A wise man once said, the distribution of wealth and the capacity to generate incomes in the world can be captured in the form of an economic pyramid. At the very top of the pyramid are the wealthy with numerous opportunities for generating high levels of income. On the other hand more than 4 billion people live at the very bottom. These are those who earn less than USD 2 per day.

This is reiterated by the author of ‘ Africa Rising’. He captures Africa into three elaborate segments Africa 1, 2 and 3. It continues to elaborate the components of the three distinct segments.

Africa one consists of 15% of consumers (about 150 million people). Those that fall under tier one have the most disposable income and behave like the elite segments in other global markets.

Tier two which the author refers to as Africa two comprises of about 35% of the consumers ( about 350 million ) represents the lower level of consumers or the future middle class.

Lastly, Africa three the most neglected perhaps has the most number of people. It represents about half or more of the consumers (500 million). This group has been christened B.O.P which in full means Bottom of the Pyramid.

You must be wondering, what is this lady driving at. The above is just a breakdown of a conversation I want to get into -The ‘Kadogo’ economy.

This particular phrase gained popularity in the late 1990s that came about in the wake of a depressed and deprived people. This was contributed by an ailing economy and a sudden rise in the number of poor people and poverty was quickly becoming a household name.

These were hard times for the country and because so many people got affected, retailers in the sprawling slum dwellings saw a niche within which they could grow their businesses. They started selling consumer goods affordably and in quantities that were small enough to meet daily running of households. To date it is possible to buy a tablespoon of sugar as well as the same quantity of cooking oil. KES 100 can easily cater for a poor household’s food requirements in a day. This was because of the emergence of the Kadogo Economy. Many of you can recall the Unga revolution which helped popularize the concept. It was a period when price of maize flour had shot upwards to KES 120 and the citizens wanted the government to lower this price to KES 30.

The founders for the infamous Pima Gas did a research and saw a niche in the BOP. Their findings revealed that there were about 400,000 LPG (Liquefied Petroleum Gas) users. Over and above that they realized that there are about 9 million households 3.5 million of those reside in urban areas and a staggering 3 million of urban households had no access to gas. Their idea of a 1kg gas cylinder was birthed to tap into this virgin market and costs just under USD 4 and can last a household about a week. This is a win for the households in the sense that it is cost effective  and the environment in that it is a green initiative.

Manufacturers like Unilever were not left behind and decisively tapped into this consumer market. That’s why you come across Royco cubes selling for a shilling, Omo for ten shillings and the popular Blue Band ya Kadogo.

Safaricom another blue chip company saw the business potential of this niche and true to their investment, accessibility to talk time and ultimately communication has been availed to most if not all consumers thanks to the growth of Bamba 10 and Bamba 20. I know for a fact that this venture has largely contributed to the turnover of this Telecommunication giant.

Equity bank did not lag behind in creating its presence at the very base of the pyramid. It stirred the financial sector by taking the risk of finally banking the unbanked and this caused an uproar that made other banks wake up and realize that indeed this bracket of people truly matter.

Like every coin, this whole concept has its ugly side. A study carried out by the World Bank during the last quarter of 2010 through the second quarter of 2011 indicated that the individuals  low income earners spend more for a similar unit of good compared to the rich. This has been explained through conversion of whatever little that has been bought and amalgamated into an entire pack say of 500 grammes and the same if bought as a whole. It further notes that this category of people have reduced chances of breaking out of the cycle of poverty.

Image courtesy http://nitibhan.com