Little Shop of Horrors

KADS' next production is the popular musical Little Shop of Horrors at the National Theatre in Kampala. It's an enduringly popular spoof of sci-fi 1950s and 60s movies (eg Day of the Triffids) and will be a great success. It's been a labour of love for Director James Turner, the production team and the orchestra, not to mention the youthful cast. I'm looking forward to seeing the almost-finished article at the dress rehearsal next Tuesday (before leaving for a lengthy set of investee visits in Kenya and Tanzania).

French beans to Tesco's

One of the great Kenyan success stories in recent years has been the growth of the horticulture industry, serving the European market with air-freighted fresh produce ranging from flowers to fruit and vegetables. The industry has its share of detractors - particularly from the environmental and health & safety lobbies - but its economic impact has been huge - to the extent that in the space of 30 years it has gone from zero to be Kenya's largest export industry.

Last week, I was lucky enough to attend the AGRA/ILRI-sponsored conference on the subject of making agricultural markets in Africa work more effectively and efficiently. Among many interesting papers presented was one by Miet Maertens of Leuven University on the growth in high value export markets in sub-Saharan Africa. This paper stood out because it contained hard evidence of the economic impact of the horticulture industry at a household level (something which is all too often ignored in favour of the heart-warming but meaningless anecdotes which pervade the development world).

In brief, the paper concluded that high value trade in fresh produce has a significant and substantial quantifiable impact on rural development and poverty reduction. These effects occur both at the producer level (where farmers grow for exporters) and through the creation of rural labour markets - where there is also a substantial gender bias in favour of women.

My view is that there are numerous other benefits resulting from the fresh produce industry which may be more difficult to quantify than household incomes, but which are no less important. For example, without the massive injections of cash into rural economies brought through employment and the sale of produce, a whole network of small trading and service businesses would be at risk. Access to schooling and healthcare would be restricted. Because export standards are high, significant quantities of produce do not make the grade. Export reject produce is sold in the local market or consumed at home (with attendant nutritional benefits). Farmers have learned new skills and developed new farming techniques and greater exposure to crop protection products. Employees have access to training and advancement opportunities - and the precious practical experience of learning from systematic and organised business administration, agricultural technology, food standard compliance and so on.

The standards required by importers have also thrown up business opportunities. One of AAC's first investments was in a business called Africert. Africert is accredited by a number of international standard-setters to audit producers and issue a range of certificates confirming adherence to the required quality standards. This is an essential link in the export produce value chain, ranging from tea and coffee to fresh vegetables and flowers - since without it high value markets would be closed.

Like most agribusiness, it's easy to throw stones and criticise the fresh produce industry. In comparison to the ultimate $2 dollar selling price of a 500g pack of French Beans in Tesco's, the grower's share of a few cents is tiny - but it's a share, nonetheless, that wouldn't otherwise be there, and it's a share which offers an better income-earning opportunity than alternative crops (otherwise the grower wouldn't do it). Employees don't earn much, but they create a market price for labour and generate tax revenue for local and national Government.

So don't knock it. Support it.

World Biodiversity Day

May 22nd is World Biodiversity Day.

The trouble with "Days" like this is that there are far too many of them to keep track of, and this means that the ones which really matter - like World Biodiversity Day - are more often than not forgotten.

Hats off, therefore, to UNEP, the Global Environment Facility and the National Agricultural Research Organisation (of Uganda) for taking a 2-page spread in today's Ugandan newspapers drawing attention to World Biodiversity Day and highlighting the risks presented by (the wonderfully accurately named) Invasive Alien Species, among which are the attractive ornamental Lantana Camara (pictured above). An Invasive Alien is defined as one which is vectored by human transportation and "arrives, survives and thrives" at the expense of native organisms, usually because its natural enemies are absent from its new environment. Lantana is perennial, toxic to livestock, provides a good habitat for tsetse flies and, due to its fast-growing bushiness, crowds out other plants.

Uganda's remarkably benign and fertile environment makes it especially prone to plant invasion. The water hyacinth infestation of Lake Victoria in the 1990s is the most widely known, but other dangerous newcomers include the tree, Senna Spectabilis, the grass Cymbopogon Nardus and the flowering plant Parthenium Hysterophorus - all of which threaten Uganda's eco-systems.

As always, of course, the problem is exacerbated by ignorance, poor education and dissemination, and weak controls over planting material. Lantana Camara is still being widely planted as an ornamental in Kampala gardens, even in properly landscaped gardens. I took this picture earlier today at the entrance to the Kampala Serena Hotel.

What we really need is an "Uproot Lantana Camara Day", with rewards to schools and civil organisations for the greatest biomass collected. The trouble is, with so many other special "Days", would anyone notice?

A Theory of Economists

When I was growing up, my mother had a passion for crosswords. She would periodically (as a last resort) call for "the yellow book", her crossword dictionary, in search of words to fit the clues. I was fascinated by many of the categories in the yellow book, in particular lists of collective nouns. Two that I still remember are "a parliament of owls" and "an unkindness of ravens". Since then, I periodically amuse myself by inventing collective nouns, hence the title of this post.

Economists have suffered a bad press recently, for good reasons, not least of which is their reluctance to admit their widespread inability to foresee the current financial crisis. A friend recently loaned me Nassim Tayeb's book, Fooled by Randomness, in which this brilliantly entertaining scholar mocks numerous sacred cows of post-modern life, including the pseudo-science of economics, and lays the foundations for his subsequent development of the "Black Swan" theory (which describes the unforeseen and improbable event - or set of events - that lead to major change).

The real problem facing economists now is loss of credibility. The great Economics project of the last 40 years, in which clever people have allowed themselves to become convinced that economics is a science capable of accurately predicting economic behaviour on the basis of rationality and market efficiency, is at risk. As John Kay put it recently in the Financial Times "that people respond rationally to incentives, and that market prices incorporate information about the world, are not terrible assumptions. But they are not universal truths either. Much of what creates profit opportunities and causes instability in the global economy results from the failure of these assumptions. Herd behaviour, asset mispricing and grossly imperfect information have led us to where we are today." Business people know this: indeed, they rely on it, as human irrationality and information asymmetry are the prime generators of profitable activity. Yet this basic common sense seems to have eluded professional economists.

In Nassim's words "My major hobby is teasing people who take themselves and the quality of their knowledge too seriously and those who don’t have the guts to sometimes say: 'I don’t know...." This attitude won't make him many friends, but it will satisfy his intellectual integrity.

Easy money

In the unlikely event that my children ever ask me for my advice on the best way to become wealthy, my answer is simple: establish a bank in East Africa! Banks here are astonishingly profitable, consistently earning super-profits for their shareholders and super-salaries for their managers.

Now that the financial reporting season is over (and Kenya figures are available from blogger Bankelele if you are interested), the full extent of bank profitability has been revealed. Here are some simple figures, averaged across 5 representative banks in Kenya and Uganda:

Interest rate paid to depositors 2.7%
Interest rate charged to borrowers 18.3%
Return on capital invested 36.4%

Nice work if you can get it.

Years ago, when I was the Financial Controller at Tanganyika Wattle Company in SW Tanzania, I used to lead finance seminars for senior and middle management, focusing on company performance. These sessions were, more often than not, turbid affairs as we turned the pages of the business and divisional accounts, discussing budget variances, stock levels, costs of production and unit costs.... but one day, in desperation at the thought of another page-turning, painful and tedious review, I decided to do something different: I asked the managers present "Who owns this business?" This was in the days when stakeholder capitalism was on the agenda: business was not just supposed to be about its shareholders but also its different stakeholders: employees, suppliers, customers, communities and anyone else with an interest in an organisation's performance. After a brief silence, someone ventured the answer "CDC" (the 100% shareholder). "You're right." I said "Legally, CDC is the owner. But who else owns this business?" A lengthy silence followed. "You do." I said. This business is your past, present and future. You live here, with your families. If it fails, who loses? CDC does, but it's a big organisation. Who really loses?".

After that, we had a much livelier discussion than usual, focused more on the future than the past.

The great tragedy of capitalism as a form of organisation is that it diminishes the importance of society and promotes the culture of the individual. Businesses have incalculable numbers of intersections and relationships which go unrecognised and unrewarded. This, of course, is why banks and other huge organisations cannot be allowed to fail. Their connections and obligations to depositors and borrowers, suppliers and customers are so critical to society that the consequences of failure are unthinkable: yet we have allowed a system to develop that attaches no value, attributes no reward, and assigns few rights to legitimate stakeholders beyond shareholders, boards of directors and senior management.

The latest East African banking results are indicative of the skewed rewards to capital. Depositors (who entrust their hard-earned cash with a bank for safe-keeping) receive a return 10 times lower than shareholders. While it is true to say that the depositor's risk is lower than the shareholder's, by any standards, it is difficult to regard this as an equitable risk-sharing arrangement. Indeed, it exemplifies the gross imbalance in interests which is so deeply ingrained and entrenched in modern society.

Once upon a time, there were alternative forms of organisation: mutual societies, building societies, co-operatives, credit unions, but these have, by and large, been crowded out in the capital jungle, unable to withstand the fast-growing stems of short-term greed. So few alternatives to the privately-owned bank. So few alternatives to rampant capitalism and the culture of greed.

I hope my children don't ask me the best way to become wealthy.