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Galle Face (and a shameless plug for my Instagram)

Washed out streets and a clean Colombo welcome the start of SAES2013. A literary metaphor for a fresh beginning? Perhaps. But also an ominous symbol of one the themes of the conference. The weather in Colombo hasn’t been normal for years now. When I was a kid, the monsoon was like clockwork, April was always hot, August was rainy, and December offered slight relief from the repressive humidity.

Over the last year mostly, and the year before that somewhat, Colombo has felt more like a mildly warmer version of the Central Hills. Not that I’m complaining. I hate the humidity, and now I just need some mosquito repellent to grab a good night’s sleep on most nights. The reprieve gave way to a month or two of absolute scorchers, but that is a price I’m willing to pay. I like the new Colombo weather.

However, this post is not about weather, at least not in the conventional, hi-how-are-you-doing-its-very-hot-no? kind of way. Climate change, the likely culprit of Colombo’s newfound coolness (a very relative term still), is a major problem for the region. And a topic that the South Asian Economic Summit (SAES 2013) where I’m sitting at right now, is quite concerned about.

The unpredictability of monsoons, while mildly inconveniencing the city’s cubicle warriors with cumbersome umbrellas, plays havoc in the region’s agricultural sector, the rise in sea level threatens low lying islands, the melting of ice caps in the Himalayas threatens norms of water flow and while Colombo may have been benefitted with a welcome bout of cooler weather other parts of the region have feced extended spells of debilitating heat. Besides, of the sea level rises that stroll along Galle Face could soon turn into a wade. All these changes affect millions of lives and threaten the already struggling development processes of the region.

The carbon neutral conference happening in Colombo right now is talking about how to address this and many other problems. It’s easy to be cynical in adventurous discussions like the ones taking place today, especially being in a region bogged down by political corruption and policy blindness. Economists and policy wonks can talk and talk but you and I know that when it comes to implementation it always boils down to what the politicians stand to gain on the ground.

But ideas are important. Ideas, if powerful, can eventually trickle through the political processes, even those as mired as the ones in S. Asia, and create some change down the line. People here are talking about regional integration, investment promotion, collective agricultural initiatives, regional transportation and energy management etc. All very adventurous stuff for countries with long histories that are used to justify enmity just as much as to justify friendship.

The conference live streams here. Join the discussion on Twitter on #saes2013.

The Krrish project has been making waves, if only for its absurd proportions. The complex’s tallest tower is going to be the third tallest residential tower, are you ready for this? In_the_world. I hear three quick bangs on a bell; the crowd goes wild as the fighter in the right corner shrugs off his glittering robe. All hail the Krrish project, destroyer of third world woes.

But seriously. I snooped around a bit (and by now this is relatively common knowledge) and found that Krrish doesn’t really have any completed real estate projects anywhere in the world. Closest thing they have is a few projects underway in Guragon, India. As a company laying claim to such a massive venture, Krrish has virtually no media mentions in India, and its only ties to solid listed corporate are a claim to own a stake in Cobra Beer. And in fact Krrish is better known for its brewery business than anything else.

It’s projected to bring about $560mn into the country. But that number exists only on paper. In reality these projects bring a fraction of that amount, usually 10%, and try to source the rest locally. Krrish, which hasn’t started building yet, is rumored to only have brought in $5mn, as a 10% down payment for the value of the land. The completed project will have some 750 apartments plus equal amount of office spaces, each of the apartments are priced at roughly a million dollars.

The plan is to pre-sell them to raise money to build.  But as you can see from the chart below, demand for apartments hasn’t exactly been booming. If demand does not meet supply, the project will have to be abandoned. Far worse though, is the prospect of the project being bankrolled by a country eager for any kind of investment (especially something with a result so grandiose) ending up with the local banking system owning roughly $500mn of bad loans. And this will probably at the very least result in a major banking/debt crisis for the country. Just putting some thoughts out there. What does everyone else think?

krrishh

take it easy and you’ll do fine: Upali

Upali is what industry insiders call a ‘professional tuk tuk driver’. He bought his first tuk tuk 27 years ago. Currently driving a four stroke TVS,  he claims that it is better than its Bajaj equivalent. The TVS is the latest of 8 three wheelers he has owned throughout his career. He gets a new one every three or four years.

Though he makes a successful living (he has built two houses), the idea of sitting back and having others drive his tuk tuks for him never appealed much. His past experiments have all failed. At one time he owned 3 tuk tuks simultaneously. But the problem with having others drive your tuk tuks is that well… others drive your tuk tuks. Accidents are a norm. He has lost count of the visits he paid to the courts. Drivers don’t pay you on time, if ever. So no thank you but i’ll drive my own, he says. Even if it means less money, the peace of mind is worth more.

His lease costs him Rs.10,500 a month. Petrol about Rs 500-600 a day. Servicing costs about 7500 every 3 months. But spare parts are a problem. Tyres cost in excess of Rs 2000 and other parts don’t come cheap. This is why its important to use your vehicle very carefully, he thinks. He needs to earn about Rs 2000 to be happy; a decent figure.

Upali recently switched to a meter. He says he gets more hires this way but the fares are less, so in the end it probably amounts up to the same. Asked why he refuses to join a taxi company and get even more hires that way, he balks. Taxi companies don’t give you time to relax. They’re always calling you with hires.

Instead Upali has nurtured a strong network of contacts. He regularly transports light cargo for a firm in Piliyandala. This morning by nine he had already earned about Rs 600 through other hires who called him personally. He’s relaxed and at peace with his job. His years of experience have served him well and i’m sure he can teach a thing or two to budding professionals in the field. Like for instance; so long as you don’t do crazy stuff like running whores and other dodgy things, you’ll make a good living.

News

The S&P 500 rose 0.7% on positive comments from the Chairman of the Federal Reserve while Stoxx Europe 600 Index (SXXP) dropped 1.8% as Greece’s prime minister asked for a two-year reprieve from cutting government spending. MSCI Asia Pacific Index (MXAP) slid 0.4% on signs of slow growth in the two largest economies in the world and concern over the Euro zone. Brent crude fell 12 cents after reports that IEA is likely to tap strategic oil reserves as soon as September.

Views

What is the risk of escalating tensions in the Middle East contributing to higher oil prices especially given Sri Lanka’s dependence on Iranian oil?

In a context where Sri Lanka is actively discouraging consumer durables imports, India has done just the opposite despite having a teetering exchange rate and BOP issues.

Vietnam is experiencing doubtful growth prospects with an emerging slump in its urban real estate sector.

Africa’s fast-growing middle class has money to spend

An Interesting article from India on reforming its private sector education , and the social conflicts arising therein.

Frontier Research does this nifty summary as a part of its overall range of news products, usually for private clients. They scour through the myriad goings on in the global economy so you don’t have to, and bring out what’s relevant from a Sri Lankan non-expert’s perspective. Pretty useful if you’re generally into economics, or just want to get a feel of current hot topics. Here I’ve syndicated their Weekly News Summary with permission. The Indian economy is drawing quite a few uncanny parallels with Sri Lanka’s and global markets primarily reacted to goings on in China.   

The Week in Global Markets

Markets in Asia fell as economic slowdown in China, Korea and Australia sparked fears of lower corporate profits. Meanwhile US markets rose on hopes of policy easing in China, as the latter saw its slowest economic expansion in three years. Euro markets also advanced on similar hopes while Italy’s falling borrowing costs also contributed to optimism. Oil rose on speculation of Chinese stimulus and on the back of tightening US sanctions on Iran.

The Week in Economic Views

India’s emerging fiscal and BOP problems are uncannily similar to Sri Lanka as the latter battles an expansion of its Current Account and doubts as to whether it can keep its budget deficit under control.

The US presidential race draws near and ‘outsourcing’ is increasingly becoming a dirty word as candidates seek to distance themselves from it, something regional outsourcing firms should keep an eye on.

An interesting article in this week’s summary discusses the Indian people and their tolerance of government censorship; a topic currently under hot discussion in Sri Lanka.

In Mid 2013, Sri Lanka will have an announcement on how much oil it possesses; a possible game changer for the country. It is worth keeping an eye on new oil rich nations such as Kenya to get an understanding how the impact of oil discovery will flow through to the rest of the economy.

With the emergence of South East Asia as a growth hotspot, global powers are falling over each other to woo the region’s governments and to secure a portion of the pie. South East Asia’s rise poses emerging threats as well as opportunities for Sri Lanka.

In China, while official headline Macro data continues to be reasonable, other news and data has turned much worse; perhaps indicating a need to find alternate data on the Economy for Sri Lanka that could provide similar tracking to assess the latter’s performance as well?

India and Sri Lanka have both suffered large depreciations of their currencies in recent times. Non resident Indians are however inadvertently rallying to their currency’s cause, by investing their dollars in the India to take advantage of the cheaper rupee.

Sri Lanka’s GDP increased by 7.9% in the first quarter of 2012. But what does this mean exactly? I made the following infographic to explain. Click to see a larger and clearer image. I used data from The Department of Census and Statistics, The World Bank and Trading Economics. (*Image updated to correct a mistake in Sri Lanka’s annual GDP, which was showing the 2010 figure – 50bn).

UPDATE – Small error on the 4th tier where it says ‘Rupees Million’, Read that as ‘Rupees Billion’. Until I get around to editing it (Corrected – Jul 19).

Frontier Research does this nifty summary as a part of its overall range of news products, usually for private clients. They scour through the myriad goings on in the global economy so you don’t have to, and bring out what’s relevant from a Sri Lankan non-expert’s perspective. Pretty useful if you’re generally into economics, or just want to get a feel of current hot topics. Here I’ve syndicated their Weekly News Summary with permission. The “markets” section gives a lowdown of global stock and crude oil markets, but for the more interesting analysis and discussions check out the “views” section.

The Week in Global Markets

Anticipation of monetary policy easing in Europe and Asia stimulated markets in those regions, while lingering optimism from last week’s Euro summit also propped up European markets. But pessimism about the same in the US, along with weakening job data, caused markets there to fall. WTI and Brent crude moved in opposite directions. WTI fell on account of weak US job data, while Brent rose on account of an oil workers’ strike in Norway.

The Week in Economic Views

Given current global events, the question is being asked if India is prepared for a real European crisis; a salient point for Sri Lanka to ponder as well because of its dependence on European markets.

On that topic, a very pessimistic, but comprehensive analysis of the current global economic situation comes from Swaminomics.

Military polarization has been advancing quietly in the Asian region. Increasingly, the so called ‘middle-nations’ between the West and China are finding a need to strike a balance in military relations with the two global giants; especially in the context of Burma’s recent troubles.

Meanwhile, a media outcry has made the Pakistan authorities enforce adherence to standards of physical fitness in its police force, which has obtained an image of being fat and corrupt.

South East Asian countries are set to become an IPO hotbed in months to come as several firms prepare to go public in an investment environment where IPOs are facing bleak prospects globally, including Sri Lanka.

India’s biggest Tea company is seeing very high profit growth due to Tea prices rising on a global production shortfall; a useful and positive perspective for Sri Lankan Plantations.

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Today at the barbershop i had an epiphany about films. An old Sinhalese film, must have been from the forties, was playing on the small TV. The barber told me that those actors are all probably dead now. The move is called ‘Geetha’, the full credits roll by in the beginning, but there’s a short intro into the whole theme with a scene before that.

The son has just come from England. He sports a little Hitler mustache. He is wearing a dress shirt, pants and tie. The father is dressed in a suit. They are rich people. The mother is absent. She has apparently gone to yet another meeting of a ‘women’s club’. It is a habit of hers to throw away money on these clubs and receive high positions in them. She has taken the good car to go for a function now. The son ridicules his mother’s behavior and questions her objectives. The father says that he has no real say in the matter, since he is a poor man and his wife owns all the money.

Soon the mother returns, bearing a heavy basket of flowers which she was gifted at the event as the chief guest. The son accurately guesses that she must have donated ten thousand rupees to this particular event judging by the weight of the basket, which weighs ten pounds, and the going rate for gifts of flower baskets in return for donations must be a thousand rupees for a pound. This angers his mother. She is dressed in an immaculate sari and sports one of those elaborate 1940s hairstyles that curve around a woman’s face. Further argument is suspended when a worker from their factory comes calling, to tell them that his daughter is getting married. The worker is dressed in an old but neat suit and sarong, his wife wears a carefully preserved white sari.

They have obviously come to ask for financial assistance. but as custom dictates, they don’t say so openly. All pretension is to the effect that the visit is merely to ‘inform’ for propriety’s sake. The father invites them in, the son asks them to sit down. The worker and his wife sit with great hesitation. The father and son then ask some random questions like “where is the groom from?”. The groom is from Kandy and works in the civil service, apparently his salary will be increased once he gets married.

Further conversation is interrupted when the wife loudly calls the husband aside.

“What are these poor people doing sitting in our living room, she asks, “who are they?”

“He is a worker in our factory with his wife”, says the husband.

The wife becomes livid, “poor people have their place and they should not be sitting around becoming pally with the likes of us, have you no shame?”

“well, what do you want me to do?”

“tell them to bloody leave!” she yells, so loudly that the worker and his wife get up, startled, and make as if to go away.

The husband though, plaintively persists “his daughter is getting married, we should give them something, how about five hundred rupees?”

“Are you mad? We already pay them salaries and bonuses. Just give the man five rupees and send him off”.

At this moment, the wife sees some of her acquaintances from her club coming to pay a visit. She becomes alarmed. “Chase those two away at once, what will my friends think of me if they realize the kind of people we welcome into our house!”

The women have come to diplomatically elicit yet another donation, in return for which they will nominate the wife for a post in the parliament. The wife is more than eager to agree. And shells out ten thousand rupees, which must have been a thumping amount at the time, on the spot. Meanwhile the son muses on the fact that his mother loses no time in throwing away ten thousand rupees to become a ‘public servant’ when she can’t stand the sight of the general public inside her own house.

Who in Sri Lanka makes films like this anymore? All i see are movies aping Bollywood. And ‘comedies’ with jokes so lame they need crutches. Some might say that good films with strong messages do get made, but either they get no exposure, or there simply isn’t a market for them.So is something wrong with the Sri Lankan film goer? Have the people no more appetite to ponder ground realities like the class and political differences that underpin the way we live today?

Many Sri Lankans today are sold on cardboard dreams built on TV reality shows and dolled up movie stars. The typical poor Sri Lankan is caught up with the glamor of the rich, and wants to own it as soon as possible. So when he sees the politician roll by in his cavalcade of Range Rovers and matt black BMWs he doesn’t see a vile rogue who owes everything he has to corruption and abuse of power, he sees the epitomization of his own dream. The only way to stop being oppressed is to become the oppressor.

slum, somewhere in Sri Lanka, image from JDS

The IMF’s Regional Economic Outlook talks a fair bit about the Sri Lankan economy and its growth prospects. The region as a whole has grown but inequality is still a problem. Inequality is not the same thing as poverty, which has decreased. Inequality is measured by the GINI coefficient, which is basically a measure of inequality in a statistical distribution, in this case income. The higher the coefficient the higher the inequality. The chart below shows the increase in the GINI coefficient for a series of countries in the region.

A reduction in poverty is good. Poverty is measured by an increase in per capita incomes, which is the GDP divided by the population. The flaw here is that per capita measurements completely disregard income distributions by taking the total of the country’s income and assuming everyone gets the same size of the pie. Which is obviously not the case. Growth with inequality, while still growth, is counterproductive to sustained growth. Japan and countries like South Korea, Taiwan, Singapore and Hong Kong all had growth with greater equality until the eighties which contributed to their superior economies today. Basically you can grow without equality, but you can’t grow much.

-in Sri Lanka, number people living under $2 a day reduced by 20 percent

Interestingly Sri Lanka’s GINI, at 49 points as at 2007, dropped to 47 points in 2009/10. Going by available data alone this paints an encouraging picture. Maybe subsequent government policies have actually contributed to a decrease in inequality. Or it could be a temporary blip caused by the peace dividend hitting previously poor populations of the North and East.

How to combat inequality?

It is all in the policy. inequality is not irreversible, but it doesn’t involve simply doling out money to the poor either, this being a fine way of exhausting a countries fiscal resources in record time. Countries like the Philipines have started Conditional Cash Transfer programs that make welfare programs conditional on the receiver’s actions. So instead of subsidizing university education in a broad free for all, tuition would be provided to those students who actually show results. Or on a more simple level, family grants can be conditional upon whether you actually use the money to send your kid to school, or take them to the doctor. 

The IMF also claims that carefully targeted social safety nets like unemployment benefits and pensions can combat inequality. This is especially so in spending on health.  In China, a one yuan increase in government health spending is associated with a two yuan increase in urban household consumption. We might think Sri Lanka has sufficient spending on public health, it being free and all. But there are several inefficiencies in the system. But we all know sanitation here isn’t the best, and a recent clinic held by the private medical college in Malabe drew several times the hundred or so people they were expecting to come, proving a large unsatisfied demand for convenient health services.

Subsidies

Subsidies, though ostensibly geared at helping the poor, rarely do. In Sri Lanka we have a regressive tax system. The amount of tax you pay as a portion of your income actually decreases as you become richer continuously expanding inequality. This is mainly due to regressive taxes such as VAT.

Subsidies like agricultural subsidies, if not exactly counterproductive, don’t really help. Farmers still get crushed by price fluctuations. The real problem is possibly investment in agriculture. Very little agriculture here is actually industrial. The technology and methods used still date back to the times of the ancients. Agriculture has become a dumping ground for labour, with it usually being considered a final option for people who can’t succeed in the industrial sector.

the IMF report carries an interesting chart on how oil subsidies during the time of the global crisis helped the rich more than the poor. It says that the benefit of one dollars worth of fuel subsidies to the poor generally costs about 14 dollars to the budget. This is because higher income households tend to consumer more fuel than lower income households.

Sri Lanka spent upto 80 percent of what it spends on education and health on fuel subsidies. Recent tax cuts for vehicle imports and export benefits etc also favor the rich. More because market policies and business environments discourage entrepreneurship among the poor.

Middle Class Hypocrisy

Swaminomics has an interesting take on poverty in India and how it is relative. For example, a recent report that draws India’s poverty line at Rs. 32 a day attracted middle class ire, but the middle class itself, while fighting against poverty on one side, refuses to pay its servants good wages and bargains down prices in shops.

Middle class folk don’t want to calculate the per capita daily spending of their servant’s family. They resent servants constantly wanting more pay, even if this falls short of the very level they find outrageous when specified by the Planning Commission.

This double standard is not restricted to paying servants. When middle class folk go to Dilli Haat to buy a sari, they will beat down the weavers to the lowest price possible. If told that the weaver earns only Rs 4,000 per month, will they change their attitude or agree that they have helped keep the weaver poor? No chance.

I think this draws interesting parallels with Sri Lanka, whose middle class is much the same. Will we also forego low fuel prices and higher taxes in order to reduce inequality between the rich and the poor? Interesting question.

The Fight of the Century is a cool video that depicts a rap battle between John Maynard Keynes and FA Hayek. Arguably the most influential guys in economics in the last century. Of course, they had opposing views otherwise this wouldn’t be a rap battle it would be a fist bumping gangland bop in caddies, or whatever.

Good for econ noobs and econ geeks alike. And for people in between, like me. Good for the lolz also i think. But not as lol worthy as Darth Vader Vs. Hitler say, but thats just slap dash humor. This here my good sir is intellectulolz. I reserve the coinage on that one. thankyou.

Keynes is famously known as the man who ended the Great Depression. His policies have somewhat stop started the Great Recession (these names i tellya) as well, but only barely. And many argue that the great recession wasn’t all that great as it was stupid. And the slacking rate of job creation makes them wonder if it has even ended as they say.

Hayek is the geek of the schoolyard who gets the last laugh (or the last lolz) on this one. He argues that u need to look at things from the bottom up and not top down. Advocates the free reign of markets and the surfing of the boom and bust economic cycle. You can’t let prices function if you bail out the failures.

Anyway, the above was a very disfigured narrative. I was just thinking that it was time for a blog post, then i saw this video courtesy Tim Harford (http://twitter.com/timharford). Or it could have been the other way about. Anyway ’tis pretty epic.

Now, enough talking. Here..

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