Economics Archives

In Part One of this tuna inspired blog, we framed the problem of canned tuna:

Not a single can of tuna on Spar’s shelves contained tuna sourced in South Africa, and
Most of this tuna is SASSI red listed.

We also discussed the current methods of catching tuna, namely, hand or pole fishing, netting, fish farming and artificial fish farming. In Part Two we consider whether entering this market is plausible in South Africa.

Tuna is one of the most profitable types of aquaculture. This is especially true of bluefin tuna, which supplies the sushi industry. Therefore, Tuna is one of the most popular and globally traded seafood products. Globally, tuna quotas have been met, in fact, the relevant bodies are currently considering how to lower quotas. This means that supply is likely going to remain flat, while demand continues to increase, especially for bluefin tuna. Which means that there is going to be a significant gap in the market opening up where tuna prices are likely to increase and demand for artificially bred tuna will rise.

If South Africa were to step into this gap, we would need to invest heavily in aquaculture technologies currently being utilised in Japan and the USA. Already, South Africa is home to several freshwater and saltwater fish farms, including aquaponics plants, and is home to some of the leading fisheries scientists in the world. Furthermore, the funding of aquaculture has been prioritised with relevant Development Funding Institutions (DFIs). The first local Aquaculture Finance and Investment Seminar was successfully held in March 2019.

It seems, therefore, that the capacity and funding stores may exist in South Africa but given the niche status of artificial tuna farming, this may not be the most effective use of this capacity, despite the potential returns. We have the additional challenge in South Africa of rough sea waters – harbours would need to be utilised or built for successful farming. Furthermore, the quick win would be in farming tuna for the sushi market where margins are high, not the canned tuna market. Upon writing, the most expensive shredded canned tuna on Spar’s shelf was R18.49 and the cheapest was R15.99. This is the band within which farmed tuna would need to stay if it were to be purchased by the mainstream consumer.

There is evidence that sustainable products are being purchased at a higher growth rate than unsustainable products, especially amongst millennials, but this evidence is from high-income countries. The willingness of low to middle-income consumers to pay a premium for sustainably sourced products is yet to be proven. Interestingly, in South Africa, Woolworths shoppers are paying a premium for sustainable, locally sourced shredded canned tuna – upon writing, this premium was R5.50.

So, to answer the questions we started with,

Why are we unable to compete with Thailand on this product? It seems that we may not want to from a sustainability perspective. Furthermore, quotas are being reduced, which means that there likely isn’t much opportunity for new market entrants.
Would the market be willing to purchase locally sourced canned tuna at a mark-up? Possibly. They already do from Woolworths. However, this would likely be the smaller, higher income bracket.
Is this an industry that has the opportunity to grow our local economy, without any negative impact on our ocean ecology? The percentage of pole and hand fishing licenses that are currently being utilised in South Africa would need to be determined – if they are being underutilised, then there is scope for growth, however, this is capped. There is little scope for growth for large scale commercial fishing and farming due to quotas and high barriers to entry. There is room for growth in the implementation of artificial tuna fish farming, however, this would likely require significant investment and the willingness of major global players to share their intellectual property. Furthermore, this fish farming technique does create waste, so the impact on ocean ecology would still need to be considered.

We would welcome any experts or data that could confirm or refute our conclusions, which are based on high-level, secondary research only.

At the end of the day, if locally sourced, sustainable canned tuna isn’t feasible, we could always consider growing tuna in a lab or tuna that isn’t tuna at all…

Additional reading on the status of South African aquaculture here.

‘Resource’s Director, Joanne, spoke at the latest Ten Minutes Club on being an economist and startup life. The Ten Minutes Club aims to share insights on different jobs and career paths. This is what Joanne had to say about being a Development Economist and starting Resource Consultants.

Economist??

In preparation for this evening, I asked a few of my friends what they thought economists do. One of my friends said they thought economists were men, in suits, who sit behind desks crunching numbers all day. Another said it sounds like something a rich person does, something to do with money. While I believe there are rich, male economists out there, I am not one. While I do spend a fair amount of my time behind my computer looking at data, I actually studied an arts degree, not a B.com. My majors were philosophy and economics, and my honours degree is in philosophy. This is important because economics is about numbers, money and business, but economics is also about ideas, ideals and the fundamentals of society.

Do you know where most economists in the USA work? In government, not on Wall Street. Economics is about understanding how things are and then planning how things will be and how things should be. It’s about people, it’s about healthcare, it’s about education, it’s about infrastructure planning. This type of economics, that deals with the upliftment of people, especially in developing economies, is called development economics. That is what I am, a development economist.

Being a Development Economist

As a consultant, I answer questions for clients that they either don’t have the data, skills or time to solve. The questions I am currently answering are:

What will the demand for property look like in the future in Durban?
What is the best way to promote innovation in Durban and what is the business plan to achieve this?
Finally, how feasible is it is to set up an institute within UKZN focusing on aviation related skills development?

I have answered a LOT of questions, on a LOT of different topics, for a LOT of different clients over the last 6 years. I love understanding how things work, exploring completely new areas of study, learning, problem solving and growing. In short, I love answering questions. If I had 10 hours I could stand here and tell you each one of those questions over six years, why they were interesting, what the answers showed and the people I worked with along the way. I remember them all. Lucky for you I only have ten minutes so I am going to tell you about just one my company did recently free of charge because we loved the concept. It was for the Durban X Fest.

Durban X Fest

X Fest is a surf, skate and bike festival held on the beachfront in July. It also brings in music and lifestyle elements. I love the alternative culture it represents and I love that it showcases our beachfront in such a positive way. My company volunteered to do an economic impact assessment for the three-day festival. Economic impact assessments are very standard things in my line of work. They weigh up the positive and negative economic impacts of an event or a development that has already occurred or will occur in the future.

To do this, we had to spend three days on the beach with surveys on our phones asking spectators questions like what drew them to the event and how much money they spent. We also did regular counts of how many people were at the festival. We then collated the data from the surveys into spreadsheets, which, when paired with the cost breakdown of the event, started to tell a story. This story sponsors can use to justify spending money on the festival in future years, hopefully ensuring that this event becomes a fixed event on Durban’s calendar. It also tells event organisers what their spectators liked and what they didn’t. It is precious data.

Open Data

Note that I didn’t mention anything that sounded like rocket science there, although I am sure that when I said ‘economic impact assessment’ your mind clouded over. I don’t believe what economists do is hard – I think anyone can do it. And, in fact, many people are starting to do it.

Journalists are starting to use data more and more to add to their stories. An entire movement has started around Open Data where techies are joining forces with creatives and social scientists to create evidence based stories and solutions for their communities. It is wonderful. Even Google Sheets, Google’s online version of Microsoft Excel, now allows you to ask questions in a spreadsheet and it spits out the answers – no economist necessary! I encourage anyone to get involved more with data. The things I know about my city, its people and its plans is one of the best parts of my job and it is so accessible. Check out Open Data Durban for more on this.

Founding Resource Consultants

One of the first things you learn in economics is ‘the invisible hand’. This is the concept that the economy is made up of individuals making decisions, the sum of which is results in an economy that works, as if there is an invisible hand controlling it. This is all good and well until a very visible hand or hands start to tinker and do things like exclude an entire segment of the population from the economy based on the colour of their skin, or invade entire countries based on the resources they have.

In these situations, the traditional approach of development economics, which says grow the economy and quality of life will follow, simply does not work. And I believe it is not working. A new approach is required. One that faces our current challenges head on. One that questions, even the questions that our clients are asking us to answer. This is what led me to found my company Resource Consultants, together with my friend and economist colleague, Paul Jones, earlier this year.

At Resource, we aim to provide analyses that are data driven and realistic and solutions that are both implementable and sustainable. This is our mission, but it isn’t going to be an easy or a smooth transition. There are a whole host of challenges that I won’t get into now with selling our approach to clients. At the moment, we are doing our best to gently tug them with each project in this new direction but it will take time. In the meanwhile, we make sure we are surrounded by people who keep us fixed to our ideals. Luckily, in Durban, we have lots of these good people.

You are as good as the people around you

In her brief Jenna encouraged us to share ‘our message’. Please note: now starts my message. You are as good as the people around you. From the very beginning when I was still flailing in unemployment, I had the guidance of the team from Open Data Durban. Together with Three Consulting and Ulwazi Consulting – we have formed the Durban Knowledge Collective. We do team learning every Friday where we teach each other new skills and bounce ideas off each other. My friend and photographer Derryn Schmidt took my head-shots free of charge. Cait of CopyCait edited all our write ups. You have no idea how far things like that go. I’ve used those pictures and that copy on every tender submitted, even for the event tonight.

Steve Jones built our website and developed our brand. Please visit our website just to see our logo – we love it. My first client was even a friend from school. A youth advocacy group called the Durban Global Shapers have brought me so much support and advice over the year. To this day I check in with the collective or the shapers on issues ranging from work I should or shouldn’t take, to time management, to when to take the next steps in the business. Obviously, there is also Paul, who seems to never worry where our next pay check is coming from and sleeps with spreadsheets under his pillow every night.

Listen closely when I say this, I would have failed in my startup if it weren’t for these people. To close, I would like to share five tips from their collective knowledge.

Five start-up tips

Get a branding person in early. Budget them into whatever your startup costs are going to be. Let them help you with your name, your domain, your logo, your website and your social media presence. FYI, you can do all of this while still in your day job;
Do all of this knowing that it won’t matter one bit – your clients are going to come from networking. Go out to as many events as possible. Our biggest client we met at a free conference the City put together;
Don’t spend money on an office if you don’t need to. Use co-working spaces. My favourites are the Green Door and the Smart Space – they cost R100 per day. And get yourself a portable Neotel landline. Paul and I do drivebys where we throw the phone through the car window at each other;
Don’t be in a rush to register your business and certainly don’t register your business in February (just before the tax year ends). Understand the difference between a company and sole prop. Do a survey of business banking rates before signing up to one. Also, SARS are actually pretty helpful.
Finally, babysit your gorgeous nephew, go to yoga, spend time with your family when they need you and go to Barcelona to be with the love of your life on holiday if you need to. Make time for the things you love because that is the beauty of owning your own time and not working for anyone else.

Not incorporating strategic plans as deliverables across the organisation;
Not including relevant stakeholders in the development of the strategy;
Too much of a focus on infrastructure over soft issues;
Not getting buy-in from related government departments; and
Not being flexible enough in planning scenarios.

…are the five most frequent strategy errors made by ports across the globe, according to Port Economics associates, Peter de Langen and Jonas Mendes.

South Africa’s port strategy is the responsibility of state owned entity, Transnet, and its port division, the National Ports Authority (NPA). The National Development Strategy is conducted every five years and results in the Port Development Plan (PDP), which is completed annually and has a planning horizon of 30 years. From my experience working with the NPA on their strategy in 2012/13, the common mistakes identified by de Langen and Mendes resonate with me to varying degrees.

The two most important mistakes made by Transnet and the NPA is using the strategy purely as an infrastructure development tool and excluding vital stakeholders from the process. The NPA is in the business of building port infrastructure, therefore, while all outcomes of the strategy were not infrastructure related, only those that were infrastructure related were able to be reflected in the Port Development Plan. The Port Development Plan is a set of maps and an investment plan. All other suggestions around policy and the environment fall away, not through prioritisation, but by the nature of the planning outcome, which is an engineering outcome. I believe that there are effective tools and measures in place in Transnet’s head office to incorporate environmental outcomes into deliverables but the two processes never meet in the strategic phase, which brings me to the next failure – that of not including vital stakeholders in the process.

No external stakeholders were included in the strategic development of the PDP, until the plan was completed and a roadshow was conducted. There is little accountability with regard to how the comments received from roadshows are included in the plans. Perhaps worse, was the lack of internal engagement on the strategy. Final plans were presented to the executive committee of NPA and then Transnet without buy-in being created as the executive was not included in the development of those plans. This leads to lack of implementation and duplication of efforts. The same can be said for Transnet’s plans being made in isolation of the NPA. The entity is not good at consultation, internally or externally.

Despite these mistakes, South Africa can be proud that it does not always fall into the trap of inflexible planning. The demand forecasting techniques developed by Transnet do include an enormous amount of flexibility and do account for external factors. Transnet’s project factory also verifies demand on a project by project basis. Furthermore, Transnet and its port division, NPA, have been able to attract and retain excellent staff who are committed and experienced. With the correct engagement processes, better internal synergies and tools for creating non-engineering deliverables, the National Development Strategy could be substantially improved.

Read the full article from Port Economics here.

Buying local and sustainable: The case of canned tuna – Part Two

The Ten Minutes Club: An Economist