“One of the costliest railways in the world”

I’ve gotten increasingly interested in the ways in which geography shapes economic development, and vice versa.  For instance, in a video for MRUniversity called Transportation & Infrastructure in the 19th century, I discuss the difficulties of transportation in 19th Century Mexico and why railroads took so long to get established.  Here’s some notes from the video:

Cardenas (1997, 78) notes that as late as 1877, when Porfirio Diaz took over the Presidency, Mexico only had 684 km of railroad track and most of that covered the traditional route from Veracruz to Mexico City.

It had taken more than 40 years to build that track and according to a contemporary American observer it had been an extremely costly endeavor:  “Due to the wasteful methods of its construction, to its many extrinsic misfortunes, and to the enormous outlay of money required by the very difficult character of the work, this railway in proportion to its length, is one of the costliest railways in the world.” (Pletcher, 1950, 56).

There’s a new working paper on a similar topic called “Big Push or Big Grab? Railways, Government Activism, and Export Growth in Latin America” that I’m looking forward to reading this weekend. The authors are Vincent Bignon, Rui Esteves, and Alfonso Herranz-Loncán and here’s the abstract:

Railways were one of the main engines of the Latin American trade boom before 1914. Railway construction often required financial support from local governments, which depended on their fiscal capacity. But since the main government revenues were trade-related, this generated a two-way feedback between government revenues and railways with a potential for multiple equilibria. The empirical tests in this paper support the hypothesis of a positive two-way relationship. The main implication of our analysis is that the build-up of state capacity was a necessary condition for railway expansion and, given the importance of the export sector in these economies, for economic growth and divergence in the region.

 

Work cited:

Cárdenas, Enrique, 1997, A Macroeconomic Interpretation in Nineteenth-Century Mexico, in Stephen Haber (Ed.) How Latin America Fell Behind: Essays on the Economic Histories of Brazil and Mexico (Stanford University Press).

Pletcher, David M., 1950, The Building of the Mexican Railway, The Hispanic American Historical Review 30(1): 26-62.

Rush hour in Mexico City

The Atlantic recently had a great photoessay called Inside Mexico City’s Chaotic Underground Rush Hour.  Driving in Mexico City is always treacherous, but things come to an absolute standstill during rush hour, which seemed to expand every year we were there.  Apparently things aren’t much better on the subway, which 4 million people ride every day, making it the second busiest metro in North America behind NYC.

The photos were taken by a Spanish photographer named Héctor Mediavilla. Here are 2 of my favorite:

metro1

metro2

Intrepid Entrepreneurs

Entrepreneurs everywhere need almost a blind optimism in their vision or they probably would never undertake the investment in the first place.  In Somalia, though, this is probably even more true. While entrepreneurship is crucial to a Somalian economic recovery, it is not for the faint of heart.

The New York Times had a great piece in the magazine called Somalia’s somewhat friendly skies. Not surprisingly, the roads in the country are either of very poor quality or non-existent: “Somalia has only a handful of passable roads — and most of those are patrolled by bandits and militias.” 

So what does an enterprising young entrepreneur do?  Start an airline of course:

jubba_air

 

I love the optimism of the tagline:  the happy way to fly.  Some beg to disagree:

“One passenger described one of Jubba’s Antonovs as a piece of “Soviet dereliction” in which a family of five sat piled into three seats. “We had to board an old Russian plane. In total darkness,” an online reviewer wrote of his “flight from hell” to Hargeisa, the capital of the self-declared republic of Somaliland. “The seats had no seat belts, there are luggage and 20 boxes on back seats, not secured. . . . Avoid by all costs.”

The founder of Jubba notes that all planes have seat belts now and that this negative review is probably from a Somalian rival airline (!).

There have been some tough times for Jubba Air and its employees (see some salient examples below) but if Somalia does turn around, they are well placed to take advantage of the good times.

a. “Whenever we fly to Mogadishu, we give them combat pay,” Warsame said. “And they never stay. They land and leave as fast as they can.” Jubba pays the captain, co-pilot and flight attendants “around $100 extra” for each landing they make in Mogadishu; the bonus goes up after they make the trip several dozen times. [Note: $100 doesn’t seem like much in combat pay and I don’t understand the reasoning behind the bonus going up after 24 landings].

b. “Until late 2011, Al Shabaab controlled 9 of 16 districts in Mogadishu, some within firing range of Aden Abdulle International Airport. Pilots were instructed to ascend & descend rapidly over the ocean, and to avoid flying at low altitudes over the warrens of the city. The rebels have since been mostly driven out, but pilots still perform the same maneuver.”

c. “Domestically, Jubba has inaugurated Antonov flights to Baidoa, a central Somalian town known as “the City of Death” during the devastating famine of the early 1990s; and Kismayu, a strategic southern port held by Al Shabaab until last November, when Kenyan AMISOM troops drove out the militiamen. Kismayu is still unstable, with two clans feuding violently for control of the port’s lucrative charcoal trade. But Warsame said that the demand for access to the city was so high that Jubba decided to take the risk. “It is impossible for people to travel there by road, because of explosive devices and ambushes,” he told me. “So many people said, ‘We need a flight to Kismayu.’ We sent in some staff, they inspected the runway, they talked to the local people and they said it was O.K.” [Note: the local people saying it was ok would probably not be enough to convince me to fly there]

Whether you are an airline entrepreneur or an airline customer, Somalia is definitely not for the faint of heart.

“Cars drive train (boom)”

The (slightly altered) title of this post stems from a great sub-title in “Trains, planes and automobiles: Mexico rail freight comes of age“.   I learned some interesting tidbits about Mexican shipping and exports from this relatively short article  For instance,

1. Rail traffic is booming in Mexico: “trains now haul about 14% of the nearly $500 billion worth of goods that cross the Mexico-U.S. border each year, up from 10% in 2009.”

2. The industry is relatively concentrated, with 2 companies (Kansas City Southern de Mexico and Grupo Mexico) making up almost all of the market. Grupo Mexico controls 55% of the market, while KSCM controls the rest.

3. There are several factors behind the railroad surge, but one of the largest is the booming auto market in Mexico.  Cars and car parts only made up 4% of KSCM’s cargo in 2011–by 2012, it had grow to 16%.  Ferromex (a subsidiary of Grupo Mexico) has seen its automobile cargo double since 2007.

4. It’s cheaper to ship cars via train (sometimes 20-50% lower), but of course you cannot offer “door to door” service.  Border security apparently has an x-ray machine by the tracks and trains clear customs in less than hour on average, compared to 133 minutes for trucks.

5. On the other hand, in what seems like a 19th century problem, bandits are still a problem: “Mexico has among the highest incidence of cargo theft in the world…Ferromex spends 33 million pesos ($2.5 million) a month on staving off thefts and attacks” and “the Ministry of Communications and Transport has begun looking into the possibility of creating a dedicated rail police force.”

6. Only the government can decide to open new rail lines, which hinders the growth potential of the two companies. Apparently we shouldn’t feel too bad for the companies, however.  As one rail station executive noted: “Railways are cash cows. If you don’t pay me, I don’t deliver.”