Moral Hazard and Taxi Contracts

It’s not my taxi anyway

I came across a Stanford University paper on motorcycle taxis in Togo and Benin, and particularly about the moral hazards linked to the contractual arrangements between owner (principal) and driver (agent).

In the standard moral hazard problem, it is often assumed that the output is observed and thus the compensation scheme relies directly on the observed output or an observable that correlate with the output . However, in many marketplace contracts in developing countries, this mechanism is not applicable. In particular, in the market of motorcycle taxi in Sub-Saharan countries, both the output and the effort are not observed. Yet, two type of contract coexist, one is a lease with a promise of transfer of ownership and the other being a simple lease arrangement. The Lease with Ownership ( LO henceforth) basically consist of reselling the motorcycle to the rider at a price on average twice its original value. They then agree on a weekly minimum payment. The rider becomes the owner only when she finishes paying the entire amount initially agreed upon. With the Simple Lease ( L henceforth) a daily fixed amount is agreed upon and the rider has to pay that amount everyday whether he makes more or less than that amount.

This sector has given rise to moral hazard problems. Those who own the motorcycles usually are not the drivers themselves. However, the drivers enter in a bilateral contract with the owners. Therefore, as in the case of workers in a firm, moral hazard problems emerge. The reason is that, there is practically no way the owner can observe or precisely predict the behavior of the agent. In general, in a standard moral hazard problem, the principal observes the output and base the compensation on it. Here, the principal cannot observe the output.

There are no moto-taxis in Abidjan as discussed over at Drogba’s country, but the exact same issues as above apply for regular taxis.

I talked to an owner of a taxi in Abidjan who said that he drove the taxi himself for a day just to observe the daily revenue.  The driver was claiming that the daily revenue was in the 30,000 to 35,000 CFA Franc range,  but the owner got 45,000 CFA Franc for the day he did the driving.

The study says:

A key feature of this market is that the agent has a full discretion about the revenue earned and he has the incentives not to
disclose the revenue truthfully.

Indeed.

According to the study, if the probability of the mototaxi being damaged so it no longer produces revenue due to the driver putting in high effort, is greater than a certain level, then the principal should choose the Lease with Ownership (LO) contract.  The optimal contract is that the principal chooses LO, and the driver puts in lower effort increasing the life of the mototaxi and thus the residual value he will receive.

Moto-taxis in Nigeria

However, empirical data from Togo and Benin show that contract type L is prevalent and that the more the owner trusts the driver the likelier it is that the owner chooses L. Basically the owner trusts that the driver won’t over-use the mototaxi even though the driver would gain financially by over-using it. What factors make the owner trust the driver is an interesting question by itself, the study has the following to say:

Both experimental and survey studies by Glaeser et al. (2000) suggest that trust and trustworthiness increase as the individuals have closer ties and, decrease when they are from different nationality, race, ethnic group or family.

Having known each other for a longer time, having had previous professional relationship, or being from the same ethnic group tend to favor significantly the choice of L.

So,  for a westerner doing business in Africa, this is part of what makes it challenging.

Anyhow it turns that in this case, looking at data from Benin and Togo, trust doesn’t matter for the driver’s behaviour, he will over-use the mototaxi anyway.  Apparently the economic incentives trump family ties, ethnic ties, long-standing professional relationships and all the rest. In this case a high level of trust just causes the owner to choose a sub-optimal contract.

From what I have heard it seems that the LO contract is standard for taxis in Abidjan, so maybe the lesson of this study has already been learnt.

P. J. O’Rourke’s take

Not sure it’s been learnt in New York though:

In a closely related work from the New York City taxi market, Schneider(2010) showed that moral hazard account to a great extend for the accidents, driving violations, inspection failure.

Which is surprising because there is an American author; P. J. O’Rourke, that nailed this whole issue back in 1986:

Even more important than being drunk, however, is having the right car. You have to get a car that handles really well. This is extremely important, and there’s a lot of debate on this subject – about what kind of car handles best. Some say a front-engined car; some say a rear-engined car. I say a rented car. Nothing handles better than a rented car. You can go faster, turn corners sharper, and put the transmission into reverse while going forward at a higher rate of speed in a rented car than in any other kind. You can also park without looking, and can use the trunk as an ice chest. Another thing about a rented car is that it’s an all-terrain vehicle. Mud, snow, water, woods – you can take a rented car anywhere. True, you can’t always get it back – but that’s not your problem, is it?

P. J. O’Rourke, from the “How to Drive Fast on Drugs While Getting your Wing-Wang Squeezed and Not Spill Your Drink” chapter in Republican Party Reptile, published 1986

P. J. has disappointinly but probably wisely cut down a bit on the wild and crazy since 1986

Adventure Capitalist

I’ve mentioned Jim Rogers before but it’s time for a presentation. He was a co-founder with George Soros of one of the most successful hedge funds, the Quantum Fund, and then ‘retired’ in 1980 at age 37, to do a lot of adventure, travel and investing.

From 1999 to 2002 he travelled around the world in a custom made Mercedes, travelling 152,000 miles, visiting 116 countries and writing about it all in a book called “Adventure Capitalist”.  I think the book is a real gem. Rogers coming from a small town in Alabama has this no bullshit straight talking way of expressing himself and a great curiosity to figure out how the world really is. He has some great comments and insights on economics, politics, investing and ‘general feel’ on almost every country visits.

And yes, he did visit the Ivory Coast, here’s an audio recording I found on http://www.jimrogers.com/ :

April 9th 2000, we are in Katiola which is in northern Ivory Coast. It’s a fairly small town […] It’s a place we stopped and I, we, had a terrific evening here. You know it’s real Africa, not much electricity, you are sitting in restaurants where it’s essentially you tell them what you want and they go to the market and get it. You sit and drink cocoa beer with the local people, not much light. It doesnt get much better than this, life doesn’t get much better than this, sitting around and chattering with people in small towns about their lives, drinking their beer, eating their food and seeing how they live. Africa is wonderful – lots of places are, but especially Africa.

Sadly, I have lost my copy of Adventure Capitalist, might have to get a new one, or even better, make a road trip in the same spirit.

Anyhow, I got to thinking about Jim Rogers when I ran across a pretty interesting interview with him at Investment U made a few days ago. (Part I, Part II)

Excerpt:

Garrett Baldwin: We spoke briefly about Canada. Are there any other countries that look like winners?

Jim Rogers: Well the obvious commodity countries are Canada and Australia. They’ve demonstrated a reasonable rule of law over the decades. New Zealand, likewise. Brazil has [many] commodities and is reasonably well managed, although the new government looks more and more like the old Brazilian governments that everyone needs to worry about. Anybody who’s got a lot of natural resources, [but only] if they’re well managed. Pakistan has a staggering amount of cotton, but they’re not well managed. Burkina Faso has a lot of cotton, but they’re not well managed. The Congo has a lot of raw materials, but they’re not well managed.

I used to have great confidence in Uganda, but like everybody else, power corrupts. So I’m not sure it’s as exciting as it could be. If you can find well-managed countries with lots of natural resources, you’ll do well. Finding the countries with natural resources is very easy. Get out an atlas or just ask, for that matter. But you’ve got to make sure that the management is going to be good management in the future. If you think that [a country like] Uganda is going to become well managed again, certainly by all means [invest].

Zimbabwe has lots of natural resources. It’s been a disaster. It’s more likely to be [well] managed in the future once Mugabe dies and once you have the resulting turmoil. After that turmoil, Zimbabwe might be a great place to invest because it’s been such a disaster for 30 years.

If you just replace “Mugabe dies” with “Gbagbo gets out of the way” you kind of have the essential investing case for the Ivory Coast.

Cultural distances

I was looking at something called the World Value Survey. It’s an attempt to measure cultural values and cultural proximity across the world.

The makers of the survey wanted to provide a measurement of all major areas of human concern “from religion to politics to economic and social life”, and found that two dimensions dominated the picture:  (1) Traditional/ Secular-rational and (2) Survival/Self-expression values.

The Traditional/Secular-rational values dimension

The Traditional/Secular-rational values dimension reflects the contrast between societies in which religion is very important and those in which it is not. A wide range of other orientations are closely linked with this dimension. Societies near the traditional pole emphasize the importance of parent-child ties and deference to authority, along with absolute standards and traditional family values, and reject divorce, abortion, euthanasia, and suicide. These societies have high levels of national pride, and a nationalistic outlook. Societies with secular-rational values have the opposite preferences on all of these topics.

The Survival/Self-expression values dimension

The second major dimension of cross-cultural variation is linked with the transition from industrial society to post-industrial societies-which brings a polarization between Survival and Self-expression values. The unprecedented wealth that has accumulated in advanced societies during the past generation means that an increasing share of the population has grown up taking survival for granted. Thus, priorities have shifted from an overwhelming emphasis on economic and physical security toward an increasing emphasis on subjective well-being, self-expression and quality of life. Self-expression is a cluster of values that include social toleration, life satisfaction, public expression and an aspiration to liberty.

The World Value Survey Cultural Map 2005-2008

Now, the Ivory Coast wasn’t included in the survey, but I would put it in the Africa area, maybe a bit higher than Ghana on the secular/rational axis due to there being no one dominant religion. Northern Ivory Coast would probably be where Mali and Burkina Faso are, and the city of Abidjan maybe a bit above that.

The striking thing here, as a Swede doing business in Africa, is that it seems I have maximised the cultural distance.   That Sweden is an extreme point is no surprise, and I’m pretty much in the top right corner myself so I’m fine with it.  Unlike the other protestant European countries, in Sweden there has long been some sort publically embraced strive for modernity which pretty much means top right corner.  Comedian Fredrik Lindtröm, who says the conclusion of the values study is that Swedes are narcissistic engineers, explains it all very well in “Världens modernaste land” with english subtitles.

However, looking at the people I usually meet when doing business in Abidjan, or my Ivorian friends on facebook, they are wealthier and have much stronger self expression values than average Ivorians, and while still having a strong national pride and family values they are a bit up on the secular/rational scale compared to other Ivorians.  In other words, it’s like doing business with Americans!

UPDATE:  I would actually predict that as African countries get wealthier they will move towards and into the bottom of the “English Speaking” area.  Despite being poor African countries have more self-expression values than wealthier China, Russia, Romania or Korea.  I’d guess sub-saharan Africans have intrinsically pretty strong self expression values (with Rwanda seemingly an exception), just held backed by poverty which forces survival values.  Once the African economies get momentum, we’ll see a rapid move to the right on the cultural map.

Ivorian presidents and the problem with power

Third time lucky?

With Ouattara’s installation today, I started thinking that the two previous heads of state of the Ivory Coast (and maybe Bédié too) seemed quite reasonable and idealistic before accessing power, but then seemed to be transformed by being in power and starting to desire to stay president for the power itself and the advantages it brings – at any cost.

It's good to be President

A while ago I quoted a speech by Vaclav Havel where he describes this process, talking about three different reasons for desiring political power:  idealism, self affirmation and longing for power for the perks it brings.  Havel says that the third type deserves special attention mentioning the  diabolical temptations of power in this sphere, and saying that “This is best observed among those of us who have never held power of any kind before.”

Ouattara has already held positions of power, but that doesn’t mean he is immune, just that the process of wanting power for its own sake is less easily observable.  However, I’m not too worried Ouattara will go down the route of Guei and Gbagbo – the Ivory Coast had bad luck with these two, and the temptations of power process – while it affects everybody – usually doesn’t turn that nasty.

And I would guess being democratically elected and being in power in a democratic system with checks and balances is a bit of a counterbalance. Not that I’m too confident about current checks and balances in the Ivory Coast, but both Guei and Gbagbo in all likelihood ordered extra-judicial killings of quite a few of their own citizens, so it’s hard seeing it getting much worse.

Power and moral hypocrisy

I recently read about a psychological study that appears to confirm some of the problems with power Vaclav Havel was talking about.  Experimental data point to that power in itself causes people to act as if moral rules don’t apply to them, while still applying them to others:

New research from the Kellogg School of Management explores why powerful people — many of whom take a moral high ground — don’t practice what they preach.

In “Power Increases Hypocrisy: Moralizing in Reasoning, Immunity and Behavior,” Kellogg Professor Adam Galinsky and his co-researchers sought to determine whether power inspires hypocrisy — the tendency to hold high standards for others while performing morally suspect behaviors oneself. The research finds that power makes people stricter in moral judgment of others, while being less strict with regard to their own behavior.

Five experiments followed in which researchers examined the impact of power on the moral hypocrisy of the participants. They found a consistent and alarming outcome:  those assigned to the ‘high-power’ group repeatedly condemned moral failures of others while committing unethical acts themselves. In one experiment, high-power participants were asked for their positions on cheating and over-reporting travel expenses, both of which they flatly condemned.  They and the low-power group were then asked to play a dice game alone, in a private cubicle, to win lottery tickets. The powerful reported significantly higher lottery winnings than the low-power group, even though both groups had the same odds of winning.

Three additional experiments further examined the degree to which powerful people accept their own moral transgressions versus those committed by others. In all cases, those assigned to high-power roles showed significant moral hypocrisy by more strictly judging others for speeding, dodging taxes and keeping a stolen bike, while finding it more acceptable to engage in these behaviors themselves.

Suddenly, it feels the world makes a lot more sense.  This seems to explain not only Ivorian Presidents’ actions, but also the likes of Elliot Spitzer and Dominique Strauss Kahn.

UPDATE:  Found an article in Wired from this week that also connects the Galinsky study with DSK:  How Power Corrupts

Obviously the right thing to do

A Plunge into the unknown

On professor Hans Rosling’s blog I read:  [If you go Hans who? – check this out!]

Today at the airport in Stockholm I met a happy Swedish couple flying out to their new investment abroad! They had renovated and opened a hotel on “Ihla”,  the historic capital in northern Mocambique. Obviously done the right thing to do.

My feeling here is, by golly I hope Hans is right, because I have just bought two plots of land in Abidjan, whereof on one I plan on building an apartment hotel.  So this is it, not only will the name of the blog start making sense, but if it works out I will reach the “within 3 year” goal set out in the mission/vision post last year.

The Prof has spoken

There aren’t that many plots of land available at reasonable prices in areas that are sufficiently central and upscale to be attractive to people (including european tourists) that are prepared to pay budget hotel prices for their stay in Abidjan. So when finding a plot that met all the criteria, I had to go for it, but only after a lot of due diligence including double and triple checking the paperwork – the key check is that the seller really owns the plot, checking that it isn’t in a flood prone area, and pretending to be a customer at nearby hotels to see how they were doing.

One the nearby hotels actually turned out to be one of those that are rented by hour, which is surprisingly common in Abidjan and not an indication of a bad neighbourhood, but still not quite a line of business I had intended to embark on.

Despite all these checks, encouraging remarks from Hans Rosling and the likelihood that the investment will have a strong tailwind by demographic and economic trends, it’s still a plunge into the unknown and I can think of an awfully great number of things that can go wrong, so I got to admit that fear is one of the emotions I associate with this project.

Quotes

Thus, it’s a good time for a mixed collection motivational quotes and other wise words:

“All life is an experiment. The more experiments you make the better.” – Ralph Waldo Emerson

“A goal properly set is halfway reached.” – Zig Ziglar

“Do not go where the path may lead, go instead where there is no path and leave a trail.” – Ralph Waldo Emerson

“What you get by achieving your goals is to as important as what you become by achieving your goals.” – Henry David Thoreau

(H/t Maren Kate at Escaping the 9 to 5 for the above ones)

As Randy Pausch said: “It is not about how to achieve your dreams. It’s about how to lead your life.”

Basically it is all about the curiosity to experiment and explore your dreams. Mistakes made are not about being good or bad. Don’t be afraid to pursue your dreams. Opportunities occur randomly. If the environment is favorable there is a great chance that these opportunities will be favorable. Work to create this environment. If you are not happy, change. Do something. Don’t whine. Do things with passion. Exploit and realize your potential and talent to the maximum extent.

From http://www.dailyspeculations.com/wordpress/?p=6260

“Peter Sims buries the myth that big talkers with brains and big ideas move industry and science forward. This modern masterpiece demonstrates that the most powerful and profitable ideas are produced by persistent people who mess with lots of little ideas and keep muddling forward until they get it right. Little Bets is easily the most delightful and useful innovation book published in the last decade.”

From: http://bobsutton.typepad.com/my_weblog/2011/04/little-bets-peter-sims-delightful-masterpiece-is-shipping.html

Laurence Peter (1919-1990):
“There are two kinds of failures: those who thought and never did, and those who did and never thought.”

Indira Gandhi (1917-1984):
“There are two kinds of people, those who do the work and those who take the credit. Try to be in the first group; there is less competition there.”

John F. Kennedy (1917-1963):
“Conformity is the jailer of freedom and the enemy of growth.”
“Efforts and courage are not enough without purpose and direction.”
“We should not let our fears hold us back from pursuing our hopes.”

John Cage (1912-1992):
“I can’t understand why people are frightened of new ideas. I’m frightened of the old ones.”

Robert Heinlein (1907-1988):
“Most people can’t think, most of the remainder won’t think, the small fraction who do think mostly can’t do it very well. The extremely tiny fraction who think regularly, accurately, creatively, and without self-delusion – in the long run, these are the only people who count.”

Anais Nin (1903-1977):
“Life shrinks or expands in proportion to one’s courage.”

Harold MacMillan (1894-1986):
“The man who trusts nobody is apt to be the kind of man nobody trusts.”

Aldous Huxley (1894-1963):
“Facts do not cease to exist because they are ignored.”
“Experience is not what happens to you. It is what you do with what happens to you.”

Christopher Morley (1890-1957):
“The real purpose of books is to trap the mind into doing its own thinking.”
“There is only one success – to be able to spend your life in your own way.”

Harry Truman (1884-1972):
“It is amazing what you can accomplish if you do not care who gets the credit.”

George S. Patton, Jr. (1885-1945):
“If everyone is thinking alike then somebody isn’t thinking.”

H. L. [Henry Louis] Mencken (1880-1956):
“Conscience is the inner voice that warns us that someone might be looking.”
“For every complex problem, there is a solution that is simple, neat, and wrong.”

“Now, now, my good man, this is no time for making enemies.”
-Voltaire, on his deathbed, to a priest asking that he renounce Satan

Winston Churchill (1874-1965):
“We shall never surrender.”
“I have nothing to offer but blood, toil, tears, and sweat.”
“A fanatic is one who can’t change his mind and won’t change the subject.”
“You have enemies? Good. That means you’ve stood up for something, sometime in your life.”
“The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty.”
“I am ready to meet my maker, but whether my maker is prepared for the great ordeal of meeting me is another matter.”
“Once in a while you will stumble upon the truth, but most of us manage to pick ourselves up and hurry along as if nothing had happened.”

Bertrand Russell (1872-1970):
“The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts.”

Thomas Crum (-):
“Our quality of life depends not on what happens to us, but on what we do with what happens to us.”
“What would it be like if you lived each day, each breath, as a work of art in progress? Imagine that you are a masterpiece unfolding, every second of every day, a work of art taking form with every breath.”

“When I was a kid I used to pray every night for a new bicycle. Then I realized that the Lord doesn’t work that way so I stole one and asked Him to forgive me.”
-Emo Philips, stand-up comedian

“To believe a thing impossible is to make it so.” – French Proverb

G. M. Trevelyan:
“Never tell a young person that anything cannot be done. God may have been waiting centuries for someone ignorant enough of the impossible to do that very thing.”

Christopher Reeve:
“So many of our dreams at first seem impossible, then they seem improbable, and then, when we summon the will, they soon become inevitable.”

Sir Walter Scott:
“To the timid and hesitating everything is impossible because it seems so.”

Paulo Coelho:
“There is only one thing that makes a dream impossible to achieve: the fear of failure.”

A Bull on Africa

An Investment Banker speaks about Africa

I just read a very clear argued case for investing in Africa by Stephen Jennings of Renaissance Capital – an investment bank specialised in emerging markets.  Here are the parts I especially liked, but the whole thing is worth a read:

Over the last few years – indeed, since Renaissance entered Africa in 2005 – rarely have I found myself preaching to the converted. My usual opening statement, that the 21st Century is Africa’s Century, is usually met with some bemused smiles. This is supposed to be China’s Century, or Asia’s Century, or the Century of BRIC or emerging markets, but definitely not of Africa.

Today, I think I notice more nodding in agreement.

In the last years I have also noticed that perceptions about investing in Africa are changing, as mentioned in the Is it getting trendy to invest in Africa? post. It is an interesting development, but it actually shouldn’t be surprising.  Looking at the numbers Africa has had great growth since the mid-90s – quite a long time.  It’s just that perceptions started out at rock-bottom.

Here is an income per capita historical graph from Gapminder for the Ivory Coast, Nigeria and Ghana:

And the thing is, Ivory Coast is the exception above, most African countries’ graphs look like Nigeria’s or Ghana’s. And with a post conflict recovery, and Ouattara not messing up, Ivory Coast’s future graph (forgetting about the inevitable crisis dip) could look even better than those for Ghana or Nigeria.

Back to Stephen Jennings, here are his key points:

• Economic growth in Africa has averaged 6% over the last decade, greater than that enjoyed by India between 1995 and 2005.
• Today 8 of the 20 fastest growing economies in the world are from Africa. Stunning as it may sound, Ethiopia’s growth has been on a par with China’s over the last decade.
• The resurgence is broadly based – between 2000 and 2008 economic growth accelerated in 27 or Africa’s 30 largest countries. Remarkably, of 43 sub-Saharan countries only Madagascar had negative growth last year in comparison with more than a dozen such economies in the mid-90s. The naysayers’ tired refrain, ‘what about Zimbabwe’, holds little weight today.
• Analysis by McKinsey suggests that natural resources account for only a quarter of Africa’s growth with those sectors that benefit from strong domestic activity accounting for the majority.
• Similarly IMF data show that GDP growth is remarkably similar between African countries with significant resource exports and those without and the IMF has concluded that “natural resource endowments and geography…..have not been decisive factors in explaining the growth takeoff since the mid-90s”.
• In 2009 despite the massive collapse in virtually all commodity prices Africa was the only region of the world not to record a single quarter of negative growth. Just compare the performance that year of two oil-dependent and supposedly hopelessly managed emerging markets: Russia which suffered a 7.5% economic collapse and Nigeria which achieved a stunning 7% growth rate.
• As in Asia in the 1960s, the acceleration of growth coincided with the cessation or reduction of wars and conflict.  Post conflict, economic growth rates increased by 10 percentage points in the DRC and 15 percentage points in Sierra Leone for example.
• Africa’s macroeconomic performance has improved very significantly – between the 1990s and the 2000s inflation has fallen 64%; government debt by 28% and fiscal deficits by 60%.
• Finally, according to World Bank indicators the majority of African countries have implemented successful microeconomic reforms and those countries implementing the most reforms and greatest trade liberalization have experienced the greatest acceleration in economic growth. By some measures Rwanda is the fastest reforming country in the world in terms of the ease of doing business.  [Good work Petter!]

A Chile or Taiwan in West Africa?

Jennings on where to invest in Africa:

One of the questions I am most frequently asked about Africa is: which countries and regions of Africa will be most successful and where will the most attractive investment opportunities be? Once again, useful parallels can be drawn between Africa and Asia. We tend to talk about Asian growth as a collective concept, as if growth had been uniform across the continent in a steady process of improvement. This is, of course, misleading. Different countries have enjoyed radically different growth paths at different times.

Africa is just as much a geographic term as Asia. Loose talk about a great African revival risks confusing geography with economics.

While the acceleration of economic growth across Africa is very broadly based, there are major regional differences. When it comes to picking specific winners I confess that I prefer circumspection to bold predictions.  Africa will have its Chiles and Taiwans. It will also have its Argentinas and possibly (but hopefully not) its North Koreas.  How all of this will play out is unclear to me. Most accounts of why a particular country has taken off at a particular point in time amount to ex post or rear vision mirror analysis. The same applies to theories as to why today’s laggards will never make it. These theories often have a cultural or historical bent. Unfortunately their predictive power is virtually nil and they are quickly modified as the view in the rear vision mirror changes. In one decade we are told that Confucianism is a barrier to capitalism; in the next experts extol the Chinese work ethic. India’s colonial past goes from being a liability to an asset.

Wise words, and quite in line with one of my favourite books on the subject: The Elusive Quest for Growth by William Easterly.

I think though, that if political leaders behave like a Kim Jong Il, you are likely to get North Korean economic results. And it’s not so difficult to spot a potential Kim Jong Il (Mugabe anyone?), or even an Argentina-style not as crazy and ruthless but still bad leader. Respect for civil liberties and political rights is quite easy to observe (Is the leader murdering persons expressing critical views or not , what’s Amnesty saying?)  and if these things are bad, usually all the rest is bad too: economic policy, economic freedom, corruption, rule of law, bureaucracy etc.

I think with Gbagbo, not long after he came to power it became pretty clear that he was bad news  – I’d put him somewhere between North Korea and Argentina.  But what’s interesting is that West Africa quite recently has gotten rid of almost all of the obviously bad leaders. I think it’s only Yahya Jammeh in the Gambia and Faure Gnassingbe in Togo left now, and those are pretty small countries (plus maybe Blaise Compaore in Burkina Faso too).

And there seems to be a dynamic where West African democratic leaders who are now in majority, take a stance against wannabe Mugabes  in other countries in the region, as we saw in the ECOWAS stance on the Ivory Coast, and that’s great news.

What about Real Estate?

Here’s Jenning’s take on infrastructure and real estate:

The final reason I expect outsized economic growth in Africa relates to demographics and urbanization. It is no coincidence that the fastest wave of urbanization in history occurred in the last ten years, at the same time as the fastest period of economic growth in history. Population growth in general and urbanization in particular are drivers of growth, and they are happening faster in Africa than anywhere else on earth. Of the top ten fastest growing cities in the world today, one is in China, two are in India and three are in Africa. Similarly, Africa’s labour force is the fastest growing in the world.

Yes, exactly!

These types of opportunities are not limited to natural resources. Renaissance Partners, our principal investment arm, together with Kenyan partners is building a new multi-use city for 63,000 residents and 30,000 daily visitors on the outskirts of Nairobi. The next stage of the project, called Tatu city, involves USD250 million of investment in roads, water, sewerage and electricity distribution. As we prepare to break ground in Tatu city, we are beginning to roll out similar projects in Ghana, Angola and the DRC.  On April 15th we launched a pilot 100 hectare development in Lusaka which is already largely sold. These are not invest-and-exit projects. They will take many years to implement, and world-class teams with Africa experience. But what we are already finding is: if you build it, they will come. Meaning, when we seed high quality projects with capital for land and infrastructure, global and domestic retailers, corporations, banks and property developers – come calling. They are ready to put their Africa footprint on our developments. It’s good business for us. It’s also good business for Africa. When these projects mature, we will have provided well in excess of 10,000 jobs from Nairobi to Lusaka and beyond, not to mention raising the bar for the quality of urban development and playing a significant role in opening up middle-class mortgage markets in these geographies.

Ok, I have to admit, these guys do things on a somewhat grander scale than me.

In urban real estate we are looking for very large conurbations in fast growing countries with reliable property title and reasonably sound rule of law. Our major real estate project is in Nairobi where, as I mentioned, we are building a new city for 63,000 inhabitants which will be one of the largest ever foreign direct investments in the country.

They face the same challenges though – reliable property title and rule of law.

Taxi: More action, less talk

Today’s quote is:

“It’s not about ideas; it’s about making ideas happen.”

Found at Chris Guillebeau’s blog ‘The Art of Non-Conformity’

So in this spirit, instead of just theorising about the taxi business, I went out and bought an old Toyota Corolla for 450 EUR.  And now it’s booked to take this vehicle carrying container ship all the way to Abidjan:

Figured the only way to really find out how the taxi business works is to try it.  In a couple of weeks, I should know how big the import duties are, and after that how much profit a taxi makes, and if the selected driver really is as trustworthy as I hope.

Updates will follow.

More on cars

If Nigerians drove on the left you’d not find a cheap Corolla in Liverpool

An Ivorian who owns a few taxis  told me that more than 95% of taxis in Abidjan are Toyotas, and especially Toyota Corolla. He said that since everybody uses Toyotas, spare parts are cheaper than for other brands, and that Toyotas last longer. I’m thinking, yeah sure Toyotas are reliable, but if that 95% figure is correct, there is something more going on here. It sounds a bit like group-think, that there is one established way of doing things that people follow without questioning.

I’ve looked around for used cars in Europe, and it turns out you can easily find a cheap four-door Toyota Corolla in the UK and Ireland, but in the rest of Europe it’s very difficult to find such taxi-suitable cars.  And the reason is, they are all sought by Africans intending to send them to Africa.

The other day a friend wrote:

Heard a long story of a man whose mother had a Corolla in Stockholm, and who got calls almost every day from africans wanting to buy it. They are clearly fixated about Toyotas down there.

As for the UK and Ireland, for some reason the ex-British colonies in West Africa drive on the right side of the road, making a right hand driven car sub-optimal.

Good car, bad sign

Another thing with cars in Africa is that they are darn expensive.  I recall a professional car dealer looking at Ivorian online car ads and also  visiting pre-election Abidjan.  He said that there were 1/40 as many cars for sale in the Ivory Coast as one would expect from a European country with the same population, that they were very expensive, and that the luxury segment was surprisingly large and active.

The luxury car segment is explained by the existance of a wealthy elite often with political connections comprising maybe 0.1% of the population, as mentioned in the No Grunge post.  With the fall of Gbagbo things are probably changing around a bit here. We’ll see if one can start spotting mistresses of top RHDP politicians driving around in Infiniti cars soon.  I’d guess there’s inverse correlation between such occurrences and the accountability of the Ouattara government.

Infiniti is the luxury division of Nissan

Another reason to cross the Sahara desert

As to why used cars are expensive, the obvious reason are the tolls (and sometimes bribes) that have to be paid to get a car through a West African ports. It says it all that there are people who have as a job to drive other people’s cars from Europe to West Africa:

From a Malian webforum:

Sinon je connais des personnes dont le boulot est de conduire les voitures d’Europe au Mali. Tu fais la route en passant pas l’Espagne, le Sahara occidental, la Mauritanie et tu arrives au Mali. C’est long mais ça peut être intéressant financièrement.

Again, I think there is more to cars being expensive than the cost of getting them to West Africa.  In Europe, and especially in countries where it’s more important for 18 year old guys to get their own car than their own home – Italy springs to mind – old used cars are pretty cheap. When a car is a way of signalling one’s social status, nobody wants to drive a 1993 Toyota Corolla.

In Africa people aren’t much different, and cars are definitely status symbols, maybe even more than in Europe.  The difference is though, that with so many people not having cars, just having any old car is pretty good, and thus used cars are in demand.

The Business of Taxis

Talking football in taxis

When you live in a large  West African city as a westerner without having a car, what happens is, you take a lot of taxis. I quite enjoy it (especially after I’ve got the price haggling nailed down), and find that you often have interesting conversations with the driver.  Thinking about it, the most common topics are probably local politics and football, the latter possibly being, beside the opposite sex,  the only truly global subject of discussion for guys.

I still remember a taxi driver in Dakar a couple of months before the 2002 World Cup. The guy had (understandably) probably no idea of who Abba or Björn Borg are, or even what IKEA or Stockholm is, but upon hearing I was from Sweden his first reaction was “Oh, you are in the group of death”.  Then he knew all the names of the players in the Swedish team, and details about them – very impressive. It’s like, the taxi driver and me  come from totally different cultures, and have very different frames of reference, and still we have this topic where we can totally bond.

"Sweden now has four Andersson on the field: Patrik, Kennet, Robert and Alex Andersson."

The bling indicator

Anyhow, I’ve always been intrigued by the business side of taxis in African cities. Among the Ivorians in the diaspora mentioned in the previous posts quite a few own  taxis in Abidjan.  Being curious about the economics behind it, I asked around  and got a few numbers for fuel costs, repair costs, owner’s daily and monthly profits, time the taxis last on the pot hole filled roads of Abidjan, insurance, tax, import duties etc.  Then I checked prices of used cars in Europe and costs for shipping cars to Abidjan, and plugged in all the numbers in a spreadsheet.

The results, even using the most conservative numbers I got, showed an internal rate of return of over 100%, and a profitability index (Net Present Value/Initial investment) above 1.3 which is in the too-good-to-be-true range. Taxis in Abidjan seem to be a pretty competitive business with low barriers to entry, so the return on investment shouldn’t be that good.

Then in a moment of out-of-the-box thinking I took a look at the jewellery of the girlfriends/wives of the (all male) diaspora taxi owners.  Yup, some very heavy bling. And as a control, girlfriends/wives of non-taxi owners: A lot less jewellery.

So maybe there is something to the numbers. I’m thinking barriers to entry or to expand taxi business could be:

-No cars are produced in the Ivory Coast so they all have to be imported.  The ivorian diaspora would be in a good position to import cars, but the diaspora isnt that big, and maybe there arent that many that have the financial means to set up a taxi business. And it’s difficult to import cars if you are based in the Ivory Coast and don’t have a visa for Europe.

-Trusted drivers are necessary for it to work, and they are maybe hard to find.

-It could be hard to find suitable used cars. They almost all seem to be Toyotas and especially Toyota Corolla.  (Which is an interesting subject by itself, more on that in the next post.)

What’s the catch?

Still I’m thinking, there’s got to be a catch. Ideas:

-Import duties and bribes to get a car through the port of Abidjan was one of the numbers that was hardest to estimate, it seems you can’t know exactly how much it will cost until you are there. Maybe I’m underestimating this cost.

-I’ve heard of drivers taking off parts of the car and selling them, and then faking or claiming they had an accident. Maybe this is a c0mmon significant problem (and linked to the trusted drivers issue)

-The repair costs is another wobbly number that could be overoptimistically estimated by the taxi owners I talked to

-Fuel costs. The whole business is very sensitive to oil prices which have been going up lately. Maybe profit number estimates are based on unrealistic fuel costs.

Flights to Abidjan

What’s up with Ble Goude?

I was at a get together for Ivorians in the diaspora last night to celebrate peace and reconciliation. Though still divided – no pro-Gbagbo showed up – they do know how to party.  One of the topics that came up (among us men talking on the parking lot outside, escaping the good but loud music) was whether Charles Ble Goude was still alive or not.

I estimate there was about a 2:1 split for Goude being dead, with arguments put forward that he has a loud mouth and that we would have heard of him from Ghana or somewhere if he was still alive, and that it was weird that Patrick Achi announced Goude was arrested just to retract it later.

Fancy a stop-over chez Gaddafi?

Another topic that came up is how to get to Abidjan and I thought I do a check-up on that.  Here’s how’s it’s looking today for departure around the 18th May and return around 19th June:

From Paris:

With Royal Air Maroc and stopping in Casablanca:   660€

With Air Afriqiyah through their Tripoli hub:  Ahh, maybe not

With SN Brussels and stopping in Brussels: 740€

With Emirates stopping in Dubai and Accra: 950€  (not quite the shortest route)

Direct flight with Air France: 1,100€

Used to be the cheapest option to Abidjan