Tag Archives: economics

Is the NEW Beer Tax a Good Idea?

Upon my return from vacation in late March, I met some friends for chicken and beer. When I gave the bar attendant 500 CFA (about $1 USD) to pay for my beer, he told me that the price has changed, a beer is now 600 CFA  (about $1.20 USD)! While readers in the developed world snicker at a seemingly nominal price increase, I would like to point out that it is a 20% increase. To compare it to a U.S. tax increase of the same percentage would be flippant, but that doesn’t mean it will not have an impact on Cameroonian life.

There had been rumors of this tax being initiated by the government in December, but I heard later it had been stopped to appease the brasseries. After the tax took effect, I heard through the grapevine that BBC interviewed bewildered people in Bamenda who said they would just drink more palm wine (which is not being taxed).  Taking this into consideration I want to consider whether this new tax will be a good idea for the Cameroonian economy.

Beer 003

The alcohol tax is a consumption tax, which is often implemented to tax things the government wants to incentivize. Because the government wants to affect a very specific category within consumption, the levy is called an excise tax. In this case, the Cameroonian government wants to discourage people from excessive drinking by raising the price; for the government, it is a win-win because even if people to do not reduce consumption, it will still increase revenue.

One of the perceived benefits of this alcohol tax is that it is only affecting a nonessential good. No one needs beer—beer is a luxury! Therefore the tax is not attacking the poor. In terms of revenue growth, the tax has its limits. The Gross National Income for a Cameroonian is about $1,290 per year or $3.50 per day. A full 39.9% of Cameroonians are living below the international poverty level according to the World Bank. In addition to a limited income, where one beer is a significant percentage of the daily income, there is the marginal utility factor: the first beer provides more happiness or satisfaction than the second one, each beer after the first is less wonderful than the previous one. In other words, there is not the potential for infinite consumption of beers.

**I realize that the table below looks like it is making the assumption that each person consumes the average number of beers each day, but this table is designed to illustrate that a price change of 20% can affect the budget of Cameroonians.

Beer as percent of income

Elasticity. Elasticity is the degree to which individuals change their demand/amount supplied in response to price of income changed. Considering the human factor in this excise, the Cameroonian income did not shift to accommodate the increase in the price of alcohol, so for a person to continue drinking the same amount, they would have to take money from another category within their budget (food, school fees, rent).

Public drinking in Cameroon is usually very male dominated, it’s not that women don’t drink, but they are in the house most of the time—it’s a bit taboo for women to be drinking in public especially in villages. Because of this, when discussing drinking it will be from a male perspective since that is where I get most of my information. It’s estimated by my friend Ben that when a man sits down to drink, he will take an average of 2-3 beers; but if it is cocoa season, he will increase his intake to 5-7 beers easily. That is an elastic response to an increase in income. So from this we know that beer could be classified as very elastic. Going back to the tax, we should consider whether the 20% tax will affect the number of beers sold because it is an elastic good. If the price increase is following economic law, then yes, total consumption will decrease as the price increases.

Elasticity graph

(Elasticity Graph Source)

Other things not often considered that are specific to Cameroon:

A factor that might hamper the revenue of the alcohol tax is the availability of alternatives. There are these things called “sachets” here, they are like little sealed envelopes of alcohol (mostly ethanol) that cost 100 CFA, they are purported to have doubled to 200 CFA, but still costs much less than a beer. They are popular with people needing to drink “on the go”, so motorcycle drivers, bus drivers and so on. In other words, these are for alcoholics who must work. People working in transport are also some of the people shouldering a lot if income instability so the price is right. And yes, drinking and driving is deadly. My very unscientific observation tells me they appeal to those who might not be able to afford a beer. So I’m not convinced the alcohol tax will chip away at any sort of public health alcoholism issue.

On the finance side, we go back to the question of what will Cameroon do with all of it’s new revenue? Well, we might never know. Corruption is an issue that reaches every facet of life here and it’s possible those new funds will be “diverted” away from the original purposes designated by officials speaking to the press.

Cameroon is also home to a sizable Muslim population, mostly concentrated North of the Adamawa, and down through to Foumban, that means there isn’t a whole lot of drinking (or at least reduced) in much of the country. It also means this tax will really only affect Christians.

I’ve read multiple conflicting accounts online of the purpose of this tax ranging from funding HIV/AIDS care, paying for the harm caused by alcohol (I derive “public health” from that), and even funding public service coffers. Either way, I see this tax as a pretty good idea. Collecting income tax form Cameroonians can be very difficult because of the sheer size of the informal market. To raise revenue, you should tax something that is close to their hearts, beer. Yes, it’s elastic but after some foot stomping things appear to be back to business as usual here.

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GINI in a Bottle: A Comparative look at Inequality in the United States and Cameroon.

When I sat down to look at the income inequality index for Cameroon, I thought I would spend most of my time defending Cameroon for the poor performance it’s done relative to other countries. Instead, the joke’s on me. Before your mind is blown, let’s look at some basic data you probably already know comparing Cameroon and the United States:

Comparative Table

Source: Cameroon & The United States

     The Gini coefficient is a measure of the inequality of a distribution, a value of 0 expressing total equality and a value of 1 maximal inequality. To be clear, income distribution should not be confused for a quality of life ranking. Measuring inequality is just that–examining the divide, not the average.  Inequality has more than individual implications. Broadly, it affects social mobility, infrastructure, political stability, and immigration/brain drain. A distorting factor of these values is that the gini coefficient does not take into account corruption and fraud.

When I was rifling around for Cameroon gini data, I thought to myself “Wait, Cameroonians don’t pay income tax. How do they calculate this?” Well, luckily I came across this paper from the University of Yaounde, where I found out there have been three large scale consumption surveys, the last two surveys reaching more than 10,000 households, that are representative of the total population. According to the 2011 UNHABITAT paper on urban inequality, the gini can be calculated two ways; consumption and income based inequality rankings. Both the income and consumption inequalities are linked to broader economic factors like labour markets, capital investment in public services, lack of pro-poor services etc. Using consumption based gini coefficients are a stronger indicator of inequality because high gini coefficients also denote unequal access to public goods, which may act as a hindrance to poverty reduction strategies and achievement of Millennium Development Goals.

My inspiration began with this error ridden article in the Atlantic, but I was still shocked to find that the States and Cameroon aren’t so different when looking at income distribution. There are multiple places to get your gini coefficients. Mr. Fisher of the Atlantic used the CIA World Factbook, but I prefer UNDP because of it’s international presence and intuitive presentation of data. When I was comparing his own maps and comments to the UNDP, they didn’t match up all of the time. So I made my own visual.

Below is a Venn Diagram, highlighting countries based on their gini coefficient. Conveniently in the middle, you will see Cameroon and the United States, who happen to have comparable levels of inequality.  The countries in the purple, center section all fall between the narrow difference in coefficients for Cameroon and the United States. All countries were selected based on regional and economic diversity–it wouldn’t be helpful to only put Europe in Blue and Africa in Red.

Venn3

Source: UNDP

Here are some of the major takeaways of the UNDP data: 

  • In terms of Human Development Index Rankings, the United States (no. 5) sticks out like a sore thumb when examining it’s gini coefficient. Aside, from Israel (no. 19) and Qatar (no. 31) there isn’t a lot of variance at the top. There are a lot of mid-20’s and low-30’s of almost exclusively Western European countries, indicating a higher level of income redistribution (tax, social welfare programs etc.) among classically “successful” nations. Most highly ranked countries have an average gini coefficient of 32.6, substantially lower than the United States–even when factoring an average that includes an outlier like the United States.
  • The United States having a high gini coefficient could be indicative of low levels of income redistribution (low tax rates, etc.) compared to other highly ranked UNDP countries. The U.S. is a great place to be if you are extraordinary, but less so if you are average compared to other OECD countries.
  • Latin America seems to struggle with inequality, Nicaragua was the only country in Latin America within the 38.9-40.8 window. As a group, they average a gini coefficient of about 47.4
  • The base for countries that have a similar gini coefficient can have a huge variance. For example, a country like Norway, with a gini of 25.8 and Afghanistan with a gini of 27.8 have similar distribution levels of consumption, but the “Bottom” or starting points are worlds apart. The same could be said for the United States and Cameroon.

In my village, there are several “big men”, people with wealth. What is different about how wealth is handled here is that they build a 5,000 square-foot house along the road, next to shanties. I feel like, compared to my upbringing in metro Detroit, wealth is more visible here, andt also less segregated. It is not just during funeral season that the wealthy come out, they participate and sponsor most of the social events here informally. My friend Brittany asked me, how large are the elite class in the U.S. compared to Cameroon? I don’t know. My impression is that, as a percentage, there are more wealthy people in the United States, but the spread is also wider. The big question here seems to be is this a problem?