Aid or Technology?

Interesting debate at a recent technology conference held near Arusha in Tanzania. It’s always good to hear positive stories, such as the tale Alieu Conteh, who built Vodacom Congo from the ground up during a period of intense civil strife in the DRC. It’s also good to hear some of the echoes of arguments of Bill Easterly:

“What man has ever become rich by holding out a begging bowl?” asked Andrew Mwenda, an Ugandan journalist and social worker, now a research fellow at Stanford in California.

Mr. Mwenda argued that $500 billion in international aid over 50 years had achieved nothing in Africa and that the persistence of African poverty could be explained, in part, by aid. Charity, he said, had “distorted the incentive structure” and had persuaded the brightest Africans to work for corrupt governments. He called upon African entrepreneurs to build African businesses and the American investors in TED’s audience to finance them.

Mr Conteh’s story is moving and nearly heroic:

In 1997, Mr. Conteh recalled in an interview, he heard Laurent D. Kabila, then the country’s president, deliver a speech in which he called upon his countrymen to rebuild Congo’s infrastructure after the 30-year dictatorship of Mobutu Sese Seko. Mr. Conteh, who had no experience in telecommunications, said he was inspired. He decided to build the nation’s first GSM (Global System for Mobile communications) digital network….

Mr. Conteh said he went, cap in hand, to the minister of communications to ask for the country’s first GSM license. In January 1998 he got it — but he first had to pay the government a license fee of $100,000. Over the years, and with little explanation, he said, the government, which is often terribly short of money, increased the license fee, first to $400,000, then $2 million.

Since, at first, no Western investors had any faith in the country’s mobile market, Mr. Conteh said he wrote the first checks to the government. And he paid $1.5 million to Nortel, the telecommunications equipment provider, to help create his network. To help raise the money, he had to sell his coffee trucks. In February 1999, Mr. Conteh introduced the Congo Wireless Network, with just 3,000 subscribers.

Throughout the early days of his company, Mr. Conteh faced challenges unknown to Western businesses. Once, after equipment providers declined to send engineers to Congo during a dangerous time in the country’s unending civil strife, he encouraged the citizens of Kinshasa, the capital, to collect scrap metal and weld them into a cellphone tower.

In 2001, he sold 51 percent of the company to Vodacom, South Africa’s largest mobile service provider, to get the capital to expand the mobile network to millions of Congelese.

By the middle of 2006, Vodacom Congo had more than 1.5 million subscribers, according to Vodacom’s annual report. Today, Mr. Conteh says, the company he founded has more than three million subscribers who have spent, on average, around $50 for a handset and who prepay about $2 for every five minutes of talk time. He says a recent offer for his shares valued Vodacom Congo at more than $1.5 billion. (He refused to name the interested party.)

Nonetheless, Mr. Conteh (whom I found charming, modest, hugely amused by his own travails — and very shrewd) turned down the offer. “My goal was never to become the richest man in Congo,” he told me. “I would like to create the country’s first stock market. Then I would like to float 20 percent of my share in a public offering, so that the people will see the company as theirs.”

I don’t know what the answer is for Africa. Asking entrepreneurs to take risks such as Mr Conteh took is probably not a viable strategy. But 50 years of history have shown us a lot of things that don’t work — there’s no reason to repeat the mistakes of the past.

Thanks, Caitlin, for the reference.

Cows and Climate Change

Economists are going to have a field day with the climate change legislation and the impending cap-and-trade regime it brings on. Yesterday’s WSJ offers some insight into the nutty behavior such a regime creates. American Electric Power, the largest producer of carbon dioxide emissions in the U.S., is investing in tarps to capture methane produced by cows on a large dairy farm.

Methane accounts for 16% of global greenhouse-gas emissions, according to the International Energy Agency. That is far less than the most prevalent greenhouse gas, CO2, which accounts for 75% of the global total. But methane is an attractive early target because it generates a big environmental bang for the buck. The methane produced by the manure of a typical 1,330-pound cow translates into about five tons of CO2 per year. That is about the same amount generated annually by a typical U.S. car, one getting 20 miles per gallon and traveling 12,000 miles per year.

Holy c***! One cow is equal to one gas-guzzler commuting to work all year.

Normally, methane from manure wafts up into the clouds, thickening the gaseous blanket that is contributing to global warming. The AEP-funded tarps will capture that methane and send it to flares, where the methane will be burned, emitting less-harmful carbon dioxide.

Wait, so we still emit gases? Yes. Just less noxious ones.

Now, set aside for a moment the copious amounts of data that will be generated from carbon trading markets, which will offer a sea of analytical opportunities for economists. This article got me thinking about a whole new study of empirical moral hazard work. Why? Well, in short, carbon credits only apply to projects that are additional – that is, theywould not have happened anyway. So if a dairy farmer is going out of business, he doesn’t get carbon credits for slaughtering his cattle, but if he continues his operations, he can receive credits for capturing the methane. This means that rational dairy farmers will drastically expand operations prior to the arrival of carbon credits in the hopes of receiving payments from the likes of AEP to capture cow methane.

Now, the numbers don’t exactly pan out on this — the expected payments received from AEP almost definitely do not cover the capital cost of investing in increased capacity — but there are any other number of ways to game the system. The irony is that this could actually cause a rise in carbon dioxide emissions in anticipation of a cap on the market. Similar observations have been made about TXU, which has been thought to be eyeing the construction of several new coal-fired plants (the gas belchers extraordinaire) prior to binding climate change regulation.If TXU is then granted credis by the government, it will actually have been paid by the government for building new power plants. Excellent.

Of course, there’s no easy solution to this problem, I just marvel in the ways homo economicus discerns incentives even when policy-makers do not.

A great reminder from Bill Gates

Gates’ recent commencement speech at Harvard, where he was finally awarded his degree thirty years after dropping out, is a treasure. Only reading the full-text does justice to it, especially for those of us exiled to the Quad for a brief period. Seriously, several highlights.

On our intellectual and moral responsibility to tackle the world’s most challenging problems:

Let me make a request of the deans and the professors – the intellectual leaders here at Harvard: As you hire new faculty, award tenure, review curriculum, and determine degree requirements, please ask yourselves:

Should our best minds be dedicated to solving our biggest problems?

Should Harvard encourage its faculty to take on the world’s worst inequities? Should Harvard students learn about the depth of global poverty … the prevalence of world hunger … the scarcity of clean water …the girls kept out of school … the children who die from diseases we can cure?

Should the world’s most privileged people learn about the lives of the world’s least privileged?

These are not rhetorical questions – you will answer with your policies.

On motivating others to tackle the challenges of poverty, global health, and other key issues the world is facing:

I remember going to Davos some years back and sitting on a global health panel that was discussing ways to save millions of lives. Millions! Think of the thrill of saving just one person’s life – then multiply that by millions. … Yet this was the most boring panel I’ve ever been on – ever. So boring even I couldn’t bear it.

What made that experience especially striking was that I had just come from an event where we were introducing version 13 of some piece of software, and we had people jumping and shouting with excitement. I love getting people excited about software – but why can’t we generate even more excitement for saving lives?

You can’t get people excited unless you can help them see and feel the impact. And how you do that – is a complex question.

There’s many more nuggets of wisdom. Gates once again proves his incredible level of talent.

Top ten reasons to dislike cartels

OPEC announced Tuesday that

the efforts of Western countries to develop biofuels as an alternative energy source to combat climate change risked driving the price of oil “through the roof”.

Really? Why?

“If we are unable to see a security of demand…we may revisit investment in the long-term.”

It occurs to me that there is actually a market metric that we could use to get everyone on the same page here. Here’s a Faustian bargain: if OPEC can commit to producing oil at $30 a gallon for the next 30 years, the developed world will agree not to invest in biofuels at all.  For every dollar above $30 the price of oil goes to, the developed world has the right to invest $X into alternative fuel technologies– and OPEC will agree to fund a portion of this investment out of the increased revenues they get from oil.

Putting environmental concerns aside, the key question is “At what value does the price of oil need to be in order to incentivize the OPEC countries to keep producing oil?” Well, my sense is that it’s around $30-40. So, don’t the oil importing states have some leverage to bargain here?