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Digitally Removing the Middleman for Development: Trouble Brewing in East African Tea?

11 February 2019 1 comment

How do new digital technologies enable firms to develop? One process often highlighted is disintermediation, where digital technologies allow firms to “cut out the middleman”. Exploring the Kenyan tea auction we suggest that these ideas need to be rethought. Digital technologies bring change, but may lead to more challenging conditions for smaller firms.

 

Kenya_mombasa_tea_auction_480_feb2012_2

The Mombasa auction. Source: Wikimedia Commons

 

One of the benefits often associated with digital technologies is the potential for disintermediation – or put more simply “cutting out the middleman”. This concept forms the basis for many hopes for development around digital technologies [1].

In the early days of digital technologies, it was found that they often failed to cut out the middleman due to the “digital divide” where digital skills, infrastructure quality and cost limited the use of technologies in smaller firms. But as firms have adopted technologies and with appropriate applications these foundational claims for digital development are important to revisit.

 

Digitalising the tea sector

Tea is an important export in East Africa and twice a week sellers come together in the Mombasa tea auction to trade tea with international buyers. The tea auction emerged during the colonial era, and with its antiquated traditions, slow speed, and accusations of corruption, there have been demands to move online.

An online auction would speed up the processes of trading by cutting out the middlemen in tea value chains (see below) and allowing tea producers to sell more directly to international buyers.

 

combined

Roles of middlemen in the tea value chain: The tea trade centre in Mombasa, home to the tea auction (left); tea tasting (middle); auction warehousing of tea lots (right).
Source: Photos courtesy of Laura Mann.

 

The auction seems a good fit for digital disintermediation in terms of economic models of transactions [2]. Trade is predictable with a limited number of traders and a strong sectoral governing body. With falling costs of online access in the region, a digital auction seemed viable, particularly as competitor regions such as Sri Lanka and India are already in the process of digitalising their auctions.

 

Challenges faced in the tea sector

While on paper the case seems promising, change has not taken place as expected. An “e-auction” trial was abandoned and over the past decade, digitalisation has been slow and frequently resisted.

In discussion with key stakeholders involved in the auction, we identified three challenges:

  • The nature of transactions: Tea transactions are often seen as generic and simple to trade, and so well suited to online exchange. But tea trading is becoming more complex.  Tasting the quality of tea, for example, is important to buyers who are mixing different teas together to produce retail products, and there is also a growth in value-added teas where buyers need extra information about ethical standards they want met. These factors make moving trading online more complex, where more complex factors need to be included in a digital system.
  • The types of institution: Well-established rules and governance in the tea sector limit the ability to reform the tea auction. The balance of power in sectoral bodies is often skewed towards middlemen, exactly those who might be cut out by digital technologies. This meant that any kind of reform was strongly resisted by sectoral bodies.
  • Middlemen adaptation: Eventually after much resistance, aspects of the tea auction were partially digitalised such as e-payments and digital auction catalogues. This did have an effect of reducing certain roles connected to the auction. But the intermediaries did not disappear. They adapted and took up new roles. For example, tea brokers who were previously important in facilitating payments repositioned themselves as providers of auction intelligence and price data for small tea producers.

A key finding related to these challenges was that international firms, dissatisfied with the slow pace of change, began to sidestep the auction by becoming involved in “direct sales” with selected producers, supported by digital technologies.

 

Making sense of digital disintermediation

The future for tea trade in East Africa is fragmentation which may be detrimental to smaller tea producers. Smaller tea producers were not connected enough to become part of “direct sales” with international firms. With the auction only slowly digitalising, it is falling behind as the centre of trading.

For the analysis of digital disintermediation, the case highlights the need for careful consideration of transactions: the nature of transactions, the role of institutions and potential externalities (such of adaptation of middlemen) [3]. These are factors that implementers might consider to better support small producers’ development outcomes from digitalisation – what are the institutional bodies that need to buy in? Which stakeholders should be considered? etc.

More than this though, a greater awareness of the way actors use their power as change occurs is crucial. Such an approach is very different from the abstract, economic approach normally used to explore digital disintermediation [4]. From this perspective a very different view of development emerges. In the Mombasa auction case, it has not been transformed. Through the challenges and strategic activities of more powerful actors, digital transactions are solidifying the relationships of those who are already well linked, and able to capture resources.

 

This post summarises a recent book chapter: ‘Making Sense of Digital Disintermediation and Development: The Case of the Mombasa Tea Auction’ by Chris Foster, Mark Graham and Timothy Mwolo Waema.

The chapter is part of the new MIT Press book ‘Digital Economies at Global Margins’. The book is available as an open-access PDF from the IDRC website

 

 

Notes:

[1] A good example is the World Development Report (2016) on ‘Digital Dividends’, but many other projects often uncritically assume similar concepts.

[2] In economics, disintermediation is often associated with transaction costs, and an analysis of how digital technologies change aspects of transactions costs: information costs (gathering information about transactions) and coordination cost (co-ordinating the exchange of goods) (e.g. Wigand 1997).

[3] The study of transaction costs can be split into two differing perspectives. The “neoclassical approach” focussing on the mechanics of transactions such as coordination and information costs, and “property rights approaches” which explore wider aspects of transactions such as rules, regulations and externalities (Allen 1999). We suggest that digital disintermediation has been too focussed on narrow “neoclassical” perspectives to date.

[4] Contemporary institutional analysis often explores political power and settlements in shaping institutions. We also stress this aspect here, highlighting the importance of power in shaping institutions, and in turn the outcomes of digital disintermediation.

 

 

References:

Allen, D.W. (1999) Transaction Costs, in Encyclopedia of Law and Economics, B. Bouckaert & G. De Geest (eds), Edward Elgar, Cheltenham, UK, pp. 893–926.

Wigand, R.T. (1997) Electronic Commerce: Definition, Theory, and Context. The Information Society, 13(1), pp. 1–16.

World Bank (2016) World Development Report 2016: Digital Dividends, World Bank, Washington, D.C.

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Digital Culture, Brazil and the Virtual Pistolâo

28 October 2008 Leave a comment

[Partial] Review of The Throes of Democracy: Brazil since 1989 – Brian McCann

Studies of internet use in the South rarely come from outside a small circle, so it is worth examining The Throes of Democracy. Written by Latin American historian Brian McCann, it analyses Brazil’s emerging digital culture as one strand within processes of democratisation in Brazil. In line with the book’s wider argument, McCann presents two views of digital culture, celebrating it as a force for democracy, whilst examining the “corroding forces” which limit the potential of this new media channel.

McCann argues that ICTs and digital culture can be seen to have “reconfigured Brazil’s market” and this has led to a new vibrant network of active citizens. Nor is this happening only within the middle classes, thanks to the government’s support for telecentros which link the peripheries and favelas. Emerging from this digital culture, McCann sees promising examples of citizenship and democratic practice such as the popular interactive crime blogging of Jorge Antonio Barros, and the regional cultural sharing on the site Overmundo. In a wider context, online spaces like Orkut and LAN games, break real-life social barriers for the poorest through participating in online networks.

However, McCann also sees trends that connect this new media into less positive histories. For example, Overmundo is rightly lauded as an “innovative cultural endeavour that draws participation”. But when digging deeper things are not so black and white. The site founder Hermano Vianna is a consultant for the Brazilian TV programme Central da Periferia shown on the much maligned Globo chain, and McCann sees Overmundo as essentially part of the conveyor to produce talent for this show. Additionally Overmundo cannot be seen in the purely entrepreneurial model of new media: it received a $1m grant from Brazillian oil giant Petrobas, as part of the Rouanet Law, a way for corporations to reduce taxes through cultural sponsorship.

McCann uses the Brazilian figure, the pistolâo to explain his critique. In the job market the pistolâo is a powerful figure, who through recommendation can open up paths for those unemployed. The virtual pistolâo operates the same way, for those less connected in the new media world. Often from a family within the upper echelons of society or celebrity, the virtual pistolâo is an eminently conservative figure, with an eye on reputation and retaining cultural sponsorship. The control and nepotism that plague other sectors of Brazilian society can be seen to be seeping into digital culture through the virtual pistolâo. For a hip-hop group like Cidinho e Doca this means moving away from proibidão, the controversial (but one could argue genuine) voice born in the favelas, in order to maintain the support of the virtual pistolâo, placate the sponsors and remain within the system.

In the rest of his book McCann highlights the importance to democracy of outsiders who break through such hierarchical structures; whether that be the left-wing leaders who eventually came to power, the rise of the landless movements and even the drug gangs. So it is surprising that he seems to underplay the importance of such groups within digital culture, in particular the less hierarchical and vibrant activist networks. These groups have been voicing similar critiques for a number of years and their work seems to offer a basis to move beyond McCann’s virtual pistolâo.

In sum, McCann’s work is very useful in that it tries to understand technology use within a local historical domain, something not often considered within ICT4D. From such a vantage point it is easier to analyse the effects of ICTs, and in particular to see if the introduction of ICTs simply reinforces societal norms or brings genuine change.

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Katine, one year on

12 October 2008 4 comments

The Guardian’s Katine project is a unique attempt to track a development project by reporting it over a long period and by using the full range of media. It is coming up to a year since the project was launched, so this is a good time to see how effective the media components have been so far.

Katine might also provide lessons to a whole family of similar projects, such as Kiva, The Millenium Village and Nabuur, where ICTs, whilst not the principal intervention, are involved predominantly to allow a Northern audience to connect more closely with these interventions.

The Goal

Based in Northern Uganda, the Katine project seeks to provide improvements in the region through a number of interventions in health, education, governance and livelihoods. The Guardian, along with Barclays bank occupies the position of development donor, supplying the funds for NGOs AMREF and Farm-Africa to carry out the interventions.

But, the Guardian “unlike many more traditional donors..is not a ‘hands off’ donor”*. With regular reporting and coverage on its dedicated Katine website, it is closely involved in following and scrutinising what is happening on the ground. For the Guardian editor Alan Rusbridger, this hands-on approach is a way to allow the Guardian to report development complexities, moving “beyond the sloganising and occasional yah-boo politics of the development debate” whilst allowing space for readers to contribute, “we would like a technical know-how bank of people who are prepared to offer time and advice”.

Reporting

We can see two styles of reporting that have emerged, one comes from the writers from ‘outside’, the other from those who have a longer association with the project. Unsurprisingly, the more embedded views tend to be the most interesting; the work by Guardian reporters and visitors often seems indistinguishable from online material produced by other NGOs.

The embedded Ugandan journalist, Richard M Kavuma, has provided a number of interesting pieces, particularly more recently. For example, he takes up the case of the non-payment of the builders within the project, and recently has used website comments to question AMREF’s contracting practices.

Equally enlightening is the writing of the independent evaluator Rick Davies. It is disappointing that his blog is separated from the Guardian, as it provides the most interesting discussions. He has used the extended form of his blog to debate a number of interesting development issues, such as project aims and goals, openness of implementers and the jargon of development.

The surprise is that the voices of the locals of Katine are muted. Where local voices do appear, such as in the small documentaries or the village voices section, they are often mediated through a video narrative or a communications officer. The Katine website could have been an opportunity for locals to interact with the online community through articles, photography, video and audio, particularly given the presence of the Guardian as a resource. Without this, the Ugandan villagers often seem secondary to the opinion of the writer or narrative; not exactly in line with the empowering rhetoric of the overall project.

Benefits of media?

Increased amounts of funding can be seen to come through this higher profile method of fundraising. Not all of this goes directly to the project, as there are significant costs that come from the extra requirements as outlined in the budget; internet access, IT specialists, supporting UK journalist visits, UK based “liaison with the Guardian and Barclays”*. However, it would be unfair to say that the donators are simply funding the Guardian’s media operations. This type of media-aware action provides potential for increased contributions to a development project.

And what about editor Rusbridger’s comment abou the media coverage influencing the project itself? In his most recent evaluation, Rick Davies comments that “Most AMREF staff…could recall particularly postings that had prompted a reaction of one kind or another”, although he doubts any changes, “in Katine my impression was that in some cases nothing more was heard”. Perhaps Davies is underplaying their power. Even if not explicit, the media awareness and learning must have some effect on the way the project partners act, even if it is not possible to measure.

What about more advanced hopes of the Guardian ‘crowd-sourcing’ help for development? Despite a few isolated successes, Davies provides a more convincing critique as to why this is not occurring. Rusbridger is making an incorrect assumption “that the main problems are technical when in fact it could be argued that they are really more social and institutional”.

Outlook

In sum, Katine has provided a more expansive view of development, mainly through the ability to build stories over time, particularly from those like Kavuma and Davies who are closely connected with the work. But there seems a missed opportunity for local production which still leaves a suspicion of the Guardian project being a one-way conversation.

Increased funding can also be attributed to the Guardian, and although this has been somewhat diminished by the extra resources needed, the extra funds generated point to the financial potential of such close media link ups in development.

As this is a three year project. I’m look forward to seeing how this develops, both in terms of the project itself (and the inevitable issues that arise) and how the media components evolve as technology changes.

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Why so many competitions?

5 October 2008 2 comments

Finding solutions to support development has always been a fraught experience, and it seems that organisations are calling on your help.

Just in the last few weeks, Google has launched 10^100 in which is offering $10m to five ideas that “help as many people as possible”. Meanwhile, Nokia is ‘Calling all innovators‘, asking developers to submit mobile solutions which will “Make a difference” to the environment or “pioneer and monetize services impacting the daily lives of millions in developing nations” and offering up to $25K for the winners. How do we interpret this constant need to call on the Northern public when it comes to solutions (and particularly technical ones) in the South?

For the organisations involved there is no doubt that this drums up extra publicity, both within the blogosphere and the mainstream press. For Google, the competition coincides with its 10th birthday and conveniently reminds us that Google is still “not doing evil”. Nokia nudges mobile developers to take a break from java development for a while and chance their arm using Nokia’s Symbian platform instead.

Both competitions imply that change and impact in the South is simply a matter of the big idea or piece of software that will solve a problem. But look at Nokia’s list of potential ideas and one becomes a bit more skeptical, whilst it talks breathlessly of ‘holy grail’ solutions, it reads like a list of existing ICT4D developments

Nokia: “Imagine if an application could help relief workers reallocate resources in real time for disaster-torn areas”
– Stop imagining! You could partner with Vodaphone on the EpiSurveyor or use Frontline SMS
Nokia: “What if a mobile device could test the potability of water”
– It can! Perhaps you should talk to there guys

Nokia’s talk of “social responsibility” seems uneasy. They pinpoint to
solutions where partnerships to add impetus to existing solutions would surely
be the best way forward, rather than more technical solutions doing virtually the same things.

For Google the small print is interesting, “once we’ve selected up to five ideas for funding, we will use an RFP process to identify the organisation(s) that are in the best position to implement the selected ideas. We will be providing funding to these, organisations to implement the ideas”. So to offer a solution is not to be able to provide any input into its implementation, leave that to the experts. This suggests a curious future relationship, the competition winner is taken out of the loop, whilst their solution is presumably morphed into something more useable by the implementors. Which makes you wonder, why bother with the whole gathering process in the first place?

There’s no doubt that from time to time, one of these competitions unearths an idea that has legs, and might progress onto better things. But the question if whether the public competition is the best approach to unearthing and implementing ideas and solutions in the South. Competitions begin to look like publicity campaigns which are having the added effect of giving a skewed view of what solutions for development entail.

[Disclaimer: I never win competitions!]

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Technology innovation vs real interventions

23 September 2008 3 comments

First to say that its good to be blogging here, and lets hope this blog comes together as an interesting group of diverse opinions on ICT, development and anything related.

As Richard mentioned in the inaugural post, ICT4D is no longer a new, novelty area, it has a history of success and failures which influence what will happen in the future. On one hand, there continues to be the constant push of new technologies and approaches into the development space, with the almost daily appearance of a new development solution or philanthropic efforts relying on innovative ICT’s. However, on the other hand many of the largest ICT4D actions are still building on models that were refined many years ago. Look at the Indian and Brazilian flagship mass telecentre programs, or the range of similar e-government schemes still being rolled out as examples.

Does this indicate a dual problem? Firstly a resistance to building adaptive ICT4D solutions that fit in with existing technologies or schemes. Whilst its simple to criticise setups like the telecentre, given that these are often already present, innovation might look to move towards a more intergrationist approaches. Equally it is rare to see ICT4D solutions which exploit older technologies like TV or (until recently) solutions using voice through telephones.

I’ve also heard the other side of the story. NGO’s or organisations do not know how to bring new technology into their working projects. A model solution has been built, and new technology or uses are seen as a risk that might jeopodise accepted solutions or be more costly.

So this post is really an ongoing thought, to flag this duality as a ongoing problem. How can we break away from the purely innovation focus of many new ICT4D ideas, and how do we build more adaptive and open understanding within adopted solutions in the South?

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