple mobile platforms that allow Malawi farmers to access local market prices to strengthen their negotiating positions with middlemen to high-speed satellite internet that eliminates physical internet cable networks across expansive and remote terrain in Sub-Saharan Africa. Drone distribution of medical supplies like blood for transfusions and rabies vaccinations is already being tested in Rwanda.

The potential for delivery of packages and manufacturing materials is further away, but eventually will change the demands on costly, long-term investments in conventional distribution infrastructure. Distributed, 3-D printing-based manufacturing perhaps using drone-transported or locally derived and sustainable materials will allow lower cost, on-site manufacturing in frontier or crisis-stricken areas.

The Revolution Will Be Automated

Automation advancements have the potential to change the nature of work and transform societies the way the Industrial Revolution did over the past two centuries, and is likely to enable substantial productivity gains in manufacturing and agricultural sectors. The concern about the potential loss of jobs in these sectors is not unwarranted — developing countries have historically relied on a competitive advantage in low-cost manufacturing as a path out of poverty. However, it is equally likely that automation will create jobs that did not previously exist, and thus new opportunities for “the Rest.” Agriculture, still the largest formal and informal employment sector in Africa, has already seen the benefits of advancements in equipment, irrigation technologies, and power generation that increase yields on small-holder farms, improve productivity on large farms, and reduce food waste. 

Homegrown Innovation

Technology has enabled homegrown innovations born of local necessity but with potential wide-reaching scale, such as Fenix International’s solar mobile-phone charging in areas not covered by a reliable electrical grid and Kenyan company Kytabu’s pay-per-view educational tablets where textbooks are scarce and computers are too pricey. For small enterprises — a powerful growth engine in developing markets — new technologies like mobile, fintech, and 3-D printing, are opening up opportunities that would have been impossible just a few years ago, while the trend in digital and financial inclusion has provided both development progress and profit-making opportunity. Mass adoption of mobile money alone has enabled millions of unbanked populations to engage in business activity, take advantage of savings accounts and credit markets, and created a low-bar “gateway” technology to the network of services and tools available that require a digital or traceable personal financial history. 

Blockchain — Not For Fools

Blockchain — a secure way to transfer digital information without the need to copy or store it centrally while creating an inviolable yet discrete record — may be the next great game-changing tech in developing settings as it bypasses the need for laborious and corruptible human bureaucracies. Meeting the demand for trustworthy networks and record-keeping with low barriers to entry could generate homegrown applications that seamlessly track property and land ownership, birth and civil registrations, and small- to medium-sized market trades — basic needs across all economies, but which often come with high, upfront and ongoing costs or even physical barriers that make 100% access and adoption complicated in developing countries.

Leapfrogging Inefficiency — The Meta Revolution

Rather than imitating the legal, financial, and regulatory bureaucracies of developed countries, “the Rest” have the opportunity to create efficient systems from scratch to access and integrate with the formal economy, both locally and globally. Technology and innovation will continue to mature developing markets, drive productivity gains, bolster middle class growth, and accelerate poverty reduction. While Silicon Valley will incubate and develop cutting-edge technologies, dynamic frontier and developing markets will lead the innovative application and scaled adoption of these technologies that propel local growth and inspire the rest of us to follow. 

Your Best Reads:

Policy Perspectives September: entrepreneurship, women, and development + member insights!

Thanks for deep diving with us and enjoy the rest of your summer!

Miki & Carol