2007 Distinguished Alumni Awards
Craig Nakagawa, ’97
Image by Matthew Gilson
Craig Nakagawa, ’97, left Wall Street to travel coach to Africa to get money from Bill Gates to bring vaccines to Mozambique.
For Chicago Booth Magazine, professor Robert Gertner questioned Nakagawa about the nonprofit capital market, how VillageReach will expand, and giving up a traditional career.
A year after he left the telecommunications firm ICO to become a social entrepreneur in 2001, Craig Nakagawa faced the biggest challenge of his career. A major donor backed out a month after his organization, VillageReach, had signed an agreement with Mozambique’s Ministry of Health (MoH) to distribute vaccines to the remote villages of the province Cabo Delgado. But he and founder Blaise Judja-Sato scaled back the pilot program and rolled it out anyway. After 14 months, VillageReach won $250,000 in the World Bank Development Marketplace event; months later, the Bill & Melinda Gates Foundation awarded the organization a five-year grant for $3.3 million, ensuring its success.
Now VillageReach, which runs a for-profit propane business to help support its charitable mission, has not only expanded, it’s turned over operations to the MoH, enabling Nakagawa to plan new operations in other African countries. His work with VillageReach has earned Nakagawa the 2007 Distinguished Public Service/Public Sector Alumni Award.
Nakagawa fielded questions about his success from Robert Gertner, Wallace W. Booth Professor of Economics and Strategy, who teaches a course on social entrepreneurship.
Gertner: VillageReach is working to prove that its program in Mozambique can be replicated in other developing countries. How do you plan to go from “replicable” to actual “replication”?
Nakagawa: We’ve already replicated the program. We started in July 2002 with 36 clinics in three districts in the province of Cabo Delgado; by January 2005, we had expanded to all 17 districts and 88 clinics. That was our pilot project, and we were still learning. When we expanded to the next province, Nampula, which is double the size of Cabo Delgado in geography and population, it only took a year to open 163 clinics. Based on that, the MoH has approved expansion into two other provinces in northern Mozambique, and is asking us for a countrywide expansion plan. The best part is that the MoH has decided to take responsibility for the program—with our technical assistance on expanding it.
We have funding now to explore a second country, and we’re assessing Malawi, possibly Tanzania. VillageReach’s model is based on needs that are common to all health systems—transportation, cold chain, energy, communications, waste management—and the services, infrastructure, and equipment required to deliver them are needed anywhere. Our system works in a very poor, resource-constrained country; if it works in Mozambique, we can implement it anywhere. For sustainability, if this is going to go beyond VillageReach, it has to be run by the MoH eventually.
Gertner: What are the biggest ongoing challenges and the most promising areas for progress in the fight to improve health in Africa?
Nakagawa: The obvious ones are the top killers and big problem diseases—HIV/AIDS, malaria, TB, diarrhea, malnutrition, acute respiratory illness. But all the attention, resources, money, and nongovernmental organizations (NGOs) going in there to help are creating a huge management and coordination problem for the local governments, which are having a hard time implementing and executing programs with all these different partners.
There’s an immense need for a third-party service organization such as VillageReach to create a common platform that would address the needs of all these different programs. This issue can be solved with an innovative business solution that considers the resource-constrained reality of these countries, and also meets the needs of the poorest of the poor.
Most of the innovations in public-private partnerships have focused mainly in the development of vaccines. Drug companies won’t target markets where people live off less than $1 a day; you need a public component to come in, develop a market, and lower the risk to develop these much-needed vaccines. The opportunity now is to take that same concept to services. You can develop the vaccine, but you still need to get it to the clinics and villages, and the MoH can’t do everything on its own. There’s a reason why such basic servicesas transport, telecoms, and energy are diffiult to provide—demand is fragmented at the so-called bottom of the pyramid. Our opportunity is to find an innovative way of aggregating demand, leveraging and coordinating our assets and others’ assets, and providing affordable services to the poor. As in Mozambique, we’ll start with the health sector, move to NGOs in general, and. as soon as possible, provide services to the general public.
Gertner: VillageReach has a narrow focus. What are the advantages and disadvantages for your organization? Do you see implications for other social enterprises or for-profit businesses?
Nakagawa: Sometimes I think we have too broad a focus! We started out with immunization, but we quickly began serving all the needs of the clinics and began moving anything that goes to a clinic, including essential medicines, micronutrients, propane cylinders, spare parts for equipment, and malaria bed nets. These cross over into many different programs such as primary care, maternal and child care, and malaria.
We’re looking to do more at the systems level. Our company, VidaGas, sells propane in Mozambique and supports the health system through reliable supply of energy at clinics.
Gertner: Why was VidaGas turned into a commercial enterprise versus a traditional program?
Nakagawa: We could have made propane a budget line item, shipped it from the south, brought it in a container, and distributed into the clinics. But we knew the broader community needed these same services. So why not use the ministry as an anchor customer, then provide the same products and services to restaurants and hotels, and turn it into a sustainable business? That’s the line for us. In Cabo Delgado, energy made the most sense. In other places, there’s a huge opportunity for transportation.
For the social enterprise part, I’m interpreting it to mean something that’s more commercially minded; for example, VidaGas is a commercial company, but it was started with a social mission in mind, because the MoH needed energy. It will succeed because it functions as a regular company. Projects have a lot of latitude in what is considered cost-effective and sustainable, but still function essentially as transfers from rich to poor countries. In contrast, companies—even social enterprises—must function according to principles of business. Successful social enterprises place the generation of wealth and needed services in the hands of locals.
Gertner: Nonprofits spend a great deal of time and effort raising funds. As a former investment banker, can you comment on the efficiency and effectiveness of the nonprofit capital market?
Nakagawa: The capital markets for NGOs are extremely inefficient. In capital markets, you have common metrics—profitability history, earnings per share, ROI. It’s audited and they’re public companies. What marks it as efficient is that investors like you and me can go in and invest. If you get to less efficient markets such as private equity or venture capital, it’s really only the domain of highly educated, informed experts. It’s less efficient. These markets are riskier. There’s less known about them. The general public can’t make a judgment on these things.
In the NGO or nonprofit world, it’s the same thing. Who invests or gives to these kinds of programs? Mainly it’s very well-informed foundations or other organizations with the ability to go in there and spend the time to do the due diligence.
There are a number of initiatives to create as closely as possible a common set of metrics for all programs. It’s a huge challenge because NGOs operate in many fields such as health care, environment, and education. But that’s not too different than, for example, the chemical, auto, or pharma industries—within each of them you have common metrics specific to that industry, and then others that are common across the board no matter what the industry.
You could probably do something like that with us; there are things we could be measured on, and you could create an investment or donor guide for all of us. There are interesting initiatives looking to apply financial concepts, such as the efficient frontier of investing, to philanthropy. The question is, what is the impact you get for the dollars put into it?
Gertner: You made a transition from a traditional business career to one in a nonprofit social enterprise. What is the biggest difference in your day-to-day professional life between the two careers?
Nakagawa: There is no difference. My job is pretty similar to an executive in a normal company. I manage people on three continents; I work with donors, investors, and the board of directors; I travel a lot; and I continuously think about the future. VillageReach is both a traditional NGO and a purely commercial propane company. In many respects, we’re far more complex than a standard business because we need to balance our social mission with the entrepreneurial approach we take to our programs, and our commercial ventures in many different countries with multiple stakeholders—government, other NGOs, industry, donors, and investors.
But there is the mission side of it, which motivates me. That’s why I do what I do.