Matatus and Mobile Money: Bridging the Gaps in Kenya

In the United States, there are some planes, a few trains, and many automobiles. In Kenya, it is all about the matatu.

Though there are other forms of transport, Kenya is best know for the omnipresent and chaotic mass transit system. Larger than vans and smaller than full-size buses, matatus are known to be one of the most utilized and certainly most colorful of Kenya’s transportation systems.

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While concentrated around the capital, Nairobi, matatus operate throughout the country, linking urban and rural settlements across a complex network of poorly-maintained roads. In Kenya, such convenience comes at a price, or in the case of matatus, a severe safety risk. In 2010, the World Health Organization estimated over 8,400 traffic-related deaths. And while data from Kenya’s National Transport and Safety Authority (NTSA) indicates that traffic-related fatalities have declined since 2010, Nairobi still ranks as the world’s fourth worst commute according to IBM’s Commuter Pain Index. With over 5,000 matatus serving the greater Nairobi area, it is likely the mini-buses are part of the problem, not the solution.

In June, as part of a series of reforms, the NTSA decided to modernize the matatu system by mandating cashless payment methods for the country’s estimated 20,000 privately owned matatus. Prior to the NTSA mandate, matatu drivers relied on cash transactions. This allowed drivers to set their own fares, negotiate with customers, and keep their own loose records of the number of passengers. As a result, matatu owners may not know how much profit their vehicles make. Matatu drivers, with no incentive to report the proceeds often pay a flat fee to the owners and keep the remaining revenue for themselves.

In an effort to provide a uniform system NTSA is calling for a payment system similar to London’s Oyster card. Matatu patrons have the option of filling cards at various locations throughout Nairobi or using a mobile banking service such as  M-Pesa. With a multitude of payment options, government officials anticipate a streamlining of transportation payments, a decline in corruption, and an increase in tax revenue.

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Despite some concerns about cashless payments, the NTSA’s system is tried and true. Last year, Beba Pay, a joint venture between East Africa’s largest bank and Google, announced a cashless payment system that would work for select bus fares throughout Nairobi. With prepaid fare cards, passengers simply tap their card to an onboard card reader, the first system of its kind in Kenya. Though many commuters enjoy the convenience of going cashless, not all bus lines accept the prepaid cards.

While the United Nations still classifies Kenya as “developing,”the country is poised to be Africa’s economic powerhouse. Perhaps the greatest indicator of Kenya’s progress lies in widely available technology. In 2013, a record 70% of Kenyans used cellphones, the fastest cellphone use growth rate in all of Sub-Saharan Africa. With the lowest phone tariffs on the continent and continued deregulation of the telecommunications industry, mobile phone use is expected to continue to grow, perhaps becoming on par with 91% user rate in the United States.

The popularity of mobile phones has also encouraged the growth of mobile banking. Popular programs like M-Pesa allows Kenyans to manage their finances without actually having a bank account. M-Pesa users can transfer money to and from individual accounts with a simple text message, making the service easy to use and more convenient than visiting an actual bank. The program is so widely used that 25% of the country’s GNP is filtered through the service and 60% of Kenyans use their M-Pesa accounts to shop, pay bills, and transfer money to relatives or friends, especially in rural areas where banks are unavailable.

With a cashless payment scheme, the NTSA expects increased tax revenue. In a cash-dominated payment structure, drivers arenot held accountable for reporting the number of passengers or making due payments to matatu owners. . In a cashless payment system, governed by prepaid cards, tax revenue is bound to increase as records become more transparent and more accessible. Currently, matatus and similar mass transit vehicles are taxed by whichever is more of their maximum passenger capacity or a flat fee of 2,400 KES (27.35 USD). With increased tax revenue, the Kenyan government hopes to meet its 2030 plan to build more roads and improve its mass transit system.

Ideally, all of Kenya’s estimated 20,000 matatus will adopt the cashless payment scheme, though the transition will not be simple. Cashless payment methods were supposed to be fully implemented by early July, but only 2,000 matatus have forgone cash-only payments. This is due to the Matatu Owners Association’s calls for extension of the deadline to implement the new payment systems. Further criticism from matatu drivers asserts that new cashless systems will deprive drivers of their “fair share” of wages by forbidding them to adjust prices and negotiate at their own discretion.

Mobile banking and matatus have something in common: they connect people and goods across Kenya. Whether urban or rural, within Nairobi or to its sprawling suburbs, both signify Kenya’s progress as a developing country and regional leader of development. Though the matatu is met with government demands and some backlash from the public, one thing is certain: the matatu is here to stay.

Past Reconstruction to Constructing Rwanda

Twenty years after the genocide in Rwanda, things seem to be looking a bit brighter. With an average annual growth rate of eight percent since 2001 and over one million people lifted out of poverty, Rwanda is poised to continue growing by leaps and bounds. Even so, 20% of Rwanda’s economy comes from foreign aid, only trailing its exports of coffee and tea. As with most developing countries, one of the most visible signs of growth is the new buildings sprouting from the ground around the capital of Kigali. As impressive as office buildings and shopping malls are, it remains to be seen how beneficial these structures are to the economy and people of Kigali and other developing cities.

Construction workers in Kigali

The benefits of the construction industry in developing countries is clear. The global construction industry was approximately $1.7 trillion in 2007, and typically accounts for 5-7% of each country’s GDP. Jobs in the construction sector tend to be low-skill jobs, something that most developing countries, and especially Rwanda, have in abundance. A report by the International Labor Organization (ILO) found that workers in places as diverse as India, Brazil, and China were significantly more likely to be illiterate and have few years of schooling. Construction is also an investment, as there are roads, buildings, and other structures that can be used to house offices, transport goods, and improve the human and business capabilities. Kigali is already one of the most urbanized cities in Africa, and is expected to grow by 79.9% by 2025. Construction in Kigali and satellite cities is meant to ease congestion of an already dense capital of a densely-populated country.

Map of Rwanda

There are some issues with the construction industry in the developing world. The first one involves property rights. Large amounts of people in cities in the developing world don’t have a title or ownership to the land that they live on, especially in slums. Hernando de Soto, president of the of the Institute for Liberty and Democracy in Peru, has referred to slums as “dead capital”, alluding to the idea that people make improvements by building shantytowns but are not able to use it for collateral due to red tape. The perniciousness of not actually owning the land that one’s house is built on is even worse. In Kigali, 70% of housing is informal, with the government proposing to demolish that housing and creating more high-density areas and rent-to-own schemes. However, housing in the suburbs of Kigali currently typically costs 25,000 francs ($36.87) a month in a country where 45% of people still live below the poverty line. There’s a fear that parts of Kigali could end up like Nova Cidade de Kilamba, a suburb of Luanda that is a ghost town built and funded by the Chinese.

Developing countries, and Africa in particular, have been raising questions about who benefits from the construction industry. Recent reports by investigative journalists from the Forum for African Investigative Reporters (FAIR) in Kigali have found that foreign firms, notably the Chinese, have done a substantial portion of construction. The Chinese are able to undercut local firms by using Chinese contractors backed by subsidized loans provided by the Chinese state. An operations engineer at a Chinese company working in Rwanda stated that his company could get loans with an 8% interest payment while Rwandan companies could only obtain loans with 17-18%, if they could even get a loan at all.

The view of Kigali’s town center and surrounding areas

There is a final concern about construction and corruption. Since construction contracts tend to be a fee and cost of materials, construction companies tend to be implicated more frequently. They overstate the amount of labor used on a project, pocketing the difference. One field experiment in Indonesia found that an increase in official audits of construction projects reduced missing expenditures of labor, ie nonexistent workers, by between 14 and 22%. Construction and engineering companies dominate the current World Bank list of debarred firms, the largest of which was SNC-Lavalin, a Canadian firm, which was debarred over bribery charges around the $1.2 billion funding of the Padma bridge in Bangladesh. Because of these troubling factors, questions, concerns, and confidence over construction in cities like Kigali will continue to surface.

Dark Clouds Hanging Over the Black Sea

Putin’s admiration for the Olympic flame

The Olympics have always been about stories and narratives. Athletes in sports, both obscure and relevant, represent their countries and play out the story of their nation, whether it be powerhouse nations raking in the medals or the simple story of the Jamaican bobsled team. The ability to host the event is also a story of the rise of a nation and the ability to show either one’s might or newfound brilliance on the world stage. Back in October 2013, we looked at how the story of the Sochi Olympic games were unfolding at that time. With the Winter Olympics beginning shortly, it was time revisit our intrepid heroes and villains.

One view of the Olympics has been as a giant vanity project, allowing Vladimir Putin and the Kremlin to evict Russian citizens from their homes, crack down on NGOs, gay rights activists, and roughly anybody that disagrees with the egregious cost of these games. To this list, it has recently been added that athletes will not be allowed to speak their mind, such as their displeasure at the anti-gay propaganda laws in Russia. OIC chair Thomas Bach has already stated that, though there is freedom of speech, athletes that speak their mind around the Olympic events will face punishment. The head of the Russian Olympics, Dmitry Chernyshenko, even contradicted this, saying that the athletes would only be able to express themselves at a venue far from the Olympic venues.

Skyrocketing construction costs for the Winter Olympics in Sochi

Censorship is not the only issue plaguing the Olympics. Despite seven years to prepare, and the assurances that 97% of the venues and hotels are prepared, there have been a large amount of pictures and tweets from journalists showing half finished rooms. One hotel didn’t have a reception area while another hotel wasn’t even completed. Considering that these games cost $51 billion, $11 billion more than the Beijing Olympics, the amount of corruption and ineptitude is starting to show more and more over the media. One road has cost $8.6 million, more than the whole Winter Olympics in Vancouver in 2010. This raises the question of whether or not these games are worth it. Supposedly, the infrastructure will stay and benefit the residents of Sochi, along with increased tourism. However, Allen Sanderson and Samantha Edds explored the question of whether Olympics have an economic impact, which they found that there is no evidence to support that.

A last branch in this narrative is a concern for the security of the event. IOC chair Thomas Bach has emphasized that these games will be safe. This mostly has to do with the massive amount of security surrounding Sochi. Roughly 40,000 security forces have been sent to the region around Sochi to prevent atrocities from happening. They have also erected a “Ring of Steel” around Sochi, with checkpoints and anti-aircraft batteries, to aid in this security. Part of the paranoia surrounding the events is that terrorist leaders in Dagestan and Chechnya located only 400 miles away, such as Doku Umarov, have already stated that they are going to target the Olympic games. The other cause for concern is the bombing in December 2013 in Volgograd, something that is considered to be a decoy to drag resources away from Sochi and make it more vulnerable. The Russians have gone so far as to contract out 400 unarmed Cossacks for the duration of the Olympics.

Security around the Winter Olympics in Sochi

Despite the lack of attendance by some world leaders, the world’s games at the Olympics will continue. One of the questions that will be asked is how much all this negative press hangs over the Olympics. What will be the effects of this event after the torch has been extinguished? This is a tale with many twists and turns, with more anti-heroes than heroes. At the least, everybody will be watching Sochi to see how the story unfolds.

Not all PPPs are Made Equal

Infrastructure development is an integral part of sustainable economic growth.  Indeed, a recent African Development Bank Group  (AfDB) article estimates that improving African infrastructure would lead to a 3% increase in annual growth.  In order to meet the Millennium Development Goals and achieve this level of growth, it is thought that $93 billion a year  is necessary to spend on infrastructure development in Africa for an entire decade.  The same AfDB article argues that public-private partnerships may help achieve these ambitious goals.

In the European Center for Development Policy Management’s (ECDPM) May 2012 publication of GREAT Insights Melissa Dalleau outlined six necessary conditions for successful public-private partnerships (PPPs) in infrastructure development.  According to ECDPM, the keys to success are “enabling environments” that facilitate PPPs; “project preparation”; “risk mitigation”; “coordination” of various governmental and private organizations; effective communication; and the “alignment of incentives” such that private endeavors benefit the public.  The successes and failures of particular infrastructure development projects best demonstrate the importance of these conditions.

The South African government has been particularly successful in leveraging the private sector to achieve development goals.  As of January 2012 South Africa has completed over twenty different PPP projects.  Most notable among these projects is the Gautrain rail system linking Pretoria and Johannesburg.  Costing nearly $4 billion, the project was realized through the combined efforts of Bombela Concession Company and the Gauteng province. Continue reading

Haiti: Two Years On…

Last Thursday marked the second year anniversary of the 7.0 magnitude earthquake that caused horrific casualties and damage in Haiti. The reconstruction progress has reportedly been slow on many fronts. However, the expectation for tremendous results in two years in a country that has historically been divided along racial lines and rocked by political conflict is unrealistic and discouraging for development workers.

The outlook on Haiti appears frustrating. With the fate of the Interim Haiti Recovery Commission (IHRC) still up in the air, there is no governmental apparatus in place to determine which reconstruction projects will be awarded funds from international aid.

Source: http://www.npr.org

President Michel Martelly, better known as Sweet Micky to the locals, has done little to inspire confidence in the Haitian government. During his short term, his choices for Prime Minister were dismissed twice and he was unable to persuade his Parliament to extend IHRC’s mandate. The unemployment rate remains high at 40.6%, and tent cities remain the only housing option for 500,000 Haitians. Local Haitians complain that international aid is funneled directly to foreign nongovernmental organizations or contractors, bypassing local labor. When government projects are overlooked in favor of foreign firms, Haitians end up losing out as fewer jobs are created locally. Continue reading

Lions on the Move, GDPs on the Rise

A safari-themed title—“Lions on the Move: The Progress and Potential of African Economies”—heads the new report by the McKinsey Global Institute, the research arm of consulting titan McKinsey & Co. Its conclusion: “Africa’s economic growth is creating substantial new business opportunities that are often overlooked by global companies. Consumer-facing industries, resources, agriculture and infrastructure, together could generate as much as $2.6 trillion in revenue annually by 2020, or $1 trillion more than today.”

Sources: McKinsey Global Institute

The report highlights the role of public policy—e.g., macroeconomic reform, conflict resolution, creating better business environments—as well as the rising middle class and its concomitant demand for goods and services. “So, what are you waiting for? Invest in Africa, already!” the report roars.

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Open Access, EASSy Access

Steve Song at the All Things Open blog announced that he would have the fortune to meet with Yochai Benkler, renowned professor of entrepreneurial legal studies at Harvard Law and Principal Investigator of a comparative study on broadband initiatives commissioned by the FCC, in order to present an overview of the attempts, successes and failures of open access policies in Africa.

In the spirit of crowdsourcing information, Song asks his readers to put forward different perspectives on open access in Africa. Since the announcement of EASSy in 2005, open access has become a hot-button issue. EASSy is not a misspelling of easy; the East Africa Submarine Cable System, purports to “close the final link” in the digital divide—an initiative that aims to connect eastern Africa to the rest of the world using high-bandwidth fiberoptic cables. (To view a summary of African undersea cables, click here.)

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