It is hard to predict the unpredictable, especially when it is unknown. However, that is what the leaders of all countries must try to do at this time.
This post is a plea for Mauritius to join the ACCTS negotiations.
Promoting employment is one of the priorities of the African continent for the coming years. According to the African Development Bank, only 3 million formal jobs are created each year…
Promoting employment is one of the priorities of the African continent for the coming years. According to the African Development Bank, only 3 million formal jobs are created each year in Africa, while 10 to 12 million young people enter the job market.
In 2019, Algeria has been at the forefront of African political life, with the resignation of President Abdelaziz Bouteflika in April. The economy is currently suffering, not so much from…
In 2019, Algeria has been at the forefront of African political life, with the resignation of President Abdelaziz Bouteflika in April. The economy is currently suffering, not so much from its growth rate, price, and cost competitiveness, as from its inability to diversify and create the hundreds of thousands of jobs needed each year for the annual cohort of young people who enter the labor market.
A lack of public support for entrepreneurship
When we compare its political and economic governance to other countries, Algeria is lagging behind the North African average, and in some aspects, behind the African continental average.
The Algerian context of individual freedoms has not allowed citizens to engage in politics fully. In this background, the accountability of public decision-makers has been structurally low, although raw material resource rents have helped to buy some “social peace” through subsidies for household consumption (Le Billon, 2003).
The last four presidential terms (1999-2014) have permitted a return to civil peace. The regime has gradually opened up to more cooperation with the private sector, but has never really abolished cronyism. Consultation frameworks have fostered actors close to, and respectful of, the authorities. This networking spirit has produced significant shortcomings in the transparency of public actions and the establishment of effective competition mechanisms. With an inexorable rise in social discontent, the government’s responses focus more on the short term than on the implementation of a strategic vision with long-term measures compatible with the requirements of globalization and job creation.
The continuation of half-measures has helped to alter the desire for reforms to protect the economy from the vulnerabilities associated with the downturn in the commodity “super cycle”. Short-term rent management and cronyism have hindered the initiative of local entrepreneurship and have not taken into account long-term perspectives in a context of high corruption.
So far, both the stimulation of business creation and the opening of tenders to agents without connections to the “political clan” have remained timid. Current events will determine to what extent the organization of political, economic, and social life will lead to public order and civil peace. The success of the change of President will determine Algeria’s ability to project itself into the more integrated sub-regional space which is expected to develop with the prospect of ECOWAS enlargement and the establishment of the African continental free trade area.
Prices and costs in line with competitiveness
The FERDI Sustainable Competitiveness Observatory (SCO) has Algeria in first place to for price competitiveness, both for North Africa and for the whole continent. This position, which could not be more flattering, cannot fail to amaze. It suggests that diversification has not suffered from the “Dutch disease” caused by oil and gas rents, which generally drives up costs to the point of crowding out the production of non-primary tradable goods (Djoufelkit 2008).
The purchasing power conversion factor against the dollar estimates that the cost of the basket of goods in 2016 was only 25% of the price in the United States, 40% of the African average and 30% of the average for North African countries (Graph 1). In Algeria, the level of wages is also relatively low. The wages of a cashier in a supermarket are much lower, at the current exchange rate than in other North African countries, and are not very far from the African average; but Algeria is an upper-middle-income country. However, a more detailed analysis of prices leads to nuanced conclusions.
Graph 1: Evolution of the Algerian Dinar conversion factor
The first reason for the nuanced price competitiveness is the consequence of an interventionist tradition which contributes to define prices that do not necessarily reflect the reality of market prices, and to a framework of commercial margins that is still prevalent. In December 2017, a problem arose in concrete terms for bread. Hundreds of bakeries had taken the initiative to defy public regulations by raising the price of a baguette to 15 dinars. At that time the official price was 8.5 dinars, unchanged since 1996, with a typical price of 10 dinars in Algiers. According to the federation of bakers, which is not recognized by the Government, the price regulation, which no longer covered production costs, could force many bakeries to close. The difficulty is to make economic logic and social logic compatible. As in most developing countries, the price of bread is a sensitive issue, because it is an essential part of household food consumption. For a population of more than 41 million inhabitants in 2017, 70 million baguettes would be sold every day!
Interventionism in price may correspond to instant consumer protection, but may cause problems in the longer term. It impoverishes the competitive market and leads to the emergence of cheating on product quality. Beyond bread, public preference for regulation can, therefore, lead to distortions in the allocation of resources within the economy. It leads to uncertainties about the profitability of companies with implications that are poorly measured for the long-term well-being of the community
The second reason for the nuanced price competitiveness, stems from public subsidies. With prices maintained below the economic cost, a subsidy can compensate the producer for the loss of income. For this economic logic to hold permanently, it is necessary to assume that these subsidies are sustainable. To validate this assumption information about the cost of oil and gas production is strategic. However, little is known about it. For Algeria, the break-even point per barrel of oil would be a price of between $20 and $40. Given the importance of oil and gas in the country’s economy, we can see the influence of these rents on GDP and their contribution to the financing of the State budget (upto 60% of revenue).
Graph 2: The percentage of rents in Algeria’s GDP (1990-2016)
Consumer subsidies and transfers to the economy have become the Achilles’ heel of Algerian public finances. Their share of GDP has tended to increase since the late 1990s, from 4% to around 12% in 2012, while in 2012 oil prices had not yet started to decline. The consumer products concerned are numerous. In the fiscal year 2015, IMF staff estimated that subsidies cost about 14% of GDP and were equivalent to twice the combined annual budgets of the Ministries of Health and Education. According to the most recent figures from the Ministry of Finance, about 10% of direct subsidies are covered by the State budget. 18% are implicit subsidies, such as tax advantages granted to companies for their investments, which are more difficult to assess,. The role of these subsidies is essential. Probably, the new Algerian government team will quickly be faced with the daunting dilemma of choosing between companies and consumers, between the short term and the long term in an approach that has to be both coherent and compatible with political feasibility.
Le Billon, P. (2003). Buying peace or fuelling war: the role of corruption in armed conflicts. Journal of International Development, 15(4), 413-426. https://doi.org/10.1002/jid.993
Djoufelkit. H, (2008), « Rente, développement du secteur productif et croissance en Algérie », AFD, Document de travail, n°64, Paris. https://www.afd.fr/
Observatoire de la compétitivité durable : https://competitivite.ferdi.fr/
Nearly 90% jobs are informal in Sub-Saharan Africa, according to the International Labor Organization. It is by far the highest proportion in the world. Many small African companies operate in…
Nearly 90% jobs are informal in Sub-Saharan Africa, according to the International Labor Organization. It is by far the highest proportion in the world. Many small African companies operate in a more or less informal way… How can we change the situation? How can we support these companies in their formalization?
For more than 10 years now, I have been working on a voluntary basis with the group Investisseurs & Partenaires, which is dedicated to financing and supporting small and medium-sized businesses in Sub-Saharan Africa. My background as an entrepreneur has led me to focus on an appropriate method for investing in the informal sector and supporting companies in their formalization.
For us, this is a key impact factor: the impact generated by an investment is directly proportional to the efficiency and performance achieved by the company. It provides greater added value, which increases self-financing capacity, makes it possible to support expenses such as health insurance, treatment of effluents or solid waste, investment in less polluting vehicles, etc.
The successes, difficulties and failures experienced over the years have enabled us to identify two main features:
- The manager’s skills should match with his/her project: a manager with a commercial profile, for example, will have difficulty deciding and monitoring technical investments; a high-level, visionary researcher may have difficulty convincing his collaborators to improve management processes…
- The formalization process, which is essential to improve the company’s performance, should not be underestimated. The changes are in everyday reflexes, in the implementation of precise measures at many levels… The work that this requires is always longer than expected.
What do we mean by “informality”?
The concept of informality can be simply defined: it is a mode of organization in which the transmission of information is not written. Let us quickly detail these two elements.
By ‘’information’’ we mean:
- All information involving an external factor (purchase contracts, sales contracts, rental leases…)
- The information necessary to ensure collaboration between employees in their respective functions: definition of functions, measurement of work results, measurement of their quality, etc.
- The information required by the entrepreneur to monitor the evolution of the company (the dashboard which provides monthly key operational or accounting data)
- The information necessary to establish reliable accounting: list of documents, data collected, and procedure for recording them (regardless of the medium)
By “written” information we mean: a precise form, verified, on an appropriate medium (whatever it may be), and with a method, and a frequency, known by the employees concerned. Conversely, the information that is not “written” is not precise, is not verifiable, can be misinterpreted, cannot be transmitted, and ultimately prevents any organization from making progress.
Historical perspective: the informal is only one step in the microeconomic evolution!
Until the 1960s, very few SMEs in France had really formalized their organizational structure. Job descriptions, quality controls, safety procedures and many other operating procedures were not written.
It was only in the 1970s that the need to specify the nature of the information, its transmission procedure, or its form, was essential to introduce computer processing of processes and data.
What are the consequences for investors?
The informal operation of a company means that the level of risk for the potential investor is much higher.
Indeed, because of this informal operation, the assessment of past performance remains unclear:
- At the operational level: how has the quality level evolved? What is the machine shutdown rate? What is the average overrun of the estimates? Service share?… etc.
- At the accounting level: the figures are not the result of stabilized procedures, and the best audits will not be able to reflect the reality of the past (average stock? average customer outstanding? historical costs per activity? etc.)
If the past figures are approximate, the business plan will present an additional risk (to the “normal” risk), which the investor must try to reduce.
How should the investor proceed?
Only a down-to-earth approach makes it possible to observe an informal organization. The investor will have gathered several indications that will drive its approach, defining the main priorities and next steps to anticipate:
Before the investment is made
There are two aspects that the investor must absolutely analyze when starting the investment process:
Corporate culture on the one hand: Formalizing the nature and flow of information in a company means changing habits… but a company’s culture cannot be decreed! The culture of a small or medium-sized company is, in fact, generated by the personal attitude and functioning of the entrepreneur. Thus, the ability of the entrepreneur is an essential aspect of a company’s culture, which the investor must be able to appreciate. We are talking here about the manager’s ability to translate into figures the projects, to monitor the results with precision, to define precisely the objectives assigned to the employees, his/her ability to be precise and rigorous…
The solidity of the economic model on the other hand: the impact investor must first and foremost target economic models whose earnings capacity has already been demonstrated. The construction of value added, and its transformation into EBITDA, can only be observed with the available data. Therefore, the development of a dashboard, for example, is greatly facilitated when the economic model is already known.
Investment & Implementation of an Action Plan
Observing how the company operates leads to the construction of an action plan, which will be discussed and validated with the manager and his/her team.
Some actions can be taken well before the investment date (examples: storage of stocks; registration of trade receivables; various quality measures, etc.). Others will require external technical assistance, which will be facilitated, or even partially financed, by the investor: this will be the “value creation” plan.
This plan generally includes various operational components, including one concerning the progressive implementation of reliable accounting procedures.
In all cases, a simple dashboard, including some key data, (operational and/or accounting) should be produced by the end of the first month after investment.
Follow-up of the company after the investment
The first few months are key to determine the success or failure of the changes introduced in the company (introduction of greater rigor, precision, and a culture of results.)
An informal management mode does not allow reliable monitoring for the investor.
I&P’s experience has shown that, whatever the number of teleconferences, meetings, verbal exchanges and Excel tables, the reality of a company’s evolution has often only been assessed in terms of the cash flow situation!
At the time of the investment, the investor and the manager must have two monitoring “tools”:
- The monthly dashboard, including 4 to 6 key, simple, and 100% reliable data.
- A value creation plan, the progressive implementation of which is assessed with predefined steps.
In addition, it is often vital to have planned in advance the intervention of external experts (especially in training teams in rigor and precision).
Key takeaways for the investor
Management of habit change
The rigor and precision in measuring the results of everyone’s work is often highly appreciated by employees. However, the effort to apply, every day, precise procedures must be the done through many exchanges and listening!
The benefits of this change must be felt positively and accepted by employees: the improvement of the quality rate of their work must be recognized; the achievement of specific objects must enable them to receive financial recognition, etc.
The entrepreneur has an exemplary role. It is important that his or her personal functioning is in line with the progress of precision, rigor, and timeliness. If this is not the case, it could lead to the failure of the value creation plan.
Monitoring of results
Margins is the key parameter to be monitored. The investment team must follow its files with a clearly established method and the tools mentioned above, which will allow it to be more efficient and save precious time:
- Monthly reading of the dashboard (the right dashboard is released within 3/5 days after the end of the month)
- Request for explanations on the data that attract his attention.
- In-depth discussions, in detail, on the corrective actions implemented.
Good monitoring should focus on important and urgent measures.
The most successful investments made by I&P over the years generally have two characteristics:
- A manager who listens, naturally valuing the need for precision in operation and accounting management, following an investor’s entry into his capital.
- A rather “’structuring” sector of activity, requiring a certain degree of precision because the company works with demanding professional clients or makes “general public” sales (pharmaceutical distribution, microfinance, technical installations, energy, IT services etc.)
Whatever the company, the sector of activity, or the investor’s attention to the above points, all scenarios possible! We can see, in the same sector of activity, one leader succeeding against all odds, and another, with all the required diplomas, failing… Humility and intuition remain the main values of any investor on this subject.
Bruno Caire contributed to the report published by the group Investisseurs & Partenaires, entitled “Formalizing SMEs in Sub-Saharan Africa“. The report is a practical document gathering context analysis, investor and entrepreneur testimonies and key insights of I&P’s impact study.
It is October 2018, 18 years since I left the school where I spent all my secondary education from the 6th grade to 12th grade. It was the local school…
It is October 2018, 18 years since I left the school where I spent all my secondary education from the 6th grade to 12th grade. It was the local school in the largest municipality of Abidjan, a large municipality with a high population density, but also and especially significant a school with a high student/teacher ratio, at that time: 80 pupils per class on average. In 2018 I found it split into 2 parts for better management of the excessive number of students, but in the same old buildings dating back more than 30 years.
Enthusiasm and nostalgia perfectly reflected my feelings when I go to present my project, a heart-felt project of great ambition: to raise the success rate for the Baccalaureate (at age 18) examination of this school, which is around 30%, similar to the Cote d’Ivoire national average for the Baccalaureate (40% on average over the last 5 years).
My name is Christelle HIEN-KOUAME, marketing and communication engineer, I have been an entrepreneur for 9 years in the field of communication and marketing, and I am passionate about the education offered to students in my country and my continent.
Help to raise the national school examination success rate, is it not too ambitious a goal?
Work in the education field is exciting and demands commitment because it concerns everybody – from the educational level of household employees to the professional performance of the employees in a firm, we are all impacted. So, for my part, it is essential to contribute in our way and with our means.
The project – www.prenezlesfeuilles.com
The initial project was to offer students a revision toolbox, a digital collection of homework and exams from the best schools in Côte d’Ivoire to:
– Prepare them to do well in their homework and exams, with tools adapted and customized: Homework and exams are defined by a school schedule in our education system
– Give them back their self-confidence, because, in reality, a child in the 3rd grade of a school well graded in the capital does not have the same level as a student in the same cycle in another part of the country!
Having defined my two primary objectives, I turned to digital solutions to offer an accessible, reliable, and innovative approach to the students. I started without any digital experience, and with only the funds of my communication agency. I collected homework from all disciplines and from institutions which had at least 70% success rate in the Baccalaureate.
My project was born. It was stolen in a neighboring country, and was therefore renamed one year later as www.prenezlesfeuilles.com, was officially presented to the authorities (Ministry of National Education), was appreciated, and finally allowed to be spread to students in all schools in the country. The difficulties of its beginning have given it more resilience, and more objectives to achieve. Making homework and exams available to students became restrictive. We had to offer more alternatives to encourage them to do their homework challenge them, motivate them to surpass themselves regardless of their series or disciplines chosen, and do better than we did in the past.
Evolution of the project
After an analysis of the success factors, one key factor seemed irrefutable (other than the environment and motivation): learning tools.
We then integrated three important tools to the platform: Motivation by reward by offering gifts for quizzes or exercises performed correctly within a given time frame, Orientation assistance by talking about jobs with different people, and enriching experiences, and Small general culture broadcasts on WhatsApp.
In August 2019 www.prenezlesfeuilles was acquired by ENEZA EDUCATION, a technology company, initiator of another innovative educational service via mobile that offers tutorials and quizzes via the SMS channel of mobile phones. Today, the Cote d’Ivoire student has access to the lessons of the entire school program explained in tutorials, and with quizzes allowing them to test their knowledge. The website www.prenezlesfeuilles.com helps students to prepare for future tests based on homework already done in the best institutions in the country.
The next challenge is to make this solution better known to all students and parents throughout the country and to prove its real impact on subscribers’ academic results.
I love to take challenges up! Like when I was 18 and I was the only girl in a science final year class in a high school in the commune of Yopougon (a working-class district in Abidjan), and succeeded at the Baccalaureate. Or like the challenge 9 years ago when I resigned from my job to set up as a young entrepreneur, and I had to assume my choice and everything that entailed. Taking up challenges is not for euphoria or pleasure but giving back a part of what we have graciously received from the family, the State and society. Because giving back is to be more alive!
On the basis of data from the IEA WEO 2018, considerable progress has been made in recent years in the field of access to energy and more specifically in the…
On the basis of data from the IEA WEO 2018, considerable progress has been made in recent years in the field of access to energy and more specifically in the field of access to electricity. In 2017, for the first time, the population without access to electricity fell below the billion mark.
Ibrahima Dosso and Florian Léon for The Conversation. For developing countries to have lasting development, they must have economic systems that are resilient to shocks such as climate change, natural…
Ibrahima Dosso and Florian Léon for The Conversation.
For developing countries to have lasting development, they must have economic systems that are resilient to shocks such as climate change, natural disasters and conflict.
Recent research has focused on evaluating the long-term effects of these potential economic shocks, and how to mitigate them. For example, several studies highlighted the fact that natural disasters and violent conflict have long-term effects on households.
In a recent study we looked at the resilience of businesses in Côte d’Ivoire after the 2010-2011 electoral crisis. Businesses play a vital role in Côte d’Ivoire’s economy. Small to medium-sized businesses alone employ nearly half the working population and account for around 20% of the country’s GDP. Yet few studies have looked at the mid to long-term effects of adverse shocks on businesses.
Côte d’Ivoire endured a protracted crisis when the incumbent president, Laurent Gbagbo, refused to leave office following his defeat to Alassane Ouattara in the presidential run-off election of 2010. This resulted in widespread violence. The death toll has been put at over 3 000 and the number of displaced people at 700 000. The political standoff ended in April 2011 when military forces loyal to President Ouattara arrested Gbagbo.
We found that businesses did indeed recover, but that there were disparities in how quickly they did based on their size. For example, businesses more able to rebound tended to be those that were smaller (10 employees or less) or those that had access to credit.
After a shock
Although economic activity may contract following a shock, it does not disappear.
Extreme events tend to stimulate the development of informal economic activity. In addition, surviving businesses may benefit from a massive influx of external aid (financial, human and material), or the disappearance of competition. The effects can be differentiated according to the specific characteristics of the businesses and according to their sector.
Despite the brevity of Côte d’Ivoire’s conflict, it had profound consequences. Economic activity was severely disrupted, with an embargo on many exports, the closure of banks, and limited access to certain goods – such as medicines and fuels.
After Gbagbo’s arrest, fighting rapidly died down and the economy was able to recover in the post-crisis years.
Our study involved monitoring the activity of all formal businesses in Côte d’Ivoire (both local and foreign) from two years before the crisis to three years afterward. This enabled us to gain an understanding of how businesses bounced back from the crisis.
Our results show that three years after the crisis, businesses had made up only half of their productivity losses. However, this average masks large individual disparities.
There are several reasons why smaller companies with less than 10 employees were able to bounce back more quickly.
First of all, smaller organisations are more flexible in the face of an uncertain future. Secondly, they are more oriented towards local markets, making them less sensitive to disturbances in infrastructure. Their management system is also far simpler, enabling them to adapt more quickly to changes in the market, and to logistical challenges.
Conversely, businesses with foreign investment, which are more externally oriented and therefore require access to foreign markets (ports and roads), suffered more than local businesses, both during and after the crisis.
These businesses were weakened by restricted access to external markets, in terms of both inputs and sales. Furthermore, they were probably hit particularly hard by the exodus of foreign workers.
Our study provides two other interesting results relating to previous research.
First, businesses using more highly qualified workers or employing more executives were particularly affected. This is because many qualified workers come from neighbouring countries, or more distant ones, such as France, and were the first to flee when the violence began. Many probably never went back.
Access to financing is a major advantage
Our research also highlighted the importance of access to capital to help with business recovery.
The businesses that were the least restricted financially prior to the crisis bounced back with the most ease. Banks suffering from the effects of the crisis probably favoured their older clients over other businesses. Banks in Côte d’Ivoire suffered an increase in delinquent loans in 2011, according to data from the banking commission of the West African Monetary Union (WAMU).
This result confirms a study on Sri Lankan businesses after the December 2004 tsunami, which showed that financial aid enabled a quicker economic recovery.
Our research sheds interesting light on the construction of resilient economic systems. While calling on qualified workers and executives is crucial for business development, it can be a source of vulnerability when a shock occurs. Businesses that are too dependent on a small number of individual employees can be severely affected by their death or flight.
It is therefore important to find tools to mitigate these vulnerabilities by developing training for executives, engineers and technicians to grow the available pool of human resources, and by encouraging the return and re-training of these workers following a sudden shock (conflict or natural disaster).
Quick access to capital is also crucial for economic recovery. Emergency tools, such as IMF emergency loans, can be developed to facilitate the targeting and granting of loans post-crisis.
Furthermore, banking regulations can also be adjusted for extreme situations. For instance, a moratorium on capital ratios could be considered to enable banks to continue to finance current activity.
Lastly, it appears vital to extend this reflection beyond the banking sector (to insurance and capital investment companies, for example) and to use technological advances (such as mobile banking and fintechs) to mobilise and allocate funds in an efficient and cost-effective way.