![](media/image1.png){width="1.4388888888888889in"
height="2.1506944444444445in"}***The Next 4 Billion: Market Size and
Business Strategy at the Base of the Pyramid***

**A Reader's Guide for Alliance Builders**

**From the Global Development Alliance**

June 2007

**Introduction**

*The Next 4 Billion: Market Size and Business Strategy at the Base of
the Pyramid* study published by the World Resources Institute (WRI) and
International Finance Corporation (IFC) and released in March 2007,
provides development practitioners with information and ideas to engage
international and local private sector counterparts in productive
alliances. It allows you to identify opportunities, industries, and
companies to address the unmet needs of the underserved in ways that
enable them to work them out of poverty. The report identifies alliance
models that have been successful in meeting the market needs of the poor
in developing and rebuilding states that improve their lives and
livelihoods.

**Purpose of the Reader's Guide:**

-   Enable program and policy managers to link *The Next 4 Billion*
    report to match USAID development goals with key industries and
    companies that are targeting "Base of the Pyramid," or BOP, markets
    across sectors.

-   Use *The Next 4 Billion* to help make the business case to the
    private sector for alliances.

-   See successful models of BOP alliances that have delivered
    measurable development impact.

**What is *The Next 4 Billion*?**

For several years, serious study has demonstrated that there is an
untapped market among the very poor that can be served through
market-based approaches in ways that elevate the quality of their lives.
There are numerous case studies of successful enterprise development and
product innovation that have profitably reached this customer base.

The WRI/IFC report is the latest work in this growing body of evidence
that underserved people at the base of the economic pyramid are an
attractive, if overlooked target audience for investment. The title
refers to the approximately four billion individuals around the world
who have incomes below \$3,000 per year (in local purchasing power). The
analysis draws on income data from 110 countries and standardized
expenditure data from 36 countries across the globe. *The Next 4
Billion* is an important first look at the market opportunity
represented by these four billion individuals, also known as the "Base
of the Pyramid" (BOP).

*The Next 4 Billion* is the first quantitative assessment and
characterization of BOP markets. This report answers:

-   How large is the BOP and what is its income by country and region?

-   What is the total market size and consumer ability to pay within a
    number of critical business sectors, including water and sanitation,
    energy, IT/telecom, healthcare, food, transportation, and financial
    services?

**The Next 4 Billion -- Why Now?**

Development practitioners focus much of their effort on poor and
vulnerable populations. Many approaches for increasing economic
development and access to healthcare, shelter, and education are
advanced through market-based strategies. The BOP constitutes a \$5
trillion global annual market that is primed to be tapped. Despite this
enormous purchasing power, BOP markets are often very poorly served,
dominated by the informal economy, and---as a result---relatively
inefficient and uncompetitive.

*The Next 4 Billion* analysis suggests significant opportunities for
more inclusive market-based approaches that can better meet the needs of
the BOP, increase their productivity and incomes, improve their welfare
and empower their entry into the formal economy.

Rural areas dominate most BOP markets in Africa and Asia; urban areas
dominate most in Eastern Europe and Latin America and the Caribbean. In
terms of spending, food dominates BOP household budgets. As incomes
rise, however, the share spent on food declines, while the share for
housing remains relatively constant and the shares for transportation
and telecommunications services and products grow rapidly.

**Market Opportunities:**

![](media/image2.png){width="3.111111111111111in" height="3.375in"}

The diverse local characteristics of BOP markets show there are market
opportunities that create value locally (franchises or distribution
networks) and enable access to markets (phone cards, insurance
products).

There are also direct marketing opportunities for such products as duel
fuel cook stoves and housing materials made from recycled materials.
Allied market-driven activities in the dominant food sector include
agricultural development and the production of raw materials, processing
of foodstuffs, packaging, distribution and marketing to commercial
buyers and consumers.

**How to Use *The Next 4 Billion***

You may wish to begin with the report's Executive Summary which makes
the case for treating the world's four billion low-income population as
consumers with purchasing power. The full text can be accessed
electronically at:

[www.wri.org/business/pubs_description.cfm?pid=4142](http://www.wri.org/business/pubs_description.cfm?pid=4142)

For a comprehensive analysis of the BOP market, Chapter 1 provides a
detailed breakdown of demographics and regional market characteristics.
The \$5 trillion BOP market is described by market size, composition,
and spending patterns. These are important building blocks for strategic
objectives in any development program planning.

If your goal is to identify more specific development needs by country,
you can read summaries by country (country breakdowns for 36 countries
can be found in Appendix B pp. 113-149).

Chapters 2-9 provide reviews by industry sector, illustrating
opportunities, successes, and failures through case studies from a
variety of countries:

-   Food market (\$2,894 billion) pp. 88-95

-   Energy market (\$433.4 billion) pp. 76-87

-   Housing market (\$331.8 billion) pp. 68-75

-   Financial services market (not available) pp. 96-103

-   Transportation market (\$179.3 billion) pp. 60-67

-   Health market (\$158.4 billion) pp. 34-41,

-   Information and communications market (\$51.4 billion) pp. 42-51

-   Water market (\$20.1 billion) pp. 52-59

The first step in deciding which industry sector to focus on will be to
match up your strategic development goals with the industries segmented
in *The Next 4 Billion.* Sometimes this will be obvious, as in the case
of improving access to clean drinking water. In other cases it may be
less clear; for example, if you have an objective around reducing child
malnutrition you would certainly want to look at the Food and Health
chapters, but you might also look at the Transportation chapter if it is
less the amount or quality of food but rather its distribution that is
the issue.

In reviewing the industry chapters, you should be alert for ideas around
newly emerging partnership opportunities. For example, the Financial
Services Market chapter highlights the involvement of international and
national banks but also the importance of mobile telecom companies in
improving access to financial services.

+-----------------------------------------------------------------------+
| > **Sample Case LAC Region: Guatemala Housing Industry**              |
+-----------------------------------------------------------------------+

You are the Mission Director in Guatemala and you know that access to
affordable housing is a key issue impacting poverty in the country. Your
goal is to improve citizens' access to housing and you would like to
build an alliance as part of the approach.

Before you contact any construction or building supply companies based
in or operating near Guatemala, you read the Guatemala country summary
(Country Table Sample, page 9 in Executive Summary Booklet or Appendix
B, page 126 in the Full Report) to get a sense of the BOP market
demographics. For example, you learn that the largest share of
Guatemala's BOP population (29.7% of a population of 11.4 million) earns
approximately \$1,000 annually, and approximately half those people live
in urban areas while the other half live in rural areas. You also learn
that total BOP spending on housing in Guatemala is \$1.6 billion or
\$911 per household, which is only one quarter of what BOP households
spend on food. Therefore these consumers must be judicious in their
spending so quality and costs are key to attracting their business.

Next you read the chapter on The Housing Market (pp. 68-75) and learn
about an innovative housing program rolled out in Mexico by Cemex called
Patrimonio Hoy, which makes housing affordable and improves build times.
The chapter also discusses the issue of informal home ownership in some
BOP countries which leads to additional problems such as lack of access
to power and water. Potential solutions are described, such as land
reform programs which help bring ownership into the formal sector and
new financial services.

  -----------------------------------------------------------------------
  **Sample Case Africa Region: Sierra Leone Agribusiness**

  -----------------------------------------------------------------------

You are the Mission Director in Sierra Leone. Food represents the
largest share of BOP household spending in Sierra Leone although nearly
half of the working-age population engages in subsistence agriculture.
Your goal is to increase agricultural productivity. As part of a
solution, you would like to build an alliance.

Before contacting agricultural supply companies operating in Sierra
Leone, you look at the country summary for Sierra Leone to get a better
sense of BOP market demographics (Appendix B, page 142). You learn that
the largest share of Sierra Leone\'s BOP population, equal to 44.5
percent of a population of 5.1 million, earns approximately \$788
annually. You also learn that total BOP spending on food in that same
population band is \$453 per capita, which is equal to roughly 57
percent of total income per capita for that population. Therefore,
despite a high percentage of the population participating in
agriculture, a significant proportion of income is still being spent on
food.

Next you read the chapter on the Food Market (pp.89-95) and learn about
an innovative agricultural development enterprise program introduced in
Kenya, Tanzania, and Mali by KickStart, which has introduced
market-driven technologies for African entrepreneurs, creating
enterprises at every level of the value chain from manufacture to
distribution, retailing, and end use by farmers. The chapter also
explores the issue of food meeting the nutritional needs of low-income
populations and improving food distribution mechanisms.

Using USAID's current framework for foreign assistance and the market
segments present in the report, practitioners can scan potential market
opportunities across the board. You can use this matrix to match
opportunities identified by *The Next 4 Billion* with your own
priorities. As an exercise to begin matching needs with opportunities,
you could construct a worksheet to plot potential intersections as
follows:

+----------+-----+----+-----+-----------+------+------+-----+-------+
| USAID    | Hea | I  | Wa  | Trans     | Hou  | En   | F   | Fina  |
|          | lth | CT | ter | portation | sing | ergy | ood | ncial |
| Ob       |     |    |     |           |      |      |     |       |
| jectives |     |    |     |           |      |      |     | Ser   |
|          |     |    |     |           |      |      |     | vices |
+----------+-----+----+-----+-----------+------+------+-----+-------+
| Peace    |     |    |     |           |      |      |     |       |
| and      |     |    |     |           |      |      |     |       |
| Security |     |    |     |           |      |      |     |       |
| (c       |     |    |     |           |      |      |     |       |
| onflict) |     |    |     |           |      |      |     |       |
+----------+-----+----+-----+-----------+------+------+-----+-------+
| G        |     |    |     |           |      |      |     |       |
| overning |     |    |     |           |      |      |     |       |
| Justly   |     |    |     |           |      |      |     |       |
| and      |     |    |     |           |      |      |     |       |
| Democr   |     |    |     |           |      |      |     |       |
| atically |     |    |     |           |      |      |     |       |
+----------+-----+----+-----+-----------+------+------+-----+-------+
| I        |     |    |     |           |      |      |     |       |
| nvesting |     |    |     |           |      |      |     |       |
| in       |     |    |     |           |      |      |     |       |
| People   |     |    |     |           |      |      |     |       |
| (health, |     |    |     |           |      |      |     |       |
| ed       |     |    |     |           |      |      |     |       |
| ucation, |     |    |     |           |      |      |     |       |
| social   |     |    |     |           |      |      |     |       |
| s        |     |    |     |           |      |      |     |       |
| ervices) |     |    |     |           |      |      |     |       |
+----------+-----+----+-----+-----------+------+------+-----+-------+
| Economic |     |    |     |           |      |      |     |       |
| Growth   |     |    |     |           |      |      |     |       |
| (trade,  |     |    |     |           |      |      |     |       |
| agri     |     |    |     |           |      |      |     |       |
| culture, |     |    |     |           |      |      |     |       |
| envi     |     |    |     |           |      |      |     |       |
| ronment) |     |    |     |           |      |      |     |       |
+----------+-----+----+-----+-----------+------+------+-----+-------+
| Huma     |     |    |     |           |      |      |     |       |
| nitarian |     |    |     |           |      |      |     |       |
| As       |     |    |     |           |      |      |     |       |
| sistance |     |    |     |           |      |      |     |       |
+----------+-----+----+-----+-----------+------+------+-----+-------+

Wherever you find overlap, even across sectors, you have the coordinates
you need to begin planning a market-based strategy to advance your
development agenda.

# Opportunities for the Development Community 

The key lessons to take from *The Next 4 Billion* are:

1)  BOP business planning can be complementary to rebuilding states and
    providing sustainable development.

2)  Consumers benefit when they have choices from competition in the
    market.

3)  The poor are already consumers, but they are badly served and pay a
    poverty penalty for most of their goods and services.

4)  There is untapped potential for the private sector to lower prices,
    raise quality, increase access and create jobs.

5)  The opportunity to scale is tremendous.

**Note:**

While the BOP perspective identifies new ways of creating win-win
scenarios with the private sector, USAID's focus remains on development
and the beneficiaries. Our alliances should assist with the production
of BOP commodities and services that positively impact the well-being of
consumers. Our alliances with WISHH/Solae in Southern Africa, Grameen
Phones in Rwanda, Plumpy'Nut in Malawi, and ApproTec (Kickstart)
Tredlepumps in Kenya and Tanzania are all good examples of product
development that empower those at the base of the pyramid. Scaling
opportunities can be derived from workforce development initiatives and
linking SMEs run by the BOP to competitive value chains with larger
companies. Descriptions of these alliances can be found on the internal
USAID website at:

[[http://gda.usaid.gov/alliances/index.html?s=SVHTWWJYBVBXBPDSHGDMHRBQYLYTQYNT]{.underline}](http://gda.usaid.gov/alliances/index.html?s=SVHTWWJYBVBXBPDSHGDMHRBQYLYTQYNT)