The Weekend Economist "Quaerere Verum"

2011 annus horribilis?

2010-12-29T09:47:00.004+01:00

2011 annus horribilis?

1. European debt saga continues?

Bailout-Bingo will continue in Europe with Italy, France, and Belgium prime candidates for review.

2. Apple loses it's cool?

Being the biggest player on the block is going to cost them. Investigations, power abuse, shady subcontractors, patent disputes, lawsuits. Nonetheless the earnings powerhouse is sure to continue.

3. China Bubble?

State control and currency manipulation are undermining stability. With millions of smart youngsters unemployed, food prices sky-rocketing and cheap manufacturing spilling over the border, can China keep its cool?

4. U.S Recovery?

Politically and economically America will remain a lame duck. Although corporate profits are promising it has not yet translated in jobs and housing. Joe the plumber, ain't got no cash. If they don't fix the budget, they aint got no credit.

5. Commodity Value

The only commodity becoming worth-less is paper money. The rest is up.

Gold will continue it's upward climb as people try to hedge devaluation.

Oil has been cheap, but so is the dollar, so time for oil and other dollar indexed commodities to go up. BRIC currencies will continue to show strength.

6. Taking the R out of BRIC

Russia will continue to struggle to re-engineer its commodity driven industry. Not enough wealth trickling down and a stagnant population. If it can trickle down the wealth and dramatically improve rule of law and gaping infrastructure then there is promise.

7. Sony's last trick pony

Now that Sony's PS3 gaming and media platform is finally earning money perhaps it can turn around other parts of the business or launch a new one. Divestment or (hostile) take over will be on the minds of the executive board.

8. Real Estate

With bank balance sheets under pressure due to new regulation, lending growth to sectors such as real estate will not pickup in the developed world. This will translate into higher borrowing costs, bankruptcies and restructuring going forward. Deleveraging in banks will translate to deleveraging of both households and business. More equity, more risk, lower asset values.

#86 Imagine the possibilities

2009-12-29T10:42:00.007+01:00

Most people these days live in three worlds: The real one, outside the door; The virtual one, where you can engage in social networks with (as far as I can tell) real people; And The imaginary, where you and (if applicable) your imaginary friends reside.

Imagination is necessary to improve the real world we live in because our imagination can reflect a better, more desirable situation that we want. Expectations of future occurrences are shaped by our interpretation of the real world by our imagination. However, the world we live in moves so fast and is so voluminous from an information angle that we have little time to absorb, reflect and imagine productively.

We are more and more faced with split second decisions, quick one-sided interpretations, and rewarded by swift action without time for reflection. After all, thinking on your feet and being decisive are just some of the alpha male characteristics that are deemed critical in leadership and execution. Yes, as a surgeon, trader or soldier, these gut feeling reactions are critical to survival; it's what makes us human and how we flourish or fail. There is also something heroic and charismatic about reacting to gut feeling and making split second reactions in the heat of battle.

It's true that when a bus is about to hit you, you make an instant reaction to jump out of the way with a shot of adrenaline giving you superhuman strength. In the end it feels like a rewarding experience because of the raging chemicals inside your body. I guess that is what attracts people to extreme sports and, well, extreme banking and investment management. It now has been proven that testorone plays an important role in risk taking and self confidence. Seems obvious.

My point is that with more reflection and imagination we can avoid getting in the way of a driving bus or not seeing the sheer cliff downwards in the stock market. Avoid the herd, and think for your self.

It is easier said than done. But for experiment's sake, if X is claimed, could the opposite be true, what would have to occur for X not to happen? In any case it reminds me of being in university when the professor challenged us to think and question critically the many maxims we take for granted. By thinking critically, we understood the nature of the phenomenon, rather then treating it as a fact by itself. Imagination here is key again. Because you have to look beyond the reality in your face, and look from more perspectives than the one you current have. That insight comes from imagination.

If we had more time for imagination, we would not have to hire the expensive strategy consultant to tell us the obvious. With imagination we could see more threats and opportunities on the horizon. We could use imagination to design better business processes, perhaps even better businesses.

College is the best time of our life because it is then that we can afford to use our imagination. How strange it is then that if we are to be life long learners, that there is so little time to imagine.

Imagine the possibilities.

#85 In hindsight we all need umbrellas

2009-12-28T11:28:00.007+01:00

There is no better time than Christmas to look back and reflect. Given the spectacular market recovery, the gifts under the tree will no doubt have recovered. As has confidence on Wall Street, where "God's Work" is paying off profitably. In hindsight, not the wisest of comments by the CEO of Goldman Sachs (need I mention any names?).

Christmas is a time for humility and reflection, if not to ask forgiveness for those we have neglected inadvertently (tax payers anyone?). Obama was elected partially to give that message to the "fat cats" of Wall Street. Despite his television appearance, a generic hallmark Christmas card probably made more of an impression.

Instead of focusing on banker's bonuses, the real focus should be on the economy. Markets are supposed to reflect the barometer of the economy, with economic weather men telling the masses wether we are in for rain or sunshine. Whether it be sun or rain, umbrellas seem to be in short supply. But then again who needs an umbrella when you can rely on the weather forecast. After all, the representatives of God's work are always right in hindsight. And yet in hindsight we all needed umbrellas.

Many claim they saw storms coming. Why did we all go outside without an umbrella then? I've got one now, but I am tempted to trade it in for sunglasses with the market looking so upbeat. No need to stay indoors. Take a little gamble, the masters of the universe sell on NBC & Bloomberg; buy gold, time for value investing, just look at those juicy p/e ratios, etc, etc. One compliment to the financial weathermen; they sure know how to sell compared to those weight loss exercise gear that one sees advertised on television. I guess that is the real difference between no education and a Harvard education.

Lose 20 pounds in 2 weeks for sixty dollars, or balance your portfolio the right way and see it all evaporate in front of your eyes in a matter of months. "Results in the past are no guarantee for future expectations." If you want to sell dishonestly, turn off someone's common sense. You can fool anyone if you turn off their common sense. That's why you always have to Quaerere Verum: seek the truth. Instead of our human flaws, easily exploitable through suggestion, insecurity and plain old greed.

Truth is, all you need is common sense. When you're leaving the door, do you ask yourself if you have your keys, wallet, umbrella, etc? Consciously or subconsciously you do. That's common sesne. Now when checking the weather, do you have blind faith in the prediction of sunshine when you see clouds outside? Probably not 100%; not having blind faith is also common sense. So why do you let someone turn off your common sense when reading or watching the financial tell-sell on the TV, Internet or newspapers? I don't have an answer to that right now but let's not do it again. The rain makes you wet faster than the it takes the sun to dry you. That too is common sense.

So when cheap money pours in again to inflate asset prices beyond the sun., think about Icarus and your umbrella. You don't need an MBA for that.

And remember, better grumpy and prepared, than insanely unprepared.

#84 Wall Street Socialism

2009-04-08T11:37:00.006+01:00

Who would have thought that the collapse of the American housing market would signal the end of an era for the world's most prestigious investment banks? The U.S is in-between a rock and hard place to rescue the financial sector of the world's largest, most important and most competitive economy. At what cost? We are, according to Nassim Taleb, the prolific black swan visionary, socializing losses and privatizing profit. That is the world of capitalism turned on its head.

The crisis goes fundamentally deeper than the interconnected failure of banks and other financial institutions in an increasingly interlinked and globalized world. We need a collective re-examination of leading economic, finance and management theory and practice in order to evaluate where and why it has gone wrong.

It is far too easy to blame greed on Wall Street. Greed is healthy; without it we do not have the Darwinian economic animal spirit of capitalism. Without greed we would not have banks, health insurance or even mortgages for that matter. Greed is a force for innovation, hard work and ambition. The blame lies in the sharing of risk and reward. Institutions have become too big to fail. Without economic Darwinism, the rotten survive, and with it bad practices and empty suit risk/reward models.

The problem is that greed and risk management do not mix well with current investment banking models. They are in fact creatures whose interests, even though they pretend to speak the same language, are juxtaposed. Risk management in itself is almost an impossible venture because:

a) Risk is too complex and interconnected in a globalized world for any human being to comprehend accurately and effectively, b) Unknown and unexpected events with previously unrecognized connectivity spring up from places where we never saw them coming (black swans), c) Risk managers are rarely appreciated or understood, and d) Assessing the correct value, impact and occurrence is almost pseudo-science.

Some so-called gurus claim that risk management (in hindsight) should have given investment banks the knowledge (foresight) to steer away from the iceberg of doom. Risk Management is always a science that relies on (biased/faulty) hindsight in order to attain foresight that we can never accurately interpret or understand. Furthermore, us mortal humans lack the objective internal stochastic instruments to judge the real-life world in terms of potential/real events/impacts.

Banking in the future will inevitably be increasingly socialized and/or nationalized at a higher cost, with potentially the same risks and (moral) hazards if we fail to learn from the past. I think it's time we start teaching students and practitioners the history of finance and financial economics. Let's start with Financial Meltdown Economics 101.

#83 Japan’s Prodigious Quest for Energy Independence

2008-04-04T07:37:00.003+01:00

Dependant on foreign sources for 96% (87% when including nuclear power) of its primary energy needs and practically 100% of its oil and gas supply, Japan is in a unique position. Rising demand for energy resources and increasing volatility in their supply are contributing greatly to Japan’s concerns. Only natural, then, that Japan should seek to secure its own energy interests. But how realistic is this in today’s world?

A major target of Japan’s May 2006 New National Energy Strategy (NES) is to have the ratio of oil developed by Japanese upstream firms ("Hinomaru oil") increase to 40% of Japan’s oil imports by 2030, up from around 15% in 2005. Japanese oil companies are scrambling to meet this seemingly unobtainable target, coquetting potential partners in Africa, Russia, Central Asia and the Gulf. Just how difficult attaining this objective is can be seen in the failure of the Japanese-owned Arabian Oil Company to renew concessions in the Neutral Zone (also known as “Divided Zone”) between Kuwait and Saudi Arabia in 2000 and 2003. The Azadegan oil field in Iran, where Japanese oil company Inpex’s 75% stake was slashed to 10% by the Iranians in October 2006 and eventually frozen, is another case in point. Meanwhile, voices calling for a boycott of Sudanese oil are getting louder and Japan’s projects on the island of Sakhalin have been undergoing some serious turbulence. The news is not all bleak, however. One major success was scored in October 2005 when Japanese oil firms beat their international competitors in bidding for exploration and development rights in six Libyan oilfields; this was the first oil-exploration concession ever given to Japanese firms in Libya.

Another goal of the NES is to lessen Japan’s dependency on Middle Eastern oil. Here too some progress is being booked, with 84.3% of oil imports originating from the Middle East in November 2007, compared to 90.3% in September 2006. However, the figure has been edging back up in the past few months to 86.7% in February 2008.

One way in which Japan is seeking to realize the goals of the NES is by increasing government involvement in the acquisition of energy resources. To offset the advantages enjoyed by state-sponsored Chinese oil firms, the Japanese government is now seeking to increase subsidies (raising the upper limit of its funding to 75% from the previous 50%) to Japanese oil firms such as JOGMEC – which is slowly becoming a carbon copy of the old Japan National Oil Company. Additional assistance is to come in the form of more favorable loans and investment guarantees. In other words, there is little to be left of the free market policies and non interference from the government that former Prime Minister Junichiro Koizumi’s liberalization policies set out to engraft.

Despite being the world’s second largest net importer of oil, the third largest consumer of oil, and the largest importer of Liquefied Natural Gas (LNG), Japan’s demand will continue to decline relative to that of emerging markets such as India and China. With the relative decline of Japanese demand come decreases in Japan’s purchasing power, further undermining its position in the international energy market.

This leaves Japan with two options, namely seeking alternative sources of energy and improving energy efficiency. It is in both of these areas that Japan has booked its most impressive results. Energy conservation and environmental protection have improved significantly, leaving Japan with one of the lowest energy intensity levels among the advanced OECD economies. Similarly, Japan has been able to move considerably in the direction of nuclear and LNG derived power, reducing its dependency on oil. The price, of course, has been increasing dependency on gas.

#82 The Palestinian Conflict and Public Opinion

2008-01-27T12:15:00.000+01:00

The conflict between the Arab and Jewish inhabitants of Palestine is certainly not new. It started long before the creation of Israel. And the basis of this conflict, the claim on the same piece of land by two nations, has not changed through the years. The violence produced by this conflict has also been present since the day the first Jewish settlers arrived in what was then an Ottoman province. The number of casualties was lower, but only because the population itself was smaller and because their weapons were less effective.

What has changed is the public opinion expressed by the tone of the UN and the media coverage related to the conflict. At the birth of the State of Israel and until a number of years after the 1967 War the media had a positive attitude towards Israel. It painted a picture of a small country surrounded by far larger enemies that threatened without cease to annihilate it; in this view, brave little Israel was depicted not only as a courageous survivor, but also as a successful reproduction of Western social-democracy and human rights in a sea of despotism. The subject of Israeli-Arab conflict had not yet apportioned to itself more media attention and UN scrutiny than its relative importance implied it should.

The Arab Palestinians that became refugees as a result of the Arab-Jewish struggle for possession of the Holy Land in 1947-8 were the real victims of policies instituted following the war. The policy of the Arab states was to leave the problem unresolved – thereby leaving the question of Palestine open - and Israel could and would not permit the return of large numbers of refugees as such a policy would have undermined the character and security of the nascent Jewish State. The UN has created a special organization, the UNRWA, to aid the Palestinian refugees next to the UNHCR that aids all other refugees with an independent budget larger per capita than that of its sister organization.

Significant interest in the plight of the Palestinian Arabs and changes to the media’s portrayal of the refugee problem began materializing in the seventies. The figure below shows the sharp increase in the percentage of country-specific United Nations General Assembly resolutions concerned with the Middle East in 1970 and continuing over subsequent decades. In 2006 the number of resolutions related to the Palestinian conflict amounted to more than a quarter of all resolutions. During the same period of time the media gradually changed its tone, first depicting Israel as an occupying and aggressive state and later even as an apartheid state and worse. The proportion of anti-Israeli and pro-Arab Palestinian reporting increased, with some news outlets becoming effectively PR agents for the Arab view of events. This change was evident in the many reviews of the Six Day War published in 2007 and is evident currently in the way that the Gaza conflict is being reported. A clear example of such one sided reporting took place in the wake of Israel’s military operations against Qassam rockets in Gaza on the fifteenth of January; in clashes, an estimated seventeen Hamas militants were killed. Media outlets throughout the world were quick to report Palestinian claims of a massacre in Gaza, failing to note entirely or relegating to a trivial detail the fact that these were armed combatants and not civilians. Moreover, they died fighting, so the appellation massacre, although good propaganda, was not appropriate.

The reasons for this change are manifold; most have little to do with the conflict itself. The main contributors are the change in the moral perception of armed conflict by the general public in the west, the intrusiveness and ubiquity of emotive reporting, and the increasing strength of the Arab world and its PR savvy.

When Israel was established, the Second World War has just come to its end and the notion that wars could be just and necessary was still very strong in the public consciousness. There was also a deep feeling of guilt in the West with regard to the Jewish people which made it difficult to criticise the Zionist desire for an independent Jewish state. Furthermore, for nations with Christian cultures the connection between the Jewish people and the land of Palestine was quite obvious. In the 50s and 60s the western public was exposed to a series of independence wars in the European colonies and conflicts like the Vietnam War. The new generation began associating war not with heroic struggles against evil like the Second World War, but rather with petty and cruel conflicts in which superior Western powers sought to crush miserable locals struggling for a better life. For some, it became axiomatic that the West only fought wars to oppress just national liberation struggles out of racist and exploitative motives. When the Six Day War produced enormous territorial gains for Israel, it was easy to associate it with what was now considered despicable colonialism in the Western mindset and to interpret it as an act of premeditated aggression rather than as a defensive war. The rise of a Jewish settlement movement in the conquered territories further reinforced this association. Pro-Palestinian propagandists exploited this development to depict the whole Zionist movement as no more than an instance of Western colonialism. Interestingly, the territories that are now called ‘the occupied territories’ were occupied since 1948 by Arab countries yet never referred to as such until after they passed into Israel’s hands.

When the Palestinians of the West Bank and Gaza came under Israeli rule, media interest in and access to them increased greatly and their plight was publicised internationally. As a consequence of the violence of the Second Intifada, the Israeli security establishment enacted harsh measures to prevent terrorist attacks. Palestinian freedom of movement within the territories was severely curtailed and access to Israel for work or trade restricted. Life in areas under Palestinian control suffered from infighting and occasional Israeli incursions to limit terrorist activities. Due to the fact that these incursions frequently took place in densely populated residential areas, there were civilian casualties despite efforts to avoid this. Natural sympathy for the weaker party and pictures of seemingly ragtag Palestinian fighters and stone throwing youths confronting an apparently first rate Israeli army created a rich pasture for reporters, producing interesting, often one sided stories that moved public opinion away from Israel. The huge influence of such representations on public opinion is also recognized by the Palestinian PR machine, which has been caught staging scenes and feeding them to media outlets in order to fan hostility against Israel.

An important development of the seventies was the realisation in the Western World that it was strongly dependent on Arab oil. This recognition strongly influenced European Middle East policies and their positions on the Palestinian conflict. Moreover, the emergence of a unified block of Islamic nations under the aegis of the OIC (Organization of the Islamic Conference) mobilized the political clout and voices of over a billion people against Israel. These voices were strongly reinforced by the left which has made Israel one of the classics of their ideological struggle, casting it as the evil western/white power against the innocent non-western/non-white power. As a consequence, the Arab Palestinian cause became an integral part of all of their activities, mainly demonstrations and conferences, which are not related at all to Palestine (e.g. anti globalization). Another active channel to anti Israel opinions in the west is created by the millions of Muslim immigrants. All these voices are in turn broadcast through the media and impact public opinion.

Israel is unable to move public opinion towards a more balanced view of the conflict in large measure due to the fact that it is an open society. There is absolute freedom of speech in Israel and thus the views expressed by the media and individuals are very diverse, reflecting not one but many different understandings of the conflict. Instead of providing a clear Israeli position, Israeli society provides a multiplicity of positions which precludes the effective propagation of an official narrative for PR purposes.

As long as there will not be significant changes on the ground (like the establishment of an Arab Palestine living peacefully side by side with Israel), one can expect to continue seeing the shift of public opinion away from support for Israel.

- This article was written for and provided to the Weekend Economist by Tamara Fai

#81 Maghreb: The Neglected Terror Base

2008-01-27T08:34:00.000+01:00

In an article, "#58 The North African Breeding Ground for Radical Islam," published here in April last year, specific mention was made of the fact that little to no attention was being given by mainstream media to the terrorist bloodshed occurring in the Maghreb region, particularly in Algeria. It appears since then little has changed. Just a few weeks back, on 02 January, 4 police officers died when a car bomb exploded near a police station in Naciria, a town east of the Algerian capital, Algiers. A much more deadly attack occurred less than one month earlier in the capital, when two suicide bombings targeting U.N. offices and a government building killed at least 37 people. As if this were not enough, in July 2007 a suicide bomber blew up a truck inside a military barracks southeast of Algiers, killing 10, and later in September, at least 28 people died after an explosives-packed vehicle rammed into a coast guard barracks in the northern town of Dellys. All attacks were claimed by a local al-Qaeda branch.

The argument used last time that ignoring these events when engaging in a so-called war on terror is not only dangerous but downright harebrained continues to hold true, but this has somehow not yet reverberated on Western leaders. This time around there is new data to highlight the importance of North Africa in the fight on terror. In a recent study, U.S. Military Academy researchers found documents that show 112 of the 595 foreign nationals who entered Iraq between August 2006 and August 2007, or 19%, were Libyans, compared to no more than 4% in previous research. The majority still come from Saudi Arabia, but countries like Libya, Algeria and Morocco are increasingly sending more fighters. In fact, basing its information on the same research, the Washington Post reported that overall, North Africans account for 40% of the foreign fighter ranks.

It is incomprehensible that the issue of terrorism in North Africa is so low on the list priorities of anti-terror units, when statistically there is a rapid increase in attacks, a growing effect on other hotspots in the world in the way of recruits, and geographically the most pertinent threat to Europe other than threats from within. Even more striking is the lack of media attention generated by the attacks themselves. Hopefully attitudes will change soon, because if not, we are silently witnessing the maturing of the next batch of enemies that need to be fought.

#80 Spotlight on ASEAN

2007-11-20T09:00:00.000+01:00

The recent brutal crackdown on protesters in Myanmar by the military regime has led to a unified barrage of condemnation and sanctions from the West. Not so elsewhere. While China, India and Russia have rightly been accused of doing far too little to leverage their political muscle, the Association of Southeast Asian Nations (ASEAN) should be viewed in the same light. After all, other than the United Nations, ASEAN is by far the largest organization of which Myanmar is a member.

There does, however, appear to be some movement at ASEAN, whose leaders are gathered in Singapore for their annual summit this week. A condemnation of the junta's violent suppression of Buddhist monks and other peaceful protesters was announced on the heels of a bold statement by Philippine President Gloria Arroyo, who said "Those who will sign the charter [committing all 10 members of ASEAN to promote human rights and democracy] agree to the objective, spirit and intent of establishing a human rights body - the full protection of human rights within Asean...Until the Philippine Congress sees that happen, it would have extreme difficulty in ratifying the Asean charter."

Despite this, signs that the government of Myanmar will be allowed to continue on the current path are much more prevalent. For one, the charter has been ratified by all ten members, despite President Arroyo's remarks. Furthermore, while host nation Singapore had invited the UN's special envoy to Myanmar, Ibrahim Gambari, to make a speech at the event, Myanmarese officials objected, and gained the support of the eight other member nations, blocking Mr Gambari's briefing. Singapore then went on to reiterate the fact that "Myanmar is an integral part of the family."

Meanwhile, the European Union adopted sanctions against 1,207 firms in Myanmar and expanded visa bans and asset freezes on the country's military rulers. This follows a move by the US to impose similar sanctions targeting the country's key timber, metals and gemstone sectors.

In other news from ASEAN, following earlier agreement to fully liberalize aviation services by 2015, the bloc agreed at the summit to also eliminate trade barriers for goods and services in an attempt to create a European Union-modeled economic community by 2015. This does not include a single-currency or the freedom of movement across borders by citizens of member states, but looking at the path taken by the EU, this might very well be the first step in that direction.

#79 Events According to the Myanmar Government

2007-09-27T05:41:00.001+01:00

With the anti-government protests in Myanmar (also known as Burma) now turning violent, the situation in the country is reaching breaking point. The world continues to receive pictures and video footage of the events, courtesy of technology savvy youth in Myanmar who manage to bypass the restrictions imposed by the government on phones and the Internet. Global sentiment is clearly on the side of the Monks and the rest of the pro-democracy demonstrators, especially in light of the violence witnessed. The protests had been entirely peaceful, yet triggered a violent response that brings back haunting memories of the brutal crushing of protests back in 1988.

The key difference this time (besides it being Monks - the nation's greatest moral authority - and not students who lead the protest) is the ability of locals (and some foreigners) to get new footage out for the world to see within hours after the events take place. This strongly shapes global opinion and makes it increasingly difficult for the military government to control the propaganda wheel. To be sure, the government has begun to shut down cell phone providers and slow down Internet connections, but so far the opposition has managed to continue to smuggle images out of the country. This is in stark contrast to the brutal, yet efficient, response by the Junta back in a time when the Internet was not around in the country and cell phones practically unheard of.

Nevertheless, the government is trying it's best to control the flow of information, blaming the protests on "outside elements" and "corrupted, so-called monks." Meanwhile, the protests barely receive any air time on state run television. It is furthermore interesting to read an excerpt of government sponsored reporting of the events. Below is a copy of an article written in "The New Light of Myanmar" on Thursday, September 27. It can be found here: www.myanmar.com/newspaper/nlm/index.html

"The government has been striving day and night together with the people for the emergence of a peaceful, modern and developed discipline-flourishing democratic nation. As the government has been endeavouring to ensure stability of State, community peace, the rule of law and national development that are the main requirements, the national races in all regions are practically enjoying the fruits of national peace and development.

However, saboteurs from inside and outside the nation and some foreign radio stations, who are jealous of national peace and development, have been making instigative acts through lies to cause internal instability and civil commotion. Hence, some members of the Sangha, anti-government groups and saboteurs were staging protest walks. Some foreign broadcasting stations and destructionists have been issuing announcements, requests and leaflets as if the entire people were taking part in the protests participated by only some monks and people just to intensify the rowdy demonstrations.

The people who wish to earn their living in peace do not accept or take part in the protests. Thus, some saboteurs of the protest walks forcibly urged families of the homes all along their route, whether they know them or not, to provide alms and other requisites for monks. Those saboteurs told the families that if they failed to yield to their demand, the protesters would not take care of their personal and property safety. Moreover, they threatened the families demanding them to join the protest or provide financial assistance, adding, the protesters would not guarantee the security of the lives and property of the families. The saboteurs were acting like extortionists in a threatening way. Moreover, some protester monks entered homes and demanded families to offer soft drinks, urging families who could not join the strike to make donations for the convenience of administrative affairs. According to those families, they had never seen or known those so-called monks in the past and they were not their mentor monks.

Some families filed complaints about the threats to the authorities, saying that they had to pay the protesters from forty or fifty thousand kyats to one lakh as extortion money. The authorities have informed the people to file complaints in person or on line to the respective Ward Peace and Development Councils, Township PDCs or local authorities against intimidations, extortions or acts to force them to join the protest against their wish. The authorities have also urged families to make complaints against extortionists by name if they know them well and to live with security awareness."

For rare footage of the protests taken by one of our editors, be sure to look at our article #78 Witnessing the Myanmar Protests.

#78 Witnessing the Myanmar Protests

2007-09-25T12:46:00.000+01:00

One of our editors happened to be travelling through Myanmar (formerly known as Burma) when small protests against the military government slowly began transforming into a mega demonstration not seen since the mercilessly crushed 1988 pro-democracy uprising. With the Junta having thusfar decided not to take forceful action, it was possible to shoot the rare footage found below. The video was taken on a rainy Monday afternoon on 24 September 2007 in the country's capital Yangon (Rangoon).

#77 The Perils of 'Risk Free' Debt

2007-08-31T13:37:00.000+01:00

The recent (ongoing) crisis in the so-called subprime market has highlighted the immense difficulties of managing an economy that relies heavily on borrowing in order to create spending. The US and, perhaps even more so, the global economy is seemingly in fine shape. In the States, however, this is in great part due to increased spending made possible through the use of debt. People have had easy access to borrowed money thanks to the historically low interest rate of the past few years.

As the interest rate gradually began to rise, however, paying back these loans has become increasingly difficult. The subprime mortgage crisis is not a sub - as the name might suggest - but rather a prime example of this. Since a subprime loan is a loan that is given to people with a bad credit record, who therefore don't qualify for market interest rates and must pay a much higher rate, it is naturally mostly the poorer people who make use of it. The large number of people with subprime mortgages suddenly found that with the decreasing value of their houses, they were unable to pay the mortgage. And if you can't even pay your mortgage, you surely won't be able to spend on much else, which would cause a problem for the economy.

This poses a dilemma, as the economy must continue to be boosted through spending, but not at all costs. People need to understand that borrowed money needs to be paid back; it is not free money. This should serve as a wake up call to American consumers that relying too heavily on debt is too great of a risk. Sadly, there are always - including now - strong voices advocating debt forgiveness. Surely it cannot be so that consumers are taught that accumulating debt to the point of being unable to repay it comes without consequences? The message that big trouble will arise with too much debt must be hit home hard, once and for all. Better now, while the economy is reasonably stable, than later, when debt will only accumulate further, causing a potentially cataclysmic economic downfall of unknown proportions if China's possible bubble were to collapse.

There is some good news on the horizon, however, in the Fed's failure to take serious steps (i.e. have the central bank lower its benchmark federal funds rate from 5.25 percent) to help those affected by the crisis. It appears that Federal Reserve Chairman Ben Bernanke is trying to "teach investors a lesson," namely that the Fed will not bail out their poor decisions. This is not to say that there is no help whatsoever. The Fed has already injected tens of billions of dollars into the banking system and lowered its discount rate (the charge on its loans to commercial banks). Furthermore, President George Bush announced a plan to help struggling subprime mortgage borrowers to keep their homes via changes to the tax code.

Let's hope that a fair balance is found between the honest need to help those hardest hit and teaching a very wrong and dangerous lesson. Sometimes it is best to set an example to future potential defaulters by acting very harshly (though some would say justly as well) towards those involved now.

#76 The Hypocrisy and Short Sightedness of the American Immigration System

2007-08-21T06:19:00.000+01:00

This coming September, driven by an ambition to increase the bloc's economic competitiveness and facing a foreseeable aging of the population and labor shortages in the next decades (expected to peak by 2050), the European Commission legislators are prepared to present for approval a proposal for an implementation of a new system of temporary resident permits to be selectively allocated to highly-qualified non-EU residents. Since this proposal would necessitate an infamously difficult to attain unanimity between the 27 member states, it is reasonable to expect a significant phase of debate. Nevertheless, it is understandable that the adoption of such a system is merely a matter of time. The legislators behind the initiative relate the recommended system to the US Green Card scheme, even dubbing it “Blue Card,” for some peculiar reason disregarding a conceptual and substantial difference between the contemplated European system and the American one - a difference that, at a closer look and comparison, divulges the relative irrationality and farce of the current US general immigration system.

The paradox of the world’s most symbolically representative immigration country - a country which even George Bush declared is “a nation of immigrants” and that thrives on its entrepreneurial newcomers - is that it is presently the one missing an open-door qualified immigration system. Legally immigrating to the United States is not easier. In fact, it is unexpectedly harder than in many other, even historically non-immigrant, developed countries; i.e. a potentially economically productive and professionally qualified or entrepreneurial immigrant candidate would find virtually no open options to immigrate by self-initiative.

The aforementioned US Green Card is either available to somebody previously resident in the country and legally permitted to stay for a longer time, or is distributed on a lottery (!), i.e. random numbers basis to unrestricted applicants over 18 from around the world. Once one is aware of this fact, it makes sense that European legislators, despite their claims, ironically, can only be color context-wise inspired by the Green Card.

Other immigration-dependent countries such as Canada, Australia, New Zealand (and recently the U.K.) have a long time ago adopted points-based open-door qualified and business immigration systems - with slight variations - without first having potential immigrants find an offer of employment or without an employer required to fund the visa, classifying migrants on their skills, personal qualities, suitable age, work experience, achievements in the field, past earnings, even achievements of the applicant's partner, and potential contribution to the countries' economies and societies in general; supported by ongoing emphasis on the economic returns of such migration, and are considering ways to expand the associated quotas even further.

Contradictorily in the US, the only initially temporary immigration option open to qualified non-residents is the H1-B visa, allowing American companies to hire, albeit with notoriously burdensome legal and financial difficulties, highly-skilled foreign workers, the limited yearly number of which has in October 2003 been groundlessly cut by US Congress from the even then insufficient 195,000 to 65,000, despite grave concerns of and active lobbying by the information technology companies.

The further deterioration of the currently inadequately cumbersome and bureaucratically thorny immigration system, inclusively for the already legally-residing aliens such as skilled employees and potentially socially valuable graduating students, and the lack of an open-door, even if competition based, legal system for qualified immigration simply leads to the only possible immigration most likely to prevail – illegal, and naturally unqualified. As opposed to the duplicity of the US state of affairs, EU justice spokesman behind the “Blue Card” proposal Friso Ascam Abbing admits that "We had better manage immigration properly as it is going to happen anyway."

Tightening and restricting legal immigration in traditionally migrant-reliant countries - the single one practically accessible for restriction - leads to it being automatically substituted by illegal, chaotic immigration. The previous statement is neither intended to denigrate the significant economical importance of illegal immigrants widely employed in agriculture, construction, hospitality and other industries, benefiting both businesses and consumers, and the Americans' dependence on them in a multitude of diverse sought-after menial and unskilled jobs, nor to advocate a need for severe curbing of unqualified immigration, since it eventually instigates continuous illegal immigration, as the need for immigrant labor has a natural tendency to be convened by supply.

The American immigration system, with its insufficient legal immigration provisions, regularly tacitly expected general pardon and consequential naturalization of illegal migrants in itself implies an initial breach of law – can it get any more hypocritical than that?

A governmental bipartisan group's recent months' attempts to manage the illegal immigration phenomenon by a - even though still strategically flawed - bill comprising of clauses for the strengthening of the south border security, encouragement of currently illegally residing immigrants to return to their home country and reapply for working permits through a system which also integrates a points-based format, where education and skills, including English ability, could contribute to an applicant’s case, and a stipulation of issuing of 400,000 further amended to 200,000 visas a year to the future temporary workers permitted to stay for two years at a time and renewed up to three times, periodically separated by a year's break between each visit, have disappointingly failed, even in spite of initial public opinion support.

The constant debate about immigration in America has an irrational inclination to pitch all issues into one large jumble, intermixing causes and consequences, revolving around all types of suspected problems caused by illegal residents, which include border issues, pressure on public services and criminal allegations, further fuelled by economically unreasonable fears that immigrants weaken the wages of the native-born citizens. Hence, public concerns about - as some economists and politicians argue - the falsely assumed negative consequences of illegal immigration and the allegedly threatened national security, exaggerated by the government's failure to satisfactorily deal with it, leads to an ignorant absence of differentiation of and antagonism towards immigrants, and consequential psychological and bureaucratic aggravation of the already ill-reputed naturalization process for the legally residing temporary and aspiring workers, making the US a decreasingly attractive destination for talented people from all over the world.

Considering current tech companies' widespread outsourcing, combined with the recently emerged phenomenon of inverse brain-drain and other developed and promising markets' ever -increasing competitiveness for talent acquisition, what kind of potential immigrants and most importantly - how is the US naively, or even better put – overly self-confidently hoping to lure in the future?

In the end, the United States, with its notoriously weak social support and welfare system can only attract generally self-reliant and motivated people who want nothing but to work industriously, be it a farm worker from Mexico or a qualified doctor from India; therefore not offering sufficient people an administratively accessible opportunity to do so will inexorably lead to the negatively perceived effects caused by the vicious circle of illegal, irrepressible immigration or alternatively, and even concurrently – economical underperformance provoked by competent personnel scarcity.

- This article was written for and provided to the Weekend Economist by Julia Socolov

#75 Japan Forced to Rethink Its Energy Policy

2007-08-19T15:19:00.000+01:00

The red hot Indian and particularly Chinese economies are unquestionably having a major impact on the world. While discussions often rage about whether or not this is a good thing (e.g. with environmentalists pointing out the devastating effect this is having on the environment and business leaders arguing it provides for opportunities not seen in decades), there are a myriad of micro areas where the effect of their growth is clear for all to see. One such interesting area is in Japan's energy policy.

For centuries Japan has been the largest economy in Asia, as well as the dominant political player (this has more to do with their financial muscle than with actual influence exerted). Subsequently, the country experienced a hunger for natural energy resources such as gas and oil that far surpassed that of any of its neighbors. With the rapid growth of India and China, this is beginning to change. While, according to the CIA World Factbook, Japan is still the world's second largest (after the USA) importer of oil with 5.43 million barrels of oil per day, China follows closely with 3.18 million and India with 2.01 million. More interestingly, China already consumes more oil than Japan, with China's consumption standing at 6.53 million barrels per day, Japan's at 5.6 million and India's at 2.5 million (the USA is still the world's largest consumer of oil). This means an increasingly larger portion of China's oil has to come from abroad, which directly and adversely affects Japan's supply. Given the fact that Japan's demand for oil has remained and, according to projections, will continue to remain steady for the coming years, the country is justifiably worried that it is no longer as interesting a market as the rapidly growing Chinese and Indian ones are for petroleum exporting countries.

Japan imports a whopping 90% of its oil from the Middle East (Saudi Arabia is Japan's largest oil supplier, shipping 458 million barrels, or 30% of Japan’s total import; UAE second with 387 million, or 25.4%; Iran third with 176 million, or 11.5%; and Qatar fourth with 156 million, or 10.2%). Japan - the world's largest importer of liquefied natural gas (LNG) - is similarly dependent on one geographical location for its gas imports (three quarters of Japan's imports come from Australasia: Indonesia, Malaysia, Brunei Darussalam and Australia. Qatar is Japan's fourth largest supplier after Indonesia, Malaysia and Australia).

In the meanwhile, China and India have been scavenging the world - particularly Africa - for new areas from which to secure their oil supply. China has been so successful in Africa that it has even managed to create a very balanced oil importing picture (in 2006, the Middle East accounted for 45% of China's crude oil imports, Africa for 32%, the EU and the Americas for 18.3% and Asia Pacific for 4%, according to the Chinese General Administration of Customs). All the while the oil prices have been skyrocketing, allowing for countries like Russia and Venezuela to play their oil cards and flex their muscles.

Given all these worrisome facts, the Japanese government decided it was time to prioritize the securing of the country's energy supply. In May 2006, the Japanese Ministry of Economy, Trade and Industry (METI) published a revealing document entitled "The New Energy Strategy." In it (and in later documents and high level speeches even more so), we find some key shifts away from their old policy. As Jan-Hein Chrisstoffels, a Japan specialist at the Netherlands Institute of International Relations Clingendael, points out, the formerly abundant references to liberalization, globalization and the free market are nowhere to be found. The new pillars are: Strengthening of bilateral relations with oil and gas producing countries; Increasing imports from oil and gas projects that are led by Japanese firms abroad; Decreasing the use of oil in the transport sector; Using more nuclear energy; And cooperation with China in the field of energy.

Another major shift in policy is the increased role that the Japanese government seeks to play. Japan feels Chinese oil firms have an unfair advantage given a government that pumps money into seemingly economically unprofitable extraction projects simply in order to secure supply. Therefore, the Japanese government has now set out to increase subsidies to Japanese oil firms and provide more favorable loans and investment guarantees. In other words, there is to be little left of the free market policies and non interference from the government that took the overtone until now. Much like China - which woos potential oil suppliers by promising preferential loans, the building of large infrastructure projects and a policy of non-interference in internal affairs - Japan has embarked upon a quest of securing her energy supply through tit-for-tat policies. One success story can already be found in former Prime Minister Junichiro Koizumi's visit to Kazakhstan in August 2006, followed by Economy, Trade and Industry Minister Amari Akira's visit this year. They ensured that Kazakhstan's (which has the world's second-largest uranium reserves after Australia) current supplies of only 1% of Japan's uranium imports will jump to 30-40% in the near future, in exchange for Japanese expertise in uranium enrichment.

It appears India and especially China are having a major impact on the policies of other nations such as Japan, which in this case can be considered as a blow to proponents of the free market. It is even likely to extend beyond the oil and gas sectors, as this year China - the world's largest consumer of coal - for the first time became a net importer thereof. The country imported 4.7 million metric tons of coal in January, a rise of 81.1% from a year ago, according to figures from the customs bureau. Although Japan is not at all a major consumer of coal, it might very well affect other formerly free market adhering countries.

#74 Chavez’ vs. Putin’s Freedom of Speech Crackdowns

2007-08-07T11:30:00.000+01:00

The events of the recent weeks surrounding the scandalous closure (and the reopening of its unfortunately less far-reaching and accessible cable/satellite version) of an opposition-leaning Venezuelan TV channel, RCTV have revealed that, in addition to Mr. Chavez showing alliance propensity gyrating around controversial nuclear ambitions, weapons, oil and even gas arrangements with the aspirant “outsiders” such as China, Iran and Russia, lately he also proved to employ, even though in a somewhat maladroit approach, some of those countries’ leaders’ “tried-and-proved” censorship maneuvers.

In the midst of the RCTV crisis, hardly anybody seemed to recall a similar - though more perversely masked as compared to Chavez’ frankness - scandal that revolved in 2000-2001 around a privately held Russian TV channel, NTV.

The evolvement of the Russian, much more craftily performed analogue, started in June 2000 with the controversially executed arrest ordered by the prosecutor-general of Vladimir Gusinsky - charged with embezzlement - head of the Media-Most group that owned NTV (Russia’s first independent TV station), a newspaper and an openly opposition-leaning radio “Echo Moskvy,” which even President Bill Clinton favored during his visit to Moscow earlier that month, ignoring any Russian state-run radio or television during his visit. Media-Most publications, especially through its most widely accessible and highly popular TV channel NTV, had at the time openly refused to be loyal to the Kremlin. NTV, through its daily news, political programs, and a satirical puppet show, has broadly criticized the policies of the Kremlin and president Vladimir Putin, brought to light alleged atrocities during the Chechen war and other social issues in Russian life often ignored by state-owned channels.

A month later, in an informal deal, the charges against Gusinsky were dropped after signing an agreement with the minister of media, under which Gusinsky was to sell Media-Most to a state-dominated Gazprom, which already possessed a 30% share in NTV since 1996, for a price forced by Gazprom, in return for a guarantee that Gusinsky would not be prosecuted. After Media-Most itself refused to comply with the agreement, Gazprom publicly announced its acquisition of a controlling stake in NTV and the voting rights of a minority stake held by Media Most were frozen by a court decision.

Almost a year later, in April 2001 Gazprom took over NTV's old board of directors by force in a boardroom coup and replaced its director. Fearing that the Gazprom takeover would lead to government censorship, demonstrations of several thousand people in Moscow and St. Petersburg showed their support for NTV staff. Although the protests were weak when compared to the recent Caracas’ demonstration, they were incredibly brave by the practically non-existent Russian protest standards. Nevertheless, the majority of the prominent journalists have since left the channel, while the rest were been fired soon afterwards. Furthermore, rather conspicuously, two other independent channels were shut down in the next several years.

These events, which were critically commented on by former German Chancellor Gerhard Schroeder, the Council of Europe, and by former White House spokesman Joe Lockhart, for some reason have been swiftly forgiven of Putin.

How damaging are such freedom of speech crackdowns for the future of these countries?

The answer most likely lies in the countries’ past. A principle difference between the two is that since 1958 Venezuela has been evolving under an incessant period of democratic government; whilst Russia, except for a short period of Yeltsin’s laissez-faire unprecedented freedom (which was most likely due not to his proclaimed democratic aspirations, but to his inability to adequately manage the Russian chaos of the 1990’s), have been living under constant, multi-dimensional fear and rigid totalitarianism for at least the last 80 years. As opposed to the turmoil of the past decade, Putin brought in “order” – an archaically authoritarian “order” the nostalgic Russians are willing to give up many freedoms for; freedoms they probably never even owned in the period of modern history.

Thus, while Chavez acted in a military-background induced, atrociously blunt, and prospectively self-detrimental manner, having openly and ruthlessly commented on and pronounced the (upcoming) closure, Putin, owing to his KGB - the single most efficient Soviet-generated structure - experience, proceeded more furtively, and consequently more “effectively” in the long run, which makes it even more appalling and daunting.

Since this cunning de facto elimination of the only opposition-channel almost 8 years ago, there have virtually been no more attempts to reinstate any similar channels in Russia ever since; and no remembrance of these events, as if they were something insignificant, seems to currently permeate the discontent of the existing opposition.

Compared to Putin’s slyness and carefully premeditated conspirative approach, Chavez’ clumsy shutting of a dissident channel from the public system, which triumphantly reemerged soon afterwards in independent cable broadcasting (and even YouTube) following the logically predictable strong international reaction, seems just a poorly calculated whim, regardless of how intrinsically erroneous it is.

What is obvious is easier to confront and has a tendency to backfire eventually.

Optimistically, the support for Chavez and his “revolutionary” policies is just a temporary Venezuelan poor’s “nervous breakdown” and the nouveau riches’ “folly” that - under favorable circumstances of the opposition’s effort supported by a strong-willed, though diminishing, middle class that has been manifesting great dissatisfaction with and spirit to oppose Chavez - can theoretically be reversed.

Unfortunately for the Russians - even the younger and notably increasingly more prosperous ones - continuing complacence with a latent, concealed and consequently more enduringly perilous governmental “iron-fist” seems to be metaphorically an almost genetically inherent mentality trait.

- This article was written for and provided to the Weekend Economist by Julia Socolov

#73 The Food Squeeze

2007-07-25T16:11:00.000+01:00

The "Food Squeeze" is a global phenomenon. It doesn't matter whether you like pasta, tortillas or rice: prices are up and are set to go even further. Basic food commodity prices have been moving up steadily for quite some time now. In France alone, grain stockpiles are down to the levels of the early 1970's. Those were record lows by their own standards and therefore we are witnessing an unprecedented food squeeze. So far in Europe the effect has been dampened somewhat by the strong Euro and its relative trading strength.

There's also another, albeit temporary cushion that lies in the use of commodity based instruments and derivatives such as futures and forwards. Major food firms such as ADM, Cargil, General Mills, Kellog and Phillip Morris employ these hedging instruments to protect themselves against cyclical spikes associated with the volatility of commodity markets. For consumers it creates a delaying effect, which means that in many cases you don't feel the immediate hike in food prices - at least not as fast as energy prices.

However, bioflation is going to end up on everybody's plate at some point. Part of the food squeeze is coming as a direct result of the rapid industrialization of India and China. When agricultural laborers move into the city, their production output is lost from farms. Industrialization could theoretically mitigate these effects by further mechanization, fertilization, economies of scale and other capital intensive processes to ramp-up output. But that takes time and money. For now at least, laborers are choosing to go to the city rather than ramp up their own agricultural output. One would expect higher food commodity prices to be an incentive for higher production. But this is not expected to happen overnight, and things are further complicated by the bioflationary effect of a growing biofuel economy that links food prices with energy prices.

Given the sheer size of the Chinese economy and its impressive growth rate, China consumes a significant and growing slice of world wide food production. This is expected to increase in tandem with slowing food production. Net food output in China can no longer keep up with demand. As China grows and develops, its citizens will have more income to dispose on food. This increased spending power is now resonating on world markets for grains, meats and fish.

Food prices also have a stronger impact on developing countries than on developed countries. In China, on average, 34% of disposable income may be spent on food. In the U.S. this figure is less than half. Nonetheless, food prices are amongst the highest risers in core inflation figures for the USA. On a macro scale, for now this only slightly affects demand for other goods. In developing countries it remains to be seen how adversely these price hikes will affect overall economic growth. For the worlds poorest, the news could be rather bad, as the UN recently announced it could no longer afford to feed the world.

The production of food is really part of a larger structural problem, as you may or may not know/remember from your typical Economics 101 course. Food is an inelastic good: everybody has to eat and substitution is really not an option. Given the trend of industrialization, lagging production, climatic challenges and other side effects of bioflation, food prices are expected to stay in a strong upward trend. The chain is deeply inter-connected (i.e. grain is not only used in domestic consumption for bread, but also to feed pigs, poultry and other animals). This means that as prices for grain go up, so do the costs of producing meat and other related products.

With production not keeping up and inventories at record lows, the pain that occurs when China buys food "en masse" on the world market will be felt by everyone. Indirectly, this bioflation is going to add to global inflation and possibly hamper growth and development. Additionally, with higher future inflation expected, the inflation targets of central banks world wide will most likely come under renewed pressure. This ultimately means higher interest rates, and thus more expensive capital. Just last week we saw what credit repricing did to world markets. It sent shock waves throughout the financial world. If last week's "correction" was just a speed bump on the road to further economic growth (as predicted by most economists) then it would be wise to investigate what further bioflation will do to the world economy.

#72 Bioflation and the Global Eco-Hypocracy

2007-07-18T11:12:00.001+01:00

Markets are moving, volatility is up, Forex markets are once again the focus of a broader public. However, instead of being swamped by a myriad of different analyst reports and outlooks, it could be beneficial to look beyond the complex parade, rank and file of charts in order to grasp what is happening under the bonnet of the world economy. Markets are essentially economic battlefields, continuously pulsing and pushing. The force majeure of the world economy - the dollar - has taken a severe beating. With it, volatility has come back into the market and subsequently also some repricing, so far psychologically more than in absolute yield spreads and valuation. All these things are nothing but distractions when put in perspective of the "real" hurricane out there, and that hurricane is a global one: Bioflation.

Bluntly put: Bioflation is what happens when food (that what we put on our dinner plates) ends up as fuel in our gas tanks. When the appetites of automobiles start competing for those of humanity as a result of ethanol/biodiesel mania, we have a problem called bioflation. When food crops such as corn, rapeseed, sunflower, sugarcane as ethanol or biodiesel have to compete with oil on global fuel markets we essentially interlink them on an unprecedented global scale. This has been instrumental in the increase in food commodities worldwide.

In the end the consumer pays the bill in the form of substantially higher prices for tortillas, cornflakes, cola, hamburgers and pizza. Bioflation may be good news for farmers, but not for regular consumers and the world's poor. As a result of bioflation, Mexicans have been rioting due to corn prices going through the roof. The culprit: corn being used as a source of ethanol rather than food. The result: the price of corn and other food substitutes on their way to record heights. The bad news: this is only the beginning.

When food crops become interchangeable as fuel, they have to compete with fuels such as oil. Simpleton economists would say that this is just a cyclical phenomenon and argue that, with food as a substitute, this creates more supply in a market that has very little cushion. But this extra fuel supply comes at a price: bioflation. Opec and other large exporters have enough flexibility to keep prices high. Furthermore, there is more than enough (and still growing) demand from rapidly developing countries such as China and India. So biofuels as substitutes and alternatives to the global petroeconomy are just farts in the wind. Biofuels such only be considered as a steam valve, as part of a transition completely away from a carbon based fuel economy.

Making biofuel from corn is really not very efficient and is turning the US (previously a net exporter of corn) into an importer. The price hike and volatility of corn on global commodity markets is affecting other crops and substitutes as well. The global hike in food commodities shows just why bioflation is not a welcome trend, unless you are a large scale corn farmer or an ethanol refiner. There are other non competitive, non food crops that should be considered if one really desires to shift towards a biofuel economy. Unless we are willing and capable to rise to that challenge, we will live in an inflationary and unstable world of food and energy substitution.

Several UN organizations have already signaled that they are unable to feed the world with the current trends in food prices (as if they were able to feed the world before). However, food prices are not expected to go down as long as they remain connected to the world's energy economy. As global oil output declines and the prospect of food for oil substitution remains an alternative, high food prices are here to stay, and with it hunger on a unprecedented scale.

The cycle is more vicious and cynical than you think: besides high gasoline prices at the pump, fuel for heating and cooking also becomes more expensive. In developing countries this results in increased wood and shrub poaching and increased deforestation. Higher food prices are also going to encourage increased encroachment on existing forests as villagers look to cultivate more land. As peasants cut down local shrubs and trees for fuel, they are also destabilizing the fertile top soils in the surrounding land. Indirectly, high energy prices will lead to increased soil erosion, drastically affecting the fertility and agricultural output of the land.

Bioflation thus leads to a vicious cycle of higher food prices, inflation and lower "real" economic growth. Furthermore, the collusion of the above factors also inherently exacerbates poverty. Therefore, by understanding the dynamics of bioflation, we need to consider the trade off between "biofueling" the economy and empty stomachs world wide. As such, by "biofueling" our mobility, we drive the most vulnerable participants of the world economy into deeper poverty and hunger.

The "inconvenient truth" is that we are heading towards a world where food prices will be held hostage by both higher energy prices as well as global warming. Additionally, in a very perverse way, the Saudis, Putin and Chavez are more capable of determining the price of a big mac than McDonalds itself. Biofuels as the corner stone for energy independence is a green myth that will lead us down to a greater state of (inter)dependence that we cannot even begin to comprehend.

Furthermore, the effects of "bioflation" are not experienced in homogeneously. The effects, although generally detrimental to all, will be different for low income families as opposed to higher income families across different economies and geographical regions. For example, a Mexican laborer just above the poverty line may find him or herself quickly below the poverty line as wage rises don't stay in check with food prices. Bioflation will impact developed economies and families in a higher socio-economic strata as well. On a macro level this will imply lower spending on durable goods which in the long term can shift the global economy itself. For that reason the quest for cheap alternative energy is the most direct challenge of the 21st century, for it determines the fate and prosperity of mankind.

note
* non-food commodity based plants such as jatropha do offer a viable solution as biofuels because they do not directly compete as foodbased output or as food substitutes
* the author is NOT an anti-environmentalist nor a climate change denier

#71 Europe’s Unequal Siblings: Monetary Economics in Central Europe

2007-06-16T05:15:00.001+01:00

The great experiment that is Europe still needs to overcome a number of obstacles until it truly becomes an economic entity. Especially when looking at the integration of new member states to the economic, political and cultural entity that Europe seeks to be. Central Europe can be seen as a collection of younger siblings in the family of European states. In many ways states such as Hungary, Poland, Slovakia and the Czech Republic are like restless teenagers on their way to adulthood.

Current president of the Czech Republic, Mr. Václav Klaus, is known to be a vivid enthusiast of Milton Friedman and his dogmatic free markets. You might therefore think it would only be natural for this liberal economic fervor to wash over to the lower political echelons. But this is not the case, because these badly needed fiscal reforms hurt those people in the economy who need government protection the most. Leftist and Populist parties make good use of this and find great support from the disadvantaged, disenfranchised and elderly sections of the electoral masses. In "old" Europe these type of factions do not enjoy the same level of support because the West has already gone through many of these transitions over the last several decades, albeit one small step at a time.

Europe’s Central European siblings want to take larger steps on the road to economic prosperity and future European economic integration. Fiscal discipline is an important prerequisite, but Central Europe's budget deficits are not heading in the direction of 2-3% of GDP. In fact, they are actually showing a widening trend. This, coupled with inflation, is not going to strengthen currencies and reduce the purchasing power parity gap. Yet, there are some unique forces at work. Skilled labor is much more mobile in Europe than unskilled labor. Wages of highly skilled laborers are even on a road to parity, while if they work abroad they are often already in parity. But for the majority of laborers in Central European countries such as Hungary, the Czech Republic, Poland and Slovakia, the question remains how long it will take until there is a true convergence of per capita income.

The good news is that there is actually downward wage pressure in countries such as Germany and Austria as a result of this imbalance between per capita income differentials. This is inherently a good thing because it makes the rest of Europe more competitive.

When visiting the capitals of Central Europe such as Budapest and Prague, one can definitely observe a boom. Low interest rates, economic vitality, wage growth and speculation are driving new real estate development and pushing property prices up. This boom is to a large extent a local driven phenomenon, at least when looking at the residential market. Most of residential housing stems from large Communist residential development; giant, dated and somewhat drab apartment complexes still form the mainstay of housing of Central European residents. But with a growing segment of the population being upwardly mobile and flush with cash, they are driving a residential building boom. People want to move out of their dated Socialist housing arrangements into new housing and apartments. An increase in interest rates could bring some much needed revaluation into the property market and blow off some steam.

This seems unlikely to happen in the short term as central banks are keen to keep the economy going. Inflation doesn’t appear to be at the forefront of their worries. Economists and central bankers should keep their eyes on the horizon because there are some worrisome circumstances. Some of the currencies such as the Hungarian Fórint have been quite volatile compared to the relative stability of the Euro and the Swiss Frank. Additionally, many Central European Economies have fallen behind in their fiscal reforms and will find pushing painful reforms through in the various parliaments a difficult task to say the least. Sure, bumps on the road to maturity are imminent and even unavoidable for the Central European teenagers. Some central bankers also argue that the type of inflation we are witnessing is completely natural and to a certain extent outside of their influence.

EU taxes on regulated goods such as alcohol and tobacco is an important inflationary presence, especially is Central Europe, where alcohol and tobacco consumption tends to be larger. My final worry lies in the close correlation between Central European currencies, which tend to move fairly together, even though political and economic circumstances are rather different between Poland, Hungary and Slovakia. There is the fear that we could be oversimplifying those dynamics, assuming too much and questioning far too little. Undeniably the dissimilarity of growth is as much an opportunity as it is a threat to the economic entity of Europe as a whole. Nonetheless, if Central European governments do manage to get their fiscal responsibilities together, there is little to fear besides a few bubble bumps on the road. Projected rate increases in Euroland should inspire the central banks in Central Europe to do the same.

#70 A Three State Solution?

2007-06-13T16:20:00.001+01:00

It has become customary to hear bad news emanating from the Palestinian Territories (mainly from Gaza) and the saying "it can't possibly get any worse than this" is frequently applied to the situation on the ground there. Sadly, it has now really gotten a worse. A lot worse, believe it or not. We now find ourselves in a situation where a week of factional fighting has left at least 100 people dead and Gaza is effectively under Hamas control. To make this point clear, Hamas militants took over a number of key Fatah positions and security headquarters, including one of President Mahmoud Abbas' offices, went through his personal belongings in his bedroom and spray painted "This was the house of the murderer Dahlan that was cleansed by the holy warriors" on the home of Fatah strongman Mohammed Dahlan, thereafter allowing his property to be looted. Hamas supporters even went so far as to loot the home of deceased leader Yasser Arafat, taking his furniture, wall tiles and personal belongings.

In his first serious response to the tumult in Gaza, Palestinian President Mahmood Abbas (a leading Fatah politician) dissolved the Hamas-led unity government and fired Prime Minister Ismail Haniyeh (a prominent Hamas figure), appointing former Finance Minister Salam Fayyad in his place. There is also word of revenge attacks on Hamas loyalists in the West Bank by Fatah members in the wake of some brutal executions of their members in Gaza. While Hamas has cemented its control in Gaza, Palestinian Authority security forces, accompanied by Fatah members, have continued the wave of arrests of Hamas members in the West Bank, where Fatah clearly has the upper hand. In the most significant counter-action, Fatah gunmen stormed the Hamas-controlled Palestinian parliament building in Ramallah. An - at least temporary - split between Gaza and the West Bank now appears to have become irreversible.

It is highly likely that Western governments and donors, as well as a number of Arab nations such as Egypt, Jordan and Saudi Arabia will respond by doing all they can to shore up the influence of Abbas, including the resumption of financial aid. Officials in the Israeli government have already suggested Israel will work with President Abbas and a Fatah government in the West Bank, possibly handing over hundreds of millions of dollars in tax revenues to Fatah which it collects on behalf of the Palestinian Authority (these had been withheld since Hamas came into power early 2006). Meanwhile, senior Bush administration officials pledged to work quickly to convince the Quartet to remove the restrictions on the Palestinian government now that the unity government had been dissolved and allow a direct transfer of emergency aid to the West Bank. They further stated that the US will continue humanitarian aid to Gaza, but in terms of diplomacy, there is a complete separation between Gaza and the West Bank.

Hamas' dream of establishing an Islamic state in the territories and what is now Israel has taken root with their takeover of Gaza; a very worrying prospect indeed. Israel, which completely withdrew from Gaza last year, now finds itself bordering a re-arming Hezbollah in the North and a free-reigning Hamas in the south. A result of increasing Iranian influence? Perhaps. On the other hand, the good news is that, given a separation between the more radical Gaza and more liberal West Bank, the latter territory will stand a much better chance of prospering. Similarly, if the lives of Gaza residents fail to advance under Hamas rule while their compatriots in the West Bank prosper, a backlash against Hamas is likely. Whether all this means an end to the Palestinian dream of statehood (with Gaza and the West Bank united), nothing more than a delay, or perhaps even the beginning of a three state solution, only time will tell.

#69 Climate Change as Political Dogma

2007-06-07T07:31:00.001+01:00

Contrary to the last few G8 summits, one of the main subjects of the recent meeting between the world’s top leaders in Heiligendamm, Germany, was Climate Change. In fact, it was the only environmental issue handled during the summit. In the summary of the summit it is stated that the leaders recognised that global warming is largely the result of human activity and only by limiting CO2 emissions will it be possible to stop global warming, concluding that “it is absolutely essential that global warming be limited to 1.5 to 2.5°C.” This is certainly a strong statement and it implies that we (humanity) know exactly what needs to be done. But do we really know? Do we really understand why the climate is changing? Do we understand the consequences of the change? And do we understand the consequences of channelling large amounts of resources towards curbing CO2 emissions?

If one were to trust politics and the press, then these would be rhetorical questions. After all, according to them, everybody knows the facts, discussion is closed and it is now time to act! But things are never that simple. Sure, the fact that there is global warming is known and agreed upon. But this is the only statement that enjoys consensus. The reasons behind the warming and its consequences are far from agreed upon. Roughly speaking, there are two camps. One camp is a believer in the conclusions of the Intergovernmental Panel on Climate Change (IPCC) that have been adopted by mainstream politics and states that global warming is man-made and, unless urgent action is taken to reduce the increase of CO2 in the air, the world is heading towards a horrible catastrophe. The other camp believes that science is still far from able to understand global warming and its likely effects. The warming could be nothing more than a normal phenomenon caused by the same natural forces that make climate to be volatile and has nothing - or at least insignificantly little - to do with the additional emission of CO2 by humans. Moreover, the effect of warming is not necessarily negative. The picture of the calamity that the mainstream camp is painting is not based on any facts. So, if this is the case, spending so many resources to fight CO2 emissions cannot be justified.

The discussion between the two camps has passed from a pure factual discussion to a stage of dogma. Those in the camp that opposes the official opinion of the IPCC are called deniers, having even been compared to Holocaust deniers (though they prefer the label sceptics). It is true that there are more scientists on the side of the official camp, but that on its own is not so strange, given that it is the mainstream opinion. However, there are sufficient scientists on the other side as well and enough facts exist in order not to dispose of the opinion of the sceptics. Both sides have very convincing arguments and special sites to spread the word and defend their faith while combating the opponents (If you are interested, here are two sites to start you on your quest:
mainstream - environment.newscientist.com/channel/earth/climate-change/dn11462 & deniers - www.friendsofscience.org/). And, as is appropriate for a faith, each has their followers that fight each other with, very often, quite offending words.

Based on the existing knowledge, it is very difficult to claim that there is a scientific consensus on this issue. Nevertheless, politics decided that it is worthwhile to follow the advice of IPCC and elevate the climate change issue to the top of the agenda. The real question is why? It is difficult to believe that suddenly all members of the G8 decided to save the world. Politics in the modern world has a short term horizon. What will happen 100 years from now is not usually a relevant factor in political decisions. It seems more reasonable that this fits other goals they may have.

One reason could be that combating climate change is a way in which the various ‘green’ parties and pressure groups could be pacified without the need for handling less convenient problems. But the main reason is probably the painful dependence of the G8 countries on oil. Pushing the industry to find other energy sources could ease this dependency and by forcing all countries to participate, none of them should be too severely handicapped. If the money is used appropriately, we could perhaps see a breakthrough in alternative energy generation; which would be a major milestone in human development. What it most probably will not achieve, however, is a slowing of the temperature increase in a significant manner.

- This article was written for and provided to the Weekend Economist by Tamara Fai

#68 China Playing in America's Backyard

2007-06-04T04:23:00.001+01:00

China has managed to use its increasing economic muscle - and thereby global clout - to persuade yet another country to recognize it over Taiwan. Costa Rican President Oscar Arias announced on June 6 that his country has broken diplomatic ties with Taiwan and established relations with China, pointing out that Costa Rica needed to strengthen ties with China in order to attract foreign investment. This follows a string of successes for China, who refuse to have diplomatic ties with nations that recognize Taiwan, regarding it as a breakaway republic. During the late 1960s, Taiwan had full relations with 67 countries, but Chinese pressure has led to this figure dropping almost threefold to just 24 states today.

China's success does not really come as a huge surprise, given the fact that China is now the Central American nation's top trading partner, buying more than $1 billion worth of Costa Rican exports in 2006. The fear is that after Costa Rica's decision, other nations such as Nicaragua, Panama and Paraguay will follow suit, leaving Taiwan practically abandoned in Latin America. After the Dominican Republic, Haiti, St. Kitts and Nevis and St. Vincent and the Grenadines switched diplomatic recognition from Taiwan to China in 2004 and Costa Rica did the same on Wednesday, today only Paraguay, Panama, Nicaragua, El Salvador, Honduras and Guatemala officially recognize Taiwan.

In the last couple of years, China has been particularly active in Latin America, not only to shore up its political influence, but also to secure natural resources that are crucial to sustain the country's red hot economy. Venezuela is particularly keen to court the Chinese with oil, seeing the country as the perfect escape from the grip of the "evil American empire." Brazil, Ecuador, Bolivia, Argentina, Chile, Peru and even Mexico are also seeing large increases in trade and deals (particularly in oil and gas exploration) with China. According to the Inter-American Dialogue, Chinese imports from Latin America have grown more than sixfold, at a pace of some 60% per year, to an estimated $50 billion in 2005. What's more, Chinese investment in Latin America represents half of the country's foreign investment overseas, promising to increase it from $6.5 billion in 2004 to $100 billion by 2014.

US trade with Latin America is still almost 10 times larger, but given the growth of Chinese trade with the region and the severe hostility the Americans encounter in a number of Latin American countries, this is certainly an issue that the need to monitor closely. China is rapidly encroaching upon America's backyard. China's dealings in the region are not limited to securing energy needs, other natural resources and isolating Taiwan. The business of selling of arms and technology to the region (with Venezuela being a key buyer) is also flourishing, while cooperative aerospace deals are being forged with Brazil and possibly key intelligence-gathering facilities in Cuba are being used by the Chinese to intercept U.S. communications.

#67 The Higher Standard

2007-06-03T14:56:00.000+01:00

With a slip and a fall the American representative of the 2007 Miss Universe Pageant, taking place in Mexico City, unknowingly revealed the true colors of her Mexican audience. Fighting boos and cat calls during the question and answer session, Rachel Smith absorbed the full torrent of abuse hurled at her. Her appearance further conveyed the malice held by the majority of Mexicans toward the United States. While 12 million of their compatriots were getting a free pass to American citizenship, the underlying animosities of their misguided political beliefs were exposed.

Imagine for the briefest moment that the pageant had been held in the United States and the victim of those four inch heels was a young Mexican woman. Would the International community, never mind the Mexicans, stand for an American audience that jeered the contestant? The mechanisms of “political correctness” would come out in full swing and this would be yet another example of an America the world can hate. Are the same standards held for the Mexicans? Is the International Community insisting on an apology? Nope.

Flashback to the 2004/2005 World Cup qualifiers; Mexican nationals booed the American team and some even chanted “Osama.” Was there an International outcry? Most certainly there was not. When millions of illegal Mexicans took to the streets in defiance of American law, demanding recognition, did the International community come to the defense of America? Quite the contrary; they sided with the Mexicans. You would be hard-pressed to find another country in the world that faces an International Community that argues for the rights of those who are knowingly breaking the law everyday they spend on American soil.

To briefly compare the mass hypocrisy facing America today, one only has to look as far as the Mexicans themselves. Specifically the Mexican laws concerning non-Mexican immigrants seeking residence in Mexico. To begin with, you must speak the native language and you must be a professional worker. Sorry, no unskilled workers allowed. There are no bilingual government programs and as a foreigner you will not have the right to vote or hold office. You are not eligible to receive any government sponsored welfare and if you want to take to the streets and protest unfair treatment, that too is illegal. You are not allowed to wave the flag of a foreign nation, form a political party, or criticize the government. And I almost forgot, if you come to Mexico illegally you will be arrested and jailed.

The true question concerning Mexican-American relations is why there is so much anti-Americanism in Mexico? Are Mexicans upset at their inability to sustain their economy without the massive remittances provided by their compatriots working in the United States? Or is it a deeper national character flaw that prohibits them from accepting that their neighbor to the North has simply managed to be more successful in most every sense of the word? The livelihood of the Mexican economy depends heavily on the engine of the American economy and the rampant anti-Americanism contaminating the Mexican political and social environment can only lead to a negative outcome.

Does America abide by a higher standard? Well, if current polls are any indication of the anti-Americanism sweeping Mexico, then America is indeed abiding by a higher standard. The majority of Mexicans have an unfavorable view of both Americans and the United States government. Furthermore, a recent Zogby poll showed that 75% of Mexicans think Americans are racist and only 17% think that Americans are tolerant. Yet aside from merely talking about building a wall, the United States has done nothing to warrant this animosity. Thousands of illegal immigrants continue to flood the border and the United States continues to accommodate them. The gap between Mexico and the United States continues to expand and the increase in the hatred felt by the Mexicans will almost inevitably rise as well.

- This article was written for and provided to the Weekend Economist by Westbrook Sullivan

#66 Vietnam Positions Herself as a Global Oil Player

2007-06-02T11:23:00.000+01:00

As does any other rapid growth country not blessed (or cursed; depends on who you ask) with oil, Vietnam needs to find her black gold elsewhere. While China and India have been roaming the world - particularly Africa - for oil contracts for a while now, it is now Vietnam's time to follow suit. Vietnam Oil and Gas Corp., or PetroVietnam, pledged to expand its overseas oil exploration venture with two contracts this year, one in Cuba and the other in Nigeria. Oil agreements in Libya and Sudan are also on the cards, but rank lower in priority due to difficulties encountered such as lack of regulatory structure.

During a recent visit to Cuba by Vietnamese Communist Party chief Nong Duc Manh, the first of the two promises has now been honoured. Cuban and Vietnamese officials signed an agreement last Friday, 1 June, between state oil companies Cuba Petroleos and Petrovietnam calling for a partnership for exploration and drilling both in the Gulf of Mexico and on shore (photo courtesy of AP). PetroVietnam follows in the footsteps of other international oil companies such as Spain’s Repsol YPF S.A., Norway’s Norsk Hydro ASA and India’s Oil & Natural Gas Corp. Cuba divided its offshore area into 59 exploration blocks in 2000, of which just over 20 blocks have been leased to international companies.

The drilling in Cuba is not without financial risk, as it is not certain that they will find anything near the amount they might have access to in their other target partner country, Nigeria. Cuba currently produces about 80,000 barrels of crude oil a day, compared to Nigeria's whopping 2.2 million barrels per day in 2001. Nevertheless, oil exploration in Cuba is bound to be a safer bet for Vietnam, given that just 1 day after the agreement signed in Cuba, the umpteenth abduction occurred overnight at the U.S.-based oil-services firm Schlumberger Ltd. in Port Harcourt, Nigeria. One Dutch, one British and one Pakistani citizen, as well as another captive were taken hostage according to Rivers State Police Commissioner Felix Ogbaudu.

In other news, for the first time in ten months (when emergency surgery forced him to hand over power to his brother Raul Castro), Cuban leader Fidel Castro was shown standing and talking in video footage that aired on state-run Cuban TV. Castro was seen on Sunday, 3 June in a meeting with Vietnamese Communist Party chief Nong Duc Manh (picture on the right courtesy of Cuba's Juventud Rebelde newspaper).

#65 Political Tectonics: The Slow Drift

2007-05-21T14:43:00.001+01:00

The recent souring of EU-Russia relations and U.S.-Russia relations is a greater cause for concern for the post Cold War status quo than most people realize. Gone are the Yeltsin years of warm rapprochement between nuclear super powers Russia and America. The realities of multipolarity are beginning to dawn on the recently predictable Pangaea world of diplomacy. The post 911 world has shaken the "stable" world order on its foundations. What we are in fact witnessing is the start of a slow drift to a truly multipolar world. A world of divided power and divided interests.

This divided world comes at a rather bad time in world history. Humanity needs to make a series of concerted, fundamental global changes in an array of areas ranging from energy security to climate change and poverty. Instead of focusing on these critical issues that are beneficial to the well being of all mankind, we are increasingly distracted by the deplorable and volatile political situation in Iraq and the Palestinian territories.

The gradual but steady shift in Latin American political attitudes vis a vis the United States should also not be underestimated. In the case of Venezuela, Chavez is not only talking the talk, but clearly walking it as well. The recent moves to nationalize the oil industry and pull out of multilateral institutions such as the World Bank is a vivid example of how the combination of self interest and anti-Americanism is shaping a new diplomatic paradigm in world politics. The trend of resource nationalization is a trend that should be followed with absolute caution, be it in Russia, Myanmar, Bolivia, or Venezuela.

In fact, we are only at the beginning of a long energy squeeze that is bound to exacerbate, in great part due to the current climate of global political fragmentation. The up and coming leadership change in the White House comes at a critical moment in time: can a new President repair the years of void respect for American political leadership and lack of Democratic enlightenment?

In any case the new presidency faces a number of tough challenges. A new administration and President in the United States is going to face a much harsher international diplomatic climate for reaching consensus. Unilateralism is surely a no go area now, something which even current President George Bush Jr. has understood given the precarious international political climate that has arisen in large part due to this unilateralism. The imminent talks with Iran are a good example of this. They are by no means a stroke of enlightened political leadership, but rather a measure of acute desperation.

#64 The Non-Genocidal Face of Sudan

2007-05-21T13:23:00.000+01:00

Sudan, Africa's largest country, is best known for the crisis (others would call it genocide) in Darfur. But there is another story to Sudan as well. A much more positive one. Sudan happens to be one of Africa's fastest growing economies and, ironically, one of the more stable as of late. What's more, Sudan is currently also one of the world's fastest growing economies.

Sudan's President Omar Al-Bashir announced recently that the country's economic growth rate reached 8% in 2006, adding that the growth rate is expected to increase to between 9-13% in the next year. In fact, according to IMF figures, real GDP growth has reported an average of 6.7% over the past seven years: 8.4% in 2000, 6.2% in 2001, 6.4% in 2002, 4.9% in 2003, 5.2% in 2004, 7.9% in 2005 and 8% in 2006. Other sources put the GDP figure even higher at an average annual growth rate of slightly more than 7% over the past seven years. GDP in 2005 stood at US$ 6,747,748, compared to a mere US$4,950 in 1980. This is remarkable given the grave situation in Darfur and the economic blockade imposed by a large number of nations, as well as the long North-South Civil War that ended with the official signing by both sides of the Nairobi Comprehensive Peace Agreement on 9 January 2005, granting Southern Sudan autonomy for six years, to be followed by a referendum about independence.

Not surprisingly, two major factors in the growth equation are China and oil. Oil revenues have become a major part of GDP, contributing to 49% of the total GDP in 2004, compared to 5.9% in 1999. China imported 81% of Sudan's entire oil exports to the world, while oil accounted for 98.8% of Sudan's exports to China. Of Sudan's total exports to the world in 2003, 40.9% went to China. China is indeed by far Sudan's most valuable trading partner, as, according to the OECD, Sudan's main partners 2004 were China (64.3%), Japan (13.8%) and Saudi Arabia (3.7%). In terms of Sudan's importance for China's economy, Sudanese oil accounted for no more than 5.5% of China's total imports of oil in 2004. Sudanese activist Ali Askouri has gone so far as to proclaim Sudan "The first country to become a Chinese colony."

Another interesting fact that is very much worth noting is that Arab investments in Sudan surged by more than 15 times from US$657 million in 2004 to US$2,341 in 2005. Despite all this, however, we should hope that the crisis in Darfur is not permitted to fade any more into obscurity than it already is. If the figures provided by the United Nations are correct, more than 200,000 people have been killed and two million displaced in the fighting. This should not be worth an economic boom. Khartoum says only 9,000 people have died, but this is not taken seriously by many. In any case, China, for one, does not seem inclined to budge even one inch from their principle of non-interference in the affairs of other countries (a policy that was established more than 50 years ago by then foreign minister Zhou Enlai). Without China, little can be done in Darfur. Without China, little economic growth would be witnessed in Sudan. China reigns supreme.

#63 The Energy Champion

2007-05-12T15:49:00.000+01:00

Every time we hear about Russia in the news in reference to oil and gas, it seems to be about Russian muscle flexing. In the past few years alone, Russia has used her vast energy reserves as a weapon in times of disagreement against not only the European Union, but also Georgia, Ukraine, her ally Belarus and, most recently, Estonia. But credit must be given where credit is due: Moscow is in a league of its own when it comes to securing her energy interests.

The proof? Just today (May 12, 2007) Russia announced an agreement with Kazakhstan and Turkmenistan to build a new natural gas pipeline north from the Caspian Sea, carrying gas from Turkmenistan through Kazakhstan to Russia. This is a major smack in the face of the EU, which had hoped to lessen their dependence on Russian gas by finding an alternative supplier in the form of Turkmenistan. This was to be done by creating a new pipeline under the Caspian Sea that would go through Turkey to Europe, thereby bypassing Russia. The gas routes as they stand today can be seen in the picture above (source: the Economist).

Even if the idea proposed by the EU were to take hold, some analysts doubt whether it would make a significant difference. ICG energy analyst Charles Esser pointed out that the EU could count on at most 20bn cubic metres of gas per year from a Caspian pipeline, which amounts to no more than 4% of EU consumption in 2004. Nevertheless, given the fact that the exact amount of gas present in Turkmenistan is unclear, a significantly high number could lead to the expansion of current plans and seriously reduce EU dependency on Russian gas in the long term. In any case, the deal announced today is a clear victory for Russia, as it effectively means that Turkmen and Kazakh gas will only be exported to Europe via Russia, putting the Europeans at the mercy of Russian caprice more than ever before.

China will no doubt see this deal as a loss as well, since they too were vying for direct control of Turkmen gas in their global quest to secure their energy needs in the most far-flung of places. In April 2005, deceased Turkmen President Saparmurat Niyazov had blessed the construction of a pipeline to China that would send 30 billion cubic meters of gas to China starting in 2009. Whether this deal will now go through is uncertain, though it seems unlikely that the Russian-Turkmen agreement will affect it. It does, however, give Gazprom and Russia a powerful bargaining tool in any future discussion, negotiation or conflict with China.

Say what you will of the Russian mafia-like monopolizing tactics, but effective they most certainly are.