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Private Sector Development

Africa's McTipping Point?

Borko Handjiski's picture
Three quarters of a century since the opening of the first McDonald’s, the fast food chain operates around 34,000 outfits in around 120 countries and territories across all continents. In Sub-Saharan Africa (SSA), however, – a region of 48 countries and almost a billion people - only South Africa and Mauritius have been able to attract this global food chain.
 

This peculiarity cannot be explained only by the fact that the region is poor. The company has found a market in about 30 countries with GDP per capita of less than US$ 3,000 (in constant 2005 US$) at the time of their first McDonald’s opening. Hamburgers, Cheeseburgers, and Big Macs are also on offer in a dozen of low-income countries as well. When the first McDonald’s opened in Shenzhen in 1990, China’s GDP per capita was less than US$ 500 per person. Of course, Shenzhen’s per capita income was several times higher, but the company has also found a market in Moldova since 1998 when the GDP per capita of the 3 million person country was less than US$ 600 per capita. There are many cities in SSA today that have higher income, population concentration, and tourists than what Chisinau had in 1998; yet they do not have a McDonald’s. As a matter of fact, 22 SSA countries today have higher income per capita than what Moldova or Pakistan had when the first McDonald’s opened there, and 15 of them have higher income per capita even than what Indonesia or Egypt had at their McDonald’s openings (see chart).

Big vs. small firms: one size does not fit all

Jacques Morisset's picture



Is bigger always better? Economists have long debated what size firms are more likely to drive business expansion and job creation. In industrial countries like the United States, small (young) firms contribute up to two-thirds of all net job creation and account for a predominant share of innovation. (Source: McKinsey, Restarting the US small-business growth engine, November 2012). In developing countries, evidence from Ethiopia, Ghana and Madagascar shows that the vast majority of small operators remain small, and so are unlikely to create many decent jobs over time [Source: World Bank, Youth Employment, 2014]. By contrast, ‘big’ enterprises are seen as the best providers of employment opportunities and new technologies.

The difference in role and performance of small firms in developing and industrial countries reflects to a large extent their owners’ characteristics. In the US, small firm owners are generally more educated and wealthier than the average worker, while the opposite is true in most developing countries. This point was emphasized by E. Duflo and A. Banerjee in their famous book ‘Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty’ (Penguin, 2011). Most business owners in developing countries are considered to be ‘reluctant’ entrepreneurs; essentially unskilled workers that are pushed into entrepreneurship for lack of other feasible options for employment.

This is also very much a reality in Tanzania where small business owners have few skills and limited financial and physical assets. Of the three million non-farm businesses operating in the country, almost 90% of business owners are confined in self-employment. Only 3% of business owners possess post-secondary level education. As a result, their businesses are generally small, informal, unspecialized, young and unproductive. They also tend to be extremely fragile with high exit rates, and operate sporadically during the year. Put simply, most small businesses are not well equipped to expand and become competitive.

Blogger’s Swan Song

Shanta Devarajan's picture
This will be my last post on Africa Can.  Having recently started a new adventure as Chief Economist of the World Bank’s Middle East and North Africa (MENA) region, I will be blogging on that region’s issues in the MENA blog as well as starting a more general blog (tentatively titled “Economics to end poverty”) with some of my fellow bloggers.  It has been a privilege to moderate Africa Can, and I want to thank our readers for the stimulating, lively and frank discussions, as well as for having made this the most popular blog at the Bank.

Why Germany wins and lessons from the Champions League final

Wolfgang Fengler's picture
Gary Lineker, the British footballer, is not only known for his talent on the pitch, but also for this memorable quote: “Football is a simple game; 22 men chase a ball for 90 minutes and at the end the Germans win”.  Last weekend his theory proved correct. For the first time ever, two German teams contested in the Champions League Final. Bayern Munich (winner in 2001) played Borussia Dortmund (winner in 1997).

If I had three minutes with President Jakaya Kikwete…

Jacques Morisset's picture

Imagine that you are in an elevator. It stops to pick up the next passenger going up.  It turns out to be H.E. Jayaka Mrisho Kikwete, yes, the President of Tanzania himself, accompanied by a group of high ranking officials.  The President turns and asks you what you think is the most important thing that he could do for his country. You have less than three minutes to convince him.  What would you tell him?

I know what I would say, loud and clear: “Your Excellency, that would have to be improving the performance of the port of Dar es Salaam.”

No doubt there are plenty of issues that matter for Tanzania’s prosperity: rural development, education, energy, water, food security, roads, you name it. They are all competing for urgent attention and effort; yet it is also true that each of them involves complex solutions that would take time to produce impact on the ground, and it is hard to know where to begin and to focus priority attention.

This is not the case for the Dar es Salaam port, as most experts know what to do.

So why the port of Dar es Salaam?

The port represents a wonderful opportunity for his country. The port handles about 90%  of Tanzania’s international trade and is the potential gateway of six landlocked countries. I would tell him that almost all citizen and firms operating in Tanzania are currently affected, directly and indirectly, by the performance of this port.

Across the universe of firms in Tanzania

Isis Gaddis's picture

Let's think together: Every Sunday the World Bank in Tanzania in collaboration with The Citizen wants to stimulate your thinking by sharing data from recent official surveys in Tanzania and ask you a few questions.
In industrial countries, small and medium firms are the vectors of economic innovation and job creation. In the USA, small-businesses account for almost two-thirds of all net new job creation. They also contribute disproportionately to innovation, generating 13 times as many patents, per employee, as large companies do. Small business owners are also in general more educated and wealthier than the rest of the active population.
The reality is different in Tanzania. The vast majority of firms are very small and predominantly confined to self-employment. They are also highly concentrated in agriculture and trading activities:

- In 2010/11, there were approximately 11 million family-owned businesses operating in Tanzania, including farms. This is equivalent to a rate of entrepreneurship of 40 percent, which is about the rate reported in Uganda and Ghana, but three and 10 times higher, respectively, than in the United States and France.
- Half of the firms operating in Tanzania have only one employee, typically the owner; while an additional 40 percent report less than five employees. Firms with more than 10 workers represent only 0.6 per cent of the firms’ universe (still almost 70,000).

Making the most of Africa’s growth momentum

Punam Chuhan-Pole's picture

Co-authored with Luc Christiaensen and Aly Sanoh

For a decade and a half now, Africa has been growing robustly, and the region’s economic prospects remain good. In per capita terms, GDP has expanded at 2.4 percent per year, good for an average increase in GDP per capita of 50 percent since 1996.

But the averages also hide a substantial degree of variation.  For example, GDP per capita in resource-rich countries grew 2.2 times faster during 1996-2011 than in resource-poor countries (Figure 1).  Though not the only factor explaining improved performance—fast growth has also been recorded in a number of resource-poor countries such as Rwanda, Ethiopia and Mozambique (before its resource discoveries)—buoyant commodity prices and the expansion of mineral resource exploitation have undoubtedly played  an important role in spurring growth in several of Africa’s countries. Even more, with only an expected 4 or 5 countries on the African continent without mineral exploitation by 2020, they will continue to do so in the future. Yet, despite the better growth performance, poverty declined substantially less in resource-rich countries.

Is Tanzania strong enough to resist temptation?

Jacques Morisset's picture

Speaking about the often unruly behavior of his talented young players, Arsene Wenger, the famous Arsenal coach, said: "Some are wrong because they are not strong enough to fight temptation and some are wrong because they don't know."

Youth in Tanzania: a growing uneducated labor force

Jacques Morisset's picture

Let's think together: Every Sunday the World Bank in Tanzania in collaboration with The Citizen wants to stimulate your thinking by sharing data from recent official surveys in Tanzania and ask you a few questions.

"The youth of today are the leaders of tomorrow", so the old adage goes. All countries, including Tanzania, need to invest in and build a strong, healthy, well educated, dynamic and innovative youth.  In Africa, the number of youths (aged 14 to 25 years) have grown significantly  over the past decades, contributing to the bulk of the labor force.

Poor but happy?

Tom Bundervoet's picture

A common belief in rich countries is that people in Africa are poor but happy. This image is time and again confirmed by popular reality shows on Western television, in which the rich-and-famous visit little-known tribes in the most remote villages of rural Africa, only to concede, in front of a dozen cameras, that despite all their hardship, the people they visited really seemed happier than the average burnt-out desk-warrior in their home countries.

Are the poor in Africa really happier? In recent years economists started focusing on happiness and its measurement, a field long considered too trivial to pay much attention to. Recent research on the topic gives conflicting, and sometimes surprising, results. In 2012, an Ipsos poll measuring the degree of happiness in 24 countries found that self-reported levels of happiness were higher in poor and middle-income countries than in rich ones, seemingly confirming popular beliefs.  In contrast, the first World Happiness Report, also published in 2012, finds that the rich countries in Scandinavia are the happiest on earth, while four poor Sub-Saharan African countries are at the bottom of the list. The Gross National Happiness (GNH) index, pioneered by the Kingdom of Bhutan, comes up with a number of surprises of its own: the GNH is highest among the young and the unemployed (and also-perhaps less surprising-among the unmarried), which seems at odds with today’s television images of the streets of Madrid and Athens.

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