A Visit to the Tax Office

Dealing with real estate taxes

Two days ago I was at the Ivorian tax office in the Cocody Municipality to sort out some real estate tax matters.  Quite an interesting experience.

According to the tax code an owner-occupied house has a tax rate of 4% on the potential rent, and for a rented house the rate is 15%.  However, in practice I’m not sure how many of Abidjan’s 4 million residents that actually pay this tax, and I have a feeling the understanding and acceptance of the tax is pretty low especially in poorer areas.

For a buy to let investor, there is an obvious and direct benefit of paying the real estate tax, in that the letting agreement must be registered at the tax office to be valid.

Yahoo

Anyhow, at the tax office there were no queues. At the reception I was told that they had run out of the form I was supposed to fill in, but that I could go directly to room no 26 and sort it out there. At room 26 I was told to go to the reception to get the form and that I should really go to room 14 to handle my errand.  I know this sounds like the start of a Kafka-esque African bureaucracy nightmare story, but fortunately that’s not at all the way it turned out.

I was shown the way to room 14 – and all along people were very friendly and helpful and there were no waiting times.  At room 14 there were three tax officers at work, each with their own desks and computers, but no phones or internet connection. They got me the form, helped me to fill it out, and then I discovered that I had left one document that I was supposed to hand in at home in Europe.  Not at all expecting a positive answer, I asked if I could possibly send them the document by email.  The tax officer ( who had no internet connection at work) said “yes, please email it as an attachment”, and gave me his personal yahoo address.  Not quite sure if he did it because he wanted to make a good impression in front of foreigner or something else, but I liked the initiative, and sent him the document by email today. The attachments are 2 jpg files of 1Mb each,  and that could be a problem if he – as I suspect – is receiving my email at an internet cafe with slow connection. Well, I’ll see how it goes and report back on the blog!

Am I the only one paying?

I also have a nagging suspicion that I’m the only one in the neighbourhood around the Cocody house paying the real estate tax.  At the tax office they said they’ll go out in the field starting in March 2012 and catch non-payers, but to me it looks they are a bit under-staffed and under-equipped for a very big task.

On the way out a lady in the reception asked me repeatedly to give her my pen as a gift. I kind of needed it so I kept it, and I still don’t know if it was a subtle request for a bribe, just an expression of African solidarity of sharing things or something else.

Observations and Impressions

Back home now. Time for some impressions from the Ivory Coast.

Pot hole indicator

As usual I’ve riding a lot of taxis (never my own taxi though) and talking to taxi drivers.  Abidjan taxi drivers are almost all Ouattara supporters so they are a bit biased, but on issue of road conditions I think their assessment is as accurate as it gets.  And what they say is that roads for the first time in a long time are getting better, pot holes are getting fixed, roads paved, and often they point out a stretch of road which they say previously was impassable.

Here’s what they are talking about:

Before:

Voie de Gesco under Gbagbo. Images from the Ivorian Ministry of Infrastructure. (H/t Frederic Tape)

After:

Voie de Gesco now

Before:

Voie de Saguidiba pre-roadworks

After:

Voie de Saguidiba now

Sense of Optimism

Beside roadworks, another striking thing is that Abidjan has gotten cleaner.  I mean there is still a lot to do, and you still see trash along the roads, in the lagoon and well everywhere, but it’s gotten better, and you see teams of cleaners at work all over the city.

Then we have the rush hour  traffic jams which have moved two hours earlier in the morning due to the new administration emphasising punctuality and work ethic throughout the public sector.

All in all there are tons of undeniable signs that things are changing (and almost always for the better) which creates a sense of optimism. I have heard people say that one can start to be proud to be Ivorian again, and that under his first few months Ouattara has done more than Gbagbo did during 10 years.

Strong Buy

Talking to people in the real estate sector, they say that business is coming back  and that it seems to be stronger than pre-crisis levels. What I think has happened is that in one swoop trust in Ivory Coast’s institutions has strengthened, emboldening local businesses and attracting the most risk-willing foreign investors. I mean, it’s still a place that just had a civil war and where armed troops can be seen all over the place – usually not what foreign investors are looking for.

Hopefully  the increased trust in Ivory Coast’s institutions is not just short term effect that will be eroded by corruption, but is based on fundamentals that are here to stay.  If that’s the case, property rights should be perceived as stronger than before, increasing the value on pretty much everything in the Ivory Coast. And that would mean a strong buy on ivorian real estate.

 

Photos from PK 18

Tour of Abobo

I was looking at potential plots of land to buy with a surveyor, who it turned out was from the PK 18 area in Abobo. That’s one of the hotspots of the Ivorian crisis and where the “invisible commando” urban guerilla first rose up.  The surveyor had lived through it all, and took me on an informal guided tour of Abobo and PK 18.  Below are some of photos I took.

Pictures above and below are from the Gendarmerie headquarter in Abobo. The surveyor said that it also housed pro-Gbagbo militia and that most of the Gendarmes fled after multiple attacks by the invisible commando. The commando eventually captured the headquarter and burnt it down.

Give vs Make a dollar

Aid is hard

In the 1985 Playboy Magazine interview Steve Jobs talked about the problems with giving money:

“I’m convinced that to give away a dollar effectively is harder than to make a dollar. There are some simple reasons for that. One is that in order to learn how to do something well, you have to fail sometimes. In order to fail, there has to be a measurement system. And that’s the problem with most philanthropy – there’s no measurement system.

You give somebody some money to do something and most of the time you can really never measure whether you failed or succeeded in your judgment of that person or his ideas or their implementation. So if you can’t succeed or fail, it’s really hard to get better.”

I would add that when you give money, you risk creating dependency, twisting incentives, and creating a whole range of negative unintended consequences that are hard to measure and don’t need to be attributed to the action of giving money.

Also, most aid involves spending other people’s money on other people. The person doing the spending may be very well-meaning, but is in a situation where his or her best interest is primarily to look good within the organisation and only – at best – indirectly to ensure effectiveness of the money spent and its long term impact.

In a owner-managed business on the other hand, the business owner spends his/her money on himself/herself making effectiveness and impact top concerns.

I’m not saying that aid can’t be done well, just that’s hard, and like Steve Jobs says its easier to make a dollar than to give away a dollar effectively.

Economic impact

Looking at the economic impact of my business activities in the Ivory Coast, I believe I have created the following so far:

• 1 long term full time job (the taxi driver’s – assuming I’ll replace the taxi when it eventually breaks down)
• 2 long term part time jobs (the person that collects rents in Yopougon and the taxi manager)
• Affordable housing for 6 families
• Middle class housing for 1 family
• Assignments for the foreseeable future for an ivorian law firm I use to vet plots of land I’m buying, draftcontracts for the taxi and real estate businesses, and a few other things
• Work for an ivorian real estate agency that I am in the process of hiring to manage the Cocody house
• Temporary work for notaries and firms involved in selling land
• Real estate taxes and import duties paid to the Ivorian state (which under Gbagbo was questionable if it was anything to be proud of, given that a big chunk seem to have gone to arms purchases and to personal bank accounts of FPI bigwigs)
• Slightly more competition contributing to keeping transport prices down for woro-woro rides in Abobo

And I have done this with quite low costs. I fly to the Ivory Coast in economy class (got no big international organisation paying for me), get around in Abidjan by taxi (not in brand new Toyota Land Cruisers) and live at a friend’s house (as opposed to a luxury hotel).

And 100% of the cashflow generated by the business is reinvested in the Ivory Coast for the long term – as I’m quite upbeat about the economic future of the Ivory Coast.

So, it would be great to see an aid operation with an economic aim (like poverty reduction) have the same impact per spent CFA Franc as my little business venture, but I kind of doubt I will.

"Medical relief, lasting health care" Sure, but first a big-ass car!

“The rich know best”

And to finish off, here is an excerpt of Bill Easterly’s brilliant AidSpeak dictionary based on twitter quotes:

“beneficiaries” : the people who make it possible for us to be paid by other people

 “community capacity building” : teach them what they already know

“experienced aid practitioner” : has large number of air miles in account

“field experience” :  I can’t bear DC anymore

“pro-poor” : the rich know best

“scale-up” :  It’s time for follow on grant

“sustainable” : will last at least as long as the funding

“tackling root causes of poverty” : repackaging what we’ve already done in a slightly more sexy font

Taxi in action

Here’s the taxi in action in the Abobo municipality of Abidjan:

 

 

It just made a quick stop so the manager and I could meet up with the driver and check out the taxi.  It actually looks better than most other woro-woros in Abobo, many of which are semi-wrecks.

One of the things dealt was that the driver wasn’t present when the lamb was sacrificed for the good fortune of the taxi.  The driver said he took these things very seriously, so we had to reassure him that a lamb was really sacrificed.

Why buy a taxi?

I’m finally in Abidjan, sadly only for a brief two-weeks sejour this time.

A technical note
The Ivorian Internet Service Provider I’m using is filtering traffic through a so called transparent proxy.  This  has the side effect of disabling stylesheets on wordpress making blogging pretty difficult.  A way around it is to use SSL, ie to use https://hotelivory.wordpress.com/.  Since I just figured this out today I have a bit of a backlog to deal with. Let’s start with the taxi business:

The continuing taxi saga

Yesterday, I met up with the taxi manager and got the first positive cashflow consisting of 129,000 CFA Francs (196 EUR) for the first half of September – quite a good a feeling really.  If it keeps going like this it’s great, but people say that often around the six month mark of running, taxis start having mechanical problems, so I’ll see.

As for the taxi bumper, there’s still nothing written on it. Suggestions are welcome!

Thoughts on the taxi business

From a Swedish perspective doing any kind of business in West Africa is quite original, but that aside, owning a taxi is actually  unoriginal. It feels like every male I know of dioula ethnicity in the Ivorian diaspora is in the taxi business. It’s a mature fragmented market with high competition, low barrriers to entry and little room for innovation. It is still to be seen, but in theory at least, margins should be low, or at least low relative to the Ivorian/African average. On top of that, in the taxi business one doesn’t benefit much from projected economic growth in Abidjan. Increased demand is likely to be met quickly by more taxis on the streets resulting in margins staying the same, while traffic jams increase. And unlike the real estate business there is no asset that can appreciate in value over the long term.

So, why did I buy a taxi?

There are a few appealing traits:

• The cycle from making an investment to start seeing results is pretty short – much shorter than buying land and building stuff for example – making things more exciting.

 

• It’s relatively passive income, when everything is set up, brief weekly check-up calls over skype should be enough

 

• The initial investment is low, and unlike when building a hotel, the investment can be ramped up incrementally by adding more taxis.

 

• Having an organisation of competent and honest Ivorians is I believe a great competitive advantage. Setting up a taxi business is a low cost way to do the trial and error and learning needed build up such an organisation, and that organisation can later on be used for other business opportunities.

 

• Margins might not be amazing, but they can still be decent and likely much higher than for a taxi in Europe. I can still only guess what the final result will be for the taxi, but the following factors should contribute to bringing up margins:

  -The modest capital required is still a barrier to entry. Not that many people in the Ivory Coast have access to the sums required, and among those who do, I would guess that some consider running a woro-woro in Abobo beneath them.

  -To make it work, one needs the people and organisational skills to handle drivers, mechanics and (optionally) managers. Altogether not straightforward at all.

  -Buying a Toyota Corolla in Europe, sending it to Abidjan and paying all import duties is cheaper than buying one in Abidjan. The Toyota coming from Europe is also likely to be in better shape than the one bought in Abidjan. People that have the opportunity bring in cars from Europe will thus have higher margins plus the option to sell the car at a profit which puts a floor on the risk taken.

Mediocristan

Finally, the taxi business is squarly in mediocristan, which is not necessarily a bad place to be. The classic example of the difference between mediocristan and extremistan is if one imagines 1,000 random persons in a row, and then the tallest person in the world is added to the row.  The average height of the row is only going to be affected very marginally – that’s mediocristan.  On the other hand if Bill Gates is added to the row, the average wealth is going to be dramatically increased.

In the same way as height, the taxi revenue or profit from a single week/month/year is not likely to have a big impact on the overall profit or revenue (assuming the taxi business comprises more than a couple of taxis that are continuously replaced). Profits and revenue are variable but overall it’s robust, both to surprises to the up- and downside, much like a dentists practice, but unlike banking or venture capital firms.

Sense of Wonder

Wisdom from 1985

I just read an interview with Steve Jobs in Playboy Magazine from 1985.  Tons of interesting things in it. One thing that caught my attention was that he stresses the importance of being curious and keeping a youthful or even childish sense of wonder about the world.

One of the things that I find exciting about West Africa and the Ivory Coast – is that it’s so different from everything one can experience living in Europe (or most of the rest of the world). It kind of naturally spurs a curiosity to figure out how the place works. Setting up a business is turning out to be a pretty good way of channeling that curiosity and exploring how things work. And it should work the other way too, that  curiosity – if it can be kept up – should be good for the business (and far from only for the business).

So if I’m no longer interested in stuff such as how Ivorian taxi drivers make a living, what kids in Yopougon use computers for, and the next ivorian parliamentary elections, then it’s probably time to stop and do something else.  Hopefully that time won’t come anytime soon.

Extracts of the Jobs interview:

Playboy: Why is the computer field dominated by people so young? The average ageof Apple employees is 29.

Jobs: It’s often the same with any new, revolutionary thing. People get stuck as they get older. Our minds are sort of electrochemical computers. Your thoughts construct patterns like scaffolding in your mind. You are really etching chemical patterns. In mostcases, people get stuck in those patterns, just like grooves in a record, and they never get out of them. It’s a rare person who etches grooves that are other than a specific way of looking at things, a specific way of questioning things. It’s rare that you see an artist in his 30s or 40s able to really contribute something amazing. Of course, there are some people who are innately curious, forever little kids in their awe of life, but they’re rare.

Companies, as they grow to become multibillion-dollar entities, somehow lose their vision. They insert lots of layers of middle management between the people running the company and the people doing the work. They no longer have an inherent feel or a passion about the products. The creative people, who are the ones who care passionately, have to persuade five layers of management to do what they know is the right thing to do.What happens in most companies is that you don’t keep great people under working environments where individual accomplishment is discouraged rather than encouraged. The great people leave and you end up with mediocrity. I know, because that’s how Apple was built. Apple is an Ellis Island company. Apple is built on refugees from other companies. These are the extremely bright individual contributors who were troublemakers at other companies.

Then there is this unrelated gem:

Playboy: At what point did you meet Steve Wozniak?

Jobs: I met Woz when I was 13, at a friend’s garage. He was about 18. He was, like,the first person I met who knew more electronics than I did at that point. We became good friends, because we shared an interest in computers and we had a sense of humor. We pulled all kinds of pranks together.

Playboy: For instance?

Jobs: [Grins] Normal stuff. Like making a huge flag with a giant one of these on it [gives the finger ]. The idea was that we would unfurl it in the middle of a school graduation.Then there was the time Wozniak made something that looked and sounded like a bomb and took it to the school cafeteria. We also went into the blue-box business together.

Playboy: Those were illegal devices that allowed free long-distance phone calls,weren’t they?

Jobs: Mm-hm. The famous story about the boxes is when Woz called the Vatican andtold them he was Henry Kissinger. They had someone going to wake the Pope up in themiddle of the night before they figured out it wasn’t really Kissinger.

Playboy: Did you get into trouble for any of those things?

Jobs: Well, I was thrown out of school a few times.

And this TED video covers the sense of wonder pretty well:

Projections

Does the IMF have a clue?

The latest projected real GDP growth figures for the Ivory Coast I have been able to find are from the IMF (via Economywatch) and are as follows:

2011: -7.5%

2012: 6.0%

2013: 6.0%

2014: 6.0%

2015: 6.0%

Before the scale of post-electoral crisis was known, IMF projected the following real GDP growth:

2011: 2.8%

2012: 4.0%

2013: 4.9%

2014: 5.5%

2015: 6.0%

The thing with these projections, beyond 2011, is that they are very uncertain.  The only thing I’d say with some confidence is that the growth isn’t going to be exactly 6.0%.  It’s uncertain not because the IMF has done a bad job, but because an economy is an inherently complex system full of non-linearity and inter-dependencies. In Nassim Taleb speak we live more in “extremistan” than in “mediocristan“.

Looking at past projections  there seems to be a tendency for actual gdp numbers to quarter after quarter come in systematically above or below projections. Right now in Western Europe actual gdp figures seem to disappoint at every quarter.  It’s a bit like projections play catch up to a reality that’s always more extreme than projections – in one way or the other.

For the Ivory Coast, starting in 2012 the projections are pretty optimistic, and if it wasn’t for the upcoming developed world downturn/crisis, my guess would have been that we’d see see constant surprises to the upside.  Now, my guess is that the Ivory Coast growth will outperform developing world and sub-saharan Africa averages, but that these averages at least for the next few years could be lower than expectations due to being dragged down by the developed world crisis.

“Ignore the experts and trust your vision”

Here are a few quotes from venture capitalist and Sun Microsystems co-founder Vinod Khosla on experts’ difficulties in making projections and the implications for entrepreneurs:

[…]Yet his attitude is pretty anti-establishment when it comes to independent thinking, which he believes is essential for entrepreneurship.

“Trust in your instincts and trust in a lot of experimentation,” Khosla said in an interview.

Quoting George Bernard Shaw, Khosla said, “The reasonable man adapts himself to the world. The unreasonable man persists in trying to adapt the world to himself. All progress, therefore, depends upon the unreasonable man.” And quoting Martin Luther King Jr., he said, “Human salvation lies in the hands of the creatively maladjusted.”

In his speech, Khosla spent a lot of time showing how expert predictions have gone awry, like Lord Baron Kelvin, the head of the Royal Society who said that “heavier than air flight” was impossible just a few years before the Wright Brothers flew at Kitty Hawk. And he said that, even today, oil experts can’t accurately predict the price of oil.

McKinsey failed to predict the popularity of cell phones, estimated in 1986 that the number of cell phones in 2000 would be 1 million units. It was off by 108 million units. The forecast was wrong by 10,000 percent. On that basis, AT&T decided to divest itself of its cell phone business.

“It was an expensive study,” Khosla joked.

Philip Tetlock, a professor at the Haas Business School at the University of California at Berkeley, did a study on the accuracy of forecasts going back 25 years. When he finished the study, he had collected 82,000 forecasts against real-world outcomes from nearly 300 academics, economists, policymakers and journalists.

Nobody predicted that Twitter would be used by more than 100 million users. Nobody predicted that India would have more cell phones than toilets. Nobody predicted the Arab Spring. Nobody predicted that China would become a huge consumer of the world’s oil.

Source: http://venturebeat.com/

Vinod Khosla

Taxi finally running

Taxi update – the bad news

The bad news is that the taxi will generate 3,000 CFA Franc per day less than I had budgeted, that there were a quite few extra expenses I hadnt planned for, and that it took over a month from the car’s arrival to Abidjan to it actually starting to run and generate income.

The extra expenses were to register with the taxi union, with the national land transport comapany (Sonatt), have the car inspected, get some missing safety equipment (which I’m not sure ever was in the car originally, or was stolen somewhere en route – rookie mistake not to check), and finally my favourite unplanned expense – I kid you not – costs to sacrifice a lamb for the good fortune of the taxi involving paying for the lamb itself and a small fee to the (fittingly) albino imam doing the sacrificing.

Each expense is quite reasonable, but together they add up, adding about 1½ month to how long time the taxi has to run before break-even.

Taxi update – the good news

The good news is that the taxi is running, and that there is a functioning framework in place with a driver, a part time manager, a designated mechanic workshop and a trusted party that can check on the ground  if there are any problems with the aforementioned three.  Now in theory this structure should be able to handle 10 taxis, just as well as one. More drivers would need to be recruited which doesn’t seem too problematic, and then there are some economies of scale with regards to compensation to the manager and possibly for the mechanic workshop as well.

Stuff happens

So if it starts looking as if it is a good investment, I’ll add more taxis. But that’s a big if –  it depends on how long time passes on average before something goes wrong, and – here’s where the lamb comes in I guess – there are many things that can go wrong:  an accident, theft, breakdown of something expensive, dishonesty among the driver, manager or mechanic, and stuff I can’t even imagine.  We’ll see!

Taxis in Abidjan

Here’s how it works in Abidjan. There are three distinct types of taxis:

Taxi intercommunal or clandestine – These are ordinary cars not registered anywhere and entirely illegal. (What we in Sweden call “svarttaxi”.)  This is what most taxi owners in the diaspora I have talked to seem to be running. They say that with the new government the days of these taxis are likely numbered, but many have chosen to keep going until the government takes action, and then switch to woro-woros.

Woro-woro – Literally means “six-six” in dioula language – not sure if it refers to six francs or six seats (cramming in four in the back).  These taxis go on pre-determined routes with pre-determined prices, and take on multiple passengers on a hop-on hop-off basis along the route. Quite bus-like in other words. They never leave their respective municipalities and are colour coded by municipality.  From an owner’s perspective woro-woros have the advantage of being trackable, as they share routes and gathering points with the community of drivers in the same municipality.  For example if there is a rule – as in the contract I’m using – that the taxi should stop at latest at 20h every day, it’s possible to check with the community of drivers whether a particular car was on the roads after 20h.  Also, the set routes and the community of drivers looking after each other serves as a protection against car theft, something that’s according to well, hearsay, is a more common problem for taxi-compteurs.

Taxi-compteur (Taxi-meter) – This is what residents of Abidjan mean by taxi (Woro-woros are woro-woros and not taxis), and what a western visitor to Abidjan would be using.  They are red, free to go to all of Abidjan’s municipalities, and take one client (or group of clients) at the time. They have meters which are rarely used, instead the price is usually negotiated ahead of each ride. Rides are more expensive than for woro-woros and the daily fee paid to the owner is greater.

Here we have a red taxi compteur next to a woro-woro in blue - the colour of the Yopougon municipality

Abobo it is

I have opted for making my car a woro-woro due to the trackability and community mentioned above, plus that it seems more difficult to run taxi-compteurs from abroad due to their higher degree of freedom.  If a taxi-compteur driver claims his car is stolen (or lost in the Abidjan lagoon or something), but instead sells it, it’s hard to check, and difficult to sort out when living abroad. I had a talk with a guy in the diaspora who had tried taxi-compteurs, but given up due to tons of problems, and made a good case that you have to be in Abidjan to own taxi-compteurs.

I had initially thought of Cocody, but my woro-woro is actually running in the poorer municipality of Abobo. The thing is that the manager lives and works in Abobo and I think success or failure depends to great deal people managing, so if I have somebody good in Abobo, Abobo it is.