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The Blue Sweater
by Jacqueline Novogratz
(Rodale, New York, 2009)

Earlier this year Dambisa Moyo's book Dead Aid reignited the debate over the value of bilateral aid programmes in promoting economic development. Moyo claimed that Western aid to African governments tended to create dependency and corruption rather than improvements in social and economic well being. She argued that private sector solutions - raising capital in the international financial markets, promoting trade with China and supporting micro-finance initiatives- would lead to better outcomes for Africans.

Some of Moyo's critics claimed that her book was rather thin on detail as to how private sector activity might take up the slack, if Western aid were to be terminated. Where would the new businesses come from and how would they fund themselves?

The Blue Sweater by Jacqueline Novogratz provides some answers to these questions. The book is more memoir that manifesto; but in telling her own story she also sets out the possibilities of private sector economic activity that could replace aid-dependency.

Novogratz traces her gradual transformation from an idealistic development worker in her early-twenties, with a couple of years banking experience and a passion to change the world, into an idealistic investment manager in her late-forties, with two decades of experience of business start-ups in Africa and Asia, who retains her passion to change the world.

Along the way she learned "that generosity is far easier than justice and that, in the highly distorted markets of the poor, it is all too easy to veer only towards the charitable, to have low - or no - expectations for low-income people". To avoid the perpetuation of dependency we must be willing "to build solutions from the perspectives of poor people themselves rather than imposing grand theories and plans upon them".

In 2001 Novogratz established the Acumen Fund, which raises capital from investors and promises them social not financial returns: "You don't get any money back from your investment. You get change!" The money is invested in entrepreneurial ventures that seek to serve low-income markets and that have a reasonable chance of establishing themselves into sizeable and profitable businesses overtime.

Acumen Fund beneficiaries include an eye-clinic in India that uses telemedicine to reach patients far from hospitals; an Indian company that builds and services tele-kiosks in small villages to provide access to telephone and internet services; a company that sells drip-irrigation technology to farmers in arid regions of Pakistan, and a company that makes insecticide-treated mosquito nets in Tanzania.

In each of these cases the businesses sell their services to a wide range of customers, often using varying price points that take account of what the local market can afford. They are successful in part because they are well managed, in part because they know and understand their customers' needs, and in part because their customers are willing to pay for goods and services that are of high quality.

While this hardly sounds like a revolution in economics it does make a refreshing change from decades of wasted aid budgets, squandered on badly managed projects run by people with little interest in the needs or wishes of the supposed beneficiaries. The social businesses that the Acumen Fund supports offer their customers choice; and, as Novogratz observes, "choice is dignity".

This book tells the story of someone who was eager to do good in the world, but who was also willing to learn how to do good effectively. Patient capital, Novogratz's term to describe the Acumen Fund approach to investment, is a welcome alternative to dead aid.

© Mark Hannam 2009