World’s Poorest Represent $5 Trillion Market Opportunity, Report Says

Four billion people form the base of the economic pyramid (BOP)--those with annual incomes below $3,000 (in local purchasing power).

The poorest 4 billion people in the world represent a $5 trillion market (in purchasing power parity), according to a new report from the International Finance Corporation and the World Resources Institute. The study is the first comprehensive, data-based assessment of the size and needs of people at the “base” of the economic pyramid. Although each person in this sector has less than $3,000 per year in local purchasing power, with innovative business practices companies can provide inexpensive, better-quality services for the poor and still make a significant profit, the report says.

Released on March 19, The Next Four Billion: Market Size and Business Strategy at the Base of the Pyramid is a 150-page report that uses data from national household surveys of 110 countries. It discusses the unmet needs of the world’s poor as well as the so-called “base of the pyramid (BOP) penalty”—the higher prices for basic goods and services that many if not most poor people must pay, simply because no other options exist for them.

The poor are already consumers, the report notes, so by addressing their needs, the private sector can simultaneously lower prices of goods and services, improve the quality and quantity of these, increase access, create jobs, and garner profit. “In the end, competition is the consumer’s best friend,” Dr. Nariman Behravesh of Global Insight said at the report’s launch. To create this competition, the report recommends innovative business practices and unconventional partnering between nongovernmental organizations, government, and the private sector.

Professor C.K. Prahalad, inventor of the “base of the pyramid” idea, noted that this report shifts debate away from whether globalization is “good” or “bad” and toward using globalization for creating solutions for poverty. “I start with the assumption: globalization is like gravity. No point in denying gravity. What we need to do is to understand it well enough so that we create a plane that flies,” he explained.

Prahalad said the mobile phone industry succeeded in what he calls “cracking the BOP code.” Over 2.5 billion people now have access to the phones because of industry innovations like pre-paid phone cards that match the income availability of the poor. Other success stories include high-quality cataract eye surgery that costs some US$3,000 in the United States but less than US$40 for people at the BOP, and a highly efficient stove that the energy company BP has developed and sells to villagers in India.

These examples are just the beginning, Prahalad notes. “There is an opportunity here, but it’s not yet fully understood…. This is all about imagining the world differently. If we can not imagine a different world, we cannot create it.”

This story was produced by Eye on Earth, a joint project of the Worldwatch Institute and the blue moon fund. View the complete archive of Eye on Earth stories, or contact Staff Writer Alana Herro at aherro [AT] worldwatch [DOT] org with your questions, comments, and story ideas.