Saturday, 28 March 2015

Reported corruption experienced by Great Lakes companies

The World Bank Enterprise Surveys (my current favourite database) asked companies whether they were requested to make an informal gift when applying for connections for utilities (electrical, water, or telephone connections).  The summary results in the Great Lakes region are shown.

(Data shows percentage of companies saying yes)
An informal gift or payment was requested when recently applying for an electrical connection?
Burundi        15%
DRC            42%
Rwanda        0%

An informal gift or payment was requested when recently applying for a water connection?
Burundi        No data
DRC            40%
Rwanda        17%

An informal gift or payment was requested when recently applying for a telephone connection?
Burundi        24%
DRC            22%
Rwanda        0%

It looks like most corruption was experienced in the DRC, then in Burundi, and the least was experienced in Rwanda.

It doesn't surprise me that Rwanda has such a low level, from personal experience of the place (for what that's worth).  However, a major caution on the data is that companies may be particularly unwilling to report honestly on their corruption experience.  Reporting an official's dishonesty could result in the official or colleagues punishing the complainant in some way, or could be an admission of crime by the company.  Although the surveys are being collected by World Bank contractors, there is the risk that the people handling the data will report back to government or use it for personal advantage.  If I was a manager in a company in similar circumstances, I'd say there was no corruption even if there was.

Wednesday, 25 March 2015

Rwanda's new draft law on 100% salary during maternity leave

I looked at the Central Africa page today and found a story (from News of Rwanda) reporting Rwanda's new draft law on maternity pay.  It is just above a report from the DRC entitled "Congo Hospital Sees Rise in Rape of Girls As Young As 18 Months".  The city of Bukavu in the DRC (where the hospital is based) and the Rwandan city of Cyangugu are separated by a river, that's all.  There is much more to both countries than is captured by these headlines, but they do indicate how the border affects women's life opportunities at the moment.

This post is about the maternity law part of the news.  As it is reported, the law extends maternity pay in the sixth to twelfth week after birth from 20 percent of salary to 100 percent.  The employer will pay half, and half will come from social security contributions paid to the government by all employees.

I would vote for such a law, myself.  The effects of such a law are economy-wide, and it isn't my area of economics, but my quick reasoning would be along the lines of:

1) the loss of income is an uneven allocation across workers based on involuntarily assigned gender at birth, and governments often act to smooth out involuntary loss of income,
2) it helps with the care and education of the next generation of citizens and workers at an important time,
3) it encourages and eases the entry of half the population into the workforce, and
4) it isn't a large amount of additional money, despite a high birth rate in Rwanda.

Having said all that, I can't believe that all employers are happy with the new law.  The news report above describes how the CFO of a business with 450 employees does not consider the law to be a burden.  It may be one for an employer of just two or three people, even though the absolute amounts of money involved are quite small.  It would be helpful for the small business sector if the government follows how the law affects them in particular.  There may be scope for a reduction in the 50 percent share paid by small employers and an increase in the share paid by large companies.

Monday, 23 March 2015

Great Lakes companies with high speed broadband employ it intensively

Corporate owners of high speed broadband have been in the minority among Great Lakes companies.  For example, surveys in Burundi (in 2006 - admittedly, some time ago) and the DRC (in 2010) found that just over a quarter of companies had access to broadband internet on their premises.  What companies did with broadband once they got access to it is a different matter.  It may be that they don't often have it, but once they get it they really use it intensively.

Survey respondents in Burundi and the DRC were asked how they used their broadband: whether they used it for purchasing goods for the company, or delivering services to customers, or for research and development.  The Venn diagram shows how survey respondents responded.  The different circles correspond to the different uses.  From the top circle, we can see that 71 percent of companies did research and development using their broadband, while from the lowest intersection we can see that 13 percent of companies did purchasing and service delivery by broadband, but no R&D.  Only one percent of companies are outside all the circles, meaning they had broadband but didn't do any of these activities.  The middle intersection shows that 44 percent of companies did all three.

So it seems like companies in the region who have broadband employ it intensively.  It doesn't necessarily follow that companies who get broadband will become intensive users.  It might be that companies who incline to intensive employment adopt the technology more than other companies, since they are most likely to benefit from it.

Thursday, 19 March 2015

Shortages of publicly available goods affect smaller companies worse in Burundi

Small and medium enterprises (SMEs) are often said to be engines of growth in an economy.  The idea is appealing; they may respond agilely to market changes, and grow rapidly, for example.  But there are some voices and analysts who argue that the evidence doesn't point to an important role for SMEs in growth.  Although there is evidence that fast growing economies have lots of SMEs, it is the speed of growth that leads to SME formation, they say, rather than the other way round.

As described in my last post, smaller companies produce less of their own electricity than large companies.  Generators are expensive, and larger companies can spread the cost over more production.  For small companies, buying a generator is not profitable, and they are reliant on publicly available electricity (whether from the state or private providers).  I suspect that the same is true of purchases of other large production goods like computers.

The inability to purchase production goods because of high fixed costs, or purchase the output of these goods because of supply shortage, seems likely to explain part of the inability of SMEs to contribute to growth.  To accumulate capital and buy a generator, you have to increase productivity, but it can be difficult to raise productivity without first accumulating capital.

Tuesday, 17 March 2015

Small companies in Burundi are not small large companies

A company's value can be attributed to its workforce, or the machines it owns, or factor productivity (the value that it extracts from its workers and machines).  A small company may be a smaller copy of a large company if they have, for example, one hundredth of the number of workers and machines in the large company, but use them in the same way.

In Burundi, many companies have big problems with electricity supply, and some have private generators to produce electricity.  Here is the percentage of electricity produced by generators for small, medium, and large companies in the capital Bujumbura (company size is classified by numbers of employees):

Source: World Bank Enterprise Surveys

Smaller companies in Burundi produce lesser shares of their electricity using their own generators.  They are not just small large companies, they use different machines and so probably have different productivities from the machines they use.

Saturday, 14 March 2015

The Rwandan government works hard for further investment

Spot the odd one out:
Mohammed, Mohamed, Omar, Hassan, Muqrin, Paul, Mahmoud.

Paul Kagame, President of Rwanda, is in Egypt today for a conference entitled "Egypt the Future".  The conference aims to demonstrate the reforms in the Egyptian economy and investment opportunities in the country.

The majority of the senior representatives are from Middle Eastern and North African countries (the names of some are in the list at the start), or those with historical or other ties.  However, the Rwandan leader and the head of the national development board are attending to show solidarity and for the investment opportunities, according to a quotation in the Rwandan New Times.  There are an impressive number of companies represented, as well as powerful figures from finance and economics.

Kagame has become a controversial figure in Western countries in recent years, with accusations of repressive rule.  Nevertheless, it is hard not to admire the continuing economic focus of his government, some twenty years after he gained power.  As well as benefiting the Rwandan population - and in low income developing nations, non-mining economic development should be the most important thing for a government by far - the strength of the economy probably consolidates his hold on power.

I don't believe the Burundian or DRC governments have high representation at the conference, although the Egyptian government may not have invited them.

Tuesday, 10 March 2015

Central power, and DRC revenue collection and allocation

There's a report on Radio Okapi stating that the DRC central government is to give one million United States dollars per month to Katanga province.  Katanga is a centre of the mining industry, and the regional finance minister wants to receive five million dollars instead, claiming that Katanga generates 11 million in revenue.

I wrote about the possible allocations of money between Katanga and the central government last month.  If we take the regional finance minister's figures on revenue generation as true, then the central government seems to be showing most of the power in the relation between the two.  In recent years, the government has been politically and militarily weak in the east of the country, so there is a contrast between the implied power in the allocation and the actual power manifested in the past.

Sunday, 8 March 2015

The potential and limitations of "Made in Rwanda"

There's an advert / editorial in the Rwandan New Times newspaper, entitled "Made in Rwanda: Let us consume local to reduce trade deficit".  I'm not sure whether the government or industry has paid for it.  Putting aside the subjective position taken, there are some attractive presentations of individual Rwandan manufacturing companies throughout the article.

The presentations (and some searching on-line for further information) show companies with genuine Rwandan stamps on them: in the materials used, production processes, and ownership.  Nevertheless, foreign goods, skills, and investment are also present: in vehicles and machines used, and in training and management.  Rwandan industry is developing impressively, and is becoming internationally competitive, and has required use of goods and skills that are "made somewhere else".

The early stages of this industrial evolution may be associated with a widening of the trade deficit, as foreign equipment is purchased.  The next stage of evolution, where companies may become internationally competitive and able to produce more cheaply than in the developed or newly developed countries, will tend naturally to result in a reduction of the deficit or emergence of a trade surplus.  The surplus emerges because of the quality of the goods, rather than nationalist preferences.  This isn't an inevitable path, but it is a common one.

Having said that, if I was in Rwanda today, I would consider the Rwandan goods shown for my house, factory, or supermarket, as their quality seems high.

Investing In Africa was off-line for a few days

My website was off-line for a few days last week, due to unanticipated but required changes.  The website should now work better, and will hopefully not require any more adjustment in the foreseeable future.

Tuesday, 3 March 2015

Rwando-Congolese border enforcement may alter trade patterns

Rwanda and the DRC are putting up boundaries marking the border between the two countries.  The boundaries apparently restore those installed a hundred years ago by colonial authorities.  The News of Rwanda comments:

"The demarcation of borders between these countries will end the confusion about the borders especially for Congolese soldiers. They are often arrested on Rwandan territory claiming they are on Congolese territory."

These sentences neglect the many grave consequences of porous borders for the two countries, no doubt intentionally.

Economically, borders have a strange effect, which I don't think has been fully explained by economists.  The effect is that trade drops off sharply when a border is crossed.  Even if two countries have no restrictions on movement across borders and a common language, the amount of trade by businesses and people within a country is much more than the trade by businesses and people across borders, after controlling for distance (there may be a more precise statement of this effect, but this is the broad idea).

It seems remarkable that sticking 22 posts in the Rwando-Congolese ground may alter trade patterns so dramatically.  I think that, for entrepreneurs, any changes in this direction should be monitored closely so that lost customers are not a shock, and potential new customers can be captured.

Sunday, 1 March 2015

Government moves closer to business in Burundi, at least geographically

The Burundian Foreign Minister met with his Swiss counterpart last week to sign an agreement on decentralisation of powers by the Burundian government.  The Swiss have agreed to support the project financially.

The decentralisation will bring government closer to the level at which most Burundian businesses operate, and hopefully make it more receptive to their concerns.  Business in Burundian is almost entirely local.  A 2006 survey in the capital Bujumbura found that 95 percent of businesses sold most of their goods locally, and only 5 percent sold most of their goods nationally or internationally.

The changes may free the central government for macroeconomic management, and promotion of the interests of companies that operate nationally or internationally.  Such companies have different concerns from locally oriented companies, with the former group saying that access to finance, and customs and trade regulations are their main problems in operation.  Locally oriented companies report that electricity and access to finance are their main operational problems, with customs and trade regulations not mentioned at all.