D+C Newsletter

Dear visitors,

do you know our newsletter? It’ll keep you briefed on what we publish. Please register, and you will get it every month.

Thanks and best wishes,
the editorial team

Register

Investment climate

Enlightening entrepreneurs

by Jenny Luesby
In 2006, the Kenyan media did not pay any attention to the international flower market even though the livelihoods of several hundred thousand families depend on it. Farm worker near Naivasha

In 2006, the Kenyan media did not pay any attention to the international flower market even though the livelihoods of several hundred thousand families depend on it. Farm worker near Naivasha

Poor business environments are typically marked by a lack of reliable business media. In rich nations, business papers are among the most respected publications. Most developing countries, however, lack such media, so entrepreneurs and managers have to cope without crucial information. In Kenya, the Business Daily, a newspaper that was launched four years ago, is making a difference. By Jenny Luesby

High on a hilltop in central Kenya, the Thambu family last year started earning more money than it ever did before. The reason is that their son, who lives in Nairobi, read an article about a new, super-cheap irrigation system and decided to install it at his parents’ home. The problem that had kept the family from growing more crops on their hill was solved.

The son dug out the water hole at the base of the hill, installed a water pump and the irrigation kit. He only spent a few hundred dollars, but he created a sustainable system that promises to boost the family’s income forever. All he needed was the information about this specific option. Such information was supplied by an article in the Business Daily, a newspaper that was started in March 2007 by the Nation Group, the country’s leading publisher.

This is one of countless examples of how the new paper is changing economic fortunes in eastern Africa. And yet, as has always been the case, the role of the business media in economic take-off continues to be a subject that gets almost no attention in the development debate. No research is underway to assess the media’s impact on growth, investments or business performance of a well-stocked and locally relevant information environment. Very little funding is made available for training business journalists or creating business publications.

Instead, donor agencies expect business people in developing nations to carve out new paths of growth with virtually no reliable market information at all. The media environment in advanced nations could not be more different. Business leaders in the rich world depend on professional reporting.

The information difference

In most emerging markets, there is hardly any public and palatably packaged information about which markets are growing and which are not. Reliable reporting of prices is scant for everything from raw materials to final goods, from wage rates to rental fees. Managers and entrepreneurs in developing countries therefore lack vital information. For them, it is extremely difficult to find out with any precision
– which activities are currently making the best profits,
– which businesses are growing fast,
– which market segments are suffering from over-supply,
– who needs new staff urgently or
– what new competition from abroad is imminent?

Another example from Kenya will illustrate the setbacks such a lack of information can lead to. In the 1990s, Kenya became one of the main suppliers of cut flowers to Europe. In 2006, China began planting thousands of acres of rose bushes for cut-flower production – supported by the latest technology in refrigerated packing and dedicated air-freight facilities. Once Chinese roses were actually shipped to Europe, the prices for Kenyan flowers were halved in a matter of weeks.

The Chinese combined their investment with multiple new partnerships with the same brokers at the Rotterdam flower market that were previously buying 70 % of Kenya’s cut flower output. East African flower farms struggled to reposition themselves even as they were suffering losses, without either cash or borrowing capacity to aid them.

It would, of course, have been possible to report the Chinese plans right from the moment the strategy began to be activated. Had that been done, Kenyan flower producers would have had two years to prepare for the new competition and to find solutions based on their still healthy profits. But sadly, the Kenyan media at the time simply did not pay any attention to the international flower market even though the livelihoods of several hundred thousand families depend on this market. Today, the Business Daily covers issues like this.

Business news agendas

It is a depressing truth that national news agendas in many countries are simply not geared to the issues that actually impact on their audiences’ lives. In his novel Blue Gold, Clive Cussler lets one of his characters say this about the media in the former Soviet Union: “Sex, crime, and more sex. I don’t know what could be weirder than the Russian press … It’s like US supermarket tabloids on hormones. I almost miss the tractor production statistics.”

In developing countries, media barons typically say that business stories don’t “sell newspapers”. But that is not necessarily so. The circulation of the Business Daily in Kenya is still small, but it has grown by 40 % in the past two years to 8000 and the paper is commercially viable. Last year, it made a profit of some 1.5 million Kenyan Shillings (roughly € 14 000).

Publishers should also consider the case of India, a country with several business papers and magazines. In India, business news is often reported on the front pages. Business coverage has, moreover, gone on to shape policy debates, shift public opinion and generate a business climate that of itself further fuels the appeal of business news.

That is the way it is in advanced economies too. Papers like the Wall Street Journal in the USA, the Financial Times in Britain or Il Sole / 24 Ore in Italy are among their nations’ leading media. They are held in high esteem internationally, not only by business leaders but policymakers too. Research has showed again and again that the financial press is influential and contributes to making socio-political environments business-enabling.

In Kenya, Business Daily and innovative business-to-business websites have begun to make a difference. Obviously, in an era of liberalisation, they have an important role to play. They disseminate information that helps to close down opportunities for rent seeking and open markets to fair competition.

All over the world, the business media probably make their most important contribution by spreading business know how. In all economies, small and medium-sized enterprises (SMEs) are the main engines of growth. According to the US Department of Labour, micro-businesses with fewer than 10 employees account for the vast majority of new jobs in the USA. In Europe, things are similar.

In Africa, a vast amount of studies have argued that economic growth must reach deeply into the populace in order to gain the momentum needed to eradicate poverty and keep up with population growth. But only one of every 10 new businesses survives its first three years, and the principal reason for the failure of the 90 % is lack of business know how.

Skills shortage

It is true, of course, that delivering business news that is fresh, relevant and informative requires skills that are largely absent in many emerging markets. A recent audit of journalism skills in South Africa, the continent’s most advanced country, saw 80 to 95 % of journalists fail a test of interviewing skills. Two-fifths were classed as having poor writing skills, and up to a quarter of reporters lacked the know how to report any event correctly.

Business reporting, moreover, requires far more know how than general interest in reporting. Business journalists must understand markets as well as the policies and regulations that affect them. They need a basic knowledge of law and management. They have to be able to read balance sheets. Unless they have these skills, they will not be able to provide the kind of information entrepreneurs and business leaders need. If donors are serious about improving the investment climate in Africa and other poor regions of the world, this is an issue they must tackle.

The challenges are daunting. All over the world, business has become more complex and thus requires more knowledge. Lou Ureneck, chair of the Education Committee of the American Society of Newspaper Editors, observed in a report: “In the early 20th century, there was not a global trade in credit default swaps, nor were home mortgages packaged as collateralised debt obligations that were sold and resold across national borders.”

He went on to note that the US Federal Reserve System, the central bank needed to enforce macroeconomic policy, was only established after the crash of 1929. The same is true of the Securities and Exchange Commission, which requires corporations listed on stock markets to report their results. “All of this now is the domain of a good business reporter,” Ureneck summed up.

Kenya has a mortgage market today, as well as a corporate bond market, and there is talk of a soft commodities exchange. A carbon-trading exchange has been announced. Invoice factoring is beginning to happen and so is asset-backed finance. There are also massive changes concerning operational opportunities, consumer trends, markets in general as well as in training and human resources.

The editorial team at the Business Daily is in no danger at all of running out of relevant topics to cover. Articles they produce, moreover, are also used by papers the Nation Group owns in neighbouring countries, for instance the Monitor in Uganda.

Changes in the economy are things that not only business leaders, but the people in general need to know about, so journalists must inform them. This challenge is particularly daunting in developing countries where audiences tend to have poor education. The people are not stupid, but most simply did not have the chance to spend much time in school.
High school diplomas are rare in developing countries. Many people are illiterate, but they appreciate good radio and TV reporting. The informal sector of developing countries abounds with enterprising people with very little formal schooling. These people matter very much and, to the extent that they cannot read, would certainly benefit from competent business reporting in broadcast media.

Rural needs

The challenges – both on the media’s supply and demand side – are most pronounced in rural areas. This is where poverty and the lack of educational opportunities are most evident. Illiteracy and poor infrastructure, of course, constrain the power of the internet to provide people with information. Nonetheless, the web can make a difference.

A recent headline in the Business Daily read “How Google saved my potatoes”. The story was about a farmer, who cycled to the nearest cybercafé and looked up the symptoms when his potato crop began dying. He discovered that ants were the problem and that if he put ash around the plants it would be resolved. He saved the crop.

This farmer later bought a 3G phone. He now systematically searches the web for information that is relevant to local farmers, translates it into Swahili and posts short reports on the notice-boards of local villages. He has, moreover, found funding to set up a local farmers information unit. But even his efforts are stymied by the gap in locally relevant information.

In Kenya, agriculture is far the country’s largest industry, and the platform on which the government has declared it is going to achieve economic take-off. In this sector just as in any other, relevant information has transformatory power. Farmers need to learn about their options to make the most of their opportunities.

The news, of course, has to be recognisably appropriate. Consider the hypothetical case of an early-stage agro-processor who is growing highly lucrative mushrooms on her farm and drying them for export. Her problem is that transport costs are eating up her profits. Her lot would be transformed by news about a café in a nearby town where lorries offer empty part-loads on their journeys back to the port in Mombasa.

The same article on the emerging cargo-space exchange, moreover, would matter to many other local producers, across many types of products. And it would be read by lorry drivers who are ignorant of this budding opportunity to find new clients and rake in more revenue. Indeed, news about this kind of transport opportunity helps to more firmly establish it. This is how business news works.

By contrast, the typical development-agency approach would be to observe that transport costs “should be monitored”. But even if that is done diligently, how will small holders learn of their opportunities? Data remain useless unless they are provided to those who know how to use them.

Many development agencies certainly try to disseminate their insights. Some seek to create their own media, reaching a few thousand people or so. But developing nations have media industries. In Kenya, there are more than 70 radio stations, many newspapers, TV channels and magazines besides. The real challenge is capacity building in business news.