Friday, 31 July 2015

The growth rate of Rwandan manufacturing companies - a puzzle

This post was going to be about balance in the industrial structure of the Rwandan economy, but my results have produced something that I can't explain, probably partially due to my error.  But I think there might be something going else on too, beyond any of my mistakes.


The graph shows the growth rates of Rwandan manufacturing companies over the period 2009-2011, when the companies were operating at the start and end dates and didn't grow faster than 100% per year.  The average rate of annual growth is -11.6 percent, which I am finding difficult to believe.  I have subtracted the average inflation rate (11.4%) from the data, but perhaps the data is already adjusted for inflation and it should be added back.  But the average Rwandan manufacturer that survived the period would then still have had a negative growth rate.  The Rwandan economy was growing rapidly during the period, hence my continued confusion.

The results could be explained by very rapid growth in very few companies, or by new companies creating a lot of value.  These explanations may work, but still...

Here's the Stata code:
use "C:\Rwanda-2011-full data-999.dta", clear  //From
gen annual_sales_perc_growth=100*((d2/n3)^(1/3)-1) if d2>=0&n3>=0
replace annual_sales_perc_growth=annual_sales_perc_growth-11.4
gen manuf_sector=(a4a==1) if annual_sales_perc_growth<=100
hist annual_sales_perc_growth if manuf_sector==1, percent xtitle("Annual percentage growth rate, 2009-2011") ytitle("Percentage of companies")
mean annual_sales_perc_growth if manuf_sector==1

//More carefully, using the survey structure
svyset idstd [pweight=median_weights], strata(strata) singleunit(certainty)
replace manuf_sector=(a4a==1&annual_sales_perc_growth&<=100&d2>=0&n3>=0)
svy, subpop(manuf_sector): mean annual_sales_perc_growth

Wednesday, 29 July 2015

Does innovation increase sales growth in DRC companies?

One way companies can increase their sales is through innovation.  The increase can come if companies improve their products while keeping the same price.  On the other hand, a company may innovate but fail to bring their product to market successfully, and rivals may capture the benefits.  In the Democratic Republic of Congo, does innovation increase sales growth?

Table 1 shows the average growth rate of sales for DRC companies, split by whether they introduced a product new to the company (data from  Both the average sales rate and new product introduction are over the period 2010-2012 inclusive, and only apply to companies that survived during the period.

Table 1: average growth rate of sales for DRC companies, split by new product introduction
No new products: 11.5%
New products: 34.1%

Companies that introduced new products grew much more quickly than those that didn't.  However, it might be that fast growing companies had more money and so could innovate, rather than innovation leading to faster growth.  Table 2 looks at companies that were using high speed broadband internet to research new products and services in 2010.

Table 2: average growth rate of sales for DRC companies, split by use of the internet for new product research in 2010
No internet research: 19.8%
Internet research: 29.5%

Companies that were doing internet research for new products and services in 2010 did better in the next few years.  The rate of growth over 2010-2012 is less likely to influence what happened in 2010, so there is clearer evidence for innovation leading to growth.

It might be argued that internet use brings other advantages unrelated to innovation (like the ability to make long-distance sales), and these other advantages may account for sales growth.  Table 3 looks at the performance of companies with the internet, and split by whether they did research with it or not:

Table 3: average growth rate of sales for DRC companies who had the internet in 2010, split by its use for new product research
Internet access and no internet research: 4.0%
Internet access and internet research: 29.5%

If a company had the internet but didn't use it for research, they had much lower sales growth.  Innovation seems to have been an important part of sales growth in the DRC over 2010-2012.

Saturday, 25 July 2015

Obstacles for DRC companies, split by the firm growth rate

In my last post, I wrote about how DRC companies can be divided by their rate of sales growth.  A majority of companies experienced declining sales, but a few had very rapid growth.  What makes these types of companies different?

The tables below show the main obstacles to operations reported by flat or declining companies (0% growth or less), marginal growers (more than 0% and up to 5% growth - a slightly different definition from my last post), growers (more than 5% and up to 20%), and growth champions (more than 20% growth).

My immediate impression is that the worst performing companies have the biggest problems with electricity supply.  It is possible that they are having problems just in running their productive operations, even before problems occur in the market.  For better performing companies, practices of informal competitors become a more prominent problem.  It seems that better energy supply will disproportionately help struggling companies.


Wednesday, 22 July 2015

An account of the economic consequences of the Burundian disturbances

There's an account here of how the Burundian economy is being affected by the ongoing political unrest.  The description focuses on business in the capital Bujumbura, and on macroeconomic numbers.

It isn't pleasant to read.

Monday, 20 July 2015

Sales growth in DRC companies

The DRC economy has been growing at an annual rate of seven percent in the last few years, so a similar growth may be expected in the total sales of DRC companies.  For individual companies, the rate will vary substantially as they differ in their ability to capture part of the national growth.

The graph shows the distribution of annual growth rates for DRC companies who stayed in operation over the period 2009-2012.  I have used an inflation rate of 11.6 percent to adjust the annual growth rates, which was calculated from a World Bank source.  I have also omitted the few companies who say that their growth rate exceeded 200 percent.


The companies can be split by their rate of annual growth:
  • 55 percent of companies had flat or declining growth.
  • 23 percent of companies had moderate growth rates of between zero and ten percent per year.
  • 6 percent of companies had good annual growth rates of between ten and 20 percent.
  • 16 percent of companies were growth champions, with an annual growth exceeding 20 percent.
Life has been tough for the majority of companies, but some companies have done very well from the DRC's national growth.  For companies as a whole, their sales rose by 12.7 percent.

Thursday, 16 July 2015

Rwandan competitiveness recognised in global business indices; Burundi and DRC lag behind

Rwanda has performed solidly on two recent indices measuring the business environment of countries around the world.  In the Foreign Policy magazine's "Baseline Profitability Index", the country was placed eighth globally out of 110 countries, in an index aiming to measure the ability to get profits from foreign investment in a country.  It comprises of three parts: generation of profits, erosion of profits, and repatriation of returns.  There is more discussion here.  The DRC was third from last, due to low scores on generation and erosion of profits.  As I mentioned in my last post, the security situation in the east of the country presents a severe challenge for running a profitable business there.  Burundi was not assessed.

The second index is the "Global Competitiveness Index" from the World Economic Forum, aiming to measure the productivity of a country.  Rwanda was in 62nd place out of 144 countries.  Arguably, the overall moderate placing is misleading, since for low income countries like Rwanda, the index consists of components like health and macroeconomic environment, while for richer countries the index consists of components like financial market development and innovation.  The indices for countries with very different incomes per person are therefore only partially comparable.  If we only look at the 37 low income countries with similar index components, Rwanda is top.  Burundi is in 32nd position.

It is worth treating any indices with a great deal of caution, and using them as rough guides, on average.  As well as the issues of index construction and comparison, the original data sources may not be honest or accurate, and the collectors may be biased or influence the outcomes in some way.

Thanks to the Rwandan New Times for pointing out these reports.

Tuesday, 14 July 2015

Tourism development in the Virunga National Park

There are plans to develop tourism in the Virunga National Park, in the East of the DRC.  One of the planners says that the Congolese tourism sector could equal that of Kenya.  Certainly, the region and lodging looks glorious, and the price of the accommodation is reasonable for high quality international tourism.  The climate is also suitable for visiting all year.

Evidently, the critical issue for many tourists will be security.  The UK government advises against all travel to Eastern DRC.  The DRC faces competition from the Volcanoes National Park in Rwanda, which is praised to the skies by tourists, and is far safer.

I think Virunga certainly could be a viable proposition, but the regional or park authorities would have to provide more security.  It is financially possible.  If a tourist is spending $5,000 on a three week trip, then dozens of security staff could be hired over the period, and the holiday would still generate a healthy profit for the company running the project, and tax for the government.  The area of the visit would be necessarily fairly circumscribed, perhaps a hundred square kilometre area near the Rwandan border.  The security would have to be established before the tourists came, of course, so risky investment would be required by investors or the government.  The administrators on the Rwandan side may be a good source of advice and expertise.

Friday, 10 July 2015

Update on the security situation in Burundi

I haven't written about the security situation in Burundi for a while.  There are reports today of heavy weaponry being used on the outskirts of Kibira forest, near the Rwandan border (French here, English here).  Since the failed coup in May there have been frequent grenade and gun attacks, although not full conflict, so today's news is another unwelcome stage in the unrest.

The government has a new website with more frequent updates and commentary, describing recent infrastructure projects among other things.  The projects would probably benefit the economy, but are dwindling in importance compared with the security situation.  The cost of recent civil conflict in the Great Lakes region has probably been hundreds of billions of US dollars, and outbreaks often result in tens of thousands to millions of deaths (here, here, here, here, here, here, and here).

Monday, 6 July 2015

Does being part of a group help start-up companies in DRC?

In my last post, I discussed the innovation advantages enjoyed by Congolese companies when they are part of a larger group.  Start-up companies may get an even larger advantage from group membership, since they are setting up their structures from new, and don't have much experience to use.


The table shows rates of different innovation types for start-up companies, split by group membership.  There is again a large advantage for subsidiaries of larger groups.  Comparing with the table in my last post, it is apparent that start-up companies get more advantage from group membership than established companies in innovation in new production methods and organisational structures.  These results are broadly as expected.

Friday, 3 July 2015

Innovation advantages for subsidiaries compared with stand alone companies in DRC

If a company is a subsidiary of a larger group, then it may enjoy advantages over "stand alone" companies which are not part of groups.  Among other things, a larger group may offer its subsidiary access to increased finance or specialised management knowledge.  The extra resources may be especially felt when companies are innovating in products or practices, since innovation can be demanding.

The table shows the rates of innovation for DRC companies, for various types of innovation.  Innovation is assessed over the three year period running up to 2013.


Being part of a larger group is associated with increases in all types of innovation.  For innovation of products new to the company, 14 percent more subsidiary companies innovated, compared with stand alone companies.  For new production methods, the gap was 22 percent.

I haven't controlled for size and other features of the companies, so it could just be that subsidiary companies are larger, for example, and therefore innovate more.  But something that is noticeable is the larger gap in innovation of internal company processes, and the smaller gap in product innovation.  To me, this says that stand alone companies could benefit from business advice on improving their internal processes, and that this advice is already available to subsidiaries.