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Archive for August 2012

Counting tourists

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(c) Johan Fourie

Counting tourists: The Cape Town Fan Walk during the 2010 FIFA World Cup

Victor Matheson, Thomas Peeters and Stefan Szymanski author a recent paper that attempts to measure, using monthly data of South African tourist arrivals, the impact on tourism from the 2010 FIFA World Cup. Matheson and Szymanski are two guru’s in the field of sports economics and are known for their pessimism of ex ante studies that attempt to estimate the potential economic impact of mega-events. And we had a lot of those in South Africa: already in 2003, a Grant Thornton study had optimistically predicted that more than half a million visitors from outside Africa would visit South Africa during the event, staying an average of 15 days.

The new paper confirms the authors’ pessimism about ex ante studies: it shows that only 193,323 additional, non-SADC tourists visited South Africa during the event, which is far below the government’s estimate of 309,554. Given that the event cost the South African government an estimated $3.9 billion (I’m not sure where the authors get this figure), they calculate that the average “World Cup” tourist was priced at a steep $19,500.

The authors use a standard methodology (similar to a paper that Karly Spronk and I used a while ago) and include several economic variables as controls. I liked the grouping of countries based on the size of their tourist arrivals. But they make a number of assumptions which I think does bias their results towards the more pessimistic perspective.

They exclude, for example, SADC visitors, based on the fact that “those travelling from SADC nations are generally not the high spending tourists that South Africa was seeking to attract during the World Cup”. This is not a great argument. Would we exclude the visitors from Latin America for the 2014 World Cup in Brazil simply because they do not spend as much as their European counterparts? I suspect not. With African countries growing at massive rates, tourist visits to South Africa are becoming important luxury consumption items, even if it is only for visiting friends and relatives, or for doing some shopping. Maria Santana-Gallego and I have made this same argument elsewhere. In fact, when including SADC arrivals, the estimated number of tourist arrivals during June/July increases to 271,000, a boost of nearly 80,000.

Because 2011 economic data was not yet available, the authors also restricted their analysis to only include 2010 and earlier years. Where they do include data for 2011, the results are significantly different. For example, I’ve reported above results from model 1. If model 2 is used, the 271,000 visitors rise to 391,000 visitors, an increase of 44%. Moreover, the authors consider both tourist arrivals during the duration of the event (June/July) and during the entire year. They find, for example, that while tourism increased by 271,000 visitors during the World Cup tournament, 627,000 total additional visitors arrived during the year (1,3 million according to their model 1). In the conclusion, the authors note that “we estimate the total impact of the World Cup on visitors to South Africa in 2010 to be as high as 490,135”, slightly more optimistic than the 8% average for mega-events Maria and I calculate in our Tourism Management paper.

I suspect the authors were surprised by these numbers, as identifying displacement – where tourists that would have visited the country in the absence of the event – is the Higgs Boson of the mega-event literature. (Spronk, Sieberts and I also attempted to find evidence of this with South African data.) But few tourists were displaced by the 2010 FIFA World Cup and there are several reasons for this: the event was held during our winter (off-peak) season, which meant that there were few constraints on our transport and accommodation infrastructure. Also, several countries that were not our traditional tourism markets participated in the event, drawing tourists that would not typically have considered South Africa as a tourist destination (the authors mention the rise of Latin American tourists, for example, and I think this is an important point when considering whether to host a mega-event). The luck of the qualification round, and the actual match outcomes, also play a role: had Russia qualified instead of tiny Slovenia (a difference of one away goal!), we might have seen a significant number of additional tourists. A similar case could be made for Egypt instead of Algeria, or China instead of North Korea. Also, had England and Germany progressed to the final, imagine the boost to tourist arrivals over the last few weeks of the tournament.

The paper makes a valuable, first contribution to measuring the ex post impact of hosting the 2010 FIFA World Cup on tourist arrivals to South Africa. Surely there will be many more. But rather than just counting tourists, we would do well to also focus on the underlying causes (policy or luck?) of these tourist arrival patterns.

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Written by Johan Fourie

August 31, 2012 at 09:20

Mobinomics

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Mobinomics is the story of how Alan Knott-Craig acquired Mxit, the mobile network that allows users to communicate at low cost, and how this company is contributing to the mobile revolution that is sweeping Africa. Written as a personal account, the opening chapters mostly discuss the development of the Mxit network and how Knott-Craig became involved and finally acquired the company  in late 2011. The latter chapters offer short case studies of the different characters that make up this social network, from gamers and teachers, to chat room officers and entrepreneurs.

In many ways, Mobinomics, written by Knott-Craig and collaborator Gus Silber, is not only a book about Mxit but also a book that symbolizes the company that owns Mxit, World of Avatar: for good or bad, the book is an eclectic combination of autobiography, business strategy, fantasy, sociology and sales pitch.

The book reads easy. Knott-Craig certainly shares my passion for Stellenbosch (“To live in Stellenbosch is to take the long view” (p. 66)), and his insights (on topics like human resources management) and anecdotes about colleagues and collaborators are certainly interesting. But the book doesn’t quit live up to what I’d hoped for.

While most of the book is about Mxit, very little in the book is about “Africa’s mobile revolution” or the economics of mobiles, as the title implies. I had hoped Knott-Craig would explain why African countries are such lucrative markets (which African countries in particular?), how Mxit is infiltrating these markets (and who is the competition?), and what this will do to Africa’s economies and the living standards of its inhabitants (and possibly some evidence for this). Instead, the story is mostly a South African one, with only a few references to the economics of mobile technology, and then only the standard “leapfrogging” story.

Moreover, if it’s business strategy you’re interested in, you might like to know why is Mxit a better medium/network/technology than the others out there? What about the shift to smart phones and apps like What’s App? Facebook, for example, doesn’t get more than a handful of mentions in the book. Surely if Mxit is to survive (and profit) for the next five years, these are the questions the author needs to address.

And potential entrepreneurs might like to know how it’s possible to convince an investor to deposit more than a few million into a project that is still making a monthly loss of R4 million (p. 182).

Surprisingly, Knott-Craig also favours colourful language to concrete data. Here’s one example from page 166:

The map of Africa is glowing. Soft pulses of light, radiating from the subcontinent, spreading like ripples in a pond. Some are as faint as watermarks; others burn with a fiery intensity. From afar they look like clusters, hot zones of thermal activity. Zoom in to the streets of the cities, the townships, the suburbs, and the clusters explode and subdivide, spawning discrete cells, pulsing and fading, pulsing and fading.

Cool, but why not just show the map?

I am sure Mxit and, more broadly, mobile technology has the ability to revolutionize African communication, commerce and competitiveness. And while this is a worthwhile read for those interested in how Mxit came about and how it works, it is not a treatise on the use and usefulness of mobile technology in Africa. It also lacks in crucial details for any prospective entrepreneur in search of business blueprint. A more appropriate title would have been: y i bght mxit by aln nt crg.

Written by Johan Fourie

August 26, 2012 at 22:50

The optimal (Protea) cricket team

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How many ‘I’s’ are there in Statistics? Graeme Smith celebrates being on top of the world. Photo by Getty Images.

Monday was an exciting day for South African cricket: not only did the Proteas beat England to win the series 2-0, but because of the win, the Proteas are now the nr 1 test team in the world. And rightfully so, I might add, given the comprehensive way in which they beat the former test nr 1. Even so, it could have been very different. Had Graeme Swann and Matthew Prior remained at the crease for another five overs, or South Africa scored 30-odd fewer runs, the result may have been very different. Which made me think about Mark Boucher: would we have been in this position had Boucher played? Surely we lost very little in the wicket-keeping department. I remember only one missed opportunity from AB de Villiers in the whole series. And although Jacques Rudolph did not add much with the bat (averaging 35), JP Duminy would probably not have played if Bouch had been available, which would have lowered our final day total by, say, 50 runs, the margin by which we won (JP averaged 67 in the series, although his highest total was 61 on the fourth-day of the final test).

But such questions about team composition struggle to factor in intangibles like experience (Boucher would have played his 150th test at Lord’s). What about coaching and mental fitness, as one Cricinfo author recently explained the difference between South Africa and England? Can team selections really just be based on statistics? A recent paper by Kelcey Brock, Gavin Fraser and Ferdi Botha of Rhodes University suggests we can. The paper, published in the Journal for the Studies of Economics and Econometrics (SEE), attempts to identify the most optimal strategy for a cricket team to win, by constructing a production function for South Africa’s domestic cricket teams participating in the SuperSport Series between 2004 and 2011.

A production function is simply a way to specify the outputs of a firm, an industry or an economy, in terms of inputs. In this case, the output is match success, and the inputs are various statistics that cricket followers will be familiar with: batting averages, bowling averages, runs per over, etc. Instead of basic OLS, the authors use a technique known as Stochastic Frontier Analysis and find that, for South Africa and on average, an attacking batting strategy and a defensive bowling strategy has the highest likelihood of a successful outcome. The results are very similar for Australia, but different to England and New Zealand, where an attacking bowling strategy leads to the best results.

I do think there are some issues with the paper. I would have like to see different inputs and controls (for example, pitch quality, time effects, perhaps even star Protea players). How are drawn matches treated in the data? And, more importantly, are the coefficients economically meaningful and how are they interpreted? The coefficient for bowling average, for example, is consistently positive and large, but the authors attach greater weight to their “Defensive Bowling”-variable, which has a smaller coefficient. And, even if the results are backed up by solid statistical evidence, what does this imply for team selection? Do we just select batsmen with an attacking frame of mind and bowlers like Vernon Philander who has a masterful control of line and length?

Nevertheless, such analyses begin to show the usefulness of economic techniques in the world of sports, an exciting prospect. Here’s hoping the Proteas find their optimal team selection before they tour Australia at the end of the year. Quinton de Kock anyone?

Written by Johan Fourie

August 23, 2012 at 16:13

Rugbynomics: Why the Lions will produce more black rugby players than the Kings

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The big news this week in rugby circles was the entry of the Eastern Province Kings to Super Rugby next year, at the cost of the Lions. The Lions, perennial underperformers in this competition, were ‘relegated’ not only because of their poor performances this season (although they did manage to beat finalists, the Sharks), but because the South African Rugby Union had promised some years ago that the Eastern Province (and Port Elizabeth) would return to top tier rugby, even though their team (the EP Elephants) could not manage to win the second division for the last few years. They also don’t play in this year’s Currie Cup, the premier domestic rugby league in South Africa.

Enough has been written about the political reasons for the Kings’ inclusion. It has mostly to do with developing black rugby players, which is a necessity, of course, given South Africa’s past (and current!) racial inequalities, from access to training facilities, quality coaching, good nutrition, to generally higher incomes that should translate into more time for luxury goods and services, like playing rugby. The main question, though, is whether the Eastern Cape, vis-à-vis Johannesburg, the Lions’ main recruitment area, can deliver these uncut black diamonds?

Urbanisation is a global phenomenon. Somewhere around 2008, a poor, subsistence farmer (think rural Peru, or rural Angola, or rural Turkmenistan) decided to pick up his meager possessions and move from his rural plot to the city, and suddenly, for the first time in human history, more people on earth lived in cities than on farms. It’s also happening in South Africa – and has done so since the discovery of minerals at the end of the nineteenth century – as cities offer more, well-paying jobs, greater variety of consumption opportunities (think movies, restaurants, shopping malls), greater access to public services (running water, sanitation, paved roads) and better networks (social, capital, entrepreneurial). Which means that the Eastern Cape, although there are several urban areas (Port Elizabeth, East London, Bisho, Umtata), is not growing as fast as greater Joburg, which is still considered, literally and figuratively, the place of gold. This is growth in population numbers, and in income: Eastern Cape residents are migrating to Joburg (and Soweto) because of greater opportunities to earn money.

Simon Kuper and Stefan Szymanski predict in Soccernomics, a book that appeared in 2009, that football will continue to grow as a global sport, but that the inequality between teams in the Premier League, for example, will also grow. The reason for this inequality is the densification of cities at the cost of rural towns and cities, which typically would have had strong local support (i.e. demand). With more money in cities, and now also greater numbers, big city teams will have a far larger budget to purchase the best players, and rural teams will struggle to be competitive. The results of the last few seasons confirm this, although Man City’s success has arguably less to do with the size of their support base and more to do with the size of their owner’s purse. Perhaps Spain is a better example: the two top teams come from the two largest cities – and the gap has simply grown over the last decade.

Johannesburg remains the financial capital of South Africa and a major entrepot for the continent’s entrepreneurs, businessmen and financial elite. It is also a huge attraction for the poorest of the poor that settle in the townships around Joburg, because it still offers the possibility that with a good work ethic and a lot of luck, anything is possible. These “immigrants” (local, many of them from the Eastern Cape, and foreign, from other African countries) are usually those with the willingness and the ability to improve their lot in life, and dream of sending their kids to good schools and possibly even university. And it’s these kids that will dream of playing for Bafana Bafana, or, as SARU would hope, for the Springboks, and actually have the ability (the inputs, including good education and training facilities, good nutrition, an organized sport league, etc) to reach these goals.

I’m not saying that the Eastern Cape cannot or will not produce outstanding black rugby players. They already have. But promoting Eastern Cape rugby at the cost of developing rugby in Johannesburg shows a lack of understanding of the changing demographics of South Africa. More black players with the ability to compete at international level will come from Soweto than from Bisho, not because Sowetons are innately better, but because they are wealthier and have access to better facilities, schools and leagues.

If SARU is serious about promoting black rugby players in South Africa, they should support Lions rugby, not penalize them.

Written by Johan Fourie

August 17, 2012 at 10:40

Baboonomics

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(c) Johan Fourie

A picture is worth a thousand regressions: Dr Adoons in the Kruger National Park

Nature is often full of surprises, but I was not expecting to find such convincing evidence to prove that numeracy is not a good indicator of human capital while on safari in the Kruger National Park. Having questioned the ability of numeracy to capture human capital attainment in a recent paper, Dr Adoons (pictured), with little need for statistical tables or econometric regressions, provide irrefutable evidence that my hypothesis cannot be rejected. Joerg Baten has a lot of explaining to do.

Written by Johan Fourie

August 13, 2012 at 12:42