Connect with us

Economy

The Economic Blunders Behind the Arab Revolutions

Published

on

Sometimes economies can’t be fixed after decades of statist misdirection, and the people simply get up and go. Since the debt crisis of the 1980s, 10 million poor Mexicans—victims of a post-revolutionary policy that kept rural Mexicans trapped on government-owned collective farms—have migrated to the United States.

Today, Egyptians and Syrians face economic problems much worse than Mexico’s, but there is nowhere for them to go. Half a century of socialist mismanagement has left the two Arab states unable to meet the basic needs of their people, with economies so damaged that they may be past the point of recovery in our lifetimes.

This is the crucial background to understanding the state failure in Egypt and civil war in Syria. It may not be within America’s power to reverse their free falls; the best scenario for the U.S. is to manage the chaos as best it can.

Of Egypt’s 90 million people, 70% live on the land. Yet the country produces barely half of Egyptians’ total caloric consumption. The poorer half of the population survives on subsidized food imports that stretch a budget deficit close to a sixth of the country’s GDP, about double the ratio in Greece. With the global rise in food prices, Egypt’s trade deficit careened out of control to $25 billion in 2010, up from $10 billion in 2006, well before the overthrow of President Hosni Mubarak.

In Syria, the government’s incompetent water management—exacerbated by drought beginning in 2006—ruined millions of farmers before the May 2011 rebellion. The collapse of Syrian agriculture didn’t create the country’s ethnic and religious fault lines, but it did leave millions landless, many of them available and ready to fight.

Egyptians are ill-prepared for the modern world economy. Forty-five percent are illiterate. Nearly all married Egyptian women suffer genital mutilation. One-third of marriages are between cousins, a hallmark of tribal society. Only half of the 51 million Egyptians between the ages of 15 and 64 are counted in the government’s measure of the labor force. If Egypt counted its people the way the U.S. does, its unemployment rate would be well over 40% instead of the official 13% rate. Nearly one-third of college-age Egyptians register for university but only half graduate, and few who do are qualified for employment in the 21st century.

That is the tragic outcome of 60 years of economic policies designed for political control rather than productivity. We have seen similar breakdowns, for example in Latin America during the 1980s, but with a critical difference. The Latin debtor countries all exported food. Egypt is a banana republic without the bananas.

The world market pulled the rug out from under Egypt’s mismanaged economy when world food prices soared beginning in 2007 in response to Asian demand for feed grain. Meantime, the price of cotton—on which Mr. Mubarak had bet the store—declined. Now Egypt’s food situation is critical: The country reportedly has two months’ supply of imported wheat on hand when it should have more than six months’ worth. For months, Egypt’s poor have had little to eat except bread, in a country where 40% of adults already are physically stunted by poor diet, according to the World Food Organization. When the military forced President Mohammed Morsi out of office last week, bread was starting to get scarce.

Since 1988, Bashar Assad’s regime misdirected Syria’s scarce water resources toward wheat and cotton irrigation in pursuit of socialist self-sufficiency. It didn’t pan out—and when drought hit seven years ago, the country began to run out of water. Illegal wells have depleted the underground water table. Three million Syrian farmers (out of a total 20 million population) were pauperized, and hundreds of thousands left their farms for tent camps on the outskirts of Syrian cities.

Assad’s belated attempt to reverse course triggered the current political crisis, the economist Paul Rivlin wrote in a March 2011 report for Tel Aviv University’s Moshe Dayan Center: “By 2007, 12.3 percent of the population lived in extreme poverty and the poverty rate had reached 33 percent. Since then, poverty rates have risen still further. In early 2008, fuel subsidies were abolished and, as a result, the price of diesel fuel tripled overnight. Consequently, during the year the price of basic foodstuffs rose sharply and was further exacerbated by the drought. In 2009, the global financial crisis reduced the volume of remittances coming into Syria.”

The regime cut tariffs on food imports in February 2011 in a last-minute bid to mitigate the crisis, but the move misfired as the local market hoarded food in response to the government’s perceived desperation, sending prices soaring just before Syria’s Sunnis rebelled.

Economic crisis set the stage for political collapse in Egypt and Syria, even if it wasn’t the actual spur. The two Arab states are, of course, not the only nations ruined by socialist mismanagement. But unlike Russia and Eastern Europe, they have no pool of skilled labor or natural resources to fall back on. In this context, Western concerns about the niceties of democratic procedure seem misguided.

The best outcome for Egypt in the short run is subsidies from Saudi Arabia and other Gulf states to tide it over. Egypt’s annual financing gap is almost $20 billion, and it is flat broke. The price of such aid is continuing to sideline the Muslim Brotherhood, which the Gulf monarchies consider a threat to their legitimacy. The Gulf states have pledged $12 billion in response to Morsi’s overthrow, averting a near-term economic disaster. That’s probably the best among a set of bad alternatives.

Syria may not be salvageable as a political entity, and the West should consider a Yugoslavia-style partition plan to stop ethnic and religious slaughter. Even the best remedies, though, may come too late to keep the region from deteriorating into a prolonged period of chaos.

Continue Reading
Comments

Economy

Finding Fulcrum to Move the World Economics

Published

on

Domenico Fetti / Wikimedia Commons

Where hidden is the fulcrum to bring about new global-age thinking and escape current mysterious economic models that primarily support super elitism, super-richness, super tax-free heavens and super crypto nirvanas; global populace only drifts today as disconnected wanderers at the bottom carrying flags of ‘hate-media’ only creating tribal herds slowly pushed towards populism. Suppose, if we accept the current indices already labeled as success as the best of show of hands, the game is already lost where winners already left the table. Finding a new fulcrum to move the world economies on a better trajectory where human productivity measured for grassroots prosperity is a critically important but a deeply silent global challenge. Here are some bold suggestions

ONE- Global Measurement: World connectivity is invisible, grossly misunderstood, miscalculated and underestimated of its hidden powers; spreading silently like an invisible net, a “new math” becomes the possible fulcrum for the new business world economy; behold the ocean of emerging global talents from new economies, mobilizing new levels of productivity, performance and forcing global shifts of economic powers. Observe the future of borderless skills, boundary less commerce and trans-global public opinion, triangulation of such will simply crush old thinking.

Archimedes yelled, “…give me a lever long enough and a fulcrum on which to place it, and I shall move the world…”

After all, half of the world during the last decade, missed the entrepreneurial mindset, understoodonly as underdog players of the economy, the founders, job-creators and risk-taker entrepreneurs of small medium businesses of the world, pushed aside while kneeling to big business staged as institutionalized ritual. Although big businesses are always very big, nevertheless, small businesses and now globally accepted, as many times larger. Study deeply, why suddenly now the small medium business economy, during the last budgetary cycles across the world, has now become the lone solution to save dwindling economies. Big business as usual will take care of itself, but national economies already on brink left alone now need small business bases and hard-core raw entrepreneurialism as post-pandemic recovery agendas.

TWO – Ground Realities:  National leadership is now economic leadership, understanding, creating and managing, super-hyper-digital-platform-economies a new political art and mobilization of small midsize business a new science: The prerequisites to understand the “new math” is the study of “population-rich-nations and knowledge rich nations” on Google and figure out how and why can a national economy apply such new math. 

Today a USD $1000 investment in technology buys digital solutions, which were million dollars, a decade ago.Today,a $1000 investment buys on global-age upskilling on export expansion that were million dollars a decade ago.  Today, a $1000 investment on virtual-events buys what took a year and cost a million dollars a decade ago. Today, any micro-small-medium-enterprise capable of remote working models can save 80% of office and bureaucratic costs and suddenly operate like a mini-multi-national with little or no additional costs.

Apply this math to population rich nations and their current creation of some 500 million new entrepreneurial businesses across Asia will bring chills across the world to the thousands of government departments, chambers of commerce and trade associations as they compare their own progress. Now relate this to the economic positioning of ‘knowledge rich nations’ and explore how they not only crushed their own SME bases, destroyed the middle class but also their expensive business education system only produced armies of resumes promoting job-seekers but not the mighty job-creators. Study why entrepreneurialism is neither academic-born nor academic centric, it is after all most successful legendary founders that created earth shattering organizations were only dropouts.  Now shaking all these ingredients well in the economic test tube wait and let all this ferment to see what really happens.

Now picking up any nation, selecting any region and any high potential vertical market; searching any meaningful economic development agenda and status of special skills required to serve such challenges, paint new challenges. Interconnect the dots on skills, limits on national/global exposure and required expertise on vertical sectors, digitization and global-age market reach. Measuring the time and cost to bring them at par, measuring the opportunity loss over decades for any neglect. Combining all to squeeze out a positive transformative dialogue and assemble all vested parties under one umbrella.

Not to be confused with academic courses on fixing Paper-Mache economies and broken paper work trails, chambers primarily focused on conflict resolutions, compliance regulations, and trade groups on policy matters.  Mobilization of small medium business economy is a tactical battlefield of advancements of an enterprise, as meritocracy is the nightmarish challenges for over 100 plus nations where majority high potential sectors are at standstill on such affairs. Surprisingly, such advancements are mostly not new funding hungry but mobilization starved. Economic leadership teams of today, unless skilled on intertwining super-hyper-digital-platform-economic agendas with local midsize businesses and creating innovative excellence to stand up to global competitiveness becomes only a burden to growth.

The magnifying glass of mind will find the fulcrum: High potential vertical sectors and special regions are primarily wide-open lands full of resources and full of talented peoples; mobilization of such combinations offering extraordinary power play, now catapulted due to technologies. However, to enter such arenas calls for regimented exploring of the limits of digitization, as Digital-Divides are Mental Divides, only deeper understanding and skills on how to boost entrepreneurialism and attract hidden talents of local citizenry will add power. Of course, knowing in advance, what has already failed so many times before will only avoid using a rubber hose as a lever, again.  

The new world economic order: There is no such thing as big and small as it is only strong and weak, there is no such thing as rich and poor it is only smart and stupid. There is no such thing as past and future is only what is in front now and what is there to act but if and or when. How do you translate this in a post pandemic recovery mode? Observe how strong, smart moving now are advancing and leaving weak, stupid dreaming of if and when in the dust behind.

The conclusion: At the risk of never getting a Nobel Prize on Economics, here is this stark claim; any economy not driven solely based on measuring “real value creation” but primarily based on “real value manipulation” is nothing but a public fraud. This mathematically proven, possibly a new Fulcrum to move the world economy, in need of truth

The rest is easy  

Continue Reading

Economy

Evergrande Crisis and the Global Economy

Published

on

China’s crackdown on the tech giants was not much of a surprise. Sure, the communist regime allowed the colossus entities like Alibaba Group to innovate and prosper for years. Yet, the government control over the markets was never concealed. In fact, China’s active intervention in the forex market to deliberately devalue Yuan was frequently contested around the world. Ironically, now the world awaits government intervention as a global liquidity crisis seems impending. The Evergrande Group, China’s largest property developer, is on the brink of collapse. Mounding debt, unfinished properties, and subsequent public pressure eventually pushed the group to openly admit its financial turmoil last week. Subsequently, Evergrande’s shares plunged as much as 19% to more than 11-year lows. While many anticipate a thorough financial restructuring in the forthcoming months, the global debt markets face a broader financial contagion – as long as China deliberates on its plan of action.

The financial trouble of the conglomerate became apparent when President Xi Jinping stressed upon controlled corporate debt levels in his ongoing drive to reign China’s corporate behemoths. It is estimated that the Evergrande Group currently owes $305 billion in outstanding debt; payments on its offshore bonds due this week. With new channels of debt ceased throughout the Mainland, repayment seems doubtful despite reassurances from the company officials. The broader cause of worry, however, is the impact of a default; which seems highly likely under current circumstances.

The residential property market and the real estate market control roughly 20% and 30% of China’s nominal GDP respectively. A default could destabilize the already slowing Chinese economy. Yet that’s half the truth. In reality, the failure of a ‘too big to fail’ company could bleed into other sectors as well. And while China could let the company fail to set a precedent, the spillover could devastate the financial stability hard-earned after a strenuous battle against the pandemic. Recent data shows that with the outbreak of the delta variant, the demand pressure in China has significantly cooled down while the energy prices are through the roof. Coupled with the regulatory crackdown rapidly pervading uncertainty, a debt crisis could further push the economy into a recession: a detrimental end to China’s aspirations to attract global investors.

The real question, therefore, is not about China’s willingness to bail out the company. Too much is at stake. The primal question is regarding the modus operandi which could be adopted by China to upend instability.

Naturally, the influence of China’s woes parallels its effect on the global economy. A possible liquidity crisis and the opaque measures of the government combined are already affecting the global markets: particularly the United States. The Dow Jones Industrial Average (DJIA) posted a dismal end to Monday’s trading session: declining by more than 600 points. The 10-year Treasury yields slipped down 6.4 basis points to 1.297% as investors sought safety amid uncertainty. The concern is regarding China’s route to solve the issue and the timeline it would adopt. While the markets across Europe and Asia are optimistic about a partial settlement of debt payments, a take over from state-owned enterprises could further drive uncertainty; majorly regarding the pay schedule of western bondholders amid political hostility.

Economists believe that, while a financial crisis doesn’t seem like a plausible threat, a delayed response or a clumsy reaction could permeate volatility in the capital markets globally. Furthermore, a default or a takeover would almost certainly pull down China’s economy. While the US has already turned stringent over Chinese IPOs recently, a debt default could puncture the economic viability of a wide array of Chinese companies around the world. And thus, while the global banking system is not at an immediate threat of a Lehman catastrophe, Evergrande’s bankruptcy would, nonetheless, erode both the domestic and the global housing market. Moreover, it would further dent Chinese imports (and seriously damage regional exchequers), and would ultimately put a damper on global economic recovery from the pandemic.

Continue Reading

Economy

Economy Contradicts Democracy: Russian Markets Boom Amid Political Sabotage

Published

on

The political game plan laid by the Russian premier Vladimir Putin has proven effective for the past two decades. Apart from the systemic opposition, the core critics of the Kremlin are absent from the ballot. And while a competitive pretense is skilfully maintained, frontrunners like Alexei Navalny have either been incarcerated, exiled, or pushed against the metaphorical wall. All in all, United Russia is ahead in the parliamentary polls and almost certain to gain a veto-proof majority in State Duma – the Russian parliament. Surprisingly, however, the Russian economy seems unperturbed by the active political manipulation of the Kremlin. On the contrary, the Russian markets have already established their dominance in the developing world as Putin is all set to hold his reign indefinitely.

The Russian economy is forecasted to grow by 3.9% in 2021. The pandemic seems like a pained tale of history as the markets have strongly rebounded from the slump of 2020. The rising commodity prices – despite worrisome – have edged the productivity of the Russian raw material giants. The gains in ruble have gradually inched higher since January, while the current account surplus has grown by 3.9%. Clearly, the manufacturing mechanism of Moscow has turned more robust. Primarily because the industrial sector has felt little to no jitters of both domestic and international defiance. The aftermath of the arrest of Alexei Navalny wrapped up dramatically while the international community couldn’t muster any resistance beyond a handful of sanctions. The Putin regime managed to harness criticism and allegations while deftly sketching a blueprint to extend its dominance.

The ideal ‘No Uncertainty’ situation has worked wonders for the Russian Bourse and the bond market. The benchmark MOEX index (Moscow Exchange) has rallied by 23% in 2021 – the strongest performance in the emerging markets. Moreover, the fixed income premiums have dropped to record lows; Russian treasury bonds offering the best price-to-earning ratio in the emerging markets. The main reason behind such a bustling market response could be narrowed down to one factor: growing investor confidence.

According to Bloomberg’s data, the Russian Foreign Exchange reserves are at their record high of $621 billion. And while the government bonds’ returns hover at a mere 1.48%, the foreign ownership of treasury bonds has inflated above 20% for the second time this year. The investors are confident that a significant political shuffle is not on cards as Putin maintains a tight hold over Kremlin. Furthermore, investors do not perceive the United States as an active deterrent to Russia – at least in the near term. The notion was further exacerbated when the Biden administration unilaterally dropped sanctions from the Nord Stream 2 pipeline project. And while Europe and the US remain sympathetic with the Kremlin critics, large economies like Germany have clarified their economic position by striking lucrative deals amid political pressure. It is apparent that while Europe is conflicted after Brexit, even the US faces much more pressing issues in the guise of China and Afghanistan. Thus, no active international defiance has all but bolstered the Kremlin in its drive to gain foreign investments.

Another factor at work is the overly hawkish Russian Central Bank (RCB). To tame inflation – currency raging at an annual rate of 6.7% – the RCB hiked its policy rate to 6.75% from the all-time low of 4.25%. The RCB has raised its policy rate by a cumulative 250 basis points in four consecutive hikes since January which has all but attracted the investors to jump on the bandwagon. However, inflation is proving to be sturdy in the face of intermittent rate hikes. And while Russian productivity is enjoying a smooth run, failure of monetary policy tools could just as easily backfire.

While political dissent or international sanctions remain futile, inflation is the prime enemy which could detract the Russian economy. For years Russia has faced a sharp decline in living standards, and despite commendable fiscal management of the Kremlin, such a steep rise in prices is an omen of a financial crisis. Moreover, the unemployment rates have dropped to record low levels. However, the labor shortage is emerging as another facet that could plausibly ignite the wage-price spiral. Further exacerbating the threat of inflation are the $9.6 billion pre-election giveaways orchestrated by President Putin to garner more support for his United Russia party. Such a tremendous demand pressure could presumably neutralize the aggressive tightening of the monetary policy by the RCB. Thus, while President Putin sure is on a definitive path of immortality on the throne of the Kremlin, surging inflation could mark a return of uncertainty, chip away investors’ confidence: eventually putting a brake on the economic streak.

Continue Reading

Publications

Latest

Middle East11 mins ago

The Battle for the Soul of Islam: Will the real reformer of the faith stand up?

Saudi and Emirati efforts to define ‘moderate’ Islam as socially more liberal while being subservient to an autocratic ruler is...

Reports2 hours ago

Financing Options Key to Africa’s Transition to Sustainable Energy

A new whitepaper outlining the key considerations in setting the course for Africa’s energy future was released today at the...

Defense4 hours ago

Eastern seas after Afghanistan: UK and Australia come to the rescue of the U.S. in a clumsy way

In March 2021 the People’s Republic of China emerged as the world’s largest naval fleet, surpassing the US Navy. An...

Southeast Asia6 hours ago

AUKUS: A Sequela of World War II and US Withdrawal from Afghanistan

Deemed as a historic security pact, AUKUS was unveiled by the leaders of the US, the UK and Australia –...

Americas10 hours ago

Interpreting the Biden Doctrine: The View From Moscow

It is the success or failure of remaking America, not Afghanistan, that will determine not just the legacy of the...

Urban Development14 hours ago

WEF Launches Toolbox of Solutions to Accelerate Decarbonization in Cities

With the percentage of people living in cities projected to rise to 68% by 2050, resulting in high energy consumption,...

Development16 hours ago

Demand for Circular Economy Solutions Prompts Business and Government Changes

To truly tackle climate goals, the world must transform how it makes and consumes. To support this effort, circular economy...

Trending