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Sharing the Economy

Osama Rizvi

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[yt_dropcap type=”square” font=”” size=”14″ color=”#000″ background=”#fff” ] G [/yt_dropcap]one are the days to fret over the fact that you have no car and the weather is perfect to dine out tonight. Call yourself an Uber. If you are in China Didi will work. Peer to peer lending, fashion sites like Le Tote allowing women to “rent designer gowns for a special event at a fraction of the price of buying a new one” and Neighborgoods that allow you to borrow resources are changing the way we use to do and perceive business.

What is this? A new era? A new addition to the economy? Yes, it certainly, is. There is no need to burn in the feelings of envy. No need to chafe at thoughts of deprivation. If you cannot have it all at-least you can use most of it. “Only if I had this”, such phrases are becoming rare. Everything is on rent.

Collaborative Consumption, Collaboration Economy or Sharing Economy. It has been given many names. But what’s in a name? What matters is the effect it is going to have, from a “fringe concept it has grown into an economic powerhouse”. Sharing economy is an economy wherein owners of a particular underutilized asset rent out the belonging to others, using a digital platform, in lieu of some amount.  First things that come into the consideration set: Uber and Airbnb. But the business has gone far beyond from cars and rooms. “You can also rent camping spaces in Sweden, fields in Australia and washing machines in France.” To understand the concept of sharing economy there is an important idea to observe in all of its forms: The integration of traditional services with new technology made possible only by the use of big data.  A platform, website or an application, algorithms matching sellers and buyers, that is the paraphernalia required to contribute to the sharing world.

Why the importance of Data and Algorithms? Bernard Marr, an author and expert at technology and big data, explains in an article for Forbes, that without using an algorithm, service providers for example like Uber, cannot match riders and drivers. Both are already there, the customers waiting on the sidewalks, and drivers touring the roads. The application and algorithm makes it possible for both to meet, resulting in a successful business transaction. And for these algorithms to carry out their calculations, data is required. The trust issue, in renting your apartment, car or skateboard to a complete stranger, is not an issue anymore. Facebook and other social sites (see Traity, explained below) have rendered contacting anyone in the world at a click- away. One click and you can know where the person dines, what does he like, his attitude and so on and so forth. Moreover, the rating system in which the user and the provider both rate each other on different dimensions makes it easy to find about the customer/service provider. If an Uber driver had an altercation with some customer he might chose to not to entertain him next time as he can easily identify the man with the use of mobile application.

There are many benefits to this sharing world as well. Sharing economy is growing by leaps and bounds. It is projected to grow to $335 billion in 2025 from $15 in 2014. The pace at which the businesses in this economy are burgeoning is astounding. It took 93 years for Hilton Hotels to build 600, 000 rooms while Airbnb can tout that number only after four years. Didi completed 1.4 billion rides in 2015. Uber took 6 years to cross the 1 billion mark. Moreover, this new economy is changing the way we do business. People are buying assets only to rent them out. With applications like Traity, that allows users to make a “reputation passport” and where anyone can run a credibility check, the long standing trust issue we faced is fading away. Also, there will be more “citizen-led innovations”. Two years back at Davos, there were discussions about utilizing this sharing economy to meet Sustainable Development Goals.

In future we will see entrepreneurs shifting focus from simple “production to coordinating production”. Firms like Airbnb are based on models that have no resources of their own. The barriers to entering in a business are low in this collaborative economy as compared to the traditional one. As one article puts it, “Finding investors and funding is one of the biggest challenges facing entrepreneurs, especially in the early stages of business growth, so a sharing economy that dramatically reduces the need for starting capital means more opportunities for the best ideas to succeed.” The focus will also shift from ownership to maintenance. A man who owns an object that can be put to use to earn some income will continue to strive for “users”. There can be business models in which the traditional manufacturers take the excess capacity to these peer-to-peer sites.

China is a leading example where the sharing economy is proving beneficial to its economy. From Basketballs to Umbrellas and Bi-cycles you can rent almost everything. In China the sector can account for 10% of GDP in 2020 with estimates reaching up to 20% by 2025.

But there are some issues that remain to be addressed. For example, an article in The Economist highlights the problem of taxation for these peer-to-peer businesses. Also, the factor of “taking responsibility” is a major factor, writes Steven Poole for The Guardian. “When something goes horribly wrong with an Airbnb or Uber transaction, the companies just say: “It wasn’t me.” (The mega-corporation is purportedly neither buyer nor seller but innocent middleman.)”

Regulations might be needed to keep a check on these companies and discourage them to build a monopoly. However, the Sharing Economy is, with its lots of pros and a modicum of cons, a profitable and useful innovation of 21st century, bound to grow in the future to come.

Independent Economic Analyst, Writer and Editor. Contributes columns to different newspapers. He is a columnist for Oilprice.com, where he analyzes Crude Oil and markets. Also a sub-editor of an online business magazine and a Guest Editor in Modern Diplomacy. His interests range from Economic history to Classical literature.

Market Insights

Oil Markets Ignoring Realities

Osama Rizvi

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Brent oil touched $68 last week. WTI is already past $60 mark. Inventories are down by 20% nearing to the five year moving average of 420 million barrels. But all is not hunky-dory with the oil markets. There are some wildcards at play right now. Temporary factors, driving prices up. The markets and observers need not to lose sight of what are the potential risks to this upbeat and probably short-lived phase of recovery.

Last year we saw the Kurdish referendum which resulted in a price hike. However, we didn’t know that 2018 will have another big surprise (distressing one) in its stock: Unrests in Iran. Slogans like “Death to Khamenei” cannot be taken lightly. Nor the killings that have ensued as a result of these protests. Government has warned to deal with an “iron fist” in order to control the situation which only seems to get worse. This is one of the factors that are drawing oil prices up, representing the typical relationship between any unrest/disorder/conflict in Middle-East resulting into a higher oil price. But matters are not that simple. If these unrests can translate into a higher oil price, it can also cause Iran, in case tensions escalate, to leave the Vienna accord. This can be due to more sanctions slapped upon the regime in case they take any serious action against the protesters or due to general economic problems that might result, once again, if matters exacerbate.

Pipeline outages also helped to provide some buoyancy to oil prices. Disruptions in Forties Pipeline, one of the most important in the world, gave prices a boost when the company announced that it can take a longer time to repair the hairline crack that appeared in December, 2017. However it is fully operational as of now.

The recent meeting wherein members of Vienna accord decided to extend their deal for the full 2018 year was another cause of merriment for the oil markets. But that caveat according to which the members will meet again in June to review the situation can be taken as a wicket-gate for the ones who want an exit. Russia has already signaled to take about an exit strategy. The oil executives in Russia are not happy to see the growing U.S. shale production and market share.Kingdom of Saudi Arabia has its own reasons. They have an IPO to take care of hence; they are trying to keep all these oil producers together. But the question might be asked: For how long? It is their company (Aramco) and their IPO. Not every country in the region has a plan to wean itself off oil.

What has become a necessary part of the narrative whenever discussion the future of oil, in terms of prices or usage, is of-course, United States of America. U.S’ shale production has risen from 8 million barrels in 2016 to 9.78 million barrels per day (latest). The estimates for future rise in US production are promising. What is also important, but obvious, to mention here about the vicious cycle that higher oil prices trigger. The solution to which is only a stronger demand.

Even though oil prices are at post-crisis high it doesn’t mean that the trend will continue. Sustainability is the most important and decisive factor. Geopolitical risk premiums are temporary. So are the pipeline outages (if in case there are any in future). Time and again, we have to remind ourselves of not getting carried away by these ephemeral rallies. We should look for something sustainable, permanent, and fundamental. Until or unless we find it, the search for higher oil prices should continue.

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Market Insights

Shale growth, Geopolitical tensions and Re-balancing

Osama Rizvi

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It has been a wild ride for oil prices. November 4th, 2017, prime minister of Lebanon Mr. Hariri resigns, at night missiles from rebel occupied Yemen can be seen hurtling across the sky of Kingdom of Saudi Arabia. What begins next has been widely covered by all the major media outlets.

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Market Insights

Crude Oil Bearishness Is Here To Stay

Osama Rizvi

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Despite seven weeks of inventory withdrawals, the global oil market has failed to translate this effect into a sustainable and significant oil price increase.  Doubts remain.  As reported, OPEC production has edged up. The compliance rate among OPEC and NOPEC members of the Vienna deal, extended to March 2018, has fallen. US production has added more barrels to global production.

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