A problem, a money making opportunity

Innovation is taught as a skill in business schools, broken up into segments: recognition of opportunities, mobilisation of relevant resources, development of a solution, and successful introduction to the market.  Companies are encouraged to pursue each of these stages systematically, according to best practice.  The idea is to take the magic out of entrepreneurship, so that it becomes a matter of work rather than luck.

Happily, a resource provided by the World Bank reduces the work a bit.  The resource is the Enterprise Surveys (http://www.enterprisesurveys.org/graphing-tool), which surveys companies in the Great Lakes region (and elsewhere).  There is a lot of helpful information on there for business people, but the section which is most relevant here is the list of perceived constraints.  Here are the constraints for Burundi, DRC, and Rwanda, in graph form (Sub-Saharan averages are also shown):

Burundi:

DRC:

Rwanda:

The information can be used in various ways in the innovation process.  For example, many companies seem to have problems with electricity supply.  So when a company is mobilising resources and developing solutions to an innovation problem, they should probably consider using low energy methods.

An alternative use for the data is at the opportunity recognition stage.  One company's problem is another company's entrepreneurial opportunity.  Electricity is an issue?  Consider new supply solutions.  Finance is absent?  New funding mechanisms could be investigated.  Political instability is an issue?  A risk management consultant might do well.

Back on Monday.  Have a nice weekend.

Counterfeiting, a sword with many edges.

There's a report on the Rwandan New Times newspaper that manufacturers have been urged to fight counterfeit goods, which threaten locally produced goods.  I'd be surprised if the net benefit of counterfeiting and piracy for Rwanda is not positive, as it's consumers can buy foreign branded goods at cheaper prices.  Nevertheless, local manufacturers may want to protect locally produced goods while having no protection for foreign produced goods.  The stance is inconsistent, but inconsistency may benefit development, so long as foreign countries don't retaliate.

Less well known are the opportunities presented by illegal copying.  If a good is not well known, then a small, controlled amount of piracy can help a manufacturer to advertise the good.  Similarly, if market share is important, or if the good gets better if everyone has one (like a communication device, or something based on popularity), then piracy can help to increase profits.  It depends on the market, but is worth considering.

A market burns and information does too.

It's two years since a major fire at the central market in Burundi's capital, Bujumbura.  There's a video here.

A market on fire is like information burning.  A market brings together buyers and sellers, and reduces the amount of time that they have to go looking for each other.  I'm a supporter, particularly in Central Africa where other business-to-consumer information is less readily available.

However, the trend in developed countries is not always for more perfectly informed consumers.  The most successful supermarkets here now look like many supermarkets in Africa, with consumers left to sort out their own goods in disorganised (but very full) buildings.  The goods are much cheaper than in more ordered businesses, however.

I'm back, and the DRC's quieter in the East.

I'm back and commenting on economics of the Great Lakes. Various stuff has taken up my time, mostly dull. Rather more interesting have been developments in Central Africa. I'd say that the most significant event in the last few years has been the reduction in hostilities in Eastern DRC. My opinion was that the East would be pacified when the Congolese state became big and rich enough to suppress the armed groups. In the event, the Rwandan state has perhaps been as important, in reducing support for its formerly affiliated militias.

Plans for Investing in Africa

Investing in Africa's blog, Great Lake Economics, has been increasing the amount of space it gives to explanation and demonstration of new economic ideas in recent months. A motivation has been to bring these ideas to a wide audience in an accessible way. I think that explanation is likely to be more valuable than opinion for developing the region.

A plan for the site's future is to advance the process further, by bringing together and developing the ideas into a formal taught course, freely available online and focussing on Central African economic matters. There are economic courses already available online, and some economic commentary on Central Africa, but they have not been combined in an introductory course as far as I am aware.

I hope that some readers will find the course useful. If visitors, in or out of Africa, would like to see any other information provided on the site, please use the contact address on the site and your requests will be considered carefully.

Where there is no employment advisor

The BBC has run features on Sierra Leone here in the UK in the last couple of days. Here is one of them. A radio report last night talked of the high rates of youth unemployment.

In a modern economy with reasonably efficient markets, school leavers enter into the workforce and can find work eventually by adjusting their wage demands. In a low income developing country, the jobs may not be available at any wage rate, if they are not created by the school leavers themselves. They often do; African cities are full of young entrepreneurs trying to survive any way they can. A problem arises if the demand for their services and products is not sufficient to provide them with enough to live on, which can happen if the market is not well developed.

Development assistance should aim to move the market to a state where it is well enough developed to allow everyone to earn a living wage. The aim is achieved by setting the economy on its way to economic growth, which involves continuous improvement in one of growth's determinants. The determinants include domestic capital accumulation, educational achievement, market networks, and infrastructure quality. The developmental quality of temporary aid should be judged on whether it starts sustained accumulation of domestic improvements in one or more of the determinants. The quality is not independent of conventional humanitarian aid quality - people are probably not accumulating if they are starving or fighting - but does not necessarily perfectly coincide with it.

The micro-macroeconomic model with borrowing

Here is an extension to the small macroeconomic model described on Wednesday. It includes borrowing. Company profits are given by

P = I - C - R

and company income is given by

I = a*C + b*R.

a and b are constants that may be greater than, equal to, or less than one, depending on how the market and economic growth are interacting.

R is borrowing repaid by the company, and may increase the rate of output. If R falls, then rising inefficiency may be modelled as falls in a and b, decreasing profits. A high interest rate may be modelled as a fall in b, again lowering profits. A government may have a role to play here by increasing the availability of money through spending or printing money if the interest rate is stubbornly high for some reason outside of conventional supply and demand explanations.