Reading about the Imbonerakure

I read about the Imbonerakure yesterday, who are the youth wing of the ruling party in Burundi.  There are some more details here.  I am not sure of the accuracy of the information.

Hopefully, the next time they make the news they will be cheering Burundian athletes at the Olympics.

Demonstrations against the President's third term in Burundi

 I don't usually write directly about politics, which isn't my area.  But the current political situation in Burundi, and what follows it, will have a major effect on the economy and people's lives in general.

The background is that the Burundian constitution says a president can only have two terms in office.  President Pierre Nkurunziza wants a third term, which he says is constitutional because he was not directly elected by the population in his first term, but instead chosen by legislators.  Many people, including senior members of his own political party (here and here), disagree.   There have been demonstrations throughout Burundi.

My opinion is that a president who overruns the limits of their terms is liable to damage the country and their own reputation.  Many former leaders who have stood down have gone on to distinguished roles within African diplomacy (Buyoya, Kabbah, Mandela, Nyerere, and Rawlings are famous ones, I think).

Burundian police officers occupy the offices of Radio Publique Africaine (picture from www.rpa.bi; used without explicit permission in advance, given the rapidly changing events in Burundi).

I also think that the institutions run by the state, including the army and police, should serve the state and not any individuals in it.  They should act if there are illegal riots or a violent attempt to overthrow a government against the general will of the people.  But these conditions do not seem to apply in Burundi today.  It is reasonable and admirable that they could refuse orders - from either side - when these conditions are not met.  The order to occupy the private Radio Publique Africaine by police, pictured above, could have been ignored by senior officers, as government officials do not have the power to issue the order.

Competition and changes in prices and sales in Burundi

 When there is more competition in a market, companies may expect to see falling sales or at least slower increases in sales, as rivals take some of their business over.  Burundian businesses reported in a 2006 survey the number of competitors for their main product.  They also stated whether they had seen the sales of the product increase, remain the same, or decrease.  We summarise their reports in the table:

When there were no competitors, many companies (67 percent of them) had increased sales but a significant minority also had reduced sales.  I think that if a company has a monopoly, they won't want to make too many changes to their market (since things are good for them already), so they won't change things dramatically on average.

When there was one competitor, sales were generally up.  This is believable; two competitors were competing for a market and could divide it up between them.  As the number of competitors increased, the sales growth became less frequent, which is also believable - the competitors were dividing up a market into many shares.

Companies also reported how the prices of their main good had changed, with the summary shown in the table.

 The monopolists didn't show much change, as expected.  The companies with one rival often increased their prices, but a relatively large proportion decreased their prices.  The story here could be that there can be fierce price competition between two oligopolists.  When there were two to five rivals, prices often increased, and frequently stayed the same.  When there were six or more competitors, prices usually increased.  I find it surprising that when there were more competitors, the company often increased its prices.  What may be happening is that the company stopped competing for the general market, and started focussing on a niche where it had more monopolistic power and could increase prices.  I'm not sure, and will check out company behaviour in Africa more generally.

Rwanda NGO jobs have high pay, but the private sector offers long term prospects

There are lots of non-governmental organisations (NGOs) working in the Great Lakes region, offering lots of jobs.  Some of these jobs pay well and offer benefits that are not available in other positions in the region.  For example, in Rwanda the World Food Program "offers a competitive compensation package which will be determined by the contract type and selected candidate’s qualifications and experience", while the International Organization for Migration (IOM) is offering a salary to a driver of "G2/1 (UN Salary Scale for GS staff)", which I think is worth Rwandan Franc 6,885,000 per year, or about 10,000 US dollars or EU Euros.  As the rewards of NGO work seem appealing, people who might otherwise go into the private or government sector may instead prefer to work in NGOs.  The One Acre Fund, an agricultural NGO, claims to be Rwanda's fastest growing professional organisation.

There's some evidence that people are showing more interest in the relatively high paying NGO jobs.  The site www.jobinrwanda.com lists job advertisements in Rwanda from NGOs, the private sector, and the state sector.  It also says how many times people have looked at each job advertisement.  For the IOM position, which was posted on 17 April, there have been 2438 views at the time of writing.  By comparison the views for private and government jobs have been generally, but not always, lower: numeracy materials developer (22 April, 360 views), bush camp host (1 April, 610 views), network engineer (21 April, 1579 views), receptionist (14 April, 2481 views), and monitoring officer (22 April, 465 views).  Other recent NGO advertisements have attracted many views: Africa Humanitarian Action (3262 views), World Food Program (1826 views), and One Acre Fund (1171 views).

There are many different ways of looking at the attraction of NGO jobs from an economic viewpoint.  People are diverted from non-NGO occupations where they may have higher economic output or output growth, particularly in the private sector where there is greater competition to please consumers directly.  NGOs may be productive and contribute to economic growth, but these outcomes are not usually their prime goal, and not generally enforced by the threat of closure.

Foreign NGO wages increase the amount of money in the Rwandan economy.  They act as an injection into the economy, in the dominant Keynesian macroeconomic model: much of the wages gets spent in Rwanda, making other people and companies richer, who spend much of their money in Rwanda, and the circle continues.  So the wages can increase the national income by an amount exceeding their initial level.

NGO wages probably don't have the potential for growth that private sector jobs do.  Rwanda - capitalist, fairly free of corruption, growing rapidly, integrated in the wider East African economy - will offer an increasing number of private sector opportunities to become very rich through skill, persistence, and luck.  The NGO sector offers immediate rewards, but probably far fewer growth prospects.

If I was ambitious in Rwanda and without too many family or personal responsibilities, it would be the private sector that would attract me, with its possibly lower wages and harder work in the short run.

Economic values and the value of lives

There's an article in the Rwandan New Times entitled "Is the life of an African of no value in this day and age?".  The article describes how Africa's economy is improving but the value of African lives isn't.  The author mentions deaths of African migrants drowning in the Mediterranean Sea, election-linked violence in Burundi, and violence against foreigners in South Africa.

The article's topic is one seen in development theory.  Approaches to development that are based mainly on growth in national or personal income have been criticised because they do not necessarily imply that people will get happier or that the extra income will be worthwhile in some sense or other.  While people often acknowledge the theoretical validity of the criticism, in practice the economic growth approach seems to be broadly preferred among many Africans in positions of leadership.

The article identifies the violence in South Africa as being of particular note, and it is in South Africa where the "money isn't happiness" claim seems to have most evidence.  South Africa is quite rich, in many ways successful, and the government doesn't actively try to hurt its own or neighbouring citizens, but it is socially and economically divided; it is a plausible future for some African countries in twenty or thirty years.  The people and leaders in these countries could nudge their development course towards slightly greater social and economic inclusion.

Rest in peace to the 700 African migrants who died yesterday trying to get to Europe.

More on the differences between small, medium, and large companies in the Great Lakes

I mentioned in my last post that medium sized companies in the Great Lakes often have characteristics that lie between those of small and large sized companies.  Occasionally, their characteristics are very close to one or the other of them.  For example, the average managerial experience of the top manager at small firms is 11.5 years, while in medium firms it is 15.4 years and in large firms it is 15.7 years (source).  For use of a technology licensed from abroad, the percentages used are 4%, 16%, and 12%, so medium firms actually use more foreign licensed technology than large firms.

The reasons why medium firms are not just an average of small and large firms varies, but a common theme is that different influences act on different sized firms.  For example, small firms may exist only temporarily while their owners are unemployed.  Medium and large firms are much more likely to be permanent, professionally run organisations, with managers required to have more experience.

The characteristics of medium sized companies in the Great Lakes region

Small and medium sized enterprises (SMEs) are often grouped together in analyses.  It's actually not a perfect way of grouping companies.  A small company may consist of a few people or a family acting together to earn subsistence incomes while there is no other employment available.  The company may not do much in the way of good company practice.  A medium sized company has done something well at some point in the past, otherwise it wouldn't have reached medium size.  It has been at least quite good at being a company.

SMEs don't form a flawless group for contrast with large companies, either.  A medium sized company may have some characteristics in common with small companies, but also some in common with large companies.  For example, the investment rates of medium sized companies may lie between the rates of small and large companies.  Here are some corporate statistics from the Great Lakes region, averaged over all companies split by company size:

Source: www.enterprisesurveys.org

The table shows that medium sized companies often have characteristics that lie between small and large companies.  The percentage of the companies owned by private domestic owners is close for small and medium companies.  On the other hand, the percentage of the companies owned by the largest owner is close for medium and large companies.  So while talking about SMEs can sometimes be sensible, at other times it may be better to talk about Medium and Large Enterprises, and at other times to talk about just medium sized companies.

Lobbying and independence of Congolese industry

The president of the not-for-profit organisation CCIM/RDC (The DRC's Chamber of Commerce and Crafts) was on the radio the other day.  The interview discussed in broad terms what the CCIM does and plans to do.  Parts of the interview are repeated and extended in writing on the CCIM's partially constructed website.  The president was diplomatic about the CCIM's relations with the government, saying that his organisation's work complements government activity.

The existence of the CCIM, and any other national representative body for Congolese industry, is certainly welcome.  It is constructive to work with the government, but the independence of at least some of such bodies is important.  It is not just that governments may sometimes act in a way contrary to the interest of the country.  Even if a government is perfectly motivated by national interests in some broad sense, their interests will differ from the interests of companies at times, and the resulting tension can be healthy.  A competent and confident business body can best represent the interests of its members.  If these members represent a diversified section of Congolese businesses and industries, their interests in promoting economic growth are close to the national interest too.

Workforce characteristics and productivity in the DRC

My last post looked at the wide dispersion of worker productivity across companies in the DRC.  Increasing the amount of capital per worker in a company was associated with increased productivity, but there were a lot of productivity differences left unexplained.

Another explanation for the productivity differences is that in some companies the workforce is more highly skilled, so they can produce more for every hour worked.  The graph below shows productivity plotted against the percentage of production workers who are skilled rather than unskilled.  There is almost no relation between the two variables, contrary to expectations.

Source: World Bank Enterprise Surveys

If the skill-productivity link isn't convincing, then how about a link between the number of managers and productivity?  Managers (and other non-production staff generally) may help production staff to reach their best performance.  On the other hand, non-production staff are not directly producing goods so they may lower overall productivity.  The next graph shows that there is almost no connection either way.

These graphs are a challenge to explain.  It looks like workforce productivity doesn't depend much on the workforce.  One possibility is that my approach is too blunt to examine the relations in sufficient detail.  There will be other possibilities too.

Productivity per worker in the DRC varies hugely by company

Productivity of workers is an issue of concern to companies, workers, and governments.  It partially determines how much profit companies can get from hiring workers, and how high workers' salaries are, and what the output of a whole economy is.

One way of measuring worker productivity is by sales per worker.  In the DRC, there are a very wide range of values for the quantity.  The graph shows the distribution across companies of the natural logarithm of sales per employee.  The dispersion is so wide that we have to take logarithms of sales per employee in order to show it on a graph.  For example, the company with the highest sales per employee sells a billion times more per employee than the company with the lowest sales per employee, and we could find similar, slightly less extreme dispersal for other companies too.

 Source: World Bank Enterprise Surveys

Part of the explanation is likely to be that some companies have more equipment than others.  The equipment does some of the work that an employee would do, so that for every employee, they are doing their own work and there's some extra work being done by the equipment.  Here's a graph of sales per employee plotted against capital (in the form of machinery, vehicles, and equipment) per employee:

There seems to be a reasonable positive relation between capital and sales, which explains part of the difference in productivity across workers.  The line is fitted by the least squares method, with the fit having an R-squared of 0.16 meaning that 16 percent of the difference in sales per worker can be explained by difference in capital per worker.  Equipment is part of the explanation for the variation in productivity per worker, but there is a lot left to explain.

Burundian government disapproval of telephony suppliers

The Burundi government disapproves of a price increase by telephone suppliers following a tax change, according to its spokesperson and reported on its website. 

The government says that it has changed the taxation of telephone use from value added tax and consumption tax to a flat rate tax of 42 Burundian Francs per minute of telephone use.  Before, if a company charged FBu200 per minute and there was a 40 percent value added / consumption tax (the combined rate isn't stated), then the tax would be FBu80.  If another company charged FBu100 per minute, the tax would be FBu40.  Afterwards, the tax would be FBu42 per minute for both companies.  The new tax tax looks easier to administer, as only the total amount of telephone calls have to be tracked.

Could the government have anticipated the price change, and are they right to disapprove?  A value added and consumption tax increases the sales price of a good by a proportion of the price, while the new per unit tax increases the price by a fixed amount.  The graphs show the impact of the tax change.  The demand curve is marked by D, and it doesn't change.  The supply curve without any tax is S.  With the proportionate tax, the supply curve slopes upward more steeply.  With a per unit tax, the supply curve is shifted up by a fixed amount.


Graph 1: Per unit tax reduces prices

Graph 2: Per unit tax increases prices

The market price and quantity are found at equilibrium where supply and demand are equal.  In the first graph, introducing the per unit tax results in a decline in the price, while in the second graph introducing the per unit tax results in an increase in the price.  Whether the price goes up or down depends on the shape of supply and demand without the taxes, and the size of the taxes.  We can certainly say 1) prices will generally change after the tax, and 2) that if the proportional tax is very small (large), prices will go down (up).

We might assume that the change is revenue neutral - so the government collects the same amount of tax after the change as before - and see what happens to the price.  But I can't immediately think what the impact on prices would be, because there are possibly different equilibriums that would give the same revenue, depending on the shape of supply and demand.

A highly trained or experienced regulatory economist should be able to perform the algebraic and statistical analysis to sort out the optimal taxation policy, and whether the companies are taking advantage of the change to extract more profits from consumers.