Afro-Economix

There are many things about the economy in Africa that are distinct from the US. In a lot of places, you bargain over prices. White people consistently pay more. Fruit, meat, and other foodstuffs are often all bought from different places. However, one element I did not expect is the lack of a bulk discount. In much of Africa, the price you pay for 12 of a good is simply the unit price times 12. There often is no “bulk rate:.

The principle behind the bulk discount is simple. Suppose I am a supplier, and I have one box of crackers (in Kenya, “biscuits” or more specifically in the case of salted crackers, “dinner biscuits”) that costs me $2.00 from the suppler, that I sell for $3.00. I have earned a dollar in profit. However, suppose now I am selling two boxes of crackers, that again cost me $2.00 each. In total, they cost me $4.00. If I sell them for $5, assuming I can sell them equally fast, I will again have made $1.00, so the same level of profit. Therefore, I can make just as much money by offering a discount rate. Budget shoppers in the US try to take advantage of this fact.

However, this is also based on what economists call “decreasing marginal utility”. This is the principle that consumers enjoy more of the first slice of pizza than they do of the 4th. The more of a good they have, the less they value each additional unit. It is because of this principle that selling in bulk becomes necessary.

In much of Africa, this is offset by income. Simply put, it is quite often only the wealthy who can afford to buy a bunch of one thing at any at a time. Get no illusions about how most people don’t know where their next meal is coming from. For a few people, that may be true, but my previous statement doesn’t mean people cannot afford to feed themselves. However, if I have a smaller amount of money, I’m less likely to buy a 1-pound bag of rice at once, when 2 cups now, another 2 cups tomorrow, another two cups the day after will do, and will still allow me to have the money each day, in case I need it for something else.

It is quite common for Africans to buy all the ingredients they need to cook that night, every day at the end of the day instead of buying for a week, or a few weeks at a time. Small kiosks often accommodate the tendency to buy on an “as I need it” basis, allowing the sell of things like a single cigarette or stick of gum, something that you’d never see in the States.

Therefore, if I am trying to buy 24 bottled waters at once, the principle is still probably true that I get less extra value out of the 24th than out of the 1st. However, if I can afford to buy 24 bottled waters at the same time, it means I have more money than the typical citizen. Therefore I probably can afford to pay the unit price for all 24. In case after case, I saw the income effect trump the diminishing marginal benefit effect. The fact that richer people were buying more meant more to sales prices than the fact I would get diminished benefit out of each additional unit of that good.

Advertisements
Posted in Uncategorized | Leave a comment

The Next Step

Some of the most exciting research in develop (at least in my estimation) is examining the effect of being in poverty on cognitive performance. The research suggests, people who are in poverty are not inherently less intelligent. However, being in a state of poverty has a negative effect on an individual’s intelligence. The mental strain of constantly having to think about finances limits our bandwidth to do other tasks.

For instance, individuals in the US were asked to think about what they would do if they had to pay either $150 (Group A) or $1,500 (Group B) to repair their car tomorrow. Would they a) pay it all off, b) borrow the money, or c) not fix it entirely? They were then given a cognitive task. Among both the wealthy and poor in Group A, $150 was not such a huge amount, and thinking about this question did not affect their performance on the test. HOWEVER, for Group B, the poor individuals had to really agonize over this question. When Group B took the test, the rich did not do different from the rich in Group A, but the poor in Group B did much worse than the poor in Group A. The bandwidth spent on thinking about this question limited their ability to fully engage in the mental activities following this question.

Other exciting research is looking at ways to make the poor’s lives better. The poor are might be given access to better health products, taught good sanitation practices, and given insurance in case their crops are affected by drought. We have a standard set of indicators by which we try to measure this difference. Some of the common ones include income, consumption, food security, reported health, financial activities, and others. While all of these are worthy measurements, I would like to expand the picture.

In my mind, a next step forward in research (and perhaps one I will do a dissertation on, if the idea is still novel at the time) is to combine these ideas. When we introduce new products and services, we should also test if this affects the poor’s ability to operate. When we provide an insurance product, and then ask individuals what they will do if there’s not enough rain this year, is their cognitive bandwidth affected? Will those that receive insurance be different from those who didn’t when it comes to taking a test after such questions. What about those who received governmental health care?

While this isn’t necessarily a new idea in terms of interventions, I think this is a new idea (and one that I think ought to be tested) regarding how to look at what we are doing. A successful intervention shouldn’t just affect external factors. It should also in some cases affect the internal process of individuals, like their cognitive bandwidth and their stress levels. If we truly want to improve the capacity of the poor, and “teach the man to fish”, we ought to do a better job of measuring their fishing abilities after we try.

Posted in Uncategorized | 1 Comment

Field Trip

While in Ethiopia, my bosses came to see the project I was working on, and to meet for a conference discussing our program with the implementing organization, USAID, the World Bank, and some other organizations. Part of the conference included a “site visit”. This is where a team of conference participants went and met certain households in the program, and asked them questions. How much money do you get when you sell your oxen? What did the staff teach you? Well, how does one fatten an ox before selling it, and so on.

The idea is to give some sort of snapshot about how the program. Our organization in general tries to avoid making conclusions based on talking to a few individuals. For any program, there might be some people for whom it works, some for whom it doesn’t, and therefore, the people you talk to might falsely shape one’s perception. It’s for this reason that my survey team talked to 915 households, so we can get a fuller idea of how the program works, on average. However, there is some research to support the idea of a field visit.

One experiment looks at how students learn, based on hearing the results of psychological studies. First, in a separate study examining collective action, experimenters observed how five people responded when a sixth person had an apparent stroke. They participated in a group activity over the phone, and one person, (an actor) appeared to start choking and say he was in pain while on the phone. Somewhat surprisingly, only 27% helped, because everyone else presumably thought  someone else would deal with the problem.

Learning about oxen fattening

Learning about oxen fattening

The study of interest though came when students were taught about this study. Did it affect their perception? After being told this statistic, students in a study then watched interviews with two supposed participants. They were then supposed to guess if the participants had helped the victim. The interviewers talked about their educations and career interests, with the goal of the interview to be as uninformative as possible—it was meant to provide no new information.

When the students guessed whether or not these people had helped, it was though they had learned nothing. When they heard only 27% had helped, and the interview provided no new information, their best guess should have been that each person did not help. However, nearly everyone assumed that both people had helped. When the experiment was done in reverse though, the results were quite different. When people saw the two interviews, and then were told that neither had helped, people were very accurate at guessing the percentage of people that actually had helped. It is apparently much easier for us to infer the general from the specific than it is for us to infer the specific from the general.

Perhaps then, field visits are of some use beyond simply providing a face to the narrative. While hearing “on average, monthly incomes doubled” provides information, it doesn’t allow someone necessarily to understand how that program would affect an individual life. However, when hearing about Hagos in the village of Abreha Atsbeha, and how he used to let his oxen wander to find feed but now they are fed a particular feed, so he sells oxen every three months at a big profit, psychology might suggest that it will allow us to understand in general how the program might work.

Posted in Uncategorized | Leave a comment

Third World People Have First World Problems Too

For this blog, I’d like to think I do better than identifying things that are wrong and pointing out that they are wrong. However, in this case, I can’t resist.

On Facebook, I recently saw this YouTube video posted: http://www.youtube.com/watch?v=k3HrkQaPHAA

It’s worth watching now, since the rest of my post deals with this video.

The basic idea present here seems to be, your problems are mundane problems, the poor have to deal with real issues like having no water.

While my time abroad hardly makes me an expert in “what the poor want”, my thoughts while watching this video are that most of the complaints mentioned in this video sound like EXACTLY the sort of thing my friends in Kenya, Ethiopia and Bolivia would complain about.

Phones are extremely prevalent throughout the world, and people enjoy using them just like we do. For the complaint of “My phone charger doesn’t reach my bed,” I was reminded of a co-worker of mine in Kenya who lived in a stick hut in a small, remote village. His village wasn’t electrified, but he had a portable battery, and guess where he kept it? Next to his bed, so that he could text his homeys and romantic interest late at night while still charging it. You better believe Kenyans are just as likely to text/talk on the phone while walking as we are. Though I’m less enthused about it when they’re driving a motorcycle taxi and trying to talk on the phone.

“I hate it when I ask for no pickles but they still give me pickles.” While pickles aren’t perhaps the food of choice, people in the developing world care every bit as much about whether their order is right as someone in the developed world would. They don’t think “Oh well, I am just so thankful to have food, it doesn’t matter if the order is wrong.” When friends of mine have ordered food and gotten the wrong thing, or asked for a cold drink but received a warm drink, they are every bit as annoyed.

Yes, the poor have many challenges, some of them quite serious. But it doesn’t mean that they don’t have mundane experiences, good and bad, to boast in or complain about. While I can appreciate that the goal of this charity is simply to raise money, one of my least favorite things about the way the developing world is portrayed is how one-dimensional it inevitably is. There are some huge challenges here, yes. But that doesn’t detract from how ordinary the life here is. People go to the store and buy gum, and get annoyed when it loses their flavor, they complain about how Arsenal haven’t bought any good players this summer, and like talking about the hot chick they know while drinking beer with their buddies.

That’s I think perhaps the biggest takeaway I’ve had during my time abroad. It’s a common question to be asked–what’s it like, living in Country X (or, in the case of Africa, equally often “Continent X”). Yes, there are many differences; you won’t see a horse taxi or shops painted bright green bearing the logo of the local telecom provider in New York. And to be honest, I despise the efforts to make exotic characterizations of the people there (“For an African, music is a part of their soul.”) Live here can still be equally mundane, for better and worse. People are still people, with the same level of nuance and complexity, whether they’re living in Olturot, Kenya; El Alto, Bolivia; or Washington, DC. And in my mind, any effort to simply characterize people as nothing more than their poverty is to forget why it’s worthwhile to help them in the first place.

Posted in Uncategorized | Tagged , , , | 1 Comment

The Art of the Survey

I spent most of my most recent time on my project reviewing data, managing finances, and doing other day-to-day project tasks, from learning what the average profit on goats sales is to preparing a list of households to be surveyed the next day for my staff. Accordingly, despite the fact I was managing a survey, I had little time to actually observe the survey take place. However, I did get the chance on a few occasions to see my team in action 

An important part of a successful development evaluation is figuring out not just if the program works, but also why it works. To do so, it’s essential to have the relevant information. For a very simple intervention, like say, giving students math textbooks, the theory of change is not so intricate. Perhaps the students are studying more effectively, perhaps they are studying more, perhaps the teacher’s instruction time is more effective. Regardless of these questions, it doesn’t take a very comprehensive survey (and perhaps a test) to develop a theory of why the program is working.

However, in our case, the program we are evaluating has several components. People receive goats/cows/bees/stock for a business, regular site visits, technical training from an expert in their new form of income generation, participate in a food for work program, and are told they need to save. Therefore, it’s not immediately clear what is bringing about any sort of change. Our survey therefore is fairly exhaustive, asking about sources of income, consumption, decision-making in the household, use of time, savings, time and risk preferences, and other questions. In total, it takes about 3-4 hours to complete.

Image

A mobilizer, supervisor and surveyor decide who should go where for the day’s survey

This means that we cannot simply knock on doors and ask people if they have a few minutes. Further complicating matters is the fact that 1) there are not addresses where we work, and 2) we often don’t have the phone numbers of the people. One staff we hire then is a “mobilizer.” It’s their job to go to households ahead of time and to make sure people are around.

Image

A surveyor and respondent who have been “partnered” up head back to the respondent’s home to conduct the survey

The start of the day surveying therefore makes for an interesting spectacle. Our survey supervisors meet with the mobilizer, while all of our surveyors stand around. Some of the soon-to-be-respondents wait around as well. The supervisors then pair people up. It reminded me of partners being picked by a teacher for a dance. Only instead of boys and girls, it was surveyors and respondents. Once the pair had been chosen, they would wander off somewhere to find a place to conduct the interview. Some of the surveyors are also given a set of instructions—go on this dirt road, when you come to this tree turn left, ask for this person. And off they go.

At its core, this is what research institutions like Innovations for Poverty Action do. It’s interesting for me to consider—we frame ourselves as an evidence-based, innovative research organization, and I’d like to think that’s accurate. However, it’s interesting to see that while our final outputs are policy briefs and peer-reviewed papers in economic journals using econometric analysis to assess which programs work and why, one of our fundamental building blocks is simply some surveyor, walking over hills to find a farmer and ask him about how his goat sales have been this year.

Posted in Uncategorized | Tagged , , , | Leave a comment

Trick-Or-Birr

The Tigray Region of Ethiopia has its own version of trick-or-treating. Or for all I know, the US has its own version of Tigray’s celebration to honor St. Mary.

Once a year, for three days, women and girls in Tigray Region dress up in traditional Ethiopian dresses, and have their hair braided. The girls in particular (though with exceptions, sometimes they are adult women) then walk around the streets in groups of about 10. One has a drum, and all of them sing to passerby on the street. Since my Tigrinya hasn’t progressed beyond “Okay”, “What’s your name?’ “How are you” and “Thank you” I don’t know the exact lyrics, but the basic theme is that “since we are beautiful you should give us money.” People are then expected to give one birr (about five cents) to the group. They then continue on their way, singing for others.

While it has some similarities to Halloween, this ritual is a lot more amusing, in my opinion. In Halloween, it is during a certain time of day, and it is understood that trick-or-treaters will come to your house. Therefore, you know exactly when and where the trick-or-treating will happen. Here in Tigray, anyone is fair game, at any time. This leads to the fantastic exchange where very serious men in suits on their phones, with ZERO desire to participate in the festivities, are suddenly bombarded by 12 year-olds surrounding them as they walk and continuing to sing to them until they relent and give them a birr. Someone sitting in the car at a building, waiting for their co-worker to arrive? Totally fair game.

They should have known better than to sit on their truck in a completely vulnerable position like that

They should have known better than to sit on their truck in a completely vulnerable position like that

Some of the more audacious girls even find their way into places of business. When I was in an internet café, working on getting some project documents printed, I was surrounded twice by girls singing to me, despite the protests of the owner of the place. At a restaurant I was at, the manager would yell at them and tell them to leave whenever girls tried to come in. However, this required the manager making constant vigilance at the front door, and they weren’t always successful. On a few occasions when the manager went to the back, girls managed to sneak their way in and start singing.

IMG_0130It’s also highly amusing in that the festivities last for three days. Imagine for a moment if trick-or-treaters went out on three consecutive days, and moreover, that it wasn’t just for a few hours each night, but rather was an all-day affair. They’d probably be enthused at the start of the second day, for the chance to get some more sweets. However, by the end of the second day, and certainly by the third day, they would be pretty exhausted. The same was true here. By the third day, all of the girls looked like they had hit their limits; the drum beats a little less frequent, the singing a little less enthusiastic.

Most girls were also confused by my stubbornness. I think for most adults, their goal is basically to get the girls to stop bothering them as soon as possible, and as soon as they are surrounded, they fork over their one birr. The exact opposite was true of me. I figured if I was going to give them their birr, they would have to actually sing and do what was expected of them. This led to several instances where I was surrounded, and where they were a bit confused by the fact that rather than immediately taking out my wallet, I stood there with my hands on my hips, waiting for them to actually sing.

While the origins of this ceremony are quite different, after all it is ostensibly an occasion to honor St. Mary, I know that whenever I see trick-or-treaters in the States, I will think of the Tigrayan girls surrounding helpless passerby, and serenading them until they made their contributions to the cause.

Posted in Uncategorized | Tagged , , | 1 Comment

Put it in Your Piggy/Goat Bank

When those of us in the United States talk about illiquid savings, we tend to still be talking about some sort of financial instrument, held at a formal financial institution. For instance, we might have a CD or a bond only payable after a certain point in time. In Africa, an illiquid savings instrument is much more likely to be a physical object, like a goat, a building or a piece of jewelry.

A major incentive for those of us in the States to hold illiquid instruments is that they often have higher returns than a more liquid instrument like cash held in our savings account. In Africa, and elsewhere in the developing world, illiquid savings are desirable for different reasons.

Notably, Africans tend to have a different relationship with social circles and finances than those of us in the west do. (At the risk of overgeneralizing, plunging ahead!) In the West, we are very reluctant to lend money out to friends or family, on the grounds that it might put a strain on those closest to us. In Africa, the reverse is true. Because it is important to support those in your familial and social circle, it is very much expected that the well off share their fortune with the less fortunate in their circle. Asking for money is very common, and it’s well understood that the wealthiest should be sharing their wealth with others.

However, this puts a strain on the finances of those who are well off, but none-the-less trying to plan for the future. It’s hard to save for your child’s college tuition in the distant future if every time you gather money, friends and relatives are asking for it. After all, it would be incredibly inappropriate to turn them down if you have cash just sitting around. Therefore, it is very common for Africans to take great lengths to “not have money with them” when they are asked. For instance, a former colleague of mine actively asked to not have his per diems with him when he travelled to his home region. He knew if he had his per diems with him, he would be unable to say no to people asking for money. One way to save money, but to not have it available, is by making sure it is held in an illiquid form.

To me, one of the most distinguishing features of an African skyline in any town or city is a variety of buildings under construction. Part of this has to do with growth in Africa, and not much else. If an economy is growing rapidly (and many in Africa are), you expect to see construction. However, part of it has to do with efforts of individuals to have their savings held in an illiquid fashion. It’s very common for Africans to invest money towards the building of a home, even when they don’t yet have the funds needed to finish it. When finished, the house will have value, but if someone requests money, they can honestly say they do not have any to offer.

Image

Unfinished buildings, like the four or so you can see in this photo from out of my hotel room in Wukro, are very common throughout developing countries

A second reason that people in developing countries avoid saving at a bank has to do with high fees and low interest rates. Currently, the micro finance bank in Wukro, the town where I am based, offers interest rates below the level of inflation. Furthermore, there are fees associated with withdrawing money. The bank is a safe place to save, but Ethiopians saving there are in effect paying to save their money.

On the other hand, goats and sheep, on average, have positive interest rates. If I have 10 goats, perhaps one of my female goats will get pregnant, and the next year, I will have 11 goats. In such a case, saving with my goat bank earned me 10% interest over the course of the year, far better than I can earn at the bank.

However, the downside with saving in livestock is when droughts or external threats come. For instance, I don’t have to worry about a hyena taking my money from the bank, or depending on where in Africa you are, a rival tribe coming and taking my savings. In effect then, those who want to save and are debating goats versus a bank account have the equivalent of the following dilemma. Would you rather a) invest in a stock that would lose money every year, but by a small steady amount? Or would you rather b) buy stock in a high-return, high-risk industry? For many, the answer is option b.

For those of us in the US and elsewhere, our decision about liquidity might depend on our willingness to not access our money, and the relative interest rates. However, these aren’t the only questions that exist in the world when it comes to assessing the value of liquidity. For those in Africa, the decision might instead be based on how to avoid giving others money, while maintaining social etiquette, and how safe you think your herd of goats is this year.

Posted in Uncategorized | Tagged , , , , , , | 4 Comments