Wednesday, November 16, 2005

Self Help in Africa: the better road to prosperity

Mercatus Center (George Mason University, USA)

Enterprise Africa! []

Below is a report in the recent Newsletter from the Mercatus center that every economist should read (better still, you should subscribe free to the Newsletter).

So much of the development discussion talks in billions of dollars, at macro-level politics and easily gets swamped by the wrong focus and not a little despair: billions go into Africa and little of fundamental value changes (corruption, state incompetence, Aids, richer countries and their protectionism, ideologies and anti-globalisation, etc.).

Smith wrote about the UK economy in its commercialization stage in the 18th century. It too was plagued by macro-politics, corruption and bad government. But he saw the underlying trends were towards opulence and liberty. What Africa might need, more than all the remedies tried so far, is a re-focus to the micro-level, to the real impediments that are removable relatively easy and to the encouragement of individual entrepreneurship.

George Mason University staff are doing a fine job is researching the problems at this level. Help spread knowledge of this approach and its simple message. Set the people free; remove obstacles to their self-help; clean up local government and support honest people with justice. Read “Wealth of Nations”.

“Barriers to Entrepreneurship in Langa Township
While in South Africa, the Enterprise Africa! research team interviewed entrepreneurs to get an impression of how they are contributing to the reduction of poverty in their communities. The story of Vick and Nam (below) is typical of the experiences of many budding entrepreneurs who are trying to improve life in the township.

Filed by Karol Boudreaux: Vicky and Nam Mangaliso are brother and sister. Together, they run the Nomzano Butchery in central Langa Township, Cape Town. The day we visited them in October, their shop was doing a steady business. Most customers were at the counters of the clean, attractive store. They wanted something from the wide assortment of meat that Vicky and Nam sell. A few others were sitting in the covered patio area, enjoying a nice brai (barbequed meat).

Vicky and Nam inherited Nomzano from their parents, who worked hard and built a number of businesses. Until the kids took over, though, the place was a bit lackluster. Once Vicky (27) and Nam (28) took the reins, things began to change: they covered the walls in the store will bright white tiles, increased the area for display counters, and expanded the seating area outside. They made the store and their products look better, and the residents of Langa have responded—on weekends, the place is packed.

With a fresh vision and the energy and drive that come with youth, Vicky and Nam are making real improvements to their store and to their community. But, they also face real barriers to growth—barriers that limit their ability to do even more. Consider just a few of the problems:

· Vicky and Nam have a great meat supplier, but the company, fearful of crime, won’t make deliveries in Langa. This means they are forced to get their meat from a middleman. Naturally, this raises costs for Vicky and Nam and, in turn, for their customers. If the local authorities did a better job at law enforcement, Vicky and Nam would be able to provide their products to customers at a lower price.

· Problems with crime in this part of Langa mean that Vicky and Nam close the shop earlier than they would like. Closing early means that they sell less and that customers have reduced opportunities to get the meat they want when they want it.

· Nomzano is located on Council property – this means that local government authorities, not Vicky and Nam, own the property. So, every time Vicky and Nam want to make a change to the structure, they have to go through a time-consuming application process. So far, they have been able to expand, but they’d be freer to make changes that their customers want if they were able to purchase this property. It’s not clear why this property hasn’t yet come up for sale.

· The local authorities seem unable to maintain access roads to the shop and don’t do a great job of collecting trash. This also imposes extra costs on Vicky and Nam. Because the council doesn’t do its job, they must spend money to get rid of insects and vermin.
With the good management provided by Vicky and Nam, Nomzano Butchery is growing.

Imagine how much better things could be, though, for the Mangalisos and for their customers if the institutional environment in Langa were improved. Their story, like many others we heard on our recent trip, highlights a key concern in South Africa: local governments need to work much harder to create a safer, cleaner, and less corrupt environment for all of their citizens.


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