Monday, December 13, 2010

KFC in Africa and How Imports Create U.S. Jobs

The WSJ had an interesting article last week about KFC's expansion in Africa ("KFC Savors Potential in Africa:Yum Brands Unit Plans to Double Number of Outlets on Continent, Where Middle Class Is Growing"), here are some quotes and observations:

1. "By 2014, the Louisville, Ky., restaurant-holding company expects to double its number of KFC outlets in Africa to 1,200 (see chart above). In the next four years, it aims to more than double its revenue on the continent to $2 billion.  "Africa wasn't even on our radar screen 10 years ago, but now we see it exploding with opportunity," says David Novak, Yum's chairman and chief executive officer."

2. "American restaurant companies and retailers have been moving into emerging markets as growth in the U.S. and other developed countries has slowed, and Africa is increasingly being added to the list."

3. "With more than 600 KFCs in South Africa now, the chicken chain has a 44% share of that country's $1.8 billion fast-food market, followed by South African chain Nando's, with 6%, and McDonald's and the local Chicken Licken, each with a 5% share."

MP: This example illustrates why the Obama administration's narrow focus on "doubling exports in the next five years to create U.S. jobs and combat high unemployment" is incomplete.  The U.S.-based KFC has significantly benefited from economic growth in China over the last five years, as it expanded its operations there to take advantage of a growing middle-class with the rising disposable income that allows consumers there to eat fast-food more often. Now the same trend of a growing middle-class in Africa will allow KFC to double its restaurants in Africa over the next four years, from 600 to 1,200 by 2014. 

And what is one source of the increased income in China and Africa that allows American companies like KFC and McDonald's to expand global operations, become potentially more profitable, and increase the number of jobs at their American headquarters as their global operations expand?  Exports from China and Africa to the U.S., or from our end: IMPORTS.  

It's those imports to the U.S. that provide foreigners the income they need to purchase our exports.  So instead of focusing so narrowly on half of the international trade equation and trying to expand exports, we should realize that increases in imports are a sign of economic vibrancy, and bestow significant benefits on American consumers and businesses, as well as provide foreigners with the resources to buy more of our exports.  

As I have pointed out in a previous post, why not have a goal of "doubling both exports AND imports" over the next five years? That would be a much more effective path to economic growth and job creation for all industries than an export-focused mercantilist program of job growth that would only benefit certain American industries. 

25 Comments:

At 12/13/2010 9:57 AM, Blogger morganovich said...

to say nothing of opening up markets for our chickens.

i think you are dead on there. once the emerging world gets a bit richer, they will begin to become markets for us, but first they need disposable income.

FWIW, KFC is VERY popular in a lot of the rest of the world. it's a huge deal in egypt. in fact, if you stand at the base of the great pyramid and look back into cairo, you can see a KFC sign.

 
At 12/13/2010 10:18 AM, Blogger juandos said...

"in fact, if you stand at the base of the great pyramid and look back into cairo, you can see a KFC sign"...

In fact if you climb up about eight or nine pyramid block levels worth you can see more than one KFC sign in the distance...

Hopefully Africa won't saddle themselves with the idiotic food police like some are doing...

 
At 12/13/2010 10:24 AM, Blogger niknaknoo said...

Looks like we'll have an obesity epedemic in Africa of all places before too long.

Who'd have thought that 10 years ago?

 
At 12/13/2010 10:34 AM, Blogger Buddy R Pacifico said...

For the Mercantilist Playbook:

If you want to convey the image to Americans that your country is "saturated" with U.S. products then fast food is your ticket. Allow KFC and McDonald's to profliferate in your country and the image is set of colonels and arches everywhere.

What do you say to questions that Americans may ask regarding your country keeping U.S. products out of your market? "We love products from America. You can see arches and colonels everywhere in our country. There is no problem."

The net result for the U.S. economy is a very massive amount of U.S. potatoe products being exported -- nuggets, fries, mashed, tots, etc. Other products such as telecommunications may have an eternal wait.

 
At 12/13/2010 10:52 AM, Blogger juandos said...

"Other products such as telecommunications may have an eternal wait"...

Hmmm buddy, I think some some facets of telecommunications are already well along in development in Africa or at least parts of Africa...

 
At 12/13/2010 11:37 AM, Blogger Buddy R Pacifico said...

Juandos, nice find. Somalia has amazing people and this is underscored by having probably the best developed telecommunications in Africa; with a GDP/per capita of $600.

The Somali Minister of State for Post and Telecommucations, Ahmed Omar Gagale, stated in this U.S. interview: "We are looking at reciprocal investments. What we mean is when we import, you must export. We will exchange goods."

Hmmm, this does not seem to be the words of a mercantilist.

Just for reference, China promised to open their country to U.S. telecommunications equipment in 1999 but so far has reisted the temptation.

 
At 12/13/2010 11:39 AM, Blogger VangelV said...

The net result for the U.S. economy is a very massive amount of U.S. potatoe products being exported -- nuggets, fries, mashed, tots, etc. Other products such as telecommunications may have an eternal wait.

But that is not true. There is no African telecom manufacturing industry to protect so it isn't tariffs that are disadvantaging American producers. What is the problem is the mentality that consumers are there to be fleeced so governments place high taxes on various services that would use American built equipment and goods that are imported from abroad. No matter how you would like to spin your story you can't get away from the fact that it is meddling governments that are the the problem.

 
At 12/13/2010 11:40 AM, Blogger morganovich said...

buddy-

trying buying any high end telcom equipment whose chips are not designed by US companies.

 
At 12/13/2010 11:53 AM, Blogger juandos said...

"No matter how you would like to spin your story you can't get away from the fact that it is meddling governments that are the the problem"...

Well said vangeIV, just consider our own government...

 
At 12/13/2010 12:09 PM, Blogger Buddy R Pacifico said...

VangelV and morganovich, I was referencing mercantilists such as the #2 economy in the world:

"Take telecommunications. Upon joining the World Trade Organization, China committed itself to opening its communications market to foreign joint ventures for local and international phone service, e-mail, paging and other businesses. But after eight years, no licenses have been granted — largely, the United States says, because capital requirements, regulatory hurdles and other barriers have made such ventures impractical. Today, basic telecommunications in China are booming, and are virtually 100 percent state-controlled."

(Note that 1999 was the year that the U.S. granted China Most Favored Nation status as a prelude to WTO ascenion and telecommunicatons industry access was a key.)

The above quote from this fascinating NYT article:

China Fortifies State Government to Fuel Growth

 
At 12/13/2010 12:20 PM, Blogger morganovich said...

buddy-

my point is that even the "home grown" telcom boxes made in china largely rely on US chips to power them.

they have no chinese firms that can compete with guys like jds uniphase or pmc sierra and more than they can make a high end server and not use intel or amd.

 
At 12/13/2010 1:22 PM, Blogger Benjamin said...

Yeah, yeah, I love free trade.

Just remember, C+I+G (X-M)= GDP.

Exports minus import (X-M).

We run huge trade deficist, chronicalloy.

Ergo, our foreign trade does not generate jobs or wealth in the USA. It is a drag on our GDP.

 
At 12/13/2010 2:52 PM, Blogger morganovich said...

benji-

your economic illiteracy is breathtaking.

if i buy a DVD player from china that costs $200 instead of the $400 the american one would have cost. i am left with an extra $200.

if i spend that on going out to dinner, viola, trade creates jobs.

extend this ac cross the whole base of consumers and it more than makes up for the loss of a few DVD jobs.

 
At 12/13/2010 3:05 PM, Blogger Benjamin said...

Morgan-

I think you left out a few details.

Let's see:

1) You spend $400 in the USA

vs

2) You spend $200 in the USA.

You contend in each case the impact on the US economy and domestic job generation is the same.

And you contend the widely taught (Hardvardm, Yale, Univ. of Chicago et al) model C+I+G (X-M) is not accurate.

You also believe we have secret inflation in the USA, covered up by legions of economists in the BLS, the Fed and other private and governmenbtal services, except for the Mr Secret Shadow Stats, or whoever he is.

You must then also conclude that USA living standards have been falling rapidly in the last 20 years, as the CPI has way undercounted inflation.

Also the inflation-scam is going on in Europe, or otherwise their living standards have eclipsed ours long ago, despite their taking six weeks off every year, and having universal health care. Socialism is easily beating free enterprise.

Maybe I have some things to learn about economics--I am trying to learn more all the time.

When did you master the art and science of economics? It is amazing--you have true insights that no one else has.

 
At 12/14/2010 12:46 AM, Blogger juandos said...

pseudo benny claims: "You contend in each case the impact on the US economy and domestic job generation is the same"...

"your economic illiteracy is STILL breathtaking"...

"And you contend the widely taught (Hardvardm, Yale, Univ. of Chicago et al) model C+I+G (X-M) is not accurate"...

Your 'keynesian slip' is showing...

 
At 12/14/2010 8:19 AM, Blogger Paul said...

This comment has been removed by the author.

 
At 12/14/2010 8:24 AM, Blogger Paul said...

This comment has been removed by the author.

 
At 12/14/2010 8:25 AM, Blogger Paul said...

In truth, Benji's just sore that the Chinese eat his lunch in the furniture business. Perhaps that's why he's so fanatical about the Fed stoking inflation, so at least he can be bailed out of his bad real estate investments, if nothing else.

But to hell with the farmers with their hands out!


Still, don't be surprised if tomorrow Benji lectures that we're a bunch of Milton Friedman heretics.

 
At 12/14/2010 8:48 AM, Blogger Paul said...

"Most 'conservatives' conveniently quote Milton Friedman--they leave out his logical and consistent thinking when it comes to their sacred cows."

~Benji, commenting here at Carpe Diem on 4/11/2010

 
At 12/14/2010 8:59 AM, Blogger Paul said...

More Benji:

"Most 'conservatives' rapidly change the subject when they find out what Milton Friedman really thought." 5/4/2010

"I wish the readers of this blog would take Friedman's edicts truly to heart..." 7/31/2009

 
At 12/14/2010 12:28 PM, Blogger Benjamin said...

Why Paul....I am blushing at all the close attention.

 
At 12/14/2010 6:57 PM, Blogger sethstorm said...

Except that using the export argument a country to justify a separate argument from the import side is a stretch.

Doubling down on imports just results in tons of shiny junk trinkets.

 
At 12/15/2010 9:04 AM, Blogger Michael Smith said...

The protectionist argues that increased domestic employment justifies the imposition of import tariffs or quotas. While the economics of this claim may be debatable, its moral status is not: it is the evil notion that the end justifies the means.

No amount of alleged good that may accrue to one man can justify initiating the use of physical force (or threat thereof) against another man -- stealing, for instance, cannot be justified by the good that accrues to the thief, no matter how badly the thief may need the proceeds of the act.

Likewise, the employment of one man cannot justify the imposition of coercion against another man. There is no such thing as a right to a job created by the initiation of physical force against others.

 
At 12/15/2010 5:51 PM, Blogger sethstorm said...


Michael Smith said...


Explain why you have to flat out lie and hide that you're going offshore? Surely an idea that is good will survive the open and scathing criticism.

Same thing with trade with Third World countries. If it is a good thing, then why do private entities hide it from criticism?

 
At 3/19/2011 9:47 AM, Blogger Gerta said...

It seems to me that because folks in other countries are making products to sell to us, thereby increasing their fortune, does not necessarily translate to those folks buying our stuff. Fast food catches on, but they'll raise their own chickens, produce, and whatever they can. Because importing fries, nuggets, tenders, etc., would seem to be cost prohibitive at some point.
Imports serve others. Exports serve us.
Here's another possibility: As multinational corps increase their sales overseas, the American consumer becomes less important. Why should the big boys care if the middle class is disappearing? They don't need us anymore.
Just wondering.

 

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