Tuesday, May 22, 2007

Why muzungu prices are good

In Rwanda, as in much of Africa, foreigners experience what can perhaps be described as racial pricing. Bazungu (white people/plural of Muzungu) pay more than Rwandans or black Africans for the same products and services. It is occasionally possible to negotiate a Rwandan price, but often a local will simply refuse to sell. And this is not simply a question of the bad negotiation skills of the bazungu: prices asked have become standardised into “Rwandan” and “Muzungu” prices:


This practice infuriates most bazungu in Rwanda, who will generally try to negotiate the seller down to the Rwandan price. But should we be so annoyed?

We do it aswell.

In Europe, a plane ticket for a business traveller on a intra-European flight may cost for example 800 Euros. A private but wealthy traveller who plans a private visit and researches a few cheaper offers may pay 600 Euros for the same flight. A slightly less wealthy tourist, who plans his holiday well in advance, may get the same flight for 400 Euros from the same major airline. Also, airlines offer “student discounts”, “pensioner discounts” and special offers for tour operators that could get that price down to 250 Euros.

This is price differentiation in Europe and it is found not only amongst the airlines, but also amongst other services (cinema tickets, train tickets, …) and even products (a book in a student bookshop costs less than at a gift shop in the centre of town). It is an intelligent way of getting different types of customers to pay the optimum price in order to maximise turnover.

So what about the bazungu?

In a sense, African businessmen, traders and taxi drivers have instinctively understood a mechanism that is part of every economic and business course in Europe. To get the most money out of your customers, you try to separate them into groups of rich and poor, and then charge them different prices. This is simply good business sense. It also allows businesses to charge lower prices to those people who might otherwise be too poor to buy a product or service.

Not to mention all the damage that we bazungu do to the local economy…

… because we push up local prices. This is most obvious in the rent prices in Kigali, which are on a level with Paris or London. But bazungu also increase the demand for food, imported goods, petrol and so on. If a Rwandan trader had to set the same price for everyone, the prices would rise as the expatriates move in and go shopping. This rise in prices would make the survival of poor Rwandans even harder.

So if you are ever in Africa, pay your bazungu prices with a smile and hope that you are always paying more than the locals. This is not only better for business, but also better for the poor.


(lower income market segment)

(upper income market segment)

4 comments:

Bloggar said...

Nice analysis!

I'm not sure I agree about the rent though. Many of the ex-pat houses were built or tailored for ex-pat renting during the real estate bonanza in the wake of 94 war and genocide. So those properties don't really affect the "local" rent market.

Another major factor that most international organisations pay a large percentage of employee rent instead of just giving you the money (for tax reasons). I don't think many people would be happy to pay 1000USD in rent if it was coming out of their own pocket. Certainly expat style housing is available to well off Rwandans at a much cheaper rent than the international community pay.

Maurice said...

Your point about rent prices is absolutely correct, and was sort of the point that I was trying to make at the end. It is the segmentation of the market into a Muzungu and Rwandan market that allows Rwandan prices to stay stable: this way the high-price Muzungu market can be captured, without completely losing the low-price Rwandan market. Or put differently: If Rwandans and Bazungu were charged the same prices, life would be dirt cheap for Bazungu and insanely expensive for Rwandans.

This works particularly well for the rent market because housing subsidies paid by aid organisations make Bazungu appear even "richer" in the rent market. Also, the differences in tastes between Rwandans and Bazungu make it possible to make houses designed specifically for Muzungu tastes. As a result the Rwandan-standard-house is still good value for money, even for expats. You just have to put up with the red concrete floors, creaky doors, low water pressure, neon lighting, lemon-beige walls and false fireplaces. But (as we both well know) the tastelessness of it kind of grows on you.

Maurice

Anonymous said...

Glad to hear that its all going well, and you cannot get bored with the landscape. (I used to regularly spend 4 hours sitting on Long Beach (Simon's Town)staring back up at the continent.

Saw a video on youtube about the CT Number gangs, presented by some UK soap star. Reminds me of that hostel off Hout St!

Prost!

Mikey Dean

Joerg said...

I guess it is all a matter of viewpoint. I have always viewed the Muzungu prices as "market" prices in the countries I experienced them (Libya, Egypt) and the prices for locals as reduced or subsidised.;-0