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.

 

 


MM

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.

CT

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.

Tucker

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.

Scott

Dean, I can appreciate your analysis and would say that since you are looking to critique Mr. Kayongo's efforts, perhaps you would also like to step up and move from the sideline observer role to one of effort in improvement of the situation.

Clancy

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

CT

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.

James

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

Wilma

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.

Enter your name

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".

Dean Karlan

thanks for adding, i agree....

Dean Karlan

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.

Kristine A

"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

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.

CT

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.....

Sristi

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