More Misadventures in Foreign Aid?

(Photodisc)

Last week CNN told the story here and here of Derreck Kayongo, a refugee from Uganda now living in Atlanta. His father was a soap-maker, and Mr. Kayongo is following in his footsteps, but with a nonprofit twist: he cleans and reprocesses discarded used soap bars from American hotels and ships them to Africa. He started the Global Soap Project, a U.S.-based non-profit organization, to do this.

An inspiring story of someone trying to turn waste into something good. That of course is great, and I like the ingenuity. And I admire how Mr. Kayongo has managed to navigate both the nonprofit and corporate space to figure out how to mobilize people to contribute the soap, and to coordinate delivery to people in need.

But is the best solution here really half-used soap?

A key question that we should be asking, as with other schemes to send our nearly-disposed-of-goods overseas, is how do the cost of packaging and shipping compare to the cost of purchasing the same goods in local markets in the destination country?

Or in this particular case, there is a formula we should calculate:

We want to know the benefit to society, relative to an alternative. An alternative is to take the money that would be spent on reprocessing and shipping the soap, and instead send money to Africa to buy soap there and give it out for free (just as they are doing now, through the same channels).

Here is the formula for the net benefit to society from the Global Soap Project’s approach, compared to the above alternative:

+            Cost of soap purchased in Africa

+            Environmental costs saved by not putting soap in a land fill (I have no idea, is this bad?)

-            Cost of collecting and reprocessing the soap

-            Shipping costs to send soap to Africa

-            Foregone welfare gain in Africa from supporting the soap-making industry

=            Net social benefit of Global Soap Project, compared to sending cash and buying soap and distributing it for free

So what is this likely to be? Judging by the price of soap in many parts of Africa (very very low), I’m guessing the right strategy is to send the cash and buy soap there.

Scott Gilmore blogged this point as well. Global Soap Project responded, and explained that the soap is shipped over by charities already shipping stuff, so Global Soap Project is not paying for the shipping. Although I admire the entrepreneurial instinct, to find others to send the stuff at lowest possible cost, the fact remains that there is a cost to doing that. Just because Mr. Kayongo found someone to pay for the shipping doesn’t mean it got shipped for free.

In the interview, Mr. Kayongo says, “I don’t want to ever see a child without soap. I don’t want to see a mother give birth where the attendant didn’t wash her hands. I want to put a bar of soap in every child’s hand globally that cannot afford it. That’s my goal.” An admirable goal. Clearly Mr. Kayongo has good intentions. And I smile at the entrepreneurial spirit. But is his current approach the most cost-effective way of achieving this goal?

If indeed the calculation leads to the conclusion I think it will, I hope someday soon we will hear about Mr. Kayongo sending money to Uganda to buy soap from soap makers there and distribute this soap for free to those in need. This will create jobs, save environmental costs from shipping, and get soap into the hands of the poor. Of course a lot remains to be learned about how to get people to use soap, but no doubt people are more likely to use soap if they have it than if they do not.

 

 

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  1. MM says:

    But the problem with a lot of foreign aid in $$ is that it is not used for the purposes it was intended to. If he sends cash instead of soap, who should receive and distribute the $$?

    If it is given to the local government, how can we guarantee they will spend it in soap and not in something for a corrupt leader (luxury car, jewelry)? If it is given to an NGO, they will have some extra costs (pay the salary for the person distributing the soap, for example). So, given the literature on the effectiveness of foreign aid, I am not sure sending cash would be the most efficient way to make sure everyone has soap.

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    • CT says:

      I completely agree. Unless he himself brought the cash over himself, he could never be certain in got to the right hands. Not to mention, he would have to locate enough local soapmakers, who would need to hire and train people and get a larger facility etc. to meet the increased demand.

      While doing this might be a good long term solution for ensuring that people have an adequate supply of soap, I believe Mr. Kayongo’s approach is appropriate for the short term. He is making sure that the SPECIFIC product in need is getting to the right people at a low(ish) cost.

      In the future, he can work towards buying soap made in Africa instead.

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    • miceky says:

      Sending soap instead of money does not eliminate the issue you suggest. Both money and soap require QC to ensure it is being distributed properly.

      There is a good chance the soap is being intercepted and given to those with connections, or being sold, as opposed to given away.

      In short, you supply an issue that is the same for both soap and money, and therefor does not support the case to send soap

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      • MM says:

        But the soap is not as valuable for those with connections, who probably already have soap (because of the connections, I assume they are powerful enough to access soap), and soap cannot be converted into different uses as far as I know. Cash, on the other hand can become anything. This makes cash more likely to be used for other purposes (that is, not buying soap).

        I agree that sending soap is not a long term solution, but it makes sense in the short term. If you read some of the research on aid, cash tends not to help as much as aid in species, because it is not disbursed to those who need it. The long term solution is creating a local NGO that buys/distributes the soap directly. But one person, in the short term, is probably unable to do that easily.

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      • max says:

        In fact, the african intermediaries will go and see the supermarkets and sell it to them as a foreign soap at a very high price..considering africa’s high taste for foreign commodities and more especially coming from the United States.

        The problem will still persist.

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      • MM says:

        I agree. The only way to avoid that problem is to have no intermediaries, which is why I suggested the long run option in the long run is to put an NGO in the country and distribute the soap yourself. In the short run, is not 100% viable.

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  2. Tucker says:

    Of course the natural conclusion is that he should sell the soap here as a non-profit that disburses funds in Uganda for soap, sanitation or water safety purposes that could reduce or eliminate diseases we associate with a lack of soap. In addition as a refugee with links back to Uganda he should be able to have a more effective ground organization that could buy local soap, probably cheaper, and make sure it is distributed to all of the schools and hospitals in a district.

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  3. Scott says:

    Hidden due to low comment rating. Click here to see.

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    • Tim says:

      Scott, perhaps you can be bothered, next time, to take a look at what Dean does before suggesting he take action.

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  4. Clancy says:

    Couldn’t the re-processed soap simply be sold back to the hotels? The money saved could be used to buy soap in Africa.

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    • CT says:

      Because it would only take 1 person to complain about getting “re-used old dirty soap” to use before everyone is complaining.

      The hospitality industry doesn’t reuse anything…well they don’t reuse anything and TELL people about it anyway.

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      • James says:

        So you sell the ‘recycled’ soap at organic food stores and make lots of money.

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  5. Wilma says:

    Perhaps his method is not the most cost effective. Let’s say it isn’t; for the sake of argument let’s go so far as to say it’s the least effective way to give soap out that still produces some results.

    But it’s the execution of any plan that is more important. A horrible plan, with the action and execution to produce some results is far more valuable than the perfect plan that never leaves paper.

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  6. Enter your name says:

    You forgot to add in the social benefit of the people he’s hired to do the collecting, sorting, and reprocessing. Offhand, I’d expect “hired a low-skill American worker to re-process leftover soap” has about the same social benefit as “hired a low-skill Ugandan worker to make new soap”.

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    • Dean Karlan says:

      thanks for adding, i agree….

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      • Dean Karlan says:

        Clarification: I agree I omitted that benefit. Not sure I agree the benefit is about the same between the two. I’d think the benefit is higher in Uganda, just thinking like a utilitarian.

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  7. Kristine A says:

    “Scott Gilmore blogged this point as well. Global Soap Project responded, and explained that the soap is shipped over by charities already shipping stuff, so Global Soap Project is not paying for the shipping. Although I admire the entrepreneurial instinct, to find others to send the stuff at lowest possible cost, the fact remains that there is a cost to doing that. Just because Mr. Kayongo found someone to pay for the shipping doesn’t mean it got shipped for free.”

    In accounting don’t we call that a sunk cost? Sunk costs are not considered in decision making equations. At least that’s what I learned in my Intermediate Accounting course. So feel free to correct me if GAAP has changed. The other charities were spending the money whether or not his soap was on the boat/plane. You can argue that the other charity shouldn’t be shipping either – but if it’s truly a sunk cost and would be spent no matter what Mr. Kayongo did, than the total shipping cost for the soap is $0.

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    • CT says:

      Haha oh accounting…you reminded me of my prof’s lecture on sunk costs. You’re right – the other charities are shipping anyway!

      I DOUBT they added any extra trucks/boats/planes/whatever to their fleet, as that would be EXTRA cost. They probably just filled in the extra little gaps with soap, that would’ve otherwise been empty space.

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      • CT says:

        AND presumably they aren’t shipping any LESS of their good to accomodate the soap. So they can either ship 0 of their good or x number of soap. So the opp.cost of shipping empty space is x number of soap.

        I am assuming that they didn’t actually give up the shipping of their own good in favour of the soap…..

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    • Evan M. says:

      In accounting, a sunk cost, but in economics, nothing is disregarding as free because someone else is footing the bill. Say Mr. Kayongo is pretty successful and loads 2 tons of soap onto whatever cargo plane or boat it’s taking, that’s 2 tons of cargo more that someone is paying, whether through increased fuel costs (don’t forget about the additional pollution, more stuff moved means more fuel burnt) or a higher shipping charge (would you let someone toss 2 tons of stuff on YOUR boat and not pay for it, if you were a shipping co.?). So, even if someone is letting Kayongo toss his soap on a boat heading to Africa at no cost (to Mr. Kayongo), they are essentially paying for his ticket across the Atlantic.

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      • kingtoots says:

        Fair enough, but there is a thermodynamic aspect that is ignored by the analysis. Too much emphasis on the shipping costs, not looking enough at energy costs in creating soap.

        Energy costs in creating the soap are presumably lower (due to the higher volumes that the soap is created as well as the general energy costs in US) as opposed to the reprocessing costs (lower costs due to not starting from scratch).

        Real difference in economics is if you take soap stock (un-packaged, pre sent to hotel) in price per Kg. and compare to 0 cents/KG. for hotel soap (since collecting cost is baked in) and compare to price per Kg. to creat soap in land locked african country for 3 way comparison.

        Interesting thought experiment, but think that dean analysis is focused too much on shipping costs which in this day and age is rather small sinc I think that the margianl difference between 2 tonnes on a ship is rather small in comparison to margianl cost of creating soap in US as opposed to Africa.

        Hope clear, not much time to clean up, make clear.

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      • Chris says:

        I work for a company that imports goods from Asia. We pay ocean freight based on the container size, not the weight – we pay the same amount whether the container is 75% full or 100%. So it is entirely possible that the soap is being shipped at no additional cost, if it’s being used to top-up partially filled containers that would be shipped regardless. For a modern container ship, the additional burden of carrying a ton of soap is negligible.

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      • Dean Karlan says:

        The question I’d want to know then is what items *must* be shipped, versus made in the developing country. There I’m sure are plenty. So there is an opportunity cost of shipping the soap… the space could be used to ship, eg, computers, or cellphones, or anything that isn’t quite so easy to build in the developing country where there are already manufacturers ready and eager to take the orders.

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    • c-sez says:

      If this operation is happening at a sufficent scale to have a discernable impact, then it most certainly does require money to be spent on shipping, by the container load, by someone.

      If it is so minor that other charities can simply add a few dozen cubic feet of soap here and there to their existing #swedow containerloads going from the US to Africa, then this is a lot of fuss over a minor charitable endeavour.

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  8. Sristi says:

    i agree with MM…if cash was sent to the countries it would be used for everything else but soap….

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