When Supply and Demand Fail: Reports from the Tropics

Tropical Rot is a new blog which details the adventures of a friend of mine in Costa Rica. He’s been living there a while and I have been following his stories in other venues, but now you can and should follow his stories of the dysfunction and grim underbelly of what is actually one of the better off developing countries.

Yesterday’s post details his attempt to purchase high speed internet. Here’s the first paragraph

I have been waiting for high-speed internet at my house for a long time. Over
three years, to be exact. I have called the ICE, the government monopoly on
telecommunications, every few months and their response is always the same. A
bored voice on the other line says, “There are no ports available.” When will
they get some ports in? Again, the same answer every time, and quintessentially
Tico: “I wouldn’t know what to tell you.” (No sabría decirle).

I won’t do it justice, but the post goes on to detail long lines, indifference, and an unwillingness to exchange money for goods. They key economic reason here is that ICE is a monopoly. My guess is that the network may have a certain capacity and that government regulation may hold the price down. So in order to offer more people network ICE would have to expand the network, which could be too expensive.

I’m also considering another theory. Rot goes on to describe something even more puzzling. An US ex-pat living in Costa Rica writes into the local English paper:

When I first moved to Costa Rica in the mid-1970s, I bought canned mushrooms at
a local pulpería [small convenience store]. After a bit, the owner stopped
stocking them, and when I asked him why, he replied, “They sell so fast that I
can’t keep them in stock, so I don’t bother ordering them anymore.” I suggested
that he place a larger order, but it fell on deaf ears.

One place where typical economics fails is when one person's effort mainly benefits another person. ICE employees do not get paid based on how many people get internet, so why work hard. It’s possible that the pulpería is owned by someone else and the manager does not want to order more mushrooms, because it is more work. Similarly I wonder if the pulpería cannot raise prices too much on the mushrooms, since people might buy them someplace else. In this case if there is a fixed costed for each mushroom order, it might be worth it to not order a many mushrooms.

In the end though, sometime economic theories fail, people do things that are counterintuitive to an economist.

Kiva Proposal: Request to my Readers

Dear Blog Readers,

I'm trying something new this semester in my Development Economics class. I had students write a request to fund a micro loan. The micro loan was requested through a website called Kiva. On the website potential borrowers request funds for a loan and people like you and me can provide a loan directly to borrowers in developing countries. To engage my students a little more I chose the top five proposals in the class. The proposal receiving the most votes will receive $150 to put toward the loan of their choice, 2nd place $50, and 3rd place $25.

I would like it if my blog readers, read their proposals and chose their favorite. To vote make a selection using the poll to the right of this post. If you only have time to read a few pick a couple of enteries at random and select one you like.

Fortunately, Kiva is becoming very popular and many of these loans have been funded. In that case I will allow the students to choose a new loan to fund. Thank you for your help, and I hope you enjoy my students' proposals.

Thanks,
Seth Gitter

Maisara Abdusamadova in Tajikistan

This proposal requests for a loan of $800 to be provided to Maisara Abdusamadova, a single mother who wants to expand her small business in Tajikistan. A former Soviet Republic, Tajikistan is classified as a low income country with an estimated per capita GDP of $1,600 (CIA). A six year civil war that ended in 1997 severely damaged the economic infrastructure of the country and created a sharp decline in economic growth. Uneven implementation of structural reforms, flagrant corruption, high rates of unemployment, a weak government, limited resources, and an external debt of $1.56 billion, are all factors that contribute to the country’s current economic situation. Despite experiencing steady economic growth since 1997, 60% of the population in Tajikistan continues to live below the poverty line (CIA).

Maisara Abdusamadova is a widow who lives with her two children in the rural Isfara region of Tajikistan. She has a small cooking business, selling ‘sambusas’ (national dumplings) as a means of supporting her family. However, despite an increase in popularity and demand from her customers, she does not possess the means to expand her business. She is requesting a loan of $800 to be repaid in span of six months, in order to invest in cooking equipment and furniture for her customers. This will enable her to expand her business and cater to the demands of her customers more efficiently, through which she can generate even bigger profits.

Maisara is represented by the International Micro-Loan Fund, which is a microfinance organization that helps the most vulnerable groups of the population to improve their economic well being. The organization currently possesses a “5-Star” risk rating on KIVA, which demonstrates a high likelihood of repayment. Since Maisara already runs an established business that caters to regular customers, it adds to her credibility and ensures repayment. As the sole earner in her household, it is important for Maisara to obtain maximum profits from her business so she can provide support for her children and their education the future.

Priyanka Subba

Akua Aboka in Togo

It was not an easy task to look for eligible entrepreneurs on KIVA due to the fact that I had to choose only one of them. After hours of browsing I decided to write this report on Akua Aboka and hopefully convince you to loan her money for her business.

Akua Aboka is a 42 year old married woman and mother of two. She is a merchant and owns a ready-to-wear clothing store in Kpalime, Togo. In order to address her customers demand, increase her clienteles, and prosper her business she requested a loan of $975 of which $775 has been raised so far. The amount of $200 is the only obstacle that is keeping her from buying demand brand names shoes and outfits for her clientele.


There is a myriad of reasons why I think Aboka should be the recipient of your loan. For one, like most entrepreneurs on KIVA, Akua Aboka is from a developing country which has very limited resources to offer a banking system that would allow entrepreneurs like her to request loans for their businesses.

Second, my candidate is from Togo, a very small country of about the size of West Virginia which is located in West Africa. Togo’s economy depend heavily on agriculture with about 65 % of the population employed either in commercial and subsistence agriculture. It is no surprise to see that cash crops such as cocoa, coffee, and cotton (40 % of export revenues) generate most government revenues. The only natural resources for this country consist of phosphates, limestone, marble, and some arable land; and Togo is the fourth largest exporter of phosphate in the world. Togo has a deficit of 159 million dollars, huge debts, and a GDP per capita of $900. It is safe to assume that with no degrees, my candidate would make very less than $900 therefore leaving her unable to provide for her family.

KIVA is a window of opportunity where generous people like you can help Akua Aboka improve her living conditions with very little money. I am asking you to consider my candidate, think about the joy you will bring to her and her family, and the satisfaction you will get knowing that you have helped someone in great need.

Pulcherie Konan M'Bra

Mena Abdulaziz in Afghanistan

While overcoming poverty is difficult under any circumstances, overcoming poverty in a war zone is even harder. The economic structures (and therefore, opportunities for economic progress) are severely limited, if not completely destroyed, in countries at war. Micro-loans are critical to providing opportunities for economic livelihood in such situations. Providing a loan for Mena Abdulaziz will not only allow her to support her family by expanding her husband’s business, but it will provide her a greater ability to express artistic ability through pottery.

Afghanistan has experienced international and civil wars resulting in the destruction and creation of various governments over the past three decades. This has undoubtedly hindered its economic development, as the state has an unemployment rate of 40% and per capita GDP of $1,000 (CIA World Factbook, 2008). Providing a loan to Mena will allow her and her husband to improve their standard of living, along with that of their three children. Although any investment is a risk, Mena has a good track record and you can expect to be paid back. Her first loan provided funds to start her husband's store and improve her pottery business. This loan will allow her expand her pottery business even more and improve the stock in her husband's store. While financing retail businesses are relatively common, it is less often that you have the chance to support the spread of artwork. Life in a war-ravaged country can be difficult and discouraging and work that displays beauty and creativity amidst the rubble of war should be encouraged. While one may not think that something as simple as a handmade and decorated bowl can have an effect on others, a small work of art may provide a little encouragement in an otherwise chaotic life. Supporting a loan to Mena and her family will allow them to further their economic progress while increasing the number of people who can enjoy Mena’s creativity through pottery.

Lindsay Roberts

Rosemary Maziku in Tanzania

(see above)
Imagine a country with a diverse landscape, composed of wild animals running free, the tallest mountain in Africa and several landmark lakes. Think about what it would be like if you were able to live in a country where nature is more prominent than technology. Although many Americans would call this a vacation, there are millions in Africa living in such a place. Welcome to Tanzania, the dream getaway spot, where the GDP per capita is $1,300.00 and the life expectancy is 51 years old (Tanzania, 2008)! Sounds like paradise, right?


While life, in general, in Tanzania is difficult, women especially have a hard time. According to Kiva.org, the customs of the Tanzanian society make it hard for women to own property. This, in turn, leaves them without the necessary credit to borrow from financial institutions. Rosemary Maziku is one woman trying to run a business in Mwanza, Tanzania. She is a thirty-seven year-old widow with three young children, simply trying to raise enough profit to keep her family alive. She is requesting a loan for $400.00 that she will use to purchase cloth and shoes to sell. Currently working twelve hours a day, six days a week, Rosemary operates a tailoring business and sells soaps and perfumes for extra income. She turns a small profit of about $120.00 a month. Many Americans spend more than that on food each week. The field partner affiliated with loans in Tanzania is SELFINA. They greatly cater to the needs of poor women, even allowing them to use equipment as collateral for future loans. The loan is near risk-free, with a 0% reported default rate and 0% delinquency rate (RosemaryMaziku, 2008).


Knowing that Rosemary needs only $400.00 to completely better her own life and the lives of her children, how can you not feel a desire to help?



--Lindsey McCurdy

Heng Sophea in Cambodia

(see above)
This proposal is for a Mrs. Heng Sophea, who is 41 years old who lives in the Andoung Samrith Village in Takeo Province of Cambodia. Mrs. Sophea supports her husband and four children with a rice crop that she is currently unable to harvest because she needs someone to help plow the field. Her husband assists her with her crop, while her oldest child drives a car to produce a supplemental income. Two of her children are currently attending a local school. She is asking for a small loan of $500 to hire a worker that will help her plow her rice crop. The money would be used to pay for the worker; while the remaining money would be used to buy fertilizer and pesticides to aid in the resilience of the crop.


To loan money to this women would benefit her whole family. She will be able to provide more for her family by yielding a crop that they can live off and sell to make profit. This small investment can give a family a chance to gain a higher income and become a larger contributor to the economy of Cambodia. Even though crops are very temperamental and depend on the climate, the addition of fertilizer and pesticides will greatly reduce the risk of crop loss. Cambodia has a GDP per Capita of $1,900 (CIA World Fact Book), where 31% of total GDP is in the agricultural sector, comprising of 75% of the labor force. This shows that agriculture is a way that most people try to make their incomes from. However, it may not produce a large enough income. Micro loans make it possible to loan small amounts to families that otherwise would be too risky, but with the help of these small loans, that have a high success rate, they can achieve the dreams that banks tell them that it is impossible. The borrowers from Kiva have been screened and have the assistance of groups of other borrowers that give support to each other.



Borrowers also learn the ability to save money for those unfortunate incidents. It is very important to lend just a few dollars to these people, who have nowhere else to turn to make their dreams come true.


--Jessica Maurer