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The cost of shipping things to Africa

road (2 of 1)-2I was in Durban, South Africa a couple of weeks ago. It turns out that Durban is the busiest port in all of Africa. There are 57 berths and more than 4000 ships load and unload cargo in Durban every single year. The port is open 24 hours a day, seven days a week. Though the largest port in Africa, it is only about half the size of the port of Los Angeles and not even a tenth as big as the largest port in the world, Shanghai.

The Durban port, however, is expensive. It is more expensive to park a ship at Durban than in any American port. Boats must sit in port an average of four days to clear and unload at a cost of nearly $200,000 per day. Owned by a single private company under few restrictions, Transnet is free to charge what it likes and offer service of any quality it likes. In Africa, there are few competitors.

Kenya’s port in Mombasa is even worse. On average, ships must wait nearly nine days in port. The Mombasa port is run by the state owned Kenya Port Authority.

After totaling up costs from extended time at port, onerous duties and fees on imported goods, numerous police “checkpoints” and “inspections,” a single container imported at Mombasa and shipped to Kampala, Uganda can cost nearly $4,000.

Exporting goods is no cheaper. While it takes only 10 days and costs only $1,000 to export a 20 foot container in OECD countries, it takes nearly 40 days and costs nearly $3,000 in the East African Community. If Kenya, for example, really wants to get serious about positioning itself as an export economy, it will have to tackle this major, major problem. Goods sitting in port waiting for “documents” lose value through export fees, storage and lost market opportunities.

Nearly 20% of goods shipped into Mombasa are retail goods. The costs of onerous shipping conditions are, or course, passed on to the consumer. Kenyan and Ugandan consumers pay more in shipping of imported goods as a percentage of the total price of an item than do Americans. Africa has the highest transport costs in the world.

Again, I don’t know why I went down this road, but I’m often thinking of reasons for Africa’s hobbled development. I began to consider the simple costs of goods. Transportation costs amount to more than 30% of the operating expenses of an African business. Minimizing these costs would mean that businesses could potentially reduce prices and increase sales volume. Others share my view:

The Mombasa-Nairobi segment takes on average 29.8 hours, most of this time spent at various regulatory delays, such as waiting at the two weight stations (+ 6 hours), delays to several police checkpoints (+2 hours; there can be 8 to 10 such checks for the 430 km journey) and other driver delays such as rest and personal errands (+ 11 hours). Under normal circumstances the latter would be unnecessary for such a short distance, but the various regulatory delays force the driver to rest a night during transit. A similar distance in North America would be serviced in less than 6 hours. Therefore, such a system hinders economic development because supply chains tend to be unreliable while consumers and manufacturers pay higher prices for goods and inputs. In such a setting, various public authorities are using freight transportation to generate income in a rent seeking (predatory) fashion.

It is not clear that Kenya is using money from ports or “checkpoints” to upgrade current services. I am fairly certain that the money is going into public sector employees’ pockets.

It’s easy to blame “corporate exploitation” for just about everything that’s wrong with Africa. However, there are basic structural problems which complicate doing business there. Just as it costs money to get things in to African countries from port, it costs money to get things out. Until Kenya, for example, upgrades their port facilities and relieves restrictions on trade, the cost of doing business in Africa will remain high. Contracts negotiated by international entities will continue to be unfavorable.

In short, the problem with Kenyan business is only partially with international business. The Kenyan government parasitically profits of the current inefficiencies. Until that problem is mitigated, the poor will continue to pay a premium for just about everything.

costs_Mombasa_Nairobi

Microcredit: Hardly a Panacea for Entrenched Poverty

Hair dresser in Mbita, Kenya

Hair dresser in Mbita, Kenya

My friend, Rensselaer Polytechnic Institute PhD Student Ben Brucato, posted an interesting article this morning on the links between feminism and neoliberalism. Within the article, there was an interesting portion on microcredit:

“A telling example is “microcredit”, the programme of small bank loans to poor women in the global south. Cast as an empowering, bottom-up alternative to the top-down, bureaucratic red tape of state projects, microcredit is touted as the feminist antidote for women’s poverty and subjection. What has been missed, however, is a disturbing coincidence: microcredit has burgeoned just as states have abandoned macro-structural efforts to fight poverty, efforts that small-scale lending cannot possibly replace.”

I have long been skeptical of microcredit (or its sibling, microfinance, I will use the terms interchangeably). Microcredit claims to offer a seemingly simple solution to the problem of female disenfranchisement. It allows poor women access to seed funds with which they can start tiny, income generating businesses. In the past, women has entered microcredit schemes and started cel phone rental business, small shops, textile based businesses and handicraft manufacture. Borrowers are able to then return the money from profits generated from the business. Borrowers return the money with interest.

The problem with microcredit is what’s normally touted as its strength. Microcredit aims to raise the economic profile of women, by empowering them to start small self-proprietorships selling phone time, manufacturing small handicrafts or textile products, or tiny corner stores (dukas).

Anyone who has ever visited Africa knows that once a business idea shows promise, multitudes of people will show up doing the exact same thing. Lines of women selling the exact same tomatoes for the exact same price in the exact same place to the exact same market are not uncommon.

Hypercompetition, though, causes prices to drop and margins to plummet so that no one makes any money. Profits are so low, that the recipients of microcredit wind up doing nothing more than paying back the loan prinicipal and interest so that the only entity that makes money is the lender.

Worse yet, medium sized businesses which might introduce efficiencies and provide reasonable wages and benefits are bumped out of the market, opportunities for employment and diversification of products are missed and the entire economy stagnates. Microcredit’s bottom up strategy directly encourages this phenomenon.

The emphasis on economically empowering individuals, of course, comes straight out of neo-classical economics. “The invisible hand” will turn the tide of developing economies through the hard work of a collection of individuals. The cynic could even evoke a Randian ideal: the lady with the best fruit stand will win.

And this is where I have the greatest problems. Keywords like “empowerment of women” are fine. We should, of course, encourage women to be independent both socially and economically. However, there is nowhere in the world where development has occurred simply by lending women a few dollars at exorbitant interest rates.

Microcredit doesn’t live in a bubble. In fact, it’s part of a number of strategies which are largely doomed to fail, and will do nothing but allow a significant percentage of Africa’s poor to stay right where they are. Strategies aimed at small scale agriculture risk throwing the entire sector backward by impeding the development of medium scale farms which consolidate costs and risks (some writers have even referred to the “primitivisation” of the African agricultural sector).

By far, the worse effect of microlending (and the greater neo-classical, bottom up strategy) is that it lets African governments off the hook. Rather than encouraging governments to standardize and enforce taxation, develop standards of business and production, and create systems which offer medium scale businesses access to credit, microcredit does the opposite.

It idealistically assumes that the “invisible hand” of the individual will correct for any structural problems which may already exist (which should sound like something from the American Republican Party). Microcredit undermines the ability and agency of governments to improve the economic profile of their states.

China, the US Government Shutdown and the “End of the Pax-Americana”

I was perplexed when a recent essay from the Chinese Communist Party’s propaganda mouthpiece XinHua News came running through my social meida feeds. The article in question, “Commentary: U.S. fiscal failure warrants a de-Americanized world,” which spouts a litany of transgressions that the United States has committed throughout the world, calls for an end to the “Pax Americana” and even suggests a new, international currency.

The essay is, of course, quite odd in that it conspicuously ignores China’s dangerous territorial disputes with Japan and overt threats to the sovereignty of Taiwan and the brutal occupation of Tibet. It’s glaring in its zeal to criticize America as a dangerous hegemon, but ignores China’s stated quest to become a broker of all things East Asian. It also fails to offer who would back this new, mythical international currency (can one *really* imagine the world seriously using the Chinese Yuan as a foreign reserve currency?).

The entire article sounds like a wishful hegemon-to-be poking at an existing hegemon, and bizarrely offers itself as a benign counter-factual aligned with the poor and downtrodden of the world.

Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated, and a new world order should be put in place, according to which all nations, big or small, poor or rich, can have their key interests respected and protected on an equal footing.

Ignoring for the moment how uninterested China is in the having the world respect the key interests of Taiwan and Japan, are we really under the illusion that China cares whether the interests of Sub Saharan African countries are respected or not? Can we really take China’s call for democracy and regional understanding seriously when it fails to do either domestically?

The record of China in developing countries and its commitment to doing anything besides resource extraction, however, is decidedly mixed. Soccer stadiums and lavish dinners for African bureaucrats don’t feed people (except the fat African bureaucrats, of course).

Given its suspicious record, China is a poor spokesperson for the developing world.

Further, the article is laughable in the context of China’s own fiscal and political problems. China’s economy is export driven and follows the same model that Japan and South Korea did by encouraging household savings to fuel investment in public services through interest, while discouraging consumption. Though South Korea and Japan both moved on to consumption economies, it is unclear (at least to me) whether the Chinese Communist Party has the courage to take the political and social risks associated with such a move.

As another blogger pointed out, our disastrous Government shutdown and the public reaction to it are actually indicators that the US system works, and this fact hasn’t been lost on Chinese microbloggers. “Where are the riots?” Political violence, rioting and heavy handed responses are commonplace in China.

In the States, though the shutdown was devastating for public employees and an embarrassing waste of money and time, the effects of the political impasse were largely unfelt by the American populace (outside of some rising blood pressures). Though a repeat performance is infuriating (and inexcusable), it’s interesting to me that the long term effects are few. In fact, I would argue that, despite all of our ideological and social problems, the political system itself may have been strengthened, though it’s too early to tell.

If nothing else, we’ll see a few less Tea Party Republicans in Congress in November of 2014.

The purpose of this post is not to relieve the US of criticism. It deserves plenty. But critics need to be aware that China is not without major problems. Rage on the us all you want, but using China as a benchmark for the future of the United States is wholly unproductive.

“Band Aid”

Starving, crying kids!

Starving, crying kids!

I don’t know why but I recently thought of “Band Aid,” Bob Geldof’s feelgood project that aimed to provide food for those afflicted by the 1981-1983 famine in Ethiopia. While attempting to do what one can to help other is a laudable goal, “Band Aid” is pure comedy when viewed through a 2013 lens.

The sleeve itself is worthy of copious ridicule. It is a collage designed by Peter Blake, who is famous for having done the sleeve to the Beatles’ “Sgt. Peppers Lonely Hearts Club Band.” Note the fly covered pastoralist kids at the bottom.

I’m fairly sure that period is where most of the worst images of Africa come from, images that we are unfortunately stuck with.

Whenever I go there, I’m still struck by the disconnect between how the continent is presented by NGO’s and aid groups, and how the place really is. From fundraising ads, you wouldn’t even know that nearly 40% of Africans live in cities and that Africa has 43 cities with more than one million people. While we certainly need to worry about the plight of rural communities and displaced people, a greater challenge will be how to provide sanitation to the hundred of millions of people who live in cities designed for mere fractions of their current populations.

I’m wondering if Geldof and Bono actually visited Africa before embarking on branding Africa. Though it’s pointless to blame a bunch of hair sprayed 80’s musicians for the plight of Africa, I don’t think that they did the continent any PR favors.

It’s interesting to note that not a single African appears in the video, outside of two people of African decent who may or may not be entirely British. In fact, the voices of the supposed recipients of aid play no role whatsoever it the projects implementation as represented by this video. To me, “Band Aid” is a perplexing confluence of the supposed responsibility the West has toward the “uncivilized” world and crass American commercialism. I suspect, however, that emphasis is placed on the latter, and that the plight of “starving children” is merely a vehicle with which to sell and brand goods.

Though the vast majority of the participants of “Band Aid” faded into relative obscurity (Bananarama?), Bono himself and to a lesser extent Sting, continued this model of commercialized philanthropy. Bono created Product (RED), a business model which branded certain upscale products and offered a percentage of the sales to the Global Fund. While the proponents of Product (RED) and similar initiatives claim that they are meaningful simply by creating “awareness” for the issues they target, the near total absence of the recipients of this goodwill prevent one from taking the projects seriously.

Cape Town, South Africa

Cape Town has to be one of the oddest places I’ve ever been. It’s like the Traverse City of Africa, but with four million people. White people here to white people things like jog around the pristine parks, walk their well behaved dogs, and drive around in really expensive cars.

I’m not quite sure what everyone does for a living. Perhaps the cars are rentals and none of these people are from here.

Nearly 50% of Cape Town can call itself mixed. Europeans have been here so long, and apartheid wasn’t a formal policy until nearly three centuries after when Europeans started coming here. That makes plenty of time to mix. This is, of course, in contrast to a lot of the rest of Africa (and even the US until very recently), where the lines are drawn much more clearly.

I’m not sure how apartheid really worked here, but it probably did what it was suppose to do by protecting the interests of those who controlled the economy. Of course, it was reprehensible and it’s good that it’s over.

South Africa has to be one of the most complicated countries on the planets (though countries are all complicated when you start digging).

Cape Town is oddly safe compared to other places. Fences are low, streets are well organized, but there are still bars on the windows. Cape Town is so organized, that even the slums are well put together. The building materials are of a higher quality than other slums in Africa. Every one has satellite TV, and the City of Cape Town provides power infrastructure and water.

It’s not a paradise, but it’s definitely a different place than the Africa I know. More later.

Could Westgate Have Been Part of An Increasing Trend in Violence in Somalia?

SomaliaI’m sure it’s obvious that I’m still trying to process the recent events in Kenya. I became interested in knowing if the attack was perhaps part of a greater trend of violence in the region, particularly Somalia.

The Armed Conflict Location and Events Database logs all conflict events around the world in one location. Events are recorded from newspaper reports, NGOs and self reports from people on the ground. I downloaded the latest version of the data and restricted the dataset to only Somalia.

It turns out, that violence has been on the rise in Somalia since at least 2005, with a small break around the time of the global financial meltdown, then rising consistently from 2010. The Kenyan military, who have been blamed for the attack, didn’t arrive in Somalia until October of 2011. Sadly, their entry hasn’t been associated with a decline in events.

It’s worth noting that Doctors Without Borders exited Somalia last August due to kidnappings and violence, part of a greater trend of attacks on aid workers. Even before that, news reports were telling of increased attacks around Mogadishu.

The Economist reported increased numbers of attacks in Iraq and speculated that it was part of a wider, global trend. If this data on Somalia is to be believed, the world should start bracing itself for even more carnage. Again, I’m quite conflicted on what might be the causes of this violence, most of which is waged on targets that have little to do with Americans (despite what Ron Paul would like you to believe). I’m also at a loss as to what to recommend to do about it, but ignoring this worsening problem will not improve the situation at all.

Conflict Events in Somalis 1996-2013

Conflict Events in Somalis 1996-2013

Violence in Africa, a continuing threat

African countries are certainly no strangers to violence, thought the past few years have seen an extended period of relative peace. The incredible bloodshed of the 90’s seems a distant dream at this point.

However, since the awful attack on Westgate Mall in Nairobi ten days ago, it’s possible that other groups have been emboldened to stage dramatic attacks on weak civilians.

Boko Haram, an Islamic separatist group in Northern Nigeria, shot and killed more than 40 students at an agricultural college in Nigeria. They arrived in the middle of the night and shot them all while they slept. The college could not afford proper security, though it’s doubtful that the even would have been fully prevented. Security details in Africa, particularly for Africans is sadly lax.

It is certainly possible that the attack had nothing to do with Westgate at all, though it isn’t coincidental that in both cases, high profile symbols of Western style development were targeted. While past attacks included embassies, ports and high profile targets like New York City, I fear that global terrorism might be moving to easier and smaller targets in Sub-Saharan Africa. This, of course, puts us involved in global health and development at awful risk.

During my conversations with my colleagues over the past week, the most common phrase has been “these are the risks we take.” While it’s certainly risky for us, for Africans trying to improve the lot of their countries, it’s entirely worse.

I think of those 40 students, who were guilty only of trying to educate themselves and perhaps become successful farmers or entrepreneurs. It’s entirely sad.

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