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The Greatest Threat to Renewable Energy in Africa Doesn’t Come from an Oil Company

You get solar into rural Africa on the back of motorcycles, not on the back of massive giveaways

You get solar into rural Africa on the back of motorcycles, not on the back of massive giveaways

While most people probably didn’t notice the story, those of us in the off-grid solar community woke up to news Friday morning that sent shockwaves through the industry—and not the good kind of shockwaves.  A Canadian solar company, SkyPower, had just announced plans to give away 2 million solar home systems in Kenya… for free!

This number—enough for nearly 30% of Kenya’s off-grid households—is so huge that it would severely destabilize and possibly even destroy East Africa’s budding off-grid solar industry, setting back the cause of renewable energy for years.  In the worst-case, such a massive giveaway with no plan for servicing the systems could cause Africans to lose faith in solar technology forever, paving the way for dirty energy to make a devastating comeback.

Solar is a growing industry in East Africa.  Private companies have already installed more than 300,000 solar home systems in Kenya alone over the past five years; BBOXX recently installed 1,000 customers in just one county of Kenya last month.  The sector raised $42 million in Jan 2015 alone—an 800% increase in pace compared to the $67 million raised in all of 2014.

Deep in the village: there's a solar panel on that roof

Deep in the village: there’s a solar panel on that roof

And best of all, it’s being done right way: sustainably, for a profit.  Companies like BBOXX, M-Kopa, and others are not just appearing in villages and dumping solar systems into people’s homes.  They’re setting up for the long-term to ensure they are able to service customers’ solar systems as long as those customers are around:

  • Warranty periods are extending. When I started in this space 4 years ago, we offered a 6-month warranty.  Now companies like M-Kopa and Greenlight Planet give 2-year warranties; BBOXX (the company I work for) and Mobisol offer 3-year warranties; Off-Grid Electric just does away with ownership of the systems altogether and guarantees repairs as long as customers are paying.
  • Companies are getting closer to customers. A warranty is great, but to make it work you actually have to have someone on ground to honor it.  BBOXX, for example, ensures that no customer is more than 3 miles from a shop with a trained technician in the areas in which we operate.  This proximity is incredibly important because customers deep in the village don’t usually call to report problems (our internal research indicates that out of customers who’ve had a problem with their solar system, more than 1/3 of them never called to report it).
You don't get much closer to customers than this: BBOXX solar shop in Kyarumba, Kasese District, Uganda

You don’t get much closer to customers than this: BBOXX solar shop in Kyarumba, Kasese District, Uganda

  • Companies are hiring en masse. BBOXX alone employs more than 120 staff across Africa, and supports nearly 300 commission-based sales agents—and we’re only one player in this vast market.  Based on these and similar figures from a few of our competitors, I would estimate that more than 6,000 families across East Africa depend on the off-grid solar industry for their livelihoods—and that number could easily reach 50,000 within the next 3 years.
Some of the people who would be put out of business by Sky Power's massive giveaway

Some of the people who would be put out of business by Sky Power’s massive giveaway

In other words, the current private-sector model for off-grid solar has been proven to work—the only thing lacking is large-scale financing.

One thing that’s been proven NOT to work is giving away solar systems for free.  I’ve travelled all over East Africa, from peaceful Rwanda to war-torn regions of South Sudan, and I can’t tell you how often I’ve heard the words, “some muzungus gave us that solar, but for 6 months now it’s not working.”

In Bentiu, South Sudan I came across solar fridges donated by UNICEF that were sitting in health centers still in their original packaging, or had not been used in months because something as simple as a fuse had blown.  In Kaabong, northern Uganda, the hospital had a world-class solar system installed by the best company in Uganda, but most of the lights didn’t work because the hospital didn’t have a budget for maintenance.  In Katakwi, Uganda, I found a school with a solar-powered computer lab—only the system was not working: the World Bank had donated only enough panels and batteries to power 2 of the lab’s 18 computers, and when the inverter blew, the headmaster did not even have the number of a technician to call.

As a result of stories like these, everywhere you go in East Africa, people are wary of solar.

“Ah yes, but is it one of those fake solars?”

“Ah yes, solar is good, but maintaining it is a problem.”

“Ah yes, you have a warranty, but will you really come—or are you those people who sell and then disappear?”

Does a Canadian solar company know how to service solar systems out here?

How do you maintain solar systems out here?

In fact, the only positive stories I can think of about donated solar systems are the ones we installed ourselves—the donor had contracted a local company with a reputation to maintain to do the work, so the installer (us) had a strong incentive to service the systems.  And indeed, we’ve been back twice in 18 months to perform routine maintenance.

Loaded up to the solar installation site

Loaded up to the solar installation site

IMG-20140820-WA0009

Some people expect that giving away solar systems for free will catalyse the market by acting as “demonstration” systems.  But in my experience the result is the opposite: wherever solar systems had been given away for free, you had to wait at least a year to go back.   Everyone would tell you, “we are waiting for those other muzungus to come back with more free solars.”  And of course by that time, there is no one left in the area to sell and service solar systems: they’d all been driven out of business by the giveaways.  Donating 2 million solar system is the industrial equivalent of 19-year old volunteers hugging African babies on Instagram.

Put it all together and what you have is a potential death blow to the future of solar energy in East Africa.  Anywhere these 2 million systems are distributed, it will be impossible for solar businesses to survive; villagers will tell them, “you are cheating us!  How can you ask for money for solar?  For us, we know solar is given for free by the government!”  Solar companies will close shop and find something else to do.  2-3 years down the road when the original batteries have all stopped working, the “beneficiaries” of this programme will conclude that solar is a “fake” technology—and their politicians will hear about it.  Then when Sky Power or whoever else tries to expand solar in the country, they won’t be able to: politicians will be hearing from their constituents, “We don’t want that fake solar!  Bring us diesel!  Bring us grid!”

And because this particular initiative is on such a huge scale, there won’t be any place safe from its disruptive effects.

There is a better way.  Clearly SkyPower wants to do good in Africa.  Clearly they have the capital to do good in Africa.  The only thing missing is the on-ground expertise and infrastructure to actually implement a rural electrification programme in a sustainable way.

There are companies that have these things.  BBOXXM-KopaOff-Grid ElectricMobisolMany others.

Instead of dropping an atomic bomb of charity on this promising industry, SkyPower could work with us to develop the sector.  Establish a working capital facility to finance solar systems for paying customers—the same initial capital needed to donate 2 million systems could electrify 3x that number of households if customers paid for the service.  Contract existing companies to do the work.  There are many ways to do this.  Hell, feel free to contact me – I am happy to provide ideas!

Just whatever you do, don’t give away these 2 million solar systems for free

Want to Support Entrepreneurs in Rural Africa? Invest in Bigger Companies

It’s 11:30 at night in rural Uganda and the bus pulls over to the side of the road, just ahead of the next meagre trading center.  It’s pitch black outside apart from the soft moonlight vaguely illuminating faint shadows of banana trees and a few humble households.  There’s no announcement as to why we’ve stopped.  A break down?  A police check?  A pee break?

Suddenly we hear voices outside shouting from all around the bus.

“Amaazi, soda, biscuit!  Amaazi, soda, biscuit!”  (Amaazi is the Luganda word for water.)  Outside are two young men hefting amidst the deserted darkness crates of water, soda, and biscuits (the crunchy English kind, not the warm, fluffy American kind), hoping to sell a few through the bus windows to the temporarily stranded passengers.

After four years in this country, I was still taken aback by the existence of these two micro-entrepreneurs and how, in this place, at this hour, they had managed to capitalize on the opportunity to sell refreshments to a bus in the mere 5 minutes it was stopped there.  How did they even know a bus would be stopping right there?  (It must have been a police check).  What a great example of micro-entrepreneurship in action!

But what did they have to show for their late night efforts?

Total sales: a water and a box of biscuits.

Net profit to the entrepreneurs: about 16 cents.

A recent survey determined that Uganda was the world’s most entrepreneurial country, with 28% of adults having started a business in the last 42 months.  But that news isn’t as good as it sounds at first.  Most of these entrepreneurs are probably running their own business out of necessity rather than choice – they’d rather be securely employed in a salaried position with an organization (the types of positions most of us in the West choose for ourselves).

And when you see examples like the water hawkers above, it’s not hard to see why: they’re enterprising, hard-working, opportunity-finding—and just not very profitable.

BBOXX does credit assessments of all our customers, and indeed, many do own small businesses—retail shops being the most common.  But a typical retail shop in our surveys made only around $15-20 in profit per month: a much smaller share than agriculture (which typically brought in $50-80 per month).  While an extra $15 is a nice boost for someone living on $50, it’s hardly the sort of transformative change in an economy to bring masses of people into the middle class.

The types of micro-businesses you normally see—retail shops, hair salons, small bars and restaurants—seem more like attempts to “buy a job” than to launch and grow a business, as Abhijit Banerjee and Esther Duflo put it in Poor Economics.  Indeed, the language used in this space is telling: development organizations commonly talk more about “livelihoods” and “income-generating activities”, rather than “business” or “enterprise.”  But giving someone a loan to open the 10th retail shop in town doesn’t create new wealth, it just means some of the money that was already being spent at one shop will be spent at another one instead.

This is not to say that people are not clever or ambitious, because they are.  But even in those cases of driven entrepreneurs who want to grow big, one big problem lies in the way: the lack of customers with purchasing power.

Take, for example, a solar agent we had from Bundibugyo District, Uganda.  Amanya John was a perfect fit for the business: his town, Nyahuka, has a busy market (especially during the cocoa harvest), and Amanya John is well-known in the community, serving a network of savings groups who made a ready customer base.  It started like the classic entrepreneurial story: at first he had only enough money to buy two lights, but he sold them, reinvested his profits, and increased to 3 lights on his next order, then 5, then 8, then 10 – at that point accessing a volume discount that increased his profits even more.  Soon we could count on him for 20 sales per month, which were earning him $250 per month!

Then suddenly the orders stopped.  We’d occasionally get orders from Amanya John for 2 or 3 lights, but that was it.

What had happened?

He never told us exactly, but this story is so common that I think there’s only one explanation: he’d just run out of customers in his network.

When you live in a rural community in a poor country, there just aren’t that many people near you, and the people who are near you don’t have much money.  Moreover, it’s very likely the money they do have, they really don’t want to spend: with an unstable source of income like a farm or small business, they save what they have since they are not sure of when they’ll get more.  In other words, small-scale entrepreneurs don’t make very good customers.

Someone who is employed, on the other hand, can spend his money without fear because he is confident of earning more next month.  It’s with the growth of large-scale employment that the sort of environment in which entrepreneurs can thrive is born.

Interestingly, then, it means that going around villages teaching people to be entrepreneurs has got it the wrong way around.  It’s a little like teaching someone to fish in a village where no one likes fish: your piscine entrepreneur may be a very good fisherman, but he won’t make very much money if there’s no one to buy his fish.

In the same way, organizations interested in reducing poverty ought to be investing in already-successful small companies that employ a few people, and helping them grow into big companies employing many people.  That is, instead of teaching business skills to people with no prior experience, who don’t have many customers and are unlikely to grow anyway, find the people who have already managed to build successful businesses with the little they have, and help them reach more customers and hire more staff.  In doing so, they’ll create the customer based needed to attract new entrepreneurs into the game.

In the case of the midnight biscuit hawkers, they don’t need to work harder, receive more capital for bigger stocks, or have better accounting skills: they just need more buses.

Why Entrepreneurship is Overrated as a Solution to Poverty

Congratulations Uganda, you are the world’s most entrepreneurial country!  A recent analysis found that a whopping 28% of Uganda’s adults have started a business in the last 3.5 years, beating #2 Thailand (16%) by a country mile.  Developed countries were not even close: the first rich country to appear on the list was Australia at #26, and the bottom-15 included many of the world’s biggest economies, including Germany, France, Japan, and Italy (12th, 5th, 4th, and 3rd from last, respectively).  Each of these countries had entrepreneurship rates of less than 2.5%, putting them from 1/10 to 1/20 of Uganda’s.  Ugandans, it seems, just cannot be held down by the 9-to-5, and are insatiably driven to go out there and start their own businesses.

You might wonder, then, why did the owner of a successful solar business in Western Uganda recently ask me for a job with BBOXX?  That’s not what entrepreneurs are supposed to do!  And if entrepreneurship is how wealth is created, why does a country’s GDP seem to increase as rates of entrepreneurship go down?

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Culture Shock Revisited: 11 Ruminations on the USA after another Trip Back Home

Grocery stores: a frequent culprit of reverse culture shock

Grocery stores: a frequent culprit of reverse culture shock

There’s nothing like contrast to make you think you’ve spotted the essence of things.  Each trip home I pick up on 3-4 more anecdotal elements of our American/Western condition: some small, some big, but few of which I would have appreciated without having spent significant time in a very different sort of place.  Things like: the wonder of clothes dryers; Americans’ obsessive over-scheduling; the speed of restaurant service.

This summer’s trip was no different.  After spending much of July in Europe and the US, I’m back in East Africa and having some time to reflect on what shocked me during the trip home.  Here are a few of them:

  1. You can leave your shoes on in the house—and sometimes even should! After 4 years in East Africa it’s become instinctive for me to want to remove my shoes upon entering a house.  And for good reason, considering that everything is covered with a fine (and often not so fine) layer of grey dust and red dirt.  But in Western cities, the outside is kept nearly as clean as the inside (no roads, parking lots, or foot paths made of dirt), so there’s not much to track in even if you leave your shoes on.  It can even feel rude to take off your shoes inside someone else’s house: you feel as if you are making yourself too comfortable in a place that is not your home—indeed, almost like you are getting undressed!
  2. Americans are terrified of gluten. Wheat has been consumed by humans for 12,000 years. Coeliac disease affects only around 1% of people.  Wheat is generally considered to be one of the healthiest staple foods: indeed, some scholars have cited wheat – and gluten’s nutritional benefits in particular – as one of the answers to the question “why did civilization arise in Eurasia before other parts of the world?”  Despite these facts, seemingly half the stuff at grocery stores these days proclaims itself as “gluten-free,” even items you would not expect to have gluten in them.  Gluten-free soy sauce.  Gluten-free hummus.  Even gluten free bath salts!
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    Gluten-free hummus? NO hummus is made from wheat!

    2015-07-21 08.55.42

    Gluten free BATH SALTS? You don’t eat those!

  3. Guns… wtf? Of course we all know that guns are everywhere in the United States, but there’s nothing like a holiday through multiple airports followed by a trip to Wal-Mart to crystalize the cognitive dissonance necessary to maintain our lax gun laws side by side with our over-zealous security regulations everywhere else.  You’re telling me that one guy, once, in all of history tries—unsuccessfully—to blow up a plane with liquid explosives, and now I can’t carry a tube of toothpaste onto a plane; meanwhile mass shooters strike—successfully—every couple of months, and I can still walk into a Wal-Mart and buy a gun in 5 minutes?  My friends, we are scared of the wrong things.
  4. You have to make reservations at restaurants! In four years in Africa, there have been exactly three times when I’ve not been able to get a seat at a restaurant.  So when we showed up to a restaurant at 7:30 where my cousin had made 8:15 reservations, I still expected to be able to find a table somehow, or at least a seat at the bar.  Of course we could not—even the bar was full!   This must say something about the psychology of markets.  Economics would predict that in response to such scarcity of seating, prices would rise, drawing more entrepreneurs to open more restaurants.  Yet there is no doubt that even as we waited for an opening, countless other equally tasty DC restaurants sat at half-capacity or near-empty, and many will go out of business.  With such “clumpy” demand, it’s apparent that good food (or perhaps more importantly, trendy food), is not just meeting the quantity of demand with physical supply.
  5. “First world scandals”: we seem to be getting more and more worked up over smaller and smaller things.  An athlete may have reduced a ball’s air pressure by less than 10%.  A presidential candidate sent some emails from the wrong email account.  And these are considered huge scandals requiring 24-hour media attention?  Those seem like pretty much the smallest scandals in history.  In Uganda coaches steal money from players’ salaries; politicians steal millions from widows and orphans; and Presidents tear gas the opposition and throw them in jail.   Now those are scandals!  So when we find ourselves getting worked up into a fit over Hilary Clinton’s emails and Tom Brady’s footballs, just know we must have it pretty good!
  6. Quality is everywhere. During a 6-hour drive through Appalachia—often considered one of America’s poorest regions—there was never a moment when we thought we might not be able to find a clean toilet or disease-free food within a 15 minute drive.  We ate gourmet Fro-Yo shop in the middle of Upstate New York farm country.  We stopped at a Sheetz gas station in rural Pennsylvania where you can order custom-made pizzas, sandwiches, wraps, salads, and tacos from a touch screen menu.  The highway is 4 lanes most of the way, and the rural roads are paved and have their own bridges wherever they cross the highway.  Simply put, things are pretty good almost everywhere.
  7. Unnecessary food innovation. What is a “Coolata?” (Besides an attempt to make an unnecessarily creamed up and over-sugared drink sound Italian).  Do we really need Oreo flavoured iced coffees?  Is a pizza really improved by having extra-buttery crust that you can “rip and dip” in 5 zany sauces?  And why is “zany” ever an adjective you’d want describing food?  Oftentimes America’s restless proclivity to endless innovation really works—witness the rise of craft brewing—but other times the results are just… unnecessary.  Try smoke-flavored beer and you’ll see what I mean.
    Craft brewing: definitely NECESSARY innovation

    Craft brewing: definitely NECESSARY innovation

    2015-07-26 19.49.49

    “Fried out pork fat with attached skin.” Definitely UN-necessary

  8. Gigantic specific stores.   Cavenders Boot City.  Bass Pro Shop.  My girlfriend aptly dubbed these “gigantic specific stores.”  The size of general big box stores is already startling, but when you see these specialized stores—selling just pet supplies, just Western wear, just fishing and outdoors equipment, and selling them in huge quantities and endless varieties—you start to realize just how and big, rich, innovative, and hungry the United States is.  Big and rich because there are apparently enough people with enough money to buy enough stuff to keep these stores in business; innovative because inventors have managed to dream up enough varieties of tackle boxes to fill a gigantic store; and hungry because we want exactly what we want so bad that it behoves companies to give us these infinite varieties that can suit every need.  In Kigali’s upper-class Simba Supermarket, there are exactly eight types of spices on sale; in the US you could fill a store that size with ONLY spices.
  9. Good roads can be bad times for careful deciders. The good thing about good roads is that you can drive at 70+ mph (116 kph).  But when you’re trying to decide which exit to take on a 10-lane highway full of thousands of cars also driving at 70 mph, suddenly you find yourself wishing for Africa’s small, traffic-choked and lawless roads, where in a moment of uncertainty you can just stop and ask for directions, while all the cars behind you are obliged to find their way around.  Lawlessness has its advantages when YOU are the one who benefits!
  10. You can get heated water from the sink. At first I couldn’t think of why it’s necessary to be able to wash your hands in warm water; after all it was warm outside!  Then I remembered, summer doesn’t last forever here—it gets cold in the winter.  And when it does, so is the water that comes out of the sink.  Plus you may want to hand wash the dishes or something.

Oh, and apparently there’s a presidential election going on!  (That makes 11)

Is this the new White House?  (Check the Hotel's name)

Is this the new White House? (Check the Hotel’s name)YOUR TEXT HERE

The Employment Revolution: How BBOXX’s Rural Shops are Fighting Youth Unemployment in Africa

(A version of this post appeared previously in two parts on BBOXX’s blog)

Byangabo Shop Manager

Jacqueline Nyinawumuntu, Shop Manager, Byangabo

Jacqueline Nyinawumuntu is Shop Manager of BBOXX’s Byangabo shop in northern Rwanda. A n­­ew mother, her salary from BBOXX makes the task of caring for her young family a bit more predictable: unlike the uncertain income most young Africans rely on–informal jobs and petty businesses and small agricultural holdings–Jacqueline knows exactly how much money to expect each month, and it always arrives on time.

Jacqueline is one of the lucky ones. Youth in Sub-Saharan Africa face an unemployment crisis that makes the Great Depression look like the ‘90s tech boom. Youth unemployment in Rwanda is an estimated 42%. In Uganda it is even worse, with estimates ranging from 63% to 80%: the highest in the world. For a foreigner, it’s hard to walk down the street without being asked by a young person for a job.

“What job do you want to do?” I ask.

“Anything.”

Any job. Sweeping the floor. Working as the ‘boy’ in an uncle’s shop for $40 a month. Pushing bicycles laden with multiple 90kg sacks of grain up hills. Every day two dozen young men sit idly atop concrete walls outside a hotel in Kasese, Uganda, one of 3 towns in East Africa where BBOXX has established a ‘Hub’. But they’re not loitering: they’re waiting for trucks to arrive, offering the chance for a few of them to work that day offloading it for a dollar or two. Uncertain jobs like this are the only jobs available to most young Africans today.

It’s not for a lack of education.  In Uganda, for example, 40,000 students graduate from universities each year, but only an estimated 8,000 will find jobs in the formal sector: that’s an 80% unemployment rate among university grads. I once met a boda boda driver who had graduated from Makerere, Uganda’s flagship university—but finding no work in Kampala, had been forced to move back to his village to ferry people and produce around for small sums. Youth in much of Africa are being educated for a future that does not exist.

Yet.

That’s all changing, with companies like BBOXX creating jobs for youth in rural areas. So far we have 120 full time employees across Rwanda, Uganda, and Kenya; most are under 30, and more than 30% are women. That’s still a small number, but with enough investment we should triple that number by the end of next year, and will employ more than 2,000 people in Africa by 2020.

Uganda Country Technician

Patricien Tsangya, Country Technician for Uganda, repairing a PCB

While most off-grid solar companies sell through existing distributors and retailers, BBOXX is opening our own shops in rural areas of Africa. Not only does this improve quality and service standards, it also creates good, local jobs. Each shop BBOXX opens employs a Shop Manager and a Technician, usually recruited from the same rural areas where BBOXX works. Each group of ~10 shops are managed by a central “hub” employing another eight middle management staff.

Opening Bwera Uganda

Simon Bigabwenkya, Shop Manager, and Masika Annet, Pay Plan Officer, opening a shop in Bwera, Uganda

Besides full time staff, BBOXX recruits commission based agents to reach the deep villages and tall mountaintops that we ourselves can’t possibly cover. The best agents can earn a lot of money.  Our top agent in East Africa, Munyemana Leopold of Kidaho, Rwanda, earned 8-times his country’s average monthly income per capita when he sold 59 solar systems in October.

Another star agent, Kafude William of mountainous Kyondo Subcounty, Kasese, sold 44 systems in his second month of business. He told me that when he saw how much money had been transferred into his bank account at the end of that month, he called the bank thinking it was a mistake. When they told him it was correct, he had them print out the bank transfer document and slept with it under his pillow, then took his wife for a long-awaited honeymoon.

“I’ve never seen that much money before,” he told me. “Ok, I have for my NGO, EPAFO, but that was for projects. This was mine.” As a token of his gratitude, he presented us with a chicken.

Kidaho agent and technician

Jean Claude, Technician for Kidaho (left) and Leopold, Agent for Kidaho (right)

It’s not just income.  Many of the skills we require don’t exist in the places we work.  Staff must keep meticulous records of every transaction, use computers, manage cash and stock in line with proper accounting methods, and deliver excellent customer service—all in a part of the world where people are not used to doing business this way.

To cultivate these skills, we are developing a BBOXX Academy based on international best practice research from CEB (my former employer).  This Academy takes a long-term approach to staff development, focusing on coaching employees and measuring their actual performance on the job.  Entry-level Shop Managers and Technicians are assessed every two weeks after training to ensure they are improving—and they almost invariably are.  After they’ve demonstrated proficiency at their new skills in the field, BBOXX will certify them, and they can proceed to intermediate and advanced trainings.

CRM System

Learning to use BBOXX’s CRM system

Training Exercise

Training Exercise

NewAgentTraining

Gauthier, Sales & Marketing Manager for Musanze, leading a training of new Agents

Agent Training

New Agents at training: most are youth and women from rural areas

The impact is palpable.  Shop Managers who started out having never touched a computer are now confidently using Microsoft Excel to track hundreds of customer accounts.  They feel proud to be part of an international company.  Unlike a typical entrepreneurship training that leaves graduates to fend for themselves, BBOXX employees have time to learn and grow while stably employed with a company.  When they are ready to leave BBOXX, the skills they’ve learned and relationships they’ve made will position them to found and lead enterprises in their countries for years to come.

HubStaff

The Employment Revolution: BBOXX Hub and Shop staff in Musanze District, Rwanda

The Price of Liberty is 45 Cents of MTN Airtime

It’s often said that “the price of liberty is eternal vigilance.”  Usually people mean vigilance against the government.  But after more than 3 years in the nation with perhaps the world’s highest level of personal liberty, I’ve learned that it can just as well mean vigilance against your fellow citizens: people and companies can infringe on your liberties just as well as any government.

A few days before leaving for Christmas break, I’d bought a 50 MB internet bundle on my phone for UGX 1,200 (about $0.45).  Less than 5 minutes later the internet stopped working.  I requested a balance inquiry by SMS and, incredibly, was told that I had used up my entire bundle.  Impossible! I thought.  I hadn’t been syncing documents, watching Youtube, or downloading big files.  My phone data logs suggested that I had used less than 50 MB in that period.  And indeed, with internet speeds of around 100 kb/second, it is practically impossible to have used 50 MB in 5 minutes—the most I could have used would have been 30 MB.

The next day I suffered a similar outrage, when my pre-paid call and text bundle stopped working for no reason, resulting in me getting charged for calls and texts I had already paid for.  MTN never refunded me; that money was just “eaten.”  Like the police who every year before holidays suddenly start working extra hard to “enforce” traffic violations, it seems MTN was also “looking for Christmas.”

I’m not the only one with such experiences.  Whether Ugandan or foreigner, anyone I tell about disappearing data nods their head in agreement.  Airtime seems not to last as long as it used to—or worse, seems inconsistent.  Sometimes 50 MB lasts you a day, and sometimes just a few minutes.

Now I’m not saying MTN (the network operator) is deliberately cheating its customers.  Perhaps they have imperfect systems that don’t always measure data usage accurately.  Or perhaps it’s consumers like me who underestimate our data usage, and blame the company for the results of our flawed mental calculations.  But in the former case, MTN should still refund me for their mistake.  And the latter would indicate that MTN has not done a good job of winning consumers’ trust.

So what’s a vigilant citizen to do?

For a libertarian it’s easy: trust the market, and competition for customers will eventually force such practices to stop.  If a company is artificially inflating customers’ data usage, another more savvy company is bound to enter the market, advertise and execute on fairer and more transparent data charges, and win market share, forcing the dishonest company to adapt.

A follower of Ayn Rand may be even blunter: it is a company’s right to cheat its customers.  Greed is good, and if companies can get away with artificially siphoning off their customers’ airtime, it’s customers’ fault for letting them.  Take time to measure your data usage.  Go to the company and complain.  But if you get cheated, that’s your fault.

But let’s actually think about these arguments for a second.  First, is it really my job to hold a half-billion dollar a year company accountable?  If I want to complain about the UGX 1,200 I lost, it will cost me 10 times that amount (UGX 10,000-14,000) to get a boda to and from the service center, not to mention 2 hours getting there, waiting in line, and getting back—time I could have spent doing something else, like working.  And when I get there, there’s no guarantee they will even refund my money.

In other words, it’s just not worth it economically to complain: I’ll spend more time and money solving the problem than the problem actually costs me.  For UGX 1,200, it’s easier just to suck it up and buy another bundle.

Economists call this “distributed costs and concentrated benefits”: one party gains a lot by inflicting small bits of damage on many.  When you add up the damages to everyone who’s been hurt, the cost to society outweighs the benefits.  But on an individual level, the cost of addressing the damages is more than the cost of the damages themselves, so no one takes action.  In this case, a phone company that arbitrarily deducts $0.45 in airtime from each of its 7 million customers once a month will make close to $40 million a year out of thin air, while each of those 7 million customers finds it cheaper to tolerate the abuse than to stop it.

This is why we have consumer protection agencies and class action lawsuits.  It’s not worth it for one individual to spend $5 complaining about $0.45, but it is worth it for society as a whole to pool $50,000 together complaining about 7 million individuals losing $0.45: establish a consumer watchdog for $50,000 a year, and save a net $39.5 million in losses to society.  Lawsuits work a similar way: a trial lawyer can make a fortune spotting such distributed costs and bringing a class action.  The lawyer gets rich, customers get their money back, and the punitive damages make the company think twice about doing it again.

Even if libertarian approaches did work, do we really want to live in a society that requires such vigilance all the time?  Contrary to the libertarian’s expectation, fewer laws and regulations don’t reduce surveillance and control—it merely shifts the burden of vigilance from the government onto everyone: everyone watches everyone else.

This is what you have in developing countries with low rule of law: you’re constantly on guard, every moment a decision.  Is the phone company cheating me out of data?  Is the fruit lady overcharging me for these tomatoes?  Is the boda I’m about to get on drunk… or a rapist?  If I cross the street when the light is red, will the car heading toward me actually stop?

In the absence of trust brought about by institutions and the rule of law, everyone suffers.  Businesses don’t do deals because they have no way of making sure the other side will hold up its end of the bargain.  People learn to accept small abuses and injustices because it’s just not worth it to complain about.  And injured parties resort to mob justice because there’s no other way to settle disputes.

Laws and regulations don’t necessarily reduce liberty: they can also make us more free by allowing us to focus on doing things we want instead of constantly watching other people and businesses to make sure they’re not cheating, abusing, or otherwise harming us.  We can either spend all our time vigilantly looking over our shoulder, or we can outsource some of that vigilance to institutions that can do it better and more cheaply, allowing ourselves to relax and focus on other things.

Regulations exist so that we don’t have to spend $5 and two hours fighting over 45 cents of airtime.

State of the Union: How Would People in Africa View Inequality in America?

I sometimes have trouble explaining the American definition of poverty to people in Africa. In 2011 when I’d first moved to Uganda I was riding in the car with two coworkers who made UGX 300,000 per month (about $115) – which is more than double their country’s per capita income.

Chatting to each other, one remarked, “did you know that in the USA they have a minimum wage?”

“Wait, you mean there’s a minimum amount that everyone has to get paid?” the other asked incredulously.

“Yes. And guess what: the minimum is $8… per hour!

The other one did some mental calculations. “That’s… $15,000 per year!  How much is that in shillings?” He pulled out his phone calculator, punched in the numbers, and then just shook his head.  “That person is rich!”

Inequality is a hot topic. It was a focus in President Obama’s state of the union address, during which he also mentioned a figure of $15,000: “If you truly believe you could work full-time and support a family on less than $15,000 a year, go try it. If not, vote to give millions of the hardest-working people in America a raise.”

That’s America.  But from a global perspective, just how rich is someone who makes $15,000 a year? Here are some stats to put it in perspective:

How an American minimum wage earner stacks up against the rest of the world

How an American minimum wage earner stacks up against the rest of the world

And in addition to being safely within the top 10-15% of income earners globally, American minimum wage earners receive a host of other benefits that even the middle class in developing countries don’t have: free public education, government provided health insurance, welfare benefits, and access to good roads and public infrastructure.  This is not to say that life for poor Americans is easy, but just to put some of the numbers in perspective.

So what is a just distribution of wealth?  How do we define it: I.e. is it the distribution within a country, or should we look more globally?  And what are the obligations of the rich to the poor? Should American minimum wage earners perhaps be made to give up a portion of their earnings to the poorer 90% of the worlds population in the name of equality?

In the coming weeks and months I’ll be exploring what living and working in some of the world’s poorest countries can tell those of us in the richest countries about how we should care for our own and others around the world: where inequality and wealth come from, and what we should do about it. We’ve lived so long with so much that the memory of what it’s like to live without – truly without – has been lost to most. Developing countries can help remind us the things we used not to have, and what it took to get to the point where we can take them for granted.

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