I found this little animated video about “time orientation” – how our behaviour is influenced by how we relate to past, present, and imaginary future events.
It turned out to be a compressed version of the following 40 min presentation by psychology prof. Philip Zimbardo:
The Marshmallow experiment
In it Zimbardo, among other things, shows an experiment that checks if children are future oriented, meaning that they are apt at planning for and achievement of future goals, often at the expense of present enjoyment, delaying gratification, and avoiding time-wasting temptations. A 4-year-old child is offered a marshmallow, the experimenter then says he has to leave the room for a while and tells the child that it will get two marshmallows if he/she can wait. (This part is just in the beginning of the video above, the ways the children try to avoid eating the marshmallow are a must see!)
It turned out that 14 years later, the children that managed to delay gratification and didn’t eat the marshmallow, scored significantly better results at exams, and were described by the psychologists who made the experiment as confident and self-reliant, cooperative and work well under pressure, whereas the other children labelled “present-oriented” were described as moody, overreact to frustration, prone to jealousy and envy.
It should be said that it’s not as easy as future oriented equals good, and present oriented equals bad. Zimbardo talks about a so called balanced personality type scoring high on future orientation as well as orientations called “present hedonistic” and “past positive”, saying that having only one of these three orientations can be trouble. Those being very future oriented and not much else can have problems with anxiety, worry, social isolation, and over-competitiveness.
Delayed gratification and passive income
Still, the future orientation is important, and I’d say being future oriented is a bit of a precondition to start dabbling in passive income and lifestyle design. One has to start by planning, working hard and delaying gratification – essentially staying away from the marshmallow.
Today I made an excel spreadsheet for my real estate investments in the Ivory Coast assuming an average 16% return, and some debt financing at 10%. The result was that if I reinvest all the returns and add quite a bit of my own savings every year until the end of 2013, after that I can take out enough money to live comfortably without any other source of income, reinvest the rest and still see the returns continue growing relatively rapidly.
Consulting firm McKinsey has just come out with a pretty positive report on African economies and their potential, called Lions on the Move.
Some of the points of the report that caught my eye include:
Africa’s growth acceleration was widespread, with 27 of its 30 largest economies expanding more rapidly after 2000. All sectors contributed, including resources, finance, retail, agriculture, transportation and telecommunications. Natural resources directly accounted for just 24 percent of the continent’s GDP growth from 2000 through 2008. Key to Africa’s growth surge were improved political and macroeconomic stability and microeconomic reforms.
Today the rate of return on foreign investment in Africa is higher than in any other developing region. Early entry into African economies provides opportunities to create markets, establish brands, shape industry structure, influence customer preferences, and establish long-term relationships. Business can help build the Africa of the future.
The rise of the African urban consumer also will fuel long-term growth. Today, 40 percent of Africans live in urban areas, a portion close to China’s and continuing to expand. The number of households with discretionary income is projected to rise by 50 percent over the next 10 years, reaching 128 million. By 2030, the continents’ top 18 cities could have a combined spending power of $1.3 trillion.
So, in other words the economic growth is accelerating and does not depend too much on a natural resource boom, and growth is boosted by long term trends such as urbanisation, a growing population and the emergence of middle class consumers.
And the rate of return on foreign investment is higher than elsewhere. Sounds great – but how high is it? Fortunately the report has plenty of informative but complex (we are talking a consulting firm here) graphs that not only answer this question, but tell a whole story in themselves:
Rate of return on foreign investment:
Ok, almost 12%. That looks like a good benchmark. On the house and two shops in the well off Cocody municipality of Abidjan I have so far had a return of 12% not including appreciation. The newly constructed six unit building in the less well off Yopougon municipality should provide a return of above 20% if nothing goes terribly wrong.
The latest news on the renting of the six studio apartments in Yopougon is that the contract is signed and five month’s deposit has been collected on four of the six units. We selected tenants that had a regular income coming from non-ambiguous activities and turned away a few people that had the money for the deposit but no well defined source of income. In principle I kind of like to give people a chance, but in this case it’s likely to be a bad business strategy.
The remaining two apartments should be filled by the 1st of July, as there are some good candidates and we are just holding off to the end of the month to fill them. The experience so far is that demand is strong and there are no problems finding tenants without any marketing efforts. Having people seeing a new building and spreading the word themselves worked fine.
How much trouble there will be in the future, and whether tenants will fall behind on rents is still an open question though.
Here’s what I know about the four tenants:
1) Is a driver on a minibus service (“Gbaka”) between Abidjan and Dabou. Lives with his wife who does small scale trading (“petit commerce”) and one child.
2) Is a taxi driver.
3) Works at a hardware shop (a “quincaillerie”)
4) One unit, instead of constructed as an apartment was made into a kiosque that currently sells groceries, technically making it fancy-sounding commercial real estate. The guy who runs the kiosque lives elsewhere.
One striking thing is that the contracts have all been signed with men, which I guess isn’t a coincidence but more a reflection of patriarchal values. However, I don’t think it’s uncommon that women own or rent their homes in Abidjan, for instance the main tenant for the house in Cocody is a woman, but that’s an area with less traditional values than Yopougon.
Found mangoes from the Ivory Coast in my local grocery store today! And great tasting ones too. Nice to see that some export business is working, even if it’s a commodity that’s being exported. What would really make me jump though, would be if an IKEA product said “designed in Sweden, made in the Ivory Coast”, instead of Latvia, Poland, China, Vietnam, India etc where most of IKEA’s products seem to be made today.
The price was for the mangoes was 99 eurocent each, and in the Ivory Coast I believe one can buy a mango for 100 CFA Francs (0.15 EUR), but the production costs are even lower. Would be interesting to see a breakdown of where the 99 cents go between the retailer, the importer which is a French company with 60 employees and the producer(s).
In Qn which is a publication of Yale School of Management, I found this interview with George Friedman, author of a book called “The Next 100 years”. It’s about long term thinking of business and society – very interesting stuff in my opinion:
Q: How do the big, slow-moving trends of demographics shape geopolitics and international business?
We have been talking for several generations about the population explosion. But probably the single most important fact, is that, everywhere in the world, birthrates are declining—not just in developed countries but everywhere. In some places it’s still above 2.1, which is the replacement rate, but in Europe and elsewhere it’s fallen below that level. That sets in motion a range of things, from technological solutions to shortages of population, to changes in the status of power within regions and between regions, to switching from an anti-immigration policy to a desperate-for-immigration policy around the world.
We have been living for 500 years with a population expansion, which meant there were always going to be more consumers, more workers, more soldiers, more everything. That’s just not true anymore. By the end of this century, it will be pretty much untrue everywhere. That means that the nature of capitalism changes. More population meant you always had forces suppressing the cost of labor, more population meant the price of land always rose. The great arbiter in capitalism was capital—whoever had the money to invest was tremendously powerful. That’s not going to be the case, any longer. Labor is going to be the high-cost item, the great variable. In the 21st century, whoever controls labor is in the most powerful position.
The point about land prices rising with rising populations makes a lot of sense to me. So, as a real estate investor one wants to be in places where the population is still increasing, and well, West Africa might be the region in the world with the highest population growth rates, and where the peak population point is furthest into the future.
Still, one has to recognise differences within countries and regions. Japan is maybe the country in the world where the population is decreasing the most, and on top of that, there is very little immigration. Nevertheless, the city of Tokyo is expanding being a great place to live and work, attracting people from the rest of Japan and to a lesser extent from the rest of the world.
So, over say a 50 year period, is Tokyo a better place for a real estate investment than Abidjan, the commercial capital of the Ivory Coast?
Tokyo is probably going to continue being a safer, cleaner and a generally wealthier city than Abidjan in 50 years, and an apartment in central Tokyo is probably still going to be more expensive than an apartment in central Abidjan. But my bet would be that the apartment in Abidjan is going to appreciate much more than the Tokyo apartment – due to demographic trends. Even if international migration to Tokyo (or any other developed world city) increases greatly, it just cannot match the population growth of Abidjan over the next 50 years.
Q: You predict the rise of countries like Turkey, Mexico, and Poland in coming decades. What do businesses do with this sort of information now?
Companies need to be looking 20 or 30 years into the future for their investments. That will cause them to identify opportunities that most people think are preposterous, but if you look at countries as if they were companies, rising and falling, you want to identify not those who have already reached the top, where the herd is, but those that are beginning to emerge.
The time to have invested in Germany was in 1950. The time to have invested in China was 1975 or 1980. We speak about 30 or 40 years of emergence. That appears to be a very long time, but in 1975 China would have been a very interesting country to invest in. That was 35 years ago.
Q: Do businesses just need to assume that major political upheaval might render their investments completely valueless?
That’s always a possibility. In fact, it’s common. I mean, one of the things that interests me about business leaders is that they regard political events as black swans, yet if we look at the past century, the exceptional events have been the major definers of the international system. The Great Depression had far more to do with the First World War than it had to do with any decision the Fed made.
It’s extremely important to understand two things. Geopolitical events are a constant shaper of the business environment. And these events have a degree of predictability. The only certain erroneous assumption is to think that geopolitical events will not reshape the marketplace dramatically in the course of an investment. It always does.
In the 20th century, 17% of the time, the United States was involved in a major multidivisional war. So far in the 21st century it’s been almost 100% of the time. You don’t have the option of pretending that the only issues are business and market issues, because both of them are constantly being shaped and reshaped by political and geopolitical forces. Any investment made right now in the financial community is heavily dependent on the political process. An investment made in the energy industry is heavily dependent on geopolitical processes. So the option of not taking these into account just isn’t there.
Looking at the Ivory Coast it’s pretty hard to disregard political events as pretty dramatic ones have come in plentiful over the last dozen years. My take on it is that yes, political events are going to continue to shape the marketplace, and right now things are beaten down by negative political events (eg no tourism). Future political events might be positive, or negative, and one has to follow Ivorian politics, attempt to foresee what’s likely to happen, and adapt to any politically induced changes, which in a worst case scenario would mean to leave everything and get the hell out.
The only building standing in central Hiroshima after the atomic bomb strike in 1945.
Watching the World Cup has taken precedence over blogging lately. The pope of all people said it best:
“Amongst all unimportant subjects, football is by far the
Pope John Paul II
So, it’s Brazil on Sunday. Should be a good game and hopefully not a disaster for the Ivory Coast as Sven-Göran Eriksson seems to have sorted the defensive play.
More football quotes:
“In football everything is complicated by the presence of
the opposite team.”
“Some people think football is a matter of life and death.
It is much more important than that.”
“I spent a lot of money on booze, birds and fast cars.
The rest I just squandered.”
“The point about football in Britain is that it is not just a
sport people take to, like cricket or tennis. It is built into
the urban psyche, as much a common experience to our
children as are uncles and school. It is not a
phenomenon: it is an everyday matter.”
“I fell in love with football as I was later to fall in love
with women. Suddenly, uncritically, giving no thought to
the pain it would bring.”
I can’t seem to let go of the Swedish Emigration Investigation (or Commission might be a better word for it) from 1907 three posts ago. One theme in it, is that emigrants left not only due to the economic situation, but also due to issues such as dignity and human respect linked to class differences and the exclusion of the poor from the political system. The english wikipedia page about the Commission (yes, there is one!) has the following little story:
Bitter experiences of Swedish class snobbery still rankled after sometimes 40–50 years in America. A man who’d emigrated in 1868 described the disparaging comments he had heard in his youth from the aristocrat in charge of the parish poor relief, which “gave rise to great bitterness and a large number, among them myself, emigrated to America, which I have never regretted. Here, you are treated like a human being, wherever you are.” Continue reading “The Merits of Meritocracy”→
A while back I had the pictures below of the central business district in Abidjan as background images on my computer at work (alternating on two monitors). On many occasions I had colleagues asking what city it was, and me responding “guess!” . Not a single time did anyone guess a city in Africa, even after multiple guesses.
Hi-rise buildings aren’t really what people associate with Africa, I presume. But I think there is something else going on as well; that perceptions of Africa and developed countries among Europeans and North Americans to some extent are stuck in the 1950s, when the demarcation between rich and poor countries was clearer. While there is still a lot of poverty and misery in Africa and elsewhere, I’d say things are a lot better than what many people think, and well, there is this saying that the best investment opportunities can be found where perceptions diverge most from reality.
Gapminder has recently released the World Map 2010 with health (y-axis) and money/GDP (x-axis) for all countries:
It’s good stuff, and maybe even more interesting than seeing this static picture, is to see dynamically how all the countries have moved from 1800 until today at Gapminder World. Looking at those movements, all countries start in the bottom left quadrant in year 1800, and then move towards the top right corner with the United Kingdom leading the way in the 19th century, and the US in the 20th century.
As for the Ivory Coast (marked in red) it reached it’s best position on the “Money” axis in 1980 and was at the time way ahead of China and India. Guess these were the glory days of Felix Houphouet-Boigny when the Ivory Coast was by far the wealthiest country in West Africa, commodity prices were high, and skyscrapers were shooting up in Abidjan.
I don’t think this period is forgotten at all in the national psyche of Ivorians. Many see the current situation as a temporary setback and maintain that they really should be better off than the Togolese, Senegalese, Ghanaians, Nigerians etc. I have heard Ivorians living in Europe take pride in the fact that they, unlike the rest of West Africans really didnt need to emigrate in the past, and just do it now because of the crisis, but will go back as soon and things get better.
Unfortunately after 1980, the Ivory Coast went backwards on the “Money” axis, while Africa stayed still and the rest of the world went forward. In the end of the 1990s Ivory Coast did move ahead again along with the rest of Africa, but then fell back due to the civil war in 2002.
However, the global overall trend over the long term is very strong and very positive – and that includes Africa as well. Countries that have setbacks always seem to bounce back (look at the UK after World War I for example) and that is what Ivory Coast has been doing the last 3-4 years. So short of a global nuclear war, it seems pretty clear to me that Africa and the rest of the world will continue to move towards the top right corner. A debt crisis in the developed world is not going to affect these trends.
In 1907 the Swedish Parliament commissioned an investigation to try to reduce emigration to the United States. The original request included the following points:
That many emigrants would stay at home if they knew the hardships they would face in America.
A governmental information campaign on the dangers of emigration
Measures to stop and prevent promotion of emigration, claiming that agitators lure people into emigration using false information.
Many bitterly regret going to America where they find themselves in worse conditions than at home, and have perhaps spent all their money on the journey and can’t afford to go back home.
Many do not want to return due to misdirected ambition; they do not want to admit that they have made a mistake in emigrating. This explains why letters home from Swedes in America speak so highly of the new land.
Support to regretful emigrants by sending one of the Navy’s ships to New York to bring them home for free, under condition that they no longer be allowed to move abroad.
Talks about the significant economic loss of having able people in the age 15-35 moving abroad. And the even greater loss of spiritual capital, stating that it is known that it’s the energetic and intelligent youth that’s recruited for emigration. The most entrepreneurial leave for the New World, but the lazy and unproductive stay at home.
The thing is that I have heard all these points and arguments (perhaps except the one about lazy people staying at home) in present day Africa. In 2001 Senegal even chartered a plane to bring home emigrants in France who supposedly were disappointed with their new lives in France, but could not afford to buy a ticket home, citing reasons similar to the ones above. I can’t find any sources for it now, but I remember reading about it in Senegalese press.
I have looked around a while without even finding Mutual funds, ETFs or REITs aimed at African Real Estate. Mutual funds and ETFs aimed at Africa seem to be dominated by South Africa and natural resources and not very niched. Looks like Africa is enough of a niche in itself at the moment, but that’s likely to change in the future.
There are two real estate focused companies listed on Nigeria’s national stock exchange (UACN Property Development Co and Skye Shelter) but none of them have an ADR in New York which would make it easier to invest in them. On BRVM, the regional stock exchange for French-speaking West Africa, there doesn’t seem to be any real estate linked companies listed.
(2)What are the deposit sizes asked for various parts of Abidjan? Is there a clear link: wealthier area -> lower deposit? (From the Deposits post )
It looks like it, but I’d like to have more data.
(3)How much new construction takes place in Abidjan, where, by whom and what’s its value?
As discussed in Fundamentals of the property market: Construction this question should be answerable. There’s got to be a few people at the United Nations/World Bank/IMF or at the Ivorian Ministry of Construction Urbanism and Habitat that have tried to compile numbers for the construction.
(4)How much does a taxi driver in a West African capital earn? (Portfolios of the Poor)
I recall one taxi driver saying that he aimed for 10,000 CFA Francs (15 €) each day. When he reached it he could drive home. I am not quite sure how accurate that number is as average daily turnover. Anyhow, then petrol needs to be deducted and depreciation if the driver is the owner, or a fee to the owner in case the driver is not the owner. I can’t quite put a number to any of these deductions.
(5) Who are my tenants in the studio apartment sin Yopougon and will they pay the rent? (Construction Completed)
Unlike, it seems, most other questions, this one should get a definite answer in the future.