Archives for category: Africa

A recent report released by the World Economic Forum  says that border administration and infrastructure are the biggest problem to international trade.

Reducing supply chain barriers to trade could increase GDP by nearly 5% and trade by 15%

If every country improved just two key supply chain barriers – border administration and transport and communications infrastructure and related services – even halfway to the world’s best practices, global GDP could increase by US$ 2.6 trillion (4.7%) and exports by US$ 1.6 trillion (14.5%). For comparison, completely eliminating tariffs could increase global GDP by US$ 0.4 trillion (0.7%) and exports by US$ 1.1 trillion (10.1%). The estimates of the impact of barrier reduction are conservative; they reflect improvements in only two of four major supply chain categories.

Why is lowering barriers so effective? The reason is that it eliminates resource waste, whereas abolishing tariffs mainly reallocates resources. Moreover, the gains from reducing barriers are more evenly distributed among nations than the gains from eliminating tariffs.

Of course, reducing supply chain barriers requires investment, while tariff reductions require only the stroke of a pen. However, many barriers can be traced to regulation. Detailed analysis can enable policymakers to prioritize the investments that are most critical and cost-efficient.

Tariffs are of course very important (see figure).

Source: WEF (2013)

Source: WEF (2013)

But removing supply-chain barriers would be even more successful, especially  in Africa (click on the image to enlarge).

Source: WEF (2013

Source: WEF (2013

I’m really bad at bargaining so I shouldn’t give advice on this issue. But the trick recommended in this paper really seems to make sense:

When negotiating for a salary, most of us reach for a nice, round number like $65,000. Or $90,000. Or $120,000.

But, by favoring all those zeros, we may be missing an opportunity to score a better deal, according to a new paper from researchers at Columbia Business School. They found that using more precise numbers in an initial request—or anchor, as it is known in negotiating parlance—generally results in a higher final settlement.

Precision conveys the impression that the job candidate has done extensive research and deeply understands the market for his services, said Malia Mason, the lead author of the paper and a professor at Columbia who teaches a course on managerial negotiations. When people use round numbers, by contrast, they’re conveying that they have only a general sense of the market rate for their skills.

…In one experiment, Ms. Mason and her team had 130 sets of people negotiate the price of a used car. When buyers suggested a round anchor, they ended up paying an average of $2,963 more than their initial offer. But buyers who suggested a precise number for a first offer paid only $2,256 more, on average, than that number in the end.

When it comes to negotiating salary, Ms. Mason’s research indicates that a job candidate asking for $63,500 might receive a counteroffer of $62,000, while the request for $65,000 is more likely to yield a counteroffer of, say, $60,000, as the hiring manager assumes the candidate has thrown out a broad ballpark estimate.

Usually I bargain when I am buying stuff, like a pair of shoes, a souvenir, or a cab ride home. Negotiating salaries does not happen very often. Here are some thoughts about the bargaining process in no particular order:

  • In theory you should determine how much you are willing to spend and stick to that decision. In reality, you don’t want to spend more than other people do.
  • The problem is that you often don’t know the “normal” (i.e.. average) price for some goods. That makes the asking price of the seller and your common sense the only reference points for your bargaining strategy.
  • (Asymmetric) information can make bargaining quite stressful. You keep asking yourself: am I being overcharged? Or the opposite: am I asking ridiculously low prices?
  • In the bargaining game (with asymmetric information), having the last word ends up being as important as the price itself. Sometimes you can be happy about very bad deals. Other times you might have a bitter mouth even though you got a very decent price.
  • If you show high interest for some items, the asking price will probably go higher. You should always try to signal low interest and low willingness to spend.

Yep, I often find the experience quite stressful.

HT Marginal Revolution

Ernst & Young’s recent “Africa Attractiveness Survey” (pdf) shows that 2012 was a rather disappointing year for foreign direct investment in Africa. But digging more into the data leaves some space for optimism. Some excerpts from the report (click to enlarge):

Ernst & Young "Africa Attractiveness Report"

Ernst & Young “Africa Attractiveness Survey”

 At face value, 2012 was a disappointing year, in that it reversed the year-on-year growth we experienced in 2011, and somewhat dampened our expectations of steady growth in FDI projects. Having said that, we do need to put these trends in perspective:

  • Globally, greenfield projects were down by over 15% year on year in 2012, so the background is one of decline across the board.
  • In this context, Africa’s proportional share of global greenfield projects actually grew, continuing a trend that has seen this share grow, in the course of a decade, from 3.5% of the global total in 2003 to 5.6% in 2012.
  • It is also worth noting that the 764 new greenfield projects this year is still higher than the 678 in 2010, and significantly higher than anything that preceded the peak of 2008.

The geographical origin of FDIs in Africa is experiencing major changes:

Investment from developed markets in particular was disappointing.  Although FDI projects from the UK grew, those from the US and France, the other two leading developed market investors in Africa, were considerably down. In contrast, greenfield investments from emerging markets into Africa grew once again in 2012, continuing the trend of the past three years. In the period since 2007, this category of investment from emerging markets into Africa has grown at a healthy compound rate of over 20.7%, in comparison to investment from developed markets, which has grown at only 8.4%.

Intra-African investment has been particularly impressive over this period since 2007, growing at a 32.5% compound rate. (…) This underlines a broader trend of growing confidence and optimism among Africans themselves about the continent’s progress and future.

Other figures in the report show that -as we’ve often said in this blog- manufacturing in Africa has stagnated over the last decade. However several countries could reach a middle income status by 2025

Source: Ernst & Young

Source: Ernst & Young

Source: Ernst & Young

Source: Ernst & Young

It looks like environmental scientists are not jumping into the Afro-optimist bandwagon. Marchiori, Maystadt, and Schumacher (2012) predict that climate change will force migratory flows from the coastal areas to the mainland in Africa, and East Africa will be particularly affected  (click on the image to enlarge).

Marchiori, Maystadt, and Schumacher (2012)

Marchiori, Maystadt, and Schumacher (2012)

Such a mapping gives an idea of the potential centripetal process induced by environmental migration. While there has been a long tradition of migration to the coastal agglomerations in Africa (Adepoju 2006), coastal areas could experience a significant proportion of their population fleeing toward African mainland due to climate change by 2099. In West Africa, Benin, Ghana, Guinea, Guinea-Bissau, Nigeria and Sierra Leone may be among the most affected countries. In Eastern Africa, Kenya, Madagascar, Mozambique, Tanzania and Uganda may constitute a cluster of sending countries of environmental migrants. In Southern Africa, Angola and Botswana could become important sources of environmental migrants while Congo and Gabon could also be pointed out in Central Africa. Without jumping too quickly to predictive conclusions, such a centripetal pattern of flows could warn about some potential destabilizing effects. On the one hand, massive population movements could speed up the transmission of epidemic diseases such as e.g. malaria (Montalvo and ReynalQuerol, 2007) in areas where the population has not yet developed protective genetic modifications (Boko et al., 2007). On the other hand, the expected move towards mainland Africa where population density has been recognized as a factor enhancing conflict could become a major geopolitical concern; for instance, North-Kivu in Congo, Burundi (Bundervoet, 2009), Rwanda (Andre and Platteau, 1998), and Darfur (Fadul, 2006).

More here (pdf)

Last week I wrote a blog post titled “Africa is rising, employment is not” reporting some figures from a new paper by John C. Anyanwu  on the African Statistical Journal. I briefly mentioned in the post that employment stats are not very reliable in Africa because of informality of the labour market. But I kept it a bit vague and some readers put me on the spot: if the data is garbage, why are you blogging about it?

Good question. The reality is that I knew that the data was “not very reliable”, but I didn’t  look in-depth into the issue -so I’ll try to do this now. Look at these national-level definitions taken from the ILO laborista database:

In Kenya, employment data is taken from this question in the national census: 

What was X mainly doing during the last seven days preceding the census night? 1) worked for pay or profit; 2) on leave/sick leave; 3) working on family holding; 4) no work; 5) seeking work; 6) student; 7) retired; 8) disabled; 9) home makers; 10) other

A person is considered employed if over the last week she/he worked “most of the time” for wages, salary, commission, tips, contract or payment in kind

 In Uganda, stats are based on a labour-force survey. You are considered employed if

a) performed “some work” for pay or profit during the reference week; b) were temporarily absent from work during the reference week because of illness or leave, but were definitely going to return; and c) were engaged in production of goods for on use. “Some work” is defined as 1 hour or more during the reference week.

I checked the definitions for a few other countries and they looked rather similar – they tend to include all kinds of casual labour in their employment stats. In Uganda it was quite extreme, if you worked for 1 or 2 hours the week before the interview, you are considered “employed”. When we talk about the importance of “job creation” for development, random casual jobs for one or two hours a week is definitely not what we are talking about. The problem is that when we look at the general graph, it is difficult to make sense of the differences between some countries.

Source: Anyanwu (2013)

Source: Anyanwu (2013)

I’m not an expert of labour markets in each of these countries. But how realistic is it that Burkina Faso, Ethiopia and Central African Republic have relatively high employment rates, while Egypt, Algeria and South Africa are relatively low? Initially I thought that high employment rates could be an indicator of large informal sectors. But that seems like a partial explanation – the reality is that employment statistics are fundamentally unreliable and country-level comparisons cannot be accurate.

A recent paper by Fox and Pimhidzai looks at the problem more in-depth for Africa and particularly for Uganda. Excerpts from the abstract:

 A cursory review of employment data for low-income Sub-Saharan African countries shows both large gaps and improbable variation within countries over time and among countries, suggesting that low quality data are routinely reported by national statistics offices. Unfortunately, policies are formed and projects developed and implemented on the basis of these statistics. Therefore, errors of measurement could be having profound implications on the strategic priorities and policies of a country… [The paper] finds that estimates of employment outcomes are unreliable if the questionnaire did not use screening questions, as labor force participation will be underestimated. Likewise, surveys that use a seven-day recall period underestimate or potentially misrepresent employment outcomes, owing to seasonality and multiple jobs. [...] The paper concludes that there is a knowledge gap about employment outcomes in Sub-Saharan Africa that will continue unless collection techniques improve.

So the lesson of the day is “to always be suspicious about employment stats in Africa”, especially cross-country comparisons. Thanks to  @RachelStrohm and @RowanEmslie among others for questioning the issue.

The African Statistical Journal has an interesting paper by John C. Anyanwu on the driving factors of male employment in African countries. The journal -published by the African Development Bank- is available for free here (pdf). Some interesting facts:

 Fact 1 – There is a substantial variation in male and female employment ratios across African countries. The difference is particularly evident if we compare oil-exporting and North African countries with smaller Sub Saharan African economies. The latter tend to have higher employment ratios for both the male and female population.

 

Source: Anyanwu (2013)

Source: Anyanwu (2013)

Fact 2 – In some African countries, male employment decreased between 1991 and 2010

The author argues that the decline has been particularly intense in some countries such as Niger, Be­nin, Rwanda, Lesotho, Burundi and our beloved Kenya.

Source: Anyanwu (2013)

Source: Anyanwu (2013)

One of these days I’ll have to sit down and try to understand some of these dynamics. For example, Rwanda -the “super star” of the Doing Business Reports - has done so bad in terms of employment, while Zimbabwe – land of the highly criticized indigenisation law - is one of the best performers? I guess there is a number of historical and contextual factors to take into consideration. If you have quick thoughts or further questions please share them in the comment section.

Fact 3 – The data from 1991 and 2009 show an U-shaped correlation between male employment ratio and GDP per capita

 

Source: Anyanwu (2013)

Source: Anyanwu (2013)

 

The paper uses employment data from the ILO and the World Bank –which are probably the most reliable sources currently available – but we should be always highly suspicious when it comes to employment stats in African countries. Informality is too widespread, and employment happens far too often outside the radar of government institutions and statistical agencies. Not long ago, Shanta Devarajan called it the African Statistical Tragedy. Should we therefore discard the arguments in the paper?

Although the stats might not be extremely accurate, I think that the trends could be right, especially if we consider how economic growth is happening in most parts of Africa. As I said in my last post, growth is happening without a structural transformation of the economies towards labour-intensive sectors. In particular, the manufacturing sector, which absorbs large part of the labour force in most emerging economies, is not expanding in most parts of Africa. But more research is definitely needed in this field.

The full paper is here.

I went through a very interesting and very comprehensive new report on Somali piracy by the World Bank (pdf, 12MB).  Some highlights:

Fact 1. Piracy incidents and hijacks have gone down dramatically last year (click to enlarge)

Somali piracy attacksFact 2. Nevertheless, piracy still imposes a high cost on trade

piracy imposes a distortion on trade that has a high absolute cost. When the shortest shipping route between two countries is through piracy-infected waters, the additional cost of trade between them is equivalent to an increase of 0.75 to 1.49 percentage points (with a mean estimate of about 1.1) in total ad valorem trade costs. In absolute terms, the impact is large: since about US$1.62 trillion in global trade traveled along routes affected by piracy in 2010, that year Somali piracy cost the global economy an estimated US$18 billion, with a margin of error of roughly US$6 billion. If piracy continues to disrupt global trade as it has done, similar amounts will be lost every year.

Fact 3. Impact of piracy on tourism

Somali piracy and tourism

I wonder how credible this is. The report says that the argument is difficult to show quantitatively but it is supported by anecdotal evidence

anecdotal evidence does suggest that pirate attacks have suppressed tourism in countries like Kenya and Seychelles, popular cruise-ship destinations (Oceans Beyond Piracy 2010; Mbekeani and Ncube 2011). While those on cruises are not a large fraction of total visitors, they tend to spend substantially more than other tourists

Fact 4 (my favorite). The Somali pirate stock exchange

At the outset of an operation, an instigator provides or gathers from investors the funds needed to launch the operation and identifies a pirate commander to organize the attack. At least 10 instigators are known to be active in Puntland (Lang 2011). Some attacks, however, are launched opportunistically without being prefunded, in which case investors are solicited as necessary to fund ransom negotiation costs

The initial investment can be provided in seed money or goods, such as an engine, skiffs, or weapons. In exchange, the financiers are entitled to a share of the ransom if the operation is successful. Reuters (2009) and Kraska (2010) mentioned a stock exchange in Harardheere, where anyone could invest in pirate operations.

The Wall Street Journal  wrote a story on this as well:

The world’s first pirate stock exchange was established in 2009 in Harardheere, some 250 miles northeast of Mogadishu, Somalia. Open 24 hours a day, the exchange allows investors to profit from ransoms collected on the high seas, which can approach $10 million for successful attacks against Western commercial vessels.

While there are no credible statistics available, reports from various news sources suggest that over 70 entities are listed on the Harardheere exchange. When a pirate operation is successful, it pays investors a share of the profits. According to a former pirate who spoke to Reuters, “The shares are open to all and everybody can take part, whether personally at sea or on land by providing cash, weapons or useful materials. . . . We’ve made piracy a community activity.”

Much more here (pdf)

Ethiopia currently has the largest area – one million hectares – of commercially untapped bamboo in East Africa, making it attractive to investment partners from the bamboo industry. However, the Ministry of Agriculture and Rural Development told IPS that they were unwilling to disclose any figures on the bamboo economy, but added that there had been no formal bamboo economy in Ethiopia until 2012.

I tried to get some more stats on the bamboo market and I found this interesting FAO report (pdf)

Export of bamboo products in 2000 (million US$)

  Africa Asia Europe North and Central America Oceania South America Total
Bamboo products 29 1554 739 120 8 5 2455
Market share % 1.2 63.3 30.0 4.9 0.4 0.2 100.0

 Main importers of bamboo products in 2000 (million US$)

USA UK Netherlands Germany France Japan Hong Kong Others  Total
Bamboo imports 899 125 106 169 169 349 163 475 2455
Market share % 36.6 5 4.3 6.9 6.9 14.2 6.6 19.3 100.0

Why is bamboo a good market?

… In comparison to soft wood trees that can take 30 years to reach maturity, bamboo is a fully mature resource after three years, making it commercially and environmentally sustainable. Sub-Saharan Africa has three million hectares of bamboo forest, around four percent of the continent’s total forest cover.

More here

Over at Foreign Policy:

One living legacy [of colonialism] is a crazy quilt of trade preferences and protection buttressed by a mix of geopolitics, nostalgia, and rich-country interest group protectionism — distortions that undermine growth in export-oriented agriculture and make it tough for women in some of the poorest countries in the world to sew their way out of poverty.

Now consider West Africa’s Benin, one of the poorest countries in the world (GDP per person in terms of purchasing power: $1,700). Benin’s meager trade and living standards are held back by agricultural and industrial tariffs averaging 14 and 12 percent respectively. And it’s pretty much the same throughout the poorer corners of the world. In Cameroon (GDP per capita: $2,300), farmers hide behind agriculture tariffs averaging 22 percent, while manufactured goods are hit with 12 percent import levies. The parallel figures for Burundi (GDP per capita: $600) are 20 percent and 11 percent; for Gambia (GDP per capita: $1,900) 17 percent and 16 percent.

I wouldn’t blame it entirely on colonialism: inside the countries there are interest groups and lobbies that prefer to keep things the way they are. The worst part is that high tariffs are rarely part of an actual industrial policy. So what happens is that they impose a net loss on the economy without trying to incentive domestic production.

When it comes to regional trade, however, non-tariff barriers are the number-one problem:

Arguably, the greater barriers to intra-continental trade (especially in Africa) are bureaucratic and logistical. To carry goods from Kigali, Rwanda to Mombasa, Kenya, trucks “have to negotiate 47 roadblocks and weigh stations,” the African Development Bank reported in 2012. At the time, the Bank also noted, there was usually a 36-hour wait at the South African border for trucks to cross the Limpopo River into Zimbabwe. It was much the same story getting through customs from Burkina Faso into Ghana, from Mali into Senegal — actually, from just about anywhere to anywhere in Africa. 

More here

UNIDO (the UN office for industrial development) just released the International Handbook of Industrial Statistics with very comprehensive data on manufacturing output around the world. Unfortunately the handbook is available only in print and very costly. I wish they prepared an executive summary or a document with the “highlights” of their findings, but I couldn’t find any of that. The press release is quite interesting:

The new publication shows that the world’s industrialized countries experienced particularly low manufacturing value added (MVA) growth, with some dynamism in North America and East Asia was largely negated by the sustained recession in Europe. MVA of industrialized countries grew at an average rate of just 0.3 per cent in 2012.

..the global economic crisis beginning in 2009 has not only forced huge job cuts in the manufacturing sector of industrialized countries but has also pulled labour productivity down. Net manufacturing output in the world’s eight major industrialized economies (G-8) has fallen by a much higher rate than the number of employees, reflecting the fact that many businesses retain a skeleton workforce even during periods when there are no or few orders for their products.

And on the LDCs:

The Yearbook also highlights MVA growth trends in the least developed countries (LDCs), which are facing different constraints related to external trade. In comparison with African LDCs, Asian LDCs have the advantage of closer proximity to fast-growing economies, and this is reflected by an average MVA growth rate over the last decade of 8.7 per cent per annum for Asian LDCs compared to 5.9 per cent for African LDCs.

(A little bit) More here

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