Tuesday, 30 June 2015

Education and innovation in Burundi

Many forms of innovation require formal education.  In medical sciences, for example, innovation often comes from large teams of people with biology doctorates.  However, other forms of innovation may not require many highly educated staff, as it may not have much technological demand, or could be handled by a small team.

Here's a graph of the percentage of Burundian companies who have recently innovated in new products, plotted against the percentage of the workforce who completed high school:

Source for data: http://www.enterprisesurveys.org/

It doesn't look like there is a strong relation between widespread high school education in companies and innovation.  Perhaps university education might give a different result.

Sunday, 28 June 2015

Does gender equality offer any advantages to Burundi's companies?

Burundi (and Rwanda) has many women in prominent positions in public life, both in politics and in business.  But does gender equality offer companies any competitive advantage?  It is reasonable to think that promoting talented people to jobs, regardless of gender, will help companies.  If talent is distributed fairly evenly across men and women, and they both participate in the labour force, then **on average** companies with equal numbers of men and women should perform well.

One measure of performance is whether a company is innovating in new products.  Here is a graph from Burundi showing the probability that a company introduced a new product in the last three years, plotted against the percentage of the company owned by women:

Source for data: http://www.enterprisesurveys.org/  Results are smoothed using probit estimation with linear and quadratic dependence on the percentage owned.

It looks like innovation is maximised with the percentage of female ownership at about 30 to 35 percent, based on this very quick graph.  The results are in rough agreement with my more detailed work in Europe, where innovation is maximised for roughly the same managerial percentages for each gender.  So it seems that Burundi is benefiting economically from its gender equality.

Thursday, 25 June 2015

UK arrest of a Rwandan official

A Rwandan government official was briefly arrested in the UK, following an international request relating to alleged activities in Rwanda and the DRC.  The Rwandan authorities have been angered by the arrest.  The arrest comes as the UK and Rwandan governments have been growing slightly more distant in the last year, having previously had close ties.

It isn't clear whether wider commercial ties between the two countries will be affected.  They shouldn't be - the profitability of a project isn't affected by the relations of governments.  But there is always the possibility that the tone of personal relations between citizens of the two countries will follow that of their governments.  I don't know why, but that's often how it is in my experience.  It isn't me or the people I usually meet who set policy.

Monday, 22 June 2015

Do foreign owners have a more difficult time in Rwanda than local owners?

Foreign owners of companies can suffer some disadvantages relative to local owners.  As foreign owners may not know the best ways to protect their assets or handle local officials, they may fall victims to crime more easily, or they may suffer delays in administration, or they may be excluded from government contracts.

A 2011 survey of medium sized companies in Rwanda found that foreign companies did experience a higher rate of crime (in the form of theft, robbery, vandalism, or arson in the previous year):

Companies experiencing crime in the previous year:
Foreign owners: 38%
Rwandan owners: 24%

For the amount of time spent on government regulation, the advantage is reversed - foreign owners spend less time on them:

Percentage of management time spent on government regulation in the previous year:
Foreign owners: 8%
Rwandan owners: 11%

When it comes to corruption, foreign owners say that it is less of a problem for them:

How severe is corruption as a problem, on a scale of 0 (no problem) to 4 (very severe problem)?
Foreign owners: 0.3
Rwandan owners: 0.8

Overall, it looks like foreign owners are not at a disadvantage relative to Rwandan owners, at least in the factors considered here, although crime may be more of an issue for them.

Thursday, 18 June 2015

Illness and its impact on Rwandan companies

The Great Lakes region faces higher burdens of malaria and other tropical diseases than developed countries.  Although it didn't reach the same prevalence as in Southern Africa, HIV has also been a major health concern.  The effect on companies could be severe, causing employees to take time off for their own illnesses or to care for other people.

Here is what senior managers in Rwanda said in 2011 about the burden of illness over the previous three years:

Source: World Bank Enterprise Surveys

The figures have some subjectivity - "high absenteeism" may be assessed differently by managers, employees, and neutral observers - so are possibly higher than either employees or neutral observers would think.   One in ten senior managers think that illness causes high rates of absenteeism, and a similar number believe that caring duties lead to frequent absences.  For absences linked to HIV, the numbers are much lower at around one in fifty managers.  There are a lot of people who say they don't know whether HIV leads to high absenteeism, and people may not reveal (or know) whether their illness is related to HIV.  So the numbers for HIV are plausibly understated.

Overall, the rates of sickness absence are not very high, but still indicate that illnesses hinder Rwandan corporate performance.

Monday, 15 June 2015

High rates of R&D in Congolese companies

The Great Lakes region has a much lower income per person than the richest countries in the world, and the use of expensive production equipment is correspondingly less.  There's an argument that companies in the region don't have to do much research and development, because they can just adopt foreign equipment.

However, adopting foreign equipment is much easier if someone already understands the basics of the technology.  The new user can understand its advantages and limitations, and what sort of things have to be done to get it to work.  The details have to be filled in, but the big picture is already there.  Moreover, foreign equipment may need to be adjusted to be suitable for local markets.  For both of these reasons, Great Lakes companies may choose to undertake R&D.

Recent DRC data indicates that many Congolese companies worked on new product development over the period 2011-2013.  A third did formal R&D, while four in ten allowed employees time to develop new ideas.

Table: Percentage of companies introducing innovations over 2011-2013, split by whether companies did formal R&D 

The process seems to have yielded results, as the table shows.  For example, of companies undertaking formal R&D, almost three quarters introduced a new product.   Of companies without formal R&D, the rate of innovation was just over a third.  For process and strategic innovations, the gap is even larger.

Friday, 12 June 2015

Strategic innovation is frequent in DRC companies

Although producing a new product is the most visible way that a company can innovate, companies can also increase profits by innovation in their production methods or business strategy.  A 2013 survey from the DRC showed that these other types of innovation were also frequently introduced by businesses in the country:

Almost half of surveyed companies innovated in products, but at least a third of them innovated in each of the other types of innovation.  Over four out of ten firms introduced new marketing techniques, for example.  The results show a dynamic Congolese business community.

Monday, 8 June 2015

North Kivu promotes its investment opportunities

In the last few days, a conference has been held in the DRC city of Goma (French here, English here), promoting investment in North Kivu.  The region was badly hit during the civil war and its aftermath, although the tensions have been lessening in recent years.

The authorities in the region have advised of opportunities in natural resource extraction and tourism.  I imagine that rights for resource extraction will be sold at a discount to their potential value, so that investors could recover their value quite quickly without having to commit long-term to the region.  As an investment, tourism development in the region seems to be a halfway house between resource extraction and other industries.  On one hand, tourism uses the existing resources of North Kivu, with its mountain gorillas, volcanoes, and Virunga National Park.  On the other hand, a commitment of funds for construction and training over the long term seems to be required.

Saturday, 6 June 2015

Retailers, consumers, and bankers talk about Burundi's unrest

There are first hand accounts of the consequences of Burundi's unrest for retailers and consumers in French here, and in English here.  Bankers in the country describe their experiences in French here and in English here.

Wednesday, 3 June 2015

Do foreign owners help Rwanda export?

Foreign ownership of companies isn't always popular.  Their working standards are sometimes criticised, both within the host country and the source country, and profits may not stay in the host.  However, there's one area where foreign ownership seems very likely to be advantageous, and that's exporting.  A foreign owner will probably have more knowledge of their own country and its demands than an owner from the host country, and they can use that knowledge in exporting.

In Rwanda there's evidence that companies owned by non-nationals do export more.  The table shows the average percentage of sales earned by exports, reported by the origin of the largest owner.  Rwandan owned companies in Rwanda earn 2 percent of their income internationally.  Companies in Rwanda owned by people from the Middle East export a bit more of their income, while Indian owned companies export four times as much.  The biggest exporters are European owned companies, with almost 12 percent of their income earned outside Rwanda.

Source: World Bank Enterprise Surveys

I haven't allowed for the type of company owned.  It may be that foreign owned companies are larger, and large companies export more, rather than foreign owners bringing more international expertise.  So it is difficult to say that a foreign owner will certainly export more, other things being equal.  In future, I will look at what sort of companies are preferred by foreign owners.