There are two abstract enemies of the Ethiopian consumer and their baleful influence is all the more disturbing considering Ethiopia’s recent orientation towards a free market economy. These enemies are Ego and Ignorance; ignorance in its most general sense of lack of knowledge and ego in the sense of excessive status-seeking known in Amharic as “gura”. The deleterious consequences of “gura” or Ego are considered in this article by Biniam Mesfin. For a brief account of the equally invidious consequences of Ignorance on the Ethiopian consumer, see Michael Shiferaw’s here.
In Search Of The Rational Consumer
Restricted by a general lack of knowledge, the Ethiopian consumer’s spending is instead governed by mistaken preconceptions such as the idea that all products from abroad come with quality assurance; but even if there was some knowledge that some foreign products - such as Chinese-made electrical distribution boards - are not in fact of the highest quality, the Ethiopian consumer will still eagerly acquire foreign goods on account of the status or “gura” (ego) they confer on him. Our Ethiopian consumer is thus an excellent example of everything that makes the irrational consumer who is diametrically opposed to 'The Rational Consumer' much beloved by neo-liberal economists. According to such economists, the modern consumer is indeed a rational person, or at least that is what most of us like to believe. In the rationalist model, the consumer always seeks his money’s worth in trying to secure the greatest satisfaction. As rational consumers, we are not supposed to spend our money on goods that we do not need, or on items that are frivolous or inessential for survival. Further, as our income is limited, rationality allows us to investigate and evaluate all options and each extra birr we spend on an alternative should give us a marginal (additional) utility that is better than the alternative. This behavior is supposed to keep prices in check. Ok, let’s face it. None of us would calculate the marginal utility of buying the latest Blackberry much less a macchiato. But we are not required to. All we need to do is use common sense to evaluate each bargain we get into. But common sense is often scarce. Ethiopians may not be the most irrational spenders in the world, but we unquestionably are nowhere near the rationality exhibited by the average consumer in other market economies. This is evident in our every day consumer behavior, which to a significant extent seems to be governed by our “gura”.
2 Birr For Tea?!
When, about ten years ago, one of the first upscale coffee shops in Addis, Village Café, opened doors charging 2 birr for a tea and 7 birr for a piece of cake it was perplexing for many. As a student, having a cup of tea for 15 cents at the university cafeteria, it was shocking for me and my friends. And as business students our bets were that the place would not last long. Who would pay such an obviously ridiculous price? After all, the 50 cent tea a couple of minutes away at Connection Café tasted as good, and cheaper cakes on Bole road tasted much better. How wrong we were? The place is still open today, charging even more for its services and with a second branch. But this is also true for most upscale cafes in town. Kaldis, Bilos, SunBird, City, Roby Pasticeria, La Parisian and the like have exorbitant prices. In the last 18 months or so, the price of a mille-feuille at top bakery/cafe Bilos, has gone up by about 33 percent (a single slice at the Bole Medhanealem/Atlas Hotel location now costs around 16 birr inclusive of VAT from about 12 birr just a year ago) and Kaldis is known for its continuous price hikes. Yet these places are prospering, and only because the consumer is irrational. As mille-feuille consumers, when we visit Bilos, are we saying we don’t know that other options exist, or are we saying that all other cakes are inferior to the cakes at Bilos? Neither. What we are servicing is not our need for cakes but the cravings of our status conscious ego that requires nothing more than to be seen in the most prestigious locations. Because of our excess “gura”, we just want to be seen at these places.
How About Some Mashilla Injera To Go With That Tibs?
The same is true for those at the lower end of the socioeconomic strata. Let’s take Injera as a case in point. The price of Teff (from which Injera is made) has increased four-fold in just a few years. This would make a rational consumer switch to a more affordable alternative. But all an Ethiopian consumer does is complain while struggling to afford the price increases. Our parents and grandparents used Dagusa and Mashila (mostly blended with Teff to increase quantity) whereas wheat and corn as alternatives to Teff are widely available, especially in the south. But these are not alternatives we are even ready to consider. We would rather pay for the overpriced Teff, encouraging the supplier to charge even more. We curse him, but what is he supposed to do? He is a rational businessman after the money; and we are the irrational ones throwing our income around. We do not even appear willing to consider black Teff as an alternative to white Teff even though it is cheaper than its lighter counterpart, and more nutritious. This is because white Teff is a status indicator and our status conscious ego would not allow our neighbors to look down on us for eating black Teff or for mixing our Teff with Mashilla. Once again, our “gura” has gotten the better of us as we struggle to consume (and to be seen consuming) that which we cannot afford.
Driving A Bajaj In A Suit
What about our desire to own a car? In an apparent insult to the principles of economics, Ethiopia seems to be the only place in the world where car prices are directly related to the price of fuel, and where cars appreciate in value. The price of used cars has spiked to a level no cost calculation could justify but we are still willing to pay an unreasonable amount to have the right kind of car to be seen in. Very few take it for what it is; a machine made to take us from point A to point B and back. Rather, for the irrational Ethiopian consumer, it is an artifact reflective of one’s socioeconomic position. How many are there that own a BMW they cannot afford to regularly service? If only we were rational consumers, there are ample alternatives commensurate with our income. But are we really ready to consider a two-wheeler, such as motor bike or an electric bicycle, as our regular mode of transport? We think it is cool when foreigners do it, but why don’t we? Even worse, would anybody be willing to drive a three-wheeled Bajaj on the roads of Addis? What would you say if a guy in a suit parked one in front of Kaldis? Would he even be able to ride it to the Sheraton or Hilton without being told that he could not park within their hallowed grounds? Shouldn’t scooters and other motorized cycles be plausible alternatives for those whose primary concern is the transportation problems in Addis? No, they cannot be, and it is because of our excess “gura”.
We can name other examples. Our dressing style, shoes, weddings and funerals, even our tolerance of bad service are attributable to “gura” getting the better of us. Bottom line is, we make the demand side of the economic equation. Suppliers supply and we buy. Both parties need to be rational so as to achieve an equilibrium in which the price charged would reflect the satisfaction of both. As a rational consumer’s ability to pay depends on his/her income, he might be forced to choose an alternative that is regarded as inferior by society. But society does not pay our rents. We do. So we should see our “gura” for what it is and attempt to keep it in check.
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(9)
Mr. written by Mamo , April 25, 2010
Thanks for the wonderful article. I have two points to make, though.
1) Knowing that the consumers at Hilton and Sheraton are status conscious, I believe it is perfectly rational for the parking attendants who are acting in the best interest of the businesses (no agency problem here) to discriminate (within the law) against those who drive Bajaji. If they don't do that, the high end consumers the business caters to will indeed run to competitors.
2) Why are we assuming people with "gura" are irrational? If "gura" matters for them, they may have included it as one of the variables in their utility function and thus their choice is perfectly rational. It is just at the margin the price hikes you talked about are not high enough to change their status conscious consumption bundle.
I know I am taking a bit extreme view here.
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opportunity written by Brian , April 25, 2010
The author has pointed out a very real limitation in most of the research conducted in microeconomics but NOT in the models themselves. It is true a lot of consumer behavior does not seem to conform to the whims of a traditional homo economicus. And these decisions when aggregated across an economy create price signals that don't seem to be "rational" such as those described. Mamo has correctly pointed out how these consumer decisions could be incorporated into individual utility functions and modelled to create results that replicate replicate reality. This state of affairs creates two opportunities. The chance to profit will always be the first to be capitalized upon as you pointed out. But the second, building the economic models that formally describe and predict the behaviors we can all observe is a golden opportunity for those academics with an inclination for behavioral economics and for a consultant who can offer international firms looking to sell products in this fast growing economy. If individuals wish to throw money away in the name of gura this is freedom of choice. I just hope those that profit from this behavior have the decency to give back to the communities that created the wealth in the form of educational development such that future generations are not slaves to gura.
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What about the complaints? written by Melaku , April 26, 2010
It could certainly be a valid theory that some are just willing to pay the price that an increased perception of status might result in from being seen at a high end cafe or restaurant. However, if that is the case, then why do so many of them complain about the constant price hikes? And what exactly leads to an appreciation of the price for 'status'? It can't be devaluation of the birr or the higher price of gas!
At the very root of the impetus to this article is the fact that there just does not seem to be a 'normal' economic framework that governs the relationship between Ethiopian consumers and their suppliers. When prices go up (especially in case where there are many alternatives to it), demand should go down. In Ethiopia - simply put - it doesn't. What's more, prices aren't the only thing people complain about. There's also bad service which our consumers also seem to tolerate with about the same patience as they do the price hikes.
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imperfect markets? written by Brian , April 26, 2010
The two traditional explanations for positive sloping demand curves (consuming more of a good as its price rises) do not seem to fit the case. Thorstein Veblen's Theory of the Leisure Class introduces the concept of 'conspicuous consumption' which is pretty much in line with the 'gura' explanation. But surely this doesn't explain paying more for staple goods like sugar. The second, 'giffen goods' also falls short as it applies to goods for which there is no close substitute. Certainly some of the discrepancies between the reality on the ground and the economic models could be explained by violations of the assumptions underlying the models. What are the barriers to entering a market (say opening a cafe with good service) such as lack of access to credit, bureaucratic red tape etc. Armchair philosophizing will not get to the real answers though- the key is lack of information. Where are the social scientists to conduct experiments and do surveys to get to the bottom of the unique consciousness we are trying to understand?
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Talk is cheap written by Mamo , April 27, 2010
The complaining part can be explained partially by cheap talk models. From what I see, consumers are using complaining as a signal that they are not satisfied with the prices and services, and they are looking into competitors. But this signal is obviously not credible since we don't see any shift in the consumers' preferences. The profit maximizing supplier/producer knows that the consumers are bluffing and s/he will not adjust the price and service to reflect the dissatisfaction of their customers. And this takes me back to my first conclusion: the price increase is not high enough to change the behavior of status conscious consumers.
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... written by dona , April 27, 2010
what is the purpose of this topic? we all have different tastes and it's pretty a waste of time trying to form a valid argument against "personal choice".
customer awareness issues make a better reading.
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... written by Q , April 29, 2010
Dona, what an insightful comment
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how to make the ethiopian rich buy ethiopian goods? written by Veganline.com - J Robertson , June 09, 2010
I was brought-up in the UK and went to a college where, dispite factory closures outside the window in the 1980s, most of the economics lectureres solumly kept to the textbooks written in the USA which marginalised the importance of pensions in reducing the birthrate, vegetarianism in making use of land, or a loyalty to local factories as a way of making industry sustainable round the world.
When our policians in Europe discuss tariffs, I sometimes wonder if some of them went on the same bad course. They are interested in offering free entry to the EU to goods from poor and developing countries, and those with which it's thought we have most in common. I know because I wrote to my Euro MP and thought I agreed with him until the end of the paragraph "eg Mexico", he wrote. Many of these goods are cheaper because the people who make them to not have a minimum pension, hospital treatment and more built-in to the cost of production. For that reason some of them can be imported cheaply and advertised or updated expensively while products like British slippers are mainly sold on market stalls unadvertised and look quite old-fashioned.
My impression is that the interest in glossily-marketed imported goods is universal. People in the UK like Porgugese cork products because they're environmentally-friendly; people in Portugal are sick of them. People in the UK some people want Ethiopian shoes because they give a warm fuzzy feeling of being down to earth and helping others, but the same customers will not buy English slippers or DM-style boots.
I wrote this without thinking how to end.
If I were in Ethiopia, I would be tempted to write to the Members of the European Parliament who are on the committee that considers tariffs, or equivalent Congressmen in the US, and say:
Otherwise, I think that people in richer countries will buy a few fair trade african products out of sympathy, a lot of the cheapest african products because they are cheap, and nobody will be helped in Europe or Africa.
One afterthought. I work in the shoe trade. I was looking for a warehouse that could stock shoes on the west side of London, near Heathrow. I found one but they were too expensive and had too many orders. Their main business was sending-out Mercedez and Jaguar car parts to third world elites by airmail. John Robertson
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bicycles written by Veganline.com - J Robertson , June 09, 2010
please excuse another comment.
At the same college I met a student from a family in Nigeria who could afford over-priced UK eduction. She was worried about her weight.
"why don't you ride a bicyle?" I asked.
She looked worried, as though she wished she had mis-heard and was slightly embarassed.
"an excercise bicycle?" she replied John Robertson
1) Knowing that the consumers at Hilton and Sheraton are status conscious, I believe it is perfectly rational for the parking attendants who are acting in the best interest of the businesses (no agency problem here) to discriminate (within the law) against those who drive Bajaji. If they don't do that, the high end consumers the business caters to will indeed run to competitors.
2) Why are we assuming people with "gura" are irrational? If "gura" matters for them, they may have included it as one of the variables in their utility function and thus their choice is perfectly rational. It is just at the margin the price hikes you talked about are not high enough to change their status conscious consumption bundle.
I know I am taking a bit extreme view here.