Budget Evolution

I had a look at the evolution of the ivorian budget and GDP since the 2010/2011 crisis:

Ivory Coast Bn EUR
Poplation Mn Debt as % of GDP GDP Bn EUR Year Total Budget Tax and fee revenue
24.9 46.0 39.4 2018 est. 10.3 6.3
24.3 45.9 36.0 2017 9.8 5.8
23.7 44.0 32.1 2016 9.4 5.5
23.1 44.8 28.6 2015 7.9 4.7
22.5 39.0 25.7 2014 6.7 3.9
22.0 34.2 23.5 2013 5.9 3.7
21.4 33.7 2012 4.9 3.4
20.9 69.9 2011 4.7 2.3
20.4 66.4 2010 4.4 2.8

Overall it’s looking quite good. GDP and revenues are increasing much faster than the population, and debt seems stable even if it’s creeping up slowly. And while GDP is always a somewhat estimated figure with a margin of error, actual tax revenues is a hard figure and matches the GDP quite well.

The gap between total budget and revenue is explained by debt issuance, and donor funding. For 2018, the 4Bn gap is composed of 2Bn debt issuance, 0.6Bn budget support, 1.2Bn project specific loans (a big chunk from France for the Abidjan metro, and from China for hydro-electric dams and stuff I presume) and 0.2Bn project specific gifts.

More developed countries don’t have such big gaps, just some percentage points deficit spending. Here are the corresponding figures for Ireland in 2016 with a population of about 1/5 of the Ivory Coast:

Ireland Bn EUR
Poplation Mn Debt as % of GDP GDP Bn EUR Year Total Budget Tax and other revenue
4.77 75.4 254 2016 63 61.9

Finally a relevant question is how much of the total budget goes into the personal pockets of politicians and public sector employees.  I’d do a rough guess here of 2% – 10% for the Ivory Coast and 0.01% – 0.2% for Ireland.



Ivory Coast budget and GDP, government website “Budget de l’etat pour l’annee 2018”:

Click to access 09-rapport_de_presentation_2018.pdf

Debt percentage, IMF debt sustainability analysis Nov 2017:

Click to access dsacr17372.pdf


Ireland budget, 2016:

Click to access Budget%202017%20-%20Full%20document.pdf




Going to no longer stay anonymous – one of the purposes of the blog was to get in touch with interesting people, and that’s easier when people know who you are!  During the ivorian crisis there was a good case for anonymity, and it can be useful when going in to details of one’s business, but eh, upsides of non-anonymity are larger!

So, Im Martin Sjögren, Swedish-Italian, worked in finance in Dublin, London and Zurich over the last decade, and currently going back and forth between Dublin and Abidjan. Always up for a beer with interesting people in either place to talk about anything related to the blog!

martin selfie pilatus




Ok, here is what happened with the businesses/projected mentioned on the blog in the early 2010s:

Taxis: Turned out to be really difficult to manage from Europe. You need a local manager, mechanic, and drivers that are competent, honest and don´t exaggerate expenses – especially when knowing the owner is far away and can´t check on things. Just finding a good mechanic / auto repair shop is really difficult, even when living in Abidjan – seems all my friends in Abidjan have constant recurring car problems and keep changing mechanic all the time.

To make a taxi business work, I think – and this sounds obvious in hindsight –  one needs to be on the ground and follow the business closely , and even acquire some car repair skills – not something Im too excited about.

So after revenues coming in below expectations and constant mechanical issues (real or not), I sold all cars in 2013 at a loss.

Chicken farming: This was from the start an interesting thing to do while waiting for Abidjan to grow out to the chicken farming land. As I have never lived even close to a rural area, I kind of enjoyed learning about farming stuff and travelling out of the city, and surprising my banking friends in London where I lived at the time  with “yeah I have this side business in chicken farming in Africa…”.

So what happened; after switching from african chickens which grow too slowly, to so called broiler chickens, we made three batches. At each batch one buys 1 day old chicks, feeds them, and sells them after 30 days or so.  First batch went ok, and made a small profit. For the second batch the feedstuff seller mixed in cheaper ingredients causing the chicks to grow more slowly leading to a small loss. In the third batch the chicks got a disease causing another loss.  Then I stopped.

Chicken farming is basically lots of work for quite small margins that can easily be wiped out.  With more experience, and larger scale one can probably make it work quite all right, but the city has now grown out to the chicken farming land, and I think building on the land is more my thing, which leads to:

Real Estate: Thankfully, got much better news here! The house bought in 2007 has more than doubled in value since then, and rents have nearly tripled. I rented it out on airbnb for a while, to predominantly families living in Europe with ties to the Ivory Coast, and coming to Abidjan for holidays. Despite the somewhat peripheral location of the house,  demand was much bigger than I expected, so business has been good.  Currently it is rented out long term to a French-Ivorian family.

Boosted by this experience, I bought some land in Abidjan and another bigger house, more centrally located. It is now a mixed house-share / guesthouse with some rooms rented long term and others short term.  First paying guest came in January 2017, and so far so good!

Inspired by the Sleeping Camel hostel in Bamako, Mali, Im calling it The Sleeping Elephant, and even had  logos/graphic profiles made for it (thanks Nim Studios), but still can’t make up my mind on which one is best:










white with background





Trunk to the left or right, black, red or white text, Cote d’Ivoire or Ivory Coast, endless permutations here!  Only thing clear is that the “The” doesn’t look good.



Five years later

Ok, Im back to blogging after a five year hiatus! I paused blogging, but I didn’t pause investing and business in the Ivory Coast – more on that in upcoming posts!

The Ivory Coast has done pretty well the last five years which ever way one measures it, I think. The most obvious – but not unproblematic – indicator is GDP growth.

As I couldn’t find a list of top countries in the world by GDP growth for the last five years, I put together such a list myself using World Bank GDP figures for 2011 and 2016 (real GDP in year 2000 dollars):

Rank Country Compounded annual growth rate GDP 2011 (USD, bn) GDP 2016 (USD, bn)
1 Ethiopia 9.48% 33.28 52.35
2 Ivory Coast 9.26% 23.79 37.05
3 Turkmenistan 8.84% 25.90 39.56
4 Uzbekistan 7.96% 42.60 62.47
5 Laos 7.59% 7.70 11.10
6 Myanmar 7.51% 52.31 75.12
7 China 7.30% 6,682.00 9,505.00
8 Iraq 7.30% 149.00 211.90
9 Rwanda 7.18% 6.22 8.80
10 Cambodia 7.14% 12.04 17.00
11 Mongolia 6.93% 8.43 11.79
12 Tajikistan 6.90% 6.06 8.46
13 India 6.88% 1,767.00 2,465.00
14 DRC 6.83% 21.93 30.51
15 Tanzania 6.65% 33.89 46.77
16 Philippines 6.58% 206.90 284.50
17 Niger 6.51% 5.85 8.02
18 Panama 6.50% 32.33 44.30
19 Bangladesh 6.46% 122.70 167.80
20 Mozambique 6.43% 10.88 14.86
21 Vietnam 5.90% 123.20 164.10
22 Dominican Republic 5.75% 55.63 73.57
23 Kenya 5.47% 42.44 55.39
24 Turkey 5.46% 857.7 1119
25 Sri Lanka 5.33% 61.49 79.71
26 Indonesia 5.30% 801.70 1,038.00
27 Cameroon 5.28% 24.6 31.81
28 Nicaragua 5.15% 9.31 11.97
29 Bhutan 5.11% 1.71 2.20
30 Malaysia 5.07% 268.5 343.9

The 2011-2016 period includes the drop in oil prices, causing countries where GDP depends on oil exports to drop out of the toplist, showing a more fundamental and possibly more sustainable growth.

Choosing 2011 as start year pushes up the  Ivory Coast somewhat, but the growth is nevertheless impressive, and very visible on the ground in Abidjan.

As there are many issues with the GDP metric, especially in developing countries – difficult to measure, large informal sectors, possible to manipulate,  difficult to account for technological progress, etc – to get a fuller picture of how the economy is doing, and the wellbeing of the people, it is useful to look at other indicators as well.

For the Ivory Coast I’m thinking it would be interesting to look at more or less quirky indicators. Ideas:

  • Number of international flights and destinations from Abidjan. Can’t be manipulated, easy to measure, and should be a pretty clear relationship between an economy doing well and more demand to flying to a place.
  • Tax intake. Much easier to measure than GDP, an increase could theoretically be caused not by the economy doing better, but by increased taxes or increased efficiency in tax collection, but that would be interesting in itself.
  • Cost and time to traverse the country in a truck with goods. Both in terms of road quality and number of roadblocks and cost of bribes.
  • Demand for aspirational / middle class goods and services. How busy and profitable are shopping malls? Whats the demand, and increase in demand for broadband internet? Personal car sales/imports?
  • Stray dogs, frequency and how well fed they are. Should be less and better fed as wealth increases.

Investment Case in One Graph

The Cellphone Indicator

Here are vodafone’s revenue growth numbers from their latest quarterly presentation:

Hard to make a better case to invest in emerging markets and Africa. If people can afford to spend more on communications it should be a pretty positive sign for the economy as a whole. Vodafone isn’t present in the Ivory Coast, but well in neighbouring booming Ghana.  Vodacom is present in several countries in southern Africa, but the bulk of it is in South Africa.

Getting there

Lead times

Time for an update on the new taxis.  They are still not running, but it’s getting close now.  The lead time from buying the cars to actually have them running have been frustratingly long:

(1) Buying the cars – Finding a suitable shipping company – Having the cars picked up at home:  1 month

(2) Car leaving home – Arriving at Abidjan Port – 1.5 months (including a long stop in Antwerp)

(3) Getting the cars out of Abidjan Port: 1.5 months

(4) Repairs, reconfigurations, inspections, registrations etc : 1.5 months and still counting

So it’s practically half a year. For next time though, I know what shipping company to use so (1) should be reduced to a week or so, and (3) was unusually long due to the overflow of cars in Abidjan Port.  Point (2) is hard to do anything about without increasing the shipping cost – at the end it was more to do with waits in ports than ships slowing down because of  high fuel costs.

Headlight Headache

As to (4), one issue has been that the headlights were stolen at port and as they are expensive in Abidjan, an attempt was made to get new ones in Ghana. However, the ones obtained in Ghana didn’t fit, so to pass inspection headlights were rented.

The thing with these car inspections is that whether the car passes is a bit of a function of both the state of the car and how much you pay. I’ve been told that even if you have a brand new car inspectors are still going to find/invent some problem with it to make more money – we are talking petty corruption here, of a type that could be tricky to root out as it can be covered by the inspector’s technical car knowledge.  Maybe one way forward could be to separate the inspection from the handling of the payment for it – though that wouldn’t stop a car owner from paying to pass the inspection.

Giving a taxi-compteur a try

One of the two taxis will become a so called “taxi-compteur” (Taxi-meter) which is like a normal taxi unlike “woro woros” which are more akin to cars doing bus service (see the taxi finally running post).  Basically a taxi-compteur have revenues that are 50% or so higher than a woro-woro, but they are harder to control and there’s a greater risk of the driver selling the car and claiming he drove it into the lagoon or something like that.

Now I got one driver which seems suited for a taxi compteur so I thought I give it a try with one car, even though I heard quite a few stories of people trying to run taxi-compteurs from abroad, and giving up due to having too much problems to handle.

For taxi-compteurs there also are more onerous registration requirements and fees to pay, plus an extra inspection and you have to buy the actual meter, even if it’s rarely used as fixed prices are negotiated in advance. All of this is delaying the start, but we’re getting there!

A Comparison with Australia

Reality Check

Looking at the Ivorian government budget, I thought it would interesting to compare it to a developed country.  To avoid adjusting for population size, I checked if there were any developed countries with about the same population as the Ivory Coast:

Turns out Australia at 22.9 million comes very close.  The latest available budget for Australia is for 2010-2011 (the one for 2012-2013 is published tomorrow) and the total budget size is 356 billion aussie dollar which, using the current AUD/EUR exchange rate, is equivalent to 276.8 billion euro.

The 2012 budget for the Ivory Coast on the other hand comes in at 3.16 trillion CFA Franc which is 4.8 billion euro. That makes the Australian budget 57 times greater than Ivory Coast’s.

So there we have it, while the gap between the developed and developing world is narrowing, especially for indicators such as life expectancy or child mortality, there is still a pretty big gap in economic terms, at least for Sub-Saharan Africa.

I kind of like budget figures, because they are much more precise than GDP.  I looked at GDP as well, and I would have expected a smaller gap there as tax collection in the Ivory Coast captures a smaller part of the economy than in Australia leading to a smaller budget.  However, the Australia – Ivory Coast GDP gap using IMF figures turned out to be about the same as the  budget gap.  Explanations could be that I’m only looking at the federal level in Australia – not including regions, that Ivory Coast’s budget is augmented by support from international bodies and/or that Ivory Coast’s GDP is underestimated.

Receipts and Expenses

Looking at tax receipts, Australia took in 302 B AUD (234.8B EUR) in 2011, whereas the Ivory Coast budgets to bring in 1949 B CFA Franc (2.97 B EUR) in 2012. That makes Australia’s receipts 79 times greater.

Here’s where the receipts (largest categories) came from:

The thing is income tax, company tax and VAT only touch the formal economy in the Ivory Coast, whereas everybody have to pay import and export duties. With time I would expect Ivorian receipts starting to look more like the Australian.

Now for expenses (largest categories):

Australia’s profile is pretty typical for a modern western liberal democracy, with the welfare sector dominating expenses.  First I didn’t find anything at all resembling social security in the Ivorian budget, but at the end there was a small “Affaires sociales” post with contributions to orphans, social centers, war victims, but most of it to administration.

Going back 100-200 years the budgets of western countries looked more like present day Ivory Coast than Australia. (See US historical budgets in the Customs post.)  What’s remarkable about the Ivory Coast budget, and sets it apart from 19th century US budgets, are the investments – in among other things the third bridge over the Abidjan lagoon.   Despite the Australian budget being 57 times greater, Ivory Coast’s investments are actually comparable to the Australian ones in absolute numbers. And that should be a good sign for the future!

Podcast with the Finance Minister

Charles Koffi Diby speaking

Today I  listening to an IMF podcast [in French] with the Ivorian Finance Minister Charles Koffi Diby. Quite interesting – at least for readers sharing my somewhat geeky interest in Ivorian economics and politics.

Diby says:

There is a tendency to fantasise or imagine that there is a lot of money [in the public finances] and that it’s only the privileged who benefit  and that the managing of public finances is something sacred.  We have opened it up. Lets take an example; we make a budget release where we  invite the entire population, all social strata,  the civil society, economic operators, the public sector – everybody – and we present the budget with all its components and ask people to ask questions. And then we publish the entire budget on our website. Every quarter we present a follow up on the budget in the Council of Ministers which is made available online. That is, it becomes available to everybody. I think that also reduces social tensions, because everybody knows what’s in the state coffers and what we do with it.

I like that he stresses transparency, and the budget is really available –  in reasonable detail – at the Ivorian government’s website.  Though, I’d say that the main reason for transparency of the budget is linked to having strong/inclusive institutions and to reduce corruption – not to improve people’s perception.  Well, guess when you are in government you can’t say “we need to be transparent with the budget, because otherwise we’ll steal from it”.

Dooo -ing eeeh bisness

We are accompanying a process  so we can move from the primary agriculture sector to the secondary sector, ie food production. We are working on attracting direct foreign investments by improving the business climate, the security for people and property, and all procedures and especially that we can,   with regards to, doing business, be as good ranked as possible. So, it’s an improvement of our investment code increasing transparency and offering more opportunity. To summarise, it’s about improving the competitiveness of our economy.

Good stuff, and from what I have seen this looks to be more than empty words.  And I love it that scoring high on the World Bank’s Doing Business Index appears to be an outspoken government priority. It’s also an added bonus to hear French-educated Ivorian Ministers struggling with mid-sentence English words:  au niveau de  dooo -ing eeeh bisness etre mieux classe…

Interviewer: What’s your vision for the Ivory Coast in 5 years?

Diby: In 5 years we’ll be a country with positive double digit growth. We have the capacity. The President has outlined it clearerly in the actions we’ll take. The Ivory Coast will surprise the world positively.

Given that Ivory Coast’s population increases with 2% per year, even just a sustained growth in the 5%-8%  range would be great, and double digit growth is possible, but I’m not as confident as Charles Diby that it will happen. Reuters had a pretty upbeat article a couple of days ago where a bank analyst at Standard Chartered expressed the view that high growth is sustainable in the Ivory Coast. By high growth he means 5% – 6% though, not double digits.

For my investment case for the the Ivory Coast – especially for real estate – I think it’s actually enough if governance goes from  disastrously bad (as under Gbagbo) to just plain bad – fundamentals (demography etc) are that good.  My Cocody house had a good rental return and was increasing in value already under Gbagbo  – that is, until the crisis/war happened and the shops next to it were burnt down.

Now it’s looking like governance is going to somewhere in the ok to excellent range. The jury is still out on this one.

Taxis are out

Things taking longer than expected

I was going to write about my growing concern for the two Toyota Corollas stuck in Abidjan Port, but the very long process finally came to an end today, and both cars are out.  They arrived on the 6th and 11th March so it took one and a half months to get them out.   No bribes were involved and the price was the same as last time.  The problem is just an inefficient process partly involving a private company given a monopoly that couldn’t handle a surge in incoming cars due to – I guess  – other people thinking like me trying to import cars before a possible import ban.

As usual things take longer than expected, but increasingly, my experience is that they also work out at the end.

Now the cars just need to be registered, fitted and painted for taxi service and pass the vehicle inspection, and then they can hit the road.   Last time these things took a bit over a month, but were never a problem.  The big thing is getting the cars out of the port.

Approaching break-even

So given that I bought the cars in January, it will be almost half a year from buying them to them starting making money.  That’s an annoyingly long time, but if they perform as well as the first car it’s clearly worth it.  The first car is now at 58% of break even, and has had about as much problems and issues as I had expected – latest was that the battery needed changing – but the issues are cheap and quick to fix, and the car has had only four days not running since it started in September last year. In my budget I had estimated three down days per month.

A Hundred-Year Old House

1912 – 2012

I recently found this quite remarkable photo:


This in north east Italy in 1912, some 40 km south of the then border to Austria-Hungary. What’s happening is that electricity cables are being set up with a ladder on wheels. My main interest though, is the house in the background and the second fellow from the left who is my great grandfather (While being Swedish I have some Italian roots).

My great grandfather had the house built in 1909, and he must have done a pretty good job, because the house is still standing today relatively unchanged. I visited it two weeks ago and tried to take photos from the same angle. There is now a quite heavily trafficked road on the spot where the photographer from 1912 stood:


Nice work great grandpa!

When done right real estate can be a truly long term investment.  Even if one assumes –  following the lessons of the Herengracht index –  that the price of the house has more or less just kept pace with inflation since 1909 (with a temporary dip in 1944-45), the value in  housing provided over 100 years is immense.

Starting with the telegraph which came before electricity and is the black tube sticking out from the right of the house in the 1912 photo, to central heating and most recently internet broadband, the house has seen plenty of upgrades and modernisations.  However, in inflation adjusted terms, I don’t think the cost of any of the upgrades are on the same magnitude as the initial cost of building it in 1909.

So essentially my great grandfather managed to provide mortgage-free housing for  his descendants for 3-4 generations, and given the excellent shape of the house I don’t see why it wouldn’t keep going for another 100 years and 3-4 more generations.

In the long run we are all dead, but our houses will still be there

I’m thinking that if my great grandfather managed to build a house lasting over a hundred years back in 1909, I should be able to do the same in the Ivory Coast today.

It kind of raises the question of how to value and look at investments with a horizon longer than a lifetime. First  there is the financial way of looking at it. One can get the exact price today of one euro in 2112, by using the current market based discount factor. However, knowing that I most likely won’t be alive in 2112, is that one euro (or whatever currency will be used in 2112) still worth something to me today?

I guess my grandfather would have said yes to that same question if asked back in 1912 when he was 62 years old. And I am also thinking a euro in 2112 or maybe even 2212 has a non-zero value to me.  I think there are evolutionary reasons for wanting to provide for one’s offspring even after one’s death – a bit like the ideas in The Selfish Gene.

And regardless of descendants I think many people – me included – would take pleasure in knowing they are doing something that will leave a positive mark beyond their lifetime.  Not sure if it’s an ego thing, some sort of  wish for immortality, or a way of seeing the whole of humanity as one’s descendants, which genetically speaking I would think is a pretty correct way of looking at things.

Either way, if in 2112 a great grandchild of mine found this blog it would be pretty awesome, especially if there was still something left of my investments in the Ivory Coast (or elsewhere) that were useful to the grandchild.  Not sure of the longevity of blogs though, guess I’ll have to complement with more analogue media.

Flights to Abidjan May 2012

Europe to Abidjan

I’ve been looking at flights from Europe to Abidjan.  Basically if you want a single ticket to Abidjan – and not do  more adventurous stuff like flying to Accra and taking the bus from there – you’ll have to pass by one of these cities:

Addis Abeba

There are direct flights between Beirut and Abidjan as well, but the route appears to cater for the Lebanese community and it doesn’t seem to be possible to buy a Western Europe – Beirut – Abidjan ticket.

Here are the cheapest economy prices I found from some European cities with an outbound flight in May and return in June:

Continue reading “Flights to Abidjan May 2012”

Encouraging Signs 2

I’ve been collecting encouraging signs coming out of the Ivory Coast lately, and couldn’t help noticing a few not so good signs as well. First the good news:

Privatisation/liquidation of Banks

In the end of January Ivory Coast’s President Ouattara said that four Ivorian state owned banks “only existed  to finance certain political leaders”, and opened up for them to be closed down or privatised. “If we (the state) should own a Bank it should respond to a specific objective or be liquidated progressively.” Ouattara said.

Source: L’Inter: Depuis Paris, le chef de l`Etat annonce la privatisation des banques publiques

Now what actually happens is a much stronger encouraging sign compared to what politicians say, so this is to be followed up on.

Even countries at the top of the Transparency International Corruption Index have problems with corruption at state owned enterprises, so how the Ivory Coast deals with these kind of things matters for grand corruption. Just the fact that Ouattara is frank about how these banks operated is an encouraging sign. I can imagine a situation where someone in Ouattara’s position would have kept the Banks going just like before, but for the benefit of himself and his inner circle instead of the previous regime.

Liberalisation of the Media

According to an AFP story from the beginning of March, the ivorian government plans to offer licences for 5 new private TV-channels to complement the public RTI and RTI2 channels.

Again, this is politicians speaking of what’s going to happen in the future and not something that has happened, but I see media and especially TV as a bellwether for authoritarian tendencies.  One of  Putin’s first priorities when coming to power was to stop a  humour show making fun of Russia’s politicians, and after that he proceeded to make all major tv-channels propaganda arms for the government, while still allowing critical voices in print media.

Gbagbo actually had a policy similar to Putin’s. Gbagbo was forced to allow opposition voices on the TV in the run-up to the 2010 elections due to UN pressure and the peace process, but when the result were out, national TV was straight away turned into a pro-Gbagbo propaganda machine and foreign cable channels were blocked, while opposition newspapers weren’t dealt with as quickly.

Guess it’s a dictator’s calculation that few people read newspapers and that TV is a much more efficient tool to reach the masses. So if a leader works on creating five new private TV channels – it’s a good sign. Someone with authoritarian tendencies would instead focus on controlling the existing TV channels.

More flights to Abidjan

Here’s a very concrete encouraging sign for the Ivorian economy: Brussels Airlines announced in the beginning of March that they will increase the frequency of flights from Brussels to Abidjan from 4 per week to 7 per week.

Praise from the IMF

The biggest positive news came from the IMF on the 15th of March.  Essentially, the IMF said the Ivorian economy is stronger than expected, that execution of the budget was above expectation, that good progress was made on various reforms and that conditions for the  IMF-World Bank Heavily Indebted Poor Country (HIPC) scheme were met. I’m not sure I’ve ever heard such a positive statement from the IMF.

Here’s the Reuters story about it:

ABIDJAN (Reuters) – Ivory Coast’s economy will grow 8 percent in 2012 after contracting 5.1 percent in 2011, on stronger-than-expected post-conflict recovery, the International Monetary Fund said on Wednesday after meeting with Ivorian authorities.

The IMF also said the world’s top cocoa-growing nation has made progress in reforming its cocoa sector, a key condition which would enable it unlock debt relief under the IMF-World Bank Heavily Indebted Poor Country (HIPC) scheme by June.

“The rate of economic growth for 2012 will be 8 percent and inflation below 2 percent,” IMF mission chief in Ivory Coast Doris Ross told journalists after the meeting.

“The economic recovery is stronger than expected and we are pleased with the efforts made in the reform of the cocoa sector,

and mission appreciates the execution of the 2011 budget and revenue growth in 2012,” Ross said.

Ross confirmed the World Bank’s view, which said in February that the reform of the cocoa sector, meant to provide farmers with a minimum price for their produce, was on track.

“Ivorian authorities have made considerable efforts and could benefit from a substantial debt reduction through the HIPC in June,” Ross said.

Emerging markets strategist at Standard Bank Samir Gadio said the IMF’s suggestion that the HIPC completion point could be reached by June was good news because the market had factored in the possibility of a delay over the reforms which have not been fully implemented.

He added that the good news, as well as the smooth power shift in the country with the appointment of a new prime minister, contributes to making “the upward price trend of the Ivorian Eurobond … virtually self-fulfilling.”

And from pro-government newspaper Le Patriote [in French]:

Elle a souligné que les autorités ont accompli des progrès considérables dans la réalisation des déclarations des déclencheurs relatifs au point d`achèvement. Et l`aboutissement pourrait servir de base pour l`atteinte du point d`achèvement Ppte d`ici fin juin 2012 et permettra à la Côte d`Ivoire de bénéficier d`un allègement global de sa dette. « Les résultats économiques en 2011 ont été mieux que prévus. (…) L`exécution du budget a aussi été mieux que prévue. Les dépenses sont restées dans la limite des objectifs fixés dans le budget et les allocations pour les dépenses d`investissement et de lutte contre la pauvreté ont été utilisées dans leur totalité. Tous les critères de réalisation quantitatifs pour fin décembre au titre de l`accord Fec ont été respectés. », a relevé Doris Ross. Précisant que de “ bons progrès ont ét réalisés dans l`avancement des réformes structurelles“. « La mission se félicite de l`achèvement du recensement dans la Fonction publique, l`approbation de la reforme du régime de retraite dans le secteur privé, la mise en place de tribunaux commerciaux, l`adoption de la loi sur l`exécution des décisions d`arbitrage et la création de centres de facilitation aux entreprises », a déclaré Ross.

Less encouraging signs

As to the bad news, nothing really serious, but worth mentioning:

-Ouattara started out imposing strict work hours with an early start for his ministers.  Now it seems – according to a second hand account – that it wasn’t possible to enforce an early start in the long run, and that the government has gone back to starting the work day later.  Also, I don’t think anything came out of the plan to give government ministers individual marks. Ok, maybe it wasn’t as good an idea as it originally sounded, but it would have been interesting to see.

-In handling the informal sector, my take is that the Ivorian government should strive to legalise, establish property rights and regulate it (lightly). I don’t have much data yet, but there seems to have been occasions where livelihoods of people in the informal sector have simply been destroyed by the government. It’s done for arguably good reasons like public health, but it’s still a worrisome sign.  Here’s one story from Reliefweb: Côte d’Ivoire: Livelihoods lost to bulldozers

-The transport sector reforms.  I’ve already mentioned the proposed import restrictions, but it also seems the government want private businesses in the transport sector to get subsidised loans to import new cars of a certain brand  (Mercedes) selected by the government. Apparently the Minister for transport Gaoussou Toure visited a Mercedes plant in Stuttgart  in Germany recently. I think there just isn’t enough purchase power for urban transport in Abidjan to support taxis and woro-woros being expensive new Mercedes. If the government pays for it by subsidising loans – well, it seems a waste of money compared to use older (but still good and environmentally sound) cars.

Also this whole reform sounds like a French style “dirigiste” plan for the government to manage and run private sector activities, which in Africa (and elsewhere) quite often end up in corruption and disaster.

I’m still kind of hoping that the Mercedes are only for bus or minibus use, and that public transport will be strengthened, but that the taxi / woro-woro business will be left mostly alone. The details are not yet clear.

Car prices

Overflowing with cars

Latest news is that both cars have arrived to Abidjan Port and the import process is underway.  So it looks like they will make it before any import restrictions take effect.

The thing is, ex Prime Minister and ex Rebel Leader Guillaume Soro is to become Chairman of the Ivorian Parliament.   There is a rule saying that the Chairman most be at least 40 years old, and Soro happens to be 39, so it’s looking like the Parliament elected in December is waiting for Soro to turn 40 to start sessions. Things like this happen when you have a culture that reveres old age, but is in turbulent times where  coups, revolutions and wars propel young people to positions of power they wouldn’t otherwise reach.

No parliamentary sessions means that no import restrictions are enacted.  It seems I’m not the only one taking advantage of this, as the Port of Abidjan is overflowing with cars and the import process takes longer than usual. I’m expecting it to take another 10 days or so to get the cars out.

Ship with second car moored at Abidjan Port

Baseline prices

Before any import restrictions are enacted (if they will be at all – it’s not written in stone yet), I thought it would be interesting to do a comparison of second hand car prices in the Ivory Coast vs Western Europe.

The largest used car sites I’ve found in the Ivory Coast are auto.ci and automobile.ci. For Europe Im using the  pan-European site autoscout.eu. For each combination of model, year and fuel type there is usually one or a couple of cars on the Ivorian sites and several hundred on autoscout.eu, so I’ll be using the average asking price on the Ivorian sites, and median asking price from autoscout.eu

Toyota Corollas, asking prices as of 18/03/2012:

Fuel     |  Year |  I. Coast Price  | I. Coast Price | Europe Price

Diesel | 1990 | 1.8M F CFA        | 2,744 EUR      |     990 EUR
Petrol | 1992 | 2.8M F CFA        | 4,268 EUR      |   1,350 EUR
Petrol | 1995 | 2.8M F CFA        | 4,268 EUR      |   1,450 EUR
Petrol | 1996 | 4.0M F CFA        | 6,098 EUR      |    1,550 EUR
Diesel | 1997 | 4.5M F CFA*      | 6,860 EUR      |    1,825 EUR
Diesel | 1998 | 3.0M F CFA        | 4,573 EUR      |   2,300 EUR
Petrol | 1998 | 2.99M F CFA       | 4,558 EUR      |  2,290 EUR
Petrol | 2000 | 3.8M F CFA         | 5,793 EUR      |  2,699 EUR
Diesel | 2001 | 4.1M F CFA*      | 6,250 EUR      |  2,500 EUR
Petrol | 2002 | 4.5M F CFA        | 6,859 EUR      |  5,690 EUR
Petrol | 2003 | 6.0M F CFA        | 9,146 EUR      |  6,250 EUR
Petrol | 2007 | 7.0M F CFA        | 10,671 EUR    | 12,450 EUR
Petrol | 2009 | 7.68M F CFA      | 11,707 EUR    | 14,800 EUR

Cars marked with * are diesels with 4 doors and thus suitable for taxi use, something that I believe warrants a premium in the Ivory Coast.  An exception could be for the 2000 and 2001 models which have Peugeot engines as the Toyota engines didn’t meet EU emission regulations.  The Toyotas Im sending happen to have Peugeot engines – I wasn’t quite aware of this issue when I bought them (another rookie mistake).  I have heard that Peugeot engines don’t last as long (2 years or so) for taxi use in Abidjan, but I shall see.

There is a big premium on cars in the Ivory Coast as expected, and it’s mainly due to import duties. The surprise here is that for newer cars there seem to be  a discount in the Ivory Coast. Not quite sure why this is, and if there really is a discount – it’s only based on a handful of datapoints.  The set of people who deal with very new cars are a wealthy small minority. Maybe asymmetrical information comes into play, if you are selling a relatively new car that you have imported recently to Abidjan, there’s got to be something wrong with it.

Let’s look at another popular car in Abidjan:

Toyota RAV4, asking prices as of 18/03/2012:

Year |  I. Coast Price  | I. Coast Price | Europe Price

1993 | 3.5M F CFA        | 5,335 EUR      |     None
1995 | 4.0M F CFA        | 6,098 EUR      |     3,490 EUR
1996 | 4.05M F CFA      | 6,174 EUR      |     3,500 EUR
2001 | 7.0M F CFA        | 10,671 EUR    |     7,450 EUR
2002 | 6.85M F CFA      | 10,442 EUR    |     7,945 EUR
2004 | 6.1M F CFA        | 9,299 EUR        |     9,900 EUR
2006 | 13M F CFA          | 19,817 EUR    |     14,900 EUR
2008 | 12.5M F CFA      | 19,207 EUR    |   17,990 EUR
2010 | 18M F CFA          | 27,439 EUR    |     24,000 EUR

Ok, here the Ivory Coast premium includes the newest cars. It could be a fluke for the Corollas.

Time for some Afro-optimism

The Remarkable Part of the Chicken Republic Story

Regarding Nigerian entrepreneur Deji Akinjanju’s story two posts ago, there quite a few things that hit home and/or are signs of the time, like that he was about my age when he started, that he did consulting work in London (which I’ve also done), that he believes strongly in investing in Africa, and that he left a good paying job in Western Europe to become an entrepreneur in West Africa.

However, the most remarkable thing about Akinjanju’s story is that something like this didn’t happen:

Part of Uzbekistan is also ideal for growing tea. Interspan, a US company, invested heavily. But by 2006, Karimov’s daughter, Harvard graduate and international jet setter, Gulnora Karimova, had taken an interest in this market. Gulnora is a woman of many talents as you can see from her webpage: http://gulnarakarimova.com/en/.

For example she hangs out with rock stars like Sting and even duets with Julio Iglesias: http://www.youtube.com/watch?v=oFDVWJ0N89U

Gulnora’s interest meant taking over Interspan’s assets and business. And this was not going to be by making an attractive offer. The company reports that men with machine guns, allegedly working for the Uzbek intelligence services, entered its offices and warehouses, and seized its assets and inventory. Its personnel were arrested and tortured. By August 2006, the company pulled out of Uzbekistan, and tea was now a Karimov family monopoly.

From: http://whynationsfail.com/blog/2012/2/24/extractive-institutions-in-action-uzbekistan.html

Or something like this, from the bad (hopefully/probably) old days in the Ivory Coast:

Washington, DC 27 October 2003 — The American owners of a cellular telephone operator in Côte d’Ivoire that was shut down earlier this month are preparing a claim for damages. They charge the Ivorian government with failing to protect their investment.

The expropriation claim is being prepared by lawyers for Western Wireless, a Bellevue, Washington-based communications services provider, and Modern Africa, a $110 million fund with investments in nine African-based companies. Together, Western Wireless and Modern Africa report they have invested about $40 million in the mobile phone firm, known as Cora de Comstar.

On Friday the Bush administration weighed in with diplomatic backing for the American firms. Assistant Secretary of Commerce William H. Lash, III delivered what he termed “a very harsh demarche” to an official of the Ivorian embassy in Washington.

“This is the worst treatment of an investor and the worst example of state-sponsored thuggery I have seen anywhere,” Lash said he told the Ivorian official summoned to the Commerce Department, standing in for Ambassador Youssoufou Damba, who was recalled to Abidjan last week for consultations. He said the treatment of Cora de Comstar could turn Cote d’Ivoire into a “poster child” for negative investment climates.


Although a legal dispute over ownership of Cora de Comstar has been brewing for more than two years, the current crisis was prompted by the takeover of the company’s offices on October 9 by Alexander Galley, accompanied by 25 policemen who forcibly evicted the company’s management and staff, according to the U.S. owners. They said Galley based his action on a decision by an Ivorian judge, whose order was subsequently cancelled by the Ivorian Supreme Court.


According to Brad Horwitz, president of Western Wireless International, the government of President Laurent Gbagbo is to blame for what has happened to the cellular company. “The government clearly had a choice to make: it could deal with a convicted criminal or it could protect a U.S. investment,” he said. “We have given them numerous opportunities,” adding that negotiations on the matter have dragged on for more than two years.

For the past several months, the investors operated Cora de Comstar on a cash basis, because a court had handed control over company bank accounts to Galley. But after the October 9 incursion, they shut the network down, cutting off service to some 33,000 customers, Horwitz said: “We have furloughed 200 employees. We have lost all revenues. Our offices have been systematically looted and trashed, safes wrenched out of the walls and stolen, all this with the complicity of the government. It comes to a point where enough is enough.”

From: http://allafrica.com/stories/200310270023.html

Pretty Cool

For most African states (and some central Asian ones too) that’s how it’s been most of the time since independence. You have had, and I quote from the excellent http://whynationsfail.com/blog/   “extractive economic institutions — economic institutions designed to extract resources from the population and businesses for the benefit of a narrow elite.”  

But it’s actually looking like it’s changing now – in West Africa at least (Im not sure about Central Asia) – and that’s pretty cool.

Imagining Dominique Ouattara using thugs to steal one’s business in the Ivory Coast feels just as surreal as imagining Filippa Reinfeldt (spouse of Sweden’s Prime Minister) doing it in Sweden.  On the other hand I could maybe imagine the son of Senegal’s President Karim Wade taking over other people’s businesses, but it looks like the good people of Senegal are removing Karim from any position of power now.

Filippa with NY Rangers legendary goalkeeper Henrik Lundqvist. Ice-hockey players are probably ok, but If Filippa starts hanging out with Sting or Julio Iglesias I would start to worry.

Elections in Senegal

Wade is not Gbagbo

I’ve been following the presidential elections in Senegal today.   Senegal’s president Abdoulaye Wade was long the opposition leader and democratic hope, and came to power in year 2000, just like Gbagbo.  Then in power he didn’t quite meet expectations, but in terms of going bad after coming into power Wade was far from the nightmare of Gbagbo.

I supported Wade in year 2000 – along with everybody I knew in Senegal – and was in Dakar to celebrate his victory in the second round runoff on the 19th March 2000.  Somewhere around 2002 I shifted away from Wade seeing some autocratic tendencies like allowing two journalists to be put  in jail (albeit for a short period of time)  for insulting him, and not much improvement on corruption. Some of the top persons of Wade’s party who is running against him now like Idrissa Seck and Macky Sall also left Wade around this time.

Pro Wade election poster in Dakar

Dakar calling

I just talked to a good friend in Senegal who like everybody else supported Wade in 2000. He had seen a bit of the pre-election riots, but said things were calm now. My friend said he voted for Macky Sall. His motivation was that Wade is too old, has given too much power and influence to his son Karim, has allowed too much corruption and said “You know Martin, in this country nothing works.”

I’m actually quite optimistic about Senegal – it looks like the preliminary results are what one would expect from a mature democracy in a first round presidential election, ie no one gets close to 50%.  I think compared to year 2000, there are more people that vote along their convictions as opposed to for example what their village elder tells them to do. Also Senegal has a strong civil society and not the same ethnic tensions and divisions as the Ivory Coast which helps.

It looks like there will be a second round runoff between Abdoulaye Wade and Macky Sall which I guess Sall will win in a landslide as he is the anti-Wade candidate. And that should be good news for Senegal and its democracy.   Sure, Senegal also has a Constitutional Council, but I don’t think Wade will pull a Gbagbo.

UPDATE: Latest figures  WADE : 23,84% – SALL : 20,70% – NIASS : 19,50% – SECK : 7,70% – TANOR : 11,01%   So  Moustapha Niasse has a chance of going to the second round after all.



Chicken Republic

Can’t tire of African entrepreneurship stories

I just read an unusually interesting and inspiring story in CP-Africa and CNBC Magazine about  Nigerian entrepreneur Deji Akinjanju, who built a multi-million dollar fast-food empire from scratch in 10 years:

Setting up a food-retailing business and moving into what he [Akinjanju] calls “the chicken space” has happened in a roundabout fashion. “It was manufacturing and retailing businesses that initially interested me. But then the idea of fast food came up and it seemed like the obvious thing to do.” His degree in the US and masters in the UK, followed by consultancy experience at Accenture (formerly Andersen Consulting) in London taught him to “analyse and reason” and “learn from mistakes” – and he got practical experience from his first business based out of Johannesburg, supplying UN survival kits in Burundi and Rwanda.


As he leaves the restaurant to watch his beloved Arsenal football team play Chelsea on TV, he reflects on how far he’s come. “I left Nigeria at 18 and came back at 34. Since then I do believe I’ve created a brand that stands for something strong. It’s not just about number of outlets. I’m chasing happy customers, happy investors and real service quality.”

After 16 years in the United Kingdom, Deji Akinyanju returned home to found one of Nigeria’s most successful food retailers.“I felt driven to go back and make an impact,” he said on his decision to return home.”It was at the time of transition from military rule to democracy and I wanted to help build an entrepreneurial private sector.”

Today, 42 year old Akinyanju heads one of Nigeria’s fastest growing retail chains valued at about $120 million. With about $2 million (N320 million) in seed funding raised from family and friends, he initially had a franchise deal with Chicken Licken, South Africa but quickly established his own brand Chicken Republic.

But he admits he has learnt most on the job, drawing on his own doggedness to carry him through the tough times. “When I started, I didn’t have much experience. If you have passion, the rest is easy to learn, but you can’t teach somebody to be passionate.”

When reading this, my first reaction is Hey, I can do this in the Ivory Coast!   Akinjaju was at about the same age as me when he started, and just like Nigeria a decade ago the Ivory Coast has recently seen a big improvement in governance.  Though, I’ll admit the $2 million seed fund from friends and family is tough to match, and there are many smart people who have tried to set up fast-food retailers in Africa and failed:

From an article about KFC in http://www.howwemadeitinafrica.com:

“We have seen a number [of our] competitors go into markets in Africa and loose a bunch of money and withdraw. Some of the bigger South African brands have gone in, paid some very significant schools fees, and then had to either withdraw or scale down their operations … The potential in Africa is enormous, but you got to be very thoughtful, and go about it the right way.”

It seems to be working out for KFC though:

Around 2007, KFC earnestly started to consider opportunities in the rest of the continent. Keith Warren  [Managing Director of KFC Africa] says that Nigeria, with its population of over 150 million people, was a natural choice. And in December 2009, KFC opened its first branch in Lagos.

According to Warren, KFC was very well received in Nigeria. “Our original development plans for Nigeria were quite conservative, and within six weeks, I was [in discussion] with the franchisees, and they were saying, ‘Forget that, we are now going to build as many stores as we possibly can’. We are finding that the only limiting factor we’ve got in Nigeria right now is actually chicken supply, and finding suppliers who are able to meet our global quality standards in sufficient quantity.”

Chicken Farming

The chicken supply issue is very interesting indeed. Akinjanju and his Chicken Republic is having the same problem, and is now setting up a large chicken farm in Nigeria:

Akinyanju turned supply challenges into opportunity and, in a business epiphany, the company has just invested in its first production capacity, opening a chicken farm 200km south of Lagos.

The plant will supply his restaurants as well as supermarkets and such is the demand for chicken in Nigeria, Akinyanju is focused on becoming the country’s largest poultry distributor, supplying cheap chicken to the masses. Demand – which is growing as national eating habits shift and more poor people climb the economic ladder – way outstrips supply because of strict import restrictions designed to help nurture a domestic industry. “There is an unbelievable shortage of chicken in the country,” he says. “The Nigerian market is three times as big as South Africa’s yet South Africa’s largest chicken factories produce 3 million birds a week. In Nigeria it is just 100,000.”

The Ivory Coast is lowering import duties on chickens, but it’s the same story there with small scale producers, and an increasing demand from a growing economy and a growing population.  The fast food space isn’t as developed in the Ivory Coast as in Nigeria, but it seems set to inevitably follow suit.

Akinjanju says he  sees demand to open maybe 300-500 outlets in Nigeria and expand in other African countries. He says he sees a cultural change happening daily with a large and growing younger population eating out more and more.

Hear him speak in this video:

Shipping and Chickens

Off the Coast of Guinea Bissau

It’s taken a while, but Car #2 and Car #3 – two Toyotas I’m sending to the Ivory Coast to become taxis – have reached West Africa and should be in Abidjan in a couple of days.   I’m tracking the container ship “Grande Argentina” that carries the cars on http://www.marinetraffic.com:

So, right now,  it’s off the coast of Guinea Bissau doing 17.5 knots which is slow for a container ship, but at least faster than 19th century clipper ships.

News from the Chicken Front

On the chicken front, the construction is finished, and the first chickens and roosters are in place.  Now the idea is that they are going to reproduce so that their numbers increase to a maximum in about nine months.  Already in a couple months it should turn a profit though, and it will be very interesting to see how far away reality is from the seemingly to-good-to-be-true original budget projections.

One worrying sign is that I have received indications that the construction – while cheap, and roughly in line with budget – shouldn’t have costed as much as it did. This is the type of trust issues that are very hard to avoid – despite precautions – when investing in Africa while not living there.  And the handling of it can be make or break of the whole investment.

Anyhow here’s how the chickens are looking:

Social Capital and Trust

Ending up with Prosperity?

I used to hold the view that if you take any nation-sized group of people and let them be governed by a reasonable political leadership that promotes rule of law, property rights, makes sensible investments with public funds (in areas such as education and infrastructure), upholds a liberal market based economic system, and fights corruption – then you are going to end up with prosperity after a while.

P’J O’Rourke has a good take how the choice of political/economic system trumps which people it’s applied on in “Give War a Chance“:

Personally I missed the old East Berlin. The only thing East Germany ever had going for it was a dramatic and sinister film noir atmosphere. When you passed through Checkpoint Charlie the movie footage seemed to switch to black and white. Steam rose from man-hole covers. Newspapers blew down wet, empty streets. You’d turn your trench coat collar up, hum a few bars of “Lili Marleen” and say to yourself, “This is me in East Berlin.”

That’s gone now and the place is revealed for what it’s really been all along, just a screwed-up poor country with a dictatorship. The dictatorship part is understandable, but how the Commies managed to make a poor country out of a nation full of Germans is a mystery. The huge demonstrations that had shaken East Germany for the past several months had one characteristic which distinguished them from all other huge demonstrations in history—they never began until after work. I went to one of these at Humboldt University. The students were demanding economics courses. It was hard to reconcile this with my own memories of student protest. We were demanding free dope for life.

However, a dozen years or so ago, I read “Make Democracy Work – Civic Traditions in Modern Italy” by Robert Putnam:

Putnam evaluates the institutional performance of twenty Italian regional governments using surveys, interviews and a diverse set of policy indicators. His central finding is that wide variations in the performance of these governments are closely related to the vibrancy of associational life in each region. In northern Italy, where citizens participate actively in sports clubs, literary guilds, service groups and choral societies, regional governments are “efficient in their internal operation, creative in their policy initiatives and effective in implementing those initiatives.”

In southern Italy, by contrast, where patterns of civic engagement are far weaker, regional governments tend to be corrupt and inefficient. Putnam explains this relationship between strong networks of citizen participation and positive institutional performance in terms of “social capital” — the networks, norms of reciprocity and trust that are fostered among the members of community associations by virtue of their experience of social interaction and cooperation.

It’s very hard to dismiss, it’s the same country, same law, same national government, same economic system, and yet two clearly different outcomes in northern and southern Italy.  Putnam has tons of empirical data of associational life and other indicators linked to the somewhat fluffy concept of social capital, and they all show a striking difference between northern and southern Italy.

It managed to convince me at least, that while economic system and policies matter greatly for prosperity, there are other less tangible factors linked to people / culture / trust / social capital that are also important.


In “Trust” Francis Fukuyama discusses trust and social capital:

Trust is the expectation that arises within a community of regular, honest, and cooperative behaviour, based on commonly shared norms, on the part of other members of that community. Those norms can be about “deep value” questions like the nature of God or justice, but they also encompass secular norms like professional norms and codes of behaviour. That is, we trust the doctor not to do us deliberate injury because we expect him to live by the Hippocratic oath and the standards of the medical profession.

Social capital is a capability that arises from the prevalence of trust in a society or in certain parts of it. It can be embodied in the smallest and most basic social group, the family, as well as the largest of all groups, the nation, and all other groups in between.

[Social Capital] cannot be acquired, as in the case of other forms of human capital, through a rational investment decision. That is, an individual can decide to “invest” in conventional human capital like a college education, or training to become a machinist or computer programmer, simply by going to the appropriate school. Acquisition of human capital, by contrast, requires habituation to the moral norms of a community and, in this context, the acquisition of virtues like loyalty, honesty and dependability. The group, moreover, has to adopt common norms as a whole before trust can become generalized among its members.

The most useful kind of social capital is often not the ability to work under the authority of a community or group, but the capacity to form new association and to cooperate within the terms of reference they establish.


For example, in the Chinese parts of East Asia and in much of Latin America, social capital resides largely in families and a rather narrow circle of personal friends.

It is difficult for people to trust those outside of these narrow circles. Strangers fall into a different category than kin; a lower standard of moral behaviour applies when one becomes, for example, a public official. This provides cultural reinforcement for corruption: in such societies, one feels entitled to steal on behalf of one’s family. Corruption, of course, has many causes including, most importantly, the design of public institutions. But even well designed institutions will fail to function properly if the officials and political leaders at the top of judicial hierarchies themselves lack the proper norms of personal behaviour.

Still bullish on the Ivory Coast

I believe the Ivory Coast and most of Africa also are places where social capital largely resides in families, or rather extended families, and where levels of social capital are low overall.  I ‘d say the Ivory Coast’s president Alassane Ouattara’s greatest challenge, is not the security situation,  not how to  deal with Gbagbo supporters, and not how to keep together the PDCI – RDR alliance, but how to deal with the hurdles created by low social capital.

It’s also a major challenge for anyone doing business in the Ivory Coast.   I think it’s not uncommon that trust doesn’t extend much past an Ivorian’s extended family.  Business is done with outsiders, but on a lower level of trust as – not without reason –  deceit is expected from outsiders.    It becomes more difficult (but not impossible) for corporations to grow in such circumstances, as it inevitably involves hiring and working with strangers.

Nevertheless, there are many examples of fast economic growth and flourishing businesses in a low social capital / low trust environment. It’s being well aware of the social capital issue that I’m bullish on the Ivory Coast.

Social capital is after all only one out several important factors for prosperity, and the causality isn’t clear between them. Is low social capital causing dysfunctional institutions and bad governance, or is there an arrow the other way too? What if the Ivory Coast manages to have – by African standards – very good institutions but still low social capital, would that negate negative effects of low social capital?  And exactly how does the Ivory Coast stand in terms of social capital compared to the rest of Africa, and is it changing to the better?  Guess there is no consensus on how to measure it,  and I doubt anybody has tried to measure it in the Ivory Coast, so nobody knows.

Top Guy Syndrome explained

Fukuyama on the advantages of social capital:

The economic function of social capital is to reduce the transaction costs associated with formal co-ordination mechanisms like contracts, hierarchies, bureaucratic rules, and the like. It is of course possible to achieve co-ordinated action among a group of people possessing no social capital, but this would presumably entail additional transaction costs of monitoring, negotiating, litigating, and enforcing formal agreements.

No contract can possibly specify every contingency that may arise between the parties; most presuppose a certain amount of goodwill that prevents the parties from taking advantage of unforeseen loopholes. Contracts that do seek to try to specify all contingencies—like the job-control labour pacts negotiated in the car industry that were as thick as telephone books—end up being in exible and costly to enforce.

Even in non-hi-tech environments, social capital often leads to greater efficiency than do purely formal co-ordination techniques. Classical Taylorism, which organised workplaces in a highly centralised, bureaucratised manner, created many inefficiencies as decisions were delayed and information distorted while moving up and down hierarchical chains of command.

In many manufacturing facilities, Taylorism has been replaced by much  flatter management structures which in effect push responsibility down to the factory  floor itself. Workers who are much closer to the sources of local knowledge are authorized to make decisions on their own, rather than referring them up a managerial hierarchy. This often leads to great gains in efficiency, but is totally dependent on the social capital of the workforce. If there is distrust between workers and managers, or widespread opportunism, then the delegation of authority required in a typical ‘lean’ manufacturing system will lead to instant paralysis.

This is in effect what happened to General Motors during the strikes of 1996 and 1998, when a single dissident local (angry, in the Ž first instance, over the outsourcing of brake parts) was able to shut down the company’s entire North American operations.

Ah, it looks like the Top Guy syndrome just got explained; to delegate one needs some social capital to avoid paralysis.

Fukuyama on the downsides of low social capital:

Low levels of social capital lead to a number of political dysfunctions, which have been extensively documented. Following Tocqueville’s analysis of France, many observers have noted how administrative centralisation has led to an excessively rigid and unresponsive political system, one that can be changed only through anti-systemic upsurges such as the evenements of 1968.

Low levels of social capital have been linked to inefficient local government in southern Italy, as well as to the region’s pervasive corruption. In many Latin American societies, a narrow radius of trust produces a two-tier moral system, with good behaviour reserved for family and personal friends, and a decidedly lower standard of behaviour in the public sphere. This serves as a cultural foundation for corruption, which is often regarded as a legitimate way of looking after one’s family.

Much More on Rubber

I’m keeping on reading the story of rubber in the book “1493“. It’s quite fascinating, and by the end possible to link to the Ivory Coast without too much of a stretch. Some very long excerpts:

The importance of rubber and vulcanization

The impact of vulcanization was profound, the inflatable rubber tire – key to the adoption of both the bicycle and the automobile – being the most celebrated example. But rubber also made electrification possible: try to imagine a modern building without insulation on its wiring. Or imagine dishwashers, washing machines, and clothes dryers without the belts that transmit the motion of their engines to the appliance itself. Equally important but less visible, every internal combustion engine contains many pipes and valves that channel, usually under pressure, water, oil gasoline, and exhaust vapor. Unless the parts are manufactured perfectly, engine vibrations will cause liquids or gases to vent dangerously from the joints. Flexible rubber gaskets, washers, O-rings almost invisibly fill the gaps. Without them, every home furnace would be at constant risk of leaking natural gas, heating oil, or coal exhaust – a potential death trap.

“Three fundamental materials were required for the Industrial Revolution,” Hecht, the UCLA geographer told me. “Steel, fossil fuels, and rubber”. The rapidly industrialising nations of Europe and North America had more than adequate access to steel and fossil fuels. Which made it all the more imperative to secure a supply of rubber.

Rubber boom

Even in a time of crazy boom-and-bust cycles the rubber boom stood out. Brazil’s rubber exports grew more than tenfold between 1856 and 1896, then quadrupled again by 1912. Ordinarily such an enormous increase would drive down prices. But instead they kept climbing.

That rubber production went up an order of magnitude while prices tripled is the kind of thing that makes natural-resource economists rub their eyes in bemusement. “It’s pretty amazing,” said Michael C. Lynch, president of Strategic Energy and Economics Research, of Winchester, Massachusetts. “No wonder people were going crazy.”

The financial center of the trade was Belem. Founded in 1616 at the entrance of the world’s greatest river, it had a strategic location – but little ability to take advantage over it. So much sediment washed in from the Amazon that the harbour was shallow and treacherous. Worse, the currents and winds generated by the river’s vast outflow isolated the city from the rest of Brazil – incredibly from Belem it was faster to sail to Lisbon, a distance of 3,700 miles, than to Rio de Janeiro, a distance of 2,500 miles. In consequence the city’s population had never risen much above twenty five thousand. The rubber boom allowed it to become, at last, what Amazonian dreamers had long hoped: the economic capital of a vibrantly growing realm. Continue reading “Much More on Rubber”