On Contracts and Motorcycle Taxi Markets in Benin and Togo

In the motorcycle-taxi market in most Sub-Saharan African countries, the relation between vehicle owner and driver is characterised by a principal-agent problem with the following features: the owner cannot observe the final output of the driver and therefore cannot condition a wage on it, and higher effort from the driver depreciates the motorcycle. These two feature simply that it is in the owner’s best interest that the driver exerts as little effort as possible while still leasing the motorcycle from him. The problem with low effort implementation is that the motorcycle will not generate enough revenue. I analyse the contractual arrangements between owners and the drivers in this market using survey data from four cities in Togo and Benin. Evidence suggests that the quest for trust through kinship between owner and driver may explain the prevalence of a contract that induces drivers to exert excessive effort, leading to adverse outcomes like traffic accidents.

That is Moussa Blimpo in a new cool paper in the Journal of African Economies.

One of the questions the paper addresses implicitly is whether trust necessarily leads to better development outcomes (you’ve seen those cross-country regressions with trust as an independent variable…)

……. in the presence of trust, people tend not to sign formal contracts that define residual rights and the actions to be taken in different expected situations. For example, if the owner and the driver are family members, they will be unlikely to draft a contract that caters to litigation, given that it is socially unacceptable to take a legal action against family.

What this means is that sub-optimal contracting and economic outcomes in developing countries may not be due to a general notion of lack of trust, but rather the lack of a specific kind of trust, let’s call it civic trust. This is the kind of trust that is infused with a healthy dose of skepticism and accompanied by explicit contracting under the shadow of credible enforcement by a third party, the state.

How to write about Africa in one picture

This is a story about Kenya building the first new railroad since the British built the old one more than a century ago. The new line goes through a National Park. A watchman was attacked by a cheetah. No one was mauled by lions. The attempts to link the current project to the Man Eaters of Tsavo trope is noted, but that happened a century ago when the lion population in the Protectorate was still quite big, and rhinos charged mail cars.Screen Shot 2015-02-26 at 11.33.38 PM

The rest of the story is here. Please skip through the Conrad-esque first paragraph.

Achebe (on Conrad’s racism) and Binyavanga (on how to write about Africa) should be required reading before some of these correspondents (and the social media interns) are inflicted on the world.

Africa’s Billionaires in 2014

Only 9 out of 54 African countries are represented on the 2014 Forbes billionaires list. There are certainly more than 29 dollar billionaires on the Continent (most of the rest being in politics). Let’s consider this list as representative of countries in which (for whatever reason) it is politically safe to be publicly super wealthy – which in and of itself says a lot about how far Nigeria has come.

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Source: Forbes

Some will look at the list and scream inequality. I look at the list and see the proliferation of centres of economic and political power. And a potential source of much-needed intra-elite accountability in African politics. For more on this read Leonardo Arriola’s excellent book on the role of private capital in African politics.

See also this FT story on the impact of currency movements on the wealth of Nigeria’s super rich. Forbes also has a great profile of Aliko Dangote, Africa’s richest man.

Quick links

1. “Shame on me: Why it was wrong to cost the Millennium Development Goals” : Shanta Devarajan, Chief Economist for MENA at the Bank, on why he thinks that costing the MDGs may have “helped shift attention away from what is needed to reach the goals, and hence contributed to the perpetuation of poverty.”

2. Is teaching in college no longer a middle class job?

3. Dark Leviathan: How even the deep web, in desperate need to signal credibility, cannot escape the need for the “law merchant” (and eventually the state, or some generalizable norms a la Avner Greif).

4. The American South, on the map and in the mind.

5. Doing a book tour in China (with a censor in tow).

Kenyatta to burn 15 tonnes of ivory in an admission of failure to end poaching

The Daily Nation reports:

President Uhuru Kenyatta will Tuesday become the third president in Kenya’s history to set ablaze 15 tonnes of elephant ivory to mark the World Wildlife Day.

I hope this doesn’t become a thing that every president does over the duration of their tenure (well, by definition, if it is we’ll eventually run out of elephants).

Also, burning 15 tonnes of ivory sounds like such a waste. Can’t we just pile them up as a monument? A reminder each year – as the pile grows – of our collective failure to stop poaching? Just a thought.

Happy Wangari Maathai Day. Happy Wildlife Day.

Fact: 15 tonnes of ivory is worth about USD 28.3m in China.

Africa as a Living Laboratory

Science is said to have two aims: theory and experiment. Theories try to say how the world is. Experiment and subsequent technology change the world. We represent and we intervene. We represent in order to intervene, and we intervene in light of our representations….

This book explores the points at which “representations” turned into “interventions,” as theory and research were applied in practice. Defined this way, interventions, including development projects, are part of an ongoing process of knowledge formation and reproduction.

That is Helen Tilley in an excellent book on imperial/colonial Africa as a Living Laboratory. The book focuses on scientific research (both in the natural and social sciences) in Africa between 1870-1950 and is a must read for practitioners and academics interested in International Development.

Slide from Easterly's Book Tour Talk

Slide from Easterly’s book tour talk

Chapter 2 is on Africa as “A Development Laboratory” (and the origins of the Africa Survey – see image), and will leave you feeling like there is, at least for the most part, nothing new under the sun in International Development. William Easterly makes this point as well in the Tyranny of Experts.

Oh, and Tilley’s book has some good data on the intensity of colonial administration and public goods provision in areas such as medicine, agriculture and infrastructure development.

The Anatomy of Tax Evasion in Africa

Africa Confidential has a great piece analyzing leaked documents from PwC, the professional services firm, showing the various arrangements that enable multinational companies to evade taxes in Africa. You can read the whole piece here (gated).

  • One of the measures PwC advised multinationals to take was to create a wholly-owned Luxembourg-based subsidiary which would hold the rights to intellectual property used by the rest of the group. The rest of the group would then pay licensing fees to the Luxembourg-based subsidiary which, by agreement with the authorities, would be granted tax relief of up to 80%……
  • A second tax avoidance mechanism simply involved the companies becoming incorporated in Luxembourg. In 2010, Luxembourg concluded an agreement with several companies of the Socfin (Société financière) agribusiness group, which was founded during the reign of Belgian King Leopold II by the late Belgian businessman Adrien Hallet. The companies chose Luxembourg as their base and made an agreement under which their dividends were subject to a modest 15% withholding tax, a lower figure than those in force where their farms are located (20% in Congo-K and Indonesia, 18% in Côte d’Ivoire).
transfer-pricing

The art of hiding profits

Altogether, Socfin subsidiaries in Africa [in Sierra Leone, Nigeria, Liberia, Cote d’Ivoire, and Cameroon] and Indonesia produced 123,660t. of rubber and 380,770t. of palm oil in 2012. The combined turnover of its main African subsidiaries reached €271 mn. in 2013. The list also includes the 100%-owned Plantations Socfinaf Ghana Ltd. (PSG) and Socfin-Brabanta (Congo-Kinshasa). Socfin also holds 88% of Agripalma in São Tomé e Príncipe and 5% of Red Lands Roses (Kenya).

  • A third mechanism involves cross-border lending within a group of companies. Companies registered in Luxembourg are exempt from tax on income from interest.

According to the Thabo Mbeki High Level Panel report between 1980 and 2009 between 1.2tr and 1.4tr left Africa in illicit flows. These figures are most likely an understatement. Multinationals, like the ones highlighted by Africa Confidential, accounted for 60% of these flows.

Alex Cobhan, of the Tax Justice Network, has a neat summary of the various components of illicit financial flows (IFFs) and how to measure them. He also proposes measures that could help limit IFFs, including: (i) eliminating anonymous ownership of companies, trusts, and foundations; (ii) ensuring that all bilateral trade and investment flows occur between jurisdictions which exchange tax information on an automatic basis; and (iii) making all multinational corporations publish data about their economic activity and taxation on a country-by-country basis.

Alex Cobham blogs here.

The Choices in the Nigerian Election

Alex Thurston over at Sahel Blog has an excellent take on the credentials of the two leading candidates in the Nigerian election – the incumbent President Goodluck Jonathan and challenger Muhammadu Buhari. Thurston, in particular, cautions against simplistic narratives about either candidate that only serve to distract from the universe of issues at stake in this election:

In much international coverage of the race, whether by non-Nigerian journalistsor Nigerians speaking to international audiences, the two candidates have been presented in crude and one-dimensional ways. The narrative at work in such commentaries says that Jonathan is a bumbler – a nice guy perhaps, but ultimately an “accidental president” who is in over his head, too incompetent to deal with problems like corruption or the violence caused by Boko Haram in the northeastern part of the country. Meanwhile, the same narrative tells us that Buhari is a thug – an essentially military man whose record is fatally tarnished by his regime’s actions in the 1980s, and whose prospects for winning the presidency have grown only because of Nigerians’ anxieties about Boko Haram. The narrative goes on to say that Nigerians face two very bad choices for president – perhaps implying that “the devil they know” is the better choice.

The rest of the blog post is here (highly recommended).

In related news Nigeria’s INEC on Tuesday announced that it had hit a 75% PVC issuance rate (or around 52 million people) to the almost 67 million registered voters. This included an average issuance rate of 76% in the three states worst hit by the Boko Haram insurgency (Yobe, Adamawa, and Borno).

Herds in Pressurized Steel Tubes? Social Effects in the In-Flight Marketplace

This paper investigates the in-flight marketplace. It uses detailed data of inflight purchases to understand social effects in purchase behavior, and determine their potential for designing marketing promotions. We find that on average a passenger is approximately 30% more likely to buy after being exposed to a lateral purchase. Analyses on the underlying mechanisms reveal that the classical social influence theories do not suffice to explain all the patterns in the data. Omission neglect, product contagion, and goal balancing are proposed as complementary theories. Finally, we find that consumers’ willingness-to-buy is positively correlated with responsiveness to social influence. Because of this homophily and social feedback effects, classically seen as nuisances, can provide targeting value for the firm. Taking them into account in behavioral-based targeting can up to double the social spillovers of marketing actions.

That is Stanford GSB professor Pedro Gardete in a forthcoming paper in the Journal of Marketing Research. Gardete examined the purchase data of up to 2,000 flights from a major US airline during January and February 2012 – totaling 257,000 passengers with a combined 65,525 purchases. Since these transactions were made via credit card, he got information on “buyers’ flight numbers, seat numbers, what they bought, and what time they bought it.”

I wouldn’t be surprised if airlines were already in the habit of maximizing revenue via strategic seating of prolific shoppers to ensure an even distribution on any given flight.

More on the future of air travel here.

Remembering The Wagalla Massacre

This happened. Only 31 years ago. Lest we forget.

[O]n February [10th] 1984, soldiers of the Kenya Army mounted a security operation around Wajir in Kenya’s North Eastern Province. Having rounded-up all Somali men of the Degodia clan, as many as 5000 were taken to the Wagalla airstrip for interrogation. This was part of the policy of ‘collective punishment’ – a conscious act of state violence against its own citizens. After four days of interrogations at Wagalla, several hundred Degodia lay dead: whether 500 died, or 1000, or more is unknown, but the incident stands as the worst atrocity in Kenya’s modern history. This article recounts what is known about the massacre from witness and survivor testimony, putting this together with documentary evidence recently revealed through the Truth, Justice and Reconciliation Commission (TJRC) and setting the analysis in the wider context of Kenya’s treatment of the peoples of its ‘forgotten north’. The conclusion summarises the findings of Kenya’s TJRC on Wagalla, and comments on the recent construction of a monument to commemorate the massacre, opened at Wajir on 14 February 2014.

The following individuals held a top level meeting in the Wajir DC offices on February 8th, two days before the massacre: Joseph Kaguthi (Asst. Secretary, Internal Security), James Mathenge (PS, OP in charge of Internal Security), Gen. J. R. Kibwana (former CGS), John Gituma (PS, Information and Broadcasting), Benson Kaaria (PC, North Eastern), Bethuel Kiplagat (PS Foreign Affairs), and David Mwiraria (PS, Home Affairs). Mwiraria has in the past argued that he and others at the meeting had not idea about what was about to happen.

Because of the failure to effectively deal with instances of gross state overreach like the Wagalla Massacre, impunity within the security services continues. Government reactions to insecurity in the northwest, at the coast, in the northeast, in dealing with Mungiki, out west in Mt. Elgon, and even in Eastleigh, are continuations of an old habit that goes back to the Mau Mau concentration camps under the emergency.

Throughout the “Shifta” war and well into the 1980s..

collective punishment continued to be used to ‘discipline’ the north, amid a growing sense of official impunity, as was evident in the collective punishment of a Somali community in Garissa

More on this here.

Here is the Citizen TV documentary from 2012.