Washington, D.C., March 19, 2007
– Four billion people who live in relative poverty have purchasing power
representing a $5 trillion market, according to a new report released today
by IFC, the private sector arm of the World Bank Group, and World Resources
The report, The Next 4 Billion: Market Size and Business Strategy at
the Base of the Pyramid, for the first time measures the size of markets
at the base of the economic pyramid using income and expenditure data from
household surveys. The analysis is complemented by an overview of business
strategies from successful enterprises operating in these markets.
Accurate data on market potential provides a foundation for private sector
engagement that can drive down what the report calls the “BOP penalty,”
where poorer people often encounter goods and services that are more expensive,
of low quality, or difficult or impossible to access. The report seeks
to help businesses think more creatively about new business models that
meet the needs of these underserved markets.
According to the report, base of the pyramid markets are often rural, underserved,
and dominated by the informal economy, and as a result are relatively inefficient
and uncompetitive. As greater numbers of formal firms compete to redress
the BOP penalty, the poor experience a direct increase in quality of life.
As the report describes through business case studies and data, the penetration
of mobile telephony into these markets is a classic example of how competition
can drive such improvements.
“The report backs up the calls for broader business engagement with the
base of the pyramid, stressing the need for the private sector to play
a greater role in development,” said Michael Klein, World Bank/IFC Vice
President for Financial and Private Sector Development and IFC Chief Economist.
“The report also highlights the need for governments to pick up the pace
of reforms to the operating and regulatory environment, so that it becomes
easier to do business,” he added.
In its geographic analysis, The Next 4 Billion finds that the Asian
BOP market (including the Middle East) is by far the largest, with 2.86
billion people and a total income of $3.47 trillion, constituting 83% of
the region’s total population and 42% of the its aggregate purchasing
Eastern Europe’s $458 billion BOP market includes 254 million people,
64% of the region’s population, with 36% of aggregate purchasing power.
In Latin America the BOP market of $509 billion includes 360 million people,
representing 70% of the region’s population but only 28% of aggregate
purchasing power, a smaller share than in other developing regions.
In Africa, the BOP market is $429 billion, but it represents 71% of aggregate
purchasing power in this region. The African BOP includes 486 million people—95%
of the region’s surveyed population.
The report also characterizes the base of the pyramid markets by sector.
Sector markets for 4 billion consumers range from those that are relatively
small, such as water ($20 billion) and information and communication technologies
($51 billion), to medium-scale markets such as health ($158 billion), transportation
($179 billion), housing ($332 billion), and energy ($433 billion), to truly
large markets, such as food ($2,895 billion).
“This report shows how critical it is to focus on the BOP in all its dimensions,"
said Jonathan Lash, president of the World Resources Institute. "The
BOP wins when brought into the formal economy. Businesses win when
they pay attention to the needs of the BOP markets. The world wins
when environmental sustainability, transparency, and equity are as deeply
embedded in BOP growth strategies as the drive for profits. This report
lights the path to sustainable business engagement with the BOP."
The empirical profile of the base of the pyramid in the analysis substantially
extends previous analyses by C.K. Prahalad, Stuart Hart and other experts
by offering a detailed economic portrait of BOP markets. Data are given
by income segment, urban/rural location, economic sector, country and region.
Some striking patterns emerge from the data. More than half of BOP health
care spending, for example, is for pharmaceuticals. As incomes rise,
the share of household spending for food declines, while the share of spending
for transportation and for phone and Internet access rises sharply. Access
to electricity is universal in Eastern Europe and high for most BOP households
in Asia and the Latin America region, but quite low for Africa. For all
regions except Eastern Europe, firewood is the dominant cooking fuel for
the lower-income segments in the BOP, while propane or other modern fuels
dominate higher BOP income segments and urban areas.
To download a copy of the report please visit: http://rru.worldbank.org/thenext4billion