The Globestrategy blog – Page 2

Why ‘revolution’ is the new buzz word in the MENA region.

Last week was so tumultuous that some of us rediscovered TV. The Middle East & North African region has come to life and is now the new Mecca for news producers. Revolution, people/mob power, state sponsored killing sprees, toppling of established power structures and the re-affirmation of the right to protest against the ignominies faced by the common people was staple fare.

What is needed now is a perhaps an analysis into the forces that prompted this?

Some commentators have linked this to the domino effect of Tunisia & Egypt where people tasted success. History has provided many examples of this effect. The crumbling of the Berlin wall followed by a series of government failures in the Soviet Bloc is a related event, You can also argue that 1997 Asian Flu that brought chaos and a recession across many states was a harbinger of the more closely linked one in 2008 that brought many of the G7 states to their knees.

What are then the common linkages in the MENA states that are facing turmoil? My first bet would be on the forces of Globalisation as seen through the lenses of a news hungry media empire. The Twitter/face book inspired street protests were brought to life by tantalizing newsfeeds from embedded reporters and a generous support of Arab nationalism.

The second is Economic: Declining state revenues in states like Bahrain, Egypt, Yemen and Oman combined with anger against a growing income disparity in states like Libya, Kuwait & Saudi Arabia. To this when you add a growing young unemployed population with no hopes of earning a decent living, you set the scene for revolution.

The third linkage is the most quoted one, a lack of democracy and the promulgation of ruling dynasties. Imagine your reaction as an unemployed Libyan to the news that the Gaddafi family & cronies control almost everything from lucrative business empires down to the way you think and live your life. The situation is similar to Saudi Arabia and Bahrain, where thousands of ‘Princes’ have state salaries, freebies and immunity from almost everything while over 40% of the populace live in poverty.

The fourth linkage is geopolitical: a reflection of a transforming Multi Polar world where the Americas of the world must yield to the IRANs and CHINAs of an emerging world. Iran has set this in motion with trying to send two frigates into the Suez across to Syria, leading to a rethinking of our understanding of the military balance in the region. Most of this has been attributed to an isolation of Iran and the Cooperation between Egypt, US and Israel. With regime change in Egypt, there is a fear that this ménage a trios would have to accommodate Iran.

When all of this madness ends, what most commentators argue is that regardless of whether there is regime change or if a transition to democracy happens, the MENA region would have changed so drastically that many of the ‘Power Actors’ would have to rethink their own privileged existence and spend more on the welfare of their states. When that happens, Globalisation would have earned itself pat on the back for changing lives in region long ignored by the rest of the world.

In the name of a just God

Having read Damian ‘s Thompson’s piece in today’s Telegraph , on the destruction of Islam’s heritage in its holiest place, I begin to wonder if there is a politico-demonic agenda behind state driven attempts at destroying the purity within religions. How else can you condone the modernization of Mecca by trampling on its link to antiquity, which has for centuries ensured a steady stream of devotees? How else can you justify as the Taliban blasted 3rd Century Bamiyan Buddha statues to oblivion? or in the recent past, the destruction of 15th century Muslim shrines in Timbuktu, northern Mali by hardliners.

Even within stable democratic systems, this logic still prevails,-the destruction of the Babri Mosque in India with the world’s 3rd largest security apparatus watched in mute spectacle as 2000 lives were lost in the name of God, is yet another case. Another case was the bombardment of Sikhism’s holiest Golden Temple complex in Amritsar, in 1984 .
Moving down into history, the story of Jerusalem, holy to three major religions and yet claiming its share of daily human lives while politicians dither, stands out as another case of deliberate unresolved political stalemate

Within the emerged world, the secularization agenda of governments in the UK has brought its share of trampling on the sanctity of religions whilst creating more fundamentalists in the process.

Can we leave this behind and return to being normal children of a just creator? Can we return to the simplicity of practicing our beliefs within personal spaces and respecting everybody else as we practice them? In the process, can we also strip statues/relics/tourist sites of its religious overtones and admire them for being works of Art that they are. In doing this, we respect the effort that would gone into creating them as well honour the creativity of religions in helping preserve culture for generations. And we also deny fundamentalists of the support, they crave to promote deviant behaviour as the destruction of cultural artifacts.

Are we as Karl marx would have put it ,moving into an era where” Religion is an opium to hold the vast masses in the state’s thrall”? Or is there something more sinister in the air?

From raising chickens in India to running an english club

Today’s news that India’s Venkateshwara Hatcheries(VH) has bought the Blackburn Rovers is another milestone for the innovative Indian group. Being the first Indian Owner of a English Premier League (EPL) club is certainly interesting for a company that many in India would associate with being the first to scientifically rear Chickens!!! Not that the Government run research institutes did not do this part of their raison d’être. Venkys was the first commercially successful one and many farmers still swear by their hatchlings.

Why would anyone operating in this industry in India want to be associated with English Football? The answer is strange and yet simple. Anuradha Desai,CEO of VH has been quoted as saying that football would provide a linkage for their global ambitions. It will provide a global reach to markets where they do not currently have access or they cannot compete with their existing suite of products. The group has been integrated vertically in the eggs and chicken business by opening restaurants as well as setting up research facilities to breed better chickens. VH has also diversified into unrelated activities like films, wine retailing, biscuit sales, pet foods and even disinfectants. Some of these forays have failed spectacularly too.

However in their core business, VH’s international strategy seems well thought out. They have tried to source products from several low cost nations like Bangladesh and also have tried to build market share in Africa and the Middle East. But today’s move is radical indeed! Want to use the EPL to launch a European base for future operations? You would have thought running a football club is a different ball game- a tricky one with no relation to the core business. If the Indian newspaper- the Economic times is right, the only possible link is the friendship a VH director has with the Bollywood actor, Sanjay Dutt. Football you see is also entertainment!

Time will tell if this was a right strategy – radical thinking out of the box sometimes does help in Internationalisation. Think NOKIA and the radical shift from Paper to Mobile phones, eh? Will this add more value to the firm or will it be like VH’s other forays and be a £46M loss making move? The answer might blow in the wind sometime in the future.

The Elephant trumpeting at the Dragon: Stealth diplomacy in South Asia

Now you see it and now you don’t. China’s recent display of a stealth fighter has in many ways served its purpose. It is still a long way from being operational and posing a treat to the only other competitor. But it has provoked India and the US to respond with counter moves of their own.India has reacted very strongly to China’s issue of a stapled visas to people of Arunachal Pradesh (or South Tibet) as the Chinese would like to call it and set in motion a diplomatic offensive on China. The Indian Army Chief has denied indian media reports that Chinese Troops have intruded across the Sino-India Border, but accepts that both Armies have engaged in Infrastructure development at the borders. I am not been paranoid here, but one needs to ask why India took this moment to announce a major revamp of its Army. It has embarked on a $100 Bn drive to acquire capabilties. A new strategic command has been set up and a mountain strike corps aimed at China has been announced.The Indian Navy ties up a pact with Vietnam to modernise Vietnam’s fleet.The US in its big brother role has said it needs to be in the pacific to counter China agressiveness and technological advances.Hillary Clinton has also joined the fray with the usual cry of asking China to revalue the RmB, perhaps thinking that this would decrease trade imbalances as well as reduce China’s soveriegn reserves.It also moves to continue the encirclement policy by engaging with Japan, South Korea and Taiwan.What about our part of the world?, Opinions is as usual divided on anything chinese. The UK has welcomed Chinese Pandas and investment into the isles but is furious accoding to the MEP, Daniel Hannan on the EU’s decision to lift the arms embargo on China. Portugal and Spain are happy that the Chinese are buying its debt, but some have concerns of the effect on the relationship between the Euro and a Yuan.What these actions lead, to apart from reaffirming the economic might of China and India,is a dangerous shift to a strongly polarised world where the struggle for regional dominance rides over the more pressing needs of the 2.4Bn people resident in these countries. Where economic growth has created vast opportunties that are squandered on geopolitical games in either Gwadar or Chabhar.Do we need more MAD weapons to shore up national pride or do we take 50% of the people out of poverty? Do we provide more access to health care and education? Or do blow it up on a stealth fighter that none sees anyway or on supporting a huge army which serves no purpose in times of peace. History has a bad way of reminding us of the fate of dominating powers and perhaps these irresponsible emerging states would look back once and think of a better tomorrow

The Obama Encirclement of China

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?

On why Dubai wants a piece of India’s real estate

The $335M Smart city project in Kerala State has been in the news in recent times. Both partners- The Governments of the emirate of Dubai and the State of Kerala have engaged in mudslinging allegations . One of the major issues has been the demand from Dubai that that Kerala should hand over 12% of the 246 acre project as freehold land. Dubai claims that this would later be sold to investors once the project was completed, yielding a better return for them. Kerala has refused to release the land as freehold and wants Dubai to have it on a long lease basis.

In a state of India where high literacy has created more awareness of global issues and where public engagement with government policies is the norm, selling off Kerala’s sovereign land to another country will not go down easily. To make matters worse, the state is ruled by the communist government, which once initiated one of the most successful land reforms policy. Many of their previous policies have stirred controversy even though history would later prove the soundness of some of the policies. Of course, the man at the top of the government of Kerala, a communist of the old school does exhibit some idiosyncrasies like calling the CEO of SmartCity , a’ drunk’ Arab and he also suffers from a serious case of the foot-in- the mouth syndrome at press conferences.But let us leave that aside and ask why Dubai still persists in wanting the freehold land? 23 board meetings later, the issue still remains and now the emirate wants to go for legal action or arbitration. Why force a state to part with its land? Will Dubai allow the Indian government to have free hold land in Dubai? Why not go down the time honoured route of long term lease? Examples abound of the success of long term lease in protecting investments. Hong Kong is one!.

Several streams of strategic intent can be argued on why Dubai wants the land.

A. To diversify sources of its GDP and wealth creation by moving into a growing and powerful economy.Dubai GDP is Dh68.397 million with projected growth rate of 0.3% growth and strongly dependent on services.

B. The Traditional High ROI model of selling excess land once the project is successful.

C. Locking by investment into one of the fast growing cities in the India, KOCHI with the new found importance of its sea port and the new transshipment container port. Or is it the naval assets and the potential of India only mega ship building facilities.

D. Creating a media circus that would mask an EXIT strategy for the project. The recent sovereign debt rescheduling by the Emirate & over $18 billion sovereign and quasi-sovereign debt obligations in 2011 would add support for this.

E. A delaying tactic to wait for the congress party to come back to power in June and approve the sale of land. The party has already supported the demand.Many commentators have suggested this would then open up a huge stream of corruption for other vested interests like Indian Business men in the UAE and of course for the Congress Party, which in recent times has made a mockery of the rule of law with corrupt ministers and officials.

Whatever is the outcome of the project, it has once again proved that doing Business with India still defies normality, even as we strive to be counted amongst the World’s powerful states.

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.