Two months ago, World Bank President Jim Yong Kim abruptly resigned, creating an opportunity for new leadership at the world’s foremost development institution. As world leaders consider throwing their nominations for the next president into the ring before the March 14th deadline, now is the time to fundamentally rethink the Bank’s strategy to fighting poverty.
There are many strategies the Bank currently employs. For example, it invests in helping nations improve their education, healthcare, and transportation infrastructure, and it also assists nations as they seek to build better institutions and stronger governance practices. While engaging in all those activities does impact poverty, our research at the Christensen Institute suggests that the most viable path to sustained growth and prosperity is for the World Bank to support market-creating innovations.
Innovation is a word that is often overused, causing it to lose value as it means different things to different people. From the point of view of an economy, it’s helpful to categorize innovation into three types: market-creating, sustaining, and efficiency. Although each type contributes to a robust economy, it’s market-creating innovations that serve as the strong foundation for economic development.
Market-creating innovations create new markets that serve people for whom either no products existed or existing products were not accessible for a variety of reasons, including cost or the lack of expertise required for their use. These innovations effectively transform complicated and expensive products into simple and affordable ones so that many more people in society can access them. But it’s the market-creating part that’s most important, because these new markets require new jobs, and often require new or improved infrastructure to deliver the innovation to consumers. In addition, because the new jobs and infrastructure are tied to a market that addresses a previously unmet need, their growth and maintenance are sustainable.
Yet in spite of their significant power to change the economic trajectory of a region, it can be difficult to convince investors, including development finance institutions, that creating new markets in low- and middle-income countries is feasible. A worry for some is that these countries are not “conducive” to business, let alone businesses that may target people living in poverty. How can you create a market for people who may struggle to fulfill basic needs? While these concerns are understandable, our research has uncovered many examples—historical and present—of market-creating innovations that successfully navigated these challenges and came out on top. Consider Celtel, the company Mo Ibrahim founded roughly 20 years ago.
In the late 1990s, when Sudanese entrepreneur Mo Ibrahim first conceived of setting up a mobile phone company in Africa, many of his colleagues said he had lost his mind. Africa, they reminded him, was a dangerous place, full of dictators and corrupt people. Not to mention a majority of people on the continent were living in extreme poverty. But Mo Ibrahim saw something different. He saw a market-creating innovation opportunity.
Instead of focusing on market research data which suggested no opportunity, Mo Ibrahim focused on understanding the unmet needs of the hundreds of millions of Africans for whom mobile phones were not affordable. Without access to mobile phones and easy communication products, many people had to trek miles in villages just to visit family members. If they had an urgent message for a friend or an employer, they had to physically go there. It was in this struggle that the entrepreneur saw opportunity. If he could find a way to make telecommunication simple and affordable, he was convinced his target market would embrace it with open arms. And he was right.
In just six years, Celtel was able to build operations in 13 African countries and gained 5.2 million customers. By 2004, revenues had reached $614 million. In 2005 when Ibrahim decided to sell the company, he did so for a handsome $3.4 billion. But Celtel was just the tip of the iceberg. The market Ibrahim created triggered the growth of a vast and far-reaching mobile telecommunications industry in Africa. By 2020, the industry is forecast to provide $20.5 billion in taxes, add more than $210 billion in economic value to African economies, and support 4.5 million jobs—many of which are high paying jobs in engineering, finance, law, sales, marketing, advertising, and others. That is the power of market-creating innovations.
What might happen if the World Bank developed the capabilities necessary to identify, invest in, and nurture future market-creating innovations in healthcare, education, housing, food processing, financial services, and other sectors of the economy? It is clear that investing in improving development indicators will lead to some progress, but the principles of market-creating innovation provide the best chance for not only lifting billions of people out of poverty, but also setting them on a path to long-term prosperity.