Nearly half of US users report a late payment. Loan stacking is common. And BNPL is used primarily by people already carrying significant debt.

The UK debate makes the tension particularly clear. New rules will require lenders to conduct affordability checks, and consumer groups have warned that this could exclude millions of people who currently use BNPL. That is a real concern. But it is also a slightly strange reason not to protect people from unaffordable borrowing in the first place.

There is a legitimate counterfactual question: if tighter rules reduce access to BNPL, what happens next? Do people move to more expensive credit? Or just borrow and spend less?

We need much better evidence on that. And if consumption falls, I’d also like to know what kind of consumption. Missing an essential purchase is very different from skipping something BNPL made easier to buy.

There is surprisingly little research that answers this cleanly. We know quite a bit about who uses BNPL, repayment problems and overlapping borrowing. But evidence on what happens when access disappears is much thinner. Following consumers who fail an affordability check would tell us whether they substitute toward credit cards, overdrafts or other borrowing, or whether the purchase simply doesn’t happen.

And that last outcome needs unpacking too. A fall in consumption isn’t necessarily evidence that regulation has harmed consumers. It matters whether people are foregoing essential purchases or whether BNPL had been inducing discretionary spending they otherwise would not have made. Those are very different welfare stories.

But unless I’m missing something, I don’t think the absence of that evidence is a reason to wait. The harms we can already see are enough to justify stronger protections.

The counterfactual should help us design those protections better, not become an excuse for doing nothing

If you are seeing this post, it is probably because you subscribed to the blog years ago. If so, thank you. I have always loved when long-quiet blogs from the heyday of development blogging suddenly come back to life, with authors returning to share another decade of experience and perspective (Who doesnt secretly hope Chris Blattman’s blog makes a full comeback!). This is a much narrower version of that, a personal space to reconnect with some of the questions that first brought me into this work.

The questions that motivated that early writing are still with me, but the language has changed. Today I find myself working on how small firms navigate the digital systems that increasingly organize economic activity. As software moves from informing decisions to acting on behalf of people and businesses, questions of power, risk, accountability, and participation become design choices embedded in everyday markets.

The field I once entered through the lens of microenterprise and informality now stretches into digital systems, policy design, and the mechanics of economic coordination at scale. But the underlying concern remains surprisingly consistent.

At the core, I am still interested in the same things. How people build. How they make use of markets and tools, digital, financial, or otherwise, to create opportunity. How they manage risk when systems are incomplete, unreliable, or changing. And how small decisions, taken under constraint, shape larger patterns of inclusion, exclusion, and resilience.

This blog newsletter is a way to write through some of those questions. Some posts may draw on fieldwork, others on policy debates, technological shifts, or research I am part of. Some may be unfinished thoughts or small provocations, especially as new systems like AI evolve faster than our frameworks to govern them. I do not know yet how frequently I will post. I simply want a space to share notes, think in public, outside of institutional formats.

The archive from the old blog remains. It reminds me where this all started.

Thanks for reading. If you are here, you probably share some of these questions. I am glad you are here.

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Reducing supply chain barriers to trade could increase GDP by nearly 5% and trade by 15%

If every country improved just two key supply chain barriers – border administration and transport and communications infrastructure and related services – even halfway to the world’s best practices, global GDP could increase by US$ 2.6 trillion (4.7%) and exports by US$ 1.6 trillion (14.5%). For comparison, completely eliminating tariffs could increase global GDP by US$ 0.4 trillion (0.7%) and exports by US$ 1.1 trillion (10.1%). The estimates of the impact of barrier reduction are conservative; they reflect improvements in only two of four major supply chain categories.

Why is lowering barriers so effective? The reason is that it eliminates resource waste, whereas abolishing tariffs mainly reallocates resources. Moreover, the gains from reducing barriers are more evenly distributed among nations than the gains from eliminating tariffs.

Of course, reducing supply chain barriers requires investment, while tariff reductions require only the stroke of a pen. However, many barriers can be traced to regulation. Detailed analysis can enable policymakers to prioritize the investments that are most critical and cost-efficient. Tariffs are of course very important (see figure).

Source: WEF (2013)

But removing supply-chain barriers would be even more successful, especially  in Africa (click on the image to enlarge).

Source: WEF (2013

When negotiating for a salary, most of us reach for a nice, round number like $65,000. Or $90,000. Or $120,000.

But, by favoring all those zeros, we may be missing an opportunity to score a better deal, according to a new paper from researchers at Columbia Business School. They found that using more precise numbers in an initial request—or anchor, as it is known in negotiating parlance—generally results in a higher final settlement.

Precision conveys the impression that the job candidate has done extensive research and deeply understands the market for his services, said Malia Mason, the lead author of the paper and a professor at Columbia who teaches a course on managerial negotiations. When people use round numbers, by contrast, they’re conveying that they have only a general sense of the market rate for their skills.

…In one experiment, Ms. Mason and her team had 130 sets of people negotiate the price of a used car. When buyers suggested a round anchor, they ended up paying an average of $2,963 more than their initial offer. But buyers who suggested a precise number for a first offer paid only $2,256 more, on average, than that number in the end.

When it comes to negotiating salary, Ms. Mason’s research indicates that a job candidate asking for $63,500 might receive a counteroffer of $62,000, while the request for $65,000 is more likely to yield a counteroffer of, say, $60,000, as the hiring manager assumes the candidate has thrown out a broad ballpark estimate. Usually I bargain when I am buying stuff, like a pair of shoes, a souvenir, or a cab ride home. Negotiating salaries does not happen very often. Here are some thoughts about the bargaining process in no particular order:

• In theory you should determine how much you are willing to spend and stick to that decision. In reality, you don’t want to spend more than other people do.

• The problem is that you often don’t know the “normal” (i.e.. average) price for some goods. That makes the asking price of the seller and your common sense the only reference points for your bargaining strategy.

• (Asymmetric) information can make bargaining quite stressful. You keep asking yourself: am I being overcharged? Or the opposite: am I asking ridiculously low prices?

• In the bargaining game (with asymmetric information), having the last word ends up being as important as the price itself. Sometimes you can be happy about very bad deals. Other times you might have a bitter mouth even though you got a very decent price.

• If you show high interest for some items, the asking price will probably go higher. You should always try to signal low interest and low willingness to spend.

Yep, I often find the experience quite stressful.

HT Marginal Revolution

Ernst & Young "Africa Attractiveness Survey"

 At face value, 2012 was a disappointing year, in that it reversed the year-on-year growth we experienced in 2011, and somewhat dampened our expectations of steady growth in FDI projects. Having said that, we do need to put these trends in perspective:

• Globally, greenfield projects were down by over 15% year on year in 2012, so the background is one of decline across the board.

• In this context, Africa’s proportional share of global greenfield projects actually grew, continuing a trend that has seen this share grow, in the course of a decade, from 3.5% of the global total in 2003 to 5.6% in 2012.

• It is also worth noting that the 764 new greenfield projects this year is still higher than the 678 in 2010, and significantly higher than anything that preceded the peak of 2008.

The geographical origin of FDIs in Africa is experiencing major changes:

Investment from developed markets in particular was disappointing.  Although FDI projects from the UK grew, those from the US and France, the other two leading developed market investors in Africa, were considerably down. In contrast, greenfield investments from emerging markets into Africa grew once again in 2012, continuing the trend of the past three years. In the period since 2007, this category of investment from emerging markets into Africa has grown at a healthy compound rate of over 20.7%, in comparison to investment from developed markets, which has grown at only 8.4%.

Intra-African investment has been particularly impressive over this period since 2007, growing at a 32.5% compound rate. (…) This underlines a broader trend of growing confidence and optimism among Africans themselves about the continent’s progress and future. Other figures in the report show that -as we've often said in this blog- manufacturing in Africa has stagnated over the last decade. However several countries could reach a middle income status by 2025

Source: Ernst & Young

Source: Ernst & Young

In January 1914, Henry Ford announced a radical decision. He increased the worker wages from $2.34/day to $5/day and reduced the working time from 9 hours to 8 hours per day. Other businessmen derided Ford as a socialist, while common public heralded him as a hero. People even prodded him to run for a President. Even today, Ford's 5 dollar workday is widely remembered in the US.

Puma paying Pele to tie his shoes in the middle of the field seconds before the kickoff of the World Cup final in Mexico (1970)... The camera made a close up and the whole world realized that the best player back then was wearing Puma shoes... Life changed for Puma after that event...

Oakley sent a pair of shades to the Chilean miners who were stuck in the mine. They sent them to protect their eyes from the sun after not having been exposed to it for a very extended period of time. When the miners emerged from the dark mine, the extremely extensive media coverage filmed and talked about how each one of them was wearing a pair of Oakley sunglasses. And how Richard Branson started Virgin Atlantic.

In 1979, while on vacation with his fiancee in The British Virgin Islands, he was catching a flight to Puerto Rico which ended up cancelled. Richard decided to phone up some charter companies and chartered a plane for $2,000. After splitting the cost between the available seats, he grabbed a blackboard and wrote: VIRGIN AIRWAYS: $39 for a single flight to Puerto Rico.He walked around the airport terminal and soon filled every seat. When they arrived in Puerto Rico a passenger reportedly said: "Virgin Airways isn’t too bad – smarten up the services a little and you could be in business".

More on Quora (you might have to sign up)

Industrial development: not really happening

The manufacturing Sector decelerated from an  expansion 3.4 per cent in 2011 to a growth rate of  3.1 per cent in 2012. The slower growth was due to high cost of production, stiff competition from imported goods, high cost of credit and political uncertainty due to the 2013 General  Elections

Employment: 90 percent of new jobs are informal. Wages are falling

• The labour market recorded 659.4 thousand new jobs in 2012, 89.7 percent of them were in the informal sector representing an increase of 5.5 per cent.

• Real average wages declined by 4.8 per cent due to inflation.

• The creation of new jobs in the “modern sector” declined from 74.2 thousands in 2011 to 68.0 thousand in 2012.

 International trade: a growing deficit

• Kenya’s trade balance worsened further by 8.7 per cent in 2012 compared to 46.7 per cent in 2011

• The current account deteriorated to a deficit of KSh359.5 billion in 2012 from a deficit of 340.2 billion in 2011.

There are not only bad news in the report, for example there has been increased job creation in the construction sector, ICT industries as well as the education and health activities. And inflation has gone down, which is very good news for the lower income population. But that’s not enough for sustained economic growth over the long term.

Tourism has gone down too by the way. More here

I’ve always wondered how thousands of cab drivers organize themselves in a chaotic place like the Nairobi Central Business District. So I did a small research on my own. The sample size is 1, David my awesome cab-driver.

The story is that if you want to be a cab driver anywhere in town you must become a member of the taxi-drivers association in charge of that area. The association where David works controls the Nakumatt Lifestyle area, the Tuskys Supermarket area (that’s where David is always parked) and the street in front of Uchumi supermarket. Membership comes at a cost of 5000 KSh per year (about $60).

For the first three years, you are obliged to rent a car from the association at a fixed cost of 1500KSh per day (about $20) and a variable cost based on mileage. You cannot own the car you use for work. This means that some rental cars are available only at night time, others only during the day time. David prefers the daytime shift but for more than two years he was forced to work at night -all the cars were already taken during the day. Only a couple of months ago he was able to change, but he says that “traffic is horrible” during the day.  So sometimes he works both day and night.

If you've been loyal to the association, after three years you become a senior member  and you’re allowed to buy your own car. The cost for a car in Kenya is very high – second hand cars go from KSh 400,000 to 600.000 (about $5000 to $7000). And that is for a 10-years old basic model. You can easily spend KSh 1 million ($12,000) if you want a slightly newer or fancier car. If you own more than one car, you can rent one of them to the association’s junior members.

Owning your car instead of renting it means higher profits, as well as higher risks and maintenance costs. Most people would rather own their vehicle anyway, but only a few are able to obtain a bank loan or borrow from family or friends. David will become a senior member in 6 months and his plan is apply for a loan at Equity bank and buy a Toyota for about KSh 450,00. He says that Toyota cars never break and spare parts are cheaper and easier to find in Nairobi. His main worry is that he’ll get carjacked again.

1. Education and colonialism: how the British differed from the French

1. Social networks as evolutionary game theory

1. Scholars suggest that studying abroad in a previously-colonized country may increase people’s cultural sensitivity and awareness of global inequality. Not true.

1. How Feedly is preparing for the end of Google Reader (in one photo)

Long reads:

1. The influence of Nietzsche’s philosophy on Hayek and the Austrian School

1. Albert Hirschman: An original thinker of our time

Marchiori, Maystadt, and Schumacher (2012)

Such a mapping gives an idea of the potential centripetal process induced by environmental migration. While there has been a long tradition of migration to the coastal agglomerations in Africa (Adepoju 2006), coastal areas could experience a significant proportion of their population fleeing toward African mainland due to climate change by 2099. In West Africa, Benin, Ghana, Guinea, Guinea-Bissau, Nigeria and Sierra Leone may be among the most affected countries. In Eastern Africa, Kenya, Madagascar, Mozambique, Tanzania and Uganda may constitute a cluster of sending countries of environmental migrants. In Southern Africa, Angola and Botswana could become important sources of environmental migrants while Congo and Gabon could also be pointed out in Central Africa. Without jumping too quickly to predictive conclusions, such a centripetal pattern of flows could warn about some potential destabilizing effects. On the one hand, massive population movements could speed up the transmission of epidemic diseases such as e.g. malaria (Montalvo and ReynalQuerol, 2007) in areas where the population has not yet developed protective genetic modifications (Boko et al., 2007). On the other hand, the expected move towards mainland Africa where population density has been recognized as a factor enhancing conflict could become a major geopolitical concern; for instance, North-Kivu in Congo, Burundi (Bundervoet, 2009), Rwanda (Andre and Platteau, 1998), and Darfur (Fadul, 2006).

More here (pdf)

Good question. The reality is that I knew that the data was “not very reliable”, but I didn’t  look in-depth into the issue -so I'll try to do this now. Look at these national-level definitions taken from the ILO laborista database:

In Kenya, employment data is taken from this question in the national census: 

What was X mainly doing during the last seven days preceding the census night? 1) worked for pay or profit; 2) on leave/sick leave; 3) working on family holding; 4) no work; 5) seeking work; 6) student; 7) retired; 8) disabled; 9) home makers; 10) other

A person is considered employed if over the last week she/he worked “most of the time” for wages, salary, commission, tips, contract or payment in kind

 In Uganda, stats are based on a labour-force survey. You are considered employed if

a) performed “some work” for pay or profit during the reference week; b) were temporarily absent from work during the reference week because of illness or leave, but were definitely going to return; and c) were engaged in production of goods for on use. "Some work" is defined as 1 hour or more during the reference week.

I checked the definitions for a few other countries and they looked rather similar – they tend to include all kinds of casual labour in their employment stats. In Uganda it was quite extreme, if you worked for 1 or 2 hours the week before the interview, you are considered “employed”. When we talk about the importance of “job creation” for development, random casual jobs for one or two hours a week is definitely not what we are talking about. The problem is that when we look at the general graph, it is difficult to make sense of the differences between some countries.

Source: Anyanwu (2013)

I’m not an expert of labour markets in each of these countries. But how realistic is it that Burkina Faso, Ethiopia and Central African Republic have relatively high employment rates, while Egypt, Algeria and South Africa are relatively low? Initially I thought that high employment rates could be an indicator of large informal sectors. But that seems like a partial explanation - the reality is that employment statistics are fundamentally unreliable and country-level comparisons cannot be accurate.

A recent paper by Fox and Pimhidzai looks at the problem more in-depth for Africa and particularly for Uganda. Excerpts from the abstract:

 A cursory review of employment data for low-income Sub-Saharan African countries shows both large gaps and improbable variation within countries over time and among countries, suggesting that low quality data are routinely reported by national statistics offices. Unfortunately, policies are formed and projects developed and implemented on the basis of these statistics. Therefore, errors of measurement could be having profound implications on the strategic priorities and policies of a country... [The paper] finds that estimates of employment outcomes are unreliable if the questionnaire did not use screening questions, as labor force participation will be underestimated. Likewise, surveys that use a seven-day recall period underestimate or potentially misrepresent employment outcomes, owing to seasonality and multiple jobs. [...] The paper concludes that there is a knowledge gap about employment outcomes in Sub-Saharan Africa that will continue unless collection techniques improve.

So the lesson of the day is “to always be suspicious about employment stats in Africa”, especially cross-country comparisons. Thanks to  @RachelStrohm and @RowanEmslie among others for questioning the issue.

 Fact 1 – There is a substantial variation in male and female employment ratios across African countries. The difference is particularly evident if we compare oil-exporting and North African countries with smaller Sub Saharan African economies. The latter tend to have higher employment ratios for both the male and female population.

Source: Anyanwu (2013)

Fact 2 - In some African countries, male employment decreased between 1991 and 2010

The author argues that the decline has been particularly intense in some countries such as Niger, Be­nin, Rwanda, Lesotho, Burundi and our beloved Kenya.

Source: Anyanwu (2013)

One of these days I'll have to sit down and try to understand some of these dynamics. For example, Rwanda -the "super star" of the Doing Business Reports - has done so bad in terms of employment, while Zimbabwe - land of the highly criticized indigenisation law - is one of the best performers? I guess there is a number of historical and contextual factors to take into consideration. If you have quick thoughts or further questions please share them in the comment section.

Fact 3 - The data from 1991 and 2009 show an U-shaped correlation between male employment ratio and GDP per capita

Source: Anyanwu (2013)

The paper uses employment data from the ILO and the World Bank –which are probably the most reliable sources currently available - but we should be always highly suspicious when it comes to employment stats in African countries. Informality is too widespread, and employment happens far too often outside the radar of government institutions and statistical agencies. Not long ago, Shanta Devarajan called it the African Statistical Tragedy. Should we therefore discard the arguments in the paper?

Although the stats might not be extremely accurate, I think that the trends could be right, especially if we consider how economic growth is happening in most parts of Africa. As I said in my last post, growth is happening without a structural transformation of the economies towards labour-intensive sectors. In particular, the manufacturing sector, which absorbs large part of the labour force in most emerging economies, is not expanding in most parts of Africa. But more research is definitely needed in this field.

The full paper is here.

Source: "Growth and Structural Transformation" (2013), by Herrendorf, Rogerson and Valentinyi

These figures focus on a sample of industrialized countries, mostly EU, US and East Asian powers (Japan and Korea). They show that as GDP per capital grows, (1) employment in the agricultural employment tends to decrease, (2) employment in the services sector increases linearly and (3) employment in the manufacturing sector follows an inverted u pattern: it grows initially but then it tends to decrease as GDP per capita grows. The question that we should ask ourselves is whether African economies will follow the same pattern.

My opinion is that 'yes' - over the long term African economies will go through such structural transformation. However, the biggest mistake is to say that during the process one sector is more important than the other. If someone concludes that African governments should focus on services and neglect agriculture because that’s how economic growth happens. Well, he or she hasn’t understood much about the topic. As Di Maio recently argued, industrialization and food security are not competing policy objectives.

At the same time, it is clear that growth in the manufacturing sector is one of the key components missing from the puzzle. Kenya is in the initial part of the graph, moving from low-income to middle-income, but that is happening without any significant growth of employment or value-added in the manufacturing sector. This is what John Page calls “structural deficit” in Africa:

Africa faces a significant structural deficit—the result of two and a half decades of deindustrialisation and increasing dependence on natural resources. Today Africa’s manufacturing sector is smaller, less diversified and less sophisticated than it was in the decade following independence. Agro-industry and tradable services are still in their infancy. As industry lost ground, labour moved from higher to lower productivity employment. Without an acceleration of structural change, the region’s recent growth turnaround runs the risk of not sustaining its momentum into a middle-income status.

Let’s start with a little theory first –a primer on economic integration as I studied in my undergrads. Look at the figure below (source)

Stages of economic integration

Theory says that there are 5 steps to economic integration: you start with free trade area, which abolishes partially or completely the custom tariffs between member countries. In the second step, a Custom Union is formed when member countries agree to uniform external tariffs towards third countries. The common market adds the free movement of the factors of production, including services, capital and labor. In the fourth step, the economic union introduces a common currency as well as common monetary, fiscal and budgetary policy. Usually this is complemented by the harmonization of tax and welfare policies. Finally, the very last step is the full political integration with the establishment of a common government.

Where is the EAC?

The EAC established a customs union in 2005, a common market in 2010 and now it aims at the fourth step with the establishment of an economic union. I must admit that I am excited about the idea but also very worried. Here’s a list of my concerns:

First, the EAC is only half way through to the third step (common market), and it is jumping already into the fourth (economic union). The truth that everybody knows is that free movement of capital and labour is far from being achieved. Labour cannot move freely because of long-standing legal and regulatory barriers. Goods cannot move freely as well, especially because non-tariff barriers are still a huge burden. Just a silly example, I’ve learnt from personal experience that many bus companies ship packages from Uganda to Kenya, but not the other way around. Reason? I was told it was “a problem at the border with Uganda”. Who knows what that means…

Second, you cannot create a common currency without creating common fiscal and budgetary policies. The EAC governments seem aware of this issue, and in fact they proposed the establishment of an “East African Financial Services Authority”, “East African Surveillance and Enforcement Commission” and the “East African Statistics Bureau”. This all sounds wonderful, but the real issue is whether national governments are willing to give up sovereignty over such important matters. Let me borrow some sentences from an article on Columbia Communique:

Is the wish for closer relationships a good thing? Absolutely. Does it have to be achieved as fast as possible and through the handcuffs of a currency union? Absolutely not. Not only will this process take many years, it will also require full commitment. They can’t have their cake (the currency union) and eat it too (maintain sovereignty in all areas).

Currently the EAC countries have very different import-export mixes, making them vulnerable to changes in world goods prices to different degrees. Without strong fiscal centralization including a counter-cyclical mandate and no adjustment mechanisms such as inflation or devaluation, a currency union can have devastating effects on countries hit hard by an external shock. My last point is that the EAC has to learn from the experience in the EU: a monetary union must be able to deal with both periods of economic growth as well as periods of crisis and recession. How will the EAC act in case of fiscal mismanagement? What will it do if a country enters a period of financial and economic crisis? Will the regional powerhouse (Kenya) step in and help the “periphery”?  I know that using these terms is quite a stretch in the EAC context. But the region cannot ignore the experiences in other parts of the world. And more importantly, the EAC cannot ignore that it already failed in forming a monetary union in the past - neglecting its own history would be the worst of the mistakes.

 A rather unique panel tracking more than 3,300 individuals from households in rural Kagera, Tanzania during 1991/4-2010 shows that about one in two individuals/households who exited poverty did so by transitioning from agriculture into the rural nonfarm economy or secondary towns. Only one in seven exited poverty by migrating to a large city, although those moving to a city experienced on average faster consumption growth. Further analysis of a much larger cross-country panel of 51 developing countries cannot reject that rural diversification and secondary town development lead to more inclusive growth patterns than metropolitization. Indications are that this follows because more of the poor find their way to the rural nonfarm economy and secondary towns, than to distant cities. The development discourse would benefit from shifting beyond the rural-urban dichotomy and focusing instead more on how best to urbanize and develop the rural nonfarm economy and secondary towns

And from the conclusions:

Agnostic about the pros and cons of urbanization per se, this paper starts from the  observation that the next wave of urban expansion is predicted to be concentrated in large cities (1 million plus) (UN, 2011) and explores whether the nature of the occupational and spatial transformation matters for poverty reduction (as opposed to growth alone). In so doing, the study differentiates itself from most of the literature which usually only applies a sectoral (agriculture versus non-agriculture) or spatial (rural versus urban) lens and draws attention to that the fact that the urbanization pattern may be more important for poverty reduction than urbanization itself.

Full paper here (pdf)

Kenya applies the EAC Customs Union’s Common External Tariff (CET), which includes three tariff bands: zero duty for raw materials and inputs; 10 percent for processed or manufactured inputs; and 25 percent for finished products. “Sensitive” products and commodities, comprising 58 tariff lines, have applied ad valorem rates above 25 percent.  This includes a 60 percent rate for most milk products, 50 percent for corn and corn flour, 75 percent for rice, 35 percent for wheat, and 60 percent for wheat flour. For some products and commodities, the tariffs vary across the five EAC member states.

The report touches a number of other issues, including non-tariff barriers, custom procedures at the Port of Mombasa, intellectual property right protection and many other things. An interesting bit on counterfeiting:

According to a survey released by the Kenya Association of Manufacturers (KAM) in April 2012, the Kenyan economy is losing at least $433 million annually due to counterfeiting. The study estimated that the GOK is losing approximately $72 million in potential tax revenue, and that some Kenyan companies could be losing as much as 65 percent to 70 percent of their regional market share due to counterfeiting.

Kenya’s EPZs have served as a conduit for counterfeit and sub-standard goods. These products enter the EPZ ostensibly as sub-assembly or raw materials, but are actually finished products. These counterfeit and sub-standard goods also end up in the Kenyan marketplace without responsible parties paying the necessary taxes. Counterfeit batteries have been particularly problematic. More here

Fact 2. Nevertheless, piracy still imposes a high cost on trade

piracy imposes a distortion on trade that has a high absolute cost. When the shortest shipping route between two countries is through piracy-infected waters, the additional cost of trade between them is equivalent to an increase of 0.75 to 1.49 percentage points (with a mean estimate of about 1.1) in total ad valorem trade costs. In absolute terms, the impact is large: since about US$1.62 trillion in global trade traveled along routes affected by piracy in 2010, that year Somali piracy cost the global economy an estimated US$18 billion, with a margin of error of roughly US$6 billion. If piracy continues to disrupt global trade as it has done, similar amounts will be lost every year.

Fact 3. Impact of piracy on tourism

I wonder how credible this is. The report says that the argument is difficult to show quantitatively but it is supported by anecdotal evidence

anecdotal evidence does suggest that pirate attacks have suppressed tourism in countries like Kenya and Seychelles, popular cruise-ship destinations (Oceans Beyond Piracy 2010; Mbekeani and Ncube 2011). While those on cruises are not a large fraction of total visitors, they tend to spend substantially more than other tourists

Fact 4 (my favorite). The Somali pirate stock exchange

At the outset of an operation, an instigator provides or gathers from investors the funds needed to launch the operation and identifies a pirate commander to organize the attack. At least 10 instigators are known to be active in Puntland (Lang 2011). Some attacks, however, are launched opportunistically without being prefunded, in which case investors are solicited as necessary to fund ransom negotiation costs The initial investment can be provided in seed money or goods, such as an engine, skiffs, or weapons. In exchange, the financiers are entitled to a share of the ransom if the operation is successful. Reuters (2009) and Kraska (2010) mentioned a stock exchange in Harardheere, where anyone could invest in pirate operations.

The Wall Street Journal  wrote a story on this as well:

The world's first pirate stock exchange was established in 2009 in Harardheere, some 250 miles northeast of Mogadishu, Somalia. Open 24 hours a day, the exchange allows investors to profit from ransoms collected on the high seas, which can approach $10 million for successful attacks against Western commercial vessels. While there are no credible statistics available, reports from various news sources suggest that over 70 entities are listed on the Harardheere exchange. When a pirate operation is successful, it pays investors a share of the profits. According to a former pirate who spoke to Reuters, "The shares are open to all and everybody can take part, whether personally at sea or on land by providing cash, weapons or useful materials. . . . We've made piracy a community activity."

Much more here (pdf)

Paul Kinuthia (on the right) - Photo Credit: Business Daily

Paul Kinuthia started a small cosmetics business in the Kariobangi Light Industries (in Nairobi) 20 years ago with a start-up capital of 3000 KSh (less than 40 USD). He sold it to L’Oreal last week for over KSh 3 billion (about USD 35 million). Here’s the story on Forbes and on Business Daily.

Of course extreme success stories like Paul Kinuthia’s do not happen on a daily basis in Kariobangi. But, as I’ve said before, there is large diversity and growth potential in places like Kariobangi, although we like to call them "informal economy" or "survival clusters". An excerpt from the Forbes article:

Kinuthia has a remarkable story. In 1995, he started off manufacturing shampoos and conditioners from a makeshift apartment in Nairobi with start-up capital of Ksh 3,000 ($40). He made these products manually using plastic drums and a huge mixing stick and heating oils, delivering his products by handcart to local salons and hairdressers. In the beginning, commercial banks refused to fund his venture while mainstream salons, beauty parlours and large retail outlets refused to stock his product because it was too native.

As the demand for his products grew, Kinuthia moved the business into bigger premises in downtown Nairobi and expanded his product range to include hair gels and pomades. While the bigger, sophisticated salons and supermarkets snubbed his products, they were very popular with street side local hairdressers because of their availability and significantly lower prices in comparison to the products on the shelves of the big retail outlets. As the products became more popular with local hairdressers, Kinuthia ploughed back his profits into moving into an even bigger place, financing growth, increasing his production capacity and extending his product range. In 1996, he incorporated a limited liability company and went on to produce body lotions and hair treatments. The new company set up better operational strategies, laying emphasis on quality and improving its packaging. By the late 90s, the company’s products were commercially available across Kenya’s mainstream retail and wholesale chains and were already commanding a sizable market share. By 2001, the company was already exporting its products to neighbouring Tanzania, Uganda and Rwanda. But despite the huge success of his business, Paul Kinuthia maintained one common characteristic of Kariobangi entrepreneurs - he doesn't like questions from strangers. When Forbes called him for an interview, his secretary kindly relplied "Mr Kinuthia is not available". I know the feeling very well.

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