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Posts Tagged ‘Brazil

Cities are the future

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MinasRuines

Photo by Marcia Valle

Brazil is a fascinating country to travel to as a South African. It is vibrant, slightly chaotic and mesmerizing all in one, and, beyond the airports and major tourist areas, quite a challenge for someone with no knowledge of Portuguese. I was invited to a rural university town in the state of Minas Gerais in May to deliver a series of talks. From the airport in Belo Horizonte my driver, hell bent on showing off his Grand Prix skills, took me on a five-hour rollercoaster ride through the hilly countryside. What was formerly a coffee and sugar plantations (and mining) region, were now mostly vacant, most of the land reclaimed by veld and forests. The language barrier prevented me from inquiring in detail what was happening, but from what I could gather, his answer was simple: People are moving to the cities. They want better lives.

Rapid migration to cities is a global phenomenon. People ‘vote with their feet’ for better economic opportunities, and in South Africa, as in Brazil, they vote for the bright lights of the cities. Poverty in South Africa is largely a rural phenomenon. Yes, townships on the periphery of cities house many poor residents, but these residents have better lives than those in the former homelands many of them come from. The search for a better life for them and their children is why they moved in the first place.

Those of us with a romantic view of life in the countryside may think that this flood to the cities can be reversed by, for example, policies that would expand land access or improve rural living standards. But lack of land is not the reason people migrate to cities in large numbers, not in South Africa and also not in Europe, China or Brazil. In several European countries, rural areas have been abandoned, taken over by forests (and returning wildlife). The European policy-makers have done their best to prevent this, by offering expensive agricultural subsidies to its farmers (at the cost of farmers in Latin America, India and Africa), but this has just slowed the inevitable. Farms are now being bought up by rich city-folk that want weekend getaways – cities are what creates wealth, the countryside is for spending it. In China, because of the disastrous policies of Mao, land was equally divided amongst the citizens. Yet with the onset of modern economic growth in China since the 1980s, millions of families have relocated to the cities, first to fill jobs in low-skilled, labour-intensive sectors, but as the economy has grown and wages have increased, to more skill-intensive sectors. Their children will attain much higher living standards than their parents and grandparents could ever dream of. Despite a history of severe inequality, the story is no different in Brazil. Rich and poor move to cities, because that is where their living standards are most likely to improve.

Trying to slow down urbanization is futile; in fact, it is likely to do more harm than good. Cities are where people prosper: they have access to employment opportunities, better schools and clinics, electricity, water and sanitation and access to a greater variety of social institutions and entertainment, like churches and sport clubs. But because cities are so attractive, that also results in higher levels of inequality, as new poor migrants from the countryside continually fill the gaps left by those that were formerly poor but have worked their way up. Inequality in cities should thus be interpreted with caution: it is a consequence, rather than a break, on progress. The poor care less about the Gini coefficient and much more about the possibility of social mobility – the possibility to escape poverty.

Evidence of how migrants’ living standards improve is provided in a new paper by Ivan Turok and Justin Visagie. They track rural migrants to South African cities between 2008 and 2014. Before their move to the city, 80% of these migrants were living below the poverty line. Six years later, they results show, ‘the level of income poverty for these migrants (now living in an urban environment) had more than halved to below 35%. Meanwhile, the poverty level for individuals who remained in the countryside stayed very high at 70%.’

It is for this reason that some economists are proposing a somewhat contentious poverty-alleviating policy: subsidies to help those in rural areas to migrate to cities. A new paper by David Lagakos, Ahmed Mobarak and Michael Waugh use an experimental programme of migration subsidies in Bangladesh to calculate the effect on migrant welfare. They find that for the poorest households, the welfare gains from migration subsidies are higher than unconditional cash transfers or a rural workfare program costing the same total amount. ‘This suggests that conditional migration transfers may be a useful way to raise the welfare of poor rural households in the developing world.’

The influx of migrants are and will continue to be difficult for cities, already suffering backlogs and scarce resources, to manage. But there are ways to support them. National and provincial governments can do more to give cities control over land and infrastructure they own, like Metrorail. Greater private sector involvement can speed the provision of basic services, notably in housing and internet connections. Political competition, like what has happened in Johannesburg, Pretoria and Port Elizabeth, will help to push out bureaucratic incompetence (and corruption) and promote service delivery.

Urbanisation is the key to future prosperity, in South Africa, Brazil and elsewhere. Any policy to keep people in rural areas amounts to a policy to keep them poor. While city governments are battling to tackle existing infrastructure backlogs, they should recognise that they offer the best hope for people to escape poverty.

**An edited version of this article originally appeared in the 7 June edition of finweek.

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Written by Johan Fourie

June 30, 2018 at 06:54

An ode to the beautiful game

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Ke Nako: At my first World Cup game in 2010, Cape Town stadium

Ke Nako: Before my first World Cup game in 2010, Cape Town stadium

They don’t call it the beautiful game for nothing. The FIFA World Cup, which kicks off on Thursday night when Brazil hosts Croatia, is, by all accounts, the most global of events. More than half of the global population will watch at least one game live. And there are many on-field clashes to whet the appetite: the finalists of South Africa four years ago, Spain and the Netherlands, face each other in the group stage on Friday night; the Rumble in the Jungle (England vs Italy play in the capital city of Amazonia on Saturday); Portugal vs Germany on Monday the 16th. Many pundits believe it is Brazil’s World Cup to lose. I don’t think they will have it that easy. Argentina, Germany and Spain are excellent contenders. Colombia, Uruguay, Chile, Holland and Belgium are good bets. But if I had to put money on an outside chance, I’ll go with France. And then there are the superstars who would want to shine on the world stage. Messi, Ronaldo, Robben, Neymar, Balotelli. New stars will be born – Paul Pogba (France), James Rodriquez (Colombia), Christian Atsu (Ghana) – and some will see their last flicker (Pirlo, Gerrard, Drogba). Yet the World Cup is not only about football teams or players. All across the world, Fantasy teams are being drafted. For the next few weeks, household schedules will change. Pubs and bars will be packed, the meeting place for new and old friends. There will be tears of joy and tears of sadness. Memories will be made.

As the excitement builds for the Brazilian party, I have to admit a certain nostalgia for what can only be described as one of the most memorable sporting events South Africa would ever host. And not only because South Africa did exceptionally well as a host, but because of the vivid memories I have of the tournament. See, Coetzee, Gustav and I traversed our beautiful country in search of the beautiful game. I was fortunate to attend eight games, driving roughly 5000 km to watch the likes of Spain, Holland, Brazil, England and Italy play. I have many memories of that road trip, but two stand out. The first is of watching South Africa play France in the final group game. Even though we had to win by three goals – which was nearly impossible against a good, if distracted, French side – that day in Bloemfontein will remain vividly for the exhilaration of the crowd. I know those vuvuzelas sounded on TV like a beehive on loudspeaker, but inside the stadiums they were awesome. Especially if you had a ‘conductor’, someone, usually on the upper end of the scale, who would, during a lull in the game, stand up, turn around and start blowing on his vuvuzela with a slow, marching beat. The challenge would be to see how many vuvuzelas he can recruit to his tune. Obviously, if there were several ‘conductors’, it’s one big cacophony. But in the case of that particular game, especially after South Africa scored first, the vuvuzela beat was, for a few minutes, in complete unison in a full stadium. We were one big army marching as one for our team. I knew then that there was no way France was ever going to win that game.

The second memory is of the Dutch beating Brazil in Port Elizabeth. Because we had arrived way too early, the three of us (with another friend, Willem), had waited patiently outside the area where the players would arrive. Brazil arrived first, the curtains of their bus closed so that there was no way to spot any of their superstars. In contrast, when the Dutch arrived, we could identify nearly every player. It was then that Coetzee made eye-contact with Wesley Snijder, the Dutch midfielder, who returned Coetzee’s wave with a smile and a nod. Wesley Snijder went on to assist both goals as the Dutch clawed their way back against an impressive Brazilian team. Coetzee still believes that the Dutch should thank him for his contribution to their win.

The World Cup was not only a personal highlight, but it did wonders for our country too. I don’t deny that some stadiums remain underutilized and perhaps should simply be dismantled. And I certainly don’t appreciate the way FIFA, the organising body, goes about its business. But the airport, rail and road infrastructure that had been planned in South Africa long before we won the bid to host the World Cup may still not be complete had the World Cup never happened. And the impact of the event on the image of South Africa, and Africa in general, I believe, has been larger than we might think. We’ve certainly seen an increase in tourism, especially from countries outside our traditional markets, like Argentina and Brazil. And even though three reputable sport economists, Thomas Peeters, Victor Matheson, and Stefan Szymanski, claim in a recent article published in the Journal of African Economies that the per tourist cost of the World Cup was much higher than the government claims, I still think that on a cost-benefit analysis we come out positive. (Peeters et al. make a rather strong assumption: they ignore any tourist arrivals from other African countries. If these additional tourists are included, the numbers change significantly.) I’ve written about this before, and said something along these lines recently to CNN Money.

During the 2010 World Cup, I was still unmarried and shared a flat with a friend. I was about to leave on a four month study trip abroad, and still had to write most of my PhD. And I still had not met Jerry (our cat). How things have changed! Unfortunately, I won’t be in Brazil for this year’s event. But I’m sure that, when the next World Cup rolls along in four years’ time, I’ll think back to 2014 and reminisce about the past four years, and perhaps to the memories created during the coming four weeks. Which means that World Cup is somehow more than a sporting event. It is a beacon that maps the lives of millions of fans around the world. A beacon that, as Simon Kuper writes, we share collectively, that unites us as a global community. And that is what makes it the beautiful game.

Chickenomics

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It should come as no surprise to South Africans that chicken is our most consumed protein. Whereas South Africans may idealise the braai as our traditional dish, chicken is our staple, consumed by rich and poor, urban and rural.

Which should make the request by the South African Poultry Association to increase the cost of chicken in the country by a massive 30-50% a national disaster. Instead, it hardly registers a (chicken) breath.

Over the last few years South African chicken producers have found it increasingly difficult to compete against a rising tide of chicken producers globally. They allege that these producers, notably those in Brazil, are ‘dumping’ chickens (whole or parts there-of) on the South African market, hurting the profit margins of these firms and, ultimately, costing the economy jobs. They therefore request ITAC (the South African commission that decides about trade policy) to impose heavy tariffs on imports from Brazil. Here’s an excerpt from the an article by the Amanda Visser in the Business Day of 19 April:

The association says imports of extremely low-priced frozen chicken meat grew from 97,565 tons in 2008 to 238,582 tons last year. Kevin Lovell, CEO of the poultry association, says the situation is compounded by restrictions on South Africa’s regional exports.

If the application is not successful and the flood of low-priced chicken meat continues it may lead to 20,000 job losses. The industry employs 48,000 people with the five largest producers – Rainbow Farms, Astral Operations, Sovereign Food, Afgri Poultry and Supreme Poultry – employing more than 22,000 people.

Mr Lovell fears a reduction in the food security position of the Southern African Customs Union (SACU) could occur, with lower rates of investment in the industry and a reduction in the contribution of the poultry sector to the gross domestic product (GDP).

According to the association, poultry represents a quarter of the animal product contribution to GDP, which amounted to R25bn in 2011, compared with R19.8bn in 2008. Profit margins at the five major producers had been reduced from double-digit figures in 2006 to margins ranging between 2.4% and 5.9% last year.

“The world’s major poultry producers are targeting developing countries such as South Africa and others in the SACU region to dispose chicken portions for which there is little or no demand in their domestic markets”, Mr Lovell says in his affidavit filed with Itac.

The association is asking for a general increase in the tariffs of carcasses, whole birds, cuts and offal, boneless cuts and bone-in portions. In the case of carcasses, it is asking for an increase of R9.84/kg up to the maximum bound rate of 82% agreed to in terms of the World Trade Agreement – from 27% at present.

In the case of whole birds the South African Poultry Association is asking for an increase of R11.07/kg, subject to a maximum rate of 82% when the currency conversion has been made.

A few minor points first: comparing the rise in chicken imports between 2008 (the midst of the financial crisis) and 2012 is, to put it mildly, problematic. Chicken imports from Brazil increased by 8% between quarter 4 of 2011 and quarter 4 of 2012, less dramatic than the industry claims. Similarly, comparing profit margins of 2006, a boom year, with 2012 is equally distorting. Compare any company profit margin between 2006 and 2012 and you should find the same rapid decline. It’s clear that the years are chosen for effect.

The numbers may also simply be wrong: Below I list the statistics from the International Trade Center’s TradeMap database. According to them, the value of chicken imports from Brazil only increased by 5% per annum between 2007 (before crisis) and 2011. The quantity of chicken imports only increased by 1% annually. Note also that South Africans already pay a 17% tax on these imports, so the domestic industry is already heavily protected against foreign competition. Compare this with the imports from the Netherlands, an EU country which has zero import tariffs, from which imports have grown by a massive 469% annually and now make up 11.5% of our total imports.

ChickenImports

Data source: TradeMap (2013)

But even if Company profits have fallen and even if 20 000 jobs may be lost, the imposition of higher tariffs to prevent further imports from Brazil – I want to emphasise – will be deeply harmful to the South African economy in general, and to the poor in particular. Here’s a post by Colin Phillips early last year:

Say a South African consumer is considering buying two identical products – the Brazilian chicken product costs R20, but the local is lekker equivalent costs R30.  If the consumer chooses the “patriotic” route, then R30 stays in the country, to help create the 7000 jobs the DFPO promises.  But if the consumer chooses the Brazilian equivalent, they have R10 more to spend on something else, which helps stimulate growth in that industry (which, yes, creates jobs).

Again, it is the poorest in South Africa who spend a larger proportion of their income on food. Perhaps the rich can afford to switch their buying patterns from chicken to beef (a boon for the bovine industry?), but the poor do not have that luxury: they will be forced to substitute some other expenditure (perhaps clothing, schooling or health?) to afford the more expensive chicken. Do we really want to force all South Africans (all 52 million of them) to pay 30% more for chicken to “protect” 20 000 jobs, jobs that will be created elsewhere in the economy if all South Africans can buy their chicken cheaper?

Of course, the 2007/2008 impact of quotas on Chinese imports of clothing and textiles also suggests another result of the chicken tariffs: import shifting. Instead of buying (expensive) local clothing, retailers simply switched their imports from China to cheap clothing manufacturers in other countries, like Bangladesh, Vietnam, India and even Zimbabwe. A tariff on Brazilian chickens will simply force South African food retailers to switch imports from Brazil to other countries (with which we have fixed free trade agreements), like the Netherlands, the United Kingdom, Denmark and Ireland. The Dutch are licking their fingers, so to speak.

Other countries are also affected by South Africa’s decision. ITAC speaks not only for South Africa, but also Botswana, Namibia, Lesotho and Swaziland. To the extent that these countries do not have a domestic chicken industry – and I would expect, apart from Namibia, most do not – consumers in these countries will be taxed on chickens with no benefit to their domestic industry (read: the poor will suffer).

Higher chicken prices will also not, as Mr Lovell suggests, increase food security. Producing chickens locally is not food security; but providing the citizens of South Africa access to affordable food is (for a definition of food security, here’s an earlier post). Tell me, should we also produce all our own rice or coffee?

More fundamentally, though, this affair suggests a complete lack of understanding of the benefits of international trade. Think of trade as a new technology that a famous South African scientist develops, a machine where you input something – like iron ore – and out comes chickens. Would we use this machine? Of course! We will dig up iron ore, feed it into the machine, and out would pop chickens. Marvellous. But this is exactly what international trade is: South Africa currently exports iron ore to Brazil ($124 million* of it; or if you don’t like the sound of our natural resources leaving the country unbeneficiated, let’s go far car engines, of which we currently export $72 million* to Brazil) and in return we buy chickens from them. We are better at making iron ore than Brazil is, and Brazil is better at making chickens. South African producers of iron ore win, South African consumers of chicken win, and so does Brazilian consumers of iron ore. Trade is win-win, that great insight from Adam Smith.

In the end, Mr Lovell and the South African Poultry Association has a job to do. Like any producer union, they have the interests of their producers at heart, which is to protect profits. To do this, they have to lobby government for protection against more efficient producers (which happens to be located in other countries). Credit must be given to Minister Rob Davies, who in December turned down a first proposal to increase tariffs. Cynics argue that this was only to keep the peace with Brazil in expectation of the BRICS summit in Durban a month ago. Perhaps, but at least it shows a government able to reject harmful lobby requests. Let’s see how he stands up to repeated requests.

ITAC, the media, and all South Africans should remember that Mr Lovell’s story is a partial one, one that neglects to consider the welfare of all South Africans. Higher taxes on chicken imports from Brazil will have large, negative consequences for the South African consumer, especially those at the bottom of the income distribution. To argue the opposite is not only wrong, it is irresponsible.

* These are all 2011 figures. See TradeMap.

Written by Johan Fourie

April 30, 2013 at 07:25

Food Security

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Two quite unrelated news items caught my attention today. The International Trade Administration Commission (ITAC) of South Africa yesterday announced that it will impose provisional anti-dumping duties for the following 26 weeks against Brazilian imports of frozen whole chickens and boneless chicken cuts. The magnitude of the duties is between 6 and 63 percent. (Read the tralac report here.) A few hours ago, the DA released a media statement “Mr Mulder needs a history lesson”, in which they attack Freedom Front Plus leader Pieter Mulder’s claims of land redistribution. Mmusi Maimane, the DA National Spokesperson, makes a fair point about land redistribution, but he then makes the following claim: “The first freedom is the freedom to eat. We need working farms that ensure the food security of our people and create employment opportunities in rural areas.”

Unfortunately, Mr Maimane and ITAC (and, for that matter, the Freedom Front Plus) is guilty of the same incorrect rhetoric. Food security is not about production. Food security is not about producing enough food for your citizens. If it was, then Hong Kong and Singapore would be the most food insecure regions in the world, which it isn’t. Food security, as Wikipedia will tell you, refers “to the availability of food and one’s access to it”. Food insecurity is the inability of citizens to consume, not produce, food. Food insecurity can occur in a country that is nearly entirely agricultural, such as Somalia and Ethiopia, two countries that only recently experienced food shortages and starvation.

Why should South Africa produce all its own food, when only 13% of our land is suitable for crop production? Why not import our food from other breadbaskets, like India, or (subsidy-rich) Europe, or Brazil? Nineteenth century England realised this and removed the Corn Laws that protected local farmers. Instead, they focused on what we today call the Industrial Revolution, and imported their (growing) food requirements from the American Corn Belt. The South African Poultry Association alleged that frozen chickens were being dumped on the South African market, at prices below what South African chicken farms can rival. ITAC perceived this as a threat to food security, and instituted duties that will almost certainly increase food prices. This will have the exact opposite effect on food security: higher prices would allow fewer (poor) South Africans to buy chicken, reducing food security for those that are most at risk.

Food security is not about South Africa producing all its own food. Food security means we should provide all our citizens with food at as low a cost as possible. That’s the lesson from the Industrial Revolution. It seems that both Messrs Maimane and Mulder need history lessons.

Written by Johan Fourie

February 16, 2012 at 12:44