Has anyone seen any geopolitical connections with the US president’s visit and China-US relations?.Obama starts with India,and moves on to Indonesia, South Korea and Japan. The main reasons are economic if the Guardian is to be believed. However, if you were to look at the countries he visits, Indonesia has a GDP growth rate of 6.2%, India has 8.4%, South Korea has 6.1% and Japan has 2.8% growth rates respectively. the importance of these markets to the US economy, only Japan and South Korea matter in the top 10 trading nations.China and Canada are the top nations. One can argue here that Obama is seeking to diversify trade perhaps by offering the world’s third largest economy sops and also seeking to engage Indonesia as an emerging market.What if you were to see beyond this to China-US issues and its trade spats with the US including the currency wars, dollar denominated bonds, huge chunks of Federal reserve gilts and try to correlate this with the issues China has had with Japan and South Korea over territorial incursions as well as its constant rivalry with India? Do you see an Obama administration wishing to flex a China containment strategy by cozing up to China rivals? The enemy of an enemy is a friend, eh?
Month: July 2016
On why Dubai wants a piece of India’s real estate
The Economic implications of a Royal wedding
Channel 4 reports that the either the government or Her majesty would foot the bill of Prince William’s wedding in either in 2011. Opinions are divided on the cost of the wedding. The guardian reports that the 1981 wedding including security could have cost around £30m which could be upto £100m in today’s terms. If the Queen is denied any increase in the civil list, her personal fortune would be hit. How much of that wealth is there, is itself ambigious, as the Queen holds much of this wealth in trust for the nation. The Times Rich estimates her fortune is £290m and a £100m deficit might be too much to stomach for Her Majesty? The government will have a lot of wrangling to do before parliament appproves this additional expenditure in times of uncertainity.Will this provide value for who ever foots the bill? I think it will.Ofcourse as this is my off the cuff assessment, it may be slightly off,the exact estimates. Prince william is still by far the most popular Royal with a credible public persona and his wedding will be a media frenzy that could draw the tourists to the UK. Government Statistics indicate that the UK earned over £4.3Bn last year. A mere 2.33% hike in tourist arrivals would pay for the wedding. What about the other parts of the economy? Souvenirs and other copies of royalMemorabilia would produce an economic boost -but only if it was manufactured in the UK and not in china or other lower production states! What about the value of its morale boost to a populace battered down by cuts and cuts? Remember the Churchill era and the value of good PR in times of crises. The wedding might do that now and spur all of us to create more value than we spend on it.
Will the Egyptian sphinx smile or cry?
The Egyptian street protests are now in their 7th day and there seems to be no logical end to it. With a protest of this magnitude, fuelled by pent up frustration, media coverage and unprecented coordination of people across cities, you would expected either a total suppression by the regime or a victory for the people. Instead, you see Mubarak ordering the Police to take charge of the situation without firing live ammunition.( some media reports have indicated that live rounds were indeed used). The police fail to take the streets back and then the army is deployed on the same rules. Witness here the spectacle of soldiers chatting with people almost as if they were on a day’s picnic. Why, one would ask, is there no move on the part of any of the belligerents to end this? As always, the answer has to be found in within a web, we call, foreign affairs. Big Brother USA has a vested interest in maintaining a status quo in Egypt, partly for strategic reasons (The Suez falling into wrong hands???) as well as in ensuring Israel’s military balance in the region remains unchallenged. Another could be a need to prop up monarchies/autocracies across a region which produces some much of world oil and in turn control them by manipulating regional rivalries. Egypt could be the breath that brings down the whole house of cards.The US has not publicly denounced Mubarak nor has it supported it. Sending a former ambassador, Frank G Wisner, as a private citizen is also a non- committal stance. Mubarak has tried to play his own set of moves, reshuffling a cabinet, creating a line of sucession outside the family, and raising the spectre of anarchy if he were to fall. All of which leads us to the third part of the web. The Egytian Army has been the backbone on which a post- King Farouk era was forged. It has been well regarded by the common man as a defender of its sovereignity.(How much of that is true or a myth depends on your interpretation of the Yom Kippur War). the army is also the fountain of power from which the pharoahs, ancient and contemporary derive their legitimacy to rule, unlike the monarchies which obtain the right to rule from divine grace. The army by its actions wants to present a Iron fist clad in a velvet glove as they walk a line between the people and Mubarak. Some reports have even gone to suggest that Mubarak is now being told what to do by the army. But why does the Army want to retain power? An entity that recieves over 1% of the country’s GDP as foreign aid from the US would not want to rock the boat, even if it needs to sacrifice some old pharaohs. Nor does it want to be subject to a greater power than its own after almost 50years of indirect rule.What do the protesters want? Nothing more than Mubarak quitting. No future plans are being discussed. The opposition groups are in opposition to each other and cannot unite. All one hears is the cacophony of ‘Go Mubarak!!!. Perhaps, the Army might graciously ask Mubarak to leave and with an estimated 20billion in , the Sphinx might attempt a wry smile as he savours life in the midst of plenty. For the people with their immediate need met, they might look forward to another sphinx ruling for 30 more years.
National Champions and the Rise of protectionism from the East
Jaguar Land Rover(JLR) is reported to need around $400mn for its expansion plans in 2013 and it turns once again to the city state of Singapore. TML holdings Pte, a wholly owned subsidiary of TATA motors has issued S$350Mn worth of notes at 4,25%. In addition, another TATA subsidiary, Abja Investment Co Pte, has raised S$300Mn at 4.95% there. Plans are on the anvil for a potential fund roadshow that will generate $ 1Bn for JLR.
What is about Singapore and the TATAs? The story begins in in 1972, when JRD Tata was asked by Lee Kuan Yew to set up a precision engineering unit and a training institute. In time, the Tatas would sit on the board of Temasek,the Singapore Economic Development Board and the board of the Monetary Authority of Singapore. Perhaps a common belief in mercantilism and the ‘state’ control of strategic industries was the key driver of the partnership. Tata would go one to invest in the state with the Indian government blessing.
The closeness of the TATAs to Singapore would prove beneficial in 2008 when Tata was bidding for JLR and this is where our story of eastern protectionism begins.
In February 2008, the Indian Army made a move towards seeking a replacement for the aging Czech owned TATRA platform for its Light Specialist Vehicle (LSV). TATA motors was pitted against Ford owned Land rover and it seemed that Land rover would be better placed to win the contract.The land rover offer was the multi-platform Defender which included a weapon platform for machine guns, a dedicated communications vehicle and optional ambulance operations. Although the TATAs were partners of the Indian Army from 1958 and a ‘national interest’ champion, the four military variants of the Defender—the backbone of the British Armed Forces was better placed to win the 55,000 vehicle deal.
But Land Rover was foreign owned . The Indian Army and by extension, t
he government wanted to reduce its dependence on imports, have
indigenous produced combat vehicles and own intellectual property rights for the source codes for any Vehicles, to prevent conflict of interest during any an insurgency.Automobile firms in private sector like the TATAs and Mahindras would now play a bigger role in the years ahead to spearhead the acquisition of assets,
The opportunity to have an Indian owned supplier to the Indian Army would come later in 2008.
As Ford began seeking suitors for Jaguar and Landrover, the TATAs would enter the race along with Mahindra. The business press had a field day reporting on the upstart from India trying to take over iconic British Brands.
Max Warburton, a leading global automotive analyst is reported to have termed it a ‘ romantic act’ on the part of an Anglophile. ”No one would make profits from Jaguar”. Ford knew that selling Jaguar would be difficult and insisted that both brands would be sold together.
TATA motors would go on to buy JLR using Singapore as the base for funds syndicated by a consortium led by the State Bank of India and using a SPV set up there. Funds would come in from Royal Bank of Scotland, the Governments of India and Singapore, HSBC, CITIBANK, other Indian State owned financial houses and of course , Singapore’s sovereign fund, TEMASEK.
Why would the TATAs buy a loss making car brand in the recession of 2008? There was no operational synergy with TATA motors. Sentiments aside, it made no sense unless the real target was Land Rover and the Indian Army’s need.
We now know that this was the reason. The Indian Army last week is reported to have completed field trials of the Defender and Discovery platforms. The company has released a media statement that it expects to get over two-thirds of the $10bn business. In other words, around 42,000 new land rovers or almost 30% of current production targets will be produced for one key customer.
Economic nationalism, supported by government institutions is the new trade objective. Move over, the US and the traditional concept of imperialistic entry modes.
The East has perfected the art of economic warfare, if one is to look critically at the many Chinese and Indian mega takeovers of strategic assets.
In the scheme of things, the Indians have been laughing all the way to the bank. Buying a strategic national interest resource for $2.3Bn using low cost global funds,then turning the car business into profits on the basis of demand from emerging markets, and now owning a game changing capability.
A example of the rise of new protectionism from the East!
The Global Business of keeping America solvent
Will Rogers, the american satirist once remarked ‘ All I know is just what I read in the papers, and that’s an alibi for my ignorance’
It sums up the media frenzy today on the US government going broke!
Do you really think the world’s largest economy will do that ? How hard is it for congress to raise the debt ceiling by a few more trillions when US debt ceiling has no limits? How gut wrenching is this decision for its lawmakers? Remember we went through all of this as congress raised the ceiling 10 times from 2001 with no moral qualms about the level of debt. After does it matter, if you owe 17 or 20 trillions if you are reconciled to never bothering to pay this debt in the foreseeable future?
The soothsayers are out already debating the US sovereign default in almost of of the world’s media. But will America default?
Historically, barring 1979, when a technical glitch caused the Treasury to default on $120 million of notes, there has been no defaults of US sovereign debt. After all how can you default when you own and manage the global economy’s currency of choice (US$) and your debts are also denominated in your own currency?. The worst case scenario would be printing more US$ bills to repay debts as Alan Greenspan once claimed.
If this is not the frenzy is all about, let us look at a few reasons:
The first reason is political. The BBC’s Linda Yueh has touched on the adverse effects of tightening US outward FDI on the emerging economies of Indonesia, South Africa, Brazil, Turkey and India. She calls the ‘Fragile five’. Linda argues that ‘these states have the most to lose when the US Govt restricts capital, since all of them run current account deficits and rely on capital inflow to service their repayments’ You can read the full article by Linda Yueh here.
These states have growing economies, are emerging out of their cocoons and most importantly are ‘gateways’ to geopolitical focus regions. All of these five states are facing elections in 2014. Restricting capital could strangle these economies even for a few hours and this act coupled with political instability in the states could lead to even worse effects.
The second reason is fairly straight forward. The shadow financial institutions of the global economy stand to gain the most if there is a period of uncertainty. Gold has already peaked in many regions and is unstable as we wait. Oil prices are also on the roller coaster as we wait for the Fed and Syria to make up their minds on which is the better evil. Chemical warfare or more debt.
Amid all of this chaos, the financial world makes its money and when the debt ceiling is raised, rests till another day
I could be wrong of course and we could see the largest economy default.
To GDP or not to GDP
We have been bombarded with media reports of the UK’s recent increase in GDP as a sign of the new economic prosperity. Chanting this magic mantra is the new age therapy for most politicians. So what is ‘GDP’ and how relevant is this to the real growth of a state.
Robert Kennedy once said that GDP ‘measures everything except what makes life worthwhile’. Ironically this is so true of the way the term GDP has been repeatedly abused.
My mapping below gives some of the key aspects of GDP which you can read further (whilst on coffee or something more sinister and deadly fueled) on a trawl of the internet.
Looking at this map, we can see that the news that the UK will spend £2.5bn on buying new F-35 fighters will certainly add to the GDP whilst ignoring the fact that 20000 children in the UK spent Christmas without presents and ‘real’ food (read the story here http://bit.ly/1m4kTYm ). This dire fact will not be picked by the GDP chanters. It will also hide the fact that the UK trade indicators presented a deficit of £7.7 billion on goods while we recorded a surplus of £6.7 billion on services, a vast chunk of it from the financial sector.
Quoting Hamlet, I leave you to decide on whether ‘tis nobler in the mind to suffer’ further abuses of the GDP measure or ‘to take arms against a sea of troubles’ caused by the misuse of GDP.
Putin,the EU and the return of the Black Sea spring
The answer, lies in Ukraine’s geostrategic value to the EU and the grand Russian dream of Mr. Putin.
Sea Trade and politics
The total seaborne trade is the region is minimal about 2.5% of global trade. But Russia and the Ukraine alone handle over 75% of this trade. The Ukraine is clearly the largest country with its ports at Odessa, Mariupol, Illichivsk, Mykolaiv, Izmail. Russia on the other hand depends mostly on Novorosiysk for access to the black sea.
The Indian Avatar of Democracy
I must start this post by recanting a bit of history.
In Athena, circa BC 508, Cleisthenes , an aristocrat and grand son of a tryant is credited with creating demokratia – ‘government of the people by the people for the people. Although, some research claim that democracy had been around in an earlier practice in 1500 BC. Democracy as a form of government in Athena would survive for another 150 years until the Roman Invasion subdued it. Revolutions would reawaken democracy in 18th century France and US.
In the modern world, we celebrate the spread of democracy and its core concepts, linking it with concepts of personal freedom, free trade, liberty and freedom of expression. We are conditioned to believe that representative democracy is the best form of government for all states. While true in most cases, the process of electing representatives in many states have had its inherent flaws.
In Athena, representatives were elected by lots, as this was considered to be the most democratic process, not by election. The argument was that election would favour the rich and powerful over ordinary citizens. Another practice was the practice of ‘ostracism’, where citizens could vote to exile politicians for up to 10 years. True representative power!
Consider now case of India, celebrated as the largest democracy with over 814 million voters and having survived as a democracy in a region synonymous with dictatorships, military rule and single party states. A true poster for democracy with over 6 national political parties, 36 state parties, 324 regional parties and 24 new parties awaiting approval for the 2014 election. The electoral college of 814 million voters choose 543 representatives to represent them in parliament. The people power of 1.2 billion citizens.
A closer look at this election, reveals the flaws with India’s brand of democracy.
- Identity politics based on caste, religion and family ties, dominate the selection of candidates and their winning of seats.
- Bigotry and hate speeches are often used to mobilize vote banks. One potential MP has 19 cases registered against him on account of inciting violence.
- Politicians use ‘ dummy’ candidates having similar names to confuse/fool voters and thus split voting patterns.
- 18% of the 1492 candidates have criminal cases registered against them.
- A candidate of the new anti corruption party, AAP has over 300 criminal cases against him and the police still treat him as an absconder from justice.
- 41% of the opposition BJP party’s MPs face criminal charges, compared to 24% of the ruling congress party’s MPs
- 30% of the current representatives in parliament have criminal records of some sort.
- The supreme court of India tried a form of ostracism by ordering convicted politicians to be banned from politics. This was opposed by the ruling party and has now been withdrawn.
- Over 30 candidates have been charged with rape.
- Corruption dominates Indian elections, and the state has slipped down 15 places to be ranked as the 95th most corrupt country.
- 3 Cabinet ministers have been sentenced to imprisonment whilst holding offices
- One MP has won 4 sucessive elections whilst being jailed for life. He still continue to discharge his duties from jail.
- A single family dynasty (Nehru-Gandhi) has dominated politics for most of India’s 64 years of democracy and we still call it a representative democracy!
- Parliamentary seats have inherited by political families including the Gandhis and many former kings who have traded thrones for seats in the peoples parliament.
- Every Indian MP under the age of 30 is hereditary and two-thirds of Indian MPs under the age of 40 are from political families.
- The ruling dynasty has been charged with manipulating real estate prices and secreting billions of dollars gained from dubious deals involving guns, helicopters and ‘cows’, in overseas tax havens.
- A Key prime ministerial candidate, Narendra Modi has been accused of engineering violence against minorities, whilst the current PM has had the dubious distinction of presiding over the most corrupt government, whilst remaining personally untainted.
Perhaps, we need to reclassify India as a Dynastic democracy ( a termed made famous by Tavleen Singh) instead of celebrating it as the world’s largest democracy. Athenians would cringe at the state of democracy in India, if we could bring them back to today. Another apt definition could be of India being called a ‘cunning state’ that ‘capitalises on its perceived weakness in order to render itself unaccountable to its citizens‘.
On a closing note, i would still prefer to have India’s experiment with democracy than be a subject of any other alternative forms of government. Perhaps, democracy in its Indian avatar was meant have its flaws. Or is this avatar, truly representative of the people of India?