• Everyday economics A more accurate picture of African Development emerges when we combine statistics and stories.

    Understanding African Development Through Stories and Stats

    Aug 6 • Businesses, Developing Economies, Economic Growth, Government, International Trade and Finance, Labor, Lifestyle, Macroeconomic Measurement • 177 Views

    With more than 40 African leaders in Washington D.C. for a conference that President Obama is attending, I wanted to return to our post on Americanah.

    Where are we going? To a picture of African development.

    In Chimamanda Adichie’s Americanah, we meet Ifemelu and Obinze. Representative of Nigeria’s upper class, they are a part of a story that takes the reader to Princeton, Yale, Philadelphia, Baltimore and London but always with a home base in Nigeria. Comments from the book’s protagonists about upwardly mobile Nigerians provide what I suspect is a glimpse of reality.

    “We are just one step from this life in a slum, all of us who live air-conditioned middle-class lives.”

    “Had  it always been like this or had it changed so much in her absence? When she left home, only the wealthy had cell phones, all the numbers started with 090, and girls wanted to date 090 men. Now, her hair braider had a cell phone, the plantain seller tending a blackened grill had a cell phone.”

    Ifemelu climbed out of the car and into the loud, discordant drone of generators, too many generators;…no light for the past week…can you imagine?”

    “When I came back, I was shocked at how quickly my friends had all become fat, with big beer bellies. I thought: What is happening? Then I realized that they were the new middle class…They had jobs and they could afford to drink a lot more beer and to eat out…”

    The Economist Intelligence Unit (EIU) tells us that the African middle class is growing:

    African Development and Middle Class Growth

     

    And the African middle class is young:

    From: The Economist Intelligence Unit

    Further confirming the potential for growth, African GDP stats were impressive this year (although we did do an econlife post on how they might all be inaccurate).

    African Development and GDP

     

    But then, checking the World Bank’s “Doing Business” Index, the low ranking of most African nations revealed the most challenging business environments. Looking at Nigeria, for getting electricity, enforcing contracts, and guaranteeing property rights—all basic to a thriving market—they were ranked among the lowest.

    For example, when a business needs to establish an electrical power connection, the difference between Nigeria and Singapore is striking:

    Nigeria: 260 days

    African Development Ease of Doing Business

     

    Singapore: 36 Days

    African Development Ease of Doing Business Singapore Comparison

     

    Our bottom line: A more accurate picture of African Development emerges when we combine statistics and stories.

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  • Instead of more traditional foreign aid giving programs, cash grants are a valid alternative.

    Seeding change: seeds or change?

    Aug 5 • Behavioral Economics, Developing Economies, Economic Debates, Macroeconomic Measurement, Thinking Economically • 157 Views

    What do you think about fighting poverty by just giving people cash?

    When Chinese recycling millionaire Chen Guangbao tried to give NYC’s “poor and destitute” people $300 plus lunch at a fancy restaurant, during the meal (steak and sesame-crusted tuna) the organizers said, “No money.” Worried the cash would be misused, they said their lunch guests would be the beneficiaries of the $90,000 from the donor. But they would decide how it would be spent.

    While their attitude was typical, some academic research indicates it might not be valid. Through randomized trials in Mexico, Kenya and Malawi, the results of cash grants range from successfully improving daily diet and living conditions to more business startups. In a Ugandan trial, 900 extremely poor women received business planning instruction for 5 days with $150. A year and a half later, they had doubled the incomes of a control group. In other cash grant trials, recipients spent their money on the types of food, shelter, tools and training they would have gotten from aid organizations.

    Sort of like a Wall Street index fund, cash has the lowest overhead. Whereas programs that formally structure giving have to pay for more staff and travel, cash giveaways require a simpler model. To give a cow, for example, you need to find the recipients, allocate the donations and then deliver the animal. In one West Bengal, India program, a $166 cow costs $331 to give. In Rwanda, Heifer International had to spend $3000 when they gave away a pregnant cow because of the training and support services the gift necessitated. In a Ugandan cash giving initiative, organizers concluded that while follow-up advice enabled recipients to earn more, its cost exceeded the benefit it created.

    I know. Probably like me, you are not convinced but neither are the scholars who have studied the cash-grant approach to foreign aid. They just say, let’s give it a chance and continue to assess the outcomes.

    Our bottom line: How best to eliminate poverty returns us to cost and benefit–a tough approach when what you are doing “feels good” but might not “do good.” For cash grants, the spin is different. It does not really feel good but it could be doing good.

    The luncheon funded by recycling millionaire Chen Guangbao was June 25 at Central Park’s Boathouse Restaurant. Below is a copy of the NY Times June 16 ad for the event.

    from Quartz

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  • The spread of refrigeration in China will create positive and negative externalities that relate to productivity, diet, health and the environment.

    The Spillover from Refrigerators in China

    Aug 4 • Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic History, Environment, Government, Households, Innovation, Labor, Lifestyle, Macroeconomic Measurement, Tech, Thinking Economically • 180 Views

    Reading about the early stages of a refrigeration boom in China, I thought about Clarence Birdseye.

    In 1915, after fishing in Labrador’s sub-zero temperatures, Clarence Birdseye was astounded that his frozen fish was tasty when it thawed weeks later. In 1926, he introduced his “quick freeze machine” and the rest is frozen food history.

    Where are we going? To get from the factory to the dinner table, frozen food requires a cold chain.

    Think for a moment of a Birds Eye box of frozen vegetables…maybe Tiny Tender Sweet Peas. Frozen in the factory, a box of peas needs refrigeration to get to the food store, icy temperatures in the supermarket and then a freezer in someone’s home. By 1944 Birdseye had leased refrigerated box cars as a part of its cold chain and was developing grocery store freezer display cases. However, it was not until after WW II that the cold chain got its final link with the take-off of mechanical refrigerator sales. Now more than 99% of US households has a refrigerator.

    In China, the cold chain seems to be starting in the home. During the past 25 years, the proportion of urban Chinese households with a refrigerator has increased from 10% to 90%. On the distribution side though, China’s inadequate cold chain has resulted in considerable spoilage. Less than 25% of China’s meat supply has a cold chain and for fruits and vegetables, the total is close to 5%. As you might predict, China is trying to encourage refrigerated warehouse building with subsidies, tax breaks and even a picture with Premier Li Kequiang.

    The place I would like all of this to take us is how refrigerators will transform what China’s population will buy, what they eat, and their impact on the environment. No longer shopping for food each day, they will have more productive time. Refrigerators can improve health by minimizing food-borne disease and maximizing variety. On the down side though, being able to store food at home means you buy more and waste more. Also, so monumental an expansion of Chinese refrigeration will generate a huge increase in energy consumption and greenhouse gases.

    Our bottom line: In the United States during the 20th century and currently in China, the spread of refrigeration through an expanding cold chain has considerable spillover that we would call externalities. Positive and negative, externalities are the impact of a transaction between two parties upon a third uninvolved individual or group.

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  • Econlife.com Sunday Chart of the Weekl

    Hamburger Economics

    Aug 3 • Businesses, Demand, Supply, and Markets, Developing Economies, Financial Markets, International Trade and Finance, Labor, Macroeconomic Measurement, Thinking Economically • 189 Views

    Our Sunday Charts

    The 2014 Big Mac Index is out and not much has changed. Norway’s Big Macs are most expensive and Chinese Big Macs are cheap.

    As The Economist explains, starting in 1986, they wanted to take a lighthearted look at whether currencies were “at their right level.” Economically speaking, they were considering purchasing power parity (PPP). When a market basket of goods and services costs the same in different countries, then people have equal purchasing power (aka: purchasing power parity). Looking below, you can see that Australia and the United States have pretty similar PPPs for hamburgers.

    When countries do not have purchasing power parity, we can use a base currency to check for over- and undervaluation. If the base is a $4.79 US Big Mac, then a $7.79 Norwegian Big Mac is overvalued. By contrast, China’s $2.89 Big Mac says their currency is undervalued.

    Below, with the US dollar as the base currency, you can see how Big Mac prices vary.

    From: The Economist

    From: The Economist

     

    Whereas the map shows a range for under- and overvaluation, I used The Economist’s interactive graphic to identify specific prices and per capita GDPs:

    Foreign Exchange and the Big Mac Index Purchasing Power Parity

    Date from: The Economist

     

    Taking the Big Mac Index a step further, a financial services firm, ConvergEx Group, compared it to the minimum wage in different countries. (Note that the following prices and wages are from August 2013.) Their goal was to see how long people had to work to buy their Big Mac:

    Foreign Exchange and the Big Mac Index

    From: IB Times

     

    Our bottom line: The Big Mac Index is a handy first step in understanding the information that foreign exchange rates can provide.

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  • Econlife.com Weekly Roundup

    Our Weekly Roundup: From Argentina to North Dakota

    Aug 2 • Demand, Supply, and Markets, Economic Debates, Economic Growth, Economic History, Gender Issues, Government, Households, Innovation, Labor, Lifestyle, Macroeconomic Measurement • 190 Views

    Our Econlife roundup for the week

    Everyday Economics of the GDP7.28.14 The economist who was indicted because of the GDP…more

     

     

    With factions in Greece resisting further austerity, a sovereign debt problem could resurface.7.29.14 Why Greek hairdressers can no longer retire at 50…more

     

     

    The everyday economics of a North Dakota  oil boom.7.30.14 How oil changed North Dakota…more

     

     

    Violating the sanctity of contracts, Argentina has again defaulted on her sovereign debt and diminished her ability to borrow.7.31.14 The hedge fund attack against Argentina…more

     

     

    Reflected by the Tour de France female exclusion, the gender gap for female athletes relates to less media, consumer and commercial appeal.8.01.14 Why the Tour de France might anger women…more

     

    An update:

    To the impact of oil on North Dakota, we should add crowded airports, packed planes, and the sky high fares that WSJ told about about in “The Airport That Feeds the Oil Boom.”

     

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