Wednesday, December 17, 2008
Commentary - Executive magazine
The double whammy of the subprime market crisis followed by the deepening financial crisis has seen a remarkable change in fortunes among the vanguard of economic power. Recall British Prime Minister Gordon Brown’s visit to the Gulf in November to essentially beg for money to help shore up Britain’s ailing industry.
Not even a year ago such a trip by the leader of one of the world’s leading financial centers - and accompanied by 27 senior business executives - would have been unthinkable. Rather the trip would have been about cementing economic relations, making some speeches about the value of the free market, a veiled reference to democracy, and hopefully the flogging of British goods/services/weapons.
But these are different, and difficult times, and pride is being forced off faces to be replaced with knitted brows and forced smiles of gratitude (if the money is stumped up).
And perhaps rather unsurprisingly, there are elements among this increasingly dishevelled elite that are not happy about this change, particularly when it comes to non-Western entities buying up landmark buildings and sizeable assets in Europe and the USA.
The British popular press is a glaring example, which appears unable to accept the shifts in economic power, with regular commentaries and articles bemoaning such “humiliation” on the world stage. Gulf sovereign wealth funds (SWFs) have come under particular criticism over the past year and a half, largely knee-jerk jingoism of the sensationalist kind.
Take this example from an editorial in The Daily Express in November: “There is mounting concern about individuals and sovereign wealth funds in the Middle East that are buying into key British businesses...Now they are buying out our assets, our country, with our own money. It is a sad, sickening prospect.”
That a change in fortunes affects the psyche of a former world power is somewhat understandable, though there is little need, to use a common expression, “to bite the hand that feeds you.”
But such resentment has been around for quite some time, and recent changes are no exception. One notable factor in this new alignment of the financial stars is how pragmatic political leaders are compared to popular feeling. Just think back a few years to Dubai Ports World’s attempt to acquire the rights to run American sea ports. The Bush administration was all for it, whereas US media made a mountain out of a mole hill. Newspaper cartoons depicted terrorists hidden inside containers, Arabs dressed in jelabas turning a blind eye to dubious cargos sailing past the Statue of Liberty, and all the old, staid Orientalist clichés were dragged out that seemed to confirm what the Arab world has long suspected: that Americans and the West view Arabs as untrustworthy and potential terrorists.
The Dubai Ports episode was a particularly virulent case, and the emirate did well to back out quietly without making a fuss. The spate of SWFs buying up assets and icons over the past year is being taken in a rather different light, but is nonetheless seemingly dependent on the acquisition. After all, Manchester City’s supporters couldn’t have been more enthusiastic about the Abu Dhabi United Group for Development and Investment purchase of the soccer team this year. But when it came to Abu Dhabi's SWF pumping some $7.5 billion into Citigroup, and Kuwait investing in Merrill Lynch a year ago, up went the cry of the barbarians being at the gates and concern over vested political interests. As if Western multinationals, the International Monetary Fund (IMF), or the World Bank don’t have vested political interests everywhere they operate!
But as with jingoistic attitudes having to change, so it looks as if the West’s dominance of the IMF may also have to adapt to the fallout from the financial crisis. The fund is looking to the Gulf’s finances – with oil producing countries generating some $1 trillion over the past few years from high oil prices – to help the IMF’s bail out packages. In return, Gulf countries will want more than just a seat at the IMF’s table; they will want to have an actual role in the fund’s decisions.
As Brown said in Abu Dhabi, “I very much accept the argument that countries which do contribute in this way should have a greater say in the overall governance of the IMF.” Whether this will happen, and to what degree, will have to wait until the next meeting in April.
And as for the Gulf helping to shore up British business – despite the reservations of the popular press – Brown’s visit helped to land $1.5 billion in deals, while Barclays Bank bypassed a handout from the British Treasury through a $11 billon stake from the Abu Dhabi royal family. The times are a-changing, and hopefully so will attitudes as the axis of financial power starts to shift.
Tuesday, December 09, 2008
By Paul Cochrane in Dhaka, Bangladesh
International News Services
As the old dictum goes, one man’s loss is another man’s gain. In a globalized world in the midst of a financial downturn, this saying is particularly true, with certain countries unexpectedly benefiting from the ongoing crisis.
Bangladesh is one of the unexpected gainers, especially as 75.83% of its national exports come from knitwear (39.21%) and woven goods (36.62%), primarily to the EU and US markets. The expectation would be that exports of Bangladeshi ready made garments (RMG) would slide in accordance with the drop in global stock markets and plummeting retail sales. After all, India has laid off 700,000 textile workers, Indonesia 120,000 (10% of the sector), and China has equally downsized operations in the RMG sector in the past few months. But the reason that Bangladesh’s prospects are looking rosy – in woven, knitwear and footwear - is that the goods the country exports are not medium- to high-end wear, as China, India and elsewhere have increasingly moved into of late.
Bangladesh predominantly produces low-end goods, and low-end priced goods are in greater demand as people in the US and Europe tighten their belts for what appears to be a financially rocky road ahead. Bangladesh also has much lower minimum price fixation than elsewhere, with a dozen cotton t-shirts exported to the EU-27 market costing US$19.56 in 2006 but just US$15.60 in 2007, significantly less than nearest rival Cambodia at US$29.04, according to Eurostat.
In a period where companies are cutting costs at every possible corner, such figures speak for themselves. Sure, in the near term Bangladesh’s RMG sector will not report the kind of double digit growth figures they have experienced over the last few years, but static and marginal growth is certainly more preferable than laying off workers and downing tools. And if Bangladesh effectively utilizes the opportunities this crisis is providing to cement good working relations with major buyers, Bangladesh over the next few years will rise up the ranks to be among the top three RMG manufacturers in the world.
Photo by Paul Cochrane
Tuesday, December 02, 2008
By Paul Cochrane in New Delhi, Executive (Commentary)
Over the last 1000 days India has been trying to get its nuclear status green-lighted by the USA despite not being a signatory to the Non-Proliferation Treaty (NPT) or the Comprehensive Nuclear Test Ban Treaty.
The US Senate's ratification in October of what is known in India as the '123 Agreement' - in reference to Section 123 of the US Atomic Energy Act - will have a profound shift in geo-politics for Asia, the Middle East and the West. For behind the deal is big power politics – the two giants of Asia, China and India, the region's basket cases, Afghanistan and Pakistan, and Washington's perennial thorn-in-its-side, Iran. There is also the US-led 'war on terror' to consider.
For by inking the 123 civil nuclear pact, India now has access to nuclear reactors, fuel and technologies from the US after a gap of 34 years, when New Delhi first conducted a nuclear test in the Rajastani desert in 1974. The deal has also put the US top of the list to supply the nuclear technology, valued at $100 billion over the next 20 years, and will enable India to develop 200 nuclear warheads as well as indigenously designed nuclear submarines. Sizeable arms deals and economic cooperation agreements have also been inked, with the US expected to get the proposed $10 billion Multi Role Combat Aircraft deal and replace Russia as India's biggest weapons supplier.
But in the bigger picture, what the bilateral agreement has achieved for Washington is a new ally in Asia that can pressure Iran, with whom India has energy agreements yet little desire to have another nuclear power in the neighborhood. India can also act as a bulwark against the emerging dragon, China. Just over the border from India in the Tibetan Autonomous Region are an estimated 500,000 troops of the People's Liberation Army (PLA), as well as Intercontinental Ballistic Missiles (ICBMs) bases. It has long been a trigger point and could be again, with numerous skirmishes occurring between the PLA and Indian troops over disputed border areas high in the Himalayas.
By bringing India onboard - the world's largest democracy at some 1.2 billion people and counting - the US has a country that borders other countries of concern whose democratic credentials are dubious at best: Pakistan, Myanmar, and Bangladesh.
The agreement may also well be the Bush Administration's last positive foreign policy achievement. It certainly put a smile on the face of Bush when Indian Prime Minister Manmohan Singh told G.W. that "India loved him." But while the agreement is advantageous for Washington, it yet again sends signals of hypocrisy and double standards to the world. There are only four countries that are non-participants in the NPT: Israel, India, Pakistan and North Korea; but with the exception of Pyongyang, whose nuclear arsenal is still in an embryonic stage, the US has strong relations with the first three. Iran on the other hand, which is cooperating with the IAEA, is continuously under pressure to rein in its nuclear program.
The thawing of relations between New Delhi and Washington DC have however come at a time of heightened terrorist attacks within India by Islamists. Although homegrown, the attacks have links to Pakistan.
Islamabad was after all fingered as a perpetrator of the terrorist attack on the Indian Embassy in Kabul in July, and there are allegations of financial support for Indian Jihadists coming from Pakistan and Bangladesh. The deluge of fake Indian Rupees, which are a contributor to inflationary pressures, have also been traced to state-of-the-art printing presses in Pakistan. Furthermore, during meetings at the White House Bush and Singh reportedly discussed the prospect of Pakistan imploding and the notorious Inter-Services Intelligence (ISI) becoming "a state within a state."
New Delhi is now mulling a beefed up anti-terrorist law and its National Security Agency has been briefed by the US Department of Homeland Security on how to set up a similar body to better integrate its intelligence services which, according to one analyst I spoke to in Delhi, are still operating with a World War Two mindset. Additionally, the Indian press has reported growing pressure on New Delhi to send troops to Afghanistan.
In the global 'war on terror,' India clambering onboard the US train can been seen as a boon, but for the more skeptical, India has sold out in this new alliance and Washington DC has once again shown its Janus face when it comes to nuclear issues. Iran and China are the biggest losers in this, while the world has become an even more uni-polar place.
PAUL COCHRANE is a freelance journalist. He is currently in India.