December 14, 2018

Technology in Emerging Markets — An Interview with John Macomber

Women on bus in Thailand

TL:DR;

  • To each their own when it comes to integrating digital tech into emerging markets. Copy and paste solutions not welcome here. 

When most people think of urban tech and the rise of “smart cities,” elite metros like Boston, London, or Tokyo come to mind. However over the past decade, technology has also made substantial inroads—and contributed to rapid development—in emerging markets. Cities like Bangalore, Nairobi, and Bogota are poised to take advantage of unprecedented access to capital and information to create and seize new opportunities. But in the context of extensive institutional voids, unequal access to resources, and an often lethargic state, the way that technology is leveraged looks very different in emerging markets than it does in the developed world.

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Professor John Macomber, Senior Lecturer in Business Administration at Harvard Business School, studies these and other questions related to urban development, finance, and infrastructure in emerging markets. No easy task, as the blanket term “emerging markets” hides an incredibly diverse set of business and social ecosystems, each with its own set obstacles, and necessities.

“The blanket term ’emerging markets’ hides an incredibly diverse set of business and social ecosystems, each with its own set obstacles, and necessities.”

“In older cities, like in Mumbai or Jakarta,” Macomber explains, “you have a lot of stuff already in place—physical infrastructure like roads and bridges and buildings, and also bureaucratic and political infrastructure.” These settings have a completely different set of needs than do new cities springing up outside established urban centers. “In the new urban growth areas, nothing’s in the way and there’s a chance to build it right to start with,” he says. However, the absence of physical and organizational obstacles doesn’t mean that development is easier. In fact, the extent of institutional and infrastructural voids necessitates creative solutions that make multiple interventions simultaneously.

Macomber points to the examples of M-KOPA and Lumos, solar energy companies in Kenya and Nigeria, respectively, that designed solutions to provide people with electricity who don’t have access to the grid or the capital to buy their own solar panels. These companies developed a business model building on the service of mobile payment platforms and mobile providers. Thus, Macomber explains, customers can “pre-pay for electricity using their phone card, the way you and I prepay for phone minutes.” This type of solution addresses both the failure of government to provide infrastructure, and the lack of individual access to banking.

But success in one setting doesn’t guarantee success in another. In Kenya, Macomber says, mobile payment platforms were able to build market share quickly because “the mobile carrier moved into the space ahead of the banks.” As a result, “individuals were able to transfer value among themselves via phone credits.” In neighboring Ethiopia, by contrast, banks and their regulators moved more quickly, and insisted that financial transactions had to go through bank channels, making the rollout of services much slower. In his Immersive Field Course, Building Cities, Macomber underscores the importance of situational context by challenging his students to design development plans for different environments—emphasizing not only how they are different, but why.

Indeed, understanding context—and the interconnectivity between different environments—is crucial. As Macomber explains, a counter-intuitive solution to the symptoms of massive urbanization—notably crowding, pollution, and crime—actually lies in smaller cities and rural areas. “Countries that are able to make their tier two cities more attractive to workers or investors through the leveraging of technology… reduce the pressure of urbanization in mega-cities,” he argues, by increasing rural economic opportunity.

“Indeed, understanding context—and the interconnectivity between different environments—is crucial.”

Macomber highlights the example of subsistence farmers in Africa. “If you can make their farms twice as productive, this is an immediate benefit to GDP of the nation and also to the standard of living of individuals.” The digitization of agriculture promises to do just this. As Macomber explains, it “gives people transparency into market prices so they know what to plant; gives people visibility into weather so they know how to water and what to protect; and in particular, gives people access to crop insurance so they can both borrow money for seeds and also not be ruined if there are a couple of bad harvests.” However the solution is still imperfect. Because there is often no phone coverage in these areas, and because people don’t have banking or access to electricity, they must rely on agents who go out to the countryside and do transactions, and who then return and process the money. This creative workaround thus makes a “digital solution work for those people, even though they don’t have the mobile Internet.”

Discussion of growing interconnectivity, reliance on technology, and data sharing inevitably leads to questions surrounding privacy and security. While debates rage in the West on these topics, Macomber says that in many developing countries, they are less of a concern. “People assume the government can read everything you do, anyway,” he says. In his view, the real challenge facing emerging markets in the realm of technology and security is what he terms “cyber mischief.” Think of the multiple mini- or off-grid electricity solutions that emerged over the past decade. “So far so good,” says Macomber. But when transmission lines eventually reach these small utilities, “nobody is giving the first thought to A, whether these systems are compatible electrically, or B, who controls them and what kind of passwords and access there are to prevent the turning off of entire power grids or water treatment facilities or processing plants.” Gaps in service that can have major implications for the individuals relying on them.

Macomber envisions a future where technology can help overcome this kind of challenge—where urban development will be more intentional, less haphazard, and less siloed. Put simply, he believes that technology can stimulate effective urban development by combining “optimizing of systems” with “pay-for-success” models that allow social impact investors to directly target whether transit, private real estate or utilities. Where is technology coming in? “Measuring if it actually works—if society gets the promised result.” As Macomber explains, “if you can show using sensors and big data that the salary of each person has gone up, or the day’s commuting time for each person has gone down, or the CO2 generated per capita has gone down—that’s how you measure success.”

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