Trade as a lever for impact and change
I’m often asked about the impact that Kommerce seeks to achieve by facilitating trade. After all, for decades, it’s been stories of aid, and projects by foundations, that have dominated the narrative on making impact in Africa. So it’s a fair question — Why do we think a business venture in the commodities trade space can create an outsized impact in Africa?
In my opinion, trade is the longest lever possible to effect positive, sustainable, and long-term change in emerging and frontier markets.
The best way to ensure that people in Africa improve their lives is to ensure they have more disposable income.
When it comes to Africa, and especially to the poor, almost everyone else has a view on how their lives should be improved, and how resources should be allocated. The persons that usually aren’t consulted are the very ones whose circumstances are being considered. Often, the poor know exactly how they will spend their next dollar (far better than most people whose opinions are sought on the subject) and they know how to improve their lives. I’ve written in another piece about how The Poor are Great Economists. The upshot of it is that the best way to positively impact the lives of the disadvantaged is to ensure that they have more disposable income, and to provide them the economic liberty to meet their needs.
The Sustainable Development Goals (SDGs) are the closest thing that we have to a consensus on what a better world should look like. These aims are broad based and ambitious.
You have only to cycle through the 17 SDGs to realise greater disposable income will push people and communities towards fulfilment of these goals. For example, eliminating poverty (Goal 1) and hunger (Goal 2) are directly impacted by higher incomes. Other goals such as good health (Goal 3), education (Goal 4), sanitation (Goal 6) are achievable when people have more money in their pockets. People with stronger incomes will demand better quality education for their children (and themselves); they’ll not accept living in the midst of filth, pollution, and unsanitary conditions; likewise they will demand better and accountable leadership and institutions (Goal 16).
So — how do we get more cash into people’s hands?
The simple answer is, by helping them to capture an arb (arbitrage). Helping them to purchase goods for a certain price in one part of the world, and sell it for a higher price elsewhere. Doing this directly puts more money at their disposal.
A cascade of benefit
Helping traders move more product means that they have more product to sell. The traders Kommerce would deal with are typically traders that move goods in at least a container-load.
With increased financial throughput from larger trade volumes, these traders can afford to give short-dated credit to the layer of traders below them who purchase good from them in sub-container units. In turn, those traders can offer credit to the layer of small shopkeepers below them, allowing the credit to cascade yet one more level.
All of this should happen organically. None of the traders will need exhortation to offer better terms to the layer of traders below them. It’s a function of each layer having more product to move, and by the interaction of supply and demand, the terms on offer will adjust automatically.
I’ve seen similar interactions growing up in Dubai in the 1980s, embedded within the trade community. More supply of product in a market that demands it, inevitably means that buyers will gradually enjoy better terms from sellers, with the result that everyone does more business, and makes more money.
Freeing up household budget
Anecdotally, the prices for staples (such as rice, cooking oil, etc) across many African markets are higher than in many developed markets, especially when we normalise for purchasing power parity. Part of this differential is a function of higher cost to transport goods far inland. But a large part of the differential comes simply from not enough product being supplied.
As Kommerce facilitates increased product flow into these markets, we expect the increased supply of staples to put downward pressure on the prices for staples. This will free up household budget for spending on other items, such as better quality calories, education, health, transport, communications and other things.
In this way, we build robustness and resilience in a population and an economy.
Validating these hypotheses
Data will ultimately help us validate the results of this approach. That’s why Kommerce has engaged SocialCops as a key partner in this.
SocialCops is among the leading companies in the world in gathering, organising, understanding and getting insights from data.
We want to understand the impact of increasing trade flows, on indicators such as employment, health, household wallet, and others, and understand the web of connections that map the impact on a society of improved prosperity. Having that kind of industry leading expertise to help us get a handle on the data is a key first step in achieving this.
Realising a better world through trade
If the data bears out our hypotheses, Kommerce will have hit upon a way to address poverty systematically and meet the challenge of equitable development for all.
The next steps would then be to build complexity models founded on the data, to better predict the impact of introducing trade finance into target areas, and using these to make a compelling case for pools of capital to be diverted to supporting trade. We’re thinking ahead and have identified emerging leaders in complexity science to work with as the data starts flowing.
There is still a long road ahead to realising the impact, but these things are worth doing, and we’re committed to doing them.
