tag:theconversation.com,2011:/fr/topics/market-19056/articlesMarket – The Conversation2022-09-08T15:34:34Ztag:theconversation.com,2011:article/1880272022-09-08T15:34:34Z2022-09-08T15:34:34ZWest Africa’s fisher women are experts at coping with job insecurity – but policymakers are using their resilience against them<figure><img src="https://images.theconversation.com/files/481645/original/file-20220829-25-36667.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A large number of West African women rely on the blue economy to survive</span> <span class="attribution"><span class="source">MaaikeZaal/GettyImages</span></span></figcaption></figure><p>All along West Africa’s coastline, women play a vital role in the <a href="https://theconversation.com/women-are-a-mainstay-of-fishing-in-west-africa-but-they-get-a-raw-deal-159283">fisheries sector</a> as processors, traders and distributors. </p>
<p>But they face many challenges – like job insecurity, a lack of finance, availability of fish and child care – and they’re also vulnerable to shocks, like the COVID pandemic. </p>
<p>Simplistic assessments <a href="https://thecommonwealth.org/news/women-show-way-covid-19-resilience-says-commonwealth-secretary-general">by government</a> and <a href="https://www.worldfishcenter.org/story/african-women-join-forces-overcome-covid-19-challenges-aquatic-food-systems">nongovernmental organisations</a> will often praise their resilience in facing these challenges. But this masks the dangers inherent in some of their coping strategies, as we’ve shown in a <a href="https://www.frontiersin.org/articles/10.3389/fmars.2022.862780/full">recent study</a> documenting their experiences in West Africa during COVID. </p>
<p>Women are adept at coping because they have to be. Compared with men, women carry a <a href="https://www.unwomen.org/en/news/stories/2017/10/op-ed-ded-puri-women-addressing-hunger-malnutrition-and-poverty">disproportionate burden</a> of ensuring food is on the table for their families. This is because they’re the ones at home whilst the men are at sea. Women will therefore often diversify their income sources to support their families. </p>
<p>Their ability to cope or adapt in times of adversity should not absolve states or governments of the responsibility to address the sources of their hardship. </p>
<p>Although there is an <a href="https://businessfightspoverty.org/womens-financial-inclusion-in-west-africa-from-policy-to-practice/">awareness</a> by West African governments of the need for policies that benefit both men and women, countries across the region <a href="https://reliefweb.int/report/world/west-africa-inequality-crisis-how-west-african-governments-are-failing-reduce">are failing</a> at addressing their root challenges.</p>
<h2>Challenges women in fisheries face</h2>
<p>The main challenge is that women find themselves excluded from policy making and their contributions are largely undervalued by government and financial institutions compared to men who are counted and supported due to their contributions as fishers. Yet women are big contributors to the sector. </p>
<p><a href="https://us1.campaign-archive.com/?u=57d4f65971ce7da5b7cad3586&id=484c667590">As the direct contact with the end-users</a>, women are at the top of the value chain. The women traders pre-finance fishing activities, are the owners of boats, and purchase outboard engines, food for the crew or fuel for fishing trips. Though often invisible to the casual observer, <a href="https://us1.campaign-archive.com/?u=57d4f65971ce7da5b7cad3586&id=484c667590">women are the power</a> behind fishing enterprises and the settlements along rich fishing grounds.</p>
<p>These dynamics produce gendered vulnerabilities. For instance, social expectations render women invisible and increase their <a href="https://www.sciencedirect.com/science/article/pii/S0308597X12002175#:%7E:text=The%20traditional%20roles%20of%20men%20and%20women%20within,look%20after%20the%20home%20and%20family%E2%80%94as%20the%20caregivers.">earnings gaps</a>. Specifically, women’s fisheries work is often perceived by policy makers merely as an extension of their <a href="https://www.tandfonline.com/doi/abs/10.1080/08920753.2017.1278143?journalCode=ucmg20">household responsibility</a>. These activities may include book keeping, gear repairs, and provisioning for fishing trips.</p>
<p>As a consequence, women are excluded from financial, and other, support from state institutions. This limits their livelihood security and makes them particularly vulnerable to disruptions threatening their already precarious livelihoods. </p>
<p>New challenges they face include the <a href="https://theconversation.com/african-marine-rules-favour-big-industry-leaving-small-scale-fishers-in-the-lurch-171829">depletion</a> of fish stocks due to <a href="https://www.nature.com/articles/srep32607">climate change</a>, <a href="https://theconversation.com/nigerias-depleting-fish-stocks-may-pose-a-threat-to-regional-security-105168">pollution</a>, <a href="https://theconversation.com/african-marine-rules-favour-big-industry-leaving-small-scale-fishers-in-the-lurch-171829">over-fishing and illegal</a>, unreported and unregulated fishing. </p>
<p>These challenges will affect men too, but women feel the impact more because their income are dispelled on their families and they do not get support from the state.</p>
<p>They’re also vulnerable to shocks. My colleagues and I <a href="https://www.frontiersin.org/articles/10.3389/fmars.2022.862780/full">examined</a> the impact of the COVID restrictions on fisherfolk and saw how lockdown measures, travel restrictions and border closures all affected fish processing and trade. </p>
<p>Women weren’t able to sell as much. The movements of fisher people were disrupted, so there wasn’t as much fish available. And fish spoiled because of curfews, market closures and because there were fewer women allowed at processing sites. <a href="https://www.frontiersin.org/articles/10.3389/fmars.2022.862780/full">Men were also affected by these disruptions</a> but because they dominate the at sea activities, their disruptions were mostly restricted to labour and production. </p>
<p>The fisher women found various coping strategies. </p>
<h2>Negative coping strategies</h2>
<p>Fisher women find ways to cope with their challenges but some strategies – like those employed during the COVID pandemic – can bring negative outcomes. </p>
<p>One <a href="https://www.frontiersin.org/articles/10.3389/fmars.2020.00318/full?&field=&journalName=Frontiers_in_Marine_Science&id=511454">of these is the practice of</a> “sex for fish” or “sex for finance”. We found that women engaged in sexual acts in exchange for buying fish on credit or in exchange for money.</p>
<p>This practice is <a href="https://theconversation.com/women-are-a-mainstay-of-fishing-in-west-africa-but-they-get-a-raw-deal-159283">not new</a> and there are worrying health implications – like <a href="https://theconversation.com/women-are-a-mainstay-of-fishing-in-west-africa-but-they-get-a-raw-deal-159283">rising</a> HIV/AIDS infection rates within fishing communities. Fishing communities in Africa have HIV infection prevalence rates <a href="https://onlinelibrary.wiley.com/doi/10.1111/tmi.13520#:%7E:text=Fishing%20communities%20in%20both%20Africa%20and%20Asia%20have,Risk-taking%20behaviour%20is%20common%20in%20these%20population%20groups.">4 to 14 times</a> higher than the national average, <a href="https://www.fao.org/africa/news/detail-news/en/c/274831/">due to transactional sex</a>.</p>
<p>Another coping strategy in <a href="https://www.frontiersin.org/articles/10.3389/fmars.2022.862780/full">Ghana</a> was to involve middlemen and use technology. Women dispatched parcels of fish to customers via taxi or public minibuses. They would get paid through mobile money before sending the fish. They managed to get the fish to their customers, but their profit was halved as they had to involve a third party.</p>
<p>Women shouldn’t have to resort to coping strategies like these. <a href="https://www.frontiersin.org/articles/10.3389/fmars.2020.00318/full?&field=&journalName=Frontiers_in_Marine_Science&id=511454">In a time of adversity</a>, the things that make them vulnerable must be addressed. </p>
<h2>Supporting women</h2>
<p>There are several steps to take. </p>
<p>Women need support in the form of finance and subsidies. They should also be included in fisheries related policy deliberations and their views represented. For instance, they must be supported when fishing bans <a href="https://www.sciencedirect.com/science/article/pii/S0308597X21004589">link</a> – to conserve fish stocks – are introduced. </p>
<p>Government must invest in infrastructure to help transform the sector. Investments would include an integrated cold chain to keep fish fresh, potable water supply to allow good hygienic practices, and innovative smoking facilities, so fish can be preserved and sold in a different form.</p>
<p>In addition, greater priority must be given to women’s digital skills training. This would ensure that more women take the advantage offered by technology to reach more potential customers and at an affordable rate.</p>
<p>Ensuring that women are not left behind requires access to affordable credit. For instance, <a href="https://theconversation.com/women-are-a-mainstay-of-fishing-in-west-africa-but-they-get-a-raw-deal-159283">establishing and supporting</a> financial organisations – such as credit unions, banks and cooperatives to provide credit at affordable rates to women.</p>
<p>The government should also support women with easier access to markets. One of these markets should be the the African Continental Free Trade Area (<a href="https://africa.unwomen.org/en/digital-library/publications/2019/07/opportunities-for-women-in-the-acfta">AfCFTA</a>). Women already benefit from trans-boundary trade, and ensuring that they can cross borders to sell their products without disruptions will introduce them to new markets and increase their income.</p>
<h2>Learning from past experience</h2>
<p>Policymakers can also learn from some of the fisher women’s more positive coping strategies. </p>
<p>Something we saw in several countries is that women coped by coming together, seeking out partnerships and opportunities. <a href="https://www.frontiersin.org/articles/10.3389/fmars.2022.862780/full">In Ghana</a>, for instance, women formed community village savings and loan associations with the support of the West Coast Women Ambassadors, a civil society organisation.</p>
<p>The aim of these associations was to bring financial services closer to members. They also acted as a rallying point for initiating community development activities such as business education. </p>
<p>Because the association was well-organised, and presented as a group, the women were able to secure a loan from the Business Advisory Centre. This is a state public agency that provides business advice, training services and marketing avenues to small business enterprises.</p>
<p>They also partnered with <a href="https://www.cffacape.org/news-blog/something-cool-for-cte-divoire-women-fish-processors-will-give-them-more-power-in-the-marketplace">Conservation des Espèces</a> – a marine conservation NGO which focuses on protecting marine turtles and their habitats. In exchange for cooperation from the women’s groups and their networks, the NGO will provide them with a cold room and ice factory. Cooperation included discouraging turtle poaching and encroachment on their habitats and helping the NGO to monitor turtles by reporting on sightings.</p>
<p>Romanticising women navigating adversity as strong, resilient and having supernatural abilities to endure disruptions takes attention away from the failure of the government to identify and address the source of their adversity. </p>
<p>Importantly, by addressing the root challenges of women, those of men will also be dealt with as the challenges are cyclical and interrelated.</p><img src="https://counter.theconversation.com/content/188027/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ifesinachi Okafor-Yarwood receives funding from the Scottish Funding Council.</span></em></p>The ability of West Africa’s fisher women to cope or adapt in times of adversity should not let policymakers off the hook.Ifesinachi Okafor-Yarwood, Lecturer, University of St AndrewsLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1717482022-01-13T14:47:13Z2022-01-13T14:47:13ZHow COVID affected markets and livelihoods in Kenya’s fisheries sector<figure><img src="https://images.theconversation.com/files/435555/original/file-20211203-23-fz4ju3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Fishermen weigh a basket full of fish off the Indian ocean's archipelago of Lamu on Kenya's coast.
</span> <span class="attribution"><span class="source">Tony Karumba/AFP via Getty Images</span></span></figcaption></figure><p>Fisheries support the livelihoods and well-being of millions of people around the world. Before the COVID pandemic, <a href="https://www.fao.org/news/story/en/item/1372095/icode/">global fisheries production had reached a record high</a>. Fast forward to 2021, and the pandemic has greatly altered the fisheries sector – increasing vulnerability and exposing weaknesses in fisheries food systems at both local and international levels.</p>
<p>The Kenyan coastal fishery supports <a href="https://aquadocs.org/handle/1834/7857">more than 23,000 fishers catching over 16,000 tonnes of fish annually</a>. The fishery is considered a key sector, providing monetary income and animal protein to about 70% of the coastal communities. </p>
<p>In our recent <a href="https://www.sciencedirect.com/science/article/pii/S0308597X21004140">study</a>, we set out to assess the impact of COVID-19 on Kenyan fisheries, and hear what fishers and traders did to cope. We interviewed people in five coastal communities to find out about COVID-19 impacts on markets, livelihoods, food security and well-being, and what they did in response.</p>
<p>We found fishers, fish traders and coastal communities faced severe livelihood and food security challenges as a result of the pandemic. The biggest impact came from the restrictions on movement mandated by the Kenyan government. Our findings highlight the severe effects pandemic measures had on households and communities, and offer lessons as the pandemic continues to unfold. </p>
<h2>Restrictions imposed</h2>
<p>The Kenyan government introduced <a href="https://www.ifpri.org/publication/assessing-impact-covid-19-rural-women-and-men-kenya">over 120 policies to contain COVID-19</a>. These included curfews and bans on travel and public gatherings. Restrictions were imposed between March 2020 and November 2021. </p>
<p>In all five study sites, communities were subject to various social distancing rules, movement restrictions and curfews. Limited numbers of people were allowed in boats and vehicles and people were told to minimise non-essential interactions. There were social distancing requirements in markets and stores, and reduced market and shop opening hours. Community gatherings were banned. Traders and transporters, especially, faced challenges such as accessing markets and long waits for East African cross-border trade.</p>
<p>We found that COVID-19 severely affected food security in all communities, though some people fared worse than others. All households told us they ate less (reducing meal sizes or skipping meals altogether), and ate less well (consuming less meat and vegetables and primarily consuming staple carbohydrates such as ugali (cornmeal). </p>
<p>Although foods were available in shops, their loss of income meant they couldn’t afford to buy. Before the pandemic, fishers average income per day was about US$9. This decreased substantially to about US$4 during the pandemic because fishers spent less time fishing. Several people had lost jobs, or knew people who had. </p>
<p>The overall demand for fish sharply reduced by more than 50% and prices fell for many species, particularly those that are important for the hotel, restaurant and catering industries. The drop in demand, and in some cases big price drops of fish and fish products, put a halt to or reduced the activity for many fishing fleets; their work became unprofitable. Fishers were also constrained when suppliers of industry inputs like ice, gear and bait closed, or stopped providing credit.</p>
<p>COVID also disrupted communication and connections with other fishers, traders, and customers. It greatly disrupted local market dynamics at landing sites, within the communities, and connections to more distant markets. </p>
<p>In some communities, people who had lost informal work – for instance in the tourism sector hit by COVID – turned to fishing. With changing numbers and abnormal markets, fishing and fish trade became very uncertain. </p>
<p>There is still uncertainty about the duration and severity of the pandemic, but a prolonged market downturn can be expected even after current restrictions are lifted or relaxed. </p>
<h2>Government interventions and coping strategies</h2>
<p>To cushion vulnerable communities, such as those involved in fishing and fish processing, the government of Kenya provided <a href="https://www.wfp.org/news/wfp-and-kenya-government-launch-cash-transfers-families-impacted-coronavirus-mombasa">direct financial assistance</a> including cash stipends via mobile funds transfer, relief food, and <a href="https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#K">tax relief</a>. However, many people we talked to in the five communities had very different experiences in receiving aid and support. </p>
<p>Some traders received a small portion of aid in the form of food. Some community leaders were involved in organising donations from other community organisations to deliver a one-off food aid package to fishers that included maize flour, beans, sugar, and soap. For others, there were delays, confusion or absence of support. Several people said that that while they had heard talk of government or other support, they had not received aid, even after registering.</p>
<p>Most households coped with the shocks of COVID-19 by decreasing the variety and quality of food they ate to conserve money. People stopped buying in bulk, used up existing savings, borrowed money (when there was still enough money in the community for people to lend), or swapped fish for goods directly. None of the strategies could be sustained in the long term.</p>
<h2>Next steps for policymakers</h2>
<p>Before the COVID-19 pandemic, the fisheries sector was considered <a href="https://fortuneofafrica.com/kenya/fisheries-sector-profile-kenya/#:%7E:text=The%20fisheries%20sector%20is%20relatively,sub%2Dsectors%20such%20as%20agriculture.&text=Aquaculture%20has%20grown%20exponentially%20in,sub%2Dsectors%20in%20the%20country.">one of the fastest-growing sectors</a>. During COVID-19, the Kenyan economy shed an estimated US$1.6 million in GDP contribution (down by 28.6%), and lost up to seven thousand industry jobs compared to 2019 levels. The COVID-19 pandemic, and efforts to curtail it, has been devastating to the fishing industry.</p>
<p>Our study highlights how each stage of the fisheries supply chain -— from catch, to trade, to consumption -— is susceptible to disruptions from COVID-19. Only by protecting each stage of the supply chain can human consumption of fish and fish products be achieved. Rules that disrupt fisheries livelihoods ought to be coupled with measures to support communities (such as food support). And they should reach people in a timely manner and be easy to access. </p>
<p>Treating small-scale fisheries as essential services (like exempting them from curfew), and facilitating ways of communicating and trading that do not involve large gatherings, will help support fisheries livelihoods. </p>
<p>Kenya’s domestic fisheries sector, much like the global fisheries industry, faces a multifaceted challenge. Multiple stakeholders need to be involved in the fisheries recovery process, including national governments. There is a need to harness financial, human and technical resources to support fisheries recovery, and at the same time to efficiently roll out <a href="https://graphics.reuters.com/world-coronavirus-tracker-and-maps/countries-and-territories/kenya/">vaccination programmes</a> and responsibly reopen the economy to domestic and international markets.</p>
<p><em>Dr Nyawira Muthiga contributed to the research and drafting of this article.</em></p><img src="https://counter.theconversation.com/content/171748/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Emmanuel Mbaru is a Senior Research Scientist at Kenya Marine and Fisheries Research Institute (KMFRI). This research was supported by the Western Indian Ocean Marine Science Association, the ARC Centre for Excellence in Coral Reef Studies, and the CGIAR Research Program on Fish Agri-Food Systems.</span></em></p><p class="fine-print"><em><span>Jacqueline Lau is affiliated with WorldFish—an international, not for profit research organization and part of the CGIAR that seeks to deliver research for a more food secure world, particularly for societies most vulnerable women and men. This research was supported by the Western Indian Ocean Marine Science Association, the ARC Centre for Excellence in Coral Reef Studies, and the CGIAR Research Program on Fish Agri-Food Systems.
</span></em></p><p class="fine-print"><em><span>Sarah Sutcliffe is a PhD candidate at the ARC Centre of Excellence for Coral Reef Studies, and is affiliated with WorldFish—an international, not for profit research organization and part of the CGIAR that seeks to deliver research for a more food secure world, particularly for societies most vulnerable women and men. This research was supported by the Western Indian Ocean Marine Science Association, the ARC Centre for Excellence in Coral Reef Studies, and the CGIAR Research Program on Fish Agri-Food Systems.</span></em></p>COVID-19 greatly disrupted local market dynamics at landing sites, within the communities, and connections to more distant markets.Mbaru Emmanuel, Senior Fisheries Scientist, Kenya Marine and Fisheries Research InstituteJacqueline Lau, Research Fellow, ARC Centre of Excellence for Coral Reef Studies, James Cook UniversitySarah Ruth Sutcliffe, Marine Social Sciences PhD candidate, James Cook UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1661292021-08-31T12:29:14Z2021-08-31T12:29:14ZMicroeconomics explains why people can never have enough of what they want and how that influences policies<figure><img src="https://images.theconversation.com/files/418067/original/file-20210826-21-1sf8j51.png?ixlib=rb-1.1.0&rect=0%2C8%2C997%2C788&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Microeconomists study how individuals and companies balance their desires and needs with costs and available resources.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/illustration/tiny-male-character-stand-with-magnifying-royalty-free-illustration/1247933978?adppopup=true">invincible_bulldog/iStock via Getty Images</a></span></figcaption></figure><p>Economics is broadly divided into <a href="https://www.britannica.com/topic/macroeconomics">macroeconomics</a> and <a href="https://doi.org/10.1057/978-1-349-95121-5_1212-1">microeconomics</a>. The big picture, macroeconomics, concentrates on the behavior of a national or a regional economy as a whole: the totals of goods and services, unemployment and <a href="https://www.britannica.com/topic/price-economics">prices</a>. </p>
<p>Then there’s a more detailed picture: the economic decisions that people and businesses make. Microeconomics analyzes behavior. It looks at how individuals and companies respond to incentives and <a href="https://www.econlib.org/library/Topics/College/scarcity.html">allocate scarce resources</a> efficiently.</p>
<p>People struggle to get as much as possible while spending as little as possible. The economist <a href="https://www.hoover.org/profiles/thomas-sowell">Thomas Sowell</a> has said there is never enough of anything to <a href="https://www.brainyquote.com/quotes/thomas_sowell_371242?src=t_scarcity">fully satisfy all those who want it</a>. This omnipresence of scarcity in our lives makes the study of human behavior compelling.</p>
<p>Microeconomics is divided into the <a href="https://www.sjsu.edu/faculty/watkins/constheo.htm">theory of the consumer</a>, which focuses on people’s behavior in market settings, and the <a href="https://www.cambridge.org/core/books/theory-of-the-firm/firm/74174CC30BA1E68B238F5A80CB75E14A">theory of the firm</a>, which concentrates on how businesses act, once again in market settings. </p>
<h2>Consumers pursue their self-interest</h2>
<p>In the 19th century, economists referred to consumers as “economic men” or <a href="https://www.investopedia.com/terms/e/economic-man.asp">homo economicus</a>. Today they might call consumers economic people. All of these terms refer to the idea that individuals make decisions based upon the rational pursuit of their self-interest. </p>
<p>The meaning of self-interest is pretty clear, but it’s important to comprehend what economists mean by pursuing it rationally. </p>
<p>To an economist, behavior is rational if it helps <a href="https://www.ecnmy.org/learn/you/choices-behavior/what-is-rationality/#:%7E:text=Rationality%2C%20for%20economists%2C%20simply%20means,the%20thing%20you%20like%20best.&text=Usually%20when%20we%20talk%20about,%2C%20you're%20acting%20rationally.">attain goals</a>. Economists <a href="http://read.hipporeads.com/what-an-economist-means-by-rationality/">do not pass moral judgment</a> on a person’s goals. Behavior that may seem irrational to a non-economist is not necessarily so to an economist. </p>
<p>To see this, say that a man named Raj wants to rob a bank. Given that goal, economists would say that if Raj conducts surveillance on the bank to look for security cameras, that’s rational behavior — for Raj.</p>
<p>Or if a woman named Asha hates credit cards, economists pass no judgment on her thinking and would say that for her, it is rational to burn credit cards. </p>
<h2>Consumers want the most they can afford</h2>
<p>To buy anything, a consumer must interact with a producer — a seller — whether that seller is a mom and pop store or Amazon. Consumer theory says they examine <a href="https://research.stlouisfed.org/publications/page1-econ/2013/04/01/prices-the-marketplaces-communication-system">prices</a> because they are interested in getting those goods and services that will make their satisfaction as large as possible at the lowest possible price. </p>
<p>Microeconomists study that interaction mathematically in two ways. First, they try to gauge a consumer’s satisfaction level by assigning a number based on how much this consumer values the goods and services she chooses to buy in a market. They call this number <a href="https://www.investopedia.com/terms/u/utility.asp">utility</a>.</p>
<p>Second, they interpret the act of seeking the most satisfaction as solving a <a href="https://www.sciencedirect.com/topics/computer-science/maximization-problem">maximization</a> problem. In a maximization problem, a consumer seeks the biggest bang for their buck. </p>
<p>Therefore, the central problem in consumer theory is the study of how consumers go about <a href="http://www2.harpercollege.edu/mhealy/eco211/lectures/utilmax/util.htm">maximizing their utility</a> in market settings — buying as much of what they like with the money they have available.</p>
<p>What fascinates microeconomists studying utility maximization is that it nicely illustrates a central tension in economics: how best to satisfy <a href="https://marketbusinessnews.com/financial-glossary/unlimited-wants/">unlimited wants</a> with limited means. The “unlimited wants” are captured by the notion of utility, and “limited means” refers to a consumer’s finite income or budget. Economists call this a <a href="https://math.libretexts.org/Bookshelves/Calculus/Book%3A_Vector_Calculus_(Corral)/02%3A_Functions_of_Several_Variables/2.07%3A_Constrained_Optimization_-_Lagrange_Multipliers">constrained maximization problem</a>.</p>
<p>As an example, consider Sheila, who has a budget of $1,000 a month (her constraint) for apartment rent. The monthly rents for apartments A, B and C are $900, $1,000 and $1,500. Sheila rules out apartment C – it’s too expensive. Apartment A will save her money, but apartment B, within her budget, may be nicer.</p>
<h2>Companies also pursue self-interest</h2>
<p>An integral part of microeconomics is the theory of the firm, the term economists use for companies. Economists believe that <a href="https://www.austincc.edu/sondg/handouts/micro/whyfirms.pdf">businesses exist</a> because team production is efficient and it <a href="https://www.cambridge.org/us/academic/subjects/economics/microeconomics/price-theory-and-applications-decisions-markets-and-information-7th-edition?format=PB&isbn=9780521523424">minimizes the costs of contracting</a>.</p>
<p>[<em>Over 110,000 readers rely on The Conversation’s newsletter to understand the world.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=100Ksignup">Sign up today</a>.]</p>
<p>Economists study how businesses make as much <a href="https://www.investopedia.com/terms/p/profit.asp">profit</a> as they possibly can. Companies, like individual people, try to solve a <a href="https://www.sciencedirect.com/topics/computer-science/maximization-problem">maximization problem</a>: how to <a href="https://www.basic-concept.com/c/what-is-profit-maximization-and-how-to-achieve-it">maximize their profit</a>. Producer theory seeks to explain how businesses do that.</p>
<p>The study of profit maximization is fascinating to a microeconomicist like me because no company can produce whatever it wants and in unlimited quantities. Businesses are constrained by their technical capabilities and the cost of paying for inputs like capital and labor. Microeconomists describe these technical capabilities by means of the <a href="https://www.britannica.com/topic/production-function">production function</a>. This mathematical relationship describes how businesses use capital and labor to produce their goods or services.</p>
<p>Microeconomics looks at how consumers and companies behave so that they can understand why society needs economic policies to regulate and shape their behavior.</p><img src="https://counter.theconversation.com/content/166129/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amitrajeet A. Batabyal does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Microeconomics analyzes how individuals and businesses behave as they try to get the most they can for as little money as possible.Amitrajeet A. Batabyal, Arthur J. Gosnell Professor of Economics, Rochester Institute of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1646602021-08-04T14:52:16Z2021-08-04T14:52:16ZBushmeat in Ghana: consumer profiles may point the way to conservation<figure><img src="https://images.theconversation.com/files/414308/original/file-20210803-19-1ec3hms.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Bush meat consumption is enjoying a renaissance in Ghana</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/go2net/8633744961">Wikimedia Commons/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>The bushmeat trade – meat from wild animals – continues to soar, mainly in unregulated and illegal markets worldwide. Ghana is one such market. One reason is that it’s a source of <a href="http://www.fao.org/3/w7540e/w7540e08.htm#3.1.2.%20income%20from%20hunting">income</a> for poor rural households. </p>
<p>It’s also an important source of nutrition. In West and Central Africa, bushmeat contributes about <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7126303/">80%-90% of the animal protein needs</a> in certain rural areas.</p>
<p>Previous studies of bushmeat consumption in Ghana have focused narrowly on a few cities. My colleagues and I conducted a <a href="https://www.tandfonline.com/doi/full/10.1080/10549811.2021.1944881">study</a> to broaden the scope to urban and rural households in Ghana’s three major ecological zones. We aimed to analyse individual consumer demographies and provide insights on different consumer segments. This could be used for public campaigns to change behaviours or promote domesticated bushmeat for sustainable forestry management. </p>
<p>The study revealed some differences in consumption between regions. It also led us to recommend safe meat harvesting strategies for conservationists.</p>
<h2>Segmenting markets and consumers</h2>
<p>The study was conducted in the three main ecological zones of Ghana. These are the high forest, transitional and savannah zones. The high forest zone has forest reserves containing species that are important for biodiversity in Ghana. A variety of wild game is hunted as bushmeat for the major markets in these areas. </p>
<p>The transitional zone has attributes of both the high forest and savannah zones. The Techiman market is located here, and because it is geographically a link between the north and south of Ghana, a high inflow of bushmeat is traded in this market. </p>
<p>In the savannah zone, we looked at Sene West, a district that has a major market centre and a national park. </p>
<p>In total, we interviewed 400 consumers. We focused on 14 variables including age, education, gender, household size, job and religion. People’s feelings about nutrition, taste, disease, fear of poisoning and bushmeat preference were considered. We also looked at the price and availability of bushmeat.</p>
<p>About 67% of the respondents were bushmeat consumers. The most preferred bushmeat was grasscutter, a type of cane rat. Two antelope species (<a href="https://animaldiversity.org/accounts/Philantomba_maxwellii/">Maxwell’s duiker</a> and <a href="https://animalia.bio/black-duiker">black duiker</a>) were also popular. </p>
<p>Three variables were associated with not eating bushmeat: price, the age of the person, and their religion. The quantity of bushmeat consumed was influenced by fear of contracting diseases and of eating bushmeat contaminated with poison. </p>
<p>Consumption was associated with perceived positive taste, nutrients and availability. Consumers ate greater quantities of bushmeat if it came from a local eatery (known as a ‘chop bar’) and if it was smoked. </p>
<p>Consumers were more likely to be young, except for those in the forest zone. Where livestock meat was more available and affordable, bushmeat was less likely to be eaten. In the forest and transitional zones, more educated people were less likely to eat bushmeat. But in the savannah zone higher education meant higher income and a greater likelihood of eating bushmeat, which is more expensive in this zone. </p>
<p>Consumers did not seem concerned about contracting diseases or consuming poison from bushmeat – except in the savannah zone. </p>
<p>We also discovered that religion is sometimes a factor in whether people eat bushmeat. For example, many Muslims require certain rituals to be conducted while slaughtering an animal – which isn’t usually done in bushmeat hunting. In the high forest zone, where the predominant ethnic group is Akan, some animals are culturally off limits but others can be eaten.</p>
<p>Unsurprisingly, chop bars emerged as the primary source of bushmeat for consumers. These local eateries are widely known for their diverse bushmeat offerings. </p>
<h2>Consumption and conservation</h2>
<p>The study results revealed that even though bushmeat consumption remains popular with some older people, there is an emerging market segment dominated by younger people. </p>
<p>With regard to forest management, the study recommends that the Wildlife Division of the Forestry Commission of Ghana enforce laws requiring only licensed chop-bar operators to sell bushmeat across the ecological zones, particularly in the transitional zone. </p>
<p>The public and chop-bar operators should be educated about buying wild game from licensed bushmeat hunters and sellers to prevent overharvesting.</p>
<p>Suppliers and producers of domesticated wild game should aim to maintain the taste of the meat while making it safe to eat. They should avoid using poison in harvesting and follow husbandry practices to reduce the likelihood of diseases that can spread from animals to people.</p>
<p>Marketing of domesticated wild game should target the younger group of consumers as they are less likely to be price-sensitive and more likely to buy in high quantities. A modern approach to marketing (such as digital marketing) might attract these consumers.</p>
<p>For conservationists and the government, religion and culture could serve to discourage the overharvesting of bushmeat from the wild.</p><img src="https://counter.theconversation.com/content/164660/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Kwasi Bannor does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>For conservationists and the government, religion and culture could serve to discourage the overharvesting of bushmeat from the wildRichard Kwasi Bannor, Senior Lecturer, Agribusiness, University of Energy and Natural ResourcesLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1188442019-06-27T14:43:36Z2019-06-27T14:43:36ZA ‘Computer Village’ in Lagos offers lessons on what it takes to help small firms thrive<figure><img src="https://images.theconversation.com/files/280680/original/file-20190621-61756-6iq1cc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Otigba Computer Village shows that sharing knowledge widely benefits all businesses in a cluster. </span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Nigeria’s <a href="https://cris.maastrichtuniversity.nl/portal/files/1122685/guid-79b7e0b5-aa89-4ce8-88ce-527f29fe35b0-ASSET1.0">Otigba Computer Village</a> is arguably the biggest information, communications technology (ICT) market in Africa. It started off as a one-man business on a street called “Otigba” in Ikeja, the capital of Lagos State. Within a short time it grew to a few thousand businesses occupying a vast area in the state. It represents an ICT solution centre for Nigeria as well as West Africa.</p>
<p>Three years ago Nigeria’s National Bureau of Statistics estimated that the <a href="http://www.nigerianstat.gov.ng/download/403">informal sector</a> had accounted for as much as 41% of the country’s economy in 2015. The informal sector in Nigeria continues to grow for numerous reasons. These include:</p>
<ul>
<li><p>limited ability of the formal economy to absorb surplus labour (largely dominated by people aged between 15 and 50 years);</p></li>
<li><p>barriers to entry into the formal economy by young entrepreneurs who have ideas but little capital to compete with large firms in the formal sector;</p></li>
<li><p>weak government institutions (regulatory bodies); and</p></li>
<li><p>poor economic conditions which are forcing many consumers to demand cheap goods and services.</p></li>
</ul>
<p>The Otigba <a href="https://www.isc.hbs.edu/competitiveness-economic-development/frameworks-and-key-concepts/Pages/clusters.aspx">cluster</a> is no exception. It remains largely informal despite its size, the volume of economic transactions being done daily and the technical knowledge put to use in the market. <a href="https://www.innovationpolicyplatform.org/sites/default/files/rdf_imported_documents/knowledge_cluster_africa_2008.pdf">Numerous studies</a> have been done to evaluate the size and capacity of the cluster, its evolution, mode of operation, performance, sustainability and constraints.</p>
<p>But before my research there had been no studies on how businesses within the cluster identified new and useful knowledge and how they applied that knowledge to innovation to increase their performance and profitability by scaling-up their operations.</p>
<p>Research across the world shows that when businesses cluster together there is bound to be an exchange of knowledge. This can be through spillovers or conscious transfers. With more than 4000 businesses, Otigba should be no exception. So, I set out to test this by surveying 200 business units, representing about 5% of the size of the cluster. I wanted to understand how knowledge is being identified, acquired, developed, used and diffused in the cluster.</p>
<p>The <a href="http://www.tips.org.za/research-archive/item/download/1694_07489277bcd1cb78798ffbf3582ea61a">study</a> also sought to understand how the spread of knowledge within the cluster led to innovation and the scaling of business operations. Innovation here refers to significant technical changes in the product, services, production processes or delivery method.</p>
<p>To measure the scaling up of businesses, the study examined:</p>
<ul>
<li><p>inputs (access to more finances, number of employees), </p></li>
<li><p>activities (sub-contracting, outsourcing and collaborations),</p></li>
<li><p>outputs (turnover, quality, quantity) and</p></li>
<li><p>impacts (compliance to international standard, technology upgrading and net export). </p></li>
</ul>
<p>The study used these indicators because they are yardsticks for measuring growth in firms in the formal sector.</p>
<h2>Some interesting findings</h2>
<p>When businesses operate in close proximity, as they do in clusters, knowledge sharing is inevitable. I found this to be true in Otigba. This is mainly because the daily routine of the businesses involves: rotation of tasks and the regular training of employees (mainly apprentices) by highly skilled technical personnel, usually the owner of the business or someone appointed as senior manager. </p>
<p>Most businesses didn’t give preference to employees with relevant experience when hiring. Instead, they used the expertise of qualified technicians to train new employees. As a result apprentices learnt on the job. </p>
<p>By and large, it took new employees less than two years to acquire all the necessary knowledge they needed to do the jobs they were hired for. The result is that apprenticeship has become one of the major channels for skills acquisition and knowledge diffusion within the cluster. Apprenticeship involves on-the-job learning by young employees under the supervision of experts. During this period, tacit knowledge is passed on to the apprentices until they become experts themselves. These apprentices thus graduate, ready to start their own businesses or secure employment as technicians in the formal sector.</p>
<p>The other channel for diffusion of knowledge within the clusters is the trade association and the unions. These have enabled collaborative innovation in the cluster which has made it possible for firms to compete as a cluster against international players. This is because of the monitoring role played by trade association and unions such as the Computer and Allied Product Dealers Association of Nigeria. The union ensures that new knowledge about new technologies (product and process) are made known to all it members. The union facilitates collective importation of expensive equipment as well as sharing to tools and technicians among its members.</p>
<p>Because of knowledge sharing in the cluster, the majority of new businesses were able to scale up their operations within the first three years of operation. This is remarkable given that <a href="https://www.jpmorganchase.com/corporate/institute/small-business-longevity.htm">research</a> shows that a third of new small business die within two years, and half within five years of starting up. Thus knowledge sharing through clustering is organic incubation – one viable way to survive the first three years as a start-up.</p>
<p>Knowledge sharing also enabled most of the enterprises to increase their capital resources within three years of start-up. They did this either through their own generated resources or through loans. The main source of loans came from commercial banks followed by co-operative societies, business angels and micro-credit organisations. </p>
<p>Most enterprises increased their work force to run their businesses because of good business performance. During the scaling-up period, there was lots of collaboration between firms within the cluster as well as with other businesses, organisations and institutions outside of the cluster. This facilitated the transfer of knowledge among cooperating firms. </p>
<p>Finally, the effects of scaling-up enhanced the ability of businesses to: </p>
<ul>
<li><p>satisfy customers’ demands; </p></li>
<li><p>comply with Nigerian regulations and standards;</p></li>
<li><p>develop more environmentally friendly products/processes; and </p></li>
<li><p>improve product quality. </p></li>
</ul>
<p>Also, knowledge sharing that happened during the scaling up enabled businesses to extend their product range, deal successfully with new competitors abroad, and lower their production costs.</p>
<h2>Conclusion</h2>
<p>My research found that openness and proximity increased access to information, customers, new domestic markets, tools and technology, suppliers of raw materials and inputs. In addition, all the enterprises that benefited from proximity in the cluster were involved in at least one form of innovation.</p>
<p>In conclusion, the study posits that knowledge need not be protected in clusters or in the informal sector generally. Instead, it should be shared widely so that other businesses can adopt, or adapt, it. This in turn spurs further innovation and the rapid development of the sector. Openness will also aid the development of other sectors through knowledge spill overs. This, in turn, will create healthy competition among businesses.</p><img src="https://counter.theconversation.com/content/118844/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Through the African Innovation Research (AIR) Partnership, this work was carried out with financial support from the UK Government’s Department for International Development, the International Development Research Centre, Canada, and the Social Sciences and Humanities Research Council of Canada. The views expressed in this work are those of the creators and do not necessarily represent those of the research funders</span></em></p>The Otigba Computer Village shows how businesses in a largely informal market identify new and useful knowledge, apply it innovatively to scale up their operations and increase profits.Oluseye Jegede, College of Business and Economics, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1184452019-06-07T14:28:34Z2019-06-07T14:28:34ZForget lower jobs growth, the number of people who’ve stopped looking for work is much more worrisome<figure><img src="https://images.theconversation.com/files/278529/original/file-20190607-52771-191mf7z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Millions of unemployed Americans have become too discouraged to look for work.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/stressed-women-unemployed-597667457?src=Bvpw7M6OkPsLsdDgywxjWQ-2-50">Manop_Phimsit/Shutterstock.com</a></span></figcaption></figure><p>The <a href="https://www.bls.gov/news.release/pdf/empsit.pdf">latest jobs report</a> showed a lackluster gain in jobs in May that was <a href="https://www.bloomberg.com/news/articles/2019-06-07/u-s-payrolls-rise-75-000-missing-forecasts-as-wage-gains-cool?srnd=premium">worse than economists had predicted</a>. </p>
<p>While the sudden slowdown in jobs growth after many months of strong numbers is worrying and signals a weakening economy, a more long-term concern is the persistently low labor force participation rate that has not <a href="https://fred.stlouisfed.org/series/CIVPART">recovered in the decade since the onset of the Great Recession</a>. </p>
<p><a href="https://econofact.org">I’ve been studying</a> labor market issues for over much of my 30 year career as an economist. Let me explain why you should be paying more attention to the participation rate. </p>
<h2>Participation matters</h2>
<p>Strong employment growth is important because getting a job is one of the best ways to improve a person’s economic standing. For this reason, slowing employment growth and rising unemployment are worrisome. </p>
<p>But while the <a href="https://fred.stlouisfed.org/series/UNRATE">unemployment rate</a> is currently near a 50-year low of 3.6%, that statistic doesn’t tell the full story and can mask a deterioration in the labor market. </p>
<p>The <a href="https://www.investopedia.com/terms/p/participationrate.asp">participation rate</a> measures all active workers divided by the working-age population. More importantly, it reflects people’s attachment to the job market – including their economic engagement and also, because a job is such an important part of a person’s identity, their overall well-being.</p>
<p>When people who are unemployed grow too discouraged and stop looking for work, it causes the participation rate to go down. But as a result, the unemployment rate goes down as well because it doesn’t include people who have given up. This makes the picture look better than it is. </p>
<p>From about the late 1980s until 2008, the participation rate fluctuated around 66% to 67%. But after the Great Recession, the rate dropped more 3 percentage points over the next seven years and has barely budged since. The latest jobs report shows it’s at 62.8%. </p>
<p>The 3 percentage points decline in participation translates to over 6 million people no longer in the labor force. </p>
<p><iframe id="JsDLi" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/JsDLi/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>Trends in men and women</h2>
<p>What’s driving the decline?</p>
<p>Men’s labor force participation <a href="https://fred.stlouisfed.org/series/LNS11300001">has actually been falling</a> for almost six decades. One <a href="https://econofact.org/where-have-all-the-male-workers-gone">possible reason</a> for this is the decline in low-skilled jobs, a decline that was quite sharp during the worst periods of the Great Recession. Even with the improvement of labor market conditions since the depths of the recession, the participation rate has not recovered.</p>
<p>Women’s labor force participation <a href="https://fred.stlouisfed.org/series/LNS11300002">has also been declining</a>, although this is a somewhat more recent phenomenon. It had been rising since at least World War II from around 30% to a peak of around 60% in 1990, when the United States <a href="https://www.brookings.edu/research/what-we-know-and-dont-know-about-declining-labor-force-participation-a-review/">had the sixth-highest labor force participation rate of women</a> among the 22 most advanced economies in that year. But around the time of the recession, it began to drop, and by 2010 the U.S. fell to 17th place. </p>
<p>Possible <a href="https://econofact.org/women-and-paid-work-is-the-u-s-falling-behind">reasons</a> include the relative lack of parental leave and child-care policies compared with these other economies, as well as the greater opportunity for part-time work.</p>
<p>There are appropriate concerns about the cyclical headwinds facing the U.S. economy, and the May jobs report does little to offset those worries. But policymakers and all Americans should also be concerned about persistent longer-run trends, like the continuing low rate of labor force participation.</p>
<p>[ <em>Like what you’ve read? Want more?</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=likethis">Sign up for The Conversation’s daily newsletter</a>. ]</p><img src="https://counter.theconversation.com/content/118445/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Klein is the Founder and Executive Editor of EconoFact, a non-partisan website that publishes research from its network of academic economists (<a href="http://www.econofact.org">www.econofact.org</a>). </span></em></p>An economist explains why the long-term drop in the participate rate is an even bigger problem for the US economy than the May slowdown in jobs growth.Michael Klein, Professor of International Economic Affairs at The Fletcher School, Tufts UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1138922019-03-22T10:44:06Z2019-03-22T10:44:06ZBoeing 737 Max: The FAA wanted a safe plane – but didn’t want to hurt America’s biggest exporter either<figure><img src="https://images.theconversation.com/files/265143/original/file-20190321-93057-19m3e1w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Boeing is accused of not being fully forthcoming about changes it made to the 737 Max.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Ethiopia-Plane-Crash-Boeing/658cb7a4c88e4e6d88f6ad3846dd6b0a/29/0">AP Photo/Ted S. Warren</a></span></figcaption></figure><p>Recent incidents aside, air travel <a href="https://www.usatoday.com/story/tech/2018/04/19/airlines-including-southwest-so-safe-its-hard-rank-them-safety/533166002/">is incredibly safe</a> these days. </p>
<p><a href="http://www.baaa-acro.com/statistics/death-rate-per-year?page=0">Global airplane fatalities averaged 840 a year</a> from 2010 to 2018, compared with almost 2,000 in the 1990s. In fact, this decade is on pace to see the fewest casualties since the dawn of jet travel in the 1930s. </p>
<p>Yet the <a href="https://www.cnn.com/2019/03/12/africa/ethiopian-airlines-flight-302-questions-intl/index.html">March 10 crash</a> of Ethiopian Airlines Flight 302 serves as a stark reminder that despite the significant safety gains in commercial aviation, accidents are still possible. And when they occur, the number of fatalities is often large.</p>
<p>What makes the most recent crash particularly concerning is that the airplane design <a href="https://www.washingtonpost.com/business/how-a-boeing-safety-feature-became-a-suspect-in-crashes/2019/03/19/904243b4-49fb-11e9-8cfc-2c5d0999c21e_story.html?utm_term=.5dcd549c4081">may have played a significant contributing role</a>. Perhaps even worse, there are early indications that regulators at the Federal Aviation Administration – the agency that oversees the development and certification of all U.S. airplanes – may have been more concerned <a href="https://medium.com/@dsaintgermain/the-boeing-debacle-is-the-latest-example-of-regulatory-capture-2a8e138a9c8b">about bringing the Boeing 737 Max to market</a> than about consumer safety.</p>
<p>As a result, <a href="https://www.washingtonexaminer.com/news/capt-sullenberger-737-max-crashes-reveal-cozy-relationship-between-boeing-faa">observers have accused</a> the FAA of being too cozy with Boeing. And <a href="https://www.cnbc.com/2019/03/19/transportation-secretary-asks-departments-inspector-general-to-audit-faas-certification-of-boeing-737-max.html">transportation officials in both the U.S.</a> and <a href="https://www.cnbc.com/2019/03/18/canada-re-examining-boeing-max-approval-after-faa-certification-probe.html">Canada</a> plan to review how the plane got certified to fly by the FAA.</p>
<p>As experts on the regulatory process, we see this as a tragic example of what happens when an agency must <a href="https://www.amazon.com/Bureaucracy-Government-Agencies-Basic-Classics/dp/0465007856">balance competing goals</a>. The FAA was supposed to protect air travelers and regulate aircraft makers. At the same time, it doesn’t want to make it harder for companies like Boeing to make money in a very competitive global market.</p>
<p>And a heated rivalry is exactly where Boeing’s current troubles began.</p>
<h2>Competing in a global market</h2>
<p>The global market for jetliners has been dominated by two major competitors: <a href="https://www.cnbc.com/2019/01/25/why-the-airbus-boeing-companies-dominate-99percent-of-the-large-plane-market.html">Boeing and Airbus</a>. Since the 1990s, they’ve been in a bruising battle over market share. </p>
<p>Competition has been particularly fierce in the narrow-body or single-aisle aircraft market. This segment historically has made up about two-thirds of deliveries for both <a href="https://www.airbus.com/aircraft/market/orders-deliveries.html">Airbus</a> and <a href="http://www.boeing.com/commercial/#/orders-deliveries">Boeing</a>. It also holds <a href="https://www.planestats.com/mro9_2018mar">significant growth potential</a> in the future. Altogether, they have sold and delivered almost <a href="https://www.forbes.com/sites/richardaboulafia/2018/03/14/how-the-airbus-boeing-single-aisle-jet-party-could-end/#60ce0ba95a53">20,000 aircraft</a> from the A320 or 737 families since their respective launches in the 1970s and 1980s.</p>
<p>When one company gains even a slight edge by offering a more efficient product, the implications can be massive. This occurred with the <a href="https://www.airbus.com/newsroom/press-releases/en/2011/06/airbus-with-new-order-record-at-paris-air-show-2011.html">highly successful launch of the Airbus 320neo in 2010</a>. The cost savings from reduced fuel consumption proved so significant that even <a href="https://www.nytimes.com/2011/07/21/business/global/american-places-record-order-with-2-jet-makers.html">American Airlines</a>, an exclusive Boeing customer at the time, ordered several hundred 320neos. Fuel is the <a href="https://www.investopedia.com/ask/answers/040715/what-are-major-expenses-affect-companies-airline-industry.asp">second-highest expense for airlines after labor</a>.</p>
<h2>Boeing playing catch-up</h2>
<p>Falling behind its rival, Boeing felt the need to update its 737 family. And it had to do it fast, <a href="https://www.newyorker.com/news/our-columnists/how-did-the-faa-allow-the-boeing-737-max-to-fly">particularly with regard to fuel efficiency</a>.</p>
<p>So Boeing decided to alter the position of the plane’s engines. But doing so changed the plane’s aerodynamics in a way that could cause the plane’s nose to tip upward into a stall, which is what appears to have happened repeatedly before the recent crashes. </p>
<p>Boeing sought to solve this engineering problem using an <a href="https://theaircurrent.com/aviation-safety/what-is-the-boeing-737-max-maneuvering-characteristics-augmentation-system-mcas-jt610/">automated correction system</a> known as MCAS. A <a href="https://www.seattletimes.com/business/boeing-aerospace/failed-certification-faa-missed-safety-issues-in-the-737-max-system-implicated-in-the-lion-air-crash/">malfunction of this system</a> may have contributed to the crashes of <a href="https://www.reuters.com/article/us-ethiopia-airplane/ethiopian-crash-crews-voices-could-unlock-high-stakes-boeing-inquiry-idUSKCN1R0183">Ethiopian Airlines Flight 302</a> and <a href="https://www.nytimes.com/2018/11/09/world/asia/air-lion-crash-610.html">Indonesian Lion Air Flight 610</a> in October – although investigations are ongoing.</p>
<p>Boeing <a href="https://boeing.mediaroom.com/2019-03-18-Letter-from-Boeing-CEO-Dennis-Muilenburg-to-Airlines-Passengers-and-the-Aviation-Community">has put out a statement</a> saying that it working with investigators to determine the cause of the crash. </p>
<h2>The FAA and the Boeing 737 Max 8</h2>
<p>Even before these incidents, <a href="https://www.seattletimes.com/business/boeing-aerospace/failed-certification-faa-missed-safety-issues-in-the-737-max-system-implicated-in-the-lion-air-crash/">there were concerns</a> that the FAA was delegating too much safety oversight to Boeing itself.</p>
<p>The FAA allowed Boeing to <a href="https://www.seattletimes.com/business/boeing-aerospace/failed-certification-faa-missed-safety-issues-in-the-737-max-system-implicated-in-the-lion-air-crash/">handle much of the safety certification process</a>, and Congress <a href="http://fortune.com/2019/03/18/boeing-safety-vetting-faa/">supported doing so</a> – though recent events may be prompting lawmakers to <a href="https://chicago.cbslocal.com/2019/03/18/boeing-737-max-faa-congress-investigation">change their tune</a>. Reports have suggested that Boeing <a href="https://www.seattletimes.com/business/boeing-aerospace/failed-certification-faa-missed-safety-issues-in-the-737-max-system-implicated-in-the-lion-air-crash/">even excluded FAA technical experts</a> from some of those decisions. </p>
<p>In addition, recent analyses suggest that <a href="https://www.seattletimes.com/business/boeing-aerospace/failed-certification-faa-missed-safety-issues-in-the-737-max-system-implicated-in-the-lion-air-crash/">Boeing made several misjudgments when it designed MCAS</a> and <a href="https://www.seattletimes.com/business/boeing-aerospace/failed-certification-faa-missed-safety-issues-in-the-737-max-system-implicated-in-the-lion-air-crash/">hasn’t been fully forthcoming</a> with both the FAA and airlines about how it worked. The airline has also been accused of providing inadequate training for pilots. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/265146/original/file-20190321-93039-u4huwd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/265146/original/file-20190321-93039-u4huwd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=371&fit=crop&dpr=1 600w, https://images.theconversation.com/files/265146/original/file-20190321-93039-u4huwd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=371&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/265146/original/file-20190321-93039-u4huwd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=371&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/265146/original/file-20190321-93039-u4huwd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=466&fit=crop&dpr=1 754w, https://images.theconversation.com/files/265146/original/file-20190321-93039-u4huwd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=466&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/265146/original/file-20190321-93039-u4huwd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=466&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The National Transportation Safety Committee Chairman Soerjanto Tjahjono, right, spoke about a third troubled Boeing flight.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Indonesia-Lion-Air-Crash/8ac04371398647dd93df2a774c1c1648/1/0">AP Photo/Achmad Ibrahim</a></span>
</figcaption>
</figure>
<h2>‘Regulatory capture’ at the FAA?</h2>
<p>This has led <a href="http://fortune.com/2019/03/18/boeing-safety-vetting-faa/">critics to argue</a> that the FAA has gotten too close to the entity it was supposed to oversee. </p>
<p>This situation – when regulatory agencies created to protect the public interest become overly entangled with commercial and special interests – is known as “<a href="http://law.emory.edu/ecgar/content/volume-1/issue-1/essays/regulatory-capture.html">regulatory capture</a>.” Many see this <a href="https://tobinproject.org/sites/tobinproject.org/files/assets/Introduction%20from%20Preventing%20Regulatory%20Capture.pdf">as corrosive for society</a>. The 2010 <a href="https://www.newsweek.com/oil-spills-biggest-losers-74817">Deep Water Horizon oil explosion</a>, the <a href="https://www.britannica.com/event/Deepwater-Horizon-oil-spill-of-2010">largest marine spill in history</a>, is considered an example of this.</p>
<p>Yet, <a href="https://www.cambridge.org/core/books/preventing-regulatory-capture/reconsidering-agency-capture-during-regulatory-policymaking/73AD5D37B4A5769BB9B828818ECD3B81">capture is difficult to prove</a>, especially in an era when businesses must work closely with government to ensure that agency officials have the best and latest technical information to develop and issue appropriate regulations. </p>
<p>During this process, public regulators are supposed to act in the “public interest.” However, the term is inherently vague and open to a multitude of competing interpretations. Unless it involves outright bribes or other corrupt activities, business influence on regulators fails to amount to criminal conduct.</p>
<p>To us, it seems that the FAA was simply caught in an impossible position between the competing goals of protecting consumers and protecting American business interests. In this case, the pendulum may have swung too far to the side of the latter.</p>
<p>Unquestionably, we want our airplanes to be safe. And, to be clear, we believe <a href="https://www.boeing.com/company/about-bca/aviation-safety.page">Boeing does</a> as well. Yet we also want American companies to be successful, and regulations are inherently <a href="https://www.mercatus.org/publication/cumulative-cost-regulations">costly and time-consuming for businesses</a>, many of which are competing with companies worldwide.</p>
<p>It is not surprising that Boeing was eager to move forward with the 737 Max as fast as possible. Nor is it surprising that the FAA and other regulatory bodies are hesitant to impose excessive burdens on American companies – particularly on one of the <a href="https://www.seattletimes.com/business/u-s-facing-fresh-scrutiny-over-close-ties-with-boeing/">nation’s premier exporters</a>. </p>
<p>And generally, <a href="https://www.cambridge.org/core/journals/american-political-science-review/article/influence-and-the-administrative-process-lobbying-the-us-presidents-office-of-management-and-budget/638F34BC73235AB4833C852B24C431AF">business interests tend to be much more successful</a> in obtaining their preferred regulatory outcomes than public interest groups. Our own recent work shows that the White House – regardless which party controls it – <a href="https://doi.org/10.1093/jopart/muy033">is more likely to interfere</a> with regulations coming out of more liberal and arguably pro-regulatory agencies. </p>
<h2>The pendulum keeps swinging</h2>
<p>The existence of competing incentives confronting regulatory agencies is nothing new. Public agencies must serve a multitude of goals and objectives and somehow find an appropriate balance.</p>
<p>Yet, at times, the balancing act by public agencies may tilt too far in one direction. And unfortunately, when the imbalance occurs at agencies tasked with protecting public safety, the consequences can be exceedingly dire. </p>
<p>It seems likely that increased public scrutiny in the wake of the two crashes may force the FAA to take a more aggressive stance on the side of consumer safety in the future. Eventually, however, business interests are likely to begin pushing back, and once again the pendulum will swing the other way.</p><img src="https://counter.theconversation.com/content/113892/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Susan Webb Yackee has an Innovation in Regulatory Science Award from the Burroughs Wellcome Fund, and her research is also supported by the Russell Sage Foundation.</span></em></p><p class="fine-print"><em><span>Simon F. Haeder is a Fellow in the Interdisciplinary Research Leaders Program, a national leadership development program supported by the Robert Wood Johnson Foundation to equip teams of researchers and community partners in applying research to solve real community problems.</span></em></p>Some are calling the FAA’s relationship with Boeing an open-and-shut case of ‘regulatory capture.’ The reality is more complicated.Susan Webb Yackee, Professor of Political Science, University of Wisconsin-MadisonSimon F. Haeder, Assistant Professor of Political Science, West Virginia UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1004102018-07-25T14:45:55Z2018-07-25T14:45:55ZWhy South Africa needs to discipline the private healthcare industry<figure><img src="https://images.theconversation.com/files/229060/original/file-20180724-194143-1lj4nb6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>If a service is provided by a company rather than government, this does not automatically mean a market is at work. The point is fairly obvious but has passed many in South Africa by.</p>
<p>Private provision of services is moving into the spotlight in South Africa as the government looks to make the health system more accessible to the poor. One aspect is the <a href="https://www.huffingtonpost.co.za/2018/07/06/5-things-you-need-to-know-about-the-healthcare-market-inquiry_a_23475961/">Health Market Inquiry</a>, established by the Competition Commission and chaired by former Chief Justice Sandile Ngcobo. It recently released a provisional report recommending more regulation of private health care. It has invited comment on its ideas.</p>
<p>It is absolutely inevitable that whatever proposals it comes up with will be <a href="https://bhekisisa.org/article/2016-01-20-motsoaledi-accused-of-seeking-justification-to-control-prices">attacked</a> as an assault on the free market in health care. This will ignore the reality – that there is no market in health care in South Africa, at least not one which works in the way in which markets are meant to work.</p>
<p>To get an obvious point out of the way first, markets work only for people who have enough money to take part. So it is true that a healthcare market in South Africa would exclude many people who cannot afford private care. But that is not the only problem with the private healthcare system – another is that even those who are able to join medical schemes do not get the benefits markets are meant to offer.</p>
<p>For markets to <a href="http://www.compcom.co.za/wp-content/uploads/2018/07/Health-Market-Inquiry-1.pdf">work</a> as they are meant to, consumers must be able to make informed choices: they must have both a real right to choose and enough information to make that choice. But information and choice operate weakly in private healthcare and not at all in the private health insurance offered by medical aids.</p>
<p>This places the South African debate about healthcare in perspective. The Competition Commission and the health ministry are not trying to abolish the market, they are trying to make it work. The accurate debate is about whether they are doing it in the best possible way.</p>
<h2>No real choice</h2>
<p>It might be true that people who can afford private medical care can choose their general practitioner. But that is where it ends. If patients need specialised care or hospital treatment, they don’t choose the specialist or the place where they will be treated. </p>
<p>And so they have no way of ensuring that they get the best possible care. While popular wisdom in the suburbs often assumes that all private doctors and hospitals are good, inevitably some are a great deal better than others and some are no good at all. But consumers do not make an informed choice on where to go and who to go to, although this is a far more important decision than buying a kettle.</p>
<p>Informed <a href="http://www.compcom.co.za/wp-content/uploads/2018/07/Health-Market-Inquiry-1.pdf">choice</a> of a medical aid scheme is just about non-existent. Most people belong to the scheme their employer chooses. If they are “lucky” enough to have a choice in theory, they do not have one in practice. Medical aids do not <a href="https://www.health24.com/News/sas-private-healthcare-not-competitive-20180705">publicise</a> what they do and the language they often use most people can’t understand and so there is no way to “shop around” in ways which would make an informed choice possible.</p>
<p>The situation is quite the same when people have joined schemes. Information on what is allowed and what is not may be understandable to doctors and pharmacists, but not to scheme members.</p>
<p>The supposed solution is the <a href="https://www.fin24.com/Companies/Health/calls-to-include-health-market-inquiry-findings-in-new-medical-aid-regulations-20180723">medical aid broker</a>, who is meant to help consumers to choose and to deal with the scheme after they join. But the brokers are paid by the schemes and so it is no surprise that they are there to look after the scheme, not the consumer.</p>
<p>Brokers direct people to the schemes they are working for, not those which will best meet the needs of the consumer. Anyone who has a problem with a medical aid’s decision will soon find that the broker is a public relations officer, not a consumer representative. Their job is to justify the scheme’s decision, not to question it.</p>
<h2>Pro -market moves</h2>
<p>Given all this, the Health Market Inquiry’s proposal that healthcare providers and funders should be regulated is a pro-market move – it seeks to make informed choice more of a factor than it is now. There is room for debate on whether it is going about it in the best way. But to claim that it is an <a href="https://bhekisisa.org/article/2016-01-20-motsoaledi-accused-of-seeking-justification-to-control-prices">attack on markets</a> ignores the way in which private healthcare operates.</p>
<p>Similarly, an amendment to <a href="https://businesstech.co.za/news/government/253207/these-are-the-10-massive-medical-aid-changes-you-need-to-know-about/">the Medical Aid Schemes Bill</a> which would abolish brokers is currently up for discussion. It, too, is not an attack on the market. Its likely effect would be to force brokers into the customer relations departments of the medical schemes, improving market information by ensuring that consumers know that they are dealing with people who work for the schemes, not for them. </p>
<p>Again, to oppose this measure is not to defend the market – it is the opposite. To argue against it is to say that a market in which people know who they are dealing with and can make informed choices is not a good idea.</p>
<p>The tendency to assume that private provision means that there is a market even when there is not is not restricted to health care. For years, it was assumed in the mainstream that the market was delivering satellite television when there was only <a href="https://mybroadband.co.za/news/broadcasting/226269-how-icasa-proposes-the-multichoice-dstv-monopoly-should-be-broken.html">one supplier</a>. Moving from services to goods, many beer drinkers no doubt toast the market as they choose between a range of labels produced by one company. </p>
<p>More generally, concentration in the formal economy means that most goods are produced by subsidiaries of a handful of companies – and sold in stores owned by only two or three firms. While competition between a couple of firms is technically a market, it is hardly one which offers strong benefits to consumers.</p>
<h2>Making markets work</h2>
<p>This has two implications for South Africa’s economic debate. The first is that not all proposals for regulating private economic activity are an attack on the market. A key feature of the country’s economy is that it is dominated by very few players and so markets often do not work as they should. A stronger government role could mean stronger, not weaker, markets.</p>
<p>The second is that, in these circumstances, the claim that markets must be left alone very often means that there is a need to leave existing private providers alone. This hides the reality that, in current circumstances, the challenge is not to protect private providers but to ensure that they really are subjected to the rules by which markets are meant to force them to play.</p><img src="https://counter.theconversation.com/content/100410/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steven Friedman does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Debates around South Africa’s health market inquiry must remember that not all proposals for regulating private economic activity are an attack on the market.Steven Friedman, Professor of Political Studies, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/940372018-04-12T14:10:36Z2018-04-12T14:10:36ZObstacles facing a young black farmer in South Africa: a personal story<figure><img src="https://images.theconversation.com/files/213363/original/file-20180405-95689-e1odr9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The cabbage plantation on Lonwabo Jwili's farm emerged from the toils that up-and-coming black farmers have to endure. </span> <span class="attribution"><span class="source">Supplied</span></span></figcaption></figure><p>A new sense of urgency has entered South Africa’s land reform process after the country’s parliament took a <a href="https://www.news24.com/SouthAfrica/News/breaking-national-assembly-adopts-motion-on-land-expropriation-without-compensation-20180227">resolution</a> to amend the constitution to effect land expropriation without compensation. But even this will fail if the country doesn’t improve support for small and emerging black farmers who should be allocated a prime role in any reform process. </p>
<p>International experience shows that small and middle-range farmers play a critical role in land reform processes. For example, <a href="https://theconversation.com/zimbabwe-urgently-needs-a-new-land-administration-system-89387">research</a> on Zimbabwe shows increased productivity on small and medium-sized farms after land reform. </p>
<p>In my <a href="http://www.plaas.org.za/blog/how-black-farmers-are-constrained-state-corruption-eastern-free-state">research</a>, I found that South Africa has failed to take advantage of the “middle farmer” factor. Support from government is grossly insufficient; banking support is almost non-existent.</p>
<p>Black people who venture into commercial farming are bound to fail. Commercial farming is a capital intensive business. The battle to secure support has forced many struggling black farmers to rent out their land to established white farmers. </p>
<p>The situation is made worse by the fact that what limited state support there is has been hijacked by corrupt elements or a small authoritarian rural elite. A selected few politically connected individuals have begun to dominate the space. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/213426/original/file-20180405-189804-jm3k61.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/213426/original/file-20180405-189804-jm3k61.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=606&fit=crop&dpr=1 600w, https://images.theconversation.com/files/213426/original/file-20180405-189804-jm3k61.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=606&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/213426/original/file-20180405-189804-jm3k61.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=606&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/213426/original/file-20180405-189804-jm3k61.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=762&fit=crop&dpr=1 754w, https://images.theconversation.com/files/213426/original/file-20180405-189804-jm3k61.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=762&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/213426/original/file-20180405-189804-jm3k61.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=762&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Lonwabo Jwili.</span>
<span class="attribution"><span class="source">Supplied</span></span>
</figcaption>
</figure>
<p>If this is left unchanged, South Africa is likely to see more black commercial farmers being forced out of the space. Some may turn to renting out their land, others may sell their properties back to white farmers. This will render the land acquisition process futile.</p>
<p>The experiences of a young black aspirant commercial farmer named Lonwabo Jwili, who has bought a small piece of land near Johannesburg, are a case in point. He highlighted his challenges in a conversation I had with him.</p>
<hr>
<p><strong>Would you advise young black South Africans to go into farming?</strong></p>
<p>I would advise them to go into farming only if they have passion for it. Farming is not like most jobs. It’s extraordinarily hard and requires lots of patience which runs out if not accompanied by loads of passion.</p>
<p>Farming will break and bankrupt you. It will test your mental strength. </p>
<p><strong>From your experience, what are the three “make or break” interventions for young black farmers?</strong></p>
<p>Access to information, finance and markets.</p>
<p><em>Access to information:</em> My experience tells me that young black people who try out farming face a dearth of information about critical aspects. For example, you don’t find readily accessible information on planting practices.</p>
<p>I think this is a function of the fact that the country doesn’t have a very good extension service programme – a worldwide practice of professional agents who help farmers improve productivity by providing advice, information and other critical support services. </p>
<p>The Department of Agriculture is meant to run an extension service programme. But in my experience, it’s very poor to non existent. The only time extension officers have been to my farm was when they came to give me advice on my irrigation system. And it turned out to be very bad advice.</p>
<p>In my case I certainly needed good information to make headway because I ventured into unknown territory. Yes, I grew up on a farm. But my homegrown farming knowledge was on livestock. I’m currently producing vegetables and some grains. A well functioning agricultural extension service would have saved me time and money.</p>
<p><em>Access to finance:</em> Everywhere you look in South Africa there are claims that the country provides financial support for small and emerging farmers. The banks and state owned development finance institutions make this empty claim. </p>
<p>The Land Bank is a perfect example. It is supposed to develop small black farmers like myself. But it’s almost impossible to get funding from the Land Bank.</p>
<p>When I tried to apply for finance to purchase the farm, the Land Bank sent me a two-page list of requirements. I could satisfy everything on the list except for one thing: they required off-take agreements (that’s a pre-assurance from a business that it will buy my produce).</p>
<p>Its almost impossible for someone like myself with no commercial farming experience to get off-take agreements from a market dominated by a few mainstream retailers. </p>
<p>Big retailers – and even smaller ones – won’t offer an off-take agreement to someone starting out.</p>
<p>And so the Land Bank wouldn’t dare take a risk on my endeavour. So I took a different route, approaching a bank for a normal loan and bonding my home against the farm property.</p>
<p>But even here I struggled. I think that finance institutions also need to understand that there is a different kind of farmer emerging. One’s like me. I’m not farming full-time because I can’t yet afford to do so. My off-farm job funds my seed, fertiliser and pays my staff. I need to keep my off-farm job while building the farm into a self sustaining operation. The banks I approached didn’t seem to want to grasp my situation.</p>
<p><em>Access to markets:</em> This is the most critical factor of farming. For example, even when I produced 17 000 cabbages last season I still struggled. That’s because I was only able to find a market for them when it was too late – they’d been in the ground too long. </p>
<p>I’m also disadvantaged by distance. My vegetable and grain producing farm is 70 km outside Johannesburg so it’s difficult to access the big city markets.</p>
<p>But with the assistance of family and friends, I managed to secure another retailer to pick up my produce. In hindsight, I should have tapped these networks first before going for big markets like the Pretoria and Johannesburg fresh produce markets which offered me unacceptably low prices.</p>
<p><strong>What can be done to support young black commercial farmers?</strong></p>
<p>I think the government should review its programmes to see if they are actually working or not. </p>
<p>They might want to reconsider their focus on rural communities. Yes, rural communities need assistance in terms of development. But the government also needs to acknowledge operations like mine which are located within a 100 km radius of a big city.</p>
<p>I am halfway into becoming a sustainable farmer. I’ve purchased the land and am producing the best products possible. I think operations like mine deserve some state support.</p>
<p>Right now I don’t necessarily need financial support from government. But it could help facilitate other types of support for farmers like me. For example, government could facilitate access to markets and to farm production machinery such as advanced tractors, ploughs and other implements.</p>
<p>The private sector could also come to the party. Banks are critical players. They need to realise that there are young black entrepreneurs who want to farm. They need to create financial products – like loans and insurance – that are going to assist emerging farmers. Currently their products are focused on serving established farmers. </p>
<p>After I had bought the farm using my own funds I approached three banks to secure finance for farm production and machinery. I was rejected on the basis that I had no farming experience. </p>
<p>Banks need to look at things differently. I’m not calling for banks to be reckless in their lending. But I have been taken aback by some of the banking practices I’ve seen. </p>
<p>For example, I can qualify for normal credit, but not for an agricultural specific financial product. I could easily apply for finance to buy a Mercedes Benz worth about R200 000 to pay over five years. I could borrow the same amount as a cash loan. But the answer was “no” when trying to secure funding for a tractor worth R 1 million.</p>
<p>Banks need to be more innovative by designing ways of lending, for example, that move away from monthly instalments and towards seasonal instalments in line with agricultural cycles of planting and harvesting.</p><img src="https://counter.theconversation.com/content/94037/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mnqobi Ngubane is affiliated with the Institute for Poverty, Land & Agrarian Studies. </span></em></p>South Africa’s land reform process will fail if it continues to neglect small and emerging black farmers.Mnqobi Ngubane, PhD candidate, University of the Western CapeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/901802018-01-22T15:43:59Z2018-01-22T15:43:59ZTen priorities for getting agriculture moving in Zimbabwe<figure><img src="https://images.theconversation.com/files/202401/original/file-20180118-29903-19b04be.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">REUTERS/Siphiwe Sibeko</span></span></figcaption></figure><p>Agriculture is taking <a href="https://zimbabweland.wordpress.com/2017/12/11/two-speeches-for-new-era-zimbabwe/">centre stage</a> in plans for the revival of Zimbabwe’s ailing economy under the new leadership of Emmerson Mnangagwa.</p>
<p>Getting agriculture moving in Zimbabwe is a big task. The radical land reform of 2000 has left many outstanding challenges; not least the importance of <a href="https://theconversation.com/settling-the-land-compensation-issue-is-vital-for-zimbabwes-economy-89384">compensating</a> former farm owners. But the biggest challenge is that, with <a href="https://theconversation.com/zimbabwe-urgently-needs-a-new-land-administration-system-89387">new ownership patterns</a>, the agricultural sector has a much more diffuse base. Today there are many small to medium sized farms, rather than a few major players. </p>
<p>This has implications for what Mnangagwa does next. What are the top priorities for agriculture, and what can be learnt from the challenges faced since the land reform?</p>
<h2>The research</h2>
<p>Research we’ve done over <a href="http://www.zimbabweland.net/Home.html">the past 18 years</a> provides some useful pointers. We have been tracking what has happened to <a href="http://www.esrc.ac.uk/news-events-and-publications/impact-case-studies/changing-views-on-zimbabwe-s-land-reform/">land reform farms</a> across Zimbabwe, with sites in Masvingo (in the dry south-east), in Mvurwi (north of Harare) and in Matobo (in Matabeleland). We have been looking at both smallholder production (in so-called A1 areas) and medium-scale commercial farms (so-called A2 allocations), as well as outgrower arrangements in <a href="http://www.tandfonline.com/doi/abs/10.1080/03057070.2016.1187972">lowveld sugar estates</a>.</p>
<p>The <a href="https://zimbabweland.wordpress.com/2014/03/31/how-have-the-new-farmers-fared-an-update-on-the-masvingo-study-i/">results have been surprising</a>. Despite the woeful lack of support, the smallholders have done reasonably well. Most are producing surpluses and reinvesting in their farms. Around two thirds have produced more food than just for subsistence in nearly all years that we’ve conducted the research. In Mvurwi, tobacco dominates, and the <a href="http://onlinelibrary.wiley.com/doi/10.1111/joac.12210/full">smallholder-led tobacco boom</a> has brought significant investment, both on and off-farm.</p>
<p>For their part larger landholdings have struggled. Lack of <a href="https://zimbabweland.wordpress.com/2017/07/10/getting-agriculture-moving-finance-and-credit/">finance capital</a> for many has meant they have not got off the ground and some have significant areas of <a href="https://zimbabweland.wordpress.com/2017/03/06/underutilised-land-in-zimbabwe-not-a-new-problem/">under-utilised</a> land, with infrastructure in disrepair. </p>
<p>The exceptions are those operating under contract arrangements with estates. These farmers have done relatively well because they’ve been supported and finance has been guaranteed. New contracting and <a href="https://zimbabweland.wordpress.com/2016/10/31/are-joint-ventures-with-parastatals-the-route-to-reviving-large-scale-commercial-agriculture-in-zimbabwe/">joint venture</a> arrangements are emerging in some areas, but much more needs to be done.</p>
<h2>Ten priorities for agricultural development</h2>
<p>Drawing on this experience, below I suggest ten priorities for getting agriculture moving once the first tasks of paying <a href="https://theconversation.com/settling-the-land-compensation-issue-is-vital-for-zimbabwes-economy-89384">compensation</a>, undertaking a <a href="https://zimbabweland.wordpress.com/2017/03/13/land-audits-a-tricky-technical-and-political-challenge/">land audit</a> and establishing an efficient <a href="https://theconversation.com/zimbabwe-urgently-needs-a-new-land-administration-system-89387">land administration system</a> are complete.</p>
<p><strong>Land tenure</strong></p>
<p>Land tenure security should be assured through issuing 99-year leases for larger land reform farms and permits for smaller farms. This should be complemented by clear regulations to avoid land concentration and to facilitate women’s access to land. This can be achieved through a <a href="https://zimbabweland.wordpress.com/2014/04/28/land-tenure-dilemmas-in-zimbabwe/">multiform tenure system</a> based on trusted, secure property relations. </p>
<p><strong>Finance</strong></p>
<p>Getting private bank finance flowing is essential. <a href="http://source.co.zw/2017/12/banks-say-agreement-in-place-to-accept-99-year-leases-as-collateral/">Bankable leases</a> will help, as will the acceptance of a range of forms of collateral by finance institutions. State assurances and the building of trust will be key.</p>
<p><strong>Partnerships</strong></p>
<p>Partnerships and joint ventures will be significant for some larger farms and certain crops, where external finance and expertise are essential. Already Chinese involvement in <a href="http://www.telegraph.co.uk/news/2016/09/17/chinese-farmers-take-over-former-white-owned-farms-in-zimbabwe-t/">tobacco production</a> is proving to be important. Opening opportunities for the return of highly skilled former white farmers will be significant too. Regulations to ensure such partnerships are truly joint and involve the transfer of skills are vital.</p>
<p><strong>Government loans</strong></p>
<p>Government loans for agriculture are currently offered through the <a href="https://zimbabweland.wordpress.com/2017/09/25/command-agriculture-and-the-politics-of-subsidies/">“command agriculture”</a> programme. Focusing on larger farms with irrigation infrastructure, it has shown some success in the past season. But such programmes should not be abused for political ends. And it’s essential that loans are fully repaid.</p>
<p><strong>Access to markets</strong></p>
<p>Linking diverse producers to markets is essential. Too often smallholders get poor value for their products, but ensuring local content purchasing by supermarkets, reduced red tape and support for investment in transport infrastructure will help. Already the reduction in market transaction costs through the removal of many <a href="https://zimnews.net/zrp-police-ordered-abolish-roadblocks/">police roadblocks</a> has had a massive, positive impact, as fewer bribes have to be paid.</p>
<p><strong>Value addition</strong></p>
<p>The country must work on developing value-added activity around the agricultural sector. Local processing and packaging would ensure employment along the value chain. And preservation, processing and selling to niche markets could offset risks, such as a glut in horticultural products.</p>
<p><strong>Smart support systems</strong></p>
<p>Extension advice and market support through IT applications is increasingly feasible, given growing connectivity and the wide ownership of smartphones. This means farmers can be offered more attuned and useful advice. A wholesale rethink of agricultural extension and <a href="https://zimbabweland.wordpress.com/2014/02/03/rethinking-agricultural-extension/">support services</a> is therefore required.</p>
<p><strong>Irrigation</strong></p>
<p>Irrigation is essential to boost production in dryland areas, especially given the increased variability in rainfall patterns due to <a href="http://www.kas.de/wf/doc/kas_44451-1522-2-30.pdf?160308110416">climate change</a>. But this should not involve expensive, large-scale schemes. Instead they should be focused on supporting <a href="https://zimbabweland.wordpress.com/2013/09/30/irrigating-zimbabwe-time-for-some-new-thinking/">farmer-led irrigation</a>, using small pumps and pipes bought locally. External intervention should be focused on improving water use efficiency and management.</p>
<p><strong>Mechanisation</strong></p>
<p>Appropriate mechanisation is another priority. Again this shouldn’t be focused on the large-scale options of the past. Small-scale mechanisation, such as <a href="http://www.cimmyt.org/project-profile/farm-mechanization-and-conservation-agriculture-for-sustainable-intensification/">two-wheeled tractors</a> and motorbike-drawn trailers may be more appropriate and affordable, and less subject to patronage, than large <a href="https://zimbabweland.wordpress.com/2016/01/25/why-tractors-are-political-in-africa/">tractors</a> and combines. For larger equipment, cooperative arrangements or private hire schemes could work, supported by <a href="http://www.hellotractor.com/">online infrastructure</a> and training.</p>
<p><strong>Local economic development</strong></p>
<p>Agricultural development needs to be seen as part of <a href="https://zimbabweland.wordpress.com/2014/11/17/making-markets-local-economic-development-following-land-reform/">local economic development</a>. It must be integrated into wider planning and investment frameworks at a district level, with new farms of varying sizes linked to <a href="https://zimbabweland.wordpress.com/2016/05/01/small-towns-in-zimbabwe-are-booming-thanks-to-land-reform/">small towns near land reform areas</a>, where new employment and service provision opportunities open up. </p>
<p>These ten suggestions together could make a big difference, both to the economy and to farmers’ livelihoods across the country. Let’s hope that President Mnangagwa’s commitment to agricultural development is translated into action - and soon.</p><img src="https://counter.theconversation.com/content/90180/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian Scoones receives funding from the UK Economic and Social Research Council through the ESRC STEPS Centre at Sussex. </span></em></p>Zimbabwe’s new administration has promised to revive the country’s agricultural sector. Here’s what it needs to do.Ian Scoones, Professorial Fellow, Institute of Development Studies, University of SussexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/884402017-12-05T12:04:56Z2017-12-05T12:04:56ZBitcoin is a highly speculative investment. Why caution is required<figure><img src="https://images.theconversation.com/files/197762/original/file-20171205-22962-14ls1wu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>With the price of a bitcoin <a href="https://www.coindesk.com/price/">reaching</a> record highs of more than $10,000, more and more ordinary people consider investing in the cryptocurrency. The recent price surge, however, comes with tremendous risks. Investors should be prepared for the possibility that they could lose their entire investment. </p>
<p>Bitcoin <a href="https://www.ft.com/content/c84caffc-d683-11e7-a303-9060cb1e5f44">was launched </a> in 2008 by an anonymous author under the name of Satoshi Nakamoto as a means of transacting among participants without the need for intermediaries. Since the beginning of this year, the price of bitcoin has increased by 1300% as more and more consumers flock to it hoping to profit off its increasing popularity and the associated increase in value.</p>
<p>Cryptocurrencies are not currencies at all. As the Financial Times <a href="https://www.ft.com/content/c84caffc-d683-11e7-a303-9060cb1e5f44">explains</a>, bitcoin is a string of computer codes which means that new bitcons can be created – up to an agreed limit – by computers that gain the right to do so by solving complex puzzles. Transactions are recorded in a database called a blockchain.</p>
<p>Bitcoin, like other assets like gold, doesn’t yield income. You have to sell it to realise any value. And, like gold and other currencies, it can be transferred peer-to-peer.</p>
<p>Part of the nervousness about bitcoin is that, along with other cyptocurrencies, it challenges the traditional role of banks and central banks. In the classical world, banks act as intermediaries by providing loans out of the deposits they took and from funding from the central bank. The central bank uses the rate at which it provides this funding as a lever to ensure price stability. The introduction of cryptocurrencies threatens this model because banks are no longer necessary to intermediate funds and there is no central bank to ensure that prices are stable.</p>
<p>The more immediate fears about bitcoin centre on the recent dramatic rise in its value. There’s nervousness in the market that a <a href="https://www.cryptocoinsnews.com/bitcoin-price-flash-crashes-10075-market-goes-berserk/">flash crash</a> might be imminent after the cryptocurrency tumble by more than $1,300 in minutes on the bitcoin exchange <a href="https://www.bitfinex.com/">Bitfinex</a>. It did recover to levels above $10,800.</p>
<p>The flash crash echoes long standing warnings that the bitcoin party is set to end in tears. Most recently Jamie Dimon, CEO of JPMorgan, one of the world’s largest investment banks <a href="https://www.bloomberg.com/news/articles/2017-09-12/jpmorgan-s-ceo-says-he-d-fire-traders-who-bet-on-fraud-bitcoin">declared</a> that he would fire any employee trading bitcoin for being stupid.</p>
<p>In a highly unusual alliance, his words were echoed by economics Nobel Laureate Joseph Stiglitz, who has gone even further <a href="https://www.bloomberg.com/news/videos/2017-11-29/joseph-stiglitz-bitcoin-ought-to-be-outlawed-video">arguing</a> that bitcoin:</p>
<blockquote>
<p>ought to be outlawed. </p>
</blockquote>
<p>All of these are clear warning signs that the professionals do not trust the lofty <a href="http://bitcoinaccrual.com/bitcoin-after-2000-years-something-fundamentally-different/">promises</a> of crypto enthusiasts. </p>
<h2>The blockchain factor</h2>
<p>There is no doubt that Bitcoin – and in particular blockchain, the technology behind it – has the potential to revolutionise the financial services industry. </p>
<p>A blockchain functions as a transparent and incorruptible digital ledger of economic transactions, recorded in chronological order, that operates on a peer-to-peer network. </p>
<p>Fundamentally, the technology allows exchange of value to occur in an environment of peers with conflicting interests without the need for trusted intermediaries. That, in effect, wipes out the need for banks or financial services companies which fulfil this role.</p>
<p>The use of the technology is not limited to financial transactions. Virtually anything of value can be traded on a blockchain.</p>
<p>But no matter how useful the underlying blockchain technology is, or how widely it can be applied, there are real and substantial risks involved in bitcoin. </p>
<h2>Volatility versus returns</h2>
<p>The first, and most significant risk is that compared to any currency, share, or gold, bitcoin is extremely volatile. The volatility of bitcoin to US dollar is almost six times the volatility of the Rand to US dollar. While this is great in good times, it is potentially devastating for investors in bad times. </p>
<p>When professional investors decide on which assets to hold, they look at both the return and the volatility of the asset. Only investors with a healthy appetite for risk are willing to invest in risky, volatile assets. Usually these are finance professionals, for example in large investment banks or hedge funds. </p>
<p>Investors with a lower risk appetite, such as asset managers or pension funds, prefer assets with a somewhat lower return, but which are less volatile. </p>
<p>The rule of thumb is that the sophistication of an investor increases with the volatility of the asset she invests in. But with bitcoin this rule of thumb doesn’t hold true. More and more private investors have been <a href="https://www.cnbc.com/2017/11/27/bitcoin-exchange-coinbase-has-more-users-than-stock-brokerage-schwab.html">flocking</a> to bitcoin ‘exchanges’ that have sprung up all over the internet and that are aggressively advertised on social media.</p>
<h2>Overvalued</h2>
<p>There is a huge risk that bitcoin is already overvalued. </p>
<p>The practical use cases for bitcoin are limited. It doesn’t enable enough transactions to take place per second to be used as a replacement for a modern payment system. And it doesn’t offer any functionality other than pseudonymous transactions – transactions where the true identity of the counterparties is hidden.</p>
<p>Bitcoin is <a href="http://bitcoinafrica.io/2017/11/09/pyramid-scheme-mmm-nigeria/">favoured by pyramid schemes</a>, including the infamous MMM pyramid scheme in Nigeria. In a <a href="https://www.ft.com/content/1877c388-8797-11e5-90de-f44762bf9896">recent article</a>, the Financial Times called bitcoin itself a pyramid scheme, much to the <a href="http://www.newsbtc.com/2017/01/04/financial-times-bitcoin-is-a-pyramid-scheme/">dismay</a> of crypto enthusiasts. (<a href="https://www.merriam-webster.com/dictionary/pyramid%20scheme">A pyramid scheme</a> is usually an illegal operation in which participants pay to join and profit mainly from payments made by subsequent participants. If no new people come in, it collapses.)</p>
<h2>Regulatory risk</h2>
<p>The third, and possibly biggest risk is regulatory. In September 2017, the Chinese government <a href="https://www.forbes.com/sites/kenrapoza/2017/10/18/chinas-blockchain-bitcoin-ban-no-match-for-stateless-cryptocurrency-market/#99bce232de6b">outlawed</a> bitcoin exchanges in mainland China, sending the price of bitcoin tumbling. </p>
<p>Despite the claim that bitcoin is a “global currency”, the reality is that 58% of all bitcoin mining <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2965436">happens in China</a>. If at any point the Chinese government should decide to make Bitcoin mining illegal the price is likely to plunge into oblivion. </p>
<p>Other countries have also voiced concern. The Russian Central Bank recently <a href="https://www.coindesk.com/russian-central-bank-issues-new-warning-against-cryptocurrencies/">issued a warning</a> to investors on the risks of investing in cryptocurrencies, citing concerns about a bubble. This suggests that there might be a concerted crackdown.</p>
<p>Cryptocurrencies are <a href="https://www.bloomberg.com/news/articles/2017-11-26/what-the-world-s-central-banks-are-saying-about-cryptocurrencies">banned</a> in India as their use is a violation of foreign exchange rules. The Australian Reserve Bank has taken a <a href="http://www.rba.gov.au/speeches/2017/sp-so-2017-10-27.html">different approach</a>. It monitors the cryptocurrency market in a bid understand the underlying technology.</p>
<p>The South African Reserve Bank has <a href="https://www.cryptocoinsnews.com/south-african-central-bank-open-cryptocurrencies-blockchain-tech/">expressed</a> its openness to blockchain technologies. But it has also <a href="https://www.resbank.co.za/RegulationAndSupervision/NationalPaymentSystem(NPS)/Legal/Documents/Position%20Paper/Virtual%20Currencies%20Position%20Paper%20%20Final_02of2014.pdf">highlighted</a> potential risks to consumers.</p>
<h2>A classic bubble</h2>
<p>There are real risks that many consumers investing in cryptocurrency don’t fully understand. Advertisements promise that bitcoin can make you rich fast. And social media is alive with stories about friends of neighbours or distant cousins who have made a lot of money through bitcoin. </p>
<p>Without a doubt, these cases are real, and those who invested early can reap large benefits. But this is true in every bubble – from the dotcom bubble to the tulip mania. It’s also true in every pyramid scheme.</p>
<p>As always, investors should be extremely wary with any scheme that promises quick returns.</p><img src="https://counter.theconversation.com/content/88440/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The astronomic rise of the price of bitcoin over the past 12 months raises fears that the cryptocurrency is set to crash which could see many people lose money.Co-Pierre Georg, Senior Lecturer, African Institute for Financial Markets and Risk Management and Director, UCT Financial Innovation Lab, University of Cape TownQobolwakhe Dube, PhD candidate, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/822312017-09-14T16:46:33Z2017-09-14T16:46:33ZLessons from Mauritius on making companies more accountable<figure><img src="https://images.theconversation.com/files/185857/original/file-20170913-23130-v80ry1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Shutterstock</span> </figcaption></figure><p>Since the turn of the century, developing countries have been adopting corporate governance codes with the promise that they will enhance accountability and growth, while delivering equitable, ethical, and sustainable business practices.</p>
<p>A governance code is a set of guiding principles drawn up by industry to standardise good corporate behaviour. They sensitise company boards and executives to a wide range of interests such as, investors, labour and local communities. </p>
<p>A key governance code – <a href="https://www.iasplus.com/en-gb/standards/corporate-governance">the Cadbury Code</a> – was established in the UK in the early 1990s to improve corporate accountability.</p>
<p>Since then, there have been a plethora of codes across the world. In Africa, governance codes have been designed to help address the legacies of colonialism, extractive post-colonial business behaviour and executive excesses. Several countries like South Africa, Kenya, Ghana and Mauritius have already stepped up to the plate.</p>
<p>Mauritius is interesting case study. The country has sustained its position as the <a href="https://www.forbes.com/best-countries-for-business/list/3/#tab:overall">best</a> country in Sub-Saharan Africa to conduct business leads the <a href="http://s.mo.ibrahim.foundation/u/2016/10/01184917/2016-Index-Report.pdf?_ga=2.256045388.61916143.1504967135-1409447380.1504967135">Mo Ibrahim Index of African Governance</a>. </p>
<p>But it does have some considerable limitations and mainly <a href="https://business.mega.mu/2015/06/04/moodys-report-some-extracts/">inefficiencies</a> in public governance.</p>
<p>We set out <a href="https://www.researchgate.net/publication/299365640_A_Longitudinal_Study_of_the_Implementation_of_the_Corporate_Governance_Code_in_a_Developing_Country_The_Case_of_Mauritius">to study</a> trends in the way companies adopt the corporate governance code in Mauritius. The aim was to provide useful insights to other developing countries, particularly in Africa.</p>
<p>Our study found significant levels of compliance with the code in the three years after implementation. But we also found that Mauritian companies picked and chose elements of the code. They implemented the easier ones perceived to be beneficial, or simply the ones that made them look good. </p>
<p>Our findings are important because developing countries have become important channels of foreign investment, but institutional investors remain concerned about firm- and country-level risks which are difficult to evaluate. The corporate governance arrangements in these are not fully understood. </p>
<h2>Part of a big reform</h2>
<p>Over the last three decades, the Mauritian government worked with international bodies to revamp the country’s regulatory framework for companies. This was part of a drive to encourage local and international investment. </p>
<p>The reforms were wide ranging and included setting up of a <a href="https://finance.mapsofworld.com/stock-exchange/mauritius.html">stock exchange</a> and adoption of international standards for corporate accounting and reporting. The country also established a number of agencies to regulate financial and professional service sectors. It also embarked on full and partial privatisation of state owned assets as well as the liberalisation of key sectors. </p>
<p>The Mauritian economy emerged from its dual colonial past (it was colonised by both the French and the British) with a number of challenges. One of the main challenges was that it was dominated by a few large conglomerates and state institutions operating in a weak regulatory environment.</p>
<p>The adoption of the codes of good corporate governance in 2004 formed part of this reform movement. It followed a 2002 World Bank/International Monetary Fund <a href="http://documents.worldbank.org/curated/en/755361468281373039/pdf/351110MAS0Corporate0MaurROSC.pdf">report</a> which highlighted governance deficiencies. A code of corporate governance was proposed as a solution.</p>
<p>Inspired by the South African <a href="http://www.iodsa.co.za/?page=KingIV">King Code</a>, Mauritius embraced a hybrid corporate governance model. This model mixes the ‘market-centric’ approach (typically practiced in the US and UK) and the ‘relationship-based’ ones (typically Japan, France, and Germany).</p>
<h2>A pick and choose game</h2>
<p>Our study found that companies were picking and choosing sections of the codes to implement as they wished. The more difficult or uncomfortable requirements were ignored. </p>
<p>For example, until now, information on ownership structures and CEO remuneration remain opaque. We concluded that the reason for this was the relatively small business elite, from which most directors and majority shareholders are drawn. They see some sections of the codes as being incompatible with a tradition of keeping things ‘discreet’.</p>
<p>Our investigation also revealed a significant relationship between the implementation of the code and the presence of independent non-executive directors. This confirmed the generally accepted potential of independent non-executive directors as agents of change. </p>
<p>But we also found a limiting factor for the role of independent non-executive directors within Mauritius corporations. Not many of these directors occupy critical posts like board chair and therefore have limited influence.</p>
<p>The recent World Bank/International Monetary Fund <a href="http://documents.worldbank.org/curated/en/475311468056654909/pdf/691600ESW0whit0CG0ROSC0Publication.pdf">report</a> praised Mauritius as an ‘international leader’ on <a href="http://www.emeraldinsight.com/doi/abs/10.1108/11766091211282661">board practices</a> (at par with leading Asian countries, such as India, Thailand, and Malaysia), but also highlighted problems. Directors deemed independent were not sufficiently so in relation to majority shareholders and there is opacity in the appointment of such directors. </p>
<p>The report also noted the pitfalls of a “persistent high concentration of the ownership” in large companies. Almost 60% of the counted companies had one controlling shareholder holding more than 20% of shares. This cannot be good for corporate accountability. It means a form of <a href="http://lsr.nellco.org/cgi/viewcontent.cgi?article=1054&context=harvard_olin">controller’s roadblock</a> has been allowed to persist.</p>
<h2>Limitations</h2>
<p>Some scholars are critical of the usefulness of these <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1467-8683.2009.00730.x/full">“Western-inspired” codes for developing countries</a>. Criticism ranges from a charge that codes aren’t radical enough, they <a href="https://www.researchgate.net/publication/317687305_Scandals_from_an_Island_Testing_Anglo-American_Corporate_Governance_Frameworks">clash with local social and political factors</a>, to being <a href="http://onlinelibrary.wiley.com/doi/10.1111/corg.12163/full">implemented in a rather superficial way</a>.</p>
<p>The “comply or explain” principle traditionally applied to these codes means that there is flexibility to pick and choose. There’s also little market pressure for a more comprehensive adoption; <a href="http://onlinelibrary.wiley.com/doi/10.1111/lest.12014/full">an issue affecting many countries</a>. </p>
<p>The new version of the <a href="http://www.nccg.mu/sites/default/files/files/the-national-code-of-corporate-governance-for-mauritius_2016.pdf">Mauritius code</a> which was in 2016 provides for an “apply and explain” principle. In this version companies are expected to explain how they have applied the code and flag any areas where the code has not been applied. But even the new version continues to rely on “market discipline”. It is unclear whether this is feasible in markets characterised by high ownership concentration, low shareholder activism and a weak stakeholder base.</p>
<p>Our <a href="http://journals.sagepub.com/doi/abs/10.1177/0007650313501838">study</a> of other developing markets also shows that the market discipline approach is not effective where the capacity of regulators is limited. This is particularly the case where local politics retain an ability to dilute enforcement or where the state itself is a significant shareholder and has little to gain from a change in the status-quo.</p><img src="https://counter.theconversation.com/content/82231/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jyoti Devi (Brinda) Mahadeo receives funding from Mauritius Research Council. </span></em></p><p class="fine-print"><em><span>Teerooven Soobaroyen receives funding from the Mauritius Research Council, the UK Leadership Foundation for Higher Education (LFHE), UK Chartered Institute of Management Accountants (CIMA) and the British Council. </span></em></p>Its been 13 years since Mauritius introduced codes of corporate governance for listed companies with mixed results. Its experience is useful for other developing countries looking to do the same.Jyoti Devi (Brinda) Mahadeo, Lecturer in Management, Eastern Institute of TechnologyTeerooven Soobaroyen, Professor of Accounting, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/781822017-05-23T06:38:28Z2017-05-23T06:38:28ZThe global market for wine: China leads the emergence of a new world order<figure><img src="https://images.theconversation.com/files/170505/original/file-20170523-8869-g30eui.png?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Vinyards in the Sancerre wine-growing region of France.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/peter_curb/26522012754/in/photolist-oudGjB-oRKbkk-oSmG6q-oRbNJJ-oLsxjT-oTjTY9-88n7V6-2DT66-7VdZ6o-5xrcNH-2DT65-2DTRS-8qhA2q-2DR58-2E2Dyk-2DT64-73Zf8N-3cZyfM-tSLoMP-7VaxZv-d8648N-oYt9Fk-oWJiTk-74QZ1n-5qZkcL-3ky8EK-axazgb-ozGNig-NGEhv1-NZ3p1s-NZ3rdy-PamugK-NGEoaN-5WUMv2-49fpm6-265nZ3-2E77Ym-ePP4U-sQHKL-2A5ZZz-5dpKkD-7nthMw-7zFe1v-jHtV3-tuZ9g6-x8Fqj8-uqBVfW-GpEfnY-5qZjxq">Peter/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p><em><strong>The latest piece in our ongoing series <a href="https://theconversation.com/global/topics/globalisation-under-pressure-38722">Globalisation Under Pressure</a>, first published by The Conversation France, looks at wine consumption around the world and how it moves from the local to the global.</strong></em></p>
<hr>
<p>Recent figures in the <a href="http://bit.ly/2pkx221">annual report</a> of the International Organisation of Wine and Vine (OIV) confirm that the world wine industry is undergoing considerable change. Long-dominant European nations are finding being challenged by the emergence of countries, such as China, both as producers and consumers.</p>
<p>Globally, demand has risen slightly, to 242 million hectolitres (mhl) down from its peak of 250mhl in 2008, but up from the low of 240mhl in 2014. And there are signs of long-term growth. </p>
<p>Per-capita consumption is stable or slightly falling among the French, Spanish and Portuguese – once upon a time daily wine drinkers. But what’s more than filled up the gap is the global market, with occasional consumers around the world drinking wine one to three times per week.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/167750/original/file-20170503-21649-1rl14o9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/167750/original/file-20170503-21649-1rl14o9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/167750/original/file-20170503-21649-1rl14o9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=449&fit=crop&dpr=1 600w, https://images.theconversation.com/files/167750/original/file-20170503-21649-1rl14o9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=449&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/167750/original/file-20170503-21649-1rl14o9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=449&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/167750/original/file-20170503-21649-1rl14o9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=564&fit=crop&dpr=1 754w, https://images.theconversation.com/files/167750/original/file-20170503-21649-1rl14o9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=564&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/167750/original/file-20170503-21649-1rl14o9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=564&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/miroslav-vajdic/25693179902/in/photolist-F9qgfo-8Eo1MR-nm4Fxx-amuXYD-fcNVAE-34duRY-bn2otx-5aYsgo-9h4H2P-9A4qEn-6soTFS-2oyJLL-9YeNeR-ovKYk-MuEcF-5aYmgq-8DkSqo-bNLcHz-7kvES-8DkS1Q-757ME-2Dw8GE-8DkR67-exSk4p-8YHTGy-9YStyb-8YERF2-mfLoW-6xKaka-9YPzEi-5JeU76-34AsmH-34AtzP-34F1A1-5aYsBQ-8DhNge-8ErgKU-8DkQWb-moNM5-5aUbri-8FcQVC-nYaDoP-mfL7n-gc7TSz-8DhKgH-6LcJMJ-8DhM7K-q3Qo8v-34ArGB-34EYs9">Miroslav Vajdic/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>Another encouraging sign for the industry is that wine is finding new customers in countries with large populations. <a href="http://online.sfsu.edu/cholette/public_research/mhscrc_JGMktg_rev041607.pdf">In the early 1990s</a>, the US market was ranked sixth in the world, but by 2016 it had climbed to the number one spot (31.8mhl). It was followed by France (27mhl), Italy (22.5mhl) and Germany (20.2mhl). </p>
<p>A substantial market has already been established in Brazil in spite of negative 2017 economic trends, and there are great expectations for India.</p>
<p>With these new markets often being driven by emerging local production, the number of wine-producing countries is also increasing. The example of Australia is most familiar, but few know the experience of countries such as Canada. </p>
<p>Consumption <a href="http://www.foodincanada.com/exporting-and-importing/world-wine-consumption-rise-study-130647/">in Canada has been rising steadily for some years</a>. And the government is making efforts to stimulate national production with the hope of being able to export Canadian wine. </p>
<p><a href="https://www.theguardian.com/world/2014/jul/23/first-bottles-ethiopian-wine-castel">Local production is also emerging in Ethiopia</a>, where the highlands are well-suited to grape cultivation and there is a substantial non-Muslim population (<a href="https://www.state.gov/documents/organization/256235.pdf">approximately 66% out of a total of 100 million</a>).</p>
<h2>China on the rise</h2>
<p>But it’s China that’s <a href="http://bit.ly/2oIQbqv">leading the industry shake-up</a>, by virtue both of its size and determination. Wine enjoys great symbolic value there, linked to the fact that it’s a product of the land and has strong historical roots. It also functions as a “high class” social marker. </p>
<p><a href="https://www.wsj.com/articles/whos-driving-world-wine-consumption-1422461583">Either way, China is now the sixth leading consumer of wine in the world</a> (17.3mhl), just behind Germany. And with a population of <a href="http://www.worldometers.info/world-population/china-population/">1.4 billion</a> in 2017, the potential for the Chinese market is considerable.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/167752/original/file-20170503-21608-1eol1mq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/167752/original/file-20170503-21608-1eol1mq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=637&fit=crop&dpr=1 600w, https://images.theconversation.com/files/167752/original/file-20170503-21608-1eol1mq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=637&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/167752/original/file-20170503-21608-1eol1mq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=637&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/167752/original/file-20170503-21608-1eol1mq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=801&fit=crop&dpr=1 754w, https://images.theconversation.com/files/167752/original/file-20170503-21608-1eol1mq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=801&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/167752/original/file-20170503-21608-1eol1mq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=801&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Great Wall wine.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/kentaroiemoto/15234346464/in/photolist-pdd1rW-asChnJ-bA2nm4-dRsLkh-bn7sUj-6N8r1t-bn7sEj-q7QUh5-hPxNRE-bA2jdF-g6enRx-5PuU5h-bjDf6e-bvtFeB-5o6RSo-bvsH88-bn7vaY-eiuufM-g6dwU6-bA2jna-4HMRFK-bA2jEi-bA2jRk-g6cnL7-g6dRPQ-bvsEHH-g6cjiC-9Kp8Wv-6e9fbi-g6coqU-bn7sQu-5Zo92Z-bA2jFM-9JinXg-4k2BDX-4Ns5KN-5TVoLC-9UzFLT-bNLd7e-WF82F-r2ydYG-5nxrG6-8S8Wh7-34vXPp-3QFQpZ-34vXBp-7BQv8f-q7QSyW-34AvLY-b6ZDXR">Kentaro Iemoto/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>With a new market and a government working to build the foundations for a national wine industry, China has now the second-largest area under cultivation in the world, 847kha up 17% over 2015. In fact, it was in 2015 that the country overtook France (now with 785kha) and it’s now second only to Spain (975kha). </p>
<p>China is expected to overtake Spain in the next five years. Vines are grown in <a href="https://www.decanterchina.com/en/regions/china/">dozens of provinces</a>, including Shandong, Hebei, and Tianjin, as well as the autonomous regions of
Xinjiang, Ningxia and Inner Mongolia.</p>
<p>Whatever the country, where there is local production consumers tend to favour it. As they become more familiar with wine, they begin to try those from other countries, and this represents <a href="http://www.nature.com/nature/journal/v418/n6898/full/nature01018.html">an important growth lever for international trade</a>. That’s why 40% of the wines produced globally <a href="https://www.forbes.com/sites/karlsson/2015/02/16/france-is-the-biggest-wine-producer-in-2014-but-less-wine-is-made-and-drunk-in-europe/#533cd65854c4">are currently exported</a>, compared to just 20% in the early 1990s.</p>
<p>Although how we consume wine is shaped to a large extent by cultural context, knowledge of the world of wine and techniques for analysing its sensory qualities, trends set by certain internationally known experts also play a part. </p>
<p>Countries with newer wine industries must therefore introduce their wines to other nations while steadily building recognition and a kind of wine-making pedigree. This too has the effect of stimulating international trade. </p>
<h2>France continues to lead by value</h2>
<p>For the French wine industry, while the landscape has shifted the foundations remain solid. <a href="http://www.latimes.com/food/dailydish/la-dd-france-biggest-wine-producer-20141023-story.html">France continues</a> to challenge Spain and Italy for the title of the world’s number-one producer by volume, and it continues to lead the world in terms of value. </p>
<p><a href="http://thekeyreport.com.au/figures-figures-and-more-figures/">France produced 43.5mhl of wine</a> in 2016 compared to 50.9mhl for Italy, but the value of France’s exports was €8.2 billion compared to Italy’s €2.6 billion. That’s over three times more, and 28.5% of the total value of the global wine market.</p>
<p>The figures confirm that French wines are perceived and purchased as high added-value products, and France continues to excel at capitalising on the quality of its wines. While Spain is the leading exporter by volume, the price of Spanish per unit remains low on international markets, with a total value of just €2.6 billion. </p>
<p>One immediately thinks of champagnes, revered and undisputed as the sparkling wine par excellence, as well as great bordeaux and burgundies, and more recently, the Provence rosés. </p>
<p>French wines are also exported to more countries than wines of any other nationality and, generally speaking, any new importer starts by “listing” French wines before looking at any other foreign producers. This is a reflection of what the French industry has been able to convey to wine lovers the world over in terms of image, quality and diversity.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/167751/original/file-20170503-21635-15hhvyd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/167751/original/file-20170503-21635-15hhvyd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/167751/original/file-20170503-21635-15hhvyd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/167751/original/file-20170503-21635-15hhvyd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/167751/original/file-20170503-21635-15hhvyd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/167751/original/file-20170503-21635-15hhvyd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/167751/original/file-20170503-21635-15hhvyd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Cheers!</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/yakobusan/3162940696/in/photolist-5PuU5h-bjDf6e-bvtFeB-5o6RSo-bvsH88-bn7vaY-eiuufM-g6dwU6-bA2jna-4HMRFK-bA2jEi-bA2jRk-g6cnL7-g6dRPQ-bvsEHH-g6cjiC-9Kp8Wv-6e9fbi-g6coqU-bn7sQu-5Zo92Z-bA2jFM-9JinXg-4k2BDX-4Ns5KN-5TVoLC-9UzFLT-bNLd7e-WF82F-r2ydYG-5nxrG6-8S8Wh7-34vXPp-3QFQpZ-34vXBp-7BQv8f-q7QSyW-34AvLY-b6ZDXR-4NnTMz-8ifuiH-79yHGH-g6bZar-bHmMF-6sunyE-3mJXA-9jV14p-bvswYT-dc8zRQ-g4NFjY">Jakob Montrasio/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<h2>Thinking strategically</h2>
<p>In the coming years, as wine-producing countries continue to seek to maintain and expand their domestic and international market shares, they’ll also need to adapt to ongoing <a href="https://www.forbes.com/sites/thomaspellechia/2016/06/20/climate-change-from-a-global-wine-industry-perspective/#666ea692116b">climate change</a>. </p>
<p>Brazilian production dropped 55% between 2015 and 2016, for instance, because of a strong <a href="https://theconversation.com/explainer-el-nino-and-la-nina-27719">El Niño</a>, while production also fell in drought-stricken South Africa. To deal with this, an increasingly strategic approach is being developed, including <a href="https://kedge.edu/l-ecole/expertises/wine-and-spirits">specialised research schools</a>. </p>
<p>At all levels around the world, stakeholders are engaging with governments and decision-makers to increase the industry’s competitiveness and better tackle new international challenges.</p>
<hr>
<p><em>The 2017 edition of the <a href="http://www.vinexpobordeaux.com/en/">Vinexpo wine and spirits trade show</a> takes place June 18-21 in Bordeaux, France.</em></p><img src="https://counter.theconversation.com/content/78182/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jacques-Olivier Pesme does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The latest figures on the world wine market confirm that the industry is undergoing considerable change, with European countries finding their positions and strategies challenged by the new world..Jacques-Olivier Pesme, Director of the Wine & Spirits Academy, Kedge Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/767202017-05-15T19:06:52Z2017-05-15T19:06:52ZThe global market for wine: China leads the emergence of a new world order<figure><img src="https://images.theconversation.com/files/167749/original/file-20170503-21627-1ew0unc.png?ixlib=rb-1.1.0&rect=5%2C0%2C1138%2C623&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Vinyards in the Sancerre wine-growing region of France.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/peter_curb/26522012754/in/photolist-oudGjB-oRKbkk-oSmG6q-oRbNJJ-oLsxjT-oTjTY9-88n7V6-2DT66-7VdZ6o-5xrcNH-2DT65-2DTRS-8qhA2q-2DR58-2E2Dyk-2DT64-73Zf8N-3cZyfM-tSLoMP-7VaxZv-d8648N-oYt9Fk-oWJiTk-74QZ1n-5qZkcL-3ky8EK-axazgb-ozGNig-NGEhv1-NZ3p1s-NZ3rdy-PamugK-NGEoaN-5WUMv2-49fpm6-265nZ3-2E77Ym-ePP4U-sQHKL-2A5ZZz-5dpKkD-7nthMw-7zFe1v-jHtV3-tuZ9g6-x8Fqj8-uqBVfW-GpEfnY-5qZjxq">Peter/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>Recent figures in the <a href="http://bit.ly/2pkx221">annual report</a> of the International Organisation of Wine and Vine (OIV) confirm that the world wine industry is undergoing considerable change. In particular, long-dominant European nations are finding their positions strategies challenged by the emergence of countries such as China, both as producers and consumers.</p>
<p>Globally, demand has risen slightly, to 242 million hectolitres (mhl), down from its peak of 250mhl in 2008 but up from the low of 240mhl in 2014, and there are signs of long-term growth. Yet per-capita consumption is stable or slightly falling among the French, Spanish and Portuguese – once upon a time daily wine-drinkers. What has more than filled up the gap is the global market, with occasional consumers around the world drinking wine one to three times per week.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/167750/original/file-20170503-21649-1rl14o9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/167750/original/file-20170503-21649-1rl14o9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/167750/original/file-20170503-21649-1rl14o9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=449&fit=crop&dpr=1 600w, https://images.theconversation.com/files/167750/original/file-20170503-21649-1rl14o9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=449&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/167750/original/file-20170503-21649-1rl14o9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=449&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/167750/original/file-20170503-21649-1rl14o9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=564&fit=crop&dpr=1 754w, https://images.theconversation.com/files/167750/original/file-20170503-21649-1rl14o9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=564&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/167750/original/file-20170503-21649-1rl14o9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=564&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/miroslav-vajdic/25693179902/in/photolist-F9qgfo-8Eo1MR-nm4Fxx-amuXYD-fcNVAE-34duRY-bn2otx-5aYsgo-9h4H2P-9A4qEn-6soTFS-2oyJLL-9YeNeR-ovKYk-MuEcF-5aYmgq-8DkSqo-bNLcHz-7kvES-8DkS1Q-757ME-2Dw8GE-8DkR67-exSk4p-8YHTGy-9YStyb-8YERF2-mfLoW-6xKaka-9YPzEi-5JeU76-34AsmH-34AtzP-34F1A1-5aYsBQ-8DhNge-8ErgKU-8DkQWb-moNM5-5aUbri-8FcQVC-nYaDoP-mfL7n-gc7TSz-8DhKgH-6LcJMJ-8DhM7K-q3Qo8v-34ArGB-34EYs9">Miroslav Vajdic/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>Another encouraging sign for the industry: Wine is finding new customers in countries with large populations. <a href="http://online.sfsu.edu/cholette/public_research/mhscrc_JGMktg_rev041607.pdf">In the early 1990s</a> the US market was ranked sixth in the world, but by 2016 it had climbed to the number-one spot, at 31.8mhl, followed by France (27mhl), Italy (22.5mhl) and Germany (20.2mhl). A substantial market has already been established in Brazil, in spite of the negative economic trends in 2017, and there are great expectations in India, still to be confirmed…</p>
<p>With these new markets, often being driven by emerging local production, the number of wine-producing countries is also increasing. The example of Australia is most familiar, but fewer with the experience of countries such as Canada. In fact, consumption <a href="http://www.foodincanada.com/exporting-and-importing/world-wine-consumption-rise-study-130647/">in Canada has been rising steadily for some years</a>. The government is making efforts to stimulate national production and hopes to be able to export Canadian wine. <a href="https://www.theguardian.com/world/2014/jul/23/first-bottles-ethiopian-wine-castel">Local production is even emerging in Ethiopia</a>, where the highlands are well-suited to grape cultivation and there is a substantial non-Muslim population (<a href="https://www.state.gov/documents/organization/256235.pdf">approximately 66% out of a total of 100 million</a>).</p>
<h2>China on the rise</h2>
<p>China is <a href="http://bit.ly/2oIQbqv">leading the industry shake-up</a>, by virtue both of its size and determination. Wine enjoys great symbolic value there, linked to the fact it’s a product of the land and has strong historical ties, yet it also functions as a “high class” social marker. <a href="https://www.wsj.com/articles/whos-driving-world-wine-consumption-1422461583">Either way, China is now the sixth leading consumer of wine in the world</a>, 17.3mhl, just behind Germany, and with a 2017 population of <a href="http://www.worldometers.info/world-population/china-population/">1.4 billion</a>, the potential is considerable.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/167752/original/file-20170503-21608-1eol1mq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/167752/original/file-20170503-21608-1eol1mq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=637&fit=crop&dpr=1 600w, https://images.theconversation.com/files/167752/original/file-20170503-21608-1eol1mq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=637&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/167752/original/file-20170503-21608-1eol1mq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=637&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/167752/original/file-20170503-21608-1eol1mq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=801&fit=crop&dpr=1 754w, https://images.theconversation.com/files/167752/original/file-20170503-21608-1eol1mq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=801&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/167752/original/file-20170503-21608-1eol1mq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=801&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Great Wall wine.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/kentaroiemoto/15234346464/in/photolist-pdd1rW-asChnJ-bA2nm4-dRsLkh-bn7sUj-6N8r1t-bn7sEj-q7QUh5-hPxNRE-bA2jdF-g6enRx-5PuU5h-bjDf6e-bvtFeB-5o6RSo-bvsH88-bn7vaY-eiuufM-g6dwU6-bA2jna-4HMRFK-bA2jEi-bA2jRk-g6cnL7-g6dRPQ-bvsEHH-g6cjiC-9Kp8Wv-6e9fbi-g6coqU-bn7sQu-5Zo92Z-bA2jFM-9JinXg-4k2BDX-4Ns5KN-5TVoLC-9UzFLT-bNLd7e-WF82F-r2ydYG-5nxrG6-8S8Wh7-34vXPp-3QFQpZ-34vXBp-7BQv8f-q7QSyW-34AvLY-b6ZDXR">Kentaro Iemoto/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>With a new market and a government working to build the foundations for a national wine industry, China has now the second largest area under cultivation in the world, 847kha (thousands of hectares), up 17% over 2015. In 2015 the country overtook France (now with 785kha) and now second only to Spain (975kha). China is expected to overtake Spain in the next five years. Vines are grown in <a href="https://www.decanterchina.com/en/regions/china/">dozens of provinces</a>, including Shandong, Hebei, and Tianjin, as well as the autonomous regions of
Xinjiang, Ningxia and Inner Mongolia.</p>
<p>Whatever the country, where there is local production consumers tend to favour it. As they become more familiar with wine, they begin to try those from other countries, and this represents <a href="http://www.nature.com/nature/journal/v418/n6898/full/nature01018.html">an important growth lever for international trade</a>. That’s why 40% of the wines produced globally <a href="https://www.forbes.com/sites/karlsson/2015/02/16/france-is-the-biggest-wine-producer-in-2014-but-less-wine-is-made-and-drunk-in-europe/#533cd65854c4">are currently exported</a>, compared to just 20% in the early 1990s.</p>
<p>Although how we consume wine is shaped to a large extent by cultural context, knowledge of the world of wine, the techniques for analysing its sensory qualities, and trends set by certain internationally known experts also play a part. Countries with newer wine industries must therefore introduce their wines to other countries while steadily building recognition and a kind of wine-making pedigree. This too has the effect of stimulating international trade. </p>
<h2>France continues to lead by value</h2>
<p>For the French wine industry, while the landscape has shifted the foundations remain solid. <a href="http://www.latimes.com/food/dailydish/la-dd-france-biggest-wine-producer-20141023-story.html">France continues</a> to challenge Spain and Italy for the title of the world’s number-one producer by volume, and it continues to lead the world in terms of value, as it long has. <a href="http://thekeyreport.com.au/figures-figures-and-more-figures/">France produced 43.5mhl of wine </a>in 2016 compared to 50.9mhl for Italy (15% less) yet the value of France’s exports was 8.2 billion euros compared to 2.6 billion for Italy – over three times more, and 28.5% of the total value of the global wine market.</p>
<p>The figures confirm that French wines are perceived and purchased as high added-value products, and France continues to excel at capitalising on the quality of its wines. While Spain is the leading exporter by volume, the price of Spanish per unit remain low on the international markets, with a total value of just 2.6 billion euros. </p>
<p>One immediately thinks of Champagnes, revered and undisputed as the sparkling-wine par excellence, as well as the great Bordeaux and Burgundies, and more recently, the Provence rosés. French wines are also exported to more countries than wines of any other nationality and generally speaking, any new importer starts by “listing” French wines before looking at any other foreign producers. This is a reflection of what the French industry has been able to convey to wine lovers the world over in terms of image, quality and diversity.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/167751/original/file-20170503-21635-15hhvyd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/167751/original/file-20170503-21635-15hhvyd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/167751/original/file-20170503-21635-15hhvyd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/167751/original/file-20170503-21635-15hhvyd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/167751/original/file-20170503-21635-15hhvyd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/167751/original/file-20170503-21635-15hhvyd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/167751/original/file-20170503-21635-15hhvyd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Cheers!</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/yakobusan/3162940696/in/photolist-5PuU5h-bjDf6e-bvtFeB-5o6RSo-bvsH88-bn7vaY-eiuufM-g6dwU6-bA2jna-4HMRFK-bA2jEi-bA2jRk-g6cnL7-g6dRPQ-bvsEHH-g6cjiC-9Kp8Wv-6e9fbi-g6coqU-bn7sQu-5Zo92Z-bA2jFM-9JinXg-4k2BDX-4Ns5KN-5TVoLC-9UzFLT-bNLd7e-WF82F-r2ydYG-5nxrG6-8S8Wh7-34vXPp-3QFQpZ-34vXBp-7BQv8f-q7QSyW-34AvLY-b6ZDXR-4NnTMz-8ifuiH-79yHGH-g6bZar-bHmMF-6sunyE-3mJXA-9jV14p-bvswYT-dc8zRQ-g4NFjY">Jakob Montrasio/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<h2>Thinking strategically</h2>
<p>In the coming years, as wine-producing countries continue to seek to maintain and expand their domestic and international market shares, they’ll also need to adapt to ongoing <a href="https://www.forbes.com/sites/thomaspellechia/2016/06/20/climate-change-from-a-global-wine-industry-perspective/#666ea692116b">climate change</a>. For example, Brazilian production dropped 55% between 2015 and 2016 because of a strong <a href="https://theconversation.com/explainer-el-nino-and-la-nina-27719">El Niño</a>, while production fell in drought-stricken South Africa. An increasingly strategic approach is being developed, including <a href="https://kedge.edu/l-ecole/expertises/wine-and-spirits">specialized research schools</a>. At all levels around the world, stakeholders are engaging with governments and decision-makers to increase the industry’s competitiveness and better tackle these new international challenges.</p>
<hr>
<p><em>The 2017 edition of the <a href="http://www.vinexpobordeaux.com/en/">Vinexpo wine and spirits trade show</a> takes place June 18-21 in Bordeaux, France.</em></p><img src="https://counter.theconversation.com/content/76720/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jacques-Olivier Pesme ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.</span></em></p>The latest figures on the world wine market confirm that the industry is undergoing considerable change, with European countries finding their positions and strategies challenged by the US and China.Jacques-Olivier Pesme, Director of the Wine & Spirits Academy, Kedge Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/759372017-04-20T15:48:52Z2017-04-20T15:48:52ZSouth Africa must look beyond individuals to solve the current crisis<figure><img src="https://images.theconversation.com/files/165193/original/image-20170413-25865-1xlm8sr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Former Finance Minister Pravin Gordhan flanked by Deputy Minister Mcebisi Jonas and Director General Lungile Fuzile.</span> <span class="attribution"><span class="source">GCIS</span></span></figcaption></figure><p>When the <a href="http://ewn.co.za/2017/03/31/president-jacob-zuma-s-cabinet-reshuffle">axe</a> finally fell on the embattled South Africa’s finance minister, Pravin Gordhan, and his deputy, Mcebisi Jonas, the reactions played out as many people had predicted. The country was hit by an immediate drop in the value of the <a href="http://www.fin24.com/Economy/cabinet-reshuffle-downgrade-knock-rands-emerging-markets-crown-20170406">rand</a> and a sovereign credit rating downgrade from rating agencies <a href="http://www.ujuh.co.za/sp-official-statement-downgrading-south-africas-credit-rating/">S&P</a> and <a href="http://www.ujuh.co.za/and-now-fitch-downgrades-south-africa-to-real-junk-status/">Fitch</a>. Widespread <a href="http://www.timeslive.co.za/sundaytimes/stnews/2017/04/07/IN-PICTURES-South-Africans-come-out-in-droves-to-join-anti-Zuma-countrywide-marches">protest</a> against President Jacob Zuma has since followed.</p>
<p>The ensuing protests and debates are dominated by a focus on the role of individuals: Zuma is the centre of focus as the wrecking ball; Gordhan and to some extent Jonas, were seen as the saviours. The view is that all hell will break loose once these good men are gone.</p>
<p>Given the current state of the economy and the sensitivities of the markets, it is inevitable that South Africans are likely to fixate on the financial outcomes of Zuma’s moves. But focusing too heavily on individuals’ actions and the outcomes from them is dangerous.</p>
<p>This is not because the role of these individuals and the outcomes are unimportant. But it must be the systems and processes that should matter more for an approach that goes beyond the 24-hour news cycle and into rebuilding a better future. The underlying systems of government and party politics that generate and support leaders need to change if the country is not to repeat the recent calamities.</p>
<p>While people may be justified to protest, shout and tweet slogans like <a href="https://theconversation.com/survey-sheds-light-on-who-marched-against-president-zuma-and-why-76271">“Zuma Must Fall”</a>, it’s a mistake to assume that change in one leadership position will bring about a shift in underlying systems. Likewise, the positioning of Gordhan (and to a lesser extent Jonas) as the saviours speaks to this same problem. Both perspectives are based on an extremely limited conception of how institutions and societies work, hearkening back to the outdated, and ironically colonial, “<a href="https://www.villanovau.com/resources/leadership/great-man-theory/#.WO813aIlHDc">Great Man Theory</a>”.</p>
<h2>It’s the systems that matter</h2>
<p>The Great Man Theory says that leaders are born with a special gift and their unique skills make them indispensable. Worthy successors are thought to be few and far between. Great things can only happen with these chosen people at the helm of institutions or societies.</p>
<p>The prevalence of this view in South Africa is deeply worrying. It shows a shockingly unrealistic understanding of the scope of issues facing the country. It also shifts people’s focus to leaders in certain positions as opposed to systems and institutions.</p>
<p>Good leaders can obviously make a difference, but environments can also exert a profound impact on leaders. Take the American experience: the running joke in the US is that President Donald Trump said he was going to “<a href="http://www.newsweek.com/2017/02/17/donald-trump-drain-swamp-lobbyists-553809.html">drain the swamp</a>” (change the political system), but his recent failings in many initiatives show that “the swamp is draining him”. </p>
<p>It’s certainly possible that a change in leadership at the top may lead to better outcomes and shift the direction of a country. But keeping all of the underlying systems and processes intact will likely guarantee that the future will remain the same.</p>
<h2>Some indicators of underlying change</h2>
<p>To get a better sense of the true impacts of the Zuma <a href="http://www.ujuh.co.za/zumas-cabinet-reshuffle-points-to-the-rise-of-malusi-gigaba/">cabinet reshuffle</a>, South Africans need to assess how it relates to crucial systems, rather than just immediately quantifiable outcomes. For those who are fearing or hoping this most recent political move is a watershed event, the proof of their case will not come in shorter-term outputs, but in real changes to underlying systems, which speak to the strength – or weakness – of institutions. </p>
<p>There have been reports that other cabinet members would <a href="https://businesstech.co.za/news/government/160435/anti-zuma-ministers-threaten-mass-resignation-following-possible-cabinet-reshuffle-report/">resign in protest</a> after Gordhan was removed. Significant resignations by internal senior leaders will be indicative that the current processes for leadership selection and support are no longer holding. If that fails to happen in a meaningful way, it will be a strong indication that the underlying system will not be shaken.</p>
<p>Short of resignation, who will speak out from inside the ANC. There are indications of internal factions in the ANC, exacerbated by the organisation’s 2017 ANC <a href="http://ewn.co.za/2017/01/08/the-debate-over-who-should-succeed-zuma-as-anc-president-heating-up">elective conference</a>. Opening the leadership debates around ANC’s contestations for power will be beneficial. Made public, the rationale and underpinning logic for differences of opinion give insight to both ANC members and the public as to what the real issues are facing the party, its leaders, and the country. If these factional territories are kept hidden rather than staked out in public, it will be a strong indication that the underlying system will not be shaken.</p>
<p>Much of the ANC’s leadership selection and succession processes are highly opaque, making it hard for the public to see just how leaders arrive at their positions. This doesn’t mean there’s anything wrong with that person or those processes, but the lack of transparency allows for every shortcoming to be magnified with suspicions of shady dealings in the background. If the process for the elevation of leaders in the ANC is not made more transparent, it will be a strong indication that the underlying system will not be shaken.</p>
<h2>The bottom line</h2>
<p>The loss of Gordhan and Jonas is no doubt <a href="https://theconversation.com/firing-of-south-africas-finance-minister-puts-the-public-purse-in-zumas-hands-75525">a blow</a> to the National Treasury. Good leadership is always a benefit to institutions. South Africa, like any country, should try to make the most of any good leadership it can find. But this should not blind South Africans to the fact that the finance ministry, and the economy as a whole, can never be wholly dependent on one or two people. </p>
<p>If the country wants real “<a href="http://www.ujuh.co.za/zuma-what-do-we-mean-by-radical-socio-economic-transformation/">radical economic transformation</a>”, it can only come from institutions that are strong throughout and buoyed by the work of many people dedicated to the task of improving the country. </p>
<p>Gordhan himself appears to understand this. Commenting after his dismissal, he said Treasury is in <a href="http://m.ewn.co.za/2017/03/31/gordhan-treasury-is-being-left-in-good-hands">safe hands</a> because its professionals remain committed to ensuring macro-economic stability.</p>
<p>The bottom line is that if South African politics is its own “swamp”, it would be foolish to think that skimming the top (whether that’s in the form of Zuma or cabinet ministers) will be sufficient on its own to improve the situation and keep the country safe from future harm. Anyone who has been in a swamp knows that the most dangerous things lie below the surface, ready to emerge at the right moment for an attack.</p><img src="https://counter.theconversation.com/content/75937/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Timothy London works for the Allan Gray Centre for Values Based Leadership which receives funding from the Allan Gray Orbis Foundation. The Centre is a part of the Graduate School of Business at the University of Cape Town. </span></em></p>The framing of the prevailing political protests in South Africa shows too much focus on the role of individuals. This is dangerous in hearkening back to the flawed Great Man Theory.Timothy London, Senior Lecturer, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/760402017-04-17T08:30:30Z2017-04-17T08:30:30ZThe markets can stomach a captured Treasury but South Africa’s poor will suffer<figure><img src="https://images.theconversation.com/files/165114/original/image-20170412-25888-1a4ahdc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's cabinet reshuffle saw Malusi Gigaba become finance minister and Sifiso Buthelezi his deputy.</span> <span class="attribution"><span class="source"> REUTERS/James Oatway</span></span></figcaption></figure><p>The formal economy might find it a lot easier to live with a (partly) <a href="https://theconversation.com/firing-of-south-africas-finance-minister-puts-the-public-purse-in-zumas-hands-75525">captured</a> national treasury than many might imagine. This is bad news for people living in poverty who would then lack friends in high places to resist the capturers.</p>
<p>In trying to restore calm, after the <a href="https://theconversation.com/firing-of-south-africas-finance-minister-puts-the-public-purse-in-zumas-hands-75525">firing</a> of Finance minister Pravin Gordhan and his deputy Mcebisi Jonas, the spin doctors of the governing party, the African National Congress, say the markets will adjust. They point out that the appointment of previous finance ministers also spooked the markets, only to attract something close to hero worship once they settled in. Thus the new minister of finance, <a href="http://www.ujuh.co.za/zumas-cabinet-reshuffle-points-to-the-rise-of-malusi-gigaba/">Malusi Gigaba</a>, would also come to be loved by the markets.</p>
<p>Just about no-one believes them. Their reassurances do not gel with the understanding of everyone opposed to the change and even some who welcome it. The change in minister is widely seen not as the replacement of one politician by another but as the capture of the Treasury by a faction which is interested not in the health of the economy but in using public money to feed the <a href="https://theconversation.com/why-state-capture-is-a-regressive-step-for-any-society-56837">patronage networks</a> of a connected few.</p>
<p>At issue is far less the policies the new Treasury leadership will proclaim than the likelihood that they will relax controls which hamper patronage politicians and connected businesses. And so it’s widely assumed that the economy is now to be laid waste by <a href="https://theconversation.com/after-the-downgrade-south-africa-should-copy-brazil-and-impeach-its-president-75706">looting</a> which will place the market economy in great danger.</p>
<p>It’s hard to argue against much of this account. The only plausible reason for Gordhan and Jonas’s removal is their campaign to prevent public resources and state-owned enterprises serving particular private interests. There would be little point in courting a ratings downgrade and other upheaval unless the purpose was to ensure that Treasury didn’t stand in the way of those interests who Gordhan and Jonas were frustrating.</p>
<p>But the rest of the story is not self-evident. In principle, the view that the ‘captured’ Treasury leadership is certain to lay waste the marketplace and make war on the owners of capital may be far less obvious than it seems. The marketplace and a Treasury which gives a helping hand to special interests may tolerate each other far more readily than we are being led to assume.</p>
<h2>The economy will be hurt</h2>
<p>Before the argument is drowned in a wave of indignation, it’s important to stress exactly what this may mean. The new Treasury leadership is not the victim of prejudice. It’s likely to remove barriers to particular businesses and politicians which have prevented them <a href="https://theconversation.com/why-state-capture-is-a-regressive-step-for-any-society-56837">profiting</a> from the public purse. This will weaken the economy and delay movement towards much-needed changes. Even if a captured Treasury really wanted to discuss vitally necessary economic reforms, it’s unlikely that either business or labour would trust it enough to join the dance. </p>
<p>But, while the new leadership will not take the economy forward, it could serve its special interests while keeping in place enough of the current framework to enable markets to continue operating much as they do now. </p>
<p>Gigaba and his deputy Sifiso Buthelezi won’t stay there long unless they remove some of the obstacles which have frustrated the patronage faction. But they could choose to do this in a way which keeps the market economy ticking over much as it does now. Whether they can pull this off is unclear. But it’s far from impossible.</p>
<h2>Market and patronage can coexist</h2>
<p>There is a myth behind the expectation that a captured Treasury is certain to devastate the formal economy. The myth is that market economies function effectively only when everyone plays by the rules. In reality, market economies can co-exist with all manner of favouritism, patronage and even dodgy dealing.</p>
<p>Consider the <a href="http://www.theglobeandmail.com/report-on-business/international-business/asian-pacific-business/south-koreas-chaebol-problem/article24116084/">South Korea experience</a> which shows how markets can tolerate patronage politics. Every head of state who presided over the Korean economic miracle was jailed for corruption. The apartheid economy is another example of how markets can co-exist with a limited, but fairly high level, of <a href="http://www.sahistory.org.za/article/despite-1994-political-victory-against-apartheid-its-economic-legacy-persists-haydn-cornish-">patronage</a>.</p>
<p>One of the great ironies of the last years of apartheid is that left critics consistently denounced its ‘monetarist’ adherence to fiscal discipline when it was really awash with spending, much of it linked to connected insiders, which aimed to buy apartheid out of trouble. Formal business may have opposed this, but also lived with it far more easily than it might care to admit.</p>
<p>Therefore, the new political leadership can choose to be captured in a strategic way. They can give connected interests some of what they want while making sure that the basic financial architecture is kept in place. They may well ensure that business learns to live with them and adjusts to what they are doing.</p>
<p>A captured Treasury which operates in this way wouldn’t be trusted by business. But they might well put up with each other – and make deals with each other – to ensure that the economy keeps running. Decades ago, David Yudelman, then a Wits academic, published an important <a href="https://www.questia.com/library/3024101/the-emergence-of-modern-south-africa-state-capital">book</a> on this subject. It showed that, even when business and government dislike each other, they need each other and find ways to cooperate to keep the market economy afloat. If the new Treasury leadership plays its cards competently, it could prove him right yet again.
To many, this argument will seem too optimistic. It is, in reality, deeply pessimistic.</p>
<h2>The poor are on their own</h2>
<p>Whatever the capture of Treasury does or doesn’t do to the formal marketplace, it’s sure to make life even more difficult for the poor. The <a href="https://theconversation.com/the-real-risks-behind-south-africas-social-grant-payment-crisis-73224">social grants scandal</a> shows clearly how easily patronage politics produces arrangements in which the poor are sacrificed so that the insiders can enrich themselves. </p>
<p>Since the poor are also politically weak, the new Treasury is unlikely to worry much about them when it gives the green light to patronage deals.
Last time there was an attempt to capture the South African Treasury, poor people were saved because the organised interests in the market economy united to stop this. </p>
<p>But, if the new Treasury leadership do manage to respect the core market rules while turning a blind eye to insider deals which its political masters need, the poor are likely to find themselves once again on their own, as they so often are - left to their own devices while the economic insiders continue to look after their own interests.
The markets may just find a captured Treasury less of a threat than they imagined. The poor are unlikely to have any such luck.</p><img src="https://counter.theconversation.com/content/76040/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steven Friedman does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A captured South African Treasury is bad news for the country’s poor but the view that the capture is a natural enemy of the market economy is a myth.Steven Friedman, Professor of Political Studies, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/723822017-02-07T15:46:32Z2017-02-07T15:46:32ZBRICS wants to set up an alternative rating agency. Why it may not work<figure><img src="https://images.theconversation.com/files/155615/original/image-20170206-23524-1woh02u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Leaders of the BRICS bloc of states in Goa, India where they hatched the plan to launch a new credit rating agency</span> <span class="attribution"><span class="source">REUTERS/Danish Siddiqui </span></span></figcaption></figure><p>The idea of establishing an alternative credit rating agency led by the BRICS bloc of countries is <a href="http://www.fin24.com/Economy/brics-to-fast-track-new-credit-rating-agency-20161016">gaining momentum</a>. But there are questions as to whether it will prosper given the major challenges it’s bound to face.</p>
<p>Leaders from the bloc made of Brazil, Russia, India, China and South Africa are championing the idea. The idea formerly emerged during the 2015 BRICS summit in <a href="http://www.fin24.com/Economy/brics-to-fast-track-new-credit-rating-agency-20161016">Ufa</a> and was affirmed by the Goa Declaration at the <a href="http://timesofindia.indiatimes.com/business/india-business/BRICS-countries-agree-to-set-up-credit-rating-agency/articleshow/54881697.cms">8th BRICS Summit</a>. Most recently South Africa’s President <a href="http://city-press.news24.com/News/zuma-bashes-rating-agencies-that-dont-seem-to-be-well-balanced-to-brics-20161026">Jacob Zuma said</a> BRICS countries had taken the decision that they could rate themselves, and perhaps others too. The aim would be to ensure a more “balanced view” when ratings are made.</p>
<p>Both <a href="http://www.reuters.com/article/us-brazil-ratings-s-p-idUSKCN0RA06120150910">Brazil</a> and <a href="https://www.wsj.com/articles/moodys-downgrades-russia-to-junk-status-1424469136">Russia</a> have recently been downgraded by Moody’s. And for over a year South Africa has lived with a <a href="https://theconversation.com/south-africa-is-skating-on-thin-ice-as-rating-agencies-weigh-their-options-69243">possible downgrade</a> by the “big three” Western credit rating agencies, Standard & Poor’s, Moody’s and Fitch.</p>
<p>The big three have faced increasing criticism. <a href="https://www.businesslive.co.za/bd/economy/2017-01-10-moodys-sees-more-downgrade-misery-for-sub-saharan-africa/">Critics claim</a> that the frequent downgrades of developing countries are unjust and serve Western political interests. </p>
<p>BRICS has started engaging financial experts on a business model for the new rating agency as well as what <a href="http://in.rbth.com/economics/finance/2016/10/18/brics-in-search-of-business-model-for-new-rating-agency_639889">methodology it would adopt</a>. </p>
<p>This isn’t the first time there’s been an attempt to challenge the big three. China, Russia, India and Brazil have all established their <a href="https://www.rt.com/business/326232-dagong-russia-rating-agency/">own credit rating agencies</a>. But none has ever come close to establishing itself as <a href="https://www.rt.com/business/158856-russia-raitings-agency-ministry/">an alternative</a>.</p>
<p>Will the BRICS initiative be the exception? </p>
<h2>Alternative view</h2>
<p>Critics of the big three were emboldened after the 2008 financial crisis. The rating agencies were forced to pay over $2.2 billion in fines relating to their complicity in the <a href="https://www.theguardian.com/business/2017/jan/14/moodys-864m-penalty-for-ratings-in-run-up-to-2008-financial-crisis">credit crisis</a>. This further damaged their credibility and heightened accusations, particularly in emerging countries.</p>
<p>Critics have also attacked the rating agencies’ <a href="http://blogs.reuters.com/alison-frankel/2013/02/05/can-we-now-admit-its-time-to-end-issuer-pays-credit-rating-model/">issuer pay model</a>. Under this system credit rating agencies are paid by the institutions being rated (debt issuers) and not by the investors who use the information, creating a conflict of interest. Critics also argue that this entrenches geopolitical biases.</p>
<p>The hope is that a new agency would compensate for the perceived bias in the global financial architecture. It would also <a href="https://www.bloomberg.com/news/articles/2016-06-26/brics-eye-a-new-rating-company-to-reduce-established-firms-grip">create competition</a> and offer investors, issuers and other stakeholders a wider choice and a more diverse view on creditworthiness. </p>
<h2>Weakness in the BRICS muscle</h2>
<p>Given that BRICS is home to <a href="http://globalsherpa.org/bric-countries-brics/">half the world’s population</a>, accounts for more than a quarter of the <a href="https://www.weforum.org/agenda/2016/04/what-is-the-state-of-the-brics-economies/">world’s economic output</a> and has recently set up a nascent New Development Bank, the countries under its banner have, between them, the capacity to establish an influential credit rating institution. </p>
<p>But questions have been raised about whether the new rating agency satisfies a financial need or is <a href="http://www.fin24.com/Economy/brics-ratings-agency-is-politically-motivated-20161018">politically motivated</a>. And if it will be <a href="http://www.fin24.com/Economy/brics-ratings-agency-is-politically-motivated-20161018">competent to provide an independent</a>, objective and credible credit rating service based on sound methodology.</p>
<p><a href="http://afkinsider.com/134083/brics-members-divided-on-creating-their-own-credit-rating-agency-worry-about-credibility/">China has already expressed concerns</a> about the <a href="http://www.sabc.co.za/news/a/c77c8e004e76d43c979fdf3de8e44b3d/Mixed-feeling-about-proposed-Brics-ratings-agency-20160310">credibility of a new agency</a>. <a href="http://www.cfr.org/financial-crises/credit-rating-controversy/p22328">Analysts</a> have also strongly criticised the probable adoption of the existing “issuer-pay” model. This would mean that the current model is simply replicated.</p>
<h2>Tough market to crack</h2>
<p>Considering that the three major rating agencies <a href="http://www.reuters.com/article/uscorpbonds-ratings-idUSL2N17U1L4">control more than 90%</a> of the world’s ratings business, establishing a new one wouldn’t be easy. It could take years, or even decades, to gel. </p>
<p>There have been previous attempts to launch new ratings agencies. All failed to take off. Examples include the Lisbon headquartered <a href="http://business.financialpost.com/investing/the-big-3-credit-ratings-agencies-have-a-new-competitor">ARC Ratings</a> which was launched in November 2013 as a consortium of five national ratings agencies from South Africa, Malaysia, India, Brazil and Portugal. It is yet to release its first sovereign rating. </p>
<p>The CARE Rating agency of India, started in April 1993, is still rating <a href="http://www.careratings.com/about-us.aspx">small to medium enterprises</a>.</p>
<p>The Global Credit Ratings (GCR) was established in South Africa in 1995. It is only <a href="http://www.sabc.co.za/news/a/9f1c57004ea230f196dddedd3b82934c/SA-rating-agency-to-start-offering-sovereign-credit-ratings-20161810">planning to start offering sovereign credit ratings from 2017</a>.</p>
<p>Others that have been launched include:</p>
<ul>
<li><p><a href="https://www.marc.com.my">MARC of Malaysia</a> which has been operational since 1996, but still only covers corporate ratings;</p></li>
<li><p>The Hong Kong based <a href="http://www.ibtimes.co.uk/russia-china-setting-universal-credit-rating-group-rival-wests-big-three-credit-raters-1483341">Universal Credit Rating Group</a> which was launched in 2014l </p></li>
<li><p>Russia’s Analytical Credit Rating Agency (ACRA) which was established in 2015;</p></li>
<li><p>the Beijing based China Chengxin Credit Rating Group, established in 1992;</p></li>
<li><p>and Dagong Global Credit Rating established in 1994. </p></li>
</ul>
<p>None has established itself as an alternative credit rating agency of choice for emerging countries.</p>
<h2>The task ahead</h2>
<p>The biggest task for a new BRICS credit rating agency will be to convince investors, particularly those from the US and Europe, that the ratings assigned are politically impartial. One way of doing this would be to adopt the <a href="http://in.rbth.com/economics/finance/2016/10/18/brics-in-search-of-business-model-for-new-rating-agency_639889">“investor-pays” model</a> where investors subscribe to ratings released by the agencies, and the subscription revenues become its source of income. This would ensure transparency and credibility while avoiding conflicts of interests. </p>
<p>But adopting a new model might not fly given that main users of the credit rating information are global pension and mutual funds which currently use at least one of the “big three” rating agencies. They are therefore unlikely to trust any ratings from the new BRICS rating agency with a yet to be tested rating model.</p>
<p>Adopting a new model would also be tricky as the BRICS rating agency would need to wield enough influence to be able to attract sufficient subscriptions from international funds. </p>
<p>Finally, investors will be sceptical about the new BRICS rating agency’s ability to compensate for losses in the event that it issues false ratings as the “big three” <a href="https://www.theguardian.com/business/2017/jan/14/moodys-864m-penalty-for-ratings-in-run-up-to-2008-financial-crisis">did</a> in the US. </p>
<p>The BRICS agency is likely to be another failed rating agency project unless it can overcome these three hurdles.</p><img src="https://counter.theconversation.com/content/72382/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sean Gossel receives funding from the University of Cape Town. </span></em></p><p class="fine-print"><em><span>Misheck Mutize does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The BRICS bloc of states have resolved to establish an alternative credit rating agency to counter western dominance in the financial markets. Will it work?Misheck Mutize, Lecturer of Finance and Doctor of Philosophy Candidate, specializing in Finance, University of Cape TownSean Gossel, Senior Lecturer, UCT Graduate School of Business, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/694182016-12-06T19:09:28Z2016-12-06T19:09:28ZTwitter influences investor behaviour whether companies intend it to or not: new research<p>Companies that tweet corporate news and financial results can significantly affect stock prices even if the company’s tweets contain no new information beyond what is already posted through the stock exchange platform, <a href="http://aaapubs.org/doi/abs/10.2308/isys-50994">my research shows</a>.</p>
<p>I studied 3,516 corporate announcements published by Australian listed companies throughout 2008-2013 at the Australian Stock Exchange (ASX). I found that corporate information sent out on social media can unintentionally influence investor decisions in an unequal way.</p>
<p>Investors often turn to communication and financial disclosure statements to make decisions on where to allocate money. While the volume of information that is disclosed is closely watched by the company law and listing rules, my research shows that breadth and depth of dissemination of financial information is equally important.</p>
<p>While a common belief is that prices in the market reflect all available information, the reality is far from this. Individual investors are limited in time and resources and are unable to track all securities and release of all new information. </p>
<p>So, companies that put extra effort to reach their investors are rewarded; they are able to grab the investors’ attention and lead them closer to the decision to invest. In line with this, there has been a recent influx in the business use of social media in Australia. </p>
<p><a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/8129.0">A report from the Australian Bureau of Statistics (2015)</a> shows that near a third of all businesses have a social media presence, while almost half have some sort of web presence. For Australian listed companies, this number is even higher. </p>
<p><a href="http://buchanwe.com.au/asx200-social-media-survey-results-and-other-resources/">A 2013 report</a> identified that 78% of Standard & Poor’s (S&P)/ASX 2005 companies use at least one social media channel and 66% intended to increase their social media activity. At the time, the leading position among social media belonged to Twitter (47%) and LinkedIn (58%). While LinkedIn is used predominantly for recruitment purposes, Twitter is more popular for company communication and investor relations. </p>
<p>My research shows that where social media presence is higher for larger businesses – companies that employ more than 200 people – the effect of web presence and social media is more pronounced than for smaller businesses. Smaller companies have less press coverage and financial analysts following and are generally less visible to investors. However, these less visible companies tend to be more effective in employing Twitter to engage with investors.</p>
<p>Australian companies exhibit different patterns of using Twitter. While large companies tweet more often, the <a href="http://get.simplymeasured.com/twitter-study-pm.html">smaller companies tend to share</a> more hyperlinks and use more hashtags in their tweets. </p>
<p>While hashtags provide a way to label messages posted on Twitter, they are used to promote firms and specific topics making it easier to find and share information related to them. Similarly, hyperlinks usage in tweets is shown to increase retweeting, promote information diffusion and attract users’ attention.</p>
<p>Unlike other common ways to promote the existing financial information, for example business press and financial analysts, social media give companies more control. The company can send out more information and can establish a direct rapport with their existing or potential investors. Social media also allows companies to promote the release of financial information and engage with investors through multiple channels.</p>
<p>However, it is not always that simple. Social media can become a powerful weapon as well. </p>
<p>In 2012-13 several ASX-listed companies, including David Jones and <a href="http://www.smh.com.au/business/whitehaven-joins-asic-to-fight-hoax-20130107-2ccr4.html">Whitehaven Coal</a>, suffered a significant drop in their stock prices due to market rumours spreading over social media channels. These cases led the ASX to introduce <a href="http://www.asx.com.au/documents/rules/Guidance_Note_8.pdf">Guidance Note 8</a>, which requires all ASX-listed companies to monitor social media for rumours and potential announcement leaks.</p>
<p>With additional corporate resources required to comply with this guidance, social media becomes a critical point that requires attention from the side of investors, companies, regulators and IT experts alike.</p><img src="https://counter.theconversation.com/content/69418/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Maria Prokofieva does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Social media communication like Twitter can influence investor decisions in an unequal way and whether the company intends it or not, research finds.Maria Prokofieva, Senior lecturer in Accounting and Finance, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/687592016-11-30T14:39:27Z2016-11-30T14:39:27ZSouth Africa must tackle dominant firms to achieve better wealth distribution<figure><img src="https://images.theconversation.com/files/147755/original/image-20161128-22751-7zgtlg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The focus on “<a href="http://www.ujuh.co.za/state-of-capture-public-protectors-report/">state capture</a>” in South Africa has tended to divert attention from a deeper question. How can the distribution of wealth and control over the economy be changed in material terms? </p>
<p>There is an implicit justification for corruption and other rent-seeking activities, namely that this is the only way to do it. The argument runs that the rules of the game are stacked against the majority and so the only option is to break the rules. </p>
<p>It can be further asserted that nobody who has “made it” actually did so playing by the current rules anyway. Under apartheid obviously different rules created wealth for the few. Indeed, the example of coal contracts in <a href="http://www.ujuh.co.za/state-of-capture-public-protectors-report/">the public protector’s report</a> mirrors the accumulation of wealth by Afrikaner business groups under apartheid, using the state utility Eskom’s procurement as a lever. </p>
<p>But this narrative keeps the country trapped in the past. A radically different path needs to start from the premise that markets are intrinsically skewed to historic privilege. And then move from this to develop strategies to reshape market outcomes. This must include direct redistribution measures and changes to how markets work.</p>
<p>It cannot simply be a process of “correcting” discrete failures.</p>
<p>The structure of markets and the overall distribution of wealth is maintained by barriers that protect incumbent interests and lock out new entrants. A lack of competition means entrenched businesses can continue to earn high profits with low levels of investment and little effort and innovation. The result is that <a href="http://digitalcommons.wcl.american.edu/fac_works_papers/41/">returns continue to go largely to the wealthy</a>.</p>
<h2>Wrong policy choices</h2>
<p>Over the past two decades <a href="https://ideas.repec.org/a/eee/wdevel/v28y2000i2p245-263.html">South Africa has made important choices</a> that have undermined its ability to change the shape of the economy. These include a relatively conservative competition regime which emphasises mergers and enforcement against cartels. But the regime makes it <a href="http://www.hsrcpress.ac.za/product.php?productid=2278&freedownload=1">very difficult to address abuses by dominant firms</a>. </p>
<p>The premise is that if we stop mergers which will increase concentration, and penalise cartels, the problem of concentration will be solved. This suggests that there is nothing wrong with the current market structure as long as the entrenched businesses do not combine with each other. </p>
<p>But this is not the case. The failure to change course or to take alternative action means that the long-established trajectory continues. Contestation is simply over who gets the rents.</p>
<p>South Africa needs to revisit the paradigm: to rethink market outcomes themselves, in terms of who participates and how they compete. The country’s policies have been fundamentally naïve to assume that change will come from a structure which remains essentially the same while accommodating a few new faces. </p>
<p>It is time to change the rules. The alternative is that they are simply ignored. It is also helpful to consider the range of alternative approaches to fostering competition and growth which exist internationally.</p>
<p>Countries which have fundamentally changed their industrial structure have addressed the position of large companies in ways that appear heretical to an orthodoxy that has largely been accepted in South Africa. <a href="http://www.oecd.org/daf/competition/prosecutionandlawenforcement/2434995.pdf">Take South Korea</a>. It has explicitly pursued balanced growth as part of its competition policy objectives. Its competition authority was given the job of monitoring the conduct of the largest chaebols (the big conglomerates), to ensure they don’t skew the playing fields in their favour and that they treat their subcontractors properly. </p>
<p>Germany’s competition regime is <a href="http://archive.kyotogakuen.ac.jp/o_ied/information/fairness_in_competition_law.pdf">permeated by economic values of fair competition</a> which ensure large companies have special obligations. </p>
<h2>Barriers to entry</h2>
<p>Our <a href="http://www.competition.org.za/barriers-to-entry/">recent in-depth studies</a> highlight the extent of the barriers faced by entrants and smaller firms in South Africa. These firms are up against well-entrenched incumbents, many of which derive their position from privileges obtained under apartheid.</p>
<p>Entrants may have fantastic products but find their routes to market are blocked in many ways. </p>
<p>For example, incumbents can control distribution systems and retail space. Exclusive lease agreements between incumbent supermarkets and owners of shopping malls mean that new supermarket chains have to invest in finding vacant land and building freestanding stores. This was evident in the case of <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/5729a6757da24fb5e1092ef3/1462347387381/BTE+Fruit%26Veg+ChisoroDasNair+290216.pdf">Fruit and Veg City</a>. </p>
<p>Another factor is consumer inertia and brand loyalty. New entrants have to spend large sums on <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/5729a6757da24fb5e1092ef3/1462347387381/BTE+Fruit%26Veg+ChisoroDasNair+290216.pdf">advertising</a> before sales volumes and scale can be achieved. </p>
<p>And then there is the issue of established players putting up strategic barriers to new entrants. As mobile operator Cell C entered the market the large incumbents increased call termination rates. This contributed to <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/575fbb7d40261df38922ece1/1465891718488/Barriers+to+entry_Telecommunication+Sector+Study.pdf">Cell C’s slow growth</a> and sustained higher mobile prices for consumers. </p>
<p>The studies also note the general importance of economies of scale and scope.
If a new player wants to build a competitive business it needs access to substantial, and patient, capital. This raises issues around access to inputs or the need for entrants to invest in businesses at different levels of the supply chain – <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/57827495bebafbf781923210/1468167327507/Agenda+for+Action_Overarching.pdf">all at the same time</a>. </p>
<p>New and creative businesses can bypass some of the roadblocks. But they can be undermined at one level preventing them from unlocking the markets at another.
Another point we highlight is the significance of learning-by-doing. Successful entrants learn by making mistakes. Fruit and Veg City entered into retail in 1994 and took 22 years to develop its business model and build a footprint of just more than 100 stores. </p>
<p>The case of <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/5694fdf8dc5cb4e99d1fd50a/1452604926069/Barriers+to+entry+-+retail+banking+-+Final+031215.pdf">Capitec</a> also offers useful insights. The fact that a leading financial services group, PSG, was one of its shareholders and provided equity finance gave it a considerable advantage. But it still took about a decade to reach the scale required to be an effective competitor. </p>
<p>These examples show that the only way new entrants can survive is if they have backing through their early years. This again suggests that businesses with inherited wealth behind them have a substantial undue advantage. </p>
<h2>Things need to be done differently</h2>
<p>South Africa needs to do things differently if it wants to open up its economy. </p>
<p>Routes to market must be opened up to new entrants and rivals. This can be done by securing commitments from supermarkets to lower the barriers to smaller suppliers, as a key route to market for all consumer goods. Urban planning can facilitate a diversity of retail formats. </p>
<p>Regulation of network industries such as telecommunications, banking and electricity transmission should be done with increased participation and competition in mind to ensure that entrants are given the chance to grow and effectively challenge incumbents.</p>
<p>In addition to a greatly expanded role for development finance institutions, sources of venture capital need to be identified for rivals in concentrated markets. It involves more “patient capital” with a longer repayment horizon to give entrants time to build the capabilities they need. One source of finance for these investments would be if all competition fines were paid into a development finance fund for competition.</p>
<p>But the package requires more than finance. It requires support to build the financial, management, and other skills needed to establish successful businesses. Businesses are bound to fail if support for new entrants, including black industrialists, continues to happen at one level without addressing the dynamics across the entire value chain.</p>
<p>Ultimately facilitating entry strengthens the competitive process and opens the economy to wider participation. This rewards innovation and creativity rather than incumbency and historical advantage. </p>
<p>Genuinely addressing the concentration of wealth and ownership and creating the ground for black industrialists to thrive requires such a programme for change. </p>
<p>And, for a meaningful change in the distribution of wealth, tackling the way in which inherited market power is exerted must be complemented by taxing historically acquired wealth.</p><img src="https://counter.theconversation.com/content/68759/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>This article draws from research funded by the National Treasury and the University of Johannesburg. The authors alone are responsible for the insights drawn.</span></em></p>South Africa needs take a radically different path if it is going to make its economy more inclusive. It must start from the premise that markets are intrinsically skewed to historic privilege.Simon Roberts, Professor of Economics and Director of the Centre for Competition, Regulation and Economic Development, University of JohannesburgTamara Paremoer, Senior Researcher, Centre for Competition, Regulation, and Economic Development, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/662702016-09-29T07:12:41Z2016-09-29T07:12:41ZWhether China is dumping steel in Australia under the ‘market economy’ label is very subjective<p>Steel dumping is <a href="http://www.abc.net.au/am/content/2016/s4546798.htm">the latest accusation</a> levelled at China in a growing backlash against the country’s influence in Australia. But dumping can be in the eye of the beholder, depending on how much your country is exporting or importing (or both) and varying government regulations. </p>
<p>Dumping occurs when a foreign country decides to off load stock to another country at well below the price they charge at home. While consumers may enjoy cheaper products, local industry may argue that the imports are being used to drive them out of business, and get monopoly power. The local industry usually asks for an anti-dumping tariff to be imposed on imports to help the locals compete.</p>
<p>Anti-dumping tariffs are calculated to be the difference between the foreign (import) price and the imported good’s foreign market value, but this definition can change. In 1974, for example, when under pressure from Japanese manufacturers, the United States decided that dumping exists if the price of imports is below the foreigner’s cost of production (even allowing for a generous profit margin).</p>
<p>While dumping cases were often brought by the United States against Japan in the 1970s and 1980s, in this millennium it’s all about China. The US and the European Union constantly reignite disputes about China subsidising steel production to deliberately oversupply the world market, although legal action not always taken.</p>
<p>How dumping is perceived is further complicated by whether or not a country is considered a “market” or a “non-market” economy. That is, whether prices reflect the global market (market) or are set by the government (non-market).</p>
<p>When China joined the World Trade Organisation in 2001, it agreed not to use government set prices but a surrogate price to reflect the world market, or the price used in capitalist economies in the West. However the US and other foreign nations argue that China is not staying true to its word. </p>
<p>According to the argument, China, as a socialist planned economy, can still just set prices below cost and flood the world with cheap imports and drive local producers out of business. And if China was classified as a non-market economy, Australians, the US, EU and others could claim dumping as these countries would be effectively competing against the power of the Chinese government. </p>
<p>China was granted market economy status in 2016 (as a prerequisite to joining the WTO in 2001) so that trade barriers could be removed and prices and output from the country allocated by the market. In principle, this would allow resources to flow to their most productive use. The dispute now is whether China is a market economy status in name only, still using government regulations to set the price and quantity on world markets. Hence the accusation that China will flood the world with cheap steel.</p>
<p>But should Australia have a dispute with China, given the relatively small size of our steel industry and the <a href="https://www.business.unsw.edu.au/research-site/centreforappliedeconomicresearch-site/Documents/T.%20Harcourt%20-%20Why%20Australia%20Needs%20Exports.pdf">massive size of our overall trade relationship</a> with China? Australian exports rely on the Chinese steel industry, as Australia exports vast quantities of iron ore coal and natural gas to the tune of $91 billion, according to my calculations based on ABS data. So it’s important to tread carefully so a steel dispute doesn’t disrupt the overall bilateral relationship.</p>
<p>We must remember that more than 10,000 Australian exporters sell goods to China (directly or via Hong Kong) and they pay, on average, <a href="https://www.business.unsw.edu.au/research-site/centreforappliedeconomicresearch-site/Documents/T.%20Harcourt%20-%20Why%20Australia%20Needs%20Exports.pdf">60% higher wages</a> than non-exporters. This is in addition to better Occupational Health and Safety standards, education and training standards and job security. The employment of Australian workers – in good jobs at good wages – depends on maintaining a healthy trade relationship with China. </p>
<p>Given that China has been Australia’s <a href="http://dfat.gov.au/trade/resources/trade-statistics/pages/trade-statistics.aspx">most important export market since 2009</a> and for one in every three export dollars Australia earns, the customer is China (according to my calculations based on ABS data), it’s not a relationship we really want to dump on.</p><img src="https://counter.theconversation.com/content/66270/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tim Harcourt does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Governments have been known to change the definition of anti-dumping tariffs to suit their needs, so accusations of steel dumping from China are still quite subjective.Tim Harcourt, J.W. Nevile Fellow in Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/595952016-05-22T20:06:39Z2016-05-22T20:06:39ZMurray Goulburn and Fonterra are playing chicken with dairy farmers<figure><img src="https://images.theconversation.com/files/123124/original/image-20160519-22310-19bce32.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Dairy giants Murray Goulburn and Fonterra competed in a race to the bottom.</span> <span class="attribution"><span class="source">cskk/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>Dairy giants Murray Goulburn and Fonterra <a href="http://www.gametheory.net/dictionary/games/GameofChicken.html">played a dangerous game of chicken</a> by hanging onto high milk prices despite the global dairy market volatility. Even though both cooperatives are shifting responsibility to each other for the fall in milk prices, which is pushing dairy farmers to the brink, they are both at fault for their race to the bottom. Now both will have to work hard to win back the trust of farmers. </p>
<p>The two companies, both cooperatives (although Fonterra has most of its members in New Zealand) compete head-to-head for farmer suppliers in Australia. Fonterra is the world’s largest dairy exporter accounting for about 40% of global dairy trade and is the fourth largest dairy company behind Nestle, Danone and Lactalis with an annual gross revenue of A$17.61 billion, and 1200 suppliers in Victoria, Tasmania and South Australia. By contrast Murray Goulburn has annual sales revenues of A$2.87 billion, 9% of the global trade market and has 2500 suppliers in Victoria and Tasmania. </p>
<p>Since 2005, when Fonterra purchased Bonlac the two companies have fought for suppliers in Australia and grown their respective businesses to meet increasing global demand for dairy product. Their resulting pricing models to farmers were assured while dairy prices continued to rise. Farmers accepted claw back provisions - it was never thought that they would be invoked - and the companies accepted loose contractual obligations to supply. The competitive environment that ensued, from which dairy farmers benefited meant that neither company was able to hold the mantle of market leader for long. </p>
<p>The game of chicken was on as <a href="https://www.fonterra.com/nz/en/Hub+Sites/News+and+Media/Media+Releases/FONTERRA+FORECASTS+TOTAL+PAYOUT+AVAILABLE+TO+FARMERS+FOR+201516+AND+ANNOUNCES+FONTERRA+CO-OP+SUPPORT">early as August, 2015</a> when Fonterra began reducing its advance payments to New Zealand dairy farmers). Throughout the following eight months Murray Goulburn and Fonterra steadfastly sat behind their respective wheels committed to hanging tough. Much was at stake.</p>
<p>For both cooperatives a reduction in advance payments to their suppliers in March, or earlier would have saved them considerable reputational risk, and in many cases reduced the exposure of dairy farmers to financial failure. Instead they chose not to swerve, but to hang tough, failing to ignore the <a href="https://theconversation.com/milk-price-cuts-reflect-the-reality-of-sweeping-changes-in-global-dairy-market-59251">significant decline in global prices</a>, for which they both appeared oblivious. </p>
<p>While Murray Goulburn swerved first by lowering the milk solid price, they did so far too late. Fonterra swerved last, but by then the events in the international market had raced past the game – leaving both companies’ suppliers stranded with the over-payment problem from which they now suffer. Recklessly both cooperatives thought they could run the gauntlet with global dairy. That they actually did so for eight months is testimony to the merits of market competition. </p>
<p>Where to now for the two beleaguered companies and suffering dairy farmers? The benchmark for corporate behaviour and accepting responsibility for ‘bad’ outcomes was <a href="http://iml.jou.ufl.edu/projects/Fall02/Susi/tylenol.htm">set by Johnson & Johnson in 1982</a>. </p>
<p>The handling of the Tylenol crisis, where a series of poisoning deaths resulted from drug tampering, set the standard for corporate ethics against which all other subsequent behaviours can be compared. Johnson & Johnson took responsibility, took action and set about the recovery – despite not being responsible for the tampering of their product on shop shelves in Chicago. </p>
<p>It will be through remedial behaviour by each of the dairy giants over the next months that these cooperatives will re-cement their relationships with suppliers, as they both try to win over farmers and gain disproportionate market share at the others’ expense. The outcome both cooperatives have been seeking since Fonterra’s market entry in 2005. </p>
<p>Fonterra have reiterated the view that they warned farmers that the price paid did not <a href="https://www.fonterra.com/wps/wcm/connect/Fonterra_NewZealand_en/Fonterra/Hub%20Sites/News%20and%20Media/Media%20Releases/FONTERRA%20AUSTRALIA%20REVISES%20MILK%20PRICE%20FOR%20MAY%20AND%20JUNE%202016%20AND%20INTRODUCES%20SUPPORT%20LOAN/FONTERRA%20AUSTRALIA%20REVISES%20MILK%20PRICE%20FOR%20MAY%20AND%20JUNE%202016%20AND%20INTRODUCES%20SUPPORT%20LOAN?pageID=Z6QReDePPO8MIDC3JD2JM4CLHCGJMG6GPO4JM4733DIJM46G1DCJIT65BEC3OK6J1">reflect the collapse in global dairy prices</a> yet appear to have left the responsibility to them to manage. </p>
<p>Worse, Fonterra’s CEO, Theo Speirings, has now <a href="http://www.radionz.co.nz/news/rural/304226/fonterra-'robbing-from-australia-to-help-nz'">defended the price cut</a> on the grounds that their strategy is to repatriate profit for the benefit of their New Zealand shareholders. This overlooks that the majority that of tradeable shares are held by Australian superannuation funds and that Fonterra’s Australian suppliers had to be subsidising their New Zealand counterparts. How else do you explain the 30% increase in farm gate price on this side of the Tasman? </p>
<p>By contrast Murray Goulburn’s behaviour, especially that towards their suppliers, appears far more conciliatory. Murray Goulburn has been transparent about resignations from the board and management; open about reorganisation and appointment of their interim CEO, David Mallinson; and, shared with suppliers the prioritisation of effort. </p>
<p>They have now offered suppliers a Milk Supply Support Package designed to spread the impact of lower milk payments across the next three years. This package sits on the cooperative’s balance sheet - where it should - with no need to take on individual loans at supplier level. </p>
<p>Whether or not either company can emulate the recovery of Johnson & Johnson remains to be seen, but it is reasonable to expect considerable energy, effort and enterprise being expended by them in the months that follow. </p>
<p>Telling evidence will be reflected in market share in 12 months.</p>
<p><em>This piece has been altered since publication to correct Fonterra’s annual gross revenue, which is $A17.61 billion and Murray Goulburn’s annual sales revenue, which is $A2.87 billion.</em></p><img src="https://counter.theconversation.com/content/59595/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Two of the largest dairy cooperatives have been playing with farmers by pursuing a high price for milk when both should have taken into account fluctuations in the global dairy markets.James Lockhart, Senior Lecturer, School of Management, Massey UniversityDanny Donaghy, Professor of Dairy Production Systems, Massey UniversityHamish Gow, Professor of Agribusiness, Massey UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/453912015-07-30T13:39:54Z2015-07-30T13:39:54ZShould we love Uber and Airbnb or protest against them?<p>An angry crowd <a href="http://www.theguardian.com/technology/2015/jul/30/uber-drivers-attacked-outside-mexico-city-airport-as-taxi-drivers-demonstrate">has attacked</a> Uber cars with bars and stones outside Mexico City airport, the latest in a series of worldwide protests against the ride-hailing app. More than 1,000 taxi drivers <a href="http://www.i24news.tv/en/news/international/americas/79635-150725-taxi-drivers-block-streets-of-rio-in-protest-against-uber">blocked streets</a> in Rio de Janeiro a few days ago, and the service has been restricted or banned in the likes of <a href="http://www.bbc.co.uk/news/business-33382006">France</a>, <a href="http://www.ft.com/cms/s/0/d522e39e-2a47-11e5-8613-e7aedbb7bdb7.html">Germany</a>, <a href="http://www.ft.com/cms/s/0/d522e39e-2a47-11e5-8613-e7aedbb7bdb7.html">Italy</a> and <a href="http://www.latimes.com/business/la-fi-the-download-uber-in-asia-20150728-story.html#page=1">South Korea</a>. Protests <a href="http://www.sfweekly.com/thesnitch/2014/10/27/protesters-accuse-airbnb-of-killing-san-franciscos-neighborhoods">have</a> also <a href="http://www.theatlantic.com/technology/archive/2014/04/remember-the-great-airbnb-protests-of-2014/361464/">been staged</a> against Airbnb, the platform for renting short-term accommodation. </p>
<p>Neither platform shows any signs of faltering, however. Uber is available in 57 countries and <a href="http://fortune.com/2015/06/29/report-ubers-huge-growth-comes-with-huge-losses/">produces</a> hundreds of millions of dollars in revenues. <a href="https://www.airbnb.co.uk/about/about-us">Airbnb</a> is available in more than 190 countries, and boasts more than 1.5 million rooms. </p>
<p>Journalists and entrepreneurs have been quick to coin terms that try to capture the social and economic changes associated with such platforms: the <a href="http://www.theguardian.com/books/2015/jul/17/postcapitalism-end-of-capitalism-begun">sharing economy</a>; the <a href="http://www.businessinsider.com/the-on-demand-economy-2014-7?IR=T">on-demand economy</a>; the <a href="http://wealthofthecommons.org/essay/peer-peer-economy-and-new-civilization-centered-around-sustenance-commons">peer-to-peer economy</a>; and so on. Each perhaps captures one aspect of the phenomenon, but doesn’t make sense of all its potentials and contradictions, including why some people love it and some would smash it into pieces. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/90299/original/image-20150730-25742-nhep2n.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/90299/original/image-20150730-25742-nhep2n.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/90299/original/image-20150730-25742-nhep2n.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=366&fit=crop&dpr=1 600w, https://images.theconversation.com/files/90299/original/image-20150730-25742-nhep2n.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=366&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/90299/original/image-20150730-25742-nhep2n.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=366&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/90299/original/image-20150730-25742-nhep2n.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=460&fit=crop&dpr=1 754w, https://images.theconversation.com/files/90299/original/image-20150730-25742-nhep2n.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=460&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/90299/original/image-20150730-25742-nhep2n.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=460&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">How Mexican taxi drivers feel about the sharing economy.</span>
<span class="attribution"><a class="source" href="http://wfla.com/2015/07/29/video-uber-drivers-attacked-in-mexico-city/">YouTube</a></span>
</figcaption>
</figure>
<p>Economic sociologists believe markets are always based on an underlying infrastructure that allows people to find out what goods and services are on offer, agree prices and terms, pay, and have a reasonable expectation that the other party will honour the agreement. The oldest example is the personal social network: traders hear what’s on offer through word of mouth and trade only with those they personally know and trust. </p>
<p>In the modern world we can do business with strangers, too, because we have developed institutions to make this reliable, like private property, enforceable contracts, standardised weights and measures, and consumer protection. They are part of a long historical continuum, from ancient trade routes with their customs to medieval fairs with codes of conduct to the state-enforced trade laws of the early industrial era. </p>
<h2>Natural selection</h2>
<p><a href="http://www.haas.berkeley.edu/groups/pubs/books/williamson/economic_institutions.html">Institutional economists</a> and <a href="http://www.cambridge.org/gb/academic/subjects/history/european-history-general-interest/rise-western-world-new-economic-history">economic historians</a> theorised in the 1980s that these have gradually been evolving towards ever more efficient forms through natural selection. People switch to cheaper, easier, more secure and more efficient institutions as new technology and organisational innovations make them possible. Old and cumbersome institutions fall into disuse, says the theory, and society becomes more efficient and economically prosperous as a result. </p>
<p>It is easy to frame platforms as the next step in such a process. Even if they don’t replace state institutions, they can plug gaps. For example enforcing a contract in court is expensive and unwieldy. Platforms provide cheaper and easier alternatives through reputation systems where participants rate each other’s conduct and view past ratings. </p>
<p>Uber does this with government-licensed taxi infrastructures, for instance, addressing everything from quality and discovery to trust and payment. Airbnb provides a similarly sweeping solution to short-term accommodation rental. The sellers on these platforms are not just consumers seeking to better use their resources, but also firms and professionals switching over from the state infrastructure. It is as if people and companies were abandoning their national institutions and emigrating en masse to Platform Nation.</p>
<h2>Downside or upside?</h2>
<p>The natural selection theory argues that the government shouldn’t try to stop people from using the likes of Uber and Airbnb, nor impose its evidently less efficient norms on them. Let people vote with their feet. But is that an oversimplification? </p>
<p>If buyers switch to new institutions, for instance, sellers may have little choice but to follow. Even if taxi drivers don’t like Uber’s rules, they may find there is little business to be had outside the platform and switch anyway. In the end, whether the market shifts can boil down to <a href="http://press.princeton.edu/titles/7206.html">power rather than choice</a>. </p>
<p>Even when everyone participates willingly, the arrangement might be bad for society. It might <a href="http://www.cambridge.org/gb/academic/subjects/history/economic-history/institutions-and-european-trade-merchant-guilds-10001800">adversely affect</a> third parties, for example, such as Airbnb guests annoying neighbours through noise, traffic or being unfamiliar with the local rules. In the worst case, a platform can make society less efficient by creating a “free-rider economy”.</p>
<p>If these kinds of conflicting interests are reconciled, it is through the political institutions that govern the markets. Social scientists can often find out more about a market by looking at its political institutions than comparative efficiency. Take the hotel industry. Local governments try to balance the interests of hoteliers and their neighbours by limiting hotel business to certain zones. Airbnb has no such mandate to address the interests of third parties on an equal footing. Perhaps because of this, 74% of Airbnb properties <a href="https://www.airbnb.co.uk/economic-impact">are not</a> in the main hotel districts, but often in ordinary residential blocks. </p>
<p>Of course, government regulators are at risk of being captured by incumbents, or at the very least creating rules that benefit incumbents to the detriment of possible future participants. An example would be taxi-licensing systems that strictly limit the numbers of cab operators. Whatever quality assurance this offers customers, among the main losers are excluded would-be drivers. </p>
<p>Against this background, platforms can look like radical reformers. For example Uber <a href="http://www.huffingtonpost.co.uk/2015/03/10/uber-says-itll-create-1-million-jobs-for-women-by-2020_n_6839342.html">aims to</a> create 1m jobs for women by 2020, a pledge that would likely not be possible if it adhered to government licensing requirements, as most licences are owned by men. Having said that, Uber’s definition of a “job” is much more precarious and entrepreneurial than the conventional definition. My point here is not to take sides, but to show that their social implications are very different. Both possess flaws and redeeming qualities, many of which can be traced back to their political institutions and whom they represent.</p>
<p>What kind of new economic institutions are platform developers creating? How efficient are they? What other consequences do they have? Whose interests are they geared to represent? These are the questions that bureaucrats, journalists, and social scientists ought to be asking. I hope we will be able to discover ways to take what is good from the old and the new, and create infrastructure for an economy that is as fair and inclusive as it is efficient and innovative.</p><img src="https://counter.theconversation.com/content/45391/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Vili receives funding from the European Research Council.</span></em></p>Some theorists suggest that such platforms are making our world more efficient by natural selection. The reality is a little more complicated.Vili Lehdonvirta, Associate Professor and Senior Research Fellow, Oxford Internet Institute, University of OxfordLicensed as Creative Commons – attribution, no derivatives.