The Emirates Economist

Can trust in Dubai be restored?

2009-11-28T19:11:00.003+04:00

Over at An Emirati's Thoughts, Emirati blames lack of transparency for the creation of the Dubai debt problem, and argues that transparency is necessary for finding a the way out. If you think what we have here is merely a cash flow problem that might be true.

Or is the business simply not profitable? Is the Dubai debt crisis just a case of bad luck? Or did Dubai make decisions based on a false belief in its own business acumen? Were investors, knowing the lack of transparency, too gullible? Is this a matter of over expansion of what was at heart a good business plan?

Economics through cartoons

2009-11-28T18:33:00.001+04:00

Explain the economics behind this New Yorker cartoon.

Question of the day

2009-11-28T07:43:00.003+04:00

Who's being sacrificed?

Dubai made its debt payment rescheduling announcement on Thursday. Like many announcements of bad news it came at the start of a weekend. In the UAE the weekend is Friday and Saturday. But this isn't just any weekend. The announcement came on the cusp of the Feast of the Sacrifice, Eid al-Adha. (I leave it to you to conjecture whether that was intentional.) World markets seem to think Abu Dhabi will have something to say by Sunday. But I wonder.

Addendum. As the first commenter underscores, the government holiday extends through next Sunday, December 6th. Holidays are taken seriously here.

Deciphering Dubai's Default

2009-11-28T00:36:00.005+04:00

What it brings to mind is a colleague who'd made a downpayment on a property in Dubai. The builder later reneged and returned the downpayment because he'd found other buyers willing to pay much more for something that hadn't been built. Who's crying now?

1. Tyler Cowen

2. Paul Krugman

3. BBC's Stephanomics

4. Simon Johnson

My conjecture is that Abu Dhabi is just standing by waiting for the fire sale. The debt holders are ready to sell out to Abu Dhabi at a heavy discount. To complete projects Dubai needs money, lots of it. There's no bankruptcy court de jure. But Sheik Khalifa will offer Sheik Mohammed an ironclad annuity in exchange for ownership and control of the assets and for defacto political control as well. It's all going according to plan.

Fifa attractions

2009-11-24T08:19:00.005+04:00

Source: WSJ

As predicted

2009-11-24T07:56:00.002+04:00

Bloomberg: Dubai Surrenders Autonomy as Crisis Bolsters Oil-Rich Abu Dhabi

Until last month, a billboard at one of Dubai’s busiest roundabouts featured one photo, of Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum. The new billboard says “Long live our Emirates union” and also shows United Arab Emirates President Sheikh Khalifa Bin Zayed al Nayhan.
...
Sheikh Mohammed in February turned to Abu Dhabi, holder of the world’s sixth-largest crude reserves, for a $10 billion bailout. The central bank, which has its headquarters in the country’s capital of Abu Dhabi, bought the entire bond issue.

Dubai’s ruler is seeking an extra injection of $10 billion by the end of the year, Sheikh Ahmed bin Saeed Al-Maktoum, chairman of the emirate’s Supreme Fiscal Committee, said Nov. 16. The bond would get “majority government” participation, Mohammed Ali Alabbar, chairman of Emaar Properties PJSC and a member of the Dubai Executive Council, said Oct. 9.
...
“The whole strategy of diversification was a consequence of oil running out and wanting to keep their independence,” said Eckart Woertz, an economist at the Gulf Research Center in Dubai. “Now this diversification model is in dire straits and Abu Dhabi is the one that can help Dubai out.”

The Empty Quarter from the air

2009-11-15T06:48:00.003+04:00

Feast your eyes on aerial photos taken by George Steinmetz from a gas-powered paraglider.

He writes:

I became captivated by Arabia's Empty Quarter as a young man when I read Wilfred Thesiger's Arabian Sands. The Empty Quarter is larger than France without a single permanent point of water or human habitation. It's both the world's largest sand sea and one of the hottest places on earth, and has only been traversed a handful of times. I didn't want to repeat Thesiger's epic journeys many decades later, but when I discovered motorized paragliding I found a way to visualize this remote landscape in a new way. I made three paragliding trips into the sands, first for GEO in Saudi Arabia, and then returned two years later to go from Riyadh to Oman and Yemen for National Geographic, and finally made a personal trip to the southern most reaches of the U.A.E. to complete my field work. What I found was one of the most beautiful and unseen wilderness on earth. On its fringes I encountered elements the oil wealth that has forever changed Arabia, but I also found Bedouins still clinging to traditions, and offering up a level of hospitality that was truly humbling. This body of work would simply not have been possible without their kindness.

There is also this multimedia view.

Duboz?

2009-11-14T06:31:00.001+04:00

The real story starts just after the one minute mark. Ordoz? Dubai?

Steven Landsburg has a blog

2009-10-29T18:07:00.002+04:00

It's called The Big Questions. Assuming he keeps up a regular stream of posts it's sure to be a good one. He's an entertaining and thought provoking economist.

George Soros launches a $50 million effort to purge economics of its free-market zeal

2009-10-27T22:12:00.002+04:00

Newsweek

George Soros is announcing a $50 million effort to speed things along. This week Soros is gathering some of the leading practitioners of the market-skeptic school, who were marginalized during the era of "free-market fundamentalism," among them Nobelists Joseph Stiglitz, George Akerlof, Michael Spence, and Sir James Mirrlees. He's also creating an "Institute for New Economic Thinking" to make research grants, convene symposiums, and establish a journal, all in an effort to take back the economics profession from the champions of free-market zealotry who have dominated it for decades, and to correct the failures of decades of market deregulation. Soros hopes matching funds will bring the total endowment up to $200 million. "Economics has failed not only to predict and explain what happened but has also failed to protect society," says Robert Johnson, a former managing director at Soros Fund Management, who will direct the new institute. "That's what the crisis revealed. The paradigm has failed. There is no guidance."

Read it here.

Fat fairness (updated)

2009-10-26T14:48:00.005+04:00

Fat rights lobbiests argue for fairness in pricing. By their logic car companies should sell obese people SUVs at a discount.

Is it enough to argue that you can't tell whether obesity is a pre-existing condition therefore it's not fair to charge the obese more for health insurance?

You can't tell whether my lack of productivity is due to a pre-existing condition. Pay me the same as everyone else. (Yes, I'm just kidding.)

Addendum added Oct 27. I've stumbled on this written on October 26th by the health economist Uwe E. Reinhardt:

It sounds like a great idea until one thinks about exactly how such an idea would be implemented in practice – especially in a country with a tort system such as ours. I wish both had given us their thoughts on that problem.

To take account of smoking in setting premiums is easy. Life insurers already do it, and even under community rating within mandated health insurance it would be relatively easy to charge higher premiums to smokers. I would favor it.

But consider obesity. Presumably an insurance company would somehow ascertain an applicant’s biomass and then somehow determine how much of any overweight is due to avoidable unhealthy behavior, and how much is rooted in genetic factors.
...
And even if that could be easily and cheaply done in practice, before long tort lawyers would bring class-action suits, citing the growing body of scientific literature suggesting that many behavior patterns — including unhealthy lifestyles — are rooted in very early cognitive development and subsequent education....

Add to that list environment factors beyond the individual's control, such as access to nearby grocery stores selling healthy foods at prices comparable to those in richer neighborhoods. See my essay at Daily Episcopalian.

Addendum 2, Oct 30. The technology could exist soon for your mobile phone to send your insurer information about your eating and exercise habits. Insurers could offer two kinds of policies, one where you consent to being monitored and another where you do not. Those who do not reveal themselves to be prone to unhealthy habits and would pay more. The insurer in this case is not insisting you reveal. They are only giving you the opportunity to reveal.

Oh, and isn't Reinhardt caught in an inconsistency between approving of charging higher premiums for smokers and not for those who have bad eating behavior? Arguably you can't help it that you like tobacco either. You may think, oh, but we know tobacco is bad for you and society frowns on it. But we're coming to that point with food abuse, too. Eat all you want, just don't base my premiums on how much you eat.

Another reason to brush your teeth

2009-10-21T20:43:00.001+04:00

It's all here. If you are a short A-framed male with an asymmetric face.

Controlled experiment: King Abdullah University of Science and Technology

2009-10-20T18:43:00.003+04:00

John Gravois of the UAE state-sponsored The National, writing on the birth of KAUST. Long article. Here's a snippet:

Built in just 1,000 days from a seaside stretch of desert, the new university has already staked out one of the most ambitious research agendas in academia, and it has drawn its inaugural cohort of 71 professors from some of the world’s great universities. At a time when other research institutions are watching their finances dwindle, Kaust’s founding endowment of at least $10 billion – supplied by King Abdullah Bin Abdul Aziz Al Saud himself – immediately places it among the wealthiest handful of universities on the globe, in the rarefied company of Harvard, Yale, Stanford and Princeton.
...
But the successful construction of an ivory tower – or, as the case may be, an ivory gated compound – is only a first step. “The question is whether it will actually translate into something more permanent and durable in Saudi Arabia itself,” says Bernard Haykel, a Princeton historian who has studied the Kingdom extensively. The rest of Saudi Arabia’s education sector remains under the purview of the religious establishment, an influential bloc that is sceptical of the new university – if not overtly hostile to its approach. How much can Kaust push the limits of Saudi society from behind a security perimeter?

Arab education lag "alarming"

2009-10-17T21:54:00.004+04:00

The Economist

Arab countries now spend as much or more on education, as a share of GDP, than the world average. They have made great strides in eradicating illiteracy, boosting university enrolment and reducing gaps in education between the sexes.

But the gap in the quality of education between Arabs and other people at a similar level of development is still frightening. It is one reason why Arab countries suffer unusually high rates of youth unemployment. According to a recent study by a team of Egyptian economists, the lack of skills in the workforce largely explains why a decade of fast economic growth has failed to lift more people out of poverty.

The most rigorous comparative study of education systems, a survey called Trends in International Mathematics and Science Study (TIMSS) that comes out every four years, revealed in its latest report, in 2007, that out of 48 countries tested, all 12 participating Arab countries fell below the average. More disturbingly, less than 1% of students aged 12-13 in ten Arab countries reached an advanced benchmark in science, compared with 32% in Singapore and 10% in the United States. Only one Arab country, Jordan, scored above the international average, with 5% of its 13-year-olds reaching the advanced category.

Other comparative measures are equally alarming. A listing of the world’s top 500 universities, compiled annually by Shanghai Jiao Tong University, includes three South African and six Israeli universities, but not a single Arab one. The Swiss-based World Economic Forum ranks Egypt a modest 70th out of 133 countries in competitiveness, but in terms of the quality of its primary education system and its mathematics-and-science teaching, it slumps to 124th. Libya, despite an income of $16,000 a head, ranks an even more dismal 128th in the quality of its higher education, lower than dirt-poor Burkina Faso, with an average income of $577.

There are some universities in the UAE that have the potential to break into the world's top 500. Which ones are your picks?

In which Amazon changes price in response to changes in demand

2009-10-11T06:25:00.004+04:00

Instapundit:

OKAY, SO I WROTE ABOUT these Sony noise-cancelling headphones a couple of weeks ago, but now I see that they’re vastly cheaper in white. Go figure.

UPDATE: Okay, it’s $39.95, which is 20 bucks less than I paid, and 25 bucks less than they’re asking for the ones I bought now. And the only difference is color.

ANOTHER UPDATE: Geez, that was fast. They’ve already raised the price — in less than half an hour. This is like some kind of Heisenberg-pricing, where if I point it out, it changes . . . .

Posted at 8:27 pm by Glenn Reynolds

Some interesting trade-offs in breeding decisions

2009-10-09T19:42:00.001+04:00

Lowly females choose mediocre mates BBC:

"The main reason, we think, could be that the two individuals just accept each other faster - they just go for it.
"The really amazing thing is that the females are able to recognise what 'category' they are in. We'd like to investigate further to find out how they do this."
Joseph Tobias ... said the findings were interesting.
"While [this] doesn't overturn evolutionary thinking, it does reveal some interesting trade-offs in breeding decisions," he said.
"It also raises the intriguing possibility that the environment in which individuals are reared strongly influences their mating preferences as adults."

The study by Marie-Jeanne Holveck and Katharina Riebel is published here.

Isn't this confirmation of assortative mating? Why chase someone you are unlikely to attract?

TBTF meets TNAF

2009-10-09T12:11:00.002+04:00

Left meets right, or shall I say, libertarian. From the Reason blog, Out of Control Policy:

The left leaning Center for Economic and Policy Research released an interesting study last week that looked at the implicit benefits that banks have received from The Bailout and associated Fed programs. The report finds that banks have received up to $34.1 billion in benefits, beyond the TARP infusions, from cheap access to credit due to their too big to fail (TBTF) status. Here is the gist of the study:

A predicted result of a formal TBTF policy is that the gap between the interest rate that smaller banks must pay to obtain deposits and otherwise borrow funds and the interest rate paid by the TBTF banks would increase, since the TBTF banks are now effectively able to borrow all their funds (not just smaller deposits) with the backing of the federal government.

Note that the "subsidy" mentioned here is not direct cash taken from taxpayer coffers, but rather is a benefit that is gained by the promised use of taxpayer monies to insure against losses/failure. This is the government using policy to redirect resources in the marketplace.
[The CEPR report continues,]
It is worth noting that the TBTF subsidy is substantial compared to other items in the federal budget that have often provoked controversy. [...] As can be seen, in the high-subsidy scenario, which uses the entire seven-year period as the comparison, the TBTF bank subsidy is more than twice as large as the TANF block grant for 2009. The bank subsidy is almost 20 percent larger than spending on foreign aid.
...
In an editorial on this subject, The New York Times accurately concludes:
FORCING policy leaders to dismantle too-big-to-fail banks will not be easy. These institutions want to maintain the status quo, and they wield enormous power. Still, taxpayers have a right to know the extent to which those institutions are benefiting from the backstops that are in place. The analysis provided by Mr. Baker and his colleagues is an important step in this direction. Too-big-to-fail is already an extremely costly policy; the longer it is allowed to persist, the heavier this taxpayer burden will become.

Read it all.

Artificial virginity: markets in everything

2009-10-08T15:48:00.004+04:00

Slate has uncovered more details on the wedding night deception product:

Joseph Freeman of the Associated Press reports:

The Artificial Virginity Hymen kit, distributed by the Chinese company Gigimo, costs about $30. It is intended to help newly married women fool their husbands into believing they are virgins—culturally important in a conservative Middle East where sex before marriage is considered by many to be illicit. The product leaks a blood-like substance when inserted and broken. Gigimo advertises shipping to every Arab country.

On its Web site, Gigimo explains more about the product:

Artificial Virginity Hymen is created from Kyoto, Japan at 1993. it was first introduced to the locals, then it gets famous and spread to Thailand at 1995 and now available in South East Asia, South Asia and in the Middle East countries....

Read it all.

More on the kerfuffle this has caused in Egypt.

Our previous post on the product is here.

SEWA raises rates

2009-10-03T00:24:00.003+04:00

Sharjah Electric and Water Authority is raising rates. Rates for electricity and water have long been heavily subsidized across the UAE, with nationals often paying little -- or nothing if they refuse to pay and SEWA does not shut off power to the residence. An increase is rates is necessary to rationalize usage, otherwise these resources are being wasted. SEWA says it is raising rates to cover costs and to build facilities to meet a growing demand. To put it another way, SEWA no longer has the funds to subsidize rates. Recent shortages in electricity have resulted in outages. Note that an increase in rates will expand the quantity supplied and trim the quantity demanded. This is a good thing.

Gulf News:

"The reason behind the hike was due to the increase of production cost because it has now risen substantially. On average, production in the industrial sector per year can cost up to 95 fils per kilowatt per hour," said Bin Deemas [Ebrahim Bin Deemas, acting director of Sewa]. "The cost per kilowatt in the industrial sector is now 65 fils, but they are only required to pay 40 fils because the Government of Sharjah will pay the difference."

Bin Deemas stressed that power in Sharjah has always been subsidised by the government and will continue to be supported by them. During the radio interview, he pointed out that production cost of one kilowatt per hour in the residential and commercial sector is currently 65 fils. Residents will pay 30 fils per kWh and the government subsidises the remaining 35 fils.

"The private homes of UAE nationals will not be affected and they will continue to pay the same tariff, which is at 7.5 fils per kilowatt hour," said Bin Deemas.

Not surprisingly, residents are complaining.

Not all foreign residents pay for electricity, at least not directly. Many live in company-provided housing.

Markets in everything: faking it

2009-10-02T21:39:00.003+04:00

BBC:

The contraption is seen as a cheap and simple alternative to hymen repair surgery, which is carried out in secret by some clinics in the Middle East. It is produced in China and has already become available in other parts of the Arab world. The device is reported to be on sale in Syria for $15. Professor Bayoumi, a scholar at the prestigious al-Azhar University, said it undermined the moral deterrent of fornication, which he described as a crime and one of the cardinal sins in Islam. Members of parliament in Egypt have also called for banning import of the item.

What does Paul Romer think of Dubai?

2009-09-25T19:24:00.003+04:00

The economist Paul Romer is the proponent of charter cities. In a nutshell:

As you’d expect from the name, a charter city is a city governed by a charter. Sounds simple, but it’s a surprisingly powerful way to let people choose to move someplace that is well governed.
...
Imagine that the United States and Cuba agree to disengage by closing the military base [Guantanamo Bay] and transferring local administrative control to Canada. Canada works with Cuba to draft a charter for this special zone and promises to enforce its terms. Under this charter, a new city blossoms. It does for Cuba what Hong Kong, administered by the British, did for China; it connects Cuba to the global economy. To help the city flourish, the Canadians encourage immigration.

So what does he think of Dubai? Chris Blattman paraphrases Romer's view:

...unlike Dubai (which proves a city can be built anywhere) we’ll let the workers bring their families, have equal rights, and stay.

That's not to say Dubai is bad, it is just that it doesn't fit the model Romer has in mind. All workers come to Dubai because it offers them better opportunities than they can find at home. And I have to say, that for many of these workers the better opportunities exist because governance in Dubai is superior to governance in their home country. If better governance doesn't come to your country, go where this is better governance. Even it is temporary and you don't have equal rights.

How does Sharjah's economy look from space?

2009-09-24T18:47:00.004+04:00

Consider the abstract from Measuring Economic Growth from Outer Space, J. Vernon Henderson, Adam Storeygard, David N. Weil, NBER Working Paper No. 15199, Issued in July 2009:

GDP growth is often measured poorly for countries and rarely measured at all for cities. We propose a readily available proxy: satellite data on lights at night. Our statistical framework uses light growth to supplement existing income growth measures. The framework is applied to countries with the lowest quality income data, resulting in estimates of growth that differ substantially from established estimates. We then consider a longstanding debate: do increases in local agricultural productivity increase city incomes? For African cities, we find that exogenous gricultural productivity shocks (high rainfall years) have substantial effects on local urban economic activity.

All kidding aside, you could apply this framework to oil prices and economic activity in oil-rich states.

Here's an un-gated version of the paper.

More in this September 21st article in Seed Magazine:

Henderson cites the Democratic Republic of Congo as an example of where data quality is poor. According to the Penn World Table, a standard source used to measure economic growth across countries, during the period from 1992 to 2003 the country had negative GDP growth. In that same period, the satellite data shows a marked increase in nighttime light intensity, suggestive of positive growth, likely in the informal sector. Henderson says Myanmar’s numbers, on the other hand, may show political manipulation: Nocturnal lights indicate significantly lower GDP growth than that stated by the ruling military junta.

Henderson and his colleagues also used the DMSP data to examine economic activity on sub-national scales, investigating the relationship of African cities to nearby agricultural regions. They found that years of crop-boosting high rainfall in a city’s hinterlands significantly correlated with increased growth and development in the urban center as measured by artificial lighting intensity.
...
A NOAA team led by Chris Elvidge removes contaminating natural phenomena from the images like moonlight, cloud cover, lightning, polar auroras, and forest fires, but human choices of how buildings and streets are lit, the ways windows are shuttered, and even which variety of light bulbs are used all alter the patterns and intensity of light, adding uncertainty to any conclusions.

Of course once this becomes widely known, the Myanmars of the world may ban shutters and change the kind of outdoor lighting they use. D'oh!

This post is not a fake

2009-09-08T21:43:00.001+04:00

Bill Easterly:

The cover is genuine, but Miranda Kerr was actually trying to save the koala bear and said nothing about staying naked, USAID, aid tying, or the drought. I am experimenting with this (fake) blog post /Tweet to see what would work on blogs and Twitter to promote the Aid Watch motto, “just asking that aid benefit the poor.” Based on my Twitter experience, the main ingredients behind how much Tweets “succeed” in the philanthropy area seems to be some combination of two or more of the following: (1) Sex, (2) Celebrities, (3) Outrage (moral), (4) Suffering Africans, and (5) Satire (lame attempt to come up with memorable acronym for (1) thru (6) [sic]: SCOSAS).
...
[M]y big worry at Aid Watch is that relying on shallow sexy celebs to promote aid leads to a shallow aid message: just spend more aid dollars with no incentives for dollars to reach the poor.

Is there some way to grab attention for good causes without selling out to our society's worship of celebrity & sex?

I'll interested to see what traffic this post generates from search engines and tweets.

Not good

2009-08-28T21:12:00.003+04:00

A reason to stay current with your bills:

The multiple breakdowns of power supply in the emirate that has once again left residents sweltering in the heat is the result of improper maintenance by the Sharjah Electricity and Water Authority (Sewa) of its US made generators, Gulf News has learnt.
...
[A]n informed source in the industry told Gulf News ... said the fact that one of the main suppliers of Sewa had stopped all shipments of spare parts and services since the beginning of the third quarter of this year has affected the performance of Sewa. Sewa has been disabled from coping with peak demand from its subscribers.

"The supplier of the spare parts - a renowned international manufacturer of energy products - decided to stop shipments due to an outstanding amount of around $1.5 million (Dh5.5 million) Sewa has either disputed or refused to pay on time," he said.

Sewa says maintenance is not the issue. Read it all.

There is also a capacity problem. Some buildings in Sharjah have gone years without authorization to hook up to the grid.

As far as temporary outages, one solution would be to buy electricity from neighboring emirates. Besides the fact that they likely run near peak capacity in the summer months, there is a more fundamental problem: last time I checked, the Dubai and Sharjah systems were not interconnected. Remember the Dubai blackout of June 2005?

Mosquitoes better than economists

2009-08-28T20:15:00.003+04:00

A full year before the US housing meltdown, mosquitoes predicted it. There's something else to toss into our prediction models.